Rachel Reeves has recently announced plans for a new industrial strategy that focuses on driving long-term growth in the UK. This strategy includes the creation of ‘green industries’ and ‘cutting-edge technologies’ to establish ‘national champions’ in future sectors. However, this approach may not be as effective as it seems.
While it is easy to outline an industrial strategy that sounds promising, evidence from around the world suggests that such strategies often fail. For example, the EU’s investment in microchips is facing challenges, with Intel considering postponing a major plant in Germany. Similarly, Northvolt, a company aiming to lead Europe in battery production for electric vehicles, recently announced layoffs.
Even in the United States, President Biden’s substantial investment in green and industrial subsidies is encountering difficulties, with projects running over budget and failing to meet expectations. China, known for its state-led industrial planning, is also experiencing a slowdown due to an excess of factories.
The reality is that selecting winning companies and sectors is a complex task that often leads to unforeseen issues. Industrial strategies frequently result in backing the wrong companies, overspending, and creating surplus capacity that is not financially viable. As a result, the effectiveness of industrial strategies is being questioned globally.
While Rachel Reeves’ industrial strategy for the UK may sound promising, it is essential to consider the challenges and risks associated with such an approach. Rather than jumping on the industrial strategy bandwagon, the UK may need to reassess its economic priorities and explore alternative strategies for sustainable growth and development.