The Industrial Strategy may be dying, long live the Industrial Strategy

by Matthew Taylor @RSAMatthew

Nine weeks ago, as lock down loomed, the RSA made the decision to pivot our work around the theme of Bridges to the Future. We asked how the RSA might help citizens and organisations, dealing with the tremendous pressures created by the crisis, prepare for a better society after it has passed. Based both on or own approach to change and what we have learnt from the experiences and insights of others, the frameworks we have since developed have been widely quoted and applied nationally and internationally.

A few days ago, the vicar friend of an RSA colleague shared with him the framework for change being used by the Church of England; gratifyingly it was ours. In this post I apply the RSA’s approach to economic recovery.

Having looked at the historical relationship between crisis and long-term intentional change we have suggested that the former is most likely to lead to the latter when three conditions apply:

• Where there is some demand and capacity for change pre-exists the crisis;
• Where the crisis increases the demand and prefigures alternative ways of thinking and acting; and
• When societies emerge from crisis and citizens are open to the need for collective adjustment, whether there are practical policy ideas and social innovations are ready to be deployed.

The third condition may present the highest barrier partly because it requires those coping with crisis to find the time, capacity and imagination to prepare for the future. Indeed, as policymakers think about a longer-term recovery, we also need to develop a medium-term transition plan. Implementing such a plan would involve disruption and involve costs, which might be wasted if a medical solution emerges sooner than most scientists think it will. But the alternative is to continue with high levels of uncertainly, something which reduces motivation and incentives to innovate for what may be an extended period. The transition plan (horizon one) should be, as far as possible, designed to open up or test possibilities for a post Covid-19 era (horizon two).

Here are some suggestions:

• Move to a universal six-day working week (including for schools) based on two, three day, shifts.
• To facilitate safe transport, require employers to fit in to staggered opening times from 7.30/14.30 to 10.30/18.30.
• Pubs, restaurants, theatres and so on to re-open on condition that have had a safe workplace consultation (form a new Safe Work Advisory Service set up inside the Health and Safety Executive) and employ a trained Social Distance Officer (an opportunity to upskill our huge private security workforce).
• All visits to these leisure sites must be pre-booked in time limited slots with an advisory limit of one social activity per week.
• Replace furlough with a negative National Insurance payment (to incentivise job creation) and help those with reduced earnings by increasing Universal Credit entitlements and/or possibly through a form of UBI.
• Other adaptions to include further steps to make roads friendlier for cyclists, walkers and runners.
• Develop a major public service volunteering scheme (enhanced by on-line training and digital badges so that volunteering develops people’s transferable skills).
• Invest in genuine sharing/circular economy platforms. Implement a digital entitlement scheme to provide everyone with a baseline of access and skills

The development of a transition package to which the government commits for, say, a year (unless something radically changes) might start to free up bandwidth to consider the longer-term future. Capacity is big issue in government right now, particularly as this challenge comes on top of the demands of Brexit preparation.

As I hear it, Whitehall views on recovery range from an all-out focus on getting the economy moving in whatever way is most likely to lead to a return to growth, to more radical ideas of using the crisis to restructure the economy with environmental sustainability and social inclusion paramount. Given the scale of global sovereign debt and that the UK enjoys a relatively long-term repayment profile, the issue for bond markets as the crisis unwinds maybe less about overall debt than the credibility of national plans to return to fiscal balance. Even before the crisis it was clear that Johnsonian Conservativism is not shy of state intervention.

Policy options may range from the low road of austerity and tax increases (although these are inevitable with any post-crisis scenario), to the high road of an investment for sustainable growth, but the reality is bound to be somewhere between. Indeed, it is important that new ways of generating revenue — in areas from social care to self-employed labour — are designed and targeted in ways that align with a growth strategy. A significant imponderable lies in the contrasting case for national in-sourcing as supply chains are perceived as less reliable, versus the ambition of a ‘global Britain’ flying the flag for free trade. ‘Resilience’ is a buzzword in government, but there is big difference between a model of national resilience through stronger borders and greater self-sufficiency and one where the country’s future is secured through the strength of its international presence and relationships.

