Industrial Strategy — House of Lords, 2018-01-08
Topic: Macroeconomics
David Stephen Geoffrey Pollock (Labour, Centre-left): My Lords, the Government’s industrial strategy cannot be adequately appraised in the short time available to an individual speaker. The Green Paper of January 2017 raised the matters of concern. The White Paper of November 2017 sets forth the Government’s intentions The White Paper ignores many of the issues raised by the Green Paper. There is, however, a surprising element in it that I can only describe as political cross-dressing. Lip service is now being paid to some of the critiques and proposals that have long been part of the message and agenda of the Labour Party. There is now dawning recognition that many of the central tenets of an enduring Conservative ideology, such as the nostrums of free enterprise and privatisation, have run their course. These are no longer fresh ideas; nowadays, they are associated with some of the worst dysfunctions of our economy A brief mention is made in the Green Paper of the failure of the industrial interventions of previous Governments. We may recall that in the 1960s and 1970s, and even thereafter, these interventions were mainly in support of troubled and senescent industries. The industrial policies pursued by our competitors were aimed primarily at supporting growing industries. In consequence of their investment in newer technologies and manufacturing equipment and with the advantage of cheaper labour, these industries were able to outcompete our comparable industries A reaction of Margaret Thatcher and of Keith Joseph, who was her Secretary of State for Industry, to the failed industrial policies of the 1960s and 1970s was to declare that lame-duck industries should no longer be supported by government but should be allowed to fail. The Conservative Party developed an aversion to industrial intervention that has endured from that time to the present, as have many of its other attitudes towards industry that arose in that era The policy of privatisation and the allied failure to use government procurement to support our native industries are both parts of Thatcher’s enduring legacy. An object lesson has been provided by our electricity supply industry, which passed into private ownership at a time when the French nationalised electricity industry was investing heavily in nuclear power generation. When the electricity industry passed into private ownership, which has become preponderantly foreign ownership, the building of large power stations—whether powered by nuclear or by fossil fuels—ceased, as did the demand for the generating equipment Instead, the newly privatised industry resorted to building combined-cycle gas turbine power plants for which the equipment was supplied by foreign companies. The leading British engineering firms that had supplied steam turbines and generators to the erstwhile Central Electricity Generating Board fell into decline. The gas turbines that power the combined-cycle plants are aero-engine derivatives. Thus, it might have been expected that the two branches of the British turbine industry would combine to exploit the opportunities for equipping the new CCGT power stations It would have required an initiative from central government to make this happen, but none was forthcoming. The electricity industry is now in want of major investments to meet the demands of decarbonisation and of electrified transport. These investments will not be forthcoming from private industry. However, it seems that the Government persist in thinking that they can and ought to be financed by private capital. Moreover, the Government have failed adequately to support our native nuclear industry, which would be well placed to capture an international market in small modular nuclear reactors for use in generating electricity Another free-market principle of the Conservative Party is that Governments should not interfere, via the operations of the central bank, in determining our rate of exchange with foreign currencies. This nostrum arose in consequence of the experience of our brief participation in the European exchange rate mechanism in 1992. The ERM was a prelude to the establishment of the euro currency. Britain joined the ERM with an overvalued currency at a rate that it was unable to sustain, despite the expenditure of a large proportion of its foreign currency reserves. An overvalued currency, which has made exporting our industrial products difficult and unprofitable, has been one of the prime causes of the failure of our industries Recently, the principle of non-intervention was restated firmly in this House by the erstwhile Parliamentary Secretary to the Treasury—the noble Lord, Lord Young of Cookham—when the Government were being enjoined to take steps to reduce the value of the pound relative to other currencies. In consequence of their assessment of the prospects of Brexit, foreigners are no longer as keen to purchase the pound, which has recently fallen markedly in value. We now have a currency that is enabling parts of our much-diminished industrial sector to respond to some renewed export opportunities. It is ironic that this devaluation is a consequence of a policy that threatens to inflict major damage on the economy. The Brexit enterprise has served to divert the Government’s attention away from the social and economic problems that are afflicting us so acutely. That is why many critics regard the Government’s industrial strategy as a dead letter, although it has been proclaimed as a necessary adjunct of Brexit. If we look back in time, we see that an overvalued currency which has inhibited our exports has been an affliction of British industry throughout the period since the Second World War. We emerged from the war with massive overseas debts and a currency that was still a principal medium of international trade and financial transactions. This international status ensured a high demand and high value for the pound, which was locked in place by the Bretton Woods system of international exchange Successive Governments felt compelled to maintain sterling’s rate of exchange for fear of what was described as a run on the pound, which was expected to result from any hint of sterling’s impending devaluation. The pound is no longer a major international currency. Nevertheless, the activities of our inflated financial sector have served to maintain its overvaluation. This crippling effect is barely recognised in any of the Government’s documents The financial sector has been largely responsible for the so-called inward financial investment of which both the White Paper and the Green Paper boast. This inward investment, which has served to maintain the demand for the pound and heighten its value, would be better described as divestment, since it has entailed the sale of British companies to overseas enterprises and investors We have sold our public utilities, including our water and electricity industries, our sea and air ports. We have placed the running of our rail network in the hands of foreign operators, which are typically nationalised industries. We are being charged grossly for the use of what ought to be our native facilities. This is bad enough, but the divestment has also made large inroads into our manufacturing industries, including our automotive and aviation industries. Our pharmaceuticals industry has narrowly avoided falling into the hands of overseas predators. We have recently divested ourselves of a key component of our electronics industry, which is the ARM chip manufacturer. I could greatly expand this list Not only has the value of the pound been sustained by these sales, but fortunes have been made by the financial institutions that have mediated the sales. This has given an illusion of high productivity within the sector, which has been extolled in the Government’s documents British companies that are in foreign ownership are not the most appropriate beneficiaries of a policy aimed at the regeneration of our industrial sector. They are liable to be treated by their foreign owners far less favourably than their home enterprises. These foreign-owned companies are liable to be the buffers that suffer the disinvestments and the redundancies that accompany the downturns of global economic activity. This so-called inward investment is liable to be considerably reduced in future, given that so little of British industry remains to be sold abroad I shall conclude this account with another aspersion against the financial sector, which has been recognised in the Green Paper but which has not been mentioned in the White Paper. This is the failure of our commercial banks to serve the needs of small enterprises. The enduring scandal of the treatment by the Royal Bank of Scotland of its business clients is a stark reminder of this failure. The unwillingness of banks to lend to businesses, allied with the limited prospects for growth through the sale of their products abroad, has meant that, for many years, our industries have failed adequately to invest in modern technology and equipment. I cannot see much chance of these prospects improving. Therefore, I fear that nothing will come of the Government’s industrial strategy.