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This week’s UK government’s long-awaited industrial strategy announcement was greeted with polite applause from business leaders and groups such as CBI, Make UK and manufacturing institutions. It has made a difference given the darkness that Prime Minister Rachel Reeves caused a rise in corporate taxes last year.
A new strategy focused on encouraging high-growth industries such as advanced manufacturing and life sciences gave them many things they asked. These include high industrial energy costs reductions for 7,000 centralized users, and funding for more apprenticeships and skills.
There is also a prominent tone of the government that has come to power to speak the “mission” and the moral language of a more strategic state. Its rhetoric still governs its clean energy policy, but the rest of the economic prescriptions are clearly liberal. There will be fewer regulations, fewer planning delays, more competition, and higher private sector investments to increase productivity.
This is an industrial strategy, but not as we know it. There are the UK’s most radical postwar efforts to increase competition and productivity. This was Margaret Thatcher’s intervention in the 1980s. Kiel’s prime minister wrote critically in the UK’s Fort this week as “overwhelming and weak.” It sounds like the 1970s labor government that she wiped out.
Reeves claimed last year that Thatcher’s influential prime minister, the late Nigel Lawson, thought “the state has played little role in shaping the market economy.” However, Thatcher and Lawson believed in states that were aggressive in regulations and exciting competition, including liberalising the city of London. Lawson may have sympathized with some of this week’s analysis.
She has clearly heard business leaders, including Sir John Kingman, chairman of the law and generals of insurance companies, who observed in the regulations that “all governments actively limit the entire period.” The policy also includes Professor John Van Lenen, chairman of the Treasury Council of Economic Advisors.
The UK needs more of what economist Joseph Schumpeter called “creative destruction,” what is the displacement of inefficient and inactive enterprises by higher growth, more productive companies. Instead, it indulges in certain institutional remodeling while the underlying weakness remains (does anyone else remember training and the Enterprise Council?).
Aside from the fact that I almost agree with that philosophy, there are other benefits to a 10-year plan approved by the private sector. I support a more reasonable strategy that could outweigh the next government change, rather than replacing it with a fresh Kuango and another pointless rebranding of the Ministry of Business and Trade.
The government’s detained circumstances determine its approach. Even if it wants to support the winner with public funds, it doesn’t have a deep pocket. It won £86 billion over four years for research and development, and allocated an additional £4 billion to the UK business bank to invest in companies in the strategic sector, but its spending is modest.
It is essential to focus. It chose eight industries that make up a third of the economy. Some others feel left out, including retail and hospitality industries, which have already been affected by the rise in national insurance. Still, it is wise to support a high-productivity sector that has the potential to grow further and form economic clusters.
Most governments support successful businesses and struggle to make losers fail. In particular, the government is located in marginal constituency. Meanwhile, the pledge to encourage investment by relaxing regulations and relaxing planning laws must contest local opposition over many development proposals, from bee farms in Krancewick to water reservoirs in the Thames.
So success depends on being brave. For example, the goal of double the business investment in advanced manufacturing to £39 billion by 2035 will only be met if obstacles built by past governments have been reduced. The UK is “too overregulated and overburdened,” the strategy says. Tell that to Labour lawmakers who enjoy the regulations so much.
But I like the policy leanings and the ambition to tackle the UK’s flaws that others have failed. Despite the difficulties in putting it into practice, it is a serious initiative. If the government means what it is saying and takes on the troops that are entitled to, then give industrial strategy a chance.
john.gapper@ft.com
