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Made in Britain? Not without bolder state support for industry

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On the face of it, last week’s GDP update was great news, allowing George Osborne to proclaim that the UK was on the path to prosperity. Of course this growth was welcome, if belated, but there is a danger that in the excitement we lose sight of the lessons we should have learned from the financial crisis and ensuing recession.

Larry Elliott has done a fine job of putting this latest economic progress into context, making the vital point that this is growth built on the same shaky foundations as prior to 2008. It is skewed towards London and the South-East, overly dependent on services and due in large part to increasing private debt.

One of the principal challenges that politicians of all hues accepted in the aftermath of the crash was the need to rebalance the economy, in a number of ways but not least in terms of bolstering manufacturing. The Chancellor seemed to understand this, famously declaring in his 2011 Budget that he wanted to see Britain “carried aloft by the march of the makers”. Stirring stuff, but little has come of it. Construction and industrial production, after flatlining for so long before the banking meltdown, nosedived after it and have since then failed to claw themselves back even to where they were.

The coalition government has not been afraid to embrace the idea of “industrial strategy”, a concept rehabilitated to some extent by Lord Mandelson in the final years of the previous Labour government, and its movement in this direction is encouraging. But its approach is too timid, tempered no doubt by concerns about giving offence to the free market orthodoxy that has taken hold over the past few years.

What many people may have forgotten is how productive an activist industrial strategy in fact was for Britain. Roll your eyes at British Leyland by all means, but there were other initiatives that laid the groundwork for enormous success which we continue to enjoy to the present day.

As Civitas research fellow Kaveh Pourvand sets out in his new report, Picking Winners, the UK’s comparative advantage in aerospace and car manufacturing emerged on the back of enormous support from the state over a timescale of several decades.

Take commercial aerospace after the Second World War, when the Brabazon Committee led a series of efforts to get British manufacturing into the market. It was unsuccessful, despite repeated efforts, in developing a commercially viable airliner. But what it did do was lay the foundations for later success that could never have been achieved otherwise. Filton would not have been the base it now is for thousands of workers at Airbus, Rolls-Royce, BAE Systems and other aerospace companies if it had not been for that earliest state investment in the area.

Sometimes private investment in a particular innovation or industry is not available despite the enormous benefits to the wider economy that could be at stake for generations to come. This is where the state must step in. Even Margaret Thatcher in the 1980s saw the benefit of major state investment in industry, such as the £700 billion of subsidies she gave BAE Systems towards its Airbus programmes.

This was not just a sectoral strategy, like so much of the coalition’s work now. It was direct support for a company whose success would be a cornerstone of Britain’s economic success over the next few decades. By contrast, consider the coalition Government ‘s withdrawal, in one of its first acts, of the £80 million loan that Lord Mandelson had put in place for Sheffield Forgemasters.

The problem now is that, not only is Whitehall unwilling to make the big bold interventions necessary for a successful industrial sector, but other nations – like China, Brazil, Japan – are more than happy to pick up the slack on behalf of their own economies. Mr Osborne will need to be more ambitious if he still has any hope of the UK economy being driven forward by the words “Made in Britain”.


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