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The UK’s industrial strategy works well but for the wrong places.

A follow-up to researching research and an accompaniment to page 23 of this edition of Research Fortnight.

Today in CityAM there’s a pretty standard piece on industrial strategy. The author — an economics professor at the University of Buckingham and a fellow at a London-based think tank — argues against industrial strategies.

I agree with a lot of what he writes; governments are poor at picking winners and we, the electorate, are even worse at letting public bodies take the risks needed to innovate. But there’s something important that I think is missing.

Much of the UK’s industrial strategy for the past twenty years has focused not on wasteful subsidies for coal mines and steel mills but on investments in research and development. This is the kind of spending that eventually leads to ARM chips, GSK superdrugs, and carbon-fibre airplane wings. It’s been surprisingly successful.

State R&D spending is very unevenly spread across the UK.

I sell a tool that splits R&D investment into business-linked and non-business linked spending in each sub-region of the UK and plots the result. I’ve taken an excerpt showing the focus of the UK’s industrial strategy for the last two decades.

The further to the right of the graph a points is, the more money that area receives from the UK state to research and develop new products and ideas. London and Buckinghamshire in South-East England are in first and second place.

The further up the graph a points is, the more money businesses in that area invest to research and develop new products and ideas. Cheshire in North England is in first place.

London and Buckinghamshire enjoy the highest non-business spending on R&D of anywhere in the UK. Further North in Cheshire, the government spends almost nothing on R&D while business invests at the highest density in the UK. Source: Eurostat

If Prof. Shackleton looks around and sees too much industrial strategy it is probably because in Buckinghamshire and London the government invests an unusually large amount. If he travelled north to Cheshire he would see that the state is almost entirely absent and huge research and development efforts are led by the private sector.

If industrial strategies were bad for economies we might expect Cheshire and its nearest city of Manchester to be richer than Buckinghamshire and London. We see the exact opposite.

The GVA tool above is available for free here.
Please contact me to license the R&D tool; it works for all EU countries.

The industrial strategy that the UK government has been pursing for the past twenty years has worked well for the South of England and badly for the North of England. Instead of getting rid of it we should consider shifting our national focus, maybe even our government, from London to Manchester.

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