Theresa May's Industrial Strategy Is a Step in the Right Direction, But It Doesn't Go Far Enough

Theresa May
Britain's Prime Minister Theresa May leaves the BBC's Broadcasting House, London, January 22. Neil Hall/REUTERS

The U.K. government's new and much-awaited "industrial strategy," announced Monday, is notable above anything else for being an official recognition that making the economy internationally competitive will require a more active role than we have seen in recent memory.

Discontent with under investment in the U.K.'s infrastructure and manufacturing base has rumbled for a long time in the regions and parts of the left, but the idea of an "industrial strategy" per se remains indelibly stained with memories of the chaos and discontent the country saw in the 1970s.

The importance of this broader ideological shift is in many ways greater than the specifics. For the U.K. establishment, an industrial strategy that engages with the requirements of sectors is part of an ongoing journey towards greater state activity in the economy, and is one of the few happy outcomes of the 2008 global financial crisis.

For the governing Conservative party the strategy is also part of a journey away from viewing tax cuts and deregulation as a silver bullet. This reflects an explosion of interest in accounts of the state's role in innovation among those who work in think tanks and academia, of which Mariana Mazzucato's 2011 work The Entrepreneurial State is the founding tome.

Industrial strategy is now tasked again with sorting out the institutional problems in the economy, and May's new strategy offers a surprisingly frank assessment of the problems facing the country. But the serious issues which have rekindled interest in industrial strategy are likely to render it inadequate.

To start with, it must resolve the U.K.'s regional imbalances, which are the worst in the OECD and stem from a traumatic experience of deindustrialization. On measures from skills to availability of finance, London leads the world, while some towns in the north of England are more akin to Central Europe. Compounding that is the failure to invest enough in skills and infrastructure over the past 20 years.

The strategy must also deal with the U.K.'s productivity puzzle. U.S. and French workers produce as much in four days as the U.K.'s do in five. Add to that problems related to Brexit — a falling pound pushing up the cost of imports, potential tariffs, and divergence of U.K. and EU regulation — and the demands on industrial strategy begin to look heroic.

The government has launched a cascade of new reviews, but the scale of the strategy's ambition is arguably below that of previous governments. The industrial strategy of the 1960s, before degrading into subsidies for failing companies, gave the U.K. the bulk of its motorway, electricity and gas networks.

Today, it will be a struggle to complete the planned 225km High Speed 2 rail line by its opening date of 2026. In that time, China will open 30,000km of high speed rail. There is additional money for local transport, but only London has a metro network (Glasgow has one line, built in 1896). European-standard metros in the 20 biggest cities within 10 years would be a more appropriate goal.

On the U.K.'s difficult regional inequality problem, widely thought to have contributed towards the Brexit vote, the new strategy places the onus on sectors and businesses to bring their plans to the government. Some regions are less than 30 percent as prosperous as London, and this gap is growing. There are positive words about "filling in the gaps" where local institutions are missing, but without any new money, it is hard not to be sceptical.

That said, the government's analysis is sound. It has listened to think tanks and academia and has a good grip on the problems underlying the U.K.'s lack of competitiveness. But it needs to cast its sights higher and its nets further afield if it is to find the solutions.

Tom Follett is senior policy and projects officer at the ResPublica think tank.