Thursday, 8 March 2012

Industrial policy rises again

Yesterday, the coalition partners were leaking letters they wrote to each other, complaining that the UK didn't have a "growth strategy". Someone isn't paying attention. We do have a growth strategy and it has nice little acronym - QE.

The strategy is straightforward. The Bank of England is printing money to buy government debt off banks. This cash is supposed to encourage banks to lend. The public also has a role in the plan; we are supposed to take out loans and spend like Kim Kardashian. If everyone plays their part, growth will resume as if the credit crunch never happened.

The problem with this plan is that it isn't working. The UK economy has stagnated since the BoE cranked up the printing presses. Living standards have fallen, inflation has picked up and unemployment has remained stubbornly high. That list of failure should be sufficient to provoke a reappraisal of the "growth strategy".

A quick read of Mr. Cable's highly public but yet private letter and it becomes all too obvious that he is quite happy with the "loose monetary policy" line pursued by the Bank of England. Working on the principle that two bad ideas are better than one he wants to complement QE with the long discredited idea that governments can direct economic growth through industrial policy, proving that bad ideas never die, they are rehashed in leaked letters from politicians.

Mr. Cable thinks that he can draw up a list of industrial sectors that will propel the UK economy into decades of double digit growth. He wants the government to "show more leadership in identifying and supporting key technologies". What does that mean? Mr. Cable thinks that technological change can be brought about by a memo from the government to firms. Ask and it will happen.

What were the future winners that Mr Cable had so presciently identified?. First on the list was "advanced" manufacturing and related services. By this he meant the automotive and aerospace sectors. Both these industries have been around for at least a century. Putting the word "advanced" in front of manufacturing doesn't make it any more efficient for the UK to build cars.

Digital and creative industries were second on his list. Vince thinks we need to foster "Global Champions", but laments the fact that "we have produced no Amazon, no Google and no Intel." Nevertheless, help is on its way from the Government. The coalition has established the Creative Industries Council, and if its members sit around a table in Whitehall for long enough, we will produce a rival to Apple.

Finally, there is "Energy industries and low carbon" where we "need to make stronger links between policies to reduce energy use - like the Green Deal and smart meters - and jobs and growth. What are those links? Who knows? It is all empty words, disconnected from the realities of running a business.

Ironically, it wouldn't be hard to get the economy to grow. Most of the global economy is enjoying rapid growth and rising living standards. It is happening in Latin America, Asia and even in parts of Africa. All that is required is a few simple steps; stop quantitative easing immediately, balance the government budget, cut loose from the losers in continental Europe, enact genuine welfare reform to stop rewarding failure, cut taxes, and deregulate the economy.

But every journey begins with a single step. Firing Vince Cable would be a good start. It would be the right response to this kind of retrograde nonsense. We can do without ministers who think industrial policy can work.


Captain Ranty said...

I would like Vince cable to be given more time as some of his views are sound and achievable.

davidb said...

Well said Alice.A column I agree with completely.

Weekend Yachtsman said...

Isn't Industrial policy an exclusive EU competence?

Are Mr. Cable's hand not tied, therefore, although naturally he doesn't draw attention to this.

Ralph Musgrave said...

Well said Alice. Cable’s letter is meaningless, boring drivel.

Stevie b. said...

Alice BRAVO! (and why are we giving e.g. India £250 million p.a.?)

Anonymous said...

Whatever happened to the white heat of technology ..

"the Britain that is going to be forged in the white heat of this (technological) revolution will be no place for restrictive practices or for outdated measures on either side of industry"

Is see recycling is in these days.

dearieme said...

Someone made the brilliant suggestion that Cable be put in charge of the NHS.

Electro-Kevin said...

Firing Vince Cable ?

Yeah. In a kiln.

MC said...

Who are you? Are you an economist? I haven't been reading your blog long... My reply here does not intend to be condescending - these are genuine thoughts and questions.

"Ironically, it wouldn't be hard to get the economy to grow. Most of the global economy is enjoying rapid growth and rising living standards. It is happening in Latin America, Asia and even in parts of Africa."

