Theresa May's new government is to have an industrial strategy, or so she claims. I hope so, but I'll need convincing. So let me offer so me ideas on what I think this might mean.
An industrial strategy means picking winners and losers. It does not mean throwing money at business and hoping some if it will stick. It means quite positively choosing the sectors, and on occasion, the specific activities that a government thinks will best suit the nation's purpose.
It also means that innovation is directed. Whilst pure research can rarely be directed innovation can be because it develops existing ideas and improves their usefulness. Innovation tends to be much more expensive than research.
And an industrial is about much more than industry per se. It is also about providing the right environment in which industry can operate.
Taking just those three ideas it is fairly obvious that an industrial strategy requires dramatic change in the UK.
First it demands an end to low tax for all business strategies in the vague hope that these might stimulate some growth. There is no proven evidence that such an approach works to achieve anything other than growth in corporate tax piles, a rise in inequality and tax avoidance as people incorporate in the small business sector.
Instead an industrial strategy requires direct investment, targeted loans and, when appropriate, subsidies. Whatever Brexit agreement we reach these should be possible: other EU countries manage them. But, and it's an important but, ministers had better be ready for some failures because they will happen. In that case making sure the investment portfolio has some diversification without losing focus would be wise.
But, and I repeat the point, low tax is not an industrial strategy.
Second, the policy has to be sustainable. Call it green if you like. But if this strategy does not reflect the need to keep resources in the ground and carbon out of the atmosphere then it will be going nowhere. We do not need to subsidise the failures of the past.
Third, the strategy has to very clearly be seen to respond to real people's need. This means it has to deliver a wide range of jobs in a significant spread of geographic locations. It has also to support small and medium business opportunities as well as very large enterprises. And it has, very clearly, to be seen. There can be nothing timid about this.
Fourth if innovation is to be directed funding for universities is required. But so too is funding for students. And a chance for them to take risks has to be provided.
Universities face losing considerable research funding as a result of Brexit. This needs to be replaced or an agreement for the UK to continue participation in these EU programmes from outside the EU needs to be resolved now. If it is not innovation will collapse.
As importantly, the fees based approach to student funding has to go. We are stifling the chances of young people who go to university with these fees and burdening them with debt so high that few will be willing to take any risk to innovate in the future. If we are to have an industrial strategy then we must invest in the people who will deliver it and that means cheap or even free education to undergraduate level, at least, and selected subsidy thereafter. Nothing less will do and we can afford it: these debts might be crippling but the economy actually affords tthe cost of our young people's education now in real time already. Student debt does not change that: it is just an intensely harmful exercise in government balance sheet engineering.
And fifth, of course the Uk needs new infrastructure to support such a strategy , whether it be social, industrial, technology, health care and pensions. Unless the infrastructure that lets risk taking happen, because the risk within basic needs is met, then no industrial strategy will succeed because the national outlook will be risk averse. A government that does not provide a social and technological safety net creates, by default but inevitably and even appropriately, risk averse people. It is not chance that some of the highest rates of innovation and entrepreneurship are to be found in social democratic Scandinavia: people there can afford the risk of innovating because the state supports them to do so.
In summary, we can, of course, have an industrial strategy in the UK. But to be effective this must be something very much more than bailing out Port Talbot and ensuring Airborne stays in the UK after Brexit, whatever the significance of those issues. An industrial strategy demands a whole newly integrated approach to government, society and planning for the future.
Is that what Theresa May is really offering? Time will tell.
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Richard, can you let me in on these discussions? I’d like to raise the work of Mazucatto with you on this particular subject.
Feel free
Email on the blog
But there are no discussions: this is just what I thought about when I woke up this morning
It looks as if it’s going to be the same old same old with the tories, that is, more austerity, more tax cuts, more supply side economics that just don’t work when there is no investment.
Incidentally, I’m afraid I must disagree with you that there was no coup in the Labour party. There is evidence to strongly suggest that this was planned months in advance. There was a Labour politician from the north east that gratefully accepted a new post from Corbyn on the Monday, then resigned by the Wednesday. What was supposed to have happened in the space of 2 days then?
The whole thing stinks, and surely you don’t agree with the NEC gerrymandering the leadership vote by stopping anyone who became a member after January from voting unless they cough up £25.
The whole thing stinks to high heaven…and make no mistake, it is definitely a right wing coup!
I have not said there was no plot
I said it did not involve 172 MPs
Or all those who resigned
Coups are planned every day in politics
That’s one very good reason for not being in Westminster
Good stuff, agree wholeheartedly. The point about risk aversion is crucially important, especially when debunking those on the right who would smear this as being overly socialist; it isn’t.
Great piece Richard. Two questions though;
1) With regards to business tax cuts, could cuts VAT on things like home renovation and food & drink served on commercial premises work by stimulating these sectors? Of course, it goes without saying cutting the headline 20% should happen.
