From the TUC

Most of us will end up voting for an active industrial strategy. So what will we get?

08 May 2017, by in Economics

General election campaigns are an opportunity for competing political parties to set out their visions of the economic and social future of the country. Those visions can be markedly different, but going into this campaign we are in the happy position of knowing that the new Government, to be elected on 8 June, will be committed to an active industrial strategy.

We know this because all three major parties are already committed to some form of a strategy. That’s remarkable because it’s only in recent years that the UK has achieved this ingredient of Germany’s long term economic success: cross party consensus of a major role for government in supporting industry.

So what form should a UK industrial strategy take?

The TUC, like many other organisations, has been pondering this question in recent weeks, as we developed our submission to the outgoing Government’s Green Paper on Industrial Strategy. The TUC’s submission was comprehensive, as you would expect, as we’ve got a lot to say now that we have the chance.

The TUC has argued for a sustainable industrial strategy for many years. In our view, leaving the development of industry to market forces was always a mistake. Markets are important; it would clearly be nonsense for the UK to specialise in producing goods and services that nobody wants to buy. But it doesn’t always follow that optimum outcomes for investors match the needs of economies, citizens or workers.

For example, a company that saves money by poaching skilled workers rather than training its own staff might be able to pay a dividend to its shareholders. But if all companies did that, or even if a large proportion did, the economy would end up with skills shortages which would ultimately undermine the competitiveness and productivity of the wider economy.

So what should Government do? The answer to that question depends on what we believe the problem or problems to be. In its Green Paper, the Department for Business, Energy and Industrial Strategy (BEIS) said:

“The objective of our modern industrial strategy is to improve living standards and economic growth by increasing productivity and driving growth across the whole country.”

In our submission, the TUC agreed that raising productivity and growth were important. We were less clear that achieving those things would necessarily raise living standards by themselves, however. We believed the Government’s objective was good, but should be seen as a means to delivering the well paid secure jobs that must be at the heart of any attempt to raise living standards.

This links to four, connected economic problems that the UK faces:

  • We have an economy that is dominated by household consumption, and lacks both government and private sector investment that could drive growth and productivity;
  • We are continuing to experience exceptionally weak pay growth, with pay not set to return to its pre-crisis levels until well into the 2020s;
  • There has been a sharp rise in insecurity at work, hampering worker’s ability to deliver productivity increases; and
  • Sharp regional imbalances result in certain parts of the country bearing the brunt of these economic changes. For example, two thirds of the jobs created in the North East since 2011 have been insecure.

This is the scale of the challenge before us. Furthermore, the industrial strategy must be robust enough to withstand Brexit. It is clear that, whatever the economic impact of Brexit, it will change how we engage with the world; our industrial strategy will need to be sufficiently strong to cope with those changes.

So the next Government has its work cut out to deliver an industrial strategy that can address these challenges.

Where to focus?

There is one, final, technical issue to be addressed here. In so far as governments have wanted to support industry, they have often been keen to ensure that they do not “pick winners”. Industrial strategy, the argument has gone, should support companies in all sectors. By focusing on ‘horizontal’ measures, such as skills, infrastructure, and tax incentives for research and development, no sector is favoured over any others.

More recently, notably when the Liberal Democrat Minister Vince Cable was responsible for industrial strategy, certain strategic sectors were identified. This was because, it was argued, some sectors are better able to produce goods for export, or have a better record in research and development, than others.

From a trade union perspective, it is also noteworthy that some sectors create better jobs than others. And some sectors – especially those with high labour costs – are likely to shrink or even disappear in the face of low cost competition from developing economies, while others will clearly be more important in the future. Green technology for example is just such a sector.

There’s more to say on the importance of horizontal policies, such as strategic investment in infrastructure, in science and in skills. The UK lags comparative economies when it comes to infrastructure spending and the government admits that we are also behind in investment in research and development.

We need to cultivate world-leading sectors that are likely to be rich in exports and in quality jobs, while also considering the value of lifting low paid industries, raising their productivity and their economic importance.

Central to the TUC’s argument is a holistic approach to industrial policy, with government and business investment driving industry alongside policies tailored to raising productivity in key sectors, both high and low value, according to their circumstances.

Whoever forms the next government, we’re very glad we’ll get a chance to make progress on something that has been missing from our national economic approach for far too long.

3 Responses to Most of us will end up voting for an active industrial strategy. So what will we get?

  1. Worker Voice: the missing element of the Government’s Industrial Strategy
    May 9th 2017, 8:01 am

    […] TUC believes this to be a serious mistake; in fact, in our submission to the Green Paper consultation, we argued that the Government had set out 10 pillars which encapsulated its approach, but there […]

  2. Active industrial strategy: Where should the next government put its money?
    May 10th 2017, 7:21 am

    […] main parties in this election are committed to an active industrial strategy, a great improvement over years of leaving much of the development of industry to market forces. […]

  3. Industrial Strategy: Which sectors should we focus our support on?
    May 11th 2017, 7:01 am

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