Iain Wright MP, Labour's Shadow Minister for Competitiveness and Enterprise, said today in a speech to the IPPR:
I would like to thank IPPR for giving me the opportunity to speak. Twenty years ago, it was the IPPR which set the agenda in centre-left politics by developing a vision for a progressive government which combined economic and fiscal effectiveness with social justice.
We need to shape the agenda about a fair economy and society again. That is why Ed Miliband’s talk of a responsible capitalism is so important – he has been at the forefront of the discussion not merely about bankers’ bonuses, important though that is, but a wider and perhaps more fundamental point about the merits of a long-term, productive and fairer economy, in which capitalism is working for everybody, not just a privileged elite.
The IPPR is helping to move and that progressive agenda again today in hosting this important event and in tackling the big economic questions of the next decade, especially with the work led by my predecessor as MP for Hartlepool Peter Mandelson on the third wave of globalisation.
The report launched a couple of months ago really added to the policy discussion surrounding competitiveness, enterprise and Britain’s role in the global economy: what is the impact for Britain in the next and most intense wave of globalisation? What will be needed if the next Labour Government is to implement responsible capitalism that embraces sustainability and stewardship for the long term and which works with communities and the environment, not against them? How will an active and intelligent government partnership with productive businesses allow Britain to compete fairly and successfully in the face of ferocious competition across the globe?
The notion of an industrial policy or active government involvement in business decisions has not been particularly fashionable over the last thirty years. But in response to the most ferocious economic crisis seen in the developed world in our lifetimes, industrial policy, with a central focus on manufacturing and active Government involvement, certainly in the UK and the US, is back in a way not seen since the 1970s. Only last month, in his State of the Union speech, President Obama stated his determination to:
“lay out a blueprint for an economy that’s built to last – an economy built on American manufacturing”
Why is this the case? Why has the phrase active industrial strategy suddenly become so important to some policymakers? And, perhaps equally importantly, why was the notion of active government so frowned upon for much of the last forty years? What’s different this time? Will we learn any lessons from history?
In exploring the notion of an active industrial strategy in the UK, we need to demolish a few myths. It is simply wrong to suggest, as some do, that we in Britain used to make things, but we don’t make things anymore and to help us economically we should really get back to making things again.
In the decade from 1997, UK productivity grew faster than any other nation in the G7. Manufacturing output reached its all-time high, not in the days of the Industrial Revolution or the Victorian era, but in 2007. Despite the perception that we don’t make things anymore, we remain the seventh biggest manufacturing nation on earth. In many sectors, whether it is advanced manufacturing, pharmaceuticals, higher education, creative industries or financial services, British firms are acknowledged as world leaders and are competing as champions in their field.
We equally shouldn’t think of a narrow and crude distinction between manufacturing and services. Rolls Royce derives half its revenues from services through post purchase after care of its engines. This more sophisticated approach to manufacturing and services is a business model in which Britain leads the world and which will serve British excellence well in the years to come.
We need to have more manufacturing capability in this country, capability as part of a broader strategy in which we concentrate on our strengths and think as a nation about all of the sectors of the future where global demand is likely to grow and in which Britain has a competitive advantage, and that includes advanced manufacturing, as well as higher education, the creative industries, health care and indeed financial services. If one considers the nature and shape of the global economy in the next half century – whether that is a greatly expanded global middle class, from 1.8 billion today to 5 billion in less than 20 years’ time. Those people will be older than most of the world today, will be concerned about having the right personalised drugs and healthcare, will have more disposable income to spend on higher premium brands and media and sporting occasions and will want to ensure that their children and grandchildren are educated to the highest possible standard. They will be concerned about the sustainability of the planet and will want to ensure that a higher quality of life is done in the most sustainable way possible and with as few raw materials as possible.
Just think: in that changing global demography I have just described, and the industries and sectors that will be needed to service that world population – pharmaceuticals, biotechnology, healthcare products, premium brand goods and services, media and creative outlets and sporting brands, and green and sustainable technology for producing energy, transporting us and transforming the homes and communities in which we live – Britain already has a competitive advantage. Just think: if we had intelligent government, thinking about how the world will be in 2030 or 2050, supporting those sectors of the future and ensuring that in a co-ordinated way matters like regulation, taxation, markets, government procurement, innovation, training and education and supply chain development are aligned to provide the best competitive environment for British firms, what role Britain and its people could play in the 21st econom y.
