Research Notes

UK Industrial Strategy – Some Lessons from the Past

‘Industrial strategy’ is back on the government’s agenda, with a promise to produce a ‘match fit’ economy that ‘works for everyone’ and is able to thrive after Brexit. The term has been incorporated into the renamed Department for Business, Education and Industrial Strategy, a cabinet committee has been set up, and a white paper is expected. As yet, however, there is little sign of the promised broadly-based and coherent industrial strategy emerging. In crafting it, its architects might profitably look back to the 1960s for some pointers.

The long history of UK industrial policy

For nearly a century governments have tried to shape Britain’s industrial and commercial landscape. Yet, whilst they often wanted to raise industry’s efficiency and competitiveness, historically there was little consensus on how best to do it. And, whilst ‘industrial policy’ and ‘regional policy’ were often in evidence, the crafting of a broader ‘industrial strategy’ was a rarer event.

Often the focus was on maintaining employment in areas of declining industry. More generally, from the 1940s the government attempted to stimulate company investment using the tax system and (less often) via direct subsidies. Attempts to encourage firms to raise productivity were in evidence. And from 1948, with a new Monopolies and Mergers Commission, there was a desire to promote competition as a route to higher efficiency.

But until the start of the 1960s there was a notable absence of a coherent overarching strategy.

The 1960s

Things changed in 1961 when Treasury officials, acting on their own initiative, produced for the Chancellor, and subsequently for the Cabinet, the first authoritative attempt by the government to analyse the sources of and barriers to economic growth and set out a strategy to raise productivity, economic growth and living standards.

The Treasury’s ‘Economic Growth and National Efficiency’ report of 1961 was incisive and wide-ranging. It identified a role for government in raising the level and quality of investment, and the quality and mobility of the workforce. It identified scope to improve the quality of management, generate sustainable employment in areas of declining industry, and attack both anti-competitive practices in business and restrictive labour practices.

Beyond this, the Treasury thought government could help to improve the business environment. For example, it recommended putting businesses under pressure by reducing tariffs on international trade. And it proposed that decisions on public spending and taxation be explicitly crafted with a view to creating ‘an efficient full-employment economy capable of sustained growth’.

This forgotten Treasury document was the wellspring of two decades of industrial interventionism.

It was given force first by the Macmillan government’s creation of the National Economic Development Council, its Office and subordinate industry-level development councils in 1962, and then by the publication of the NEDC’s own analysis (which owed much to that of the Treasury) and programme for faster growth.

Thus was inaugurated the era of ‘indicative planning’ whereby government consulted with employers and unions and set (with clear prime ministerial endorsement) an overall target of 4% annual growth, with subordinate targets for growth and investment in specific economic sectors. Crucially, the government undertook to assume the 4% growth rate in its fiscal policy and investment plans.

Industrial strategy evolved over time. The involvement of the unions was an early example (being judged essential to avoid faster growth feeding wage-push inflation). There was also a growing emphasis on regional policy, which drew on new academic ideas about the promotion of ‘growth poles’ but also on a calculation by Labour after 1964 that it would help sustain support in its electoral heartlands. Policy drifted further away from the Treasury’s initial conception with initiatives such as Labour’s 1965 National Plan and the promotion by a new Industrial Reorganisation Commission of company mergers to attain economies of scale.

How successful was the wide-ranging industrial strategy of the sixties? As can be seen in Figure 1, the 4% annual growth target set in 1962 was rapidly achieved. But it proved unsustainable as the balance of payments worsened due to unmet domestic demand. That weakened sterling and, in a fixed exchange rate regime, currency stabilisation became the priority from 1966.

The Treasury came to view the whole experience negatively. It had fulfilled its side of the NEDC ‘indicative planning’ bargain by raising investment in physical and human; and it had incentivised and supported private investment through fiscal policy. Yet a sustainable 4% p.a. rate of growth had not been achieved. Later appraisals reached similar conclusions.

Source: S. Hills, T. Ryland and N. Dimsdale (2016) ‘Three centuries of macroeconomic data, v.2.3′.

Nonetheless, the overall record was better than is often assumed. The average annual growth of GDP was raised – from an average of 3% to 3.6% between 1962 and 1973. Real GDP per capita by the end of that period had risen by 45% (of which about 5 percentage points reflected the higher annual growth rate).

