Last week, Theresa May, in her Lancaster House speech, defined Brexit as withdrawal from the Single Market. For some, this is defined as hard Brexit. The financial markets did not react badly to May’s January speech. The debate must, however, shift away from defining Brexit in simplistic terms as either ‘hard’ or ‘soft’ towards a discussion regarding the policy environment that is needed Post-Brexit to support sustainable economic growth throughout the UK providing better outcomes for all.
The Brexit negotiations must go hand-in-hand with the development of a supportive policy environment for local economic growth combined with trade negotiations. The publication of the Industrial Strategy Green Paper is welcome. There are many interesting aspects of this strategy including a focus on trying to move towards a more integrated or joined-up approach to industrial policy. Nevertheless, the Green Paper is largely a reworking of existing economic, infrastructure and skills policies with the addition of some limited additional expenditure (£170m). It is important to remember that the most significant alteration in UK industrial strategy over the last 50 years has already occurred - the decision to leave the EU. This has had two critical consequences. Firstly, the major currency devaluation that has occurred is facilitating exports and also new overseas investment in research and development in the UK. Secondly, the ability for the UK to negotiate trade agreements and remove existing EU trade barriers with other countries.
The key exam question is: “what are the key characteristics of a successful industrial strategy?” There are three points to make here and one clarification. The clarification is critical and must come first. Over the last 30 years there have been radical technological developments that have transformed labour markets. Around 30% of jobs that exist in 2017 did not exist in 1987 – digital economy jobs, e-commerce, digital media, etc. The challenge for any industrial strategy is to create a supportive environment that provides citizens with the skills needed to respond to the on-going radical transformation of labour markets. Over 30% of the jobs that exist today will not exist by 2037. The first point builds on this challenge. The most important element of any country’s industrial strategy is an effective educational system. In this context, ‘effective’ is defined as an educational system that is advantageous providing opportunities for all. This means best-in-class primary and secondary schools as well as all types of higher education.
Secondly, the words ‘new’ and ‘modern’ industrial strategy should be of concern. An effective industrial strategy should be a long-term strategy that works over decades rather than years. It should evolve slowly building on a strong supportive foundation and should be evaluated over decades rather than election cycles. There are dangers here in that the 24/7 fast news environment surrounding politics demands new fashionable policy announcements rather than a long-term gradual approach which would be considered as inactivity rather than strategic activity. Thirdly, a long-term strategy is only possible if a country’s industrial strategy is a cross-party project. A change in government must not mean the replacement of one modern industrial strategy with another.
The exit from the EU provides many opportunities for the UK and also some problems. The UK need to embrace the opportunities and resolve the problems. For the West Midlands, this means supporting the West Midlands Combined Authority (WMCA). Many would argue that the most important policy intervention on-going in the West Midlands is HS2, but this is not the case. The most important intervention that has the potential to transform the West Midlands has been the establishment of the Combined Authority. For the partners, the WMCA is an opportunity for the development of a place-sensitive integrated approach to industrial strategy. Companies based in the West Midlands have been doing what they should be doing – identifying export opportunities. They need to be congratulated. The West Midlands is outperforming other English regions in terms of growth in overseas exports; exports are growing to the US and China rather than the EU reflecting the relative state of these economies. More is possible as the WMCA builds an effective place-based strategy that is supported by national strategy.
There is a danger that national policy reflects departmental silos that work against the development of an integrated approach. The May Government must guard against this by exploring opportunities to integrate policy to support sustainable economic growth. Thus, an industrial strategy has to be simultaneously a trade strategy, an infrastructure strategy (energy, water, connectivity), educational strategy (all levels), a housing strategy, a migration strategy, and arts and culture strategy, an R&D investment strategy, a tax strategy, a regulation strategy, an investment and divestment strategy. And, it must be sensitive to place. Everything is linked in the world of the real economy.