Yes, some places are still growing.. is your argument that 'well then so should we'? It would be worthwhile to write a post on why others grow and we don't...

"All that is required is a few simple steps;"

Happy to hear you out..

"stop quantitative easing immediately,"

Do you mean stop buying more, or reverse the purchases already made? The effect QE is having / has had is pretty difficult to isolate. Yes the economy has stagnated even after additional QE - but one must at least consider what would have happened without QE.. Would we be better off?

"balance the government budget"

This isn't a 'simple step'. Would growth follow this balancing?

"cut loose from the losers in continental Europe"

I agree that we have 'ties' with the Eurozone - which ones do we cut? What does cutting even mean? Stop trading with the Eurozone? We have to balance the budget though.. they are our biggest trade partner..

"enact genuine welfare reform to stop rewarding failure"

This probably has some merit.

"cut taxes"

But we need to balance the budget?

"and deregulate the economy."

Do you think we can now trust the banks to self-regulate? Do you mean the banks? This is a difficult issue..

I haven't provided the solution to these issues - that's difficult to do in a blog comment box - plus I don't have the answer.

Perhaps you weren't being too serious with your recommendations - your post was more a Vince Cable blast - remember I am new.

Friedrich List said...

In Latin America, Brazil, which is by far the largest and most populous country there, pursues protectionist industrial policies.

These policies have been very successful.

Do you think we should adopt similar policies?

JM said...

We all know about King Canute, but did you know his Saxon name was Cnut?
Vince, fittingly, is the King Cnut of Coalition economics.

Chief of men said...

go alice :-)

Anonymous said...


QE prevented a bigger nominal collapse, by devaluing our money.
House prices that might have contracted a further 5% did not due to 5%+ government stoked inflation.

This is not a solution, its merely a government trick to avoid panic.
It causes a disaster in the long term, I know people including family members who have already started putting money into property investments again, they do it not because faith in property but fear of what the government is doing to our money.
QE causes a massive misallocation of resources.

Balance the budget.
So what if it creates 'growth' or not, the government only has the right to spend money that is generated during its period in office, the government does not have the right to spend spend spend and pass the bill to a future parliament.
The idea that people like Brown, Cable, Blair, Cameron know how to create growth and can do so with large amounts of borrowed money is absurd.
Where is the proof that this has ever happened?

Besides, it isn't a question if they can create growth, its if they can create more 'sustainable' growth than it costs us in interest payments, which at the moment it may seem like they can, but not when the rates hit 10%+ , not then.

Cut loose from Europe, fantastic idea!
Alice didn't say anything about stop trading, you're being silly.

Can we trust the Banks to self regulate?
Biggest myth of the banking crisis that the big city banks are to blame.

I will post here a comment from Telegraph comments.
"So the great crash of 2008 was a failing of the big bad banks in the City was it? Lets have a look shall we? Each of the banks that failed in the crash was either Scottish or an ex building society. RBS, Bank of Scotland, Northern Rock, Bradford & Bingley. None of these were big bad banks from the City.

HSBC never made a loss in the crash & continues to thrive globally. Barclays had its moments, but remained profitable & took no government money. Lloyds was safe & boring until a fateful call from Gordon Brown embroiled it in the toxic BoS commercial property book, via HBOS. Nat West was uninspiring & safe until RBS's audicious takeover spelt the beginning of the end.

There we have it then, none of the big bad City clearers brought us down & yet the politicians & the media would have us think very differently.

Where was the focus of the FSA during this period? Very much on the Big Four & not enough on the real culprits.

The global crisis of 2008 was purely a political creation.
In the USA subprime mortages 'given' to poor people who couldn't afford them.
Europe created the Euro which everyone knew was going to cause the PIIGS to overheat, was talked about for years.
And in Britain, The Scottish based Labour government tried to turn Edinburgh into a Banking center on a par with London and encouraged what was mostly just a ponzi scheme, with ultralow interestrates.