Blog

Written on 3 Oct 2021 by Adam Muhtar

Can the UK learn from past failures to develop an effective industrial policy?

The UK Government abolished its latest industrial strategy earlier this year and put a new plan in place. But will its ambitions for British leadership in science and technology be able to deliver if lessons from past failures are not taken to heart? asks Adam Muhtar.

As recovery from the pandemic starts to gain hold in many countries – and in the context of no or slow rises in living standards since the 2008/9 financial crisis – the case for a sustained industrial policy has become compelling.

Many economies have experienced low growth and poor productivity performance since 2008; there are growing imbalances across many dimensions such as region, demography, income, and opportunity; and there is an evident lack of preparedness to respond to economic shocks such as pandemics and climate change-related extreme weather events. These point to underlying structural weaknesses in the way the economy is presently managed. There is undoubtedly a disillusionment with market fundamentalism, and the pandemic has by necessity forced far greater state intervention in the economy.

As a result, policymakers across the OECD countries have expressed renewed interest in industrial policies and a number of developed economies are already embarking on ambitious programmes. The European Union, for instance, is embarking on a substantial effort to turn Europe into the first climate-neutral continent by 2050 via its Industrial Strategy and the Green New Deal. The United States’ colossal US$250 billion Innovation and Competition Act, passed with bipartisan support, is aimed at supporting activities ranging from semiconductor production to space exploration technologies.

The UK stands out in contrast to these wider developments in global policy discourse. Since the 1970s, British industrial policy has been characterised by policies that are often prematurely dropped or rolled back; the replacement of the 2017 Industrial Strategy with the 2021 Plan for Growth and Innovation Strategy is the latest in a long line of rapid policy reversals – in this case both drawn up by a Conservative Government – lacking objective rationales for changing course.

To better understand the UK’s experience, a new policy brief maps the top-down institutional arrangements and relationships that make up the current UK industrial policy environment. From this conceptual mapping of the process of generating and implementing policies, we describe the key deficiencies: a lack of information feedback from economic evaluations to policy-setting, due to immediate political considerations outweighing economic criteria in setting the direction of policies. As a result of the institutional inability to learn from experience, British industrial policy suffers from policy inconsistency and coordination failures.

This is exacerbated by a highly fragmented institutional context, itself partly the result of frequent policy reversals and announcements. Changes of direction on policy leave the flotsam of the previous framework in existence, operating at an inadequate scale, and with scant coordination between the bodies involved.

Recognising the centrality of learning in driving policy improvements over time, the reform options explored in this paper focus on potential ways of embedding a mechanism to learn from previous policies and their outcomes back into the heart of policy generation process. Independent oversight and development agencies with a long-term strategic perspective are at the heart of the options proposed. Drawing on the experience of other countries, such as Japan and Norway, we suggest a venture-styles sovereign wealth fund could build on existing institutional foundations, many of which are ultimately overseen by the body UK Government Investments (UKGI). This reports in to the Treasury, and our proposal emphasises the need for an independent evaluation function, much as the OBR or Bank of England are able to comment independently on other aspects of government policy.

Learning from past industrial strategy Fig 2

Ultimately, the aim is to produce a policymaking practice that is forward-looking, long-termist, and enables far better coordination of policies in the complex domain of structural change; given the looming societal challenges in the near future, having an open and inclusive policymaking practice that is honest and objective represents the best way to move forward and overcome those challenges.

  • About the author

    Adam Muhtar, Research Assistant

    Adam is a Research Assistant at the Bennett Institute for Public Policy. He previously worked as an economist within Malaysia’s policymaking circles, serving the Prime Minister's advisory council, the Ministry of Finance, the capital market regulator, and the sovereign wealth fund’s research institute.   Learn more