The White Paper (and the Economic PolicyChoices paper publication which preceded it by a week) is heavy with references
to ‘industrial strategy’. This is, in general terms, a good thing.
After all, until the
latter part of the last decade uttering the words ‘industrial strategy’ risked
banishment from mainstream policy debate. It was widely accepted that Government’s
role was limited to horizontal supply side measures; to ‘creating the best business environment’. Active
intervention of any shape or size was scorned. Now it seems everyone – even
George Osborne - is cheerfully riding the industrial strategy bandwagon.
But what does it
mean? Is the phrase consonant with ‘manufacturing strategy’? It often appears
so at UK level. But manufacturing policy is addressed separately in the White
Paper though the distinction isn't clarified. Maybe active support for
manufacturing is part of a wider industrial policy? Or is industrial strategy
simply another way of framing the Scottish Government’s current key sector led
model of economic development? Reading the papers it looks like the latter to
me but let’s take a step back…
In a recent paper
the consistently provocative and really rather brilliant Centre for
Socio-Cultural Change (CRESC) at Manchester University attacked the thinking
behind what they call ‘new industrial strategy’:
“…debates about the
new industrial strategy’ are structured so that there are commonalities or
motifs and important absences in the collective conversation about what to
include in an industrial policy. The preoccupation with adding new high tech
sectors (without rejecting neoliberal structural reform) makes new industrial strategy a
politically and intellectually non-disruptive form of policy innovation”.
(my emphasis)
By focusing on the
external restraints on production, CRESC argues that new industrial strategy suffers
from two key problems:
- Assumption that problems of
business models and supply chain dynamics don’t’ matter/exist: “business problems are largely assumed to be
exogenous, stemming from environmental conditions”, and;
- An absence of geography: “new industrial strategy policy proposals are
for the UK economy as a national entity, and there is an unwillingness or
inability to explain how these policies relate to the differing needs and
capabilities of the UK’s regions”.
I think the Scottish
Government’s thinking as expressed in the White Paper and Economic Policy
Choices certainly reflects the first problem and until a couple of weeks ago I
would‘ve had little hesitation in accusing them of the second.
However, Economic
Policy Choices includes a paragraph with fascinating and potentially far
reaching consequences:
“8.48 Other parts of
the country face different challenges with some less well placed to immediately
take advantage of growth sectors – and areas of Scottish comparative advantage
– identified throughout this report. In these cases, a broader approach is
required. For example some areas are particularly well placed to benefit from
sectors such as health, education and utilities (for example foundational
economies) and appropriate policies to support the spatial concentration of
such activities can lead to more sustainable and balanced levels of growth at
the national level”.
Two things stand out
here: a welcome if belated recognition that some areas simply don’t have the
assets to grow activity in the Scottish Government’s key sectors and a
commitment to the foundational economy. This commitment maybe poorly expressed
and based on a misunderstanding of what is meant by the term but it would be
churlish to doubt its sincerity at this stage. So what is the foundationaleconomy?
CRESC again:
“The
UK has lost much of its manufacturing. But it retains its 'Foundational
Economy'. This is the network of institutions and employees that work in
health, education and welfare; and in 'mundane' but essential activities such
as infrastructures, utilities, food processing and retailing, and distribution.
The 'foundational economy' is often unglamorous but necessary to everyday life.
It's used by everyone, regardless of income or social status. On a broad
definition it employs around 10 million. It's often neglected or
underemphasised by the policy makers. But this is a mistake. As part of …industrial
policy there's a strong case for supporting and developing it”.
This might all seem very mundane but it's potentially transformational in the
development of future industrial strategy/economic development strategy. By all
means continue to try to develop new sectors – for too long this has been
beyond the scope of Government thinking - but please pay attention to those
where people work now and are likely to work in the future.
With
all the above in mind, here are some recommendations for a new approach to
industrial policy (like CRESC, I prefer 'policy' to 'strategy' – it suggests a
propensity to action) which might start to fill in some of the gaps left by the
White Paper:
- Don’t pretend this stuff is
easy, obvious or straightforward. Industrial policy is difficult, the
payoffs are uncertain and long-term and some investments are bound to
fail. Government can expect to receive little if any credit for the successes of industrial policy but it certainly won't avoid scathing criticism for its failures. It’s the way of
the world.
