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In-person event

Government & the Economy Series: Industrial Strategy, a panel discussion with Business Secretary Rt Hon Vince Cable MP

This event was the first in a series of talks supported by the City of London Corporation on the Government and the Economy.

This event was the first in the Government & the Economy, a series of talks supported by the City of London Corporation. The series will include two public events and two roundtables.

Peter Riddell opened the event by highlighting the recent renewed interest in industrial strategy across the political spectrum, and the issues this has raised in relation to how government should organise itself and how it should relate to the private sector. There are also questions about what instruments governments should use to intervene in the private sector.

Vince Cable discussed some of the issues that make it difficult for government to operate with a view to the long term and how these difficulties can be countered in practice. He outlined some of the factors that make long term thinking and planning in government difficult:

  • The political cycle. He described coming into government as a ‘culture shock’ in terms of long term planning. Having previously been involved in projects that were being planned over a 40-50 year time horizon, working in government is a very different decision making environment where five years in the same job is considered a very long term.
  • Institutional arrangements in the private sector being geared to short term thinking. Often the fiduciary duty is interpreted by individuals running financial institutions in terms of short term returns to their clients.
  • Pressures on particular issues. While it varies depending on content area, pressures on decision making in relation to price can lead to short term thinking.
  • ‘Stuff happens’.  For example, the recent financial crisis changed many of the assumptions on which business decisions are made.

It is desirable from a public policy point of view to take a long term approach, which the government characterises as its ‘Industrial Strategy’. The strategy has several basic premises:

  1. Long term planning. Large sectors of the economy need to have long term planning which goes beyond the political cycle. Government needs to create a framework which will enable issues to be looked at coherently and sensibly.
  2. Partnership/collaboration. A collaborative approach is needed between business and government. Working in partnership captures the recognition that there are big externalities and market failures that government needs to address.
  3. Cross government strategy. Government operate in silos as departments have their own interests. The industrial strategy tries to tie things together through cross departmental work to ensure different departmental processes are compatible.

Although there was scepticism at the launch of the strategy about whether it would work in practice, there have been tangible results. The industrial strategy has meant that government has been able to increase procurement from UK suppliers for major projects.

There are four main long term issues and market externalities that the industrial strategy is trying to address:

  1. Skill shortages in different sectors. The government is engaged in the cultural task of changing job aspirations. The strategy is also starting to change the mentality in construction sector and embed long term planning.
  2. Innovation. There has been an attempt to improve the relevant structures through the Catapult centres which aim to take a long term view on key technologies that have industrial application.
  3. Public procurement. While different government departments have varying levels of buy in, and there have been difficulties in integrating different departments into the industrial strategy in this respect, it is ongoing.
  4. Access to finance. The strategy is seeking to address the problems SMEs face in raising long term capital. The Business Bank and private sector fund are embryonic systems of funding business on longer term basis.

Richard Parry Jones emphasised that while all countries have industrial strategies, some are carefully designed strategies of growth while others are strategies of neglect. The UK is fortunate to now have a strategy of growth. He stated that government and industry have co-dependencies whether they like it or not and the best approach is to have a strategic partnership.

As chair of the Automotive Innovation and Growth Team, he was involved in comparing the UK’s approach to the automotive industry to those of other countries. Internationally it was clear that collaboration, communication and co-design created positive outcomes for stakeholders. The group concluded that a strategic partnership was best and through dialogue produced a common framework, around which it was possible to work together to attract investors to the UK automotive industry.

He stated that companies need reasons to invest in UK beyond domestic market demand. Industry needs a friendly government, one that makes a difference through its rhetoric by welcoming investment over a sustained period of time. In terms of development of industrial strategy, industry also has a responsibility; it cannot leave the development of industrial strategy to government alone. Industry must create collaborative forums where different competitors in relevant sectors can find common interests.

The automotive supply chain is starting to reap the benefits of industrial strategy. A good deal of the credit for the success of the automotive sector is due to the industrial strategy. We now need to refresh the strategy, and create a new round of continuous improvement and success in the automotive industry.

Eoin O’Sullivan spoke about the approaches that different countries are adopting in relation to domestic industrial strategy. He highlighted some common themes that emerge despite a variety of different policy initiatives, economic challenges and industrial structures. These included a strong emphasis on coordination across government, government playing a convening role and creating opportunities for collaborative forum, partnership between government and industry, longer term planning, stability and attention to the role of networks, institutions and cross government coordination groups.

The UK could benefit from international examples of collective business attempts to identify long term strategic needs. For example, Germany brings together SMEs to identify long term needs and critical challenges both within their sector and across sectors. The White House also has good examples of sub-committees focused on long-term issues of growth and employment which cut across different industries.

Political party
Liberal Democrat
Publisher
Institute for Government

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