Industrial Strategy

Lord Mendelsohn Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, we have had a quite outstanding debate, with a very encouraging level of consensus. We have heard some very forthright comments, a litany of lessons learned, and some very thoughtful challenges and criticisms. Indeed, nowhere is the chequered history of how the industrial strategies have been described better known and understood than in this place. We have had the pleasure of hearing from some of the people who have been the architects of industrial policies and of great things in our country how they did it. It has been an extraordinary debate and one I felt hugely privileged to be part of. I am also extremely pleased I am not the Minister who has to respond to it.

One thing that I felt during the course of the debate was best expressed by that character Yogi Berra—the US baseball star who played for the New York Yankees from the 1940s to the 1960s and was well-known not just for his great play but for his impromptu pithy comments, malapropisms and seemingly unintentional witticisms—when he said, “It’s déjà vu all over again”. Here we have another debate about the industrial strategy, but the times are very different and there is a very important context in which we are doing this. It is understood, here and in other parts of the world, as a reaction to the issues that have arisen as a result of the financial crisis and the problems of growth and the squeeze in wages felt across many parts of the world.

There have been many evolving views, crystallised in the lessons of past failures of the time. I recall that the noble Lord, Lord Turner, said in 2013, based on his understanding of the financial services collapse and what it meant, that there was no clear evidence that the growth in the scale and complexity of the financial system in the developed world over the previous 20 to 30 years had driven increased growth or stability. So we have come to believe that there is no surprise that a wider acceptance of the role that the state can play in stimulating private companies to create innovations can be actively and purposefully used. We have also decided to believe in some quarters that the role that the state can play in creating demand can be a good thing. There is also a role for the state in rebalancing the economy, not just in strengthening locally based manufacturing but in preparing industries for the future. This is an important context, and the challenge is still greater with the likely economic tribulations and opportunities of Brexit.

The context of the UK’s general economic position has not been particularly benign. We have had problems of imbalances, regional problems, problems of infrastructure investment and other issues that have been pointed out by many during this debate. However, we have also had failures—for example, failures to maximise our advantages when we have had great successes but have been unable to commercialise some of our great research facilities, and failures to address matters where there has been success but we have created long tails of problems, including corporate governance.

So here we are, looking at a White Paper and wondering, “Do we have the right policy approach? Can an industrial strategy be something to everyone, a framework by which everyone can get what they want put into something?”. This White Paper certainly has its merits, and it has made a successful change from Green Paper to White Paper. At its very core, the industrial strategy should always be seen as a framework rather than a collection of specific industrial policies. I agree with the noble Lord, Lord Maude, that it is a compendium. Its evolution from 10 pillars to five foundations and four grand challenges has probably combined focus with ensuring that long-term issues can be addressed at the same time. The importance of goals or objectives—or, as they are more popularly described, “missions”—is a central shift to ensure that we have a focus in the industrial strategy. Dealing with productivity has been the greatest advance in the process from the Green Paper to the White Paper, finally focusing on a meaningful challenge. That is to be warmly welcomed. In a previous debate, the noble Lord, Lord Prior, made a point, as he did today, about the importance of productivity and the challenge that it provides over the next decade. It is utterly proper that the industrial strategy now mainly focuses on addressing that and embraces all the other opportunities that we have.

The problem is not just with inequality; it is also about the crisis of confidence that the economy will work for everyone, whether the next generation will look forward to greater prosperity, the challenge for people in gaining the employment conditions they need, and the problems of insecurity caused by some aspects of the flexible labour market at the moment. These are the types of problems regarding confidence in markets and the market system that will cause us great long-term problems if we do not address them now. They will certainly seriously undermine the values underpinning our society.

I was prepared to accept a very poor industrial strategy because I thought it more important than anything else that we had an industrial strategy at all. However, this is not a poor industrial strategy but a welcome, important and useful foundation, and the White Paper is to be congratulated on that. As I say, this paper is a significant improvement on the Green Paper. However, the White Paper is unlikely in and of itself to move the dial significantly, although it will undoubtedly do good things. There is strong agreement that this is a crucial start but what will be essential is what happens next in its delivery and development. Here there are a great series of challenges that we have to be alive to.

It is important also to agree that, as my noble friend Lord Mandelson said early in the debate, this is more than just having to tweak the policy dial. The noble Lord, Lord Griffiths, made an important point when he said that the design of this is usually 10% in government and 90% in implementation. To meet the test of not just doing business and industrial policy better but making a more profound impact to achieve meaningful growth outcomes and improve productivity, we must ensure that we have the foundations to get it absolutely right.

