Industrial Capacity in Post Covid-19 Britain

In ‘Cities and the Wealth of Nations‘, the US urbanist Jane Jacobs describes how the most successful cities and nations should constantly grow their own capabilities, products and services in order to become less reliant on goods and services from elsewhere. Describing this as ‘import replacement’ she saw it as a prerequisite for urban social and economic success. But writing in the 1980s, this was an unfashionable idea during accelerating globalisation, international trade and (at least in the US and UK) policymakers’ preference for open, networked economies.

These ideas have also looked out of step in the consensus promoting global supply chains, ‘just in time’ procurement and ‘lean’ management practices as part of the ‘new public management’ of public services. According to Chris Cook writing on Tortoise (‘The NHS at Capacity’, 30th March), the Coronavirus pandemic has exposed some significant weaknesses in the British policy model, notably the prizing of efficiency over resilience: ‘Part of any disaster response planning needs to include some generic idea of resilience — a generalised ability to absorb the unforeseeable. A uniquely British problem is that the way the country has been run for three decades pushes in the opposite direction. We started this crisis in a weak position. We have built a fragile state.’

He adds that the UK has depended on ‘surge capacity’ or the ability to supplement day to day requirements for staff, beds and equipment with stepped up procurement from established suppliers and from firms and individuals with a desire to help. Invoking the ‘Blitz’ spirit (and other wartime metaphors) we have seen Burberry making PPE, Formula 1 designing ventilators and Brewdog manufacturing hand sanitiser. Nightingale hospitals have been built across the country in exhibition centres and university car parks. Retired doctors and nurses and nearly a million NHS volunteers have stepped in to fill staff shortages. But this approach has had, at best, mixed success.

Now Covid-19 is rapidly challenging established orthodoxies and public opinion. The role and power of the state is being reshaped and by politicians that might never have anticipated thinking and acting in such ways. In time, this will extend to industrial policy after the crisis is over.

In the 2019 General Election and its immediate aftermath, Boris Johnson seemed lukewarm about industrial strategy. There were rumours that he and Dominic Cummings would disband the Department for Business, Energy and Industrial Strategy (BEIS) amidst wider reforms to Whitehall and the Civil Service. A focus on ‘place’ or ‘Levelling Up’ and boosting R&D might have offered familiar themes, but the industrial strategy as developed by Johnson’s predecessor Theresa May and by Greg Clark looked doomed.

But as in so many agendas forming at that time, Johnson’s priorities and objectives are changing fast. Writing in the Spectator, James Forsyth notes a shift to what Johnson calls ‘national self-sufficiency’ and ‘the view that Britain cannot afford to be dependent on imports for vital medical equipment’ . He adds that there will be a ‘huge new push for domestic manufacturing after this crisis to ensure that this country can produce drugs, vaccines and medical equipment when necessary.’

We might conclude that ‘little platoons’ or ‘small boats’ aren’t always enough or that they aren’t always in time. And neither are the supply chains or markets especially when many countries are trying to expand supplies and capacity at the same time. So what might ‘national self sufficiency’ or a post Covid-19 industrial policy look like? And how might it aim to increase strategic and industrial capacity in key sectors?

Few policymakers or taxpayers might take issue with increasing investment in the NHS: the supply of doctors, nurses and other health professionals as well as the numbers of beds and intensive care places. The need to improve procurement and distribution systems in the NHS would seem equally uncontroversial, including any increased costs of maintaining spare capacity in staff levels and hospitals and on ‘reshored’ supply chains and equipment stockpiles. With existing commitments to doubling R&D spending, few are likely to complain about more funding for medical research or increased investment in vaccine or drug making facilities.

But any objective for ‘national self sufficiency’ should quickly stretch to other parts of the public and private sector too. Given the importance of manufacturing, it would make sense for more support going to firms or for inward investment in this sector. An industrial strategy might also be rather less blasé when manufacturing firms are struggling or when they are successful and the subject of takeover bids from abroad?

