Industrial Policy; Back on the Agenda?

Posted in: Brexit, Business and the labour market, UK politics, Uncategorised

Dr Phil Tomlinson is Deputy Director of the Centre for Governance and Regulation (CGR) at the University of Bath.

Industrial policy, or to use the modern parlance, ‘industrial strategy’, is suddenly back in vogue. Dismissed in the 1970s by many mainstream economists as being ‘inefficient’, industrial policy became associated with ‘picking winners’, supporting ‘national champions’ and/or to subsidising ‘lame-duck industries’ often to the detriment of taxpayers and consumers. However, in recent years, industrial policy has enjoyed something of a renaissance at regional, national and international levels. For instance, in the UK, the government has recently published a White Paper Industrial Strategy: Building a Britain for the Future (2017), that puts industrial strategy at the core of its economic policy. At EU level, the President of the Commission, Jean-Claude Juncker has similarly, outlined a new EU wide Industrial Strategy to promote smart, innovative and sustainable industry. The OECD has also been engaging in the debate around smart industrial policies to promote science and technology.

This ‘sea change’ in political opinion has been driven, in part, with the realisation that the forty-year old dominant neo-liberal model, with its overly-zealous emphasis upon privatisation, de-regulation and generic laissez-faire approach, had itself failed to deliver balanced, inclusive and sustainable growth. Indeed, and especially since the Great Financial crisis (2007-2008), Europe has been mired with concerns over slow economic growth, declining competitiveness, globalisation and (especially in the UK case) widening and persistent trade deficits, de-industrialisation and higher levels of precarious employment and unemployment. The USA has suffered similar long standing problems and the widening regional socio-economic divides on both sides of the Atlantic are often attributed as factors behind the Brexit vote and the election of Donald Trump on an ‘America First’ manifesto.

The old clichés about industrial policy, of course, were never completely accurate and while successive UK governments did - during the 1970s - provide huge public subsidies to ‘prop up’ some ailing firms, it is also the case that several of these businesses – such as British Aerospace and Rolls Royce – have become highly successful, world leading businesses in their own right. Moreover, in reality, industrial policy never really went away but rather was applied sparingly and quite subtly. For example, in the USA, industrial policy typically manifested itself with deliberate state procurement in support of its domestic defence, space and health industries, and also through a range of publicly funded R&D agencies and regionally based university centres that successfully and purposely connected scientific and technological discoveries with commercial opportunities.

In the EU, industrial policy has been governed by the single market prohibiting direct state aid to firms and industries and strict rules on state procurement. Consequently, EU policy has been far more ‘neutral’ or ‘horizontal’ and geared towards facilitating an ‘enabling business environment’ with generic public support being provided for education and skills training, infrastructure and the use of tax incentives to promote entrepreneurship, investment and Research and Development (R&D). In recent years, EU industrial policy has revolved around ‘smart specialisation’, a ‘place-based’ strategy which favours empowering local actors (predominantly entrepreneurs) to exploit existing regional competences and expertise and, in so doing, develop new (technological) specialisms for commercial gain. There have, however, been some concerns such policies may have inadvertently exacerbated regional imbalances, since they tend to favour stronger regions where greater opportunities for dynamic growth reside.

Modern industrial policy itself a broad concept and has moved beyond entailing specific industrial policies that aim to improve the competitiveness of particular firms and sectors. It is increasingly viewed as the architecture through which the state enables businesses and people to acquire new capabilities - and occasionally co-ordinate their activities - to enhance growth and socio-economic development within geographical places. This is reflected in the design of new and specifically place-based strategies to exploit and build upon local and regional specialisms, with the aim of reducing regional disparities and promoting territorial socio-economic cohesion.

The shift in thinking towards a more ‘holistic’ industrial policy has been informed by developments over recent years in both academic and policy circles, particularly around tackling regional imbalances, and how sectoral and regional-level industrial policies need to be rethought to deal with radical changes in manufacturing processes known as ‘Industry 4.0’. New industrial policies also need to be aligned with environmental sustainability and promoting green growth. There are also questions regarding the challenges and opportunities with regard to promoting more dynamic cities and ensuring regions become more resilient to economic shocks. The UK, of course, is currently grappling with these issues, as it sets on course with its new Industrial strategy. A key aspect of the new strategy is the move towards greater devolution of state functions through Combined Authorities and the election of Metro Mayors to deliver regional growth. Universities have also been tasked with playing a greater role in regional development process as part of their third mission.

The University of Bath is playing an important role in both shaping the debates about industrial policy and crucially also in its implementation. Last month the CGR’s Dr Felicia Fai published an IPR policy brief which brought together leading experts to explore the place based aspects of the new UK industrial strategy and how it could best deliver balanced regional growth. In terms of practice, the publicly funded IAAPS project provides an opportunity for the university to conduct transformational research in the automotive industry, so as to position the UK as a global competitor in the research and design of new environmentally friendly vehicles. Linked to this, the University’s recent £1.5 million grant from the European Regional Development Fund (ERDF) for two business acceleration hubs is geared towards promoting start-ups and scale-ups, open innovation and investment support for over 230 firms in the South West region over the next three years.

On Thursday 26th April, the CGR and IPR are co-hosting a one-day international workshop on industrial policy. The workshop brings together leading academic and policy experts from around the world to discuss and deliberate the current and future course of industrial. Some of the ideas will be developed further into papers in a special issue of the Cambridge Journal of Regions, Economy and Society. In the evening, the CGR and IPR will be hosting a public lecture in the Edge Arts Theatre, by Professor Amy Glasmeier (MIT) entitled ‘21st Century US Industrial Policy and its Illusive Beneficiaries’’. You can register for that event here.

This blog post is part of the Brexit, Money and work series, a new series of IPR Blogs with a focus on employment and skills, trade and business, industrial strategy, tax and pay that highlights some of the crucial issues policymakers may face in the coming years. Subscribe to the IPR blog to get the latest blog posts, or to keep up to date with our activities, connect with us on TwitterFacebook or LinkedIn.

Posted in: Brexit, Business and the labour market, UK politics, Uncategorised


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