Picking winners – Nissan and industrial strategy

Nissan’s announcement and questions about a deal show why the government must quickly set out a clear industrial strategy plan

tom_hunt_100Industrial policy is back.  On the eve of becoming Prime Minister, Theresa May stated that the UK needs ‘A proper industrial strategy to get the whole economy firing’.  By the end of the same week she’d created the new Business, Energy and Industrial Strategy department (BEIS).  Three months on and clarity about what this all entails remains lacking.

But we know what May says it’s not.

May told the Conservative conference: ‘It’s not about picking winners, propping up failing industries, or bringing old companies back from the dead.’  And after May chaired the first meeting of the new Cabinet Committee on Economy and Industrial Strategy an anonymous source re-affirmed ‘we’re not getting into the business of picking winners’.

How then should we view Nissan’s decision to build two new models in Sunderland?  Or rather, what should we make of the government’s ‘letter of assurance’ to Nissan and speculation that it promised Nissan would face no ‘additional costs’ after Brexit.  Ministers deny compensation was offered but questions about the specifics of any deal remain.  What was agreed when Carlos Ghosn, Nissan’s chief executive, called into Downing Street for a chat with May on October 14th?  Vauxhall and Honda executives, facing similar investment decisions, will be the first to want to know.

Whether or not a specific deal for Nissan was struck, we do know the government has made commitments to support the UK car industry (by making funds available for skills, training and R&D, and to ‘re-shore’ parts of the supply chain) – so is this the government acting to hang on to a winner?  And what does it tell us about its industrial strategy?

Scrutiny of Nissan’s announcement, in many ways a political problem of the government’s own making, exposes how limited the terms of political debate around industrial strategy are.  The ‘we are not picking winners’ discourse is used by politicians as code to attempt to quell doubts that industrial strategy means embarrassing British Leyland-style interventions, and by critics in the media and business to warn that the government shouldn’t get involved in the private sector.

But in reality there isn’t a strong aversion from UK policymakers to using the state to intervene in the market.  The fear is not of picking winners but ‘backing losers’ – and the political embarrassment and economic costs this entails.

The binary winning/losing terms of how industrial strategy is discussed serve to prevent an honest assessment of how governments, whether they choose to admit it, routinely use the state’s resources and machinery to privilege and support certain sectors and industries (e.g. regulating energy prices, providing mortgage loans to first-time buyers, guaranteeing bank deposits, to name three examples).  In recent decades this is most clearly seen with regard to financial services.

Since the ‘Big Bang’ regulatory and fiscal frameworks – even direct investment in infrastructure – have consistently been used to support the growth of financial services.  David Willetts was that rare exception, a Minister (and a Conservative at that) who argued this amounts to industrial policy.  He argues, for example, that the Jubilee Line extension to Canary Wharf, backed by Thatcher’s government to support the sector, should be seen as industrial policy and is surely right to say that had this ‘been a link to a manufacturing centre not office blocks for financial services it might have been seen as a much more controversial example of industrial policy’.  In other words, UK governments have picked financial services as a winner and backed it, and had the full support of the supposedly free-market finance sector.

So, if UK policymakers are willing to provide direct support to industry what is the framework for doing so?  Setting out a decision-making process matters for May because if her industrial strategy is to be ‘proper’ and genuinely transformative it needs to be based on a solid analysis of the UK economy.

SPERI’s submission of evidence to the BEIS Select Committee’s industrial strategy inquiry set out how this could be done.  We argue a new strategy should be developed through assessing the UK’s economic strengths and the condition of the private sector by answering questions such as:

  • What are the UK’s core economic attributes?  What opportunities exist to enhance them?
  • What can we produce and sell best?  Which markets are we best placed to export to – now and in the future?
  • What domestic and international, social and economic forces bear upon UK policymakers and the economy?  And what are the short, medium and long trends economic trends that impact upon the UK?

Using such a framework would produce answers that outline the industries and sectors we would consider of strategic importance to the UK – in short, what industrial strategy should focus on!  It would change the terms of debate from simplistic winner/loser issues to more important and complicated questions like: which industries and sectors are successful, and how could they be supported to become more successful?  And where are the opportunities for future success?

Failing to set out a proactive forward-looking and opportunity-seeking framework risks the whole industrial strategy agenda being written off again as simply constituting a series of kneejerk reactions to threats or those who shout loudest (as is alleged about Nissan, and potentially countless others coming down the track).

So: returning to Nissan.  By any measure the company is of strategic significance and it is right the government acted to safeguard jobs.  Sunderland accounts for nearly a third of UK car-making and 1.4 per cent of UK exports.  The impact of its loss – to exports and the trade deficit, to supply chain companies and to unemployment in an already depressed region – would be immense (setting aside the enormously damaging political ramifications and symbolism of a major foreign investor exiting the UK in response to the prospect of Brexit).

The government will inevitably be forced to publish its assurances to Nissan, but how this fits into a bigger picture regarding its industrial strategy, if at all, remains to be seen.  If this was a hastily-prepared package designed to secure Nissan’s UK presence, then on any measure it worked.  But is this industrial strategy?  An alternative interpretation might be that this is corporate welfare for the car industry.

Further, this affair to-date exposes the weakness and inevitable logic of remaining wedded to the binary winners/losers discourse.  Until the government sets out a clear industrial strategy plan it will continue to be both accused of picking winners and reacting to threats.  Addressing this quickly matters because as Nissan shows, industrial strategy and Brexit are inherently linked.  Unless Ministers want to have to spell out which sectors/companies are the ‘winners’ they’ll protect in Brexit negotiations they need to reject the ‘winners’ discourse and set out a clear framework for industrial strategy.  The Autumn Statement provides the perfect opportunity.

If this is not done satisfactorily, and clearly, we can be sure that in coming weeks and months other major employers and sectors, domestic and international, from chemical manufacturers to banks, universities and the tech sector, will all demand their own deals and assurances.  Setting out an industrial strategy plan would also allow the essential debate to begin about what a post-Brexit UK economy could, and should, look like.  Rather than just trying to cling on to what we have, the debate across the political spectrum and in all the UK’s regions and economic sectors could then start to focus on where future employment, growth and success will come from.  That really could be a winning approach.