Sean Worth is director of the Westminster Policy Institute and a former Downing Street adviser.
Tony Blair was often accused of what is called ‘pork barrelling’: funnelling public money into target localities to shore up votes there. More cash for hospitals in Labour marginals, for example, or bits of the public sector moved to key constituencies to create jobs. While this is rightly called out as an abuse of power, could Theresa May’s industrial strategy, albeit more innocently, give the Tories a similarly powerful political weapon in some of their toughest electoral battlegrounds?
In terms of what Number 10 means by industrial strategy, they seem focused partly on how to create the conditions for innovative UK firms to gain a bigger share of expanding global markets. They also appear, however, to want to help make regions of the UK that house less innovation and face structural economic weaknesses more resilient to the winds of global market change.
The two are quite hard to reconcile in policy terms – the latter one traditionally being the problem – but to look for an answer it is useful to start with how other governments have developed successful industrial strategies.
Productivity improvement is a huge issue and, to be honest, countries that do well on this, such as the US and Japan, have tended to out-spend us over the long-term in the key R&D, infrastructure and skills areas which tend to drive productivity. There are, however, more immediate actions can be taken to help the UK gain greater share of growing global markets.
Other countries that are successful at this start with a clear strategic focus: targeting growing global sectors like biotech, agri-science, digital entertainment and new energy, for example. Government then does not ‘pick winners’ by supporting favoured brands directly into these markets, but creates the conditions by which small to mid-size firms that have proven themselves domestically can overcome the huge early-stage risks of trading globally.
They tend to do this by essentially helping develop a skills base in what are sometimes termed ‘incubated’ domestic markets en route to going global. US public investment in health R&D helped seed their dominance in the global biotech revolution, for example, and the role of US defence spending in the development of Silicon Valley was instrumental. South Korea is right now encouraging a world-beating digital media and entertainment sector in Seoul, by doing everything possible to accelerate local data download speeds: putting mobile masts in street lights, traffic signs, underground trains, and so on, creating a location draw for growing tech businesses.
This is not statist succour – it is encouraging a target market to develop much more quickly than it otherwise would, but still forcing incoming companies to be exposed fully to competition. The winners who then strike out internationally are not picked by government, but emerge as successes of the conditions government created.
In reality, though, it takes years for these efforts to pay off. For a headline policy agenda, which Number 10 is making of industrial strategy, this will not deliver much electoral dividend before the next election. This is why Mrs May’s industrial strategy will I suspect need to be much more ambitious.
The key, I believe, is adopting an unashamedly regional focus. Some of the best opportunities for developing innovation for international trade can be found in precisely those regions outside the South East where an economic leg-up is most needed. And, by coincidence, the regions where the Tories most need to be seen to care about driving growth and jobs.
In Wales and the North East, for example, where Labour are still well ahead, their share of vote since 1997 has actually been declining around three times faster than the rate of an albeit very modest Conservative rise. A similar, more modest convergence is seen across the whole north of England. The going is still hard for the Tories, but this is an excellent base to be building on.
These regions produce top-quality graduates from many excellent universities in cities which HS2 and Heathrow expansion will now better link to the world, where business location costs are lower and global sector specialisms can be developed and exported into new markets fairly easily.
This is not a new idea, of course, but the barrier to it to date has been convincing graduates to stay in these regions to make the effort of high-skill business location there pay off. Recent research by Homes for the North, for example, identified a huge ‘brain drain’ of northern graduates from the region in spite of the fact that highly-skilled jobs are there – ultimately firms rely on high-skilled migration to fill the gap. Their argument is that it is in fact the housing offer that is the key to making the north a better place for graduates to stay and thus for businesses to want to locate.
And this is where the industrial strategy agenda can be beefed up very seriously. Housebuilding – and infrastructure construction more generally – is another top-priority agenda of Number 10, which now has some serious intent and money behind it. There is no sense in building homes where nobody wants to live but we are seeing swathes of the north utterly unsuited to investment by businesses in spite of decent universities and transport links – where all that is needed is a decent housing offer.
If some of the building agenda could be brought into the new industrial strategy, we could have a real chance at redeveloping regions where growth will otherwise be too slow to arrive – if ever. And while the results would take a while to deliver, the mere fact the Tories are focusing energy and money on the enterprise would at last help voters there see the benefits of a Tory vote – without resorting to pork barrelling.