10 Lessons For Successfully Restarting An Industrial Strategy
25th June 2024
How can the next government design a successful industrial strategy after the general election?.
The last three industrial strategies were sunk by changes at the top of government. So what is needed for the next one to succeed? Giles Wilkes at the Institute for Government sets out his 10 key lessons.
Barring an electoral shock, industrial strategy will be a core Whitehall agenda after 5 July.
Behind the scenes, officials and Labour apparatchiks are no doubt furiously busy working on what this means for the new government. Having enjoyed a ring-side seat at the last two attempts, helping Vince Cable in 2010-14 in the department for Business, Innovation and Skills, then Theresa May and her business secretary Greg Clark during the former's premiership, I have some words of advice.
1. Have a clear sense of what an industrial strategy is
First, while it is important not to get hung up on definitions, the government needs a clear sense of what it means to have an industrial strategy, one that goes beyond just a bland intention to listen to business and make policy that improves the economy.1 Officials, business and the public need to understand that it means targeted intervention towards goals that are consciously chosen by the government, using whichever tools work. There has to be a sense of discrimination in its design - edges that delineate what is included from what isn't. It is not a policy for everything, and the politicians who are ultimately accountable must make the choices and communicate what they decide.
2. Industrial strategy is only one part of a growth strategy
This generates a second lesson: do not make industrial strategy too grandiose. In particular, it is not the same as the growth strategy, but just a part of it. This is still a big improvement on the recent past, when "growth" was more typically owned by the Treasury, which would typically see industrial strategy as a hobby of the business department. This time, it will have the full-throated support of the chancellor. But restoring productivity growth involves many more policy agendas, most of which do not sit neatly under the category "selective, targeted economic intervention". They include more economic dynamism, better trade links with Europe, a more growth-friendly tax system, stronger skills, and less sclerotic planning. The Department for Business and Trade should be involved in addressing these areas, but that does not make them parts of an industrial strategy.
3. Ministers' input must be prioritised
Third, in any department the team around the secretary of state should be constantly preoccupied with how to focus their minister's finite efforts, and this is especially true of industrial strategy. There is too much detail for them to be across every deal. Political judgement is vital for setting the overall goals; communicating to the public; adjudicating the trade-offs (such as between economic security and efficiency); fighting for resources; managing inter-departmental relations; and creating the conditions under which risky decision can be taken.
This last point deserves emphasis. For the choices inherent to industrial strategy, there have to be calculated risks - decisions to intervene that face some prospect of failure. If the strategy is calibrated in such a way that none of its ideas can fail, then it is too conservative.
4. Avoid "jam-spreading"
This leads to a fourth lesson. The basic intuition that drives an industrial strategy is that well-chosen decisions to intervene might generate disproportionately rewarding outcomes. But this cannot be expected if the interventions are not forceful and committed. Therefore, between being wide and shallow or narrow and deep, the new strategy should choose the latter. "Jam-spreading" should be rejected in favour of "lumpy" ideas. Clearly, it is less risky simply for the government to spread a great many bets widely across the economy - an “all must have prizes” approach. A bureaucracy motivated by the avoidance of risk will naturally gravitate in this direction. This is exactly why politicians are needed: to force a sharper approach.
5. Focus on providing clarity about specific interventions
A fifth lesson is not to waste time deciding the high-level broad objectives. What uncertainty currently exists about a future government's intentions does not revolve around whether it wants to achieve higher productivity, restore investment growth, or support the transition to net zero. Even at a sectoral or technological level the choices the government must make are not shrouded in mystery and should not be the pretext for delay. The “growth sectors” identified by Conservative chancellor Jeremy Hunt - digital, life sciences, creative, green and advanced manufacturing - largely match whatever Labour will choose. The uncertainty lies in how it will support these sectors and technologies, and the sooner it can move onto that topic the better.
