The UK's industrial strategy: a policy buffet for a 21st century economy

The UK economy has its problems, not least a large and growing trade deficit, low productivity and stagnant wages. Coupled with challenges of Brexit, the UK may have a particularly difficult course to chart in the coming years – but it's far from alone in having these problems. That's why governments around the world should be paying close attention to the UK government's new industrial strategy. Here, Kirsten Bound, Executive Director of Research Analysis and Policy at Nesta, the UK's leading innovation foundation, takes a look at the strategy designed to reboot the UK's economy for the fourth industrial revolution_._

Amidst the uncertainties of Brexit, there were high hopes that the UK’s first explicit industrial strategy for decades would present a bold recipe for future economic success. Finally launched, it feels less like a recipe and more like a gourmet policy buffet.

With new ‘deals’ for sectors, alongside measures for stronger economic foundations, its signature dish is a set of four new grand societal challenges: an ageing society, the future of mobility, clean growth, and artificial intelligence and the data economy. Could it be a template for other countries seeking to make their own economies "fit for the future"?

Industrial policy used to have a bad reputation for propping up ailing industries. Since the global financial crisis, though, it’s undergone a reinvention. Politicians of many hues have been persuaded of the need for a more active government role in shaping their future economies, encouraging future industries to emerge, and targeting lofty social and environmental goals.

While they haven’t featured in industrial policies until recently, overarching missions have long powered science and innovation. Nasa estimated over 400,000 people and tens of thousands of organisations were involved in achieving the moon landings. The UK has taken inspiration from Germany and Japan in their activist responses to the "fourth industrial revolution" of data, automation and cyber-physical systems, and from DARPA in the USA. The strategy outlines how the four grand challenges were chosen on a combination of existing UK strengths and the scale of the global opportunity.

Take artificial intelligence and data: the strategy aims to exploit the UK’s rich research base, wealth of public datasets, and its world-leading underpinning technologies from companies like ARM or Raspberry Pi. There’s new money to develop relevant skills, a new government office for artificial intelligence to coordinate support, a new "sector deal" put together by the emerging AI industry, a new Centre for Data and Ethics, and a Regulator’s Pioneer Fund to help UK regulators keep pace with technological developments so that economic potential is balanced with impact on consumers and the public.

As with the other three grand challenges, the government admits the precise ‘missions’ are still to be developed, but there’s no doubt that this is an intervention at a systemic scale. Also noteworthy is the focus on equity, and the aspiration that Britain be "among the first countries to ensure that everyone benefits from this revolution".

As an innovation foundation that is focused on social impact, we at Nesta were pleased to see this focus on equity alongside serious investment in innovation at the core of the strategy. Following last year’s hike in spending on science and innovation - the biggest in the UK for almost 40 years, with $6.29 billion extra for R&D before 2020–21 - the industrial strategy injects additional cash to put the UK on track to hit a target for combined public and private spending on R&D of 2.4% of GDP by 2027.

This might not seem like such a feat considering leading European countries like Sweden, Finland and Denmark already contribute over 3% of their GDP to R&D, but for the UK it will be the biggest sustained increase for half a generation. The scale of the UK’s under-investment in R&D to date may come as a surprise to those who are familiar with its thriving university system, start-up scene, or creative industries. It is home to many of the world’s most innovative and productive companies.

But these belie a stubborn productivity problem. There is a persistent and growing gulf between the most productive companies and the least. The innovation diffusion machine has stalled and productivity growth is stagnant. This is contributing to some of the worst regional inequality in Europe. The strategy sets out plans for further detailed investigations into the root causes of the UK’s productivity problems. But going beyond diagnosis to find cures will be the true test of the government’s efforts, and perhaps its most important mission.

(Picture credit: Flickr/ibbl)