With so many variables and continuing uncertainty about how the pandemic will unfold, there are lots of ideas floating about in and around Whitehall. Unless there is an agreed framework by which to judge them, there is a danger that what emerges is a mixture of expediency and departmental horse-trading.

Applying the RSA’s approach, a better way forward could be to build from an existing economic framework, namely the government’s Industrial Strategy launched in 2017. At the core of the strategy was an attempt — albeit not always successful — to coalesce Whitehall into prioritising four Grand Challenges: ‘AI and data’, ‘clean growth’, ‘ageing society’ and the ‘future of mobility’. To boost productivity and earning power across the country, the strategy also promised a collective focus on the five foundations of productivity: ideas, infrastructure, places, business environment and people.

The progress of the Industrial Strategy is monitored by the Industrial Strategy Council, a group of 18 experts and business leaders, chaired by Andy Haldane of the Bank of England. In its first annual report the Council was largely supportive of government policy but argued that three factors were crucial to the strategy’s success:

— Longevity, since policies typically take a lengthy period to have a significant and durable impact on the economy;

— Scale, since policies need to be large enough to have a significant and lasting impact on macro-economic outcomes; and

— Co-ordination, since the strategy needs to span different aspects of policy and different departments of government and other bodies.

Like so many policies and institutions, the relevance of the Industrial Strategy to our country’s future is now bound up in how we manage and emerge from the pandemic. There is no status quo default. The government may face an implicit choice; either make a step change commitment to the Industrial Strategy as the foundation for economic recovery and national progress or signal its effective side-lining and ultimate abandonment.

The 2017 Industrial Strategy was an invention of the May government. Politics being what it is, there seems to be little enthusiasm in government for simply endorsing an idea developed by a previous administration. So, some of the principles behind the strategy are to be preserved, and if government policy is to respond to the very different circumstances in which we find ourselves, it probably means a full-scale revision.

The strategy could be refocussed and stripped back. It contains 142 policies many of which have little or no resource behind them. There should be fewer local economic strategies covering much larger areas and with much greater investment and decision-making power attached. Similarly, sector deals should only be pursued or agreed when it is clear they genuinely add value.

In addition, the parameters and objectives of the four Grand Challenges should be reconceptualised. As the economist, Mariana Mazzucato, has said governments “have a huge responsibility in shaping the markets by steering innovation to solve public goals.” To set clearer directions to ‘build back better’, here are some initial thoughts.

First, the clean growth goal should be expanded. The UK has an ambitious zero carbon target, but without the delivery mechanisms in place. The Industrial Strategy is the ideal place to set a UK-wide priority to accelerate progress on green infrastructure. This requires an active market-shaping lens, working with cities, regions and the private sector to turn the lofty aspirations for green recovery from the crisis into realisable ‘shovel ready’ investments. Many cities have projects ready, but these need to fast-tracked so that every aspect of delivery from planning to investment to skills has been addressed. Another aspect of a green recovery — and the focus of a major RSA project — is the shift to a more circular economy.

Second, the ageing society mission needs to be integrated with wider policy including the vital and urgent task of radically reforming all aspects of the care system. As well as affordability and resilience, the goal of that system should be what the RSA has called ‘social productivity’; the capacity of a system to encourage individuals, families and communities to contribute to meeting their own aspirations and needs.

Third, digital technology has played a vital role in enabling individuals, communities and public services to respond to Covid-19. There has been innovation, but more important has been the process of digital levelling-up. From the NHS to local government to business, organisations, which had been behind the curve, have scrambled to catch up with best practice. To make a more profound impact on productivity, the government’s AI and data challenge needs to be about accelerating diffusion and levelling up as well as early stage research and development (R&D).

Yet, the RSA’s own research shows that few small and medium size enterprises (SMEs) have yet engaged with the possibilities offered by AI or robotics. In the words of one technology company executive, “more progress has been made in two months than is normal in five years”. This is an opportunity, but it is important to note that as this levelling up takes place, the danger of severe exclusion will grow for those left behind.

