Britain’s New Industrial Policy: Can We Learn from the Mistakes of the Past?

The phrase 'industrial policy' seems to take us decades back in time. In 1964, a powerful catchphrase of the new Labour Prime Minister, Harold Wilson, was the need for Britain to embrace the 'white heat of the technological revolution'. Sadly, by the 1970s this vision had deteriorated into a list of institutions, stuffed with dull businessmen and trade unionists, meeting to decide how to prop up yet another failed sector of the UK economy.

But the concept is now back in vogue. Perhaps surprisingly, given the historical experience, the coalition chose to preserve Labour's Technology Strategy Board (TSB) quango. The TSB has a budget of £400 million to "accelerate UK economic growth by stimulating and supporting business-led innovation". A key way in which it plans to do this is through the purchasing decisions of the public sector.

In October, Sir Andrew Whitty, CEO of GlaxoSmithKlein, produced a report commissioned by the Department for Business, Innovation and Skills on how universities can better support economic growth and drive exports. Whitty calls for the creation of “Arrow Projects", supporting cutting edge technologies and inventions where the UK leads the world, with, in an excruciating pun, “universities at the tip". Universities and Science minister David Willets eulogised the report. In language redolent of Soviet Five Year Plans, he stated that “we are making strides to help commercialise the work of universities under the Eight Great Technologies".

It is easy to mock both the symbolism and the content of speeches and reports such as this. But the intention deserves to be taken very seriously. Thinking back again to the decades of the 60s and 70s, far-left radicals used to denounce the 'military-industrial complex' of the United States. Yet it has been precisely the interplay between the defence and security sectors and high-tech commercial companies that has led to America continuing to lead the world in technological innovations.

A fascinating new book by Bill Janeway, Doing Capitalism in the Innovation Economy, gives many such examples. The creation of the internet is well known, others include automatic speech recognition and digital computing. Janeway has made a personal fortune, not by financial speculation or by trading complex derivatives, but by developing and leading the Warburg Pincus Investment team which provided financial backing to a whole series of companies which built the internet economy.

A fundamental point which he makes is that both scientific research and invention, and its subsequent exploitation through practical innovations, necessarily involves a great deal of waste. This is something which British bureaucrats have, in the past, been unable to grasp. Ideas which are genuinely path-breaking cannot be conceived in advance. And, equally, the value of their practical applications is something which cannot be imagined before it happens. This means that many such ventures will fail. They cannot provide the box-ticking security of projects which add tiny amounts of knowledge, or which make trivial improvements to an existing technology. So, Arrow and the TSB are to be welcomed, provided that they, and the Public Accounts Committee, recognise that most things fail.