The preceding four articles have sought to build perspectives on the role of industrial development in local and regional economies. In this final article. I tie this together by looking at the role of industrial policy and strategy.
The perennial question for the UK: do we need an industrial strategy?
Parliament’s Business, Innovation and Skills Committee has posed it many times, and the answer consistently leans towards ‘yes’. Echoing the insights of Harvard’s Dani Rodrik, the crucial point isn’t whether to have industrial policy, but how to implement it effectively. Dani Rodrik says this because governments unwittingly support certain types of industries through their policy choices, sometimes unintentionally.
While the UK boasts some fantastic businesses, the sale of ARM โ one of the last big UK IT/digital firms with global reach – to overseas investors in 2016 was a sobering moment. And despite decent levels of innovation, our performance lags behind international peers. Perhaps more concerning is the lack of public discourse around the UK’s lacklustre international competitiveness and productivity compared to other OECD nations. This has real consequences: poor long-term wage growth and the resulting pressure on living standards and tax revenues.
The UK’s economic history often reads as a cycle of speculative booms, fuelled by cheap credit and property, followed by painful busts that erode confidence and our productive capacity. This pattern has repeated for the last half-century.
We’re good at diagnosing the problems, creating long-term solutions – not so much
Numerous select committees and commissions have consistently highlighted the UK’s failures: creating dynamic new industries, tackling the long tail of low-productivity businesses, and establishing coherent policies for economic growth. As far back as 1985, the House of Lords warned of a looming economic crisis due to manufacturing decline, a sentiment echoed in 1991 with grave implications for future prosperity.
Fast forward to today (April 2025), and UK manufacturers are voicing concerns about imminent large-scale redundancies due to new US tariffs, underscoring the need for government intervention.
What we urgently need to move beyond are the tactical slogans that have characterised the last 25 years of government policy, across the political spectrum. Past UK approaches offer little in the way of a successful blueprint. The familiar pattern of expert reviews, lamentation, and then limited action simply won’t suffice. We require a fundamental re-evaluation of the UK economy โ our ambitions and the pathways to achieving them.
The core challenge is to forge coherent, long-term policies for UK economic development and growth.
To achieve this, we need to address four key areas:
1. A mature national debate is essential
This transcends party politics, as governments of all stripes have struggled with this issue. The sooner politicians acknowledge this, the better. The discussion needs to move beyond simplistic “public bad, private good” rhetoric, shedding tired dogmas and ideological beliefs that fail under scrutiny. We must embrace new ideas, articulate a clear vision for the future, and engage in pragmatic, realistic debate about how to get there. This won’t be a quick or easy fix. Successfully cultivating major new industries or future growth pathways is a significant undertaking, likely requiring consistent policies spanning 25+ years, as demonstrated by the transformations in South Korea, Brazil, Taiwan, and Singapore.
2. Collaboration between society and business, with a clear role for government
Social institutions, public policies, and investment have underpinned the development of almost every major global industry, from US government R&D laying the groundwork for Silicon Valley to South Korea’s state-owned steel giant POSCO. The trillions spent globally to support the financial sector after the credit crunch underscore this point. While business and private enterprise are crucial, public policy has a vital role in facilitating, not hindering, their growth. Long-term economic success demands that business and society work together to establish the right frameworks, policies, and public investments.
3. We need implementable, well-founded ideas
Effective policy requires good ideas shaped by constructive input from businesses, industries, and communities. As someone with experience in business and regional policy, I believe Central Government cannot tackle this alone. A new non-profit organisation or partnership could emerge as a powerful, coherent, and evidence-based voice, backed by industry and communities alike. As Dani Rodrik and the World Bank have both noted, the question isn’t whether government has a role, but how it exercises it effectively. The scale of government support for the financial services sector โ a regulatory agency with thousands of staff and a massive bailout โ starkly illustrates that the notion of business thriving without government is a myth. While supporting key sectors like finance is important, we must also diversify our economy and cultivate growth across a wider range of industries and services. The coming years demand a new economic policy that fills the current vacuum, stimulating growth in both existing and emerging sectors. This isn’t about handouts or picking winners, but about reimagining the partnership between society and business for future prosperity, demanding pragmatic and sensible solutions.
4. We need to adopt up-to-date definitions of ‘industries’
Industries are collections of interrelated value chains, or ecosystems. What was once done by one monolithic corporation is now done by a variety of large and small firms, non-profits and universities. And governments’ support and underpin the development, dynamics and success of industries. One of the reasons why The Data City is so popular is that it provides company data in industry classifications that have the agility to keep up with market and economic trends in defining new sectors or ecosystems that form around emerging technologies and markets. It’s worth checking out.
What can we learn from overseas?
Key international lessons for industrial policy:
- Holistic Approach: Industries need a range of favourable conditions: finance, skills, market access, stable economies, effective legal frameworks, and infrastructure.
- Building on Strengths: Success typically stems from leveraging existing local advantages, whether natural or human capital, as seen in the Cambridge Phenomenon and Taiwan’s semiconductor industry.
- Global Mindset: Successful industries operate globally, requiring government regulations and services to meet or exceed international standards to attract global investors, customers, and suppliers.
- Beyond Technology: An industry encompasses an entire value chain, not just a specific technology. Successful industries have broad footprints. Policy needs to consider market demand as well as technological advancements.
- Market-Driven Approach: Effective industrial policy follows market signals, using incentives and flexible interventions, and listening to business to adapt policies.
- Focus on Enabling, Not Propping Up: The best policies create the right environment for potential winners to emerge, rather than sustaining outdated practices indefinitely. Policy should manage decline or facilitate transformation.
- Long-Term Vision: Industrial growth takes time and requires consistent, long-term support and stable policy goals, a significant failing in the UK. A government that constantly shifts its priorities will not inspire confidence. Successful examples like Silicon Valley, Taiwan, and Singapore took decades to develop.
The government role is vital
The notion that markets alone will deliver a sustainable future for the UK economy is a flawed one. The major industries in our competitor nations have all benefited from significant government involvement at some stage. The scale of state ownership in some of the world’s largest companies serves as a powerful reminder of this reality. It’s time for a mature, evidence-based, and long-term approach to industrial strategy in the UK.
The UK government is working on its industrial strategy – and publication has been delayed until Autumn 2025. It will be interesting to examine it once published, and see how it compares to the best practice framework I have set out here.
I hope you enjoyed his 5-part series!
Here’s links to all the other articles:
3. Industrial clusters and local economies (article 3 of 5 on industrial policy)
