Reviving British manufacturing through industrial policy has been one of the most consistent themes of economic policy discourses in Britain since the financial crisis. Accordingly, Theresa May made the creation of an industrial strategy a central pillar of her programme for government – yet , as Craig Berry argues, there are few signs that her government will embark on a strategy which differs meaningfully from that of her recent predecessors.
There is good news for British manufacturing. Since 2011, the historical decline in jobs within the sector has gone into reverse, with the number of jobs having risen by around 5 per cent. There had been a decline in jobs of 21 per cent from 1981 to 1991, 15 per cent from 1991 to 2001, and 33 per cent from 2001-2011.
However, while jobs growth has resumed, it has done so from a very low base in relative terms, and may indeed represent a post-recession ‘bounce’. Recent growth may have bucked the historical trend, but it is not in-itself remarkable; manufacturing has been outpaced by other sectors in this regard. Furthermore, we should not discount the possibility that the structure of employment in the manufacturing sector has changed in line with the British economy in general (with higher levels of casual employment, especially in high-growth manufacturing industries such as food production). Most importantly, while there are now more manufacturing jobs, manufacturing output has effectively stagnated. Output had continued to grow strongly in the 1980s and 1990s even as jobs were lost. This historical pattern was first disrupted, however, in the 2000s, when job losses on a much larger scale coincided with a small decline in manufacturing output.
The most recent data suggests a more acute set of problems whereby, after decades of increasing productivity by retaining higher-skilled jobs, British manufacturing has become adept at instead creating lower-skilled jobs, with a more limited impact on the sector’s productive capacity. The underwhelming performance of the UK’s high-tech manufacturing industries – in which output growth remains mostly negative or negligible – is consistent with this picture. Indeed, growth in the strongest performing high-tech industry, transport equipment (which principally consists of car manufacturing), is arguably due to the partial transformation of UK car manufacturing into a lower-skilled industry.
This is a different kind of manufacturing decline than we have experienced in the past – but it is decline nonetheless. Of course, arresting decline is a long-term process, and we should not necessarily expect overnight results following the partial rediscovery of industrial policy in the post-crisis period.
However, the industrial policy agenda pursued since 2008, and especially since 2010, is an inadequate response to decline in several key regards, and may indeed have helped to facilitate the new form of decline now evident. In my paper ‘Industrial policy change in post-crisis Britain’, I argue that British industrial policy is marred by its dependence on an incomplete institutional and ideational environment.
Three specific flaws in the ideational environment stand out. Firstly, industrial policy is too often treated as a discrete area of policy, distinguishable from macroeconomic policy. Secondly, industrial policy is often framed by a simplistic understanding of separateness of state and market. Thirdly, the core objective of industrial policy (increasing the productive capacity of the economy) is often obscured by more nebulous aims related to supporting business in general.
Only the third of these flaws has been seriously questioned by policy-makers in recent years – Chancellor of the Exchequer Philip Hammond’s promise in his Autumn Statement to invest an additional £5 billion per year in supporting R&D (the bulk of which we can expect to be focused on advanced manufacturing industries) suggests that the May government will take forward the approach developed by Vince Cable under the coalition government in this regard.
Perhaps more significantly, the promises made to Nissan in the wake of the firm’s concerns about Brexit demonstrate that the government will intervene in particular industries when large-scale job losses are threatened.
Yet the first two flaws remain firmly in place. Supporting R&D is important – but is a rather narrow vision of the state’s potential role in supporting the sustainable development of Britain’s productivity capacity. The Nissan deal is a purely reactive approach to supporting manufacturing jobs, with little strategic intent. And despite Hammond’s evident concern for Britain’s productivity puzzle, there are few signs that it has become a central focus of fiscal and monetary policy more generally.
In terms of the institutional environment, industrial policy mechanisms in Britain have invariably been dispersed between national, regional and local government, with the identity of the lead department in central government in constant flux – and very much subservient to the Treasury in the Whitehall pecking order.
May has shown no real inclination to transform this inheritance. She has in fact replaced BIS with the Department for Business, Energy and Industrial Strategy, but her approach to the departmental configurations of industrial policy remains unclear. While the return of a direct reference to industrial strategy in the department’s name is noticeable, so too is the fact that the department has lost responsibility for higher education and trade policy (both integral to industrial policy in a broad sense) and effectively been merged with the Department for Energy and Climate Change. Accordingly, a promised green paper of the government’s industrial strategy has been postponed – a development which invariably indicates intra-Whitehall disputes over its contents.
Elements of novelty in the way manufacturing is discussed in British politics should not be mistaken for a genuinely transformative approach. We are confronted with what appears to be a radical policy shift, but without challenging the frameworks within which industrial policy is conceived and delivered, the May strategy will probably be as radically redundant as its predecessors.
Note: this blog is based on the author’s recent article in the British Journal of Politics and International Relations.
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