Labour issues in industrial policy

1. Labour issues in industrial policy Presentation to SPRU Tim Page, Senior Policy Officer, TUC 24th October 2012

2. A little bit of history… • From 1945 to 1979, industrial policy was part of economic policy mix of most developed nations • Success of industrial policy mixed … so any reinvented industrial policy must be designed to work effectively • End of 1970s, paradigm shift: Thatcher Government didn’t believe in reforming industrial policy, it believed in abolishing industrial policy • Nicholas Ridley, Secretary of State for Trade and Industry under Thatcher: “What is the DTI for? I’ve got bugger all to do and thousands of staff to help me to it.”

3. A bit more history… • DTI replaced and now called BIS; Dept of Employment swallowed up by DWP; Treasury is the senior economic department in government – But Treasury’s priority is tax and spend, not industry and jobs • New Labour Government accepted neo-liberal line. TUC’s 2005 paper, ‘An Industrial Strategy for the United Kingdom’ given no more than polite hearing – not government’s role to “pick winners” • Financial Crisis - ‘New Industry, New Jobs’ • Coalition Government – back to neo-liberalism • Deficit Reduction Strategy led to double-dip recession • Industrial Strategy finally part of political discourse once again!

4. Meanwhile, on the other side of the world… • Japan set up its Ministry of International Trade and Industry (MITI) in 1949 • The “four little dragons” – Hong Kong, Taiwan, Singapore and South Korea – pursued industrial policies of their own in the 1950s, 1960s and 1970s • China opened to the world under Deng Xiaoping - and “globalisation” was born • In Germany, industrial policy never fell out of fashion and manufacturing remains strong, whereas the UK has seen its industrial base diminish since the 1970s • With low skill, low value work moving abroad and with global industry now organised as a series of supply chains, even economic rebalancing wouldn’t create many thousands of manufacturing jobs

5. The exam question • How do we create a model of economic growth that provides decent, well-paying jobs for those young people that do not go to university? • In the 1960s and 1970s, manufacturing provided jobs for the “skilled working class”. It paid decent salaries and provided dignity at work • In recent years, some argue we have seen an hourglass economy • Low wages at the bottom are topped up by tax credits. • Are these affordable? Do we need “pre-distribution”? • Growth in universities for decades. Vocational skills further decreased in value. • Technical baccalaureate? University Technical Colleges?

6. But what about job creation? • Central to TUC industrial policy has been the idea that government should target the creation and maintenance of strategic industrial sectors that are able to compete with emerging economies, such as China and India, today and in 10, 20 and 30 years time • Which sectors? Aerospace? Automotive? Pharmaceuticals? The industrial sectors of tomorrow (e.g. green technology)? • But how to identify tomorrow’s winners? We could borrow from Siemens’ work on ‘mega-trends’ • This offers a template for targeting the industrial sectors in which we might specialise • “What will London look like in 2020 or 2025? What are the major things that need to change in a city like that? For Siemens, that is a kind of a headline, a possibility to develop business.” – Harald Kern, Siemens Works Council, Nuremberg, quoted in ‘German Lessons’.

7. Specialism in key industrial sectors • The UK needs to identify those sectors where we can compete with emerging economies for decades to come, but also those sectors where there is a reasonable expectation that well-paid, quality jobs can be created as a result • Manufacturing is part of the solution. Apart from job creation, manufactured goods increase international trade and manufacturing contributes disproportionately to research and development, so we need more manufacturing for other reasons • Sometimes the divide between manufacturing and services is a false divide, e.g. Rolls Royce • But what about the services sector more generally?

8. Jobs and the services sector • Trade unions have shown less interest in the services sector, partly because we have less history and membership in that sector • But services could provide many of the quality jobs of the future • The care sector is a good example. Ageing population means demand will grow. Low pay/low skill reputation at present. Can that change? Higher skills will make for better care sector • Wendy Carlin, ‘A progressive economic strategy’, makes the case for labour absorbing services in the economy

9. A progressive employment strategy • Carlin argues that productivity growth in certain important service sectors, such as health, education and elderly care, is systematically slower than elsewhere in the economy • If such services in constant prices rise in line with demand, they will absorb labour. However, if we become better off as a result of productivity increases in other sectors, whose prices will fall, we are more able to afford the increased cost of the services • This will increase employment, increase taxes but also improve welfare and quality of life more generally • The TUC offers no final word on Wendy Carlin’s paper, but we consider it an important contribution to the debate.

10. Conclusion • An industrial strategy for jobs will require a paradigm shift • We have moved slowly, from a neo-liberal model to one where government intervention, to support industry, is once again part of the debate • The next stage is to lose the assumption that a successful economy will develop quality jobs without this needing to be an objective of policy • How do we create quality jobs? We need a focus on strategic industrial sectors, enabling us to compete with emerging economies, but also targeting industries that can be ‘job-rich’ • Modern manufacturing is part of the solution and the UK needs a rebalanced economy. However, manufacturing cannot provide the millions of skilled working class jobs that it did in the past. • We must look again at the services sector. Wendy Carlin provides an economic model for the development of a quality services sector

11. Thanks for listening!