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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer was UK business secretary from 2010-15
Industrial strategy had, until recently, a rather retro feel. It was associated with the pre-digital days of belching chimneys and manufacturing production lines — and championed by politicians still fighting the ideological battles of the 1980s. The intellectual consensus was, moreover, against “picking winners”. If the market dictated that Britain’s future was in banking, shopkeeping and tourism, so be it.
But fashions have changed: governments are now expected to actively support innovation and minimise the uncertainties created by geopolitics, the transition to green energy and technological upheaval.
The UK’s Labour government is committed to an industrial strategy as a framework for long-term investment and as a joint exercise between government and business. But not until the spring, alongside the spending review, will we know its plans in any detail. This provides a window to take lessons from the recent past.
In some respects, Britain is ahead of the game. In 2012, the coalition launched an industrial strategy. It lasted four years — until Conservative ideologues disowned it. The strategy was a response to an emergency with several business manifestations: the hollowing out of the car industry during the financial crisis and the imminent prospect of losing Jaguar Land Rover and Vauxhall; the threat to our aerospace industry; the potential loss of train manufacturing; acute problems in the rest of British industry caused by prolonged deficiencies in capital, skills and innovation. The UK’s most commercially successful industry — banking — was systemically dangerous and too big.
The interventions we made continued, improbably, for a while under the benign watch of Theresa May. Although the formal structures then lapsed, some of the institutions remain to this day, including the Automotive Propulsion Centre, the Aerospace Growth partnership and the Catapult Network, which covers advanced manufacturing, biosciences, digital industries and much else. Some sector organisations have also survived.
Those now pulling together a fresh industrial strategy have no need to reinvent the wheel. I benefited greatly from the advice of Michael Heseltine, who had experience of industrial intervention in the Thatcher era. We were also able to build on the work of Peter Mandelson at the business department at the end of Gordon Brown’s premiership. The May government added formal structures and accountability.
The new model should continue where previous governments left off. I would set a series of tests to evaluate the new industrial strategy. First, is there business buy-in? Government pronouncements and new structures mean little unless leading companies and business bodies take them seriously. There is no appetite for talking shops.
Next, is it the right size? The vast resources deployed in the US can be matched only by China in their competition for economic dominance. Protectionist self-sufficiency makes no sense for small states or medium-sized, open, post-Brexit Britain. Perhaps we can learn from Korea, France and others.
Is there any money? The Treasury has to “own” an industrial strategy despite fiscal restraints. During the austerity era, the coalition managed to co-finance industry-wide research and development in key sectors as well as the Catapult programme. This encouraged business participation and had a clear rationale: markets had failed to capture the externalities of R&D and lacked the necessary long-termism.
Is it joined-up? A successful industrial strategy breaks down jealously guarded silos: skills training, support for innovation, bank lending and capital markets, export promotion, visa policy, planning. For the construction sector, for example, we tried to tackle deficiencies in the training scheme, the lack of credit for medium-sized builders and the widespread dated technology. The new strategy must work with local mayors and avoid being London-centric.
Is it flexible? Technology and markets are in a constant state of flux. It makes no sense for governments to have a rigid set of sector priorities or dogmatic views on the boundary between manufacturing and services. Our strategy was mainly concerned with major manufacturing industries needing commitment over the long term. But it also incorporated creative industries, business services, digital industries and universities.
British politics is adversarial, tribal and inimical to long-term business decision making. Industrial strategy won’t work if it becomes a political football. Labour can only make a success of it if it treats it as a practical, non-partisan initiative, not a performative exercise.