Centre For Small State Conservatives

Nobel-Prize-Winning economist Paul Krugman famously said “productivity isn’t everything, but in the long run, it’s almost everything.” His words should send shivers down every British spine, because UK productivity already lags behind USA, France & Germany, and we’ve done worse since the 2008 banking crash too. If we can’t fix the problem, long-term mediocrity beckons. 

So last week’s launch of Labour’s new Industrial Strategy matters a lot. But it’s just the latest in decades of attempts to solve the UK’s productivity problem and the inconvenient truth is that – no matter who is in Government – few of them have worked. Our productivity growth is still rubbish, so what should a new UK industrial strategy contain to turn things around? 

Our first step should be to recognise the shortcomings of the past. For years, the core of UK industrial strategies has been identifying promising technologies, and then offering dollops of taxpayer cash in grants or sweetheart deals for established firms, startups and researchers in each one to base themselves here. The theory is that, from this taxpayer-fertilised soil, a thousand business flowers will eventually bloom.

If only they did. Instead we have an all-too-familiar story of promising UK technologies and startups either withering, being overtaken by rivals, or uprooted when they’re still seedlings only to grow into flourishing foreign firms or entire industrial clusters employing thousands of skilled workers in countries like USA, Germany or China.

Why? Because successive Governments have allowed themselves to get distracted by the shiny promise of tomorrow’s technologies,which are political catnip for Ministers. They offer a heady mix of hard-hatted and hi-viz-jacketed photo ops, alongside statesmanlike, visionary speechmaking while doling out dollops of taxpayer cash. And they’re intellectually fascinating for clever and well-educated Whitehall officials too. Small wonder the shiny toys get so much attention. 

But it’s an approach which is doomed to fail, because it doesn’t address the reasons why promising British firms and technologies keep shrivelling, or become thriving businesses and industrial clusters in other countries rather than here. Trying to speed up the UK’s slow growth with a portfolio of promising tech investments without addressing those reasons is like a gambler chasing his losses. The answer is to face and fix the fundamental underlying problems, not just to keep making more bets.

So creating a taxpayer-fertilised technology seedbed isn’t enough. What more does an Industrial Strategy need for it to succeed where its predecessors have failed? The answer is a ‘top 5 in all 5’ programme of supply-side reforms to propel Britain into the top 5 G20 nations for cheap and abundant supplies of five foundational elements of industrial success:

1. business & residential premises
2. energy
3. skilled labour
4. infrastructure
5. investment capital.

These are the politically-unshiny-but-vital reforms we’ll need to fix the gritty underlying problems which are holding our economy back. Things like redesigning planning processes so democratically-valid decisions to deliver beautiful town-and-cityscapes and key connecting infrastructure take days or weeks instead of months or years. Or reforming energy markets to reveal and then reduce the true costs of providing low-carbon power whenever we need it, rather than only when the wind is blowing or the sun is shining. Or fixing Britain’s hugely expensive and inflexible childcare system, to cut gender pay gaps, support UK firms hiring skilled workers, and help two-career families juggle their lives more easily. Or making sure it always pays to work by abolishing the benefits cliff-edges which destroy work incentives for low-paid families.  

These missing pieces are what decades of previous industrial strategies have ignored. But fixing them so Britain reaches a ranking of ‘top 5 in all 5’ of these essential areas will make us one of the most internationally attractive and competitive business environments on the planet.

They will free up all the UK’s existing firms to recruit skilled staff, become more efficient and grow faster, even in traditional or lower-tech service industries where many current UK jobs are based. But it will also attract more start-up and scale-up businesses in tomorrow’s promising new technologies to base themselves & grow in Britain too.

Even better, it will save money. Supply-side reforms need much less taxpayer-funded big-Government spending, and mean Britain will be able to scale back the ruinously expensive, beggar-my-neighbour subsidy programmes which bandage the symptomsof our weakness in these five foundational areas, but don’t provide sustainable long-term solutions at all. 

Does Labour’s new Industrial Strategy bring Britain any closer to being ‘top 5 in all 5’? A little, but not nearly enough. 8 sectors get the usual ‘shiny toys’ technology seedbed treatment, and there’s dollops of quango-administered taxpayer cash to improve skills, investment and left-behind locations. But the only supply-side reforms are some already-announced but (sadly) unlikely-to-work warm words about cutting red tape and some more credible ones about fast-tracking infrastructure planning decisions.

That isn’t nearly enough to correct the errors and omissions from all those previous industrial strategies. Britain needs a Thatcher-sized programme of supply-side economic reforms to put things right but successive Governments have ducked the hard stuff. Until we change, Paul Krugman’s words will haunt us.

If you like this idea, you’ll find more details, soundbites and rebuttals about it under New Industrial Strategy in the Policy Thumbnail section of our website