However, I mentioned learning the lesson of history as well as dispelling myths. Although it is right to highlight the myth that we don’t make things anymore, equally, it is fair to say that for the past 30 years growth was concentrated in too few sectors within the economy and in too few regions of the country. In the last three decades, Britain lost more industrial and manufacturing capacity as a proportion of its economy than any other leading nation. As a consequence of this, the hollowing out of the UK’s industrial supply chain over the past 30 years has made us ever more reliant on our competitors for raw materials, basic products and – increasingly – innovation, research and development.
Although skills levels rose, many parts of our economy are still far too reliant on low paid jobs and low productivity. Problems with skills and productivity hinder our competitiveness in the global marketplace, holding back many individuals, communities and businesses from achieving their potential. Firms in my area and across the country tell me they face the bizarre, contrary situation of having skills shortages while seeing high levels of unemployment, particularly among the young. At an event last week, a person working in the technology industry told me that she could employ 30 people tomorrow to grow the business. She simply can’t find the people with the right skills.
How did we get here? For most of the post-war period, successive British governments flirted with, but never really truly embraced, the concept of industrial policy. Occasional despair over the competitiveness of our economy relative to France, the US or – particularly - West Germany would jolt governments into a “something must be done” mode, a knee-jerk, short-term, high attention action, whether that be through the setting up of Neddy by the Macmillan Government, or the formation of the Ministry of Technology by the Wilson Government. Crises over the financial performance or future survival of iconic national companies, such as Rolls Royce or British Leyland also kicked governments into action.
Some of these initiatives have reaped long-term rewards. Investment in the aviation sector has helped secure Airbus in the UK.
British Leyland was rightly maligned although perhaps a chassis was left, on which a healthy, modern and competitive British automotive industry now resides.
In most cases, British competitiveness was not enhanced in any meaningful way. There was an absence of consistency throughout British policy in this period. Crises and industrial failure prompted governments into action, but attention from Prime Ministers quickly moved on. There was nothing comparable to the quiet but sustained and long-term determination of the French Government over many years to ensure that France was successful in, say, civil aerospace development. Nor was there anything similar to the deep cultural roots seen in Germany on matters like the vocational education system, close relationships between local banks and industry, applied research carried out in collaboration between industry and government institutions like the Max Planck and Fraunhofer Societies and patient long-term investment in the development of excellent high quality new products and processes.
There was also a sense, when industrial policy was thought of at all, that the country’s economic difficulties would be solved if we somehow got our hands on a particular technology, whether that was supersonic aircraft, computing capacity or nuclear power, and that government should simply pick winners in order to develop and then commercially exploit that technology.
Government placed too much faith in the benefits of scale and a determination to remove fragmentation within British industry in order to create huge national champions. This was seen by the amalgamation of firms in the electrical engineering sector to form GEC, and something similar in the car industry with the creation of British Leyland.
However, such massive industrial behemoths failed to inject dynamism and innovation into often inefficient and technically obsolete industries. A reliance on public funds and a sense that these companies were somehow too big to fail and therefore government would always step in, insulated mangers from the harsh realities of the market. Intervention in lame duck industries or processes failed to arrest the decline and merely served to delay the shifting of attention, resources and investment towards more viable and more commercially attractive ventures.
From the 1970s, there emerged a misguided belief in the sole efficiency of markets to identify optimum outcomes, a belief, as Chuka Umunna has called it, in active enterprise rather than active government. It was decided, most notably by the Reagan and Thatcher administrations that in most aspects of the economy government should simply get out of the way and let the market decide.
Underpinning this economic approach has been a broad ideological belief from the last thirty years and which still resides in the present Conservative led-Government, that Britain, once the workshop of the world, is now a post-industrial economy – that our country’s economic future could rely on services at the expense of manufacturing, and that the global forces which were switching manufacturing and production eastwards were not something that could be halted.
The events of the last few years demonstrate all too clearly the shortcomings of the laissez-faire approach. That is why we have to look to successful economies over the past 30 or 40 years – whether that be Germany or South Korea, China or Japan or the United States – and see that active government industrialism has created jobs and growth. The US is characterised as the most laissez-faire and free market in the world, but in reality it operates below a large and active horizontal industrial policy. This approach has helped to produce its Googles, Apples and Intels.
So, we have to examine the characteristics of successive and competitive nations and have to conclude that partnership between productive and competitive business and active government works.
Just look at the top three nations in the World Economic Forum’s Global Competitiveness Index. Switzerland, Singapore and Sweden share the same characteristics of high levels of company spend on R&D, robust innovation, technological readiness through effective supply chains and strong collaboration between business and industry. These economies are embracing active and modern industrialism and are being successful as a result.
By not adopting a similar approach, the UK, far from being part of the international consensus, risks being an outlier in the global economy that will cost us precious competitiveness.
