A UK Industrial Strategy? Better late than neverNigel Topping
The first 20 years of my career were in manufacturing, and many of them within the automotive sector. So the words ‘industrial strategy’ are close to my heart. That they have returned to the political mainstream, in the form of the UK’s new Department for Business, Energy & Industrial Strategy, is cause for celebration.
Intelligent state support for climate and energy markets is much needed. The New Climate Economy’s report The Sustainable Infrastructure Imperative, launched today, argues that investing in sustainable infrastructure is key to tackling the three central challenges facing the global community: reigniting growth, delivering on the Sustainable Development Goals and reducing climate risk in line with the Paris Agreement. The report points to a strong case for truly holistic industrial strategy, with climate change commitments at its core.
To pretend that you can operate without an industrial strategy is a fantasy. Governments direct, steer and influence the development of industries all the time. They decide what infrastructure to invest in, how much money goes into research, and who to award contracts to. But if that strategy is not conscious, overt, or open to public scrutiny, then mistakes are made. Theresa May has acknowledged this by enshrining the words in the name of the new government department. The significance of this is not mere semantics. The last female Conservative Prime Minister Margaret Thatcher did her best to eradicate the very concept of an Industrial Strategy, tarnished as she saw it by Labour’s centralised approach during the 1970s. Having an industrial strategy has since been deemed interventionist, protectionist, and ‘picking winners’; free markets should be allowed to flourish unfettered.
But there is no such thing as a free market. Markets have rules.
From the 1980s onwards a laissez-fair attitude to industrial strategy resulted in the dismantling of UK manufacturing as a global powerhouse. At the same time, Japan built a very strong, joined-up strategy between banks, government ministries and key sectors. Japan may now have its own problems, but its automotive industry is not one of them. Toyota remains the world’s biggest car company. Germany’s Fraunhofer-Gesellschaft ensures that state-funded R&D benefits its private sector. In China, the link between industrial and climate strategy has seen Chinese companies emerge as the amongst the biggest wind turbine and solar panel manufacturers in the world. Even in the US, where ‘central planning’ seems a political taboo, Mariana Mazzucato’s book ‘The Entrepreneurial State’ has shown how the technology behind the iPad – the Internet, touch-screens, voice-recognition – came about as a result of military and state R&D.
Now is an opportune time to act because of record low interest rates, large available pools of finance and rapid technological change. The New Climate Economy calls on governments and the private sector to triple public investment in clean energy R&D alongside developing genuine research partnerships across countries and with the private sector. Approaches that should inform the basis of state support for technologies that tackle climate change and energy markets in the UK.
I want to see an industrial strategy that includes a much more ambitious roll-out of smart grid technology, and clarity around the role of demand-management software. We also need a solid commitment to the rapid electrification of vehicles. Norway and the Netherlands are phasing out the sale of non-electric cars by 2025 – by doing so they become amongst the most exciting places in the world for investors in EV technology.
The UK’s new National Infrastructure Commission, chaired by Lord Adonis, is starting to produce encouraging recommendations for investment in interconnectors, smart grids and energy storage. Combine this Commission with the framework provided by the Climate Change Act and an industrial strategy addressing product standards, procurement, funding and R&D, and the three together could form a golden policy triangle.
The Paris Agreement allows us to be confident and bold. We know that we have to decarbonise the economy, we know the rate at which we have to do it. Now it is time for an industrial strategy to deliver the goods.