Moreover, the 1960s also saw a notable rise in labour productivity, as is evident in Figure 2. At the start of the decade it was growing by 2.6% a year; by 1967 the annual growth rate was 6.4% – a peak that represented a very significant improvement, but which was then followed by a fairly consistent decline to the present day.

And investments of that decade long out-lasted the industrial strategy itself (e.g. the motorway system, an entirely new national gas supply network, nuclear power stations, modernised state-owned industries such as coal, steel and the railways, and the significant expansion and improvements in schools, technical colleges and universities).

Source: S. Hills, et al (2016) ‘Three centuries of macroeconomic data, v.2.3′.

Two lessons for today’s policy-makers.

The first lesson from the past is that industrial policy achieves more when it is part of a broad strategy for growth. There is not much point in saving individual car plants from the consequences of Brexit if they are unable to recruit staff with the necessary skills, struggle to move their inputs and easily and cost effectively, or face an unhelpful tax regime or crippling tariffs and export bureaucracy.

Yet, so far, the post-Brexit actions of the government are more reminiscent of the more narrowly focused and ad-hoc industrial policy of the 1970s, within its emphasis on job preservation, than they are of the coherent overarching industrial strategy of the 1960s. As Craig Berry has pointed out, there is little evidence yet of coherent thinking or of institutions working together within an overarching programme for the retooling of a more productive economy.

It is far from clear that the Treasury is signed up to such a strategy (despite the recent recognition by the OECD’s chief economist that ‘fiscal initiatives could catalyse private economic activity’ and enable us to ‘exit the low-growth trap’). We remain trapped in the ‘austerity’ mindset of 2010-15, unable to see the virtues of public borrowing for investment.

The second lesson is that, although the industrial strategy of the 1960s became discredited we need to recognise that much growth in later decades was built upon it. For example, we’re still driving on its motorways, we power and heat homes, offices and factories using utility networks that have at their heart the infrastructure of that era, and many of us benefitted from its investments in education and training.

The 1960s shows that well-targeted government infrastructure spending purchases productive assets with long-term growth potential; we would realise this if only we could reconceptualise national accounting to embrace a national balance sheet as well as an annual government profit and loss account.

Hugh Pemberton is Reader in Contemporary British History at the University of Bristol

This blog was first published on the LSE British Politics and Policy Blog and can be viewed here

Some further reading

A longer version of this article is available in the current issue of Juncture, the IPPR’s journal of politics and ideas

O’Hara G (2007) From Dreams to Disillusionment: Economic and Social Planning in 1960s Britain (Palgrave Macmillan.

Pemberton H (2004) Policy Learning and British Governance in the 1960s (Palgrave Macmillan).

Brexit and the Dead that Talk

 

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A festival of democracy not conspicuous in its fidelity to the measurable, demonstrable, or plausible, the 2016 European Union referendum campaign brought politics and history together in ways seldom seen, and for many good reasons. At the same time as living experts were repudiated, the dead were invoked during a brief vogue in political necrophilia.

Stirred by statements to the contrary, “Churchill was pro-Europe” his grandson told the press. “It was mischievous and misleading to suggest that Sir Winston Churchill had been an opponent of European unity”. The grandson took particular exception at the use of the quotation “Each time we must choose between Europe and the open sea”, without having made clear that his grandfather had said it in 1944. He went on, “[b]earing in mind Churchill’s many post-war speeches in the cause of European unity, especially those at Zurich, Metz and The Hague, it is nothing less than a twisting of the facts and a distortion of history to make out that he opposed the concept of a united Europe, or indeed, Britain’s participation therein.”

Thirty-one years later there was another referendum, the same headline, a different grandson. “The last thing on earth Churchill would have been would have been an isolationist – to want to stand apart from Europe right now at a difficult time. There is something awfully un-British, in my view, about wanting to leave. I think we stay. I think ‘Non’ he would not think it is a good thing to leave. ‘Oui’, I think he would have wanted to stay” said Sir Nicholas Soames, echoing in 2016 the sentiment of his cousin Winston in 1975. Then, as more recently, anti-federalists sought to co-opt to their cause the founder of the European Convention by repeating his romantic recourse to the “open sea”.