- Be careful with loose terminology: where do manufacturing, industrial and economic development strategies/policies begin and end? The potential for damaging confusion is high and I’m sorry to say that’s where the White Paper seems to lead. If industrial strategy is to achieve anything at all then a minimum requirement is that people should know what’s being talked about.
- (with reference to point 1
above) Don’t assume that industrial strategy must necessarily focus only
on external constraints on production – I know it’s difficult for
politicians to acknowledge but too many companies (whole sectors?) operate
lousy and/or damaging business models. Such models may succeed in
providing the quarterly growth in earnings demanded by the City while
actively reducing the systemic capacity to replicate the skills the
firm/sector needs to sustain and improve production. Even if government
got its supply side interventions exactly right, Scotland’s private sector
manufacturers could not and would not morph into a Caledonian Mittelstand overnight.
- It’s a similar story with supply
chain power relations. Think of supermarkets and food processors. A
handful of very powerful monopsonistic buyers forcing prices down prevent
the type of patient investment in skills and capital equipment necessary
for the supplier to thrive in the long-term. CRESC again: “let us suppose
that the problem is the stock market together with Sainsbury and Tesco and
their effects on food processing which is our largest manufacturing
sector. The new industrial strategy literature contains no clear answer as
to what should be done because it is concerned mainly with adding new
sectors and sources of finance and has proposed nothing more than talking
shops for different interests in the food chain as the means to ‘win-win’
supply chain improvement”
- Put geography right up front – I
recently attended a meeting in a market town in one of Scotland’s local
authority areas not long since described as having a soviet style
economy (which was of course palpable nonsense). Having recently suffered
the demise of two major private sector employers a new economic
development plan was being developed for the area based on 1) using local
assets to engage with Scotland’s key sectors and 2) growing the local
business birth rate. A highly orthodox approach and one doomed to failure.
The area has no such assets and creating more marginal under sized poorly
performing enterprises (step carefully with the acronyms) is likely to reduce rather than increase local employment. A foundational approach here
will involve using every tool at Government (at all levels) to drive up
the economic and social return from sectors like the privatised utilities,
supermarkets and retail banking. National action (e.g. living wage) will
also be necessary to drive up private sector employment standards and
returns to the local economy.
- Get real about structural reform
of finance: the White paper just doesn’t go there and the Scottish
Government’s recent banking strategy paper is very weak. There’s simply no
point promoting a new approach to industrial policy while continuing to
treat finance as a priority sector i.e. promoting growth in the sector as
an end in itself. This is bad not just for the economy’s productive sector
but also I would argue for equality and democracy. If an independent
Scotland wants to be less fair, equal and democratic while growing an
economy that is inherently unstable then, yes, continue to pump up big
finance;
- Innovation policy and industrial
policy should be developed and implemented as intimately as possible. It
was, I believe, a mistake for the Scottish Government to recently publish
a joint entrepreneurialism and innovation strategy thereby further
embedding the notion that private entrepreneurs are always and everywhere the
key driver of innovative change. I’d start again from an Entrepreneurial State perspective.
- Drop all the silly stuff about the
pivotal role of very small firms. As Mazzucato notes, 'the majority of start-ups end up as
marginal, undersized, poor performance enterprises that can drive down profits,
increase factor prices for high-potential firms, confuse investors and fail to
generate benefits commensurate with the amount of public support they receive'.
- Finally, if done properly, industrial
policy is potentially expensive and Scotland already spends much more than
rUK on direct economic development. Corporation tax cuts are expensive and
could – if paid for by removing allowances which favour manufacturing –
actively undermine the purposes of industrial policy. It’s also essential
that the Government captures at least some return from its investments to
reinvest back into the system.
Let’s
hope the White Paper starts a proper debate about industrial policy for its
remarkable how economic development policy in general has been lost from public
discourse over the last decade. Remember the fuss A Smart, Successful Scotland
caused on publication? The current Scottish Government’s economic strategies
received much less coverage. This is depressing because economic development
policy should serve the needs of every citizen. We should talk about it.
Stephen Boyd
STUC
