Simon Haskel on why ‘enabling institutions’ are key to the future success of UK business
We are all concerned about the UK economy. But whatever the future may hold we can agree that the relationship between government and business is central to our competitiveness.
Many years ago, new higher standards were introduced for fabric safety, with particular regard for flammability in aircraft. As a young textile engineer I had to develop fabrics and processes to meet these standards, which I did with the help of Bolton Tech – now Bolton University. The main market was the United States, where I went to sell our product and was amazed to find it already available. Developed by the US military and offered for sale, not only by large companies but also smaller ones by virtue of a government assistance scheme.
I am pleased to say we did well in the market by virtue of superior design –another early lesson. But that is how I learned that, at the same time as preaching tough capitalism, the US government had been engaged in radical new research on a large scale from which business was to benefit.
Alongside successes such as touch screens, GPS, the Internet and nano-technology, there must of course have been the failures that we don’t know about. Either way, it has all gone to illustrate the advantage of business and government working together. Not only in R&D, but also in reducing risk by taking public funding much closer to the market. And far closer than EU regulations allow here.
What this relationship should be has veered between extremes.
In the 1960s, the state had a role through public ownership and ‘Whitehall knows best’: a command and control relationship. We then moved into a phase where markets ruled, and private initiative, private enterprise and risk where encouraged. It was the markets that corrected and regulated a liberal, capitalist economy.
Events in 2008 demonstrated that this system didn’t really work either and now an increasing number of people are calling for an industrial strategy – something the BIS department has been working towards for some years. The problem is that government, the CBI, academia, finance and manufacturing all have different ideas on what this strategy should be; largely, because they have different sectional interests. Market supporting institutions enabled by government can overcome these factional interests and this is described in Lord Sainsbury’s recent book Progressive Capitalism. And there have been calls recently for such institutions to deal with the housing crisis, the huge number of regulations and conflicts in the Energy Bill, and the supply of broadband to rural areas.
The Technology Strategy Board is an example of an enabling institution working successfully. It has carried on from one government to the next, and is sufficiently independent to employ people experienced in science, technology and industry. Nevertheless, technology is only part of a modern economy. To achieve prosperity, we need to create similar institutions where the current system is not working: in the financial sector, in rebalancing the economy, in creating an adequate supply of technicians, and in supporting localism. As The Financial Times’ Martin Wolf has observed this week, the power of such institutions is demonstrated by how little protectionism has emerged in these years of crisis, with liberal trade strongly institutionalised in the World Trade Organisation and the EU.
A series of initiatives, however clever or generous, to deal with market failure and other problems may provide a relationship between government and business. But it is short termist and intermittent. We have all heard business people say that a lack of continuity or uncertainty is a major block on investment and market confidence. That is why we have to build properly conceived institutions with a compelling vision for both business and society, and identify the common ground that will deliver our future prosperity.
Lord Simon Haskel is a backbench Labour Peer in the House of Lords and a former industrialist
Published 17th July 2013