Looking at the modern context, and taking into account the lessons of failed industrial policies in the past, the Government should adopt an active and intelligent approach, working in a coordinated way both within Whitehall and with business to set an overall vision for the British economy and creating the right conditions for the sectors of the future to succeed.
Sir John Rose, the former Chief Executive of Rolls Royce, has said that: “We need a framework, or a business route map, to create context, drive focus and help prioritise public and private sector investment.” We absolutely agree. Certainty in business policy, providing that context and clear direction, provides businesses with the confidence to invest in new products, new markets and new staff.
We should play to our strengths and comparative advantages, exploiting our world beating reputations in higher education, sophisticated high value added manufacturing, offshore wind technology, financial services and creative industries.
I agree with Mike Turner, the Chairman of Babcock, when he says that we should be looking at areas of industry where we feel Britain’s got a part to play long term, and where the taxpayer can offer support with a solid programme of technology and investment support with private sector support at the same time.
That is why Chuka Umunna is leading the most comprehensive and far-reaching review of Labour’s policy on business for 20 years. The review, will published its interim report last year, set out the challenges facing Britain and explains how active, intelligent government should use all of its powers and abilities to influence and co-ordinate long-term success for British companies.
We should consistently favouring long-term investment over short term profit grab, through the encouragement of patient capital to SMEs, which is what happens in Germany, capital allowance systems that favour long-term investment and supporting effective intellectual property policies.
We should frame the rules of the game so that businesses that are sustainable at every level – in their community, in the environment and in their markets – government can help to achieve long term success for companies and industries. And that those rules should be framed to capture what Ed Miliband has been saying for the past 18 months – that responsibility at the top of business, curbing excessive pay, putting employee representation on remuneration committees and using Government shareholding to ensure that bonuses are paid only for exceptional performance.
We should shape government procurement rules to reward productive British businesses who invest for the long-term, embrace innovation and training and nurture their staff.
We need a government that doesn’t merely talk the talk, but actually walks the walk. Actions, not words, and outcomes, not rhetoric, are the key to implementing an effective industrial strategy. This is where this Coalition Government is failing badly. Even the Business Secretary agrees with us. Vince Cable has written to David Cameron and Nick Clegg this month, stating: “There is something important missing: a compelling vision of where this country is heading beyond sorting out the fiscal mess; a clear and confident message about how we will earn our living in the future.” We couldn’t agree more with you, Vince.
But, as the Business Secretary himself admits, we have:
• A government whose sole economic priority is deficit reduction and which is cutting too far and too fast, far from allowing private sector enterprise to bloom and flourish is actually choking off competitiveness;
• A government which on the one hand stresses the importance of science and innovation as a means of rebalancing our economic base while at the same time cuts the science budget by 15 per cent;
• A government which stresses the importance of a defence industrial strategy in helping enhance British industrial capability while at the same time publishing a White Paper that prioritises the purchase of off the shelf military equipment. That is why the Director General of the CBI, in responding to the White Paper, urged the government to not only get the best value for taxpayers but “also take into account employment and industrial implications of decisions.”
Only last week the MoD awarded a contract for Royal Navy fuel tankers to South Korea. It has emerged that a firm would construct the vessels from scratch in the UK if it won the contract. Another bidder guaranteed at least 35 per cent of the work on all four ships would take place here, safeguarding jobs and skills. But what is the Minister with responsibility for defence procurement reported to have said: - “We don’t build tankers in the UK”. Who on earth is batting for Britain in Whitehall on major procurement decisions if that is the attitude of ministers?
A government which proclaimed its ambition to be the greenest ever, whilst presiding over the debacle of the feed-in tariff decision, knocking confidence in investment and jobs and ensuring that a potentially important fledgling industry fails to achieve its potential. Instead of being a world leader at the forefront of a 0 billion green revolution in the next decade, Britain has slipped from 3rd to 13th in the world rankings for investment in green industries since this government took office.
The level of competition in the global marketplace is intense. The determination of countries to succeed in the modern economy is more fierce than at any point in history. Many industrial sectors that our competitors are investing in – new energy, energy conservation, biotechnology, clean energy vehicles – are those sectors which Britain has a competitive edge, but one which we risk losing from lack of clear direction from the Government.
The rewards of success are huge – more prosperity, more jobs, improved and well-financed public services and a better standard of living for all. The costs of failure and missed opportunities are equally high. We have a narrow window of opportunity to ensure that we can be at the forefront of the biggest shift in manufacturing, technological and industrial focus for a century and reap the economic and social rewards. We need to have active government working with business to realise that huge potential.