Peter Mandelson had a crack at one in 2009. Theresa May had another go in 2017. And there have been a raft of other economic strategies too. Yet despite this we’re going to go round the block again – the new Government is going to write another industrial strategy.
If this one isn’t to join the others in the now-overflowing policy recycle bin, what needs to be different?
Firstly, it needs a clear target. This is important for two reasons. On a practical level, a strategy is as much about what you aren’t going to do as what you are. A clear target focusses actions on what’s required and is the basis for making choices – and there will be several big choices ahead. On a political level, if it is going to have any legacy beyond the current administration then it needs to be hard to throw in the bin. A well-understood target that has cross party buy-in will be central to this.
Mandelson and May’s strategies (and most others too) failed on this. May’s version for example said it would “create an economy that boosts productivity and earning power throughout the UK”. While there is nothing there to disagree with, it is so vague as to render it meaningless. Labour’s last attempt at an industrial strategy was similarly unclear.
What should that target be? To make the UK more prosperous than Germany.
Why? It tackles the fundamental problem that the UK economy faces – there is a yawning productivity gap between ourselves, the French and the Germans. This makes us substantially poorer than them. It is clear and measurable. It is achievable – there is no reason why we should be so much poorer than our European neighbours. And it is something all parties can rally behind. Who isn’t going to sign up to being better than the Germans?
Secondly, it needs to be unapologetic in its focus on productivity. A problem with government strategies in the past is that even if they start with a clear focus, so many other agendas are subsequently thrown in that the whole thing becomes confused. Which once again makes it easy to put in the bin.
A good example of this is the continuous call for inclusive growth, something that dogged every discussion around May’s strategy. Inclusive growth is very important. We should be gunning for it. But you can’t make growth inclusive without having growth. The job of an industrial strategy is to encourage growth. It’s the job of a separate labour market strategy to make that growth inclusive.
Another is green growth. As a country we should be reducing greenhouse gas emissions. But this transition is about rewiring the workings of the economy in terms of how we produce fuel. Unless we are saying that not only are we going to get clean energy, but we are also going to produce this energy much cheaper than is currently the case, then it doesn’t belong in a growth conversation. It should have a separate strategy.
Thirdly, politicians need to be very wary of organising a strategy around sectors. Why this invariably happens is understandable. The word ‘industrial’ is synonymous with the word ‘sector’. Economic statistics have long been collected on sectors. And it is very easy for politicians to talk in terms of sectors too.
But there are two problems with this. The economy increasingly doesn’t organise itself in terms of sectors. And a politician’s knack for forecasting tomorrow’s growth sectors is, at the very least, unreliable.
A strategy should make some choices around sectors. If it is about productivity growth, then it should be focused on boosting the ‘cutting edge’ of the economy. And for the same reason given for inclusive growth above, it definitely should not have anything to say on the ‘everyday economy.’
Ultimately, if the goal is to make the UK economy more productive, once we’ve honed in on the frontier of the economy, what does it matter if this productivity growth comes from life sciences or AI? And do we need to exclude one over the other? If skills and land supply are issues for both industries, then making the choice is largely unnecessary.
Instead of organising itself through sectors, the economy organises itself through place. Work by Centre for Cities shows that 59 per cent of businesses in the cutting-edge of the economy are located in the 63 largest cities in the UK, places which account for less than 9 per cent of land. They particularly concentrate in city centres – 13 per cent are based in a city centre, despite them accounting for just 0.1 per cent of land.
Crucially, specific sectors don’t locate in separate places. These clusters are melting pots of different activities, rather than being monoclusters. They co-locate because of the benefits that a place offers – namely access to skilled workers and access to other high-skilled businesses.
The problem for UK plc is that its big cities don’t offer these benefits to the extent they should do. Much less of the cutting edge of the UK economy clusters in them than it should. The result is that they are much less productive than places like Lyon and Frankfurt, which explains why the UK trails so far behind France and Germany. The UK won’t meet its target of becoming more prosperous than Germany without dealing with the poor performance of its biggest cities.
Where there are specific barriers to a sector’s development, policy should remove them. But this is likely to be the exception rather than the rule. If we are to boost the UK’s cutting-edge economy, then the best bet is working on giving them locations that they want to be in. An industrial strategy that views the economy through the lens of place – and focus on making our biggest cities in particular more attractive places to do business – has a chance of achieving what it sets out to do.
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