AT THE HELM
Labour's embrace of active industrial strategy can count on widespread support, including from businesses. But the details may need further thought - and labour interests must be included, argue Ciaran Driver and Peter Kenway
BY Ciaran Driver Peter Kenway
DATE 8 May 2024
THE FABIAN SOCIETY
There has been growing acceptance of state-directed industrial strategy since the end of the ‘great moderation’ in 2008. This is partly driven by dissatisfaction with market solutions, which have not delivered in terms of productivity gains since then, nor created secure livelihoods. What is noteworthy now is that business, too, has bought into the idea. Labour’s prospective industrial strategy is not being imposed on businesses, but welcomed by them.
This is certainly understandable. With economic forecasts increasingly uncertain and prone to error it is more difficult to plan. There is less confidence in the existence of a unique path for the economy; the concept of multiple possible outcomes has gained credence even among orthodox economic opinion so that state-facilitated coordination of business plans is now more accepted. The Financial Times can observe that: “private capital allocates itself efficiently in markets that are well-defined. It cannot bear the heavy lifting required of it when the task ahead is so vague.”
For the Labour party, industrial strategy has come to form part of what is known as “securonomics,” a project for growth with security. Rachel Reeves has linked this term with the writing of one of the main industrial strategy theorists, Dani Rodrik, whose view is that there is now broad political support for a reorientation towards good jobs and localism and away from finance, consumerism and globalism.
Business acceptance of a role for industrial strategy offers space for Labour to develop a distinctive approach. One danger here is that ‘industrial strategy’ becomes like ‘levelling up’: badly needed but badly defined, over-ambitious and under-resourced. To its credit, the Labour papers that initiated discussion on industrial strategy recognized the need for a structural approach that delineated different ‘pillars’ to “…offer a clear signal to businesses in each pillar about the type of partnership they can expect from a Labour government.”
The four pillars identified in that document are: critical infrastructure and industrial competences; global export-oriented champions; future success – mainly small and new business; and the everyday economy. These sets overlap to some extent, but we can understand that the intent is to identify a range of separate visions to be adopted for different sectors depending on the relationships that they imply between government and business partners.
For certain easily recognisable industries, there are bargaining relationships between firms and government mediated by regulation and power. These relationships may involve direct deals with individual businesses in messy processes that cannot easily be summarised or categorised. In some cases – such as industries needing vast investment, advanced technologies only sourced abroad, or declining industries such as steel – the government may be on the back foot. In other areas where there is a large domestic market or where the UK provides critical inputs or support, the reverse may be the case.
These aspects of industrial strategy are familiar, and will benefit from a surge in research and expertise. They are not, however, at the heart of what is potentially innovative in the party’s approach. The truly novel aspects are embedded in the remaining pillars, “future success” and the “everyday economy”, which we, following Labour, will refer to respectively as pillars 3 and 4.
At first sight these two pillars seem distinct: pillar 3 is referred to as high productivity, supporting well-paid jobs. Pillar 4 refers to non-market services, retail, hospitality and leisure. They appear to occupy two different thought spaces in terms of function and labour process. It is notable also that these differences have given rise to intense debate in academic and policy circles as to which should be prioritised. The first corresponds to the idea of a technological fix, as in writings predominantly concerned with education, research, cities and productivity, a selection of which appear on the LSE growth commission website or NIESR’s Productivity Commission website. The second pillar corresponds to what Ewart Keep, writing for the Chartered Institute of Personnel and Development has described as the notion of basic, people-centred needs and inequalities arising from poor social provision.
We wish to frame the debate differently – not as an either/or choice between technology and needs but as a marriage between the two that must be carefully arranged. To be clear, we are not here to address the full gamut of industrial strategy, some of which belongs to the first two pillars and some of which is inherently high-tech. The issue at hand is the potential for integrating the agenda of the last two pillars in a way that does not disconnect the productivity agenda from that of needs. We believe that if this is not done, the “everyday economy” will become an add-on whose function will largely be to compensate for potential inequalities of the growth agenda; and like all good intentions it may not even achieve that. It is important therefore to closely examine pillars 3 and 4 and to discuss and discover a basis for at least some interaction.Pillar 3: the focus is on the future, providing foresight and coordination to help foster industries that are needed to meet a demand which as of today remains latent. Although such situations represent opportunities for private companies, they may not choose to grasp them, whether out of fear that the gains from doing so are appropriated by others (for example, new suppliers, workers, and/or customers), or in the belief that the hoped-for demand will not in the end appear. Turning a latent demand for something deemed socially desirable into an effective demand, thereby drawing an industry in a particular direction, is a key role for industrial strategy. There is no reason, however, to suppose that does not at times apply too to the everyday economy, which while labour intensive, needs to become somewhat less so.
