A renewed industrial policy
Industrial policy is back in favour. Both Labour and the coalition now agree that we need a more active industrial strategy. But what should a modern industrial strategy look like? And how should Labour’s version differ from the coalition’s?
Labour has changed its mind on industrial policy. Back in the pre-recession days of Gordon Brown’s Treasury, the Labour government fully embraced market forces, was opposed to the concept of ‘picking winners’ and balked at the prospect of bailing out failing industries. The cross-party consensus then was that the market knows best.
The financial crash changed all that. By late 2008, Peter Mandelson was restating the case for ‘a new British industrial activism’. He rejected the 1960s and 1970s approach, ‘when the government attempted to pick winners – or, rather, where losers picked the government’. Instead, he began to sketch out a more comprehensive ‘total business environment approach’, where government supported business through a wide range of policy levers including skills, transport, planning, migration, education and energy.
But Mandelson didn’t have time to realise his ambitious new vision. Under the coalition, the focus shifted from industrial activism to deficit reduction, and a misplaced assumption that the private sector would grow organically wherever the public sector was shrinking. Rebalancing the economy became the mantra, geographically and sectorally, but without a detailed plan for achieving it.
Two years later, in a double-dip recession, it’s clear that private sector growth has disappointed, and that rebalancing requires a more visible government hand. Now, the cross-party consensus is in favour of a modern and more active industrial policy. In the last month, MPs Pat McFadden and Damian Collins have published two separate pamphlets, both saying that government needs to do more to support business growth. Thinktanks from across the political spectrum – including Policy Exchange, the Social Market Foundation and IPPR – are all calling on the chancellor to do more.
Andrew Adonis is now on the case, advising Ed Miliband and Jon Cruddas on the future direction of Labour’s industrial strategy. What should he say to them? And how can Labour’s vision differ from those frustrated Tory backbenchers’? Here are a few suggestions:
1. Labour’s industrial policy has to be sensitive to the new fiscal reality, and can’t become a blank cheque for extra public spending. Even under a Labour government, public spending would still be very tight from 2015 onwards. Labour’s industrial strategy needs to be focused less on announcing new initiatives and more on boosting private sector growth through carefully targeted interventions – including in areas that have depended too much on public sector jobs.
2. Labour needs to spell out a new rationale for government intervention in this new economic climate, whether that’s supporting emerging new businesses or helping out those in difficulty. We need to move beyond the tired ‘picking winners’ argument, and focus on ‘supporting success’. Gordon Brown’s five drivers of productivity (competition, enterprise, investment, innovation, skills) were a good framework during his time at the Treasury, backed up by rigorous evidence and benchmarking. Something similar would be useful now.
3. Adonis should take advantage of Michael Heseltine’s current audit of UK industrial performance. By this autumn, Heseltine will report on how the UK compares with our major competitors on supporting R&D and infrastructure investment, school education and adult skills. Some useful points are bound to come out of this audit that could form the basis of Labour’s new industrial policy.
4. Rather than ‘industrial’ strategy (which smells too much of chimneys and is a bit old-fashioned), Labour should talk more about ‘business growth’. This would include manufacturing, but not exclusively so. Labour should talk about ‘making things’, but as Pat McFadden said, that isn’t just about cars and airplane engines, it’s about music and video games, retail and, yes, financial services too.
5. Finally, one specific suggestion that could differentiate Labour from the coalition’s approach: Labour should encourage a more positive pro-enterprise culture among young people – in schools, FE colleges and universities. We need more effective enterprise education in schools, more interaction between FE students and business, and a real injection of vocational skills into university campuses. This isn’t a cue for lots of initiatives, it’s about motivating young people to choose the private sector – in all its forms – as a career option.
Dermot Finch is head of public affairs at Fishburn Hedges and is a former director of the Centre for Cities. He tweets @DermotFinch
Andrew Adonis, Conservatives, deficit, Ed Miliband, education, growth, industrial policy, Jon Cruddas, Labour, Michael Heseltine, Peter Mandelson