Returning to Jane Jacobs, there are strong arguments to think about more local levels too. Increased capacity needs to be distributed around the country and more effectively to the various health and care systems that make up the NHS. This thinking extends to other areas of industrial strategy. According to the OECD the regional and local impact of the crisis has been highly asymmetric. In China 83% of confirmed cases were in the Hubei Province. In Italy the North was the hardest hit and Lombardy registered the highest number of cases, around 41% of the Nation’s total.

We know that London has suffered badly in the pandemic but that different health trusts and care homes have also struggled including to maintain supplies in many different parts of the country too. There is now compelling evidence from the ONS that the impact has been greatest in poorer parts of the country. We also know that the economic consequences, coming on top of high levels of regional and intra-regional inequality are likely to be asymmetric too.

But prioritising industrial capacity provides government with a strong lever to address this if they do so in a deliberate and strategic way. In other words a refreshed and refocused industrial strategy could support ‘levelling up’ and devolution too. Procurement, such as for PPE, is typically organised through ‘best value’ via global contracts based on delivery at massive scale. Smaller national or local suppliers that don’t make it into these supply chains have to look elsewhere for business. It is the same with many different supply chains whether in manufacturing or retail and food production. Firms either innovate and move up the value chain or they disappear. If it is the latter then local jobs and income are lost. In turn this reduces capacity and resilience at national and local levels.

The trick will be to ensure that increasing capacity and cost does not come with lower quality or standards. We do not want ventilators that don’t work or PPE that isn’t effective and nor do manufacturers or retailers want to compromise on standards in their products or supply chains. So ‘reshoring’ and relocalising supply chains must still prioritise high standards of product design, adaptability and innovation amongst other things. Firms will still require ‘absorptive capacity’ — defined as the ‘ability to recognize the value of new information and technologies, assimilate it, and apply it to commercial ends’. In turn this will require high levels of skills, good networks, more R&D and a policy and business environment that supports them.

As with previous iterations of industrial strategy since the global financial crisis in 2007/8, there follows an enhanced agenda on technical skills, applied research and on the institutions that can best provide them. Enhancing capacity and resilience in health and other vital services requires more staff and more training. One of the reasons the NHS was in danger of being overwhelmed by the initial spread of the coronavirus was the high number of staff reporting symptoms and under instructions to self isolate. The same was true in care homes, supermarkets and in other important sectors.

All of this thinking should extend to the third sector too. It might not have been quite so dependent on global supply chains or just in time procurement, but its role should not be underestimated or undervalued when rethinking industrial strategy and industrial capacity. Jane Jacobs is also remembered for her thinking about social capital, the importance of trust and of different types of people coming together in public spaces with common interests and shared values. This has also been described recently by Andy Haldane, Deputy Governor of the Bank of England and Chair of the Industrial Strategy Council, observing in the Financial Times that ‘even as other capital has crumbled, the stock of social capital has risen, acting as a countercyclical stabiliser across communities.’ He concludes that ‘we need to invest this rich endowment of social capital created by the crisis, by rethinking and rebuilding the institutional immune system that is our social sector’

So a refreshed industrial strategy should bring a focus of increasing industrial and strategic capacity across the UK economy. This starts with ‘national self sufficiency’ in health and manufacturing but then rapidly broadens out to other sectors. There are also very strong arguments to extend this to the so called ‘Foundation Economy’ including retail, social care and distribution for these are also enhancing capacity and building resilience too.

All come with a higher price than debates about efficiency and value for money have allowed in the past. It is a matter of fact that it is more expensive to pay for equipment, facilities and people that you may not need. But it is also a fact that we should pay more for the sectors and occupations that have proved their value during the crisis.

But there is value in doing so and on an industrial strategy focused on rebuilding manufacturing and other sectors can deliver more political, social and economic benefits at the same time. This is partly about understanding in what sectors and supply chains ‘import replacement’ might be necessary but also about political and public appetite for ‘reshoring’ the costs of additional capacity. But it is also about understanding what other value comes with it. Manufacturing offers strong multipliers in local economies and so too do well supplied public services and institutions. As Jane Jacobs saw, the idea of import replacement — as well as industrial capacity — might work best at a local level and in concert with a ‘levelling up’ agenda. Rebuilding capacity and resilience as primary objectives for the national economy can be a primary tool for rebuilding local economies too.