Industrial Strategy

Lord Howell of Guildford Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I most strongly agree with those last remarks of the noble Lord, Lord Eatwell, on the need to bring benefits to all, not just to limited sections of society. Indeed, the White Paper contains many excellent proposals and ambitions, particularly the emphasis on research and innovation, design and the life sciences, and many other things.

Nevertheless, I confess that I started out with very limited enthusiasm for this kind of project. This is not just because industrial strategies have great difficulty keeping up with rapidly evolving markets and technologies, let alone political events. Past ones have usually disappointed, as my noble friend Lord Griffiths reminded us, and as the noble Lord, Lord Hennessy, reminded us in an earlier debate and no doubt will repeat in a few moments when he speaks. I know this personally from being a member of Neddy way back, on which I was very enthusiastic indeed. In the end it was all very disappointing; there was something missing. It is not just those sceptical past reasons, but this: for the reasons that the noble Lord, Lord Mandelson, touched on in his very telling and encouraging speech, and those touched on by my noble friend Lord Prior, I wonder whether the priorities set out in the White Paper are entirely the right ones for the revolutionary era we have entered, in which we face conditions completely different from anything that has gone before. History is not much of a guide to where we should turn.

Despite plenty of references in the White Paper to the digital age, artificial intelligence, the cyber revolution and so on, I still feel that in a way—perhaps this is unfair—it was drafted by people with a 20th century mindset. In the 21st century, successful industrial progress is part of a much wider constellation of forces than this document seems to recognise: the drive for change begins more than ever in the home and deep in social structures. The authors of the White Paper should have perhaps paid more attention to things such as my right honourable friend Sir Oliver Letwin’s book Hearts and Minds, in which he emphasised, looking back on what was missing, the need to focus not just on the market economy but on the social market economy. Perhaps they should have looked at that before they drafted. It is the social bit and the more difficult to measure but fundamental bit that seems to have got left out of this kind document, which probably should have come not merely in the document, but first.

For a start, there is a central question of measuring productivity. Everyone is talking about low productivity. We just heard some remarks on it. All the economists seem to be convinced that it is the great issue. Yet everyone also knows that the old measures of productivity are far too narrow and do not tell an adequate productivity story. Nor, for that matter, does the Office for Budget Responsibility’s spuriously scientific forecasts of where the growth of GDP will be in a year or two’s time, when they capture only the market value of goods and services and ignore all other forms of output. I do not think that this will wash any more in modern economic conditions. For example, how do you measure or compare increased productivity—or, for that matter, GDP growth—in the creative arts, media, sport and entertainment, in nail bars or home delivery services, in more comfortable buses and quicker taxi services, faster book printing, aspects of education, health and social care, whether public or private, or infinitely quicker linkages between businesses and individuals? They do not come into any of the official statistics at all. The truth is, it cannot be done. The more we live in an overwhelmingly service economy, as we do, the harder it becomes to measure.

As to the list of priorities and challenges for more industrial success, the “people” section in the document should, of course, come first. By that one means not just people in industry, but everyone who makes daily life and society work. I agree that they are in the strategy document, but they are not at the top of the list where they should be. In an economy that is meant to work for all, the need is not just for priority for schools, well-paid teachers, plentiful technical and vocational courses and colleges, and strong universities, which are there in the strategy document, on which it is rather good. It also means taking account of the real determinants of economic progress that lie at its very foundations—within the home, the household, and in all the human impulses and incentives to share and co-operate, which are very strong in the whole community—and of social relations and attitudes in the surrounding environment and in the routine but essential dealings and requirements of daily and family life, on which everything else depends.

Are these not precisely the core areas that shape the national mood and determine the country’s industrial strength—or weakness—with industrial peace and partnership on the one hand or bad relations, non-co-operation, and inefficient and failed investment on the other? Are they not what decides whether an economy pulls together with a motivated workforce, or slows down to torpor and stagnation levels and falls apart? Yet these are just the considerations and measurements that, I am afraid, almost all economists for the last century, since the days of Marshall and before—with some brave exceptions—have completely ignored. Too many economists have taken a wrong turn and offer a flawed and implausibly narrow base on which to build an industrial strategy, as some of us have been arguing for the past 30 years.

The other priority condition for industrial success, which gets a fleeting mention at the beginning of the strategy but again ought to come near the very top, is the imperative need for a strong sense of fairness in society, and in economic and monetary systems that spread the proceeds of new wealth—not concentrate them—in a redistributive economy, not just one that statistically adds growth via GNP statistics. We need a radical overhaul of the monetary system to bring this about and bring the dignity and security of capital ownership to millions of households. If wages and benefits are just not adequate to provide security and reasonably stress-free living, and instead leave millions of households just not managing, you can say goodbye to industrial dynamism and competitive growth.

Next, I am sorry that the strategy authors still seem unable to resist the old error of picking some winners. Driverless cars may or may not be the next big thing, even though we are told they will not work in cities, in which most people live. In truth, we have no idea at all which ways new technology and innovation will take us, nor which constantly evolving and fluidised needs and wants will emerge. Most predictions on this front will almost certainly be wrong and very expensive. Manufacturing industries are now constantly transforming and are increasingly part of complex producer networks, spanning the globe and blurring sector classifications, as the noble Lord, Lord Mandelson, reminded us. It is simply not given to humans, and certainly not to government officials, to know how these systems and subsystems will work out.

While we need energy to be low carbon as far as possible, we also need it to be cheap, which it is not in this economy—it is some of the most expensive in Europe—and reliable, which it is in danger of not becoming, as well as making warm homes affordable. Without that, industrial growth will be hobbled. The sections in the White Paper on energy and climate seem to have forgotten about that basic requirement.

Perhaps above all we need from the top a narrative and a national purpose to motivate everybody, whether in the home or at work—especially in these confused and very dangerous times. Her Majesty the Queen spoke at Christmas about a vibrant Commonwealth. It may just be that, in a world of networks and algorithms driving everything, the Commonwealth network helps to give us new purpose and direction. Industry and competition will not thrive without a strong sense of where we are heading in the entirely new international conditions, both economic and political, which now prevail.

Finally, while efficient markets are of course important, if the focus on free markets and “growth” leads not just to competition and satisfying the consumer but to immense capital concentrations, massive global monopolies and disequilibrium throughout the planet, as looks suspiciously like happening right now, it is not the right strategy. We need as never before to distinguish between the quantity and the quality of production, growth and productivity. An unhealthy, brittle, unbalanced and divided society will in the end produce none of these.