An industrial strategy for inclusive growth?

The Industrial Strategy Commission published its final report this week. The report is bold and ambitious, but we must build on it with a relentless focus on inclusive growth.

The Commission — set up following an important shift in government thinking on the role of the state in the economy — offers a vision for an active industrial strategy that not only addresses the UK’s structural economic weaknesses, but also promotes more equitable growth alongside improved social outcomes.

Some of the report’s recommendations are expected ingredients for an industrial strategy, including:

• The need for long-term strategic management of the economy;
• The importance of place and regional balancing;
• The need to provide good infrastructure across the country;
• More and faster devolution;
• Unlocking long-term investment, including through a public infrastructure bank;
• Diffusing innovation and supporting high-value industries.

The focus on place is also supported by proposals for addressing an urgent issue in the UK:  the lack of good data and statistics at regional and local levels (something we identified in the Inclusive Growth Commission), which would be addressed by an independent Office for Strategic Economic Management.

But the Commission also has some very bold proposals outside of the territory of conventional industrial strategy, reflecting some of the arguments put forward by the RSA Inclusive Growth Commission. It recognises that living standards and social outcomes matter as much as economic improvement. The link between health, wellbeing and productivity is affirmed with a strong focus on ensuring that health and social care aligns with industrial strategy, and that the health and social care sectors support workforce development and create more satisfying jobs. The Commission’s call for setting up ‘Universal Basic Infrastructure’ across the country includes human as well as physical infrastructure, echoing the Inclusive Growth Commission’s emphasis on putting ‘social infrastructure’ on par with physical infrastructure.

The work of the Industrial Strategy Commission should be complemented with an urgent and relentless focus on inclusive growth. Industrial strategy must be informed by the growing empirical evidence that there is no fundamental trade-off between tackling inequality and improving economic efficiency - more equal societies are able to generate stronger medium to long term growth. Tackling social as well as regional inequality should therefore be a critical organising principle of our industrial strategy.

We must also avoid focusing excessively on the high-tech sectors of our economy, especially those that account for a small share of overall employment. As a recent report by the LSE’s Centre for Economic Performance highlighted, it is hugely important to consider the low productivity, high employment sectors that tend to be ignored in economic decision-making. Raising productivity in these sectors will have a much greater aggregate effect on national productivity (and, crucially, living standards) because far more people are employed in them. Basic estimates suggest aggregate productivity in the UK would rise by 13% if productivity in these sectors rose to that of the average UK firm. 

Arguments for inclusive growth are strengthening and even starting to resonate with institutions that in the past have been concerned with growth and growth only. A recent review the RSA conducted with Nottingham Civic Exchange for the D2N2 local enterprise partnership (LEP) shows that a growing number of LEPs are taking the agenda seriously, with some building inclusion indicators into their performance frameworks.

The Commission reminds us that the critical questions of what sort of growth or economy we actually want an industrial strategy to support are too frequently absent from public and political debate. We are confident that there is a consensus emerging among citizens for an economy that is sustainable, locally rooted and focused on the quality rather than just the quantity of growth. Industrial strategy should be explicit about the people it intends to benefit, and how.

Atif Shafique was lead researcher for the RSA Inclusive Growth Commission. Follow him on Twitter @Atif_Shafique.