"Overall, the government's new Green Paper, "Building our Industrial Strategy," is a disappointment ©Stefan Rousseau/PA Wire/PA Images
It’s odd to have a Conservative Prime Minister proclaiming an industrial strategy, when for 30 years the Tories have been associated with a radical defence of free markets. But there has always been a minority within the party for activist policy to support business. In the new Green Paper, Building our Industrial Strategy, Theresa May is reviving this strand of Conservative thought in the wake of the referendum.
Economists fear that Brexit is being interpreted as an anti-globalisation gesture. Elements of protectionism are evident in the Green Paper, a hurriedly put-together patchwork. The new approach is not a return to the discredited policy of “picking winners,” we are emphatically told. Yet apparently particular sectors need support—financial help, selective deregulation and other favours—which is off-limits to European Union members. Some candidates for assistance are old favourites such as pharmaceuticals and aerospace, though you wonder why these successful industries need further subsidy. Others seem plucked out of the blue—we want to be a “global leader in battery technology,” in case you didn’t know.
Wanting to be a “global leader” in a field will of course be problematic when it comes to negotiating post-Brexit trade deals. Other countries may have similar ambitions, and want to support their own businesses. To resolve this, once freed from EU restraints, we should apparently be using public procurement to support “the development of UK supply chains”—in other words, import substitution. This policy bankrupted half of Latin America. Here it would raise costs to consumers and damage our export prospects.
May wants to “rebalance” the economy. This means first, reducing the relative importance of finance and boosting other sectors, including manufacturing. Second, ensuring all regions grow in line with the strongest. Third, producing a more equal distribution of the benefits of growth.
Britain’s share of output produced by manufacturing approximates that of other countries at comparable levels of development. We increasingly consume weightless services rather than clunky goods: why reverse the trend? Our financial sector is larger than most, but this reflects comparative advantage rather than a distortion which government must rectify. Regional policy has been tried for decades, and the Green Paper doesn’t convince that it will be any more successful this time round.
Supposedly more government offices should be dispersed from London, but the most recent example, the banishment of the Office for National Statistics to Newport, has led to difficulties in recruitment. A more worrying suggestion is that infrastructure decisions should be made on the basis of their contribution to reducing regional inequality rather than value for money. This slips easily into “Humber Bridge” syndrome, in which projects are chosen on short-term political grounds rather than value for taxpayers’ money.
Part of the political strategy is the need to raise living standards of those “just about managing.” In the short run this might be partly addressed by tinkering with taxes and benefits, but this is not discussed in the Green Paper. The longer-term strategy is to improve skills. This is laudable, but old territory. UK governments have been complaining about the skills deficit since the late 19th century. The proposed recipe—more focus on STEM subjects, extra apprenticeships and modest funding for reviving the polytechnic model—is simply warmed-up porridge.
There are some sensible ideas. It seems we might get a more rational energy policy, after the huge costs and distortions of recent years. There is also an understanding that we need to be quicker off the mark with infrastructure projects. But overall the paper is a disappointment, failing to make a convincing case that more government intervention is necessary or that it will improve the economy’s performance significantly. It’s a diversion while Brexit still remains to be negotiated—and ironic given that prominent Leavers wanted to liberate the economy from excessive government interference, rather than increase it.