2) On the university funding part, what do you mean by ‘selected subsidy’?
Many thanks in advance.
VAT on buildings needs a level playing field: it is absurd that new build is zero and renovate full rate. We need a combined low or zero rate
I have to say subsidising food and drink on business premises does not seem to me to be a priority – and is socially unfair
Selected subsidy means specific financial support
Thanks for the reply! One other question about potential VAT reductions; is there any merit to cutting tourism VAT along the lines of what the CutTourismVAT campaign propose?
You can’t cut tourism per se
And the EU will not allow it
And we are still a member….
I thought so – thanks for responding, was just wondering about those things.
Richard,
The Citi Global chief economist, Willem Buiter, had a press conference in Sydney yesterday where he was talking big about “helicopter money” by which he actually meant Overt Monetary Financing (and /or PQE).
The first link (SMH) below is to the AAP version of the story which got the most coverage, the 2nd is the Australian Broadcasting Corporation’s item and it includes a video interview with Buiter for one of their business programs. Between them Buiter and the journalists seem to have their terminology and issues a little bit muddled but you’ll probably want to see these nonetheless.
http://www.smh.com.au/breaking-news-business/ignorance-politics-bar-helicopter-money-20160719-4i41j.html
http://www.abc.net.au/news/2016-07-19/helicopter-money-an-27obvious-solution27-to-boost-economies/7640900
The second clearly refers to infrastructure
And he’s right
On a related point, Richard, it’s worth factoring into this discussion what also seems to be a key ingredient of May’s approach – which is the extreme exploitation of the environment as another mechanism for delivering “growth” (alongside her planned industrial policy). I shan’t say more as George Monbiot says it all and better than I ever could, of which this is his conclusion:
‘So here is the fix we’re in. We have an environment secretary whose ideology urges her to see the environment as an impediment to profit, a communities secretary whose every fibre rebels against the planning system, and an international trade secretary who used his previous post in government to connect with US corporate lobby groups. We no longer have a climate change secretary, of any description. We have a government that treats the Earth’s systems, upon which our survival depends, as an afterthought, or not a thought at all.
‘When these people [Brexiteers] say they are defending British sovereignty, what Britain do they have in mind? A country of famous and peculiar beauty, or the same bleak monoculture that you can see from Kansas to Kazakhstan? What lovers of the nation are these, who seem prepared to scrub its features from the map?’
The full article is here which I’d recommend everyone read. This is the future, dear friends, whatever May’s attempt to come across as not the nasty party. I’ll resist making any comment about yet another opportunity for Labour as it’s pointless.
https://www.theguardian.com/commentisfree/2016/jul/20/brexiters-make-britain-countryside-like-kansas
I agree with all that
Some such ideas will be in a speech I will be giving tomorrow
Oh for an Opposition
No hen harriers spotted this year in the Forrest of Bowland, shameful, not far from us, a lovely place to walk.
Good picture of Mark Avery and Chris Packam in that area in the Raptor Politics site.
Excellent article from Mr Monbiot Ivan.
The countryside is a playground for the idle rich still. Why don’t they put their guns down and try a camera instead. As If.
Ivan, that Monbiot article is George M. at his best. Thanks for including the link.
I think it unlikely that May will support such a strategy. It will be old free market thinking; largely money driven. On Monday there was a example of one of our most valuable industries ARM being sold to the Japanese within a few hours. ARM is one of the few (and in the Tech sector probably the only) truly world class industries we had left. This seems a very rapid U turn from May who previously said she would protect strategic industries.
Agreed
Well Sean, her husband’s firm did make £200 million out of the deal. I don’t think for one minute she was influenced by that though.
Surely an industrial strategy must have some consideration for the type, size and ownership of the organisations to be backed and supported by the state (financially or otherwise)?
Where is the positive discrimination for the worker owned organisations (small medium and large) in your key points?
I don’t expect it from the Tories (who will most likely positively discriminate in the opposite direction) but I do expect it from Labour or a left of centre party committed to rebalancing the economy towards a socially and environmentally sustainable model.
Give me a chance
I wrote that before breakfast and it wasn’t meant to be a text book
Of course, no offence meant, just surprised it wasn’t top of mind the moment you woke up 🙂
I just look forward to the day when instead of scrutinizing the FTSE/DJIA/DAX etc (which hopefully by then will have dwindled to minor importance in world affairs) we can consider the relative size, merits and strengths of the worlds growing employee owned/mutual/cooperative enterprises from the self employed and small business to the employee owned multinationals.
I could happily live with capitalism, if the ownership of the capital was differently allocated!
http://employeeownership.co.uk/resources/reports/
(see 2015 UK top 50)
http://www.nceo.org/articles/employee-ownership-100
That sounds like a version of the Woodey Allen joke:
‘It’s not that I’m scared of capitalism, I just don’t want to be around when it happens.’
