Industrial strategy is vital to boosting growth
The decision of Tata and British Steel to close the blast furnaces at Port Talbot and Scunthorpe, with the loss of thousands of jobs in the steel industry and steel supply chain, marks the end of another industry which embodied Britain’s great manufacturing past.
The closures seem to be a mockery of the optimistic story about a future based on green jobs since the closures are prompted by a wish to move the industry onto a less energy and carbon intensive (and more modest) footing, using electric arc furnaces to turn scrap back into steel. The government is putting in £1 billion to help finance the transition.
But critics point to a dearth of constructive ideas for the industry. Britain produces 10 million tonnes of scrap steel a year, less than a third of which is currently recycled (the rest being exported and recycled elsewhere), so why are there no plans to boost domestic production? Why are there no plans to use hydrogen as a reducing agent in updated blast furnaces making use of Britain’s resources of offshore wind to generate ‘green’ hydrogen through electrolysis? Where is the strategy?
‘Industrial strategy’ has become a piece of fashionable jargon but has, at its heart, two big ideas. One is government-private sector cooperation which could range from dialogue to information sharing to coordinated policy. The other is long term thinking, the better to align the planning horizons and investment cycles of – mainly, but not exclusively manufacturing – business with the shorter time horizons of politicians in government.
Good ‘industrial strategy’ is held to be a key factor in the success of countries as varied as Japan, Kores, China, Singapore. Germany, Israel and even the USA. Britain has a chequered history in this field. The interventionism of the 60s and 70s degenerated into subsidised welfare for clapped out industries. Thatcher had little time for policies which contradicted the wisdom of market forces, despite Michael Heseltine’s efforts. New Labour continued this ‘hands-off’ approach while pouring resources into science and education. The financial crisis, however, forced a rethink in the form of Peter Mandelson’s intervention for the stricken car industry.
After a brief flurry of free market discipline, the Coalition was soon forced into reactive intervention to stop large factory closures. I decided to launch a comprehensive, sector based, industrial strategy. Conservative colleagues went along with it, some reluctantly. There was positive engagement from business - and trades unions - and in sectors like vehicles, aerospace, life sciences and creative industries. there were industry-wide strategies that were acted upon.
To my pleasant surprise, Theresa May kept and developed the industrial strategy, under Greg Clark. It couldn’t last. With Boris Johnson came ‘f**k business’ and also pathological short-termism (though Dominic Cummings managed to get the DARPA ‘moon-shot’ project launched). Truss and her free-market fundamentalists like Rees Mogg and Kwarteng had no time for ‘industrial strategy’.
Sunak is similarly disengaged though a series of expensive ad hoc subsidy commitments to the car industry, batteries and steel has taken us back to the days of intervention without strategy.
We are told that industrial strategy will be a major plank in the economic policy of a future Labour government. That is good news and Liberal Democrats should support it. More worrying, the language is about Bidenomics: a seriously bad idea. Apart from being both inflationary and politically unpopular. Bidenomics dignifies a policy of, essentially, throwing trillions of dollars at high tech and ‘green’ industries considered essential to geo-political competition with China.
The UK has neither the motive nor the money to engage in protectionist combat of this kind in the absence of a forest of magic money trees. The UK must be more modest and attuned to competitive international markets.
Within those constraints there is much that can usefully be done building on what already exists. For example, I have been invited to attend the tenth anniversary of the Automotive Propulsion Centre which was set up as part of the Coalition industrial strategy, co-financed by government and industry, to promote innovation in the motor vehicle sector. It has been crucial to the survival of the industry and is now crucial to the ‘green’ transition.
The Aerospace Growth Partnership is a similar story where co-financed R & D has kept Britain’s aerospace industry ahead in wing technology and secure within the European Airbus consortium.
Another success story to build on is the Catapult network. Britain has been great at science; less so at commercial innovation. In response, I decided when in government to put Innovate UK on a stable footing and, within it, to set up a UK-wide chain of innovation centres based loosely on the German Fraunhofers. They were properly funded even during a period of austerity cuts and now promote thousands of collaborations in advanced manufacturing, medicines discovery, digital applications as in AI networks, semiconductors, offshore renewables, gene and cell therapy, satellite applications amongst others.
I now see this system in action working as chair of a business consortium, alongside the Energy Systems Catapult, to bring zero-carbon technology into the heavy goods vehicle industry.
Even without a supportive government, important industrial strategy work continues within groups set up a decade ago: building up supply chains for renewable and nuclear energy; raising technology levels and training standards in construction; exporting professional services and higher education. Elsewhere, strategies have been drawn up but lack the political leadership to implement them.
The hitherto successful life science industry faces a difficult future because ministers try to protect an over-extended NHS budget by holding drug prices below the level of commercial viability. The chemical industry is one of several with a positive strategic plan, but which is facing costly adaption if the government insists on promoting non-EU standards.
I like to claim that industrial strategy was one of the Lib Dems’ big but unsung achievements in the Coalition government. But industrial strategy depends on shared, cross-party ownership. In that spirit, I would like to see Jeremy Hunt using his Autumn Statement to give his support to industrial strategy as part of his programme for boosting growth.
Sir Vince Cable is a former Secretary of State for Business, and led the Liberal Democrats from 2017-19.
