Theresa May is relying on 'free trade' and Thatcherite economic policy to revive British industry. It will do no such thing.
The government has unveiled its long awaited White Paper on industrial strategy. Let’s take a proper look.
Firstly, any industrial strategy must reflect on the mistakes of the past – and the White Paper does little of that. Since the 1980s, Conservative and New Labour governments have pursued Thatcherite industrial strategies. The key elements were to privatise publicly-owned assets and promote light-touch regulation.
The financial speculation unleashed by the Big Bang of the mid-1980s encouraged short-termism, and shareholders made a quick buck and ran. British businesses became an open bazaar with gas, water, electricity companies, as well as Cadbury and others falling into foreign hands.
And the huge distance between the owners and customers resulted in rip-off prices, low investment and virtually no improvement in productivity. Yet the government has no effective policy for addressing ownership, control, mergers and takeovers of British industry.
This same failed ideology can be seen in the White Paper, as the government hankers for ‘free trade with the whole world’: Free from what, one might say – regulation, duty to stakeholders, consumers and society and product safety?
The language betrays the thrust of the industrial strategy preferred by the government – a hands-off approach.
The expression ‘industrial strategy’ itself conjures up image of a substantial manufacturing sector. Yes, we need to invest in new technologies, green industries, artificial intelligence and much more. But would the private sector do it?
Historically, the UK economy has been built by a mixture of private investment and direct state intervention. All too often, the private sector has shown little appetite for long-term risks and the state had to build airlines, telecommunications, biotechnology, nuclear and computer industries. It also rescued and reinvigorated railways, water, gas, electricity, shipbuilding and many others.
Today, Brexit uncertainties are dissuading many companies from investing in the UK. That means that – as the state has had to do in the past – there is even more reason for the government to invest directly in our key sectors.
The government could have used Labour’s idea of a National Investment Bank for industrial rejuvenation, but they flunked it.
Ministers are looking to the universities to facilitate a renaissance of the manufacturing sector and reskill people. Yet due to high costs, many universities have closed or shrunk their engineering, sciences and mathematics departments.
Their capacity to deliver cutting edge development is now limited – and the government needs to consider looking instead to vocational institutions. They hint at a National Retraining Scheme in England for adults, but do not say where the cash will come from.
And there is a lot of lip-service paid to the welfare of small businesses, but not many concrete proposals. How about ensuring that they are not ripped-off by banks and put into premature receivership? Such abuses are well documented by the Tomlinson report. The government could insist that a certain amount of bank lending, at a reasonable cost, be reserved for small businesses. No such guarantee can be seen.
Finally, any rebuilding of the UK economy has to confront the problem of short-termism which is so deeply embedded in British industry and systems of corporate governance. The tenure of CEOs and major companies has shrunk, and shareholders want quick returns.
The government could insist that 50% of the membership of unitary boards should consist of stakeholders with long-term interests (e.g. employees, customers of utilities, banks, etc). Or they could embrace a German-style two-tier board structure which gives employees a clear say in business.
They could reduce pressures from speculators by insisting that anyone holding shares for less than 12 months is not eligible to vote. Or they could provide resources to promote alternatives to corporations in the form of mutuals, co-ops, employee owned and not-for-profit enterprises
Yet here the government has nothing to say – so it is difficult to how a stable environment for innovation will be provided.
The kindest thing that one can say about the White Paper is that it has stirred a debate. But it lacks detail, practical policies and resources. That’s not a strategy.
Prem Sikka is Professor of Accounting and Finance at the University of Sheffield and Emeritus Professor of Accounting at the University of Essex. He is a Contributing Editor for Left Foot Forward.
You can read the government’s industrial strategy here.
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One Response to “The government’s industrial strategy relies on a totally discredited economic model”
patrick newman
A few good suggestion but would have liked a bit more instead of a piece long on analysis but short in proposals. For example, the FE sector needs reviving and there are currently 790,000 NEETS who could be offered work and/or training (Paid at or near min wage). However, Labour needs to think big and abolish the Chancellor of the Exchequer along with the Treasury – to them everything is a cost to be minimised and everything is short term. We only need a finance department to keep the score and finalise budgets. What is really needed is a department (at No. 11) of business, the economy and strategy with senior status in the cabinet. While the Treasury dominates with their sophisticated version of the money tree ‘problem’ an industrial strategy will not be worth the paper it is written on.