We all have our own irrational prejudices. I, for instance, nurse a deep and inexplicable loathing for the Elizabeth Line, and feel mildly ill whenever I smell cheese. These are largely harmless and irrational foibles that do not impinge much on the lives of myself or others. The prejudices of our Prime Minister matter rather more – especially when they might leave Britain woefully exposed to a changing global and political order.
That, at least, was the message delivered last week by a chorus of Peter Mandelson, Vince Cable, and Greg Clark, three former Business Secretaries. They jointly complained that Rishi Sunak’s personal hostility to the concept of an industrial strategy was leaving Britain vulnerable amidst the growing race to subsidise manufacturing – a rather more costly and consequential predisposition than my inability to be near brie.
The United States, via the CHIPS and Science Act and Inflation Reduction Act (IRA), is pumping hundreds of billions of dollars into industrial subsidies. These are designed to reduce America’s structural reliance on Beijing for manufacturing, reverse decades of offshoring, and produce enough new jobs in the Rust Belt to keep Joe Biden doddering around the White House for four more years. Ahead of a potential Chinese invasion of Taiwan, the aim is American self-sufficiency in semiconductors and various forms of green technology.
Washington is abandoning the post-war free trade consensus to which it first gave its name and then helped export globally after history’s end. We are entering an era of Gwyneth Paltrow geo-politics: a conscious uncoupling between the West, China, and her allies. Our period is similar to that after the First World War. Globalisation has gone into reverse; the miracle of ever-greater inter-connectedness and falling prices has been junked amidst war in Ukraine and belligerence in the South China Sea.
Britain’s problem, which the BEIS Magi were highlighting, is that we will struggle to compete with Biden splashing the cash without an industrial strategy of our own. We will find ourselves outliers internationally: the European Union is planning a similar programme, and China has become increasingly sophisticated at ploughing vast funds into encouraging the production of semiconductors, batteries, and other essential elements of the twenty first century economy.
We cannot change any of these realities, only adapt to them as best as we can. We cannot defend free trade if no one else is interested in trading freely. Yet there’s a snag: despite the warning lights, Sunak is reportedly hostile to the very concept of an industrial strategy. The man so often dismissed by his critics as a socialist has much more in common with Liz Truss than they realise. He’s just rather more discreet about the whole free-market thing.
According to Mandelson, Sunak said to him as Chancellor that he “did not see it as part of his job to have businesses forming an orderly queue in front of his office asking for handouts”. Consequently, in 2021 he scrapped the industrial strategy introduced by Clark, and has now abolished the Department for Business, Energy, and Industrial Strategy. Meanwhile, Jeremy Hunt recently condemned America’s approach last month, and promised Britain would not go “toe-to-toe” with America and the European Union in providing subsidies.
As our Editor has pointed out before, not having an industrial policy is itself an industrial policy: it is a conscious choice not to co-ordinate investment towards a particular goal. The problem is that, for many on the right, industrial strategy or policy conjures up images of Tony Benn, British Leyland, and ‘picking winners’. But the failed approach of the 1970s involved direct subsidies to particular, and usually government-owned, companies, not the strategic support for wider industries common across the world.
Both Sunak and Hunt suffer from ‘Treasury brain’. Not only are they sceptical of other departments encroaching on the Chancellor’s fiefdom, but they have the desire to spend as little money as possible. This seems hypocritical after the vast amounts the pair have splurged on Covid and household energy bills.
But the pair owe their positions to the need to restore fiscal sustainability after the empty promises of Trussonomics. Rising borrowing costs made unfunded tax cuts impossible. Financing a large program of intervention in an environment of rising interest rates would blow their debt targets, and Sunak and Hunt have no desire to further hike taxes or cut spending a year before an election.
The trouble the pair face though is, to misquote Leon Trotsky, that although you might not be looking for an industrial strategy, an industrial strategy is looking for you. Secular stagnation, resource competition, and great power conflict loom. In such unpropitious circumstances, investing vast amounts in a campaign to promote resilience is unavoidable. The era of growing interconnectivity and lowering prices is over; in a hostile new environment, self-sufficiency is everything.
One reason for that is nakedly political. Kier Starmer has already promised that a Labour government would aim to do something like Biden, but on a smaller scale: £28 billion of investment for green technology, as a route towards energy self-sufficiency, lower emissions, and a quieter Ed Miliband.
A better reason than simply stealing Starmer’s clothes would be that, for all Sunak’s hostility to the term, the Government already has a form of industrial strategy. As Hunt put it last week, the Government has “identified five growth sectors that we need to give special attention to”: digital technology, creative industries, advanced manufacturing, green industries, and life sciences.
Sunak’s approach to growth – laid out in his Mais lecture last year – relies upon encouraging greater business investment. The £18 billion of Japanese investment in the UK announced during the G7 is a sterling example of that. And yet, as Peter Franklin has noted, that is going into the clean tech sector, an area of the economy where the Government has set long-term objectives to exactly to encourage investment.
Whilst Sunak may pose as the new apostle of free trade – hence joining CPTPP – and fiscal rectitude in a new era of protectionism and big government, he is more than happy to intervene to level the playing field when required. Hence why Hunt is currently considering bunging £500 million of taxpayers’ money to Tata Motors to convince them to build an electric vehicle battery plant in the UK and not Spain.
What is this, if not an industrial strategy? The Financial Times article quotes one “senior government insider” admitting the truth. The belief that the Government lacks an industrial strategy is “a comms issue, rather than a policy issue”. The issue with the industrial-strategy-that-must-not-be-named is that whatever it is called, it is still not enough.
A £500 million bung to build electric Land Rover engines is not going to stop the systematic Chinese takeover of our car market I wrote about earlier this month. It is not going to carpet the country with Small Modular Reactors, or wind and wave power stations. It will not build up domestic supply chains, expand our manufacturing sector, or make us a world leader in those areas of excellence Sunak and Hunt have identified. If the Government is interested in resilience, the investment will need to be far larger. But where can that money come from?
The answer is one likely to bring agreement from both David Frost and Danny Kruger, whose sotto voce debate over free trade and protectionism underlay last week’s NatCon conference. More spending will only be affordable if the markets are convinced government spending is under control. This will only occur if a credible plan exists to shrink the size of the state. And this can only exist if we reduce the demand for government.