Plans to reform state-aid rules. This week the government will set out its plans for a post-Brexit system of state subsidies to support selected industries, the FT reports. These will mark a significant shift away from the EU’s state-aid rules that previously limited government intervention.
~~A free rein for subsidies? In the Brexit negotiations, the EU demanded that the UK create a statutory regulator with powers to prevent government support causing distortions to competition. Instead, the BBC reports, the UK will create a “subsidy advice unit” within the Competition and Markets Authority with “no powers to prohibit the granting of support.”
An emerging global consensus. The government has said it will use industrial subsidies to help achieve goals such as “levelling up” and decarbonisation. Business secretary Kwasi Kwarteng insisted that this would not be a “return to the failed 1970s approach” of attempting to “pick winners” or bail out unsustainable companies. But there is in fact an emerging global consensus about industrial strategy.
~~US moving towards more intervention. Brian Deese, Director of the White House’s National Economic Council, has set out the Biden administration’s plan to provide more aggressive incentives to key manufacturing industries. Deese warned that the pandemic had exposed “unique economic vulnerabilities” in domestic production and an over-reliance on imported goods.
~~EU loosening its free-market approach. The EU is also planning a further relaxation of its rules on state aid, though these are the subject of political debate about solidarity between the Northern and Southern member states.
~~Global consensus. A 2018 report from UNCTAD found that 84 countries (accounting for 90% of global GDP) had adopted formal industrial policies in the previous five years. UNCTAD is running a series of webinars on “the new consensus among economists and policy makers on the relevance, desirability, and practicability of industrial policy”.
Labour’s proposals. In her first major policy announcement last week, Shadow Chancellor Rachel Reeves also focused on industrial strategy, declaring that a Labour Government would ask all public bodies to give more contracts to British firms, using procurement contracts to raise social, environmental and labour standards.
~~Progressive procurement. Labour’s proposals echo those of a 2017 CLES paper which outlined the opportunities for public procurement post-Brexit and called for locally-defined social outcomes frameworks to enable public spending to address local economic issues.
Industrial strategy and the green transition. The leading modern proponent of industrial strategy is Professor Mariana Mazzucato, whose UCL Institute for Innovation and Public Purpose has been advising the UK, Scottish and other governments on a “mission-oriented” approach aimed at meeting society’s key challenges, such as decarbonisation and healthcare.
~~Competitive advantage. Commenting on the US government’s new approach, economics blogger Noahpinion highlighted the “first mover advantage” of green industrial strategy, enabling the US not just to reduce its emissions but to gain competitive advantage in new technologies, particularly with respect to China.
Addressing the net zero skills gap. Onward published a report on the labour market challenge of the net zero transition. The report emphasises the 30% higher wage premium for net zero jobs when compared to carbon intensive jobs, as well as the smaller gender pay gap in net zero industries. It recommends funding 2,800 “net zero aligned” PhDs in engineering, establishing prestigious “Net Zero Academies” in regions with a high proportion of carbon intensive industries, introducing a “Green Human Capital Tax Credit”, and more.
~~A more diverse banking system is more resilient. Tony Greenham, Executive Director at the community bank Avon Mutual, gave evidence to the APPG Banking inquiry into SME finance and levelling up. Greenham pointed to the “well evidenced [finance] gaps for smaller, low growth, intangible asset based, younger and BAME and female led businesses”, and made the case for a more diverse banking system of regional banks and socially orientated and mutual lenders.
~~Community investments. Economic sociologist Mark Davis suggested that scaling local green bonds issued by UK councils might be more attractive to consumers if they can see the fruits of their investments in local green projects.
Democratic land reform. CLES released its final report of the Liverpool City Region Land Commission. The Commission gathered experts on democratic land reform (including community land trusts, “maker spaces” and social enterprise incubators) to ensure publicly-owned land furthers social, environmental and economic justice.
Democratically-owned UK firms over the pandemic. Co-operatives UK released its annual report on the UK’s co-operative sector. The report found that co-operatives were more resilient to the economic downturn caused by the pandemic. Cooperatively owned businesses were four times less likely to close in 2020 than firms in general and the number of co-ops grew by 1.2% despite the economic downturn.
Health, work and welfare
Levelling up health inequalities. The Institute for Health Equity, headed by Professor Sir Michael Marmot, released Build Back Fairer in Greater Manchester, responding to the 25% higher covid mortality rate in Greater Manchester than the English average.