Abstract
Reviewed by: Andrew Jones, Local Economy Policy Unit, UK
As one of the chapters in this excellent collection observes, industrial policy has a tendency to disappear off the radar of mainstream policy discourse, only to re-appear in modified form as changing ideological fashions or political configurations allow. Like objects tracked by radar, it never really goes away, but merely temporarily vanishes from sight, or, in the words of one of the book’s authors, goes “underground.”
At the time this volume was published, industrial policy was visibly back on the radar, at least in the UK. Official discourse and political rhetoric had focused on the notion of economic “rebalancing,” because the UK was understood to have become over reliant on a small number of industries (in particular, financial services) and over-concentrated in a small part of the country, notably London and the Greater South East. Beyond official policy circles, scepticism directed towards the neoliberal paradigm that had dominated economic policy over the preceding 30 years appeared validated by the financial crisis of 2008, seen by many as an inevitable consequence of unfettered markets and minimal state intervention. Concerns over poor economic performance have coalesced with strategies for lagging regions, and in its current conception, industrial policy has embraced the challenge of low carbon technologies.
Regional and local economic development and environmental sustainability form two among six themes in this book into which its 20 chapters are organised. Additional themes covered range across finance, innovation, employment, and regulation. The introductory chapter by the editors attempts a definition of industrial policy but notes that it is a wide ranging concept encompassing a variety of policy instruments (support for infant industries, trade, science and technology, regulation and de-regulation, merger policy, foreign direct investment, and cluster and regional policy, to name a few). However, it is defined, it is argued that industrial policy should be systemic in approach and deserves an institutional status similar to that accorded to fiscal and monetary policy.
The task of defining industrial policy is taken up again in the first four chapters of the book, where it is acknowledged at the start that the term has been the subject of considerable dispute. In a paper by Christos Pitelis, the term developmental industrial policy (DIP) is coined and defined as “purposive strategic intent, planning, and actions by the public sector to shape, create, extend and co-create markets and ecosystems, as opposed to merely setting the ‘rules of the game’ (institutional framework) or a focus on solving ‘market failures’” (p. 18). States are advised to pursue a “business-strategy informed” DIP involving the identification of comparative and competitive advantage, positioning in relation to other countries on a cost-value (or cost-product differentiation) spectrum, the identification and use of ‘vehicles’ (such as regional innovation clusters) and the capture of critical stages in supply chains. In the same section, the question of definition is taken up again by David Coates, who points out that any policy that impacts on firms could be construed as industrial policy, but a distinction can be made between policies which have an indirect effect and those that have a direct effect. Within the latter, there is continuum between direct control to privatisation and deregulation. There has been a general move along the continuum from policies meant to manage markets to policies designed to increase exposure to markets, and this movement is present, to varying degrees in the chapter’s highly compressed historical review of industrial policy in the USA, France, Germany, Japan, and the UK.
A third chapter (Bowman et al.) in the same section introduces some scepticism over the likely success of industrial policy in rebalancing the UK economy. This is because de-industrialisation has been accompanied by broken supply chains and lost domestic capabilities, with what remains of the UK’s export sector dominated by foreign-owned branch assemblers with a high propensity to import components. The authors instead propose something called the “foundational economy” consisting of sectors with (mostly) large workforces and a large customer base, whose impacts on suppliers, customers, and communities could be regulated by a system of “social licencing.” The chapter ends with the proposition that “a truly experimental form of social licencing will need powerful and substantially autonomous elected authorities” (p. 77). The last chapter in the section (Mushtaq Khan) also draws attention to the scale of the re-balancing challenge the UK faces because of the extent and depth of its de-industrialisation and a much reduced absorptive capacity for innovation. The chapter focuses on industrial policy in Asian economies, from whose experience countries that wish to “re-industrialise” (like the UK) could learn.
