Britain requires a radical industrial policy for a post-Brexit era in which 10m jobs are at risk from automation in the next two decades.
The UK’s technical skills level is in the bottom quartile of leading industrial nations, regional inequalities are stark (with 61 per cent of people living in areas with incomes 10 per cent below the national average), investment in research and development is 1.7 per cent of GDP versus the OECD average of 2.4 per cent, and increasing global competition has eroded industries of vital strategic importance.
Industrial policy should build a highly productive and diverse economy whose benefits can be shared by all the people in the country. That requires contrarian thinking by the state.
First, addressing the dearth of science and engineering graduates requires a cultural shift so that those that pursue these paths are revered.
In France, to make it to the hallowed Ecole Polytechnique is to have reached the pinnacle of intellectual achievement. Those that emerge go on to run the most prestigious companies in France and ascend to the top posts in government. In the UK far too many of our brightest engineers end up as bankers.
Tuition fees for students pursuing technical degrees should be scrapped provided that they go on to pursue careers in an associated field for at least 10 years post-graduation. If they leave earlier, they should reimburse the state.
Second, we need an economy that is more regionally balanced.
Research by the LSE’s Centre of Economic Performance found that, in relation to Regional Selective Assistance grants that were doled out to companies for capital expenditure in the 1980s, a 10 per cent increase in an area’s level of investment subsidy resulted in a three per cent decrease in unemployment. But it was a very blunt and costly instrument.
The government should instead provide incentives to firms to invest.
One option is a three-year tax free holiday for established manufacturing firms opening new factories in areas of the country where income inequality is greatest.
Another is 100 per cent tax relief for investors providing seed funding to companies in certain sectors, such as renewable energy, battery storage, and biotech, in which the UK is looking to build a presence.
Third, given that the UK has some of the leading research universities in the world, the government should seek to encourage commercialisation of that research. Incentives should be given to companies like Rolls-Royce that partner with universities to develop new technology for product advancement in specific areas, such as aerodynamics and combustion.
Finally, the government should retain involvement in strategic sectors of the economy – steel, aerospace, and nuclear power – where there are long term national security considerations.
This does not mean kind of misplaced financial support given to British Leyland in the 1970s, but rather temporary support for strategic industries where required.
The industrial strategy of the future requires a severing of the umbilical cord of interventionist and subsequent laissez-faire policies pursued by successive governments for decades.
The challenges are new and plentiful, and policy must rise to them.