Pillar 4: The everyday economy is more complex than is suggested when it described as “the parts of our economy that make our lives worth living, providing the leisure activities and experiences we enjoy, the backbone of local places and high streets, and catering for our family’s needs.” This somewhat rose-tinted picture does not convey the reality that the everyday economy comprises a spectrum of high-tech and labour intensive services. People spend more on telecommunications than on sports, amusement and recreation facilities for example. Non-marketed services include the research-intensive acute care parts of the NHS. There is a role for industrial strategy in connecting with the innovative planning framework for pillar 3.
Skills provision that is rightly seen as important for pillar 4 will not, on its own, resolve the productivity issue. Skills need to be organised so that they fit the future needs of workers as they adapt to new technological trajectories. The likelihood of that happening is small unless there is buy-in from the workforce so that they can themselves have some say in the type of technologies and the type of training that is required. It is hard to see this happening except through the design of some small-scale advance towards stakeholder involvement, such as an experimental system of works councils dedicated to the sole task of bargaining with management over training provision. As a first step, pillar 4 is the place to begin this process.
The ideas discussed here fit, we believe, with Labour’s thinking about industrial strategy. But they go beyond what is currently articulated in terms of the partnerships that are envisaged. We argued at the outset that business is now on board with the industrial strategy agenda. But at least for pillars 3 and 4, it is no less important to bring labour interests into the picture too. A true partnership for industrial strategy will need to be (at least) tri-partite.
CIARAN DRIVER
Ciaran Driver is professor of economics at the School of Finance and Management, SOAS. He writes on capital investment, corporate governance, and political economy. Books include Driver and Thompson (eds): Corporate Governance in Contention (OUP 2018). He wrote the opinion piece: Why Starmer can’t be Blair in the Fabian Review, Winter 2022. He is a Fellow of the Academy of Social Sciences.
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PETER KENWAY
PeterKenway is cofounder and former director of the New Policy Institute. He recently coauthored an English language report with Jürgen Klute for the Rosa Luxemburg Foundation on Structural Change and Industrial Politics in the Ruhr Region.
DATE 8 May 2024
THE FABIAN SOCIETY
There has been growing acceptance of state-directed industrial strategy since the end of the ‘great moderation’ in 2008. This is partly driven by dissatisfaction with market solutions, which have not delivered in terms of productivity gains since then, nor created secure livelihoods. What is noteworthy now is that business, too, has bought into the idea. Labour’s prospective industrial strategy is not being imposed on businesses, but welcomed by them.
This is certainly understandable. With economic forecasts increasingly uncertain and prone to error it is more difficult to plan. There is less confidence in the existence of a unique path for the economy; the concept of multiple possible outcomes has gained credence even among orthodox economic opinion so that state-facilitated coordination of business plans is now more accepted. The Financial Times can observe that: “private capital allocates itself efficiently in markets that are well-defined. It cannot bear the heavy lifting required of it when the task ahead is so vague.”
For the Labour party, industrial strategy has come to form part of what is known as “securonomics,” a project for growth with security. Rachel Reeves has linked this term with the writing of one of the main industrial strategy theorists, Dani Rodrik, whose view is that there is now broad political support for a reorientation towards good jobs and localism and away from finance, consumerism and globalism.
Business acceptance of a role for industrial strategy offers space for Labour to develop a distinctive approach. One danger here is that ‘industrial strategy’ becomes like ‘levelling up’: badly needed but badly defined, over-ambitious and under-resourced. To its credit, the Labour papers that initiated discussion on industrial strategy recognized the need for a structural approach that delineated different ‘pillars’ to “…offer a clear signal to businesses in each pillar about the type of partnership they can expect from a Labour government.”
The four pillars identified in that document are: critical infrastructure and industrial competences; global export-oriented champions; future success – mainly small and new business; and the everyday economy. These sets overlap to some extent, but we can understand that the intent is to identify a range of separate visions to be adopted for different sectors depending on the relationships that they imply between government and business partners.
For certain easily recognisable industries, there are bargaining relationships between firms and government mediated by regulation and power. These relationships may involve direct deals with individual businesses in messy processes that cannot easily be summarised or categorised. In some cases – such as industries needing vast investment, advanced technologies only sourced abroad, or declining industries such as steel – the government may be on the back foot. In other areas where there is a large domestic market or where the UK provides critical inputs or support, the reverse may be the case.
