You may say that Britain’s current industrial strategy is that they don’t have one. Many pro-market economists like to repeat the famous (amongst policy-wonks, at least) phrase: government is bad at picking winners, and losers are good at picking governments.
But the coronavirus crisis isn’t just hitting a few lone sectors. Airlines, construction, care homes, childcare, universities, charities, hospitality, the high street, theatre, the media; a plethora of different industries face complete devastation. Leaving the decision of who survives to the ugliness of the market is not a desirable outcome at all.
So what is the plan? There was a lot of talk from the Conservatives about “levelling-up” Britain, but this was purely rhetoric. Besides from promises to build some roads and plant a few trees, there was no concrete blueprint in place for what this economic transformation looked like. If you think levelling-up was hard then, it certainly is harder now.
Although BEIS (the Department for Business, Energy and Industrial Strategy) exists, it will actually be the treasury that will do a lot of the heavy-lifting. One of their new programmes, Project Birch, is a plan to save strategically important companies. This would involve providing equity to debt-ridden companies whose collapse would “disproportionately harm the economy”.
Now you may see this final qualifying criterion as slippery, and you would be absolutely correct in thinking that. Determining what is strategically significant depends entirely upon the economic, political and cultural strategy of government, which is hardly clear-cut once you dig below their catchy slogans and viral adverts.
One area they may focus on is watching out for foreign companies buying up British assets. Tom Tughendhat, the Conservative MP who heads up the newly formed China Research Group (CRG), has recently voiced his concerns over the potential for China to expand their Belt and Road Initiative by purchasing key infrastructures in bankrupt parts of the developed world. Bailing-out industries to ensure that Sino-British relations don’t tip too heavily in one-direction may well be an important element of a new industrial strategy.
Having said this, the treasury won’t be afraid to let some industries fail. Senior fellow at the Institute for Government and ex-industrial strategy advisor Giles Wilkes argues that they are more concerned with the general macro picture, rather than the sectoral one. Speaking at the Tony Blair Institute for Global Change, he told an audience that in the 2010-15 recovery, the treasury was fine with some industry collapsing as long as overall employment rose. But the question is, which ones could slip through?
Many thought that airlines, fossil fuel groups and other organisations could be hung out to dry by the government. This was a chance to reset. Economist James Meadway stated that the government should bail out these companies on the condition that they meet various demands such as decarbonisation.
Don’t hold out on this happening though. Recent investigative work by Unearthed found that polluting industries such as airlines, car companies and oil/gas services are among the largest receivers of government loans so far: all with no strings attached.
Such a move contrasts with some of the environmental rhetoric emerging from government. Rishi Sunak has promised a ‘green jobs revolution’, moving people from collapsed sectors into roles including building upgrades, offshore wind, electric cars and tree-planting. Once again there is very little detail here, and is easier said than done.
It may be this ability to reskill that determines what sectors win or lose. New skills are needed for the ‘distance economy’. How easily could workers move from one industry to another?
Hospitality workers transitioning to the delivery sector has already been touted as a natural move. The high street retail staff could also be encouraged to move into roles at UPS and Deliveroo. There are immediate problems here. Not only may there not be enough jobs to go around, but a Conservative government that wants to restore ‘control’ to local communities may struggle to defend the closure of local bars, restaurants and shopping centres that bring people together.
Transitioning may be technically tougher for those with highly specialised skills that have been in an industry for a while. Darren Jones, chair of the BEIS committee, is worried about those in sectors such as aerospace engineering would struggle to adapt to a new industry without transferrable skills.
As well as transferrable skills being important, new skills are needed too. In an age where we may be working from home more often, better emotional and communicative abilities are needed to get over the hurdle that is the difficulty of conveying feelings over the phone or online. Although younger people are going to be hit the hardest by the oncoming recession, their tech-savvy nature may enable them to perform well in this new labour market, should employers give them a chance.
Regarding reskilling, a place to look for inspiration may be Scandinavia. Whilst Sweden may have had a pretty poor performance with the pandemic, they have incredible infrastructure to help the unemployed find new sectors to work in.
The country has networks of industries and union leaders which run job security councils, retraining workers in skills that are in demand after their initial roles have been lost to automation. Economists note that this decentralised approach which relies on local municipalities adapts quickly to market changes. Germany, another country with a robust labour market, gives vouchers to cover retraining costs.
It wouldn’t be right of me to discuss industrial strategy without mentioning free ports. Chancellor Sunak wrote a book for the Centre for Policy Studies advocating for these special economic zones before it was trendy to do so (2016). It certainly fits a particular blend of national neoliberalism that the Conservatives like. Low-tax areas that drive Britain’s imperial image as a buccaneering trading empire.
Along with free ports, other buzzwords that will undoubtedly be pushed around a lot when discussing industrial strategy will involve science and technology. AI, Big Data, Machine Learning, Classic Dom. Britain is one of the world’s leading players in the AI sphere (although comfortably behind the US and China). Championing the next DeepMind would be a smart strategic and political move.
There will also be a desire to build some strategic industries to protect against future pandemics. This will involve a lot of funding of universities and research councils, but my bet is that just as the financial crash and Brexit led to spikes in applications to study economics and politics respectively, COVID-19 may inspire the next crop of budding serologists, immunologists, statisticians and virologists.
Further tech strategy will also involve 5G. Although Huawei have parked their tanks on the British phone networking lawn, many countries are looking to build their own alternative companies. Britain is part of a new D10 group which aims to forge their own alternative to Huawei. Whether this is feasible in the short to medium term, however, remains to be seen.
All of this matters. A lot. Nearly 50 percent of the jobs at risk pay less than £10 an hour. There is an enormous regional element to this too, which areas such as Bolton and Blackpool facing a huge collapse in large employers. Not only would the hysteresis and mental health damage be enormous, but domestically inequality could spike again.
Industrial strategy isn’t purely about picking winners and losers. It also involves constructing the infrastructure so markets can function effectively. However, what remains of the market after the dust settles on the pandemic is highly uncertain. If the government fails to select their winners, the country will definitely lose out when the final whistle blows.