Tag Archives: BEIS

Industrial Strategy and Steel

Ian Greenwood 300x270
Dr Ian Greenwood, Leeds University Business School

With the restructuring of its former ministry for Business Innovation and Skills (BIS) into the ministry for Business, Energy and Industrial Strategy (BEIS), led by Minister Greg Clark, the government looks to have accepted the idea that an element of coordination of the economy is necessary in order to be able to compete with other industrial nations. The Green Paper on industrial strategy, the consultation period to which ended on 17th April 2017, appears to have consolidated this position.

Although the Green Paper, ‘Building our Industrial Strategy’, proposes that industrial strategy is not about directing the economy, it does, nonetheless, suggest an intent to intervene in the working of the economy. This is in somewhat stark contrast to the position in July 2015 when the then Secretary of State for Business Innovation and Skills, Savid Javid,  informed those desperate for the government to engage with the crisis engulfing the UK steel industry, that he believed in an ‘industrial approach’ for the UK industry rather than an ‘industrial strategy’. It was the deep crisis in steel, that in large measure, through the work of the All Party Parliamentary Group (APPG) for steel, that propelled the government to think again about the extent to which strategic intervention in industrial is necessary.

The proposed industrial strategy is to be based on 10 pillars. These are science, research and innovation; skills; infrastructure; business growth and investment; procurement; trade and investment; affordable energy; sectoral policies; driving growth across the whole country; and creating the right institutions to bring together sectors and places. Within an overarching ambition of improving living standards and more balanced growth by increasing productivity, the government sees industrial strategy as necessary for a stronger economy, ‘fairer society’ and development of ‘high paid, high skilled’ jobs. The strategy will, furthermore, reflect active government that moves beyond short term thinking. It will, ‘build on strategic strengths’ and ‘tackle underlying weaknesses’. Industrial strategy is though, to be ‘modern’. This, Clark explains. is not about directing the economy and 1970s style industrial strategy, ‘mistakenly focused’ on existing industries and the big firms within them. New industrial strategy will act to nurture new industries that will ‘challenge and in some cases displace’ existing industries, not to privilege the protection of incumbents. Picking losers as much as winners seems central to this philosophy. In the absence of key supports for manufacturing and energy intensive industries, this might well become a self-fulfilling prophesy.

What might also be cause for concern, however, is that apart from reference to advanced engineering, the aerospace and auto sectors, mention in the Green Paper of the wider manufacturing sector and primary such as steel is scant. Yet an industrial strategy in which industries such as steel are manifestly part, is precisely what is required. This is the case in respect not only of the intrinsic value of such industries, but also precisely because of the vital part played by, for example, steel, in the up and down stream viability of the aerospace and particularly automotive sectors. It is generally accepted that if car manufacturers cannot source around 40% of its materials and components domestically, they will look to relocate offshore. The consequence of this for the UK economy would be calamitous.

Although the importance of the steel industry to the UK has declined, it possesses attributes that are significant for the economy. The industry produces a trade surplus. Its productivity, investment in R&D and training per employees are higher than the general UK economy.  Crucially, the supply value added multiplier is greater than 3, and the employment multiplier is between 2 and 3. The industry has, hence, an important impact on skills, economic demand and employment levels for the country in general and for specific regions in particular.

The steel industry is categorised as a ‘Foundation Industry’. Such industries have been generally characterised as those that underpin the web of strategically important manufacturing and construction supply chains and whose output is largely for supply chain inputs rather than final consumption. As with the steel industry, Foundation industries are essential for the generation of primary value for an economy. They have been assessed to account for 17% of UK manufacturing GVA and 20% of manufacturing employment. Crucially, again as with steel, these industries have higher productivity than the UK economy norm, have relatively high levels of R&D and training per employee.

Academic research explains why it makes economic and social sense for a government to support Foundation industries through a strategy for industry. The reason why economies such as the USA and UK suffer from a defect in R&D and competitiveness, is because of the neglect and outsourcing of these basic industries. Commentators explain how manufacturing industries provide the infrastructure through which skills, R&D and the ability to innovate are nurtured. These are simply crucial for the international competitive success of advanced economies. The outsourcing and decline of manufacturing sets off a chain reaction that is ultimately destructive to the ability of the macro economy to innovate and compete. To address this potential crisis, it has been argued that, ‘government and business must work together to rebuild a country’s ‘industrial commons’, the collective R&D, engineering, and manufacturing capabilities that sustain innovation [and that depends crucially on the existence of a vibrant manufacturing base]. Yet funding of research and encouragement of collaborative R&D initiatives to tackle society’s big problems need to be stepped up. Companies must, furthermore, overhaul their management practices and governance structures in order to avoid making destructive outsourcing decisions.

Geographically skewed to industrial areas of the country such as Wales, the Midlands, Yorkshire and the North East, the steel industry is responsible for the retention of relatively high paid, high skill jobs in areas that are deindustrialising – often with devastating social consequences. When steel plants close or contract, a negative economic equilibrium around a low pay, low skill, and low value added economy is likely to evolve. The economic multipliers associated with the industry are relatively well understood, but what I term the ‘social multiplier’ is no less critical. has clearly demonstrated the negative psychological impact of job loss on steel workers many of whom have spent most, if not all, their working lives in the industry. Transition into work that is often comparatively low paid and low skilled, can be unnerving and demoralising. The strong sense of self-esteem, camaraderie and collective support that typifies steel work is rarely rediscovered.

The Industrial Communities Alliance (ICA), an organisation attempting to develop public policy for the deindustrialised, regions of the UK, such as steel and coal, points out that Britain’s older industrial areas contain around a third of the UK population. These are, though, largely communities ‘left behind’ and getting by on low paid work and benefits. The Alliance therefore supports an industrial strategy designed to rebalance the economy through a shift towards industry, production and exports. The perspective of the ICA is echoed in the analysis presented in the Green Paper which accepts that regional disparities are now wider in the UK than in other western European nations. An industrial strategy is necessary, the Paper contends, to spread growth and wealth more widely across regions, hence creating a fairer society that, in the words of Theresa May will engender, ‘a stronger, fairer Britain that works for everyone, not just the privileged few.’

Research provides strong evidence that wholesale deindustrialisation is not an overdetermined economic phenomenon. Governments can act to shape the nature of their economies. From the coordinated market economy of Germany, to the Developmental State model of Singapore, to the way in which the USA actively intervenes in its trade defence mechanisms, across a range of capitalist economies, evidence for this is clear. What is required is a holistic strategy that endures and connects Foundation Industries to other sectors of the economy – high tech, the service sector and through procurement policy, the public sector – and which involves both employees and their trades unions. Industrial strategy can work. The ideological shibboleths of the political Right cannot be allowed to extinguish this, possibly final chance, for some basic industries, their workers and their communities, to survive and flourish.