Alan Mak is MP for Havant and Founding Chairman of the All-Party Parliamentary Group on the Fourth Industrial Revolution and author of ‘Getting to the Future First‘.
Over the last seven years Conservatives in Government have steered our economy back towards stability and growth after Labour’s mismanagement.
Britain now has record employment and is home to some of the world’s most innovative businesses, people and places.
But a ‘long tail’ of underperforming businesses is holding us back, whilst stagnant productivity growth is one legacy of Labour’s failed economic model that still lives on.
Solving this productivity problem is key to securing Britain’s post-Brexit economic growth, higher wages, new jobs and rising living standards.
Doing so is of vital strategic importance because as Paul Krugman, the Nobel laureate and economist, puts it, a country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. “Productivity isn’t everything, but, in the long run, it is almost everything,” he famously said.
Electorally, higher wages, better jobs and rising living standards are also key to our electoral success in the future too.
So, it’s right that we Conservatives responded with the bold vision set out in the modern Industrial Strategy White Paper released on Monday. We must harness new technology, rising skill levels and historically-high infrastructure investment to boost productivity in the age of the Fourth Industrial Revolution (4IR).
This new wave of technological change has already begun, and early adopters and innovators using artificial intelligence (AI) and data-driven business models will reap the rewards. Britain is fortunate in having firms at the cutting edge of the Fourth Industrial Revolution, from headline-grabbing, London-based AI business DeepMind to lesser known market leaders such as Cambridge-based Darktrace, one of the world’s leading machine learning companies for cyber security.
Nonetheless, as the Industrial Strategy White Paper makes clear, what’s holding back Britain’s productivity growth is the “long tail” of firms that have failed to invest in, or adopt, new technology. A third of British companies have seen no rise at all in productivity this century, whilst a fifth of British SMEs still use or expect to use faxes to sell their goods and services. This disparity between our most productive and least productive firms has to narrow.
However, this must be done through a market-based, pro-innovation approach, creating more exposure to competition and rewarding firms that invest in new technology. The big-government approach of the 1970s and “picking winners” failed British industry.
Today, we need a smart, strategic state focused on creating the conditions for businesses to succeed – access to capital and skilled workers, modern infrastructure, and support in adapting to new technologies – and then stepping back and letting talented British entrepreneurs get on with the job.
With investment into technical skills, a new National Retraining Scheme, better digital infrastructure, a £31 billion National Productivity Investment Fund, and a new £1.7 billion Transforming Cities fund, both the Autumn Budget and Industrial Strategy do just that. They don’t just get Britain fit for the future (as the strapline goes) – more importantly, they help us get to the future first, ahead of our competitors.
It’s also right that we ask businesses and sectors to take responsibility for their own future by developing “Sector Deals”, partnerships between government and industry on sector-specific issues can create opportunities to boost productivity, employment and skills. Early sectors deals with the automotive and life sciences sectors shows they work.
Making our tail more productive will help the Government reach its new commitment of meeting the OECD average of investing 2.4 per cent of GDP on R&D. This will be the biggest increase in R&D spending by any government in the last 40 years, something I have been pushing for over the last year including on this site.
But we still need to go further: to keep up with trailblazing nations such as Israel, South Korea, and Japan we need to spend of three per cent of GDP in the future, with the private sector making up most of the shortfall.
Getting our SMEs investing in R&D and adopting new technologies will be key to achieving this aim, and that’s why I’m proposing that the next Budget includes a dedicated Emerging Technologies Investment Fund. It would help our entrepreneurs develop and commercialise new inventions by investing alongside private sector partners, to provide the kind of patient capital not currently available through the challenge-based funding system.
Importantly, the benefits of this investment must not be confined to London and the South East, and we must ensure the benefits of the Fourth Industrial Revolution are felt across all regions and nations of the UK. I am pleased that the Government backed my call for Local Industrial Strategies that build on local strengths and deliver on regional economic opportunities.
In addition, there is a clear commitment to the Northern Powerhouse and Midlands Engine, working with elected mayors such as Andy Street and Ben Houchen to deliver regional growth.
To realise the potential of Local Industrial Strategies, we also need to reform Local Enterprise Partnerships (LEPs) so they provide the platform for getting our regions ready for technological change. As Jake Berry, the Local Growth Minister, said at a recent 4IR panel discussion I organised in Parliament: “LEPs are this country’s secret weapon”.
Just as the Liverpool City Region LEP’s ‘LCR 4.0’ project has provided support for advanced manufacturers to adopt new technologies and improve productivity in Merseyside, the same approach can be used for other regions and sectors. LEPs and local authorities should be involved in implementing the Industrial Strategy on the ground, assessing local needs and feeding them back to central government. Of the businesses involved in LCR 4.0, 98 per cent are SMEs, and this is the kind of “on the ground” region-by-region business support that central government is less suited to providing.
In Parliament I will continue championing policies that help Britain lead the Fourth Industrial Revolution, lobbying Government to invest in our digital infrastructure, back our entrepreneurs, and focus on productivity as the key to enhancing our economic growth.
Later this week, I will be launching a new pamphlet, based on a series of articles I recently wrote for ConservativeHome, setting out how we can build on the strong foundations laid by the Autumn Budget and Industrial Strategy to ensure we lead the Fourth Industrial Revolution. Copies can be downloaded here.
As this site’s Editor, Paul Goodman, writes in his foreword to my pamphlet: “Improving productivity and raising wages is thus among the great political as well as economic challenges of our time. Adapting to and leading the Fourth Industrial Revolution is an integral part of it.”
The foresight shown in the Industrial Strategy and the Budget demonstrate that Conservatives are serious about using new technology to unlock latent productivity growth across the whole country. That’s a message we need to get out to our politicians, activists, members and supporters, so we can counter the dystopian message of fear being spread by Labour.
We must also make it clear that the Industrial Strategy is not just a publication but a process, an ongoing strategic initiative that endures throughout this Parliament and beyond. That is why I welcome the Government’s commitment to establish an independent OBR-style Industrial Strategy Council to monitor progress.
Strong employment numbers will not be enough to see off the rise of Corbyn’s anti-business populism. If the Conservative Party is to remain successful, our Industrial Strategy must solve Britain’s productivity puzzle and deliver a tangible financial return they can see in their pay packets and their everyday standard of living.
The Industrial Strategy White Paper is a strong start – but we must deliver its objectives in the months and years ahead to secure our prosperity, lead the Fourth Industrial Revolution, and win future elections.