Lessons from the front line of industrial strategy policy

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We are expecting the imminent release of the government’s long trailed industrial strategy. Since Peter Mandelson revived the concept back 2008, there have been three such industrial strategies, though this will be the first from a Conservative secretary of state.

The new industrial strategy will be essential reading for universities and could be a significant opportunity as the government seeks to target new areas for economic growth and improved productivity. Greg Clark stated in a speech a few weeks ago that “a world-class science and research base” and “a skilled and productive workforce” will be two of the “underlying economic connections” which will build the industrial strategy.

I was one of the lead civil servants on the last two industrial strategies, and the government would do well to heed the lessons learned last time around.

Lesson One: Show real leadership, and don’t let a good crisis go to waste

In 2009, the government was reeling from a banking crisis, the credit crunch and the sudden economic downturn. This made it possible – although still not easy – to challenge the prevailing orthodoxy that market forces, unimpeded by a political hand, would always deliver the best outcomes. In New Industry, New Jobs (2009), Mandelson set out an alternative vision of government’s role in the economy: “matching the influence it exercises in the economy to the strategic needs of business”. This was very carefully worded, and the actions proposed were tentative. Yet the crisis made it possible to talk for the first time in several decades about industrial strategy and government intervention without being heckled by cries of “picking winners” and “manpower planning”.

Theresa May and Greg Clark have the benefit of two crises: continued sluggish growth and the decision to leave the European Union. The Prime Minister was right to balance the power of the new Department for Exiting the EU with departments for International Trade and for Business, Enterprise and Industrial Strategy. These departments will need to be both clever and lucky if the UK is to successfully implement new path to economic health. They will also need the rest of government to work with them, particularly the Treasury.

Securing such collaboration is an incredibly hard task, perhaps as hard as winning the argument in favour of an industrial strategy itself. The Prime Minister will have to show strong leadership to balance her ministers’ and officials’ competing interests. She has chosen to chair the Economy and Industrial Strategy Cabinet Committee herself. This indicates that she recognises both the importance and difficulty of cross-government work on an agenda that requires decisions about conflicting priorities, such as controlling immigration versus creating a flexible labour market.  In these circumstances, David Cameron refused to overrule his cabinet colleagues, and when they couldn’t agree, nothing changed. Theresa May must be stronger.

Lesson Two: Invest in innovation and skills

There is a broad consensus that the UK’s only long-term option for growth is to support a knowledge economy. This requires investment in skills, innovation and research. The 2009 paper acknowledged that investment in research – both by businesses and government – is smaller as a percentage of UK GDP than in many competitor countries. It argued that, despite the tough times, it was necessary to invest in growth and jobs to speed recovery. But Labour lost the 2010 election, and the Coalition pursued austerity instead, which resulted in cuts in all three areas; most significantly for skills, but also in real terms for research and innovation.

The UK still invests less in skills, innovation, and research than its competitor countries today. George Osborne’s productivity plan last year promised to “fix the foundations”, but pursued demanding deficit reduction plans that left unprotected departments – including BIS – strapped for cash. They were instead left to cut back on useful investments, including selling off RDA assets, reductions to student opportunity funds, and changing both study maintenance grants and Innovate UK grants into loans. Far from burning wasteful fat, austerity forced BIS to cut down on its productivity muscle.

Theresa May’s industrial strategy must deliver. It is more vital than ever as the UK looks set to lose significant research, innovation, and structural development funds from Europe. At the same time, of course, the UK will no longer be making its own contributions to EU research and structural funds, and this may be an opportunity to use the money more effectively to increase British productivity.

Lesson three: Create a dynamic business environment

Previous industrial strategies all emphasised different aspects of a dynamic business environment. Mandelson’s focussed on developing existing businesses in established sectors.  Vince Cable wanted to create an easier environment for entrepreneurs to start and grow a new business. Sajid Javid, who rejected the idea of an activist industrial strategy, nevertheless talked about the need to recognise that new technologies are creating new sectors and blurring the lines between existing ones. All of these approaches are necessary for creating growth.

There must be support from the business community for start-ups, scale-ups and market leaders. Some of the UK’s competitor countries have a clear framework for this kind of support, such as France and Sweden. Businesses can judge themselves against it, work out where they are in their growth journey, and see what help is available. UK Research & Innovation, once set up, must be able to spot emerging technologies and catalyse their application and commercialisation. It must feel exciting and dynamic.

Lesson Four: Focus!

In addition to creating the conditions (tax, infrastructure, access to export markets etc.) which all business sectors need, previous industrial strategies wanted to provide additional support for businesses in growth areas, where the UK has a competitive advantage, and where government support might provide UK businesses with that extra edge. These same criteria must be applied even more rigorously to the selection of new sectors. This may mean identifying niches within sectors to be supported rather than whole sectors in their entirety, though this is a contentious area. Some examples of such ‘sub-sectors’ include cube satellites, composites, and smart grids.

Lesson Five: The local dimension

When I was at BIS working on the first industrial strategy in 2009, we thought of it as a framework with a horizontal and a vertical axis. The horizontal plane represented whole economic activity such as research, innovation, infrastructure and skills. The vertical plane represented the sectors that would be in the vanguard of our industrial revival. There is a third axis of industrial strategy that we were missing: place. Many powers have been devolved to local regions since 2009. Any new strategy must fit with new structures for decision-making within cities and regions. The first wave of science and innovation audits have now been published, and further audits should provide the evidence base for the “connection between innovation and place”, as Clark said in his aforementioned speech.

Lesson Six: Make the most of your assets

The 2009 strategy stated that “we must improve the skills of our people and adapt them to the specialist demands of a modern economy; strengthen our capabilities in research and development; innovate further in science and technology, and industrialise this innovation in commercially successful ways”. This sounds remarkably similar to many universities’ own mission statements, particularly those in University Alliance. BEIS may have handed responsibility for higher education back to the Department for Education, but Jo Johnson still oversees university activity in both departments. Johnson must make sure that universities are integral to the industrial strategy and able to play their full part in creating a prosperous post-Brexit Britain. Universities must be ready to support him in making that case inside government, and prove that they are national assets that can be best utilised through the new strategy.

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