Today saw the government take the next step in its more active approach to supporting the development of new technologies and markets, publishing more details in its ‘New Industry, New Jobs’ report.
This has little in the way of new policy announcements save for a few consultations and the promise of more detail to come soon. But importantly, it contains a number of admissions that the past over-reliance on the market has failed and left the UK behind its competitors. For example it states that the government‘s role ‘needs to change to deliver a more coherent and effective approach… through more policy consistency across departments, greater regulatory certainty, smarter public procurement and a readiness to intervene where necessary.’ It also admits that countries like Germany and Denmark have forged ahead of us in the field of renewable energy because of their clear incentives to produce and use renewable energy and action to support research and development. There is also recognition that the government invests less in R&D than our competitors.
What does this mean in practice?
A number of areas for action and reform are identified, including innovation, skills, finance and infrastructure. In particular, the government will look at how best to meet the long-term capital needs of SMEs. There is also much talk of using the government’s £175bn annual procurement spending to foster innovation and support the creation of new markets. In addition, the paper contains a commitment to identify the role that the government should play in a number of growing manufacturing industries. These include low carbon aircraft engines and wings, the shift from metals to composites, the growing role of renewable and biological substances in chemical manufacture and developing plastic electronics technology. Alongside this, the government will develop an action plan to take advantage of the opportunities presented an ageing society.
The key question is whether the government will be able to deliver on these promises. Our history in this area and the timing of this new approach suggest that this will be an immense challenge. Though the new approach appears more sophisticated than industrial policies from past decades, it will be important to learn the lessons from failed attempts to ‘pick winners’. Our lack of recent experience in this area compared with our partners in Europe is also concerning. But perhaps the biggest worry centres on whether the UK can really get the machinery of government working in a new way. This will involve getting an inherently cautious public sector to take a new approach to risk. Achieving such a culture change at a time when economic uncertainty is more likely to be pushing civil servants towards the cautious corner will not be easy. It is vital that the government recognises the size of this challenge and makes sure that it draws on the experience of the private sector.
The dire state of the public finances will also inevitably constrain the government’s ability to provide more active support for industry. Though the government can achieve a good deal can by being more strategic and joined up, it cannot escape the fact that supporting the growth of new technologies is expensive. In addition, the government could easily undermine any improvements in Britain’s standing as a place to do business if it pushes through large rise in business taxation to claw back public borrowing or if it bows to public pressure for tighter regulation of employers. The government must therefore match its new more active approach to working with industry by a renewed effort to make the public sector more efficient.
Despite these concerns, the government’s admission that its current approach is not working is welcome and the idea it sets out are promising. Let’s hope that we can spend the next few months discussing how to put more flesh on these bones rather than fretting about the economy sinking back into recession.