There are sectors that are dying, sectors on life support, and a handful of leading industries.
Real wages are only 0.5 per cent higher in July 2024 than they were in December 2007. Had wages grown at the same rate as the US or Germany the average worker would be £3,600 a year better off.
Low wage growth is compounded by low productivity. UK workers are significantly less productive than their German, American, and French counterparts. These are average figures but the regional picture is even more troubling. Most starkly, London is 26.2 per cent more productive in terms of output per worker than the UK as a whole while Wales is 17.3 per cent less productive.
Poor wages and poor growth are accelerated by a poor record of investment. It does not need a sophisticated economic analysis – you could just look at a newspaper to know the UK simply cannot and will not undertake large infrastructure projects. Not a track is laid, a house built, or road tarmacked, without the permission of an asset owning class invested in the maintenance of their own economic position beyond the growth of the UK’s economy.
Politics and policy
Through successive governments the UK is now on its tenth industrial growth plan or strategy since 2011. Tens of thousands of words later there has been some patchy progress but nowhere near the kind of industrial and economic transformation these strategies promise. This analysis may seem strong but the core challenge of Labour’s new industrial strategy isn’t that it faces an economic challenge. It faces a challenge of governing the country with economic policy as one malfunctioning lever amongst many.
To write an industrial strategy is to acknowledge that the government has a legitimate role in directing economic activity. The death of industrial strategy in the 1980s and 90s marked a victory for new public management and capital over labour. The whole idea was that the market will naturally choose winners and losers and the primary role of the state is to reduce regulatory burden to allow business to thrive.
The financial crash undoubtedly proved that left to its own devices an unregulated market will crash the economy. In the latest iteration of an industrial strategy, Invest 2035:The UK’s Modern Industrial Strategy, the government has framed their role as an enabler of growth through partnerships with business. They are developing sector plans aligned to eight key industries to encourage economic growth.
Here we go again
It is easy to feel jaded by industrial strategies like these as they are numerous and not always impactful.
Labour has set this plan on a ten-year time horizon and emphasises stability as a precondition for growth. The key growth industries are Advanced Manufacturing, Clean Energy Industries, Creative Industries, Defence, Digital and Technologies, Financial Services, Life Sciences, and Professional and Business Services, feel self-evidently obvious as the places where the government would focus its attention.
The purpose of the strategy is government intervention in key sectors, the choice is eight key growth areas, and the method is sector dependent but largely falls into deepening pools of venture capital, encouraging cross sector collaboration, bringing more university research into the real economy, incentivising investment, relaxing planning laws, investing in infrastructure, clustering assets together to drive agglomeration benefits, and encouraging direct investment.
The formation of an independent Industrial Strategy Council also signals the intent for this plan to stick (albeit every plan ever is intended to stick). The link between the industrial strategy, growth missions, and wider economic planning, should also help ensure the strategy is embedded into the wider business of government.
Higher education
The industrial strategy is a politically odd document.
It is not the entirety of Labour’s economic ambitions, it is relatively quiet on taxation, navigating geo-politics, and the place element about governance and clusters is pretty brisk. Simultaneously, Labour’s ambition to be the fastest growing economy in the G7 is only realised through the ambitions of the pro-business environment, partnerships, and place rendered in this document. As Patrick Vallance said in a recent select committee appearance “The growth mission is where the industrial strategy sits overall because it will drive investment and further growth.”
And this framing is useful for universities to consider. In this strategy universities are an instrument through which economic growth is achieved across the eight sub-sectors, not a sub-sector in their own right. The fifteen mentions of universities praise them as brilliant, world leading and research dense. The challenge is that the ways in which universities are asked, maybe even expected, to contribute to economic growth are fundamentally difficult.
Obliquely, the strategy promises to “harness R&D investment to build strong regional innovation ecosystems.” Existing research mechanisms are generally poor at regional rebalancing. REF as the primary research funding exercise is not designed to do anything for levelling up unless it does so by accident where a number of universities in the same region perform well in the exercise. If the government is serious about regional innovation ecosystems it is either going to need new money for funds like the Regional Innovation Fund, which seem unlikely given wider fiscal pressures, or it will have to direct funding from existing programmes. There is a choice to be made here on the extent to which universities can, or would feel comfortable in, aligning their research strengths with the eight sub-sectors identified here within a regional context.
The strategy raises the forever problem of translating research into the real economy. Mentioned alongside spin-outs it’s inevitable that discussions on the spin-out review will re-emerge. An implied challenge for universities is in a world of more capital toward spin-outs whether they would relax their own expectations on equity and IP. If there is more cash for everyone can be a win-win if neither creators, funders, or institutions get too greedy.
One of the potential gaps is that the strategy recognises the economic potential in the interaction between research institutions and frontier firms. The logic is that if more firms at the edge of innovation can take advantage of high-class research they will become even more innovative and thereby attract new funds and customers. The corollary to this is that much innovation activity, and economic growth, takes place in the foundational economy focussed on care, education, utilities, and the like. There is a tricky balance to be struck between funding places, funding excellence wherever it may be, directing investment while allowing new ideas to emerge, and balancing cutting edge innovation while innovating in the real economy.
The debates to come
This is a green paper which means it is the first step in opening the debate on the future industrial strategy. There are debates to be had on which sub-sectors should feature amongst the eight key growth sectors. There are ideas needed on how diffusion of research should actually work, which commercialisation levers might make a difference, the right configuration of planning laws, and the regulatory levers to drive innovation.
The challenge for the university sector is that the last few years have seen enormous research policy churn. Even now, Patrick Vallance seems to suggest that the Science and Technology Framework of the last government will continue to exist in parallel to the industrial strategy. If the industrial strategy is to work it has to be given time and it has to be left alone for universities to pick at in the great buffet of research funds, challenges, strategies, and incentives.
For universities the opportunity is to consider how their work aligns with emerging priorities and place based innovation. The challenge is making the case for research which is not within these priorities but is nonetheless, or may one day, be important.
The public consultation on the Industrial Strategy Green Paper runs until 24 November.
