The state of industrial policy
A recent government-commissioned report, by former Conservative deputy leader Michael Heseltine, has criticised the coalition for not having a strategy for growth. Heseltine argues for greater government intervention, particularly at local level, to revive ailing parts of both the economy and the country. Last year, the think tank Demos published a report by an Italian-American economist, Mariana Mazzucato, which argued that the ‘entrepreneurial state’ has always played a part in innovation, research and development and should do so even more.
On the other hand, free-marketeers would argue that a bloated state that draws off a large proportion of society’s wealth will inevitably misallocate those resources and be a barrier to innovation and new ideas. Far better to simply let the market get on with it rather than have the state attempt to ‘pick winners’ based on political interests or current fashions. The high-profile failure of the US solar-power company Solyndra, which had been heavily supported by the federal government, is a case in point. There is also plenty of evidence that privatisation, the private-finance initiative and other state contracts have propped up large areas of economic activity in recent years in the absence of vigorous economic growth.
Some things that are necessary for the smooth operation of capitalism as a whole - like basic research, the provision of infrastructure, the creation of an educated workforce, and so on - may never be profitable for any individual company. Is there a role for the state that supports wealth creation without making the mistakes of state intervention in the past?
Some questions to consider in advance:
- It is widely recognised that the UK economy should be ‘restructured’ and/or ‘rebalanced’, but what does that really mean?
- Is it possible for government policy to improve economic growth? To revive manufacturing
- With the state already playing such a large role in the UK economy, is it a good idea to increase business dependence on it even further?
- The Heseltine Review
- David Green, A strategy for economic growth: a modern industrial policy, Civitas, October 2012
- Mariana Mazzucato, The Entrepreneurial State, Demos, July 2011
- Rob Lyons, The state or the free market? What a choice…, spiked, August 2011
- Ruth Lea (editor), Nations Choose Prosperity: Why Britain Needs an Industrial Policy, June 2009
- James Woudhuysen, State intervention is no substitute for innovation, spiked, October 2009
- Economist, French competitiveness: shock treatment, November 2012
- Economist, Big Brother is back: France and Germany lead a revival of state intervention, November 2012
- Ha-Joon Chang, ‘No industrial policy please, we’re British’ is out of date, Guardian, September 2012
- Industrial Policy, The Concise Encyclopaedia of Economics
- Geoff Mulgan, Innovating our industrial policy, NESTA