Industrial Policy

Industrial Policy

- Any policy that influences the competitiveness of industry - Policies directed at microeconomic objectives E.g. Stimulating innovation or export growth rather than minimising inflation or unemployment Industrial policy covers a diverse range of policies: - Trade policy - Infrastructure policy - Technology policy - Competition policy - 'Manufacturing strategy'

Future for industrial policy

- Despite this, industrial policy continues to take a back seat to competition policy Williams et al (2011) argues that current horizontal industrial policy will not be able to reverse the decline in fortunes of the manufacturing sector in the UK - Businesses are institutionally located: Supply chains are such that many intermediate parts/components are produced outside of the UK, and most manufacturing firms in the UK are foreign-owned - Williams argues attention should move away from focusing on competitive success and towards 'sheltered activities of repair, maintenance and upgrading of infrastructure' Need for reconstructive interventionism...

Industrial policy under new labour

- Encourage long-term research and development - Promote competitive markets - Equip the labour market with necessary education and - skills - Particular emphasis of policy was on manufacturing strategy - Seek to cluster small firms in particular regions based on grants (Silicon Glen, M4 corridor etc) - Generally industrial policy in UK has become very pro-business, with little role for organised labour

Specific coalition policies:

- Revival of Enterprise Zones - Government announced creation of 22 new Enterprise Zones in 2011 - Benefits for firms investing in these Zones include waiver of business rates, simplified planning applications, allowances for investment - Superfast broadband also rolled out more rapidly in Enterprise Zones - Focus is on sectors where the UK has a competitive advantage, or is likely to in the future (precision engineering, defence, green technologies, biotech, pharma, creative industries)

Three different approaches

1. Market failure - industrial policy used to offset market failures due to monopolies, externalities (this is the traditional approach in UK) 2. Austrian approach - high profits and externalities create opportunities. Industrial policy should promote free entry and free markets 3. Developmental state - the market cannot guarantee optimal structural change without help. State intervention needed

Enterprise zones may:

Attract business into a depressed area swiftly - Create regional economic momentum - Improve regional competitiveness - Address local market failures Displace most of their jobs from other areas - Temporary incentives reverse when scheme ends - Tax breaks may not be a cost effective way to stimulate growth - May disadvantage the knowledge economy

Current tory approach

Critic of state intervention and 'passionate believer in free enterprise'. Enthusiastic on 'cutting red tape' (de-regulation). Looks set to reduce investment in automotive, science and technology, championed by his predecessor. Even shuns the term 'industrial strategy' in favour of a very nebulous 'industrial approach'.

1980s/1990s industrial policy

Declining interest in industrial policy - Widespread privatisation and return to belief in virtues of free market - Rise of neo-liberalism - laissez faire approach Industrial policy returns to the agenda in the 1990s due to poor economic performance in UK - Recognition of the need to develop links between industry and science base - Encouraged 'short termism' in innovation and research?

1960s industrial policy

Development of National Planning Institutions to co-ordinate planning of industrial sectors - National Economic Development Council - Economic Development Committees for each industry (state, employers and union involvement) Target of 4% growth per annum sought from 1965 Industry specific measures put in place around - Training - Improving technology - Increasing foreign direct investment - Increasing growth in regions

Industrial policy under coalition government

Industrial policy focusing on: - Making choices about where to target spending - Identifying sectors where UK has current or future competitive advantage - Majority will not get financial support - Specific initiatives include establishment of innovation centres, and expansion of apprenticeships - More Recently: Enterprise Zones

Instruments of industrial policy (grants and subsidies)

Provide support to: -investment -employment -training -innovation Usually selective by sector or region -often about encouraging firms to invest in less prosperous areas

Instruments of industrial policy (fiscal)

Reduction in taxes on: - research and development - employment -profits -reductions could be universal or selective (applied to particular regions or sectors)

1970s industrial policy

Targeted support measures towards the sectors that were deemed to matter most -those sectors that had been previously successful -those that could potentially be successful -those sectors deemed as key to the economy Supposedly a strategy of "picking winners", but criticised as supporting declining sectors

Instruments of industrial policy (direct action)

This is direct investment by government in specified areas: e.g. public funded labs or resources e.g. state locating part of public sector in particular regions Also includes tariff policy And regulation of privatised industry

Coalition perspective

supports enterprise but not on an individual level ie not supporting individual enterprises investing in areas which britain is good at, and where britain is likely to become good at, whilst recognising the areas in which it will be futile to compete