Given that this book attempts to showcase more recent ideas in industrial policy and strives to re-cast industrial policy for modern times, it is perhaps depressing that problems identified in Britain several decades ago continue to receive attention. This is most evident in a chapter on skills and training (Green and Mason) which identifies a UK skills deficit. This is a deficit of an equilibrium kind that arises from a deficiency in demand for skills in an economy on a relatively “low-skills/low innovation trajectory” (p. 192). Another long-standing problem, that of short-termism, is identified as an accomplice in Britain’s low skills equilibrium, and it appears elsewhere in chapters on finance and corporate governance. In one chapter (Sawyer), historical studies of finance and industry are cited to show that British financial institutions have failed to provide British industry with long-term finance, but the problem has evolved with the development of the financial system itself. This evolution is captured in the term “financialisation” which refers to an explosion in financial derivatives and consumer debt that has diverted funds away from productive investment. The chapter concludes with recommendations for re-structuring the financial system so that it supports industry. In a chapter on corporate governance (Williamson and Page), a case is put forward for greater worker representation on UK corporate boards. It is noted that in the UK, there is no automatic right of workers to influence (have a voice in) decisions that affect them, and this, it is argued, is in contrast with standard practice in much of Continental Europe. In the UK, corporate governance is based on shareholder primacy. Returning to the theme of short-termism, it is argued that the current structure of share ownership creates incentives for short-term strategies that boost share prices, rather than support long-term organic growth. Greater worker participation appears to be associated with higher long-term productivity growth, probably because it acts as a check on short-termism.
There are only two chapters in this book devoted to industrial policy and regional development. The first, by the book’s editors, rehearses the advantages of agglomeration for city growth, but stresses the disadvantages of “mono-cultures” and insufficient technological diversity, which, where present, mean that cities cannot adapt to market shocks. The problem with many British cities is that they have become locked into growth paths determined by outdated or obsolete industries. The second chapter in the section (Bailey, Hildreth, and De Propris) elaborates on the pitfalls in both “localism” and “centralism” in determining “place-based” industrial strategies. To ensure a sufficient generation of knowledge and local stakeholder engagement whilst avoiding rent capture by local elites, a multi-level system of governance is proposed which inserts a missing layer in the current structure of economic governance in England, that is, between LEPs and Whitehall. Similar proposals for a “missing space” in governance structure have also appeared in an in an edited volume (Bailey et al., 2016) on devolution and the UK economy (reviewed in a later edition), and, indeed, in an article published earlier in Local Economy (Hildreth and Bailey, 2014).
The (relatively) new kid in the industrial policy neighbourhood, environmental sustainability, is dealt with in two chapters in the book’s last section. In the first of these, the author (Aiginger) proposes a systemic policy with “beyond-GDP goals,” in which “industrial policy thus merges into a systemic socio-economic strategy” (p. 390). Focusing on Europe in particular, it is argued that Europe should be a role model for other countries, and that industrial policy should foster a long-run transition, as opposed to decelerating industrial change. However, even though the EU has put sustainability at the centre stage of industrial policy, the current signs for an ecologically sound development path are unclear. On the one hand, Europe has increased the share of renewable energy in its energy mix, but on the other (at the time of writing) retains a fear of losing cost competitiveness. In the long run, the only viable choice is to further its lead in energy efficiency and increase investment in innovation. In the second of the two chapters (Coffey and Thornley), the focus shifts once more back to the UK, where recent policy initiatives, and their accompanying ambiguities, are reviewed. These start with Gordon Brown’s launch of a Low Carbon Strategy in 2009, Vince Cable’s launch of a sector strategy in 2012 (which included proposals for the encouragement of renewable energy) and the creation of a Green Investment Bank. Powerful lobbies and political formations, it is argued, tip the balance of industrial policy towards growth rather than sustainability (even if any sort of industrial policy, whatever its orientation, is generally welcome, which is not clear). The British automotive industry is used as a case study to illustrate how sectoral or (vertical) industrial strategies might act to obscure horizontal linkages important to the promotion of sustainability, once more raising the importance of a systemic approach to industrial policy, a proposition that recurs throughout this book.
Much has changed in the UK since this book was published. First, the book could only have been written before the 2015 General Election which brought the Conservative Party back into governing on its own for the first time in eighteen years. Shorn of any comprise positions with its erstwhile coalition partners in the previous Government, enthusiasm for industrial policy over 2015–2016 appeared somewhat diluted. However, the “Leave” win in the 2016 ‘in-out’ referendum on the EU will likely challenge all the accepted orthodoxies of UK economic management. Industrial policy will undoubtedly make a comeback, and in contemplating its re-appraisal, this book is a good place to start.