Finally, the future of mobility challenge is currently narrow, focusing on zero emission vehicles. Covid-19 will profoundly affect how we move around and the Industrial Strategy needs to set a mission that does not just seek to decarbonise vehicle travel and move to electric cars, but also considers mobility more holistically; from encouraging bicycle travel to post-pandemic public transport, to realistic goals for the travel sector as a whole including what is left of the aviation industry.

A fundamental industrial strategy revamp in the context of recovery is also an opportunity to look again at the five foundations: ideas, infrastructure, places, business environment and people.

Even before the crisis there was beginning to be discussion in Whitehall of the need for a labour market strategy. Now, the scale of unemployment, the acceleration of technological take-up, and public (and Treasury) concern about precarious work all add to the necessity for a concerted approach to labour. Some of the shifts in patterns of work that have occurred in the crisis may persist and ideas like the shorter working week and universal basic income (UBI) are becoming more mainstream. The jobs focus after the crisis is likely to be on quantity of work as much as quality, but the reasons good work matters — laid out in my 2017 report to the government — are even more salient today. Labour market policy is wide-ranging — encompassing welfare and tertiary education — but it is also an integral part of industrial strategy.

The government’s commitment to ‘levelling up’ puts the issue of place centre stage. Not only does this involve a step change in devolution and funding but it also suggests a strong case for a national spatial strategy, which combines a long-term infrastructure plan, a whole-place approach to economic and business development and the shock-absorbers necessary for system resilience. Even with all of this we cannot ignore the evidence of the Industrial Strategy Council’s own research that some left behind places are unlikely to rebound fully. Also, given the role that universities have played in regeneration — Coventry being a strong example — the parlous state of higher education is a new threat.

Before the crisis the ‘business environment’ foundation was primarily seen in terms of support for R&D, start-ups and business growth but there is a need to think more deeply about the kind of businesses and markets we want and need. After the last crisis it was said the UK would benefit from “less financial engineering and more real engineering”. But since then business has become even more financialised, as the byzantine and profoundly dysfunctional nature of the care home market demonstrates.

We need more diverse forms of finance more strongly aligned to social and environmental impact. Corporate governance, management quality, organisational innovation, rebooting public private partnerships and tackling market dominance are all questions that need serious attention. Many business leaders I have spoken to recent weeks recognise this opportunity for a reset. In addressing the high levels of business indebtedness that the Covid-19 crisis is set to leave us with, the government needs to have a guiding vision, using its leverage to create a more productive, resilient, sustainable and socially benign business ecology.

A new, more ambitious version of the Industrial Strategy may be the way forward but perhaps the step change is so radical and the new circumstances so different that it would be better to start again. A new strategy might, for example, shift from the overarching aim of boosting productivity to building national resilience, and then refocus on three meta-challenges: ‘enough work and good work’, ‘reaching net-zero’ and ‘levelling up the nation’.

More radically still, a complete reboot could replace the idea of a discrete strategy in favour of a dynamic mission-driven framework for all economic policy frameworks. The goal here would be a national plan, which would be understood and owned across government, by industry, social partners and even the general public. Indeed, a lack of public awareness or engagement is one of the existing strategy’s flaws.

The need for an industrial strategy (even if the label is discarded) is one of the few policy areas where there is a broad consensus stretching from the Conservatives to the Greens. In the spirit of institutional invention that we need right now, could the government make an explicit attempt to deepen commitment to a mission driven approach across the political spectrum, perhaps by beefing up the independent Council which currently oversees the strategy’s implementation?

The existing Industrial Strategy is a long way from the vision sketched out here but if we want to emerge from this crisis with momentum and hope it may be the best outline framework we have. Over 30 years in policy I have come to understand the importance of timing to policy development and implementation. Until the crisis, the Industrial Strategy was largely a sideshow to the business of government and national economic policy. Even if it means it being reimagined and repackaged, now is the time is right to put it at the centre.

Matthew Taylor is Chief Executive of the RSA. He is a member of the government’s Industrial Strategy Council but is writing in a personal capacity.