Economic Prosperity and Employment

Lord Bhattacharyya Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Bhattacharyya]

My Lords, I thank my noble friend Lord Haskel for choosing such an important topic for this debate. He is a passionate believer in manufacturing and technology. I declare an interest as chairman of Warwick Manufacturing Group at the University of Warwick, where we have worked for three decades to deliver growth, both at home and abroad.

It is vital to remember the positive difference the previous Government made to our society and economy. Since 1997 we have seen huge improvements in the infrastructure of the nation in rail, schools, hospitals and science. If we had not made those investments, our public realm would have resembled that of a third-world nation. The Labour Party should be proud of those achievements. There are problems, of course, but real successes too. For example, the importance of the science budget is reflected in the current Government’s decision to protect that funding. Naturally, there is a need to go further. We have already heard about the need for infrastructure spending as a driver for growth and I strongly support projects such as HS2. A single driver such as HS2 will create not only a different mindset among industrialists throughout the world but also employment. I also support innovation policies to create a more broadly balanced economy.

We can learn, too, from fast-growing nations. I often visit China. On a recent trip I saw that when growth faltered, the Chinese Government announced 25 major rail projects. They also announced further investment in innovation, aiming to surpass American R&D spend in the next decade. This approach creates a framework for long-term growth, encouraging business investment and increasing the likelihood that jobs created by these businesses will be sustained over a period of time. Here in Britain similar policies are vital, not least for the many young people who face long-term unemployment if there is little growth. Of course, Britain faces real financial constraints. This means we need a better understanding of the impact of our policies.

The real question is not whether government should contribute to economic growth, but how effectively it makes that contribution. I am reminded that the original title of Lloyd George’s Yellow Book of 1928 was Britain’s Industrial Future. Since then we have had many such mantras, such as national champions, white heat, sunrise industries or industrial activism. All of them have agreed with the fundamental judgment of the Yellow Book on industrial policy, which was:

“There is no question of principle at stake but only one of degree, of expediency, of method”.

A focus on expediency and method should make us sceptical of grand claims for any growth policy. As Karl Polanyi said of the industrial revolution:

“No one had forecast the development of a machine industry; it came as a complete surprise”.

Similarly, no one could have forecast what is happening today with the digital revolution.

Governments can never guarantee, or even predict, disruptive innovation. Instead, they should focus on incremental change, supporting infrastructure and innovation, thus creating a framework in which innovators prosper. This means better understanding of what government does well and where it must do better. In this spirit I propose a practical change to encourage the effectiveness of growth policy. It is simply that we commit to a higher standard of evaluation of public policies to support growth.

The noble Lord, Lord Haskel, rightly proposes enabling institutions to support growth. We also need an evaluating institution. All too often—whether in RDAs, LEPs, research councils or government departments —a policy is announced, a programme is delivered, the impact is evaluated by a consultancy firm, a number is put in a press release and then it is ignored. Frequently, bodies responsible for spending money, whether research councils or the Technology Strategy Board, define their own impact and decide if their objectives have been met. As Professor Henry Overman of the LSE said of RDAs, many of which have created important growth in their regions, you can read thousands of pages but evaluating them is very difficult, unless the current Government come in and get rid of them. The issue is not that projects have performed well or badly but that too often we do not know how they performed at all.

It is time that we had a national impact office with a duty to monitor the effectiveness of all government policies to support growth in the real economy. That happens in other countries. Such a body is crucial, especially if we are to embrace devolution in growth policy, for example with LEPs. As the noble Lord, Lord Heseltine, pointed out, the ability to share best practice and identify where things are going wrong is crucial. How can we do this without a neutral body examining what is best practice?

I have always been a passionate believer in the positive role that the state plays in industrial policy, but all good engineers know that it is only by critically evaluating the strengths and weaknesses of any past design that you gain the knowledge to help you do better in the future. We should be absolutely fearless in assessing which policies deliver growth. That is what we should be evaluating in future.