Good to see that Richard has woken up out of his temporary slumber after being swept away by May’s first speech and fantasising about PQE being the same as her ‘project bonds.’ (Wry smiley emoticon)
Simon
It’s my job to promote ideas whoever might use them
Maybe those reading this blog and thinking it’s all about left wing politics should remember that
And yes, if Theresa May did use the idea I would welcome it
I’m not expecting a celebration soon, but I think being open minded is wise
Richard
I am truly sorry to say this. But Teresa May has been caught out in PMQs already.
Her promises on the doorstep of Downing Street were pure PR.
When asked about austerity – she replied “some people call it austerity” but “some of us call it living within our means.”
She then said that everyone will receive a portion of the nations wealth.
The previous quote, I think is a deluded ignorance of the monetary system, which means that she does not know how to deliver equality, and the rest is just soundbites.
You expected something else when push came to shove?
May has clearly taken her lead from Thatcher and adopted the stance that no matter what she says as platitudes to the public “The lady’s not for turning” when it comes to Tory neo-liberal economic and political direction.
It did not take long to find out
I’m reminded of that St Francis of Assisi prayer by Thatcher and all that followed
Shows you what an easily misled fool Thatcher really was, the prayer wasn’t even written by St Francis even though she claimed it was herself when she quoted it.
She was clearly never one for detailed research, or even a cursory bit of research, if it didn’t support her own pre-conceived views (and not forgetting the family’s financial interests!)
When you say “the nation’s purpose”, it sounds reminiscent of certain figures from the 1930s.I hope you don’t want to go down that route.
Oh for heaven’s sake let’s stop being silly, shall we?
British governments don’t seem to have done very well in the past at picking winners, though, do they?
The NHS
State education
Our social safety net
Old age pensions
The rule of law
A national fire service
The police
Oh, and the privatised utitlities
And BT
And our railways
Plus water companies
The national grid
I could go on
With BP
And Rolls Royce
The Royal Mail
We got them all wrong did we?
Really?
Think again, I suggest
If Theresa May does abandon what George Osborne was doing for the last 6 years and does even just some of what you suggested, then I have to ask them: WTF was the point of austerity then, what did it achieve? Was all that aggro worth it? All that cobblers finding sick people fit for work from ATOS, hassling those at the bottom with the bedroom tax and benefit sanctions if they missed or were late for a job chat, welfare cuts that made loads of us put a brave face on and go to the foodbank. What the hell was all that about?
It doesn’t look as though she will abandon anything if PMQs tells us anything
Oh dear, oh dear. It’s not looking good is it? She regurgitated the ‘living within our means’ mantra and did an implied Thatcher impersonation. My prediction is she’ll possibly be quite popular in the short-term – largely because Corbyn is so ineffective – but the long-term prognostics are dire. ‘We’re all doomed’ (Pte. Frazer).
I tend to agree
A depressing start
If the PMQ’s have been as revealing as all that then it it would appear that the opposition are doing their job after all, well part of it at least.
Of course, when/if we finally depart the EU, there are a few problems that come to mind..
One is the investigatory powers bill….if applied it will, effectively, end the storage of data within UK boundaries by foreign companies(especially EU companies)
It may even mean that, to comply with data laws in other countries, UK companies will move data storage elsewhere.
Good industrial strategy?….and as Steve Jobs said: Those jobs are not coming back. No matter what strategy is put in place, manufacturing is going to continue to downsize year-on-year.
Maybe not flog stuff off at the soonest possible moment – e.g. ARM.
Was ARM the state’s to flog off?
No, thought not.
A private company.
As you are well aware, there is such a thing as competition policy and other regulation
Even if the sale is blocked, it will still go through.
ARM does not sell physical products.
It is solely an intellectual products company.
IP can be held “offshore” easily.
Anyway, if the new investigatory powers bill becomes law, they would be well advised to not hold sensitive data here….a nice south of France headquarters would be nice..
What with EU exit, and the IP bill…..there may be an avalanche of companies looking to depart intellectually…
I think this goes directly against neoliberal precepts, that is the state deciding who wins in the markets rather than the state enforcing competition in the markets. I doubt very much this will happen unless neoliberal advisors are out of the government!
One can hope
Angie Cooper
Where have you been?
‘Been reading the Daily Mail venting its spleen?
Of the public sector – you’re not so keen?
So won over by the private sector
Which seems to be more up your vector
But ignorant it seems of the 2008 crash
The biggest of many previous -just re-hashed
Created by private sector ‘winners’
Who just turned out to be inveterate sinners
So the country became losers
Because of City champagne boozers
And people like you still bang on
About the how the Government gets it wrong
When right under your nose private business is worse
Because you swallow the neo-lib bullshit
Chapter & Verse.
(with apologies to al poetry lovers everywhere)
Apology accepted