For Gareth Davies, permanent secretary at the Department for Business and Trade, this is personal. Speaking at a lecture given to mark the start of a partnership between his department and the Policy Institute at King’s College London, Davies made it clear to his audience of students, officials and policy-watchers that the work of shaping and growing the UK economy is very human, with real-life impact, and with rewards that are “immense”.
“I grew up in Liverpool in the ’80s,” he said. “Some of you may remember, that was a pretty tough time. I saw at first hand what happens when growth slows, when industries stop investing, when companies stop exporting. Wages are flat, jobs are cut, families and communities suffer. Frankly, horizons narrow. So, this isn’t just numbers, something you read about in the Financial Times or The Economist. This is real life, real people, real opportunities.” A faster-growing economy means “challenges like the climate transition, tackling poverty, strengthening our defence, would feel far more tractable”, he continued.
The crux of Davies’s speech set out what an industrial strategy is, and what it would take for that strategy to succeed. Crucially, he said, an industrial strategy is about “the shape and composition of the whole economy” and is not just another label for growth policy. The latter, he explained, is about things like “high-quality infrastructure, an effective planning system and a highly skilled workforce” – factors which create a foundation on which an industrial strategy will build.
“Different governments will rightly make political decisions about how much to lean into shaping the economy,” he noted, “but all modern governments will have a profound influence on the structure of the economy, implicitly or explicitly.”
Responding to a question from the audience, Davies acknowledged that this influence on the economy is exerted by everything from visa policies to farming regulations, meaning that a cross-government approach is vital. “An industrial strategy fails if it’s just seen as the business department’s strategy,” he said. “It’s about how the country will compete, how it will prosper, how it will make its way in the world over the next decade; how it will manage the big global trends of decarbonisation and the opportunities of digital; and how we’ll make sure we create inclusive, secure and resilient growth. This is very much a cross-government endeavour.”
Speaking to CSW after the event, Davies fleshed out how he’s going to make sure the strategy isn’t perceived as something orchestrated through DBT. The government is building in coordination from the start, he said, with a set of measures that will make it “not easy, but easier” to build a cross-government approach.
The first is the Growth Mission Board, chaired by the chancellor, with the “prosperity departments” represented at the table. This provides a place for “proper cross-government conversation about what’s needed for growth,” he said, and is also reflected at an official level.
DBT’s industrial strategy team also has secondees from a range of government departments, including the Treasury, which means those departments are represented and involved in shaping the work very practically. Finally, individual sectoral plans will be led by the relevant departments, so it’s “very much bringing in the whole of government right from the start”.
Speaking of the imperative to partner effectively with business, Davies acknowledged there is a tension here, and that partnership must not slide into lobbying. “But it’s a mirror risk of being too cynical, of holding businesses at arm’s length and, as a result, not understanding what it will really take to shift sentiment and to shift those investment decisions,” he said. “Ultimately, this rests on high-quality capability and expertise.”
He went on to explain that the core capability he wants to build in DBT is “understanding business,” which will be “the heart of what we do”.
“Everyone needs to understand how businesses think, how they approach issues, what pressures they’re facing, the context they’re operating in,” he said. To this end, he’s keen to encourage more secondments and hires from business, who can bring new ideas and perspectives to the department.
Despite this focus on the new, Davies is very aware of the importance of institutional memory. In fact, his appreciation for a historical perspective is one reason he began the partnership with King’s, and has chosen to appoint Sam Lister as head of the industrial strategy team (Lister led work on the 2017 industrial strategy published under then-business secretary Greg Clark).
Davies referred positively to the 2017 strategy at several points in the lecture – for example, its use of challenge funds with flexible stage-gate approvals, which allowed government to invest in four Grand Challenges it had identified as national priorities but gave flexibility to stop and redirect funding if needed.
As well as building capabilities in his department, Davies suggested that government will also need to support capabilities in local and regional government, noting that one way to do this is to share expertise by basing DBT staff in mayoral authorities. “I’d like to build up that approach and think about how we can help them potentially catalyse and accelerate inward investment,” he told the audience.
What is an industrial strategy?
Davies sees an industrial strategy as “setting a direction for the whole economy”. That is, it should include a range of sectors, rather than just the traditional “industry” and manufacturing sectors, and should be about “the shape and composition of the economy”.
Industrial strategy is not just about subsidies. It should use “a full range of policy levers and all tiers of government to attract investment”. While in some sectors – or for some companies at certain moments – “targeted, timely, temporary” subsidies may be the right choice, some of the UK’s most successful industrial interventions have used a wide range of tools. Davies pointed to the Treasury as an example, arguing that it has “successfully run an implicit financial-services industrial strategy for decades”.
In most cases, an open, competitive process is the best way to decide on how to allocate funding or support, since “money and attention are in short supply. In government, you need to be very conscious of the opportunity cost of any intervention. Supporting this company, this sector, always means you’re not supporting someone else.”
Sharply defined metrics matter, but “only if you’re willing to learn and adapt. You need to be ready to stop interventions that aren’t working and double down on those which are”.
Davies added that an industrial strategy “needs to align work across three dimensions: the national business environment, sectoral strategies and bottom-up plans for local areas”.
“Too often,” he said, “industrial strategy has been seen purely as a national strategy, something driven from the centre with local government playing a reactive, responsive role. But this, to me, is to ignore the importance of local insight, local knowledge and local ownership of any plan.”
It’s important to “strengthen the capability and capacity at local levels, particularly the mayoral combined authorities, which have the potential to provide a long-term consistency of approach,” he said.
How to make it work?
There are lessons to be learned from around the world. “The most successful examples of industrial policy in advanced economies build on deep comparative advantages,” Davies said. The UK’s strategy should “work with the grain of our existing institutions and industrial structure, starting from a clear-eyed assessment of our relative strengths as a country, considering what makes us distinctive”.
A consistent approach builds business confidence, but this is an area where the UK has a “longstanding weakness”. To counter a tendency towards short-term thinking in UK political culture, the government is setting up a new Industrial Strategy Advisory Council, chaired by Clare Barclay, CEO of Microsoft UK.
The advisory council will be on a statutory footing and will aim to provide the kind of institutional corrective that the Office for Budget Responsibility has offered when it comes to fiscal strategy.
Getting industrial strategy right, Davies concluded in his lecture, requires “complex policy and institutional design”.
“It needs rigorous use of evidence and evaluation. It needs a complex balance of consistency of approach, but the flexibility to adapt and learn,” he said. “Strong institutions can help government achieve the right balance. But, in my experience, the most important factor is this strong partnership approach between businesses, unions, local leaders, universities and governments, because only through this collaboration, through this challenge, can you create the sense of a shared goal, the sense of excitement, the sense of shared endeavour needed to unlock investment and ultimately drive the growth, productivity and higher living standards that we all know the country needs.”