From the TUC

Britain in the mittel

29 Nov 2010, by in Economics, International, Pensions & Investment

Expect lots of talk about economic growth and the role of industry in the coming days. The Coalition Government will publish its “growth review” today. This is the watered down discussion document that replaces the previously-expected Growth White Paper. According to the Financial Times, officials admit that they don’t have enough serious material to put into a White Paper, so the growth review is due to report in time for policy options in next March’s Budget.

If the Government is looking for ideas, it might find this week’s ‘Economist’ a useful read.

One article, ‘Silicon Roundabout’, describes the growth of a cluster of about 100 high tech businesses in the Bohemian Hoxton/Shoreditch area of East London. David Cameron’s recent intervention, which has led Google and Cisco to invest in the area, was welcomed by the TUC at the time. Discussing modern industrial strategy, the article is dismissive of what it calls the “old approach of favouring certain firms and sectors”, which since “the botched experiments with corporatism in the 1970s” now lacks credibility in a way that it does not in, say, France. Rather, “the most useful thing ministers can do is to use the push and prestige of high office itself”.

That push and prestige is certainly very valuable, but it can only go so far unless it is backed up with meaningful policies. ‘Silicon Roundabout’ goes on to talk about the UK’s lack of a technology-focused venture capital industry, for example. What is more, France uses the push and prestige of high office (its politicians have egos too!) but is also prepared to commit money where investment is needed to develop the key industries that it needs. 1970s UK corporatism was only partly botched – government intervention saved Rolls Royce, for example, so will the person who thinks this world beating company should have been left to fail please stand up and say so? The issue is not whether or not to intervene, it is when and how to intervene. I am pleased that in his Financial Times interview today, Shadow Chancellor Alan Johnson argues not only that the previous Labour Government’s industrial intervention was the right thing to do, but it should have been done earlier.

Meanwhile, ‘Mittel-management’, this week’s Schumpeter column, also in the ‘Economist’, is a must-read for everybody interested in the UK’s industrial future. This article describes the continued success of Germany’s Mittelstand, its network of sometimes small, but more often medium-sized companies that focus on niche markets in staid sounding sectors like mechanical engineering, rather than sexy ones like software. The Mittelstand is often described as the backbone of German industry, yet globalisation has provided these companies with new opportunities: as the ‘Economist’ puts it, “They have provided China’s ‘factory to the world’ with its machine tools.

The obvious question to ask is: what lessons could the UK learn from the Mittelstand? Schumpeter offeres three: focus on your traditional strengths in “old fashioned industries”, rather than trying to build new, sexy sectors; remember that niches that appear tiny can produce huge global markets; and Western companies can preserve high-quality jobs in a vast array of industries, so long as they are willing to focus and innovate.

That advice seems to contradict the creation of Silicon Roundabout in Hoxton. But I’ve never believed in the either/or approach to industrial policy, so I don’t believe the choice is to either focus relentlessly on creating new sectors or to spend our time defending traditional ones. The UK needs an industrial base built upon those sectors where we are world beating and those sectors where we could become world beating. The new growth strategy and the manufacturing framework to follow needs to recognise that.