A British industrial strategy should start by reforming the Treasury
After decades of economic inaction, the UK is on the verge of adopting a comprehensive industrial strategy. This will involve major commitments to infrastructure and other targeted public spending. Many will bemoan the fact that it took Brexit – a hammer to the heart of the country’s current development model – to trigger such a shift. Nevertheless, Brexit has the dubious honour of making the challenge ever more pressing.
When she became prime minister, Theresa May made the revival of industrial strategy one of the key elements of her economic agenda, believing it would help to address some of the distributional issues to which she attributes the Brexit vote.
The Industrial Strategy Commission, a body set up by the universities of Sheffield and Manchester and chaired by Dame Kate Barker, has run in parallel to the government’s policy-making process. May’s commitment to industrial strategy has been important, but the commission’s starting point is that the UK needs an industrial strategy which endures beyond the life of a single premiership or government.
The 2017 general election was a useful reminder that political lives are fragile, but institutions endure: this is why the commission has made the institutional landscape around industrial strategy a focal point of inquiry. As such, one of the key recommendations of the final report, centres on Her Majesty’s Treasury, the UK’s omnipotent finance and economics ministry.
To succeed, and last, May’s industrial strategy must address the Treasury’s dominance directly
Under the 2010-2015 coalition government, the Liberal Democrat secretary of state for business, Vince Cable, consistently complained that the Treasury was hampering his efforts to develop a more interventionist industrial strategy.
And when the Conservatives became a majority government in 2015, the chancellor of the exchequer, George Osborne, effectively marginalised the Cable agenda and adopted a Treasury-led “productivity plan” focused on tax cuts, labour market deregulation and local government reform. The more conventional industrial policies favoured by Cable were either discontinued, or at least deprioritised.
The Treasury retains ownership of the productivity plan, and associated areas, even as May and the new secretary of state for business, Greg Clark, put together an industrial strategy which itself, to a large extent, seeks to address the UK’s chronically poor productivity.
Refreshingly, the government’s industrial strategy green paper did suggest a concern with the institutions through which industrial policy is made and implemented. But it is clearly focused more on intermediary institutions such as sectoral bodies and innovation centres than those at the heart of central government. To succeed, and last, May’s industrial strategy must address the Treasury’s dominance directly.
The Industrial Strategy Commission, however, believes the Treasury should probably be given more power, not less. Crucially, the commission’s plan would entail significant reform of the Treasury, with the creation of a new industrial strategy division which would own the strategy, and act as an institutional hub for the coordination of all policies encompassed by the strategy across government.
The current orientation of the Treasury hamstrings British industrial policy, but a reformed Treasury, able to use its spending controls and high calibre civil servants to drive a coherent approach to economic management throughout Whitehall, would transform this negative into a sizeable positive.
Such changes need to coincide with a reimagining of what industrial strategy is, thinking of industrial strategy in terms of “strategic economic management”, deciding what kind of economy is wanted and how the state’s unique place within the economy can be deployed to bring this vision to life.
Clearly, the absence of an explicit industrial strategy does not mean that governments do not act to steer and shape the national economy: buying things, employing workers, educating people, collectivising risk and, occasionally, owning bits of the economy. But it does mean that government intervention is ad hoc and uncoordinated, and thus invariably ineffective from a long-term perspective.
Brexit means the stakes are even higher now than when the coalition took office after the financial crisis
Industrial strategy is not about supporting industry per se, it is about enabling the industries we have to benefit all parts of the country. It is about making sure the industries of the future – whatever they may be – can emerge and thrive.
Within this framework, individual policies will be more or less interventionist, but they must also be designed in service of a strategic intent. The new Treasury division would operate strategic, cross-government action to decarbonise the economy, produce a healthier workforce, generate long-term investment and build the UK’s export capacity (among many other things).
A range of policy areas, such as R&D support, competition policy, financial regulation, government procurement and skills provision should all point in the same direction, in support of industrial strategy.
An independent body (which the Industrial Strategy Commission is calling the Office for Strategic Economic Management, or OfSEM) would monitor the government’s success in delivering against its long-term strategic objectives. Importantly, it would also develop new measures of what economic success looks like.
We can expect some very worthwhile initiatives in the white paper on industrial strategy due later this month. At the very least, May and co. will probably reinforce elements of the coalition government’s agenda – perhaps with fewer austerity-related constraints (although, equally, perhaps not) and including more support for R&D and infrastructure investment.
But Brexit means the stakes are even higher now than when the coalition took office after the financial crisis. Leaving the EU may yet prove economically calamitous for the UK, but the Brexit vote was, among other things, a demand for political and economic transformation, not another round of tinkering. If the UK’s industrial strategy is to become authentically transformative, we should start with the way it is made.
Deputy Director, Sheffield Political Economy Research Institute (SPERI), University of Sheffield. This article originally apopeared in The Conversation.
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