How to create new jobs in a flat-lining economy that has suffered structural unemployment for decades? George Osborne has called for a ‘march of the makers’, Ed Miliband talks about his preference for ‘producers’ over ‘predators’, and just about everyone says the UK must ‘rebalance the economy’ back towards manufacturing. On one level, it’s just more sound bites from a political class short of ideas. On another, something more significant is happening: industrial strategy is back.
The two words became taboo over the past 30 years, associated, in the victor’s history of neoliberalism, with discredited efforts at national planning during the 1960s and 70s.
As Britain changed course, manufacturing employment fell from 7 million in the 1970s to just over 5 million in the mid‑1980s. North Sea oil covered the macro-economic shock, but the decline continued through the 1990s and 2000s to reach just 2.8 million employed in manufacturing by 2008. Financial services never compensated, creating just 85,000 net new jobs between 1997 and 2008, concentrating its benefits in London. In the ex‑industrial regions, state-backed service industry jobs were created to plug the gap – an undisclosed strategy of Thatcher as well as New Labour.
With a mainstream political consensus now entrenched around the need for major public sector cuts – if not over the pace of cutting – many policymakers’ hopes for avoiding a worsening unemployment crisis are pinned on a manufacturing revival.
Banks have been gently encouraged to lend more to productive business, most recently via the Bank of England’s £80 billion ‘funding for lending’. Some state money has also been directed towards high tech industries, and a ‘green investment bank’ is also to be established, with £3 billion capital. However, these efforts have been tokenistic and disjointed, and are diminished further by slack demand in the economy as a result of austerity.
There is also a new interest in infrastructure. But much of this is fixated on grand projects like a third runway or HS2 rail, and there is no sign of the export-led revival that the coalition’s Office for Budget Responsibility predicted would save us from austerity.
So what are the progressive alternatives for job creation in manufacturing, and what are their limits? Proposals for a Green New Deal surfaced in 2008, proposing a Roosevelt-esque stimulus for green-tech, and the decarbonisation of housing and infrastructure to create an army of ‘green collar’ workers. This continues to provide the main source of inspiration, backed by economists like Mariana Mazzucato, who are urging an increased role for the state in industry.
In high tech industries like software and biotech, commonly perceived as the offspring of a risk-taking private sector, Mazzucato argues that the state is often the key innovator, with private companies joining in at a later stage once the opportunity for profit is clear. Three-quarters of new molecular bio-pharmaceutical entities come from publicly-funded laboratories. The real danger is not market failure, Mazzucato claims, but ‘opportunity failure’ as major transformative technologies are passed by because the private sector won’t bear the risk.
The TUC follows a similar line, urging government to ‘pick sectors’ – like clean energy – which can drive the next industrial ‘mega trend’. Proposals for a state investment bank created from RBS, as articulated in the Compass Plan B report, have gathered much support – indeed, as Red Pepper goes to press Vince Cable has announced that the government will establish a ‘business bank’. It seems likely that this institution will, like the green investment bank, be too small and not even a bank in the true sense. But it could – if operated in the manner Compass and others suggest – target lending towards socially-useful industries against the economic cycle and into areas the private sector neglects.
The limits of planning
These efforts have expanded the realm of what’s thinkable in the UK and have proposed worthwhile changes, but there are other areas industrial strategists should be focusing on. Industrial strategy needs to engage with the pervasive problem of dysfunctional business models. Making shareholder value central to the strategies of large firms has created a culture of short-termism, focused on the next set of financial results rather than investments in research and development or the workforce. Since the mid-1990s investments in fixed capital (machinery, equipment and the like) have declined by a third among UK companies.
Recognition of the problem has grown in elite circles, and featured in a government study led by the economist John Kay earlier this year, but goes nowhere near far enough.
Worse still, UK manufacturing suffers from problems of broken supply chains. Large firms which sustain chains of small and medium sized companies have disappeared. The UK has less than 2,000 factories employing more than 200 workers, while the number of companies employing 10 or fewer has doubled over the last 25 years. So when a factory like Vauxhall’s Ellesmere Port is assembling kits of imported components, expansion of output increases imports as much as exports.
A foie-gras industrial policy of pumping credit into the economy will achieve little, as it will be forcing funds into manufacturers with these organisational problems.
The absence of geography
The striking thing about most industrial policy discussions is the absence of geography. Most pitch at ‘the UK economy’, but this is an abstraction, given the divergence in needs and capabilities between London and the south and east, and the ex-industrial regions of the north and west.
The abolition of Regional Development Agencies continues a pattern of centralisation. Efforts to revitalise manufacturing should be implicitly regional, because while over half the value produced by financial services comes from London and the south east, manufacturing is spread almost evenly. However even during the pre-crisis boom, only London and the south created a significant proportion of new jobs in the private sector, and they stand better placed to benefit from most new industrial strategies – particularly those focusing on ‘industries of the future’, as Cameron calls them.
The business parks of Cambridge and tech startups of east London may provide export success in software or pharmaceuticals, but they have little to do with the West Midlands’ broken supply chains or the north’s structural unemployment.
A geographically sensitive industrial policy would pay attention to the more mundane industries of everyday life, which are broadly distributed according to population and could still generate mass employment. Food manufacturing, for example, is the UK’s largest industrial sector by employment with more than 400,000 workers.
Tax breaks should be targeted at companies producing regional employment increases (rather than relocations), and socially-useful products.
More than this though, economic regionalism should focus less on attracting firms and more on stopping funds leaving: redirecting state pension fund investments to local needs, regionalising supply chains wherever possible and rolling back damaging privatisations.
There are existing possibilities then for a new kind of industrial policy which creates employment all around the UK, but also recognises that job creation is not an end in itself, but part of an economic system which provides for social and environmental necessities and spreads its benefits more evenly.
The article draws upon research on industrial policy carried out at the Centre for Research on Socio-Cultural Change (CRESC), where the authors are based. Research reports are freely available at www.cresc.ac.uk