Scale matters: making industrial strategy more than the sum of its parts

This week, the Prime Minister was keen to impress upon us that her ‘modern industrial strategy’ represents a new, more active role for government that ensures that wealth and opportunity are more evenly spread across the country. The fact that it exists, the fact that it is called an industrial strategy, the fact that it’s out for consultation too, is progress indeed, and far from being the sketchy outline that some suspected, the document runs to a full 132 pages and covers 10 separate ‘pillars’. But is it really a new approach?

In truth, the green paper is little more than a codification of the approach that has been adopted since 2010. To suggest that the government hasn’t intervened in domestic economic affairs in recent times is to ignore the facts. Take pillar #1, for example, “Investing in science, research and innovation”: this was a key priority of Chancellor George Osborne who used every fiscal event to announce fresh investments in catapult centres, research labs and new institutes. Pillar #2 is a relaunch of the 2016 Skills Plan. Or Pillar #3, “Upgrading infrastructure”: barely a week went by since 2010 when a minister wasn’t posing beside some upgraded flood defence barrier or in the mouth of the Crossrail tunnel.

If you could point to one new policy idea then it would be the ‘open door challenge’ to industry to develop ‘Sector Deals’. But even here though, this Clark-style ‘deal-making’ with central government is something that has characterised the relationship government has nurtured with Local Enterprise Partnerships and city regions – with mixed success. How the government handles the flood of proposals it should now expect remains to be seen. What criteria will be used to judge their competing claims to be the next-big-thing? How transparent will this be? (Nissan doesn’t bode well). This could be worse than government picking winners – it could be winners picking themselves.

But more fundamentally, the problem with 10 pillars or numerous sector deals is that there is little sense that the industrial strategy will allow the whole to add up to more than the sum of its parts.

The problem government faces in attempting to be strategic is that the national economy is just too diverse to be more prescriptive. To this extent it is right to recognise the importance of place. Greg Clark has long promised a ‘place-based’ approach but on this score the green paper bitterly disappoints. Pillar #9 concerns ‘Driving growth across the whole country’. Its lowly position in the pillar hierarchy immediately tells you something, but far from linking sector strengths together with regional assets and opportunities in a strategic fashion, instead it simply promises dollops of cash for infrastructure, skills and local growth projects. The Local Growth Fund allocations that accompanied the green paper’s launch come to little more than £30 per head and all pretty evenly distributed across the country. (Again, old Hezza-style competitive bidding).

This is the real missed opportunity that needs to be sorted in the strategy’s next incarnation. Rather than try to develop a strategic approach across an economy comprising 60 million people, we need to learn from overseas and from the academic literature about the optimum scales for economic strategizing. For some issues like education, skills, housing and planning a more, local approach is right; but for identifying sectoral strengths and clusters, for investing in infrastructure and innovation, for organising major finance, trade and investment, Local Enterprise Partnership areas are too small, yet England is too big.

In each of the countries that the green paper highlights as exemplifying good industrial strategy – Germany, the United States, South Korea - there is a regional tier of strategic planning. In fact, industrial strategy and regional policy become one and the same thing. Furthermore, such regional tiers have significant devolved governance and fiscal autonomy.

While acknowledging that the country is ‘one of the most centralised in the world, with institutions that are often too fragmented to provide the most effective leadership in shaping successful places’, it is striking that the green paper seems so timid to do anything about this. Pillar #10 calls for the creation of the right institutions to bring together sector and place and yet dissolves into suggestions for strengthening Local Enterprise Partnerships. If government is seeking lessons from overseas it needs to look more carefully at the powers held by sub-national bodies and start planning at a greater scale.

Ultimately the test of this modern industrial strategy will be whether it succeeds where others have not. In his 500-page epic on the UK’s national-regional economic productivity problems, Professor Phil McCann chronicles several decades of industrial strategy and addresses each of the most common explanations for the UK’s productivity problem. None, he concludes, is more significant than governance. Devolving the relevant powers and fiscal autonomy to a regional tier is the only way for sub-national economies to respond in a strategic fashion to the diverse challenges and opportunities that globalisation demands. For as long as we attempt to fix the economy out of Whitehall, we will keep on failing.

Ed Cox is the director of IPPR North