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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer, an FT contributing editor, is a former chief economist at the Bank of England
Industrial strategies are all the rage around the world. The prompt for this newfound passion has been the combination of lacklustre growth in many western economies and the apparent success of such strategies in stimulating growth in much of Asia, from South Korea to Singapore.
The resulting plans come in many flavours. But one feature common to them all is their focus on a set of “superstar” sectors. Strategy is about making choices so that support can be provided at scale. In a tight fiscal environment, backing only those sectors with the greatest potential sounds like a prudent and purposive way to stimulate growth.
An example of this approach is the UK government’s industrial strategy published in June this year. Its centrepiece was a set of targeted strategies for the eight industrial sectors in the UK which, on various metrics, offered the greatest growth potential. These included advanced manufacturing, life sciences, the creative industries and financial services.
This approach has merit, focusing action on a narrow set of internationally competitive sectoral clusters. Meanwhile, creating an independent oversight body (the Industrial Strategy Council), and putting it on a statutory footing, lessens the chances of this plan being scrapped on a future political whim — as has happened in the past.
Nonetheless, it is clear that a sector-focused blueprint is too narrow and partial by itself to lift the UK’s growth prospects in a significant and inclusive way. The vast majority of British jobs are in the “everyday” not the “superstar” economy — public services and health, retail and hospitality, distribution and construction.
Given this sectoral mix, you would have to believe eight impossible things before breakfast, Lewis Carroll style, to think uplift in the superstar sectors alone would be sufficient to generate strong, inclusive growth. More accurately, you would need to believe in a supercharged version of trickle-down economics, with enormous spillovers from the superstar to the everyday economy. There is little, if any, empirical or international support for this.
A second design flaw is that a top-down focus on sectoral strength risks paying too little attention to the supporting growth ecosystem, bottom-up. That includes having access to workers with the right skills, as well as to housing, transport and finance. An effective and inclusive industrial strategy needs to fertilise these grassroots in both the superstar and everyday sectors. Without that, growth will be neither deliverable (by businesses) nor desirable (for its citizens). This fate awaits the UK’s well-intentioned, but flawed, industrial strategy.
Fortunately, there is another way — one advocated by one of the leading proponents of industrial strategy (and by one of the UK chancellor’s academic pin-ups) Dani Rodrik of Harvard university. Rodrik’s “industrial policy for good jobs” puts high skills and good jobs at the centre of industrial strategy, both as a means of enabling strong, inclusive growth (economically) and as an end in itself (socially).
Putting that approach into practice has been the task of the Inclusive Growth Commission for the East Midlands County Combined Authority, which I have chaired for the past year and whose final report published this week. Its centrepiece is the “opportunity escalator”, an analytical tool used to understand and co-ordinate the moving parts of the growth ecosystem, top-down and bottom-up, at the hyperlocal level.
The opportunity escalator can be used to provide workers with practical job and skill progression pathways; businesses with detail on the talent pipeline they need to nurture to thrive; learning-providers with data on the programmes needed to meet local needs; and governments with a guide to supporting investment in housing, transport and healthcare. Crucially, it also facilitates the co-ordinated action among these stakeholders necessary for inclusive growth.
Unlike its sectorally centred counterpart, jobs-centred industrial policy is designed to generate strong and broadly based spillovers, economic and social. The former arise from the uplift to worker productivity and pay in both the everyday and superstar economies, albeit at different rates and from different levels, courtesy of the opportunity escalator. Call this trickle-up economics.
The social benefits of people-centred industrial strategy are equally significant. The road to improved wellbeing is paved with improved opportunity. Yet, at present, opportunity and social mobility are stalled across many countries, especially for lower-skilled workers in the everyday economy. The opportunity escalator provides practical progression paths for worker pay and productivity, whatever their location or vocation.
The first duty of government is to protect citizens — a safe and secure floor. The second is to provide them with pathways to progress — a longer, stronger ladder. The failure to provide that ladder, especially for those in the everyday economy, helps explain widespread public disaffection. A jobs-centred approach to industrial strategy could rebuild those ladders and, with them, inclusive growth. But without them, governments risk riding the same down-escalator on which too many of their citizens have found themselves.
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