From the TUC

What role for industrial strategy in wealth redistribution?

11 Feb 2016, by in Economics

Yesterday, the ever-thoughtful Policy Network caught my eye with the following tweet: “The left needs to create a new industrial strategy to deliver redistribution without the help of the big state.” This tweet linked to an article, ‘Socialism without the state’, by Claudia Chwalisz and Patrick Diamond.

I won’t say too much about the role of the state, interesting though the subject is. I think people are wary of both state and market in some instances, whilst being supportive of the role of both in other scenarios. Most believe the market is better at wealth creation and I think the left needs to have more to say about that. But whilst markets have crept into the NHS, no politician would dare try to replace it with a market-based health insurance system. People’s instincts are against the privatisation of prisons, as they feel there is something unethical, or at least distasteful, about making money out of the incarceration of others. Opinion polls show that public ownership of the railways, in which there is no competition – the whole rationale behind markets – is popular. Let us also remember that whilst Labour lost, and lost badly, last year, there was no great enthusiasm for the Conservatives, and their love of all things market-based, either.

However, I am keen to distinguish between the role of the state and the active power of government, and this brings me neatly onto the subject of industrial policy. I’m currently researching a paper on green industrial transformation, which the TUC will publish later this year. Without giving too much away at this stage, I’m looking at how Germany and Denmark have responded to the challenge of climate change by developing active plans for transforming their energy supplies, recognising the reduced role of fossil fuels and the growing importance of green energy sources. That will involve winners and losers, but it enables government to plan in the long term for those industrial sectors that will close, or at least be much smaller in size, while also building new green sectors that provide highly skilled, well paid jobs in the decades to come.

In their article, Chwalisz and Diamond advocate an industrial strategy designed to expand the supply of high quality, high wage jobs by channelling public innovation and science investment to under-performing regions. They call for co-ordinated public and private investment to upgrade human capital through training and skills. I wouldn’t disagree with any of that, but without bringing new industries to those under-performing regions, new skills are of little use. Former mining communities in the UK have suffered inter-generational unemployment precisely because there are simply no jobs for former miners, or their sons and daughters, to move into. Steel communities like Redcar and Scunthorpe are in danger of suffering the same fate today. And it is in bringing those new industries to those regions, targeting as appropriate, that government has an active role to play.

Chwalisz and Diamond seek a more adept use of regulatory levers to increase pay in low wage sectors and argue that the wages councils, abolished by the Thatcher governments, should be reinstated. Amen to that, but what about the role of unions to bargain for decent wages? The International Labour Organisation (ILO) has consistently highlighted how countries where a large proportion of workers are covered by col­lective agreements tend to have lower wage inequality. Its research further shows how in countries where bargaining takes place at the company or workplace level (such as the UK), coverage by collective agreements tends to be lower and top to bottom differentials higher. In countries where bargaining takes place at national or sectoral levels (such as the aforementioned Denmark), collective agreements tend to cover a larger proportion of workers and top to bottom differentials are lower.

By emphasising the use of regulatory powers in support of higher wages, Chwalisz and Diamond are, ironically, arguing for more of a role for the state than if they were to put their weight behind collective bargaining. In fact, as the ILO also notes, we need regulation and bargaining. Both have their place.

To broaden this argument further, in Germany and Denmark, trade unions are at the front and centre of industrial policy, through those countries’ “co-ordinated market economy” structures, to use the ‘Varieties of Capitalism’ language of Peter Hall and David Soskice. Indeed, perhaps trade unions, along with other community groups, could form the third leg of the tripod, along with the state and the market, in a more responsive polity. Thinkers from across the political spectrum, from Maurice Glasman to Philip Blond and Steve Hilton have contributed to thinking about the role of community alongside remote concepts of both state and market. Sabrina Shulz from the environmental organisation E3G, who I met in Germany last year, is critical of the role of trade unions in defending so- called outdated industries rather than embracing industrial change. I don’t think things are as straightforward as that, but I know that if workers in an industry are simply told that their companies will close, their jobs will be lost, their livelihoods will be destroyed and they will just have to accept the inevitable, they have no other option but to resist. When trade unions are involved in change – informed, consulted and invited to contribute solutions – they have a knack of rising to the challenge.

Chwalisz and Diamond are right: the left does need to create a new industrial strategy to deliver redistribution. I would go as far as to agree that the big state should be a medium-sized, or even a small, state, as part of this process. But we cannot leave this to the market. With the active power of government, and a role for intermediate institutions like trade unions, we really could have an industrial strategy to rival that of Germany or Denmark.

2 Responses to What role for industrial strategy in wealth redistribution?

  1. ron
    Feb 12th 2016, 3:03 am

    The UK doesn’t have an industrial strategy – all its eggs are in one basket, namely financial markets and house prices. The UK doesn’t have trade unions either.

    The overall government strategy in 2016 is its own salvation via social cleansing, murder and robbery

  2. Guy Falkenau
    Feb 12th 2016, 1:41 pm

    One of the strongest reasons for opposing the privatisation of our public services is that it entails a diversion of capital from more productive and socially useful purposes. Increasingly we have a rentier economy where private capital goes for the safe and secure long term contracts on offer from the state and public bodies, rather than the more risky and demanding task of financing innovative new business initiatives which would contribute to growing our economy and rebalancing our trade with the rest of the world.