These aspects of industrial strategy are familiar, and will benefit from a surge in research and expertise. They are not, however, at the heart of what is potentially innovative in the party’s approach. The truly novel aspects are embedded in the remaining pillars, “future success” and the “everyday economy”, which we, following Labour, will refer to respectively as pillars 3 and 4.
At first sight these two pillars seem distinct: pillar 3 is referred to as high productivity, supporting well-paid jobs. Pillar 4 refers to non-market services, retail, hospitality and leisure. They appear to occupy two different thought spaces in terms of function and labour process. It is notable also that these differences have given rise to intense debate in academic and policy circles as to which should be prioritised. The first corresponds to the idea of a technological fix, as in writings predominantly concerned with education, research, cities and productivity, a selection of which appear on the LSE growth commission website or NIESR’s Productivity Commission website. The second pillar corresponds to what Ewart Keep, writing for the Chartered Institute of Personnel and Development has described as the notion of basic, people-centred needs and inequalities arising from poor social provision.
We wish to frame the debate differently – not as an either/or choice between technology and needs but as a marriage between the two that must be carefully arranged. To be clear, we are not here to address the full gamut of industrial strategy, some of which belongs to the first two pillars and some of which is inherently high-tech. The issue at hand is the potential for integrating the agenda of the last two pillars in a way that does not disconnect the productivity agenda from that of needs. We believe that if this is not done, the “everyday economy” will become an add-on whose function will largely be to compensate for potential inequalities of the growth agenda; and like all good intentions it may not even achieve that. It is important therefore to closely examine pillars 3 and 4 and to discuss and discover a basis for at least some interaction.Pillar 3: the focus is on the future, providing foresight and coordination to help foster industries that are needed to meet a demand which as of today remains latent. Although such situations represent opportunities for private companies, they may not choose to grasp them, whether out of fear that the gains from doing so are appropriated by others (for example, new suppliers, workers, and/or customers), or in the belief that the hoped-for demand will not in the end appear. Turning a latent demand for something deemed socially desirable into an effective demand, thereby drawing an industry in a particular direction, is a key role for industrial strategy. There is no reason, however, to suppose that does not at times apply too to the everyday economy, which while labour intensive, needs to become somewhat less so.
Pillar 4: The everyday economy is more complex than is suggested when it described as “the parts of our economy that make our lives worth living, providing the leisure activities and experiences we enjoy, the backbone of local places and high streets, and catering for our family’s needs.” This somewhat rose-tinted picture does not convey the reality that the everyday economy comprises a spectrum of high-tech and labour intensive services. People spend more on telecommunications than on sports, amusement and recreation facilities for example. Non-marketed services include the research-intensive acute care parts of the NHS. There is a role for industrial strategy in connecting with the innovative planning framework for pillar 3.
Skills provision that is rightly seen as important for pillar 4 will not, on its own, resolve the productivity issue. Skills need to be organised so that they fit the future needs of workers as they adapt to new technological trajectories. The likelihood of that happening is small unless there is buy-in from the workforce so that they can themselves have some say in the type of technologies and the type of training that is required. It is hard to see this happening except through the design of some small-scale advance towards stakeholder involvement, such as an experimental system of works councils dedicated to the sole task of bargaining with management over training provision. As a first step, pillar 4 is the place to begin this process.
The ideas discussed here fit, we believe, with Labour’s thinking about industrial strategy. But they go beyond what is currently articulated in terms of the partnerships that are envisaged. We argued at the outset that business is now on board with the industrial strategy agenda. But at least for pillars 3 and 4, it is no less important to bring labour interests into the picture too. A true partnership for industrial strategy will need to be (at least) tri-partite.
CIARAN DRIVER
Ciaran Driver is professor of economics at the School of Finance and Management, SOAS. He writes on capital investment, corporate governance, and political economy. Books include Driver and Thompson (eds): Corporate Governance in Contention (OUP 2018). He wrote the opinion piece: Why Starmer can’t be Blair in the Fabian Review, Winter 2022. He is a Fellow of the Academy of Social Sciences.
PETER KENWAY
PeterKenway is cofounder and former director of the New Policy Institute. He recently coauthored an English language report with Jürgen Klute for the Rosa Luxemburg Foundation on Structural Change and Industrial Politics in the Ruhr Region.
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