Britain’s economy: PM Theresa May’s “New Industrial Strategy”
July 24, 2016 – The Economist
Theresa May, Britain’s prime minister, bucked political orthodoxy by elevating “industrial strategy” to the top of her new government’s agenda. She has indicated that her strategy will include raising Britain’s low productivity, pressing ahead with big infrastructure projects and scrutinising foreign takeovers. For now the policy remains somewhat inchoate, but already free-market types are worried.
Why “industrial strategy” is back?
THERESA MAY, Britain’s new prime minister, has certainly been bold, maybe even foolhardy, in some of her cabinet appointments. But she has been equally bold in elevating “industrial strategy” to the top of her new government’s agenda—a move that could mark a clear break with her predecessor’s governments.
The very term has been frowned upon in Conservative Party circles since Margaret Thatcher’s leadership. Yet Mrs May argued for “a proper industrial strategy to get the whole economy firing”, in her pitch for taking over from David Cameron. And once installed in Downing Street she quickly created a whole new department, of “Business, Energy and Industrial Strategy”. Why has Mrs May decided to buck a generation’s worth of political orthodoxy?
The phrase in Britain will always be linked to the Labour governments of the 1970s, and to the ruinous industrial failures of that period. In an era in which Keynesian economics and planning dominated policymaking, it was a left-winger, Tony Benn, who proclaimed the need for such a strategy. This was mainly in response to the obvious failings of Britain’s unprofitable, strike-prone and outmoded industrial base.
As minister for industry in the middle of the decade Mr Benn intervened ever more closely in loss-making companies such as Triumph motorcycles, just as his immediate successors intervened on a much larger scale to prop up huge corporations such as British Steel. Almost all these interventions failed disastrously, losing billions of pounds for taxpayers without saving the companies; the strategy was derided as “picking winners”. After Mrs Thatcher became prime minister in 1979 the nationalised industries were largely broken up and, in a new era of free-market economic liberalism, the notion became unfashionable. Even when the Labour Party was restored to power under Tony Blair after 1997, it remained firmly off the agenda.
But the tide began to change at the end of those New Labour governments, when Gordon Brown was prime minister. Once again, it was a sense of crisis that spurred a renewed interest in industrial strategy, this time the financial crash of 2008 and the subsequent recession. Politicians were convinced that the economy had to be “rebalanced” away from an over-reliance on financial services and more towards industry and manufacturing. George Osborne, the chancellor of the exchequer in David Cameron’s first coalition government, called this policy the “march of the makers”. Sir Vince Cable, the Liberal Democratic business secretary in the coalition, began to speak enthusiastically again of industrial strategies.
He singled out 11 industries with which the government would build long-term “partnerships”, including carmaking and aerospace. Mrs May is likely to continue these sorts of government investments. She has also indicated that her strategy will include raising Britain’s chronically low productivity, pressing ahead with big infrastructure projects and more house-building. She also wants to spur growth outside London, and not merely in the “northern powerhouse”, around Manchester, much favoured by Mr Osborne.
There must be doubts as to how far Mrs May can take an industrial strategy in a majority Conservative government. For now the policy remains somewhat inchoate, but already free-market types are worried. Mark Littlewood, head of the Institute of Economic Affairs, one of Mrs Thatcher’s favourite think-tanks, argues that adopting even a limited industrial strategy could tempt the government into going further by propping up loss-making industries such as steel—especially once Britain leaves the EU and is no longer bound by European rules against state aid. So far it seems mild enough. But, aware of a popular mood souring against globalisation and a government keen to occupy the political centre-ground abandoned by Labour, many Tories will be on the lookout for signs of mission creep. Well-intentioned interventions could quickly become counter-productive. Yet as the economy deteriorates, the calls for an industrial strategy will grow louder.