Labour's Green Paper on Industrial Strategy: A strong start, now the work begins

On Monday this week (14 October), the Government published its flagship Green Paper on Industrial Strategy. This was one of the key announcements of the Labour Government so far.

While working at the TUC between 2004 and 2020, I specialised in industrial policy, researching how countries as far afield as France, Germany, Denmark, South Korea and even China developed their industrial sectors, with a view to lessons for the UK. After leaving the TUC, I turned my research into a PhD thesis. At this time, I was also working as Head of Economic Strategy and Research at Berkshire LEP where, working with sub-regional stakeholders, I developed some ideas about the local elements an industrial strategy. So below are my thoughts about this week’s announcement. But first, what was in the Green Paper?

The primary objective of the Industrial Strategy, as stated in the Green Paper, is “long-term sustainable growth in our highest potential growth-driving sectors”. Sensibly, in my view, this is not growth at any cost, but growth that is sustainable, regionally-balanced, and contributes to the UK’s economic security and resilience - that last point borrowing from the Chancellor, Rachel Reeves’, commitment to what she calls ‘securonomics’. This is particularly important in the light of Russia’s invasion of Ukraine and recognises, more generally, that the era of untrammelled globalisation is over.

The Industrial Strategy focuses on eight growth-driving sectors: advanced manufacturing; clean energy industries; creative industries; defence; digital and technologies; financial services; life sciences; and professional and business services. Evidence is presented to justify why each of those sectors is included. The Government will priorities sub-sectors within these broad categories and Sector Plans will be published, along with the Industrial Strategy itself, in Spring 2025.

The Green Paper notes that the UK’s economic performance is skewed towards London and the South East. There is a strong ‘Place’ section of the Green Paper, which argues that the Industrial Strategy will concentrate efforts on places with the greatest potential for growth: city regions, high-potential clusters, and strategic industrial sites. Local Growth Plans are a cornerstone of this place-based approach, according to the Green Paper, and these will set out how Mayoral Combined Authorities will use their devolved powers and funding to drive growth in their area.

This work stream as a whole will be overseen by an Industrial Strategy Council that will be placed on a statutory footing, similar to the Office for Budget Responsibility and the Low Pay Commission.

Having set out the main points of the Green Paper, what do I think of it?

I think the Green Paper is a powerful start and it gets many things right. Most obviously, it is important to actually have an industrial strategy once again. The Thatcherite idea that markets can, by themselves, deliver the economy that the country needs was tested to destruction in the 1980s and 1990s. This idea wasn’t sufficiently challenged by the New Labour Government of Tony Blair and it took the global financial crisis of 2008 to bring industrial strategy back into vogue. Industrial strategy sometimes returned in various iterations under the Coalition and Conservative Governments - and was especially championed by Theresa May - but a long-term approach, with buy-in from business, unions, and wider stakeholders, as we see in other countries, has not been achieved. Hopefully, we are about to turn that page.

There are, however, a few things I would highlight.

First, the Green Paper states:

"Jobs will be at the heart of our modern Industrial Strategy, supporting growth sectors to create high quality, well-paid jobs across the country, backed by employment rights fit for a modern economy."

That is a laudable aim, but it raises a question: do growth sectors always create high quality, well-paid jobs across the country? In many cases they do, but a misconception made by governments of every political colour across the years has been that, if we achieve growth, or productivity increases, or low inflation/low taxes/business certainty are delivered, good jobs will follow. Yet the evidence doesn’t support that assumption.

The Green Paper also states:

"Germany has almost twice as many renewable jobs per capita as the UK; Sweden almost three times; Denmark almost four times as many."