Not every dead statesperson had descendants prepared to engage in reputational discourse. Clement Attlee has found himself dragooned into Labour’s current tergiversations, though his grandson has shown no intention of interfering, if for no other reason than that he’s a Tory. Mark and Carol Thatcher never participate, yet it would have pleased their mother that she was subject to as much posthumous scrutiny as was ‘Winston’. Thatcher had been an enthusiastic marketeer, but her Bruges Speech of 1988 was the point at which the process of decoupling could be said to have begun. Some supporters of post-Bruges Thatcher willed her spirit to repudiate her pre-Bruges knitwear (now obtainable with a post-Brexit discount). Some former colleagues, such as Norman Tebbit, and friends, such as Robin Harris, contended that she would in 2016 have reversed her position of 1975 and voted to leave; confusingly, others, including her closest foreign policy associate and author of the Bruges Speech, Charles Powell, thought she would remain.

The dead were always less likely to be invoked in the first UK referendum. In 1975 the war had only been over thirty years, and the ‘wartime generation’ – those imbued with what idealism in the project the British ever managed – were those running the country, and still, in those distant days, as a governing class were trusted. Aged 84, Harold Macmillan came out of retirement to make a speech because “even old actors take a call when they get it”. By 2016 none of the leaders who had tried to take Britain into Europe in 1963 or 1967, finally managed to in 1973, or kept Britain in in 1975, were able to take a call. In 2016 there was no danger of certain individuals being disinterred: political necrophilia requires not merely the dead but also the ambiguous. Enoch Powell was not a suitable subject for resuscitation; nor Edward Heath, happy as they no doubt would have been to have been kept apart. Neither were the merely unenthusiastic; thus was Harold Wilson – whose example David Cameron only half followed – mute. Similarly Hugh Gaitskell, who belatedly united his party by appeasing his enemies and estranging his friends over the issue in 1962 before suddenly dying four months later and leaving the matter to Wilson. Silent too was the only other post-war party leader to die, John Smith, for whom Europe was arguably his most animating issue. Heroes of the left remained entombed: Michael Foot because his views were as unambiguous as his reputation remains unappreciated; Tony Benn did not need to be co-opted, since he is living and breathing in the leadership of the twenty-first century Labour Party.

The informing of politics with history at these moments is particularly appropriate given that national referendums in Britain have effectively been reversive plebiscites: both those of 1975 and 2016 had as their option the notional return to a prelapsarian era before the passing of the European Communities Act 1972; so too, in a way, was the 2014 Scottish independence referendum, where with varying degrees of probity the views of William Wallace and Robert the Bruce were summoned. The politics of historical rescission certainly applied to Britain in 2016, and that was how it appeared overseas. The ease with one can engage with the past is one of the attractions of contemporary history. For those – such as readers of this blog – so inclined, BBC Parliament is a blessing. Once again it re-broadcast its original 1975 referendum results night programme: a carnival of brown, for those then watching in colour. In one particularly memorable moment Powell and Jim Prior, speaking as if the other weren’t next to them, demonstrated how the issue had the capacity to split parties.

By eschewing representative democracy, referenda demonstrate both the importance of the issue in question and the public’s need for information. It is a sign of how singular is each referendum that they occasion the historical Ouija board; general elections exist in their own right, and the outcome only stands for five years at most. Those of us formally engaged in ‘politics and history’ may be pleased to see political history discussed outside the seminar room, and feel we can usefully contribute. When the same historical politicians are cited as supporting both sides, however, the general public reaction to much of the campaign – confusion – is hard to shift and not unfounded. Just as information illiteracy was little improved by information dissemination during those increasingly fraught months, so historical illiteracy was hardly redressed by a dialogue of the dead. The impression of history upon politics can never be as direct, and potentially misleading, as when the dead are summoned for guidance on the affairs of the living. In the early summer of 2016 those who sought a séance on those many wet afternoons tended to report with the selectiveness of bad historians. But their contributions were not marked, corrected, or rejected by those who did know; merely agreed with or not by their fellows. Many of those who decided the matter attempted to return to a past which curiously enough had much more time for Brexperts.

Dr Martin Farr is Senior Lecturer in Modern and Contemporary British History at the University of Newcastle. He tweets @martinjohnfarr

Image credit: Duncan c