We must have targets. I strongly believe that you cannot manage what you cannot measure, and if you cannot measure, you cannot improve. The introduction of productivity as a main focus is important, but we need to ensure that the targets are stretching, or at least allow us to achieve our goals. The Government have made an important contribution in saying that we wish to grow research as a proportion of GDP to 2.4% by 2027, but that is still only the average today. High-performing countries are already at between 3% and 4%, but the top of our ambition is 3%.

Targets are significant. As the noble Lord, Lord Horam, said, when we established broadband targets it was important that we had a minimum statutory requirement, but when we started by requiring 10 megabytes, everyone lowered their ambitions in their business models. If we had said 30 megabytes, business models would have been different. Setting targets is extremely important, but we have to set the right targets. They should stretch, they should be aspirational, but they should be deliverable. That is crucial.

We need some sense of what it will mean when we talk about becoming the world’s most innovative economy by 2030: what definitions we are using to determine whether we have achieved good jobs and greater earning power for all, and how we will finally be able to establish through the industrial policy whether the UK has become the best place to start and grow a business. We also have a great challenge to ensure that we put in the right level of resource—the funds that we commit. It is certainly to be applauded that the national productivity and investment fund has been increased, but it is still 2.9% of GDP, whereas the OECD average is 3.5%. As a businessman, if you are to invest in something, you put a dollop of money in: you put big money behind a commitment. That tells people what you are doing; it shows that you believe it will have a significant benefit. The level of resource we are putting in is a challenge the Government need to address at some stage. I am not expecting the Minister to reply to all these points; these are long-term industrial strategy challenges, not short-term considerations.

My noble friend Lord Eatwell made the point extremely well that we need to be frank and honest about our ills, because if we are not, we will be unable to solve them. We should also be clear that the challenges we will face will not be easy. How we trade with the rest of the world will not be straightforward. We will not discover something that no one else has. As the noble Lord, Lord Prior, said, most other countries are still either in the midst of significant industrial strategy policies—they have institutions or long-term policies—or are adopting them. The same is true of trade. Everyone is in the same competitive position.

There are challenges across government. We have the Cabinet committee. We have a key role for other departments that are sponsors of industry. They must be able to take on those roles properly. There is the question of how the role and function of the Treasury is balanced with that of other departments. Those are important challenges that will require evolution. We have an important challenge inside BEIS itself in the organisation and leadership office. I was concerned. I saw the job advert for head of industrial strategy and delivery—the person responsible for delivery; for implementing the White Paper commitments; for ensuring delivery and making a difference; for setting up and delivering the governance structures of the external review body; for cross-government and cross-departmental engagement; and for strategy and policy development. This is someone deep within the business and science group of the department who is meant to be managing possibly five to 10 people. If that is the person ultimately responsible, do they have the weight and heft? How does that work in the context of the department? If this person is a senior civil servant on pay band 1, there is an imbalance. If they come from the private sector, they start on £65,000. If they are an official, they can move up to £117,000. What is the people strategy to make sure we have the right team working on this? It is a crucial challenge.

I also think we have a huge challenge with the industrial strategy board, which will require further thinking from the Government on whether the advisory council will be sufficiently independent and will have the sort of function required to make sure the industrial strategy is properly assessed. The Government might wish to reconsider: if they create a body rather more on the model of the OBR, they might have a more successful opportunity to embed the industrial strategy into the routine agendas of future Governments.

The most crucial part of this is that it is not resolved on place—on the role of regions, the role of local authorities and the role of mayors. The points made during the debate are crucial, and we can see how things have developed in local areas—the success of local government and the difference that local government can make to this. It is important to have continuity of policy, building the right plans across different political parties and adjusting policies to make sure that we have things and institutions that can endure—ones that can go beyond the occasional moments, such as those with which the noble Lord, Lord Willetts, so graphically punctuated his contribution. We also need to make sure that we build on this cross-party, political and economic consensus—indeed on things such as the productivity leadership board, mentioned by the noble Lord, Lord Flight, so that in the sectors themselves there is the creation of a national consensus and national bodies where that will work.

We also need to accept that change is not a failure but a likely outcome of getting better. As the noble Lord, Lord Prior, said, this is an hors d’oeuvre and the main course is still to come. If the Government were to set out a list of the next things to do, they would do well to read the speech of the noble Lord, Lord Eatwell, which contained a large measure of them. But now is not necessarily the time for that. The Government have to accept that getting it wrong will not make them weaker and will not make the case for an industrial strategy weaker; it will provide the platform to make it better.

As Yogi Berra also said, you can observe a lot by watching. Those noble Lords who have debated in this House today, who believe that we can do something together and more meaningfully for this country, will be watching this process very carefully. They will reflect the desire to do more together if the Government are more open about the opportunities ahead.