Britain needs an Industrial Strategy to Compete
By Donna James, Research Director at Populus Select
One of the first things you do when you set out on a new commercial venture is develop a business plan. This principle applies equally to national economies, and it seems that UK plc lacks a commercial business plan. We are in dire need of a robust industrial strategy to be put in place by this new government; perhaps the election has come at just the right time to better protect our economy and national interests.
Recently, the UK slipped out of the top 10 manufacturing nations, a position it had held since the Industrial Revolution, according to Make UK, the industry lobby group. Falling to 12th place, behind Russia and Mexico, signals a significant shift. Just two decades ago, the UK proudly occupied the fifth spot. While this change reflects a broader realignment of the global economy – and a services industry that has grown significantly – rather than a direct decline in UK manufacturing, Make UK rightly stresses the need for a long-term industrial policy to rejuvenate the sector.
Manufacturing continues to be vital to the UK economy, far beyond just producing goods. It fosters economic growth by creating jobs and generating income, significantly contributing to GDP and elevating living standards. It is also at the forefront of tech evolution; it is a hotbed for innovation and research and development, driving technological advancements that enhance productivity and competitiveness. Manufacturing also plays a crucial role in exports and the trade balance, bringing in foreign exchange and improving the trade deficit. The sector can offer high wages, and varied employment opportunities that address labour market inequities and support commercial innovation, leading to new business models and market opportunities – both at home and overseas. Additionally, manufacturing underpins other sectors such as services and transport through its upstream and downstream operations and is critical for national security, impacting defense and commercial sectors like semiconductors, green energy, and pharmaceuticals.
The recent dip in the UK’s manufacturing ranking does not reflect the quality or importance of its domestic sector. However, the perception of a decline can (and does) impact investment and the UK's image as a manufacturing nation. In today’s volatile world, it is crucial to celebrate and support our manufacturing sector, despite its comparatively modest share of GDP and employment figures. Manufacturing’s ‘halo effect’ brings widespread economic benefits that ripple through various sectors.
Make UK advocates for an industrial policy similar to those in place in many of the UK's competitors, focusing on reshoring essential manufacturing to safeguard national security and economic resilience. Drawing inspiration from successful industrial strategies worldwide can guide the UK in crafting its policy.
Germany's strategy emphasises innovation, high-quality production, and a skilled workforce, underpinned by substantial investment in vocational training and apprenticeships. The UK's inconsistent approach to vocational education (hands up if you know what the difference between T-Levels, B-Techs, NVQs!) could benefit from adopting Germany’s dual education system, which ensures a steady supply of skilled labour and fosters continuous improvement and excellence.
The USA, a global leader in free market economics, has recently made strides towards revitalising its economy through a strategic industrial plan following the success of the Inflation Reduction Act. The U.S. Department of Commerce uses this plan to guide resource allocation toward five key goals, the first being to "Drive U.S. Innovation and Global Competitiveness." Recognising the need for a robust industrial base to ensure national and economic security and technological leadership, the department prioritises "revitalizing U.S. manufacturing" and accelerating the development, commercialisation, and deployment of critical and emerging technologies. Historically, the U.S. has played an active role in funding emerging technologies, such as ARPANET, the precursor to the Internet. Importantly, it recognises what advancements are needed, provides incentives for research and development then allows businesses to commercialise those innovations – providing an even greater incentive.
China's industrial policy (despite its issues with employment rights and environmental stewardship) leverages vast state investment in infrastructure and technology, coupled with incentives to attract foreign investment. China has also invested heavily around the globe to secure supplies of scarce natural minerals and other resources, through its ‘Belt and Road’ initiative. This strategy has established China as a global manufacturing hub while ensuring global economic alliances and influence – as well as access to crucial raw materials needed in advanced electronics manufacturing The UK can emulate this by investing in modern infrastructure to support manufacturing activities and improve supply chain efficiency, thus enhancing competitiveness and attracting foreign investment. The UK should also consider how it delivers soft power in the form of the BBC World Service and targeted economic aid, both of which have been curtailed in recent years.
The UK can draw inspiration from these countries by increasing funding and tax incentives for R&D, implementing comprehensive vocational training, providing financial incentives for critical industries like life sciences, green technology, and metallurgy, promoting exports through increased trade missions, and investing in modern infrastructure to support manufacturing activities and supply chain efficiency. Furthermore, hot housing manufacturing that has an impact on our national security should be a priority.
Moreover, the UK should focus on sectors where it already has a competitive edge and growth potential, or where there is a potential national security imperative. Green energy, pharmaceuticals, and advanced manufacturing technologies are areas where the UK already excels – and can go even further to be a true leader. By directing resources and support to these industries, the UK can ensure long-term sustainability and economic resilience.
Implementing a robust industrial strategy also means fostering a business environment conducive to innovation and growth. This involves not only financial support but also regulatory frameworks that encourage entrepreneurship and investment – people and businesses need to be able to take calculated risks in order to achieve something special. The government should work closely with industry leaders to identify barriers to growth and develop solutions that promote a dynamic and competitive manufacturing sector. The time for talking about these issues is over, and with a new government in place, which seems to have returned appointed experts to positions about which they have a great deal of knowledge, we have the opportunity to reforge positive relationships between Government and Industry.
Recognising and appreciating the importance of manufacturing’s contribution to the UK’s prosperity and security is essential for a resilient economic future. By learning from the industrial strategies of other nations and implementing a comprehensive industrial policy, the UK can rejuvenate its manufacturing sector and reclaim its status as a global leader.
Just as no business can succeed without a business plan, Britain needs a well-thought-out industrial strategy to thrive. In the same way, a bank wouldn’t issue a loan on the vague musings of a potential start up founder, we cannot expect the industry to invest without a clear sign of support and direction from the CEO of Britain plc.