Why is that? Denmark certainly had first-mover advantage in offshore wind, but other countries - from Germany to China - put job creation front and centre of their industrial strategies. They don’t make the assumption that growth will lead to good jobs all by itself. My work for the TUC described the hollowing out of the UK’s industrial base over 30 years from the 1970s - see ‘Voice and Place’, for instance. My objective for industrial policy - admittedly, I was employed by a worker-centred organisation at the time - was the creation of good jobs for those who do not go to university. Whilst it is true that some graduates struggle to find work, the loss of good, non-graduate jobs has been systemic, leaving too many low-quality, low-skill jobs in their place. Some of the eight sectors listed by the Government - advanced manufacturing and defence, for example - tick that box, but not all of them do.

The Green Paper doesn’t define clean energy jobs, but gives the example of subsea cable manufacturing. Clearly we need to know what clean energy jobs are. Is steel a green sector? There is no mention of steel in the Green Paper, but we can build neither wind turbines nor electric cars without steel. Steel also provides well-paid jobs outside of London and the South East.

Second, the Industrial Strategy will build from the UK’s current strengths. The Green Paper states:

"The top 30 per cent of sectors ranked by productivity in 1997 accounted for roughly 60% of all productivity growth from 1997 to 2022."

This is a sensible start and allows the Government to get the biggest bang for its buck early on. However, back in 2016, the-then Chief Economist of the Bank of England, Andy Haldane, highlighted something very interesting: the productivity gap between the top- and bottom performing UK companies is materially larger in the UK than in France, Germany or the US. Haldane argued that a long and lengthening tail of stationary companies explained why the UK has a one third productivity gap with its international competitors. If this is the case, would it not make more sense to raise productivity among the long tail? The 2018 report of the IPPR’s Commission on Economic Justice included a call to raise productivity across what Rachel Reeves once called the ‘everyday economy’ - transport, child care, health, social care, education, utilities, broadband, social benefits and the low-productivity, low-wage sectors of hospitality, retail, food processing and supermarkets. Those sectors employ a lot of non-graduates. They also employ a lot of women, who historically earn less than men. I wonder if the Government is missing a trick here.

Third, the idea that more powers should be devolved from the centre to the regions and localities is one that is long overdue. A focus on place is to be welcomed. Of course, we wait to see what new powers will be devolved to Mayoral Combined Authorities under Labour. At some point, we will need to consider what devolution means to non-metropolitan areas, or those authorities that do not have directly elected mayors, as is the case across Berkshire, where I live.

On the subject of regional imbalances, it is important to mind the gap here. In another speech, this time from 2019, Andy Haldane, who I mention above, asked the question, ‘Is All Economics Local?’ (Spoiler alert: the answer is yes). Here in Berkshire, we have significant pockets of deprivation, especially in Reading and Slough, as do other sub-regions across the South East. Boroughs like Newham - where I grew up - and Tower Hamlets - where I once lived - are also home to many living in poverty. The idea that the streets of London are paved with gold needs to be challenged.

Finally, a word about institutions. Some roll their eyes at the very mention of the word, but I think the independent Monetary Policy Committee of the Bank of England has been vital for inflation targeting since 1997 and I don’t believe the National Minimum Wage would have enjoyed the consensus that it has without the Low Pay Commission. So institutions are important.

A big feature of my PhD thesis was the idea of social dialogue, where government, businesses and unions bring their voice to economic and industrial policy. There will be many reasons why Germany, Sweden and Denmark have been more successful in creating good, green jobs than has the UK, but it cannot be a coincidence that all three of those countries enshrine a strong voice for unions within companies. The real long-term stakeholders in business are the workforce, and unions are likely to pressure for long-term investment over short-term profits and dividend payments to shareholders. That’s also important for what we might call patient capitalism.?

Similarly, whilst local economic strategies must be business led, they shouldn’t be business-dominated. With Angela Rayner, herself a former trade union official, in charge of the Ministry of Housing, Communities and Local Government, I hope that future local or regional economic institutions include the voice of trade unions, as Regional Development Agencies once did. Other local stakeholders, such as social enterprises, should be given a voice too. Businesses are critical to local economic development, but companies have their blind spots, and sometimes their own agendas, as well all do. A wider range of voices would lead to better decision-making.

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