6. Learn from past experience
Sixth, the next government should take advantage of recent attempts at industrial strategy and learn as much as possible about the effectiveness of particular interventions. A decade of stop-start industrial strategy has nevertheless left behind a slew of investments, institutions and other policy changes that provide ample fodder for analysis. From 10 years ago I would name the technology-focused Catapult Centres, and the Aerospace Technology Institute, which has helped guide billions of pounds into that industry. From Greg Clark’s time, the billion-pound Industrial Strategy Challenge Fund led to around a dozen distinct technological programmes. Find out how they worked, and how they might be emulated.
7. Avoid change for change’s sake
Seventh, in absorbing these lessons there should be no tolerance for “not invented here” syndrome. A new government provides a pretext for a cull of failed ideas, but the converse is also true: any programme that is working well should be supported if it fits with the new strategy. This may include a few from the Sunak government, which (despite the PM’s ideological distaste for intervention) has generated a well-funded Advanced Manufacturing Plan, strategies for Quantum computing and carbon capture, and support for battery manufacturing. If the next government wants to demonstrate progress in one parliamentary term, its best chance is to find out what is currently working and redouble support for it. With a spending review looming, this should be a clear priority for the analytical teams in DBT and the Treasury.
8. Be prepared for the unexpected
Eighth: whatever the incoming government’s intended plan, it must remember that investment decisions usually originate outside of Whitehall and will need to be responded to. During my spell in BIS (2010-14), the department often had to react to the sudden decisions of multinational companies: Pfizer closing a factory in Kent, General Motors threatening to in Cheshire, or a new film studio needing planning permission in Buckinghamshire. Doing this well demands a better system for identifying and reacting to problems and opportunities as they arise (our efforts in 2010-14 were hampered by the abolition of the Regional Development Agencies). In the words of Lord Harrington (commissioned to look into the topic), what currently exists is “disorganised, risk-averse, siloed, and inflexible ... too slow and cumbersome to compete in the modern world”.[3] The government can appear like a sprawling conglomerate that has somehow lost the list of its biggest customers.
The major theme of the Harrington report is a call for the government to be proactive in identifying opportunities from businesses and investors. While government cannot promise simply to deliver whatever a business demands, there is no excuse for it to be unaware of its big investment opportunities, or for the process by which these are communicated to be haphazard, depending on who-knows-whom. This failure can create unnecessary political risk. A more proactive approach like the one Harrington describes, with a beefed-up Office for Investment and Investment Committee, should lead to fewer unanticipated shocks and missed chances. Dedicated organisations can help: the Aerospace Technology Institute and the Automotive Council are good examples of creations that improve understanding. I am less convinced by the sporadic Business Councils that happened from time to time in Downing Street and felt more ceremonial than operationally helpful.
9. Involve sub-national governments
A ninth piece of advice is to try to involve the devolved governments (including Mayoral Authorities) earlier in this work. Many of the issues that impede investment are local in character, most notably planning. You can also see more drive and focus at a local level, where a big new industrial idea might be the number one item on the agenda rather than just another announcement. Given the importance of enduring political commitment to the success of many projects, ensuring local buy-in can prove key. Labour’s commitment to local growth plans is a step in the right direction.
10. Strong institutions will be key
A final, tenth lesson is that the lasting success of the strategy will ultimately depend on the institutions it creates and the capabilities they deploy. In the words of Dani Rodrik, the foremost scholar of the topic:
“the public sector is not omniscient... Consequently, the policy setting has to be one in which public officials are able to elicit information from the business sector on an ongoing basis about the constraints that exist and the opportunities that are available”.
Labour acknowledges the institutional agenda in their commitment to resurrect the Industrial Strategy Council and put it into statute. But very little is known about the powers this council is intended to wield, or how exactly it can create “plans that survive the political cycle and allow businesses to take long-term decisions about their future direction”. This kind of success cannot just be asserted. In my opinion, the biggest source of uncertainty for business comes from the departmental structure of government, which means a sincere offer of help from the business-facing part is seldom enough to clear blockages and resolve uncertainties. Addressing that challenge is a top priority.
The last three industrial strategies were ultimately sunk by changes at the top of government.2 The next one might be luckier in that regard. It would be a huge help to have it supported from day one by the whole of government. But that is only the beginning of the work.
Read the detailed IFS report HERE
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