Balls to left, Willetts to the right, creates an industrial strategy with a gaping hole for universities

Denizens of public service reform former Shadow Chancellor Ed Balls, and former universities minister David Willetts, have reignited the debates of the 2000s with new arguments on when government should intervene in the economy.

In two recent papers, one authored by Willetts alone, and one by Dan Turner, Huw Spencer, Julia Pamilih, Vidit Doshi, and Ed Balls, two different versions of industrial strategies emerge. For Willetts, taking on the industrial strategy directly, there is a world of gently incentivising universities to align their fundamentals with an industrial strategy which picks some good areas to invest in if not winners . For Balls, addressing the industrial strategy via Bidenomics, there is a bazooka of more funding, support, and investment, to break the economy from its malaise, with far more far-reaching consequences for universities.

Survivor

Balls and Willetts are interesting messengers for new industrial policy. Back in 2014 Balls delivered a speech to London Business School entitled Beyond the Third Way. In it he argued that

After the debacle of British Leyland in the 1970s, ‘industrial policy’ have been dirty words in Britain. Some remain cautious about the politics of ‘picking winners’ – but that misses the lesson of the 1970s. Back then, it was the industrial losers who did the picking and good money was poured after bad.

His argument, albeit oddly worded, was that industrial strategies had focused on the industries that were already in terminal decline. For him, industrial strategies had not been maps to the future but buckets to bailout the important but failing industries of the past.

Willetts was even more pugnacious still. Back in 2013 he was not willing to cede that the government should back winners, that would be too much like the economic blunders of the 1980s, but that:

Focusing on R&D and on particular technologies is not the same as picking winners, which notoriously became losers picking the pockets of tax payers. It is not backing particular businesses. Instead we are focusing on big general purpose technologies. Each one has implications potentially so significant that they stretch way beyond any one particular industrial sector. Information Technology has transformed retailing for example. Satellite services could deliver precision agriculture.

At the time, Balls gave barely a mention to universities beyond noting that the UK’s educated workforce struggled to find jobs to meet their qualifications. Willetts, in a style familiar to anyone following industrial policy, mentioned universities mostly (albeit not exclusively) as tools to promote wider policy objectives not instruments in their own right.

Fast forward a decade or so and a lot has changed.

Frosted tips

In his latest piece for the Resolution Foundation, How to do industrial strategy, Willetts has a clear view of what an industrial strategy is. It’s not about picking winners but about picking some obvious areas of strength for investment while freeing up some capacity to allow industries to strike their own sector deals. The strategy should not necessarily be about new money but about marshalling resources around industries for example opening up supply chains, easing procurement routes, and management training.

It is in Willetts’ views of the relationships between industrial strategy and higher education where things get really interesting. He is cognisant of the sometime disconnect between university education and skills needs and writes that:

The University of Sunderland runs automotive engineering course directly serving the automotive facilities nearby. Some universities include in their degree programmes elements specifically designed with local business requirements in mind. The Government’s new entity, Skills England, should help promote these.

The vice chancellor of the University of Sunderland, David Bell, is now of course the vice chair of Skills England. However, it is interesting that for all of the fanfare of Skills England the level of intervention Willetts proposes is to promote these industrial links. He does not advocate for greater interventions by government nor employers. He promotes the idea of kitemarks for programmes aligned to industrial priorities, more funding competitions for business schools, and Centres for Doctoral Training co-funded with business.

It is not surprising that the man who invented much of the current higher education architecture does not call for its complete reform but his proposals seem modest given the ongoing economic collapse the country is enduring.

However, Willetts is perturbed by absence of universities from the industrial strategy green paper which he describes as “very odd”. His advice here is to encourage greater incubation of university start-ups, remove the numbers of spin-outs as a measure of success to discourage their premature release, and get universities to reduce their stakes in spin-outs. Again, all entirely sensible but not very large for the enormous challenges ahead. His more radical idea, innovation vouchers to support businesses to use university expertise, is a rehash of ideas that have been used across the UK including in Dundee to bring together businesses and academics around gaming. The trick is not to issue these vouchers generally but to target them at businesses with latent potential, where there are regional strengths, and commensurate university expertise.

Destiny’s Child

And this opens up a fundamental tension which Balls’ paper tries to address. Whether an industrial strategy is primarily about economic growth of the country or regions, investment in leading or latent assets, and how far the government should intervene. In a co authored paper, What should the UK learn from Bidenomics, Balls et al imagine the forthcoming industrial strategy as an opportunity to ruthlessly focus on the things that are strategic for the future of the UK’s economy. As they conclude in their paper:

With clear goals in place, the toolkit of the Industrial Strategy should then seek to minimise the risk of capture by incumbent firms. That means using rules-based mechanisms like tax credits to realise clear growth objectives, crowding in private investment through public incentives, while resisting the pressure to reduce competition or favour incumbents.

Their view is the goal is not to ease the path for winners but to pick a few priority areas and support them with general levers of support that would benefit a range of firms. One of the lessons from Bidenomics is that their industrial policy succeeded on the basis that it was massive with $108bn of investment in energy deals alone. Balls and his co-authors highlight the need to support and expand areas of existing economic strength, this includes universities and spending outside of the golden triangle.

On the face of it the Balls proposition is more appealing. The basis of his argument would seem to be that if the government simultaneously invests in its leading assets while encouraging competition it can grab the best of both worlds. A more dynamic economy with more funding for the leading assets. The challenge is, as the paper acknowledges, the economic success of Bidenomics was also predicated on an appetite to allow creative destruction. Allowing zombie firms to die and workers to be made redundant and moved to more productive parts of the economy in order for the economy to grow. The paper refers to labour market churn and new business formation as the secret sauce “which appears to have contributed to higher productivity, stronger job creation, and faster growth.”

Blockbuster

Any decision ever to make any public investment implies winners and losers. The real debate is the extent to which the government should back those winners.

The Willetts view of the world would see universities broadly fulfilling the same role they do now with a bit of new funding for collaboration. The more challenging view by Balls and his colleagues is that economic dynamism is inherently linked to creating and destroying more business and labour market churn. This would not only mean that universities would have to adapt more rapidly in their kinds of labour market work, skills training, CPD, knowledge transfer partnerships and so on. It would also mean that they may also find themselves in urgent need of yet another political narrative, levelling up, securonomics, whatever next, in an ever changing policy landscape.

The challenge that has yet to be fixed in any industrial strategy is regional inequality. Even America with all of its economic levers to pull still has many places that have been “hollowed out” with a mixed record of turning things round through public investment. Any university that can play a distinctive role in this puzzle is likely not only to win the favour of the government but solve one of the biggest impediments to the UK’s productivity, and by proxy the quality of life of its people.

The Balls view of industrial strategy as a tool for economic dynamism, the Willetts view of industrial strategy as a tool for reorienting government and reorganising bits of the economy, may both lose out to a Chancellor who may feel she has little fiscal headroom to make dramatic economic interventions. For universities, the opportunity is to define their role in the government’s central economic policy, if they do not their role will be defined for them.