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A New Industrial Policy for Britain: Learning from the Past to Forge a New Future

Fifty years ago, a newly elected Labour government in Britain embarked on an ambitious national industrial policy aimed at reviving the country’s economy. This policy, marked by subsidies, state ownership, and power-sharing among businesses, unions, and the government, ultimately led to disastrous outcomes. Strikes paralyzed the nation, and efforts to pick industrial winners resulted in backing failing enterprises like British Leyland and the British Steel Corporation.

Fast forward to today, the Labour Party under Keir Starmer has distanced itself from the 1970s-era policies. Starmer’s government, which laid out its economic agenda as Parliament opened on Wednesday, is embracing a modern approach to industrial policy. This new agenda positions the government as a key player in driving Britain’s stagnant economy, mirroring a global trend where political leaders are taking a more hands-on role in economic management.

Countries like India, Brazil, Malaysia, and several European nations have adopted similar strategies. The United States, historically an advocate for open markets and minimal government intervention, is now leading this movement. This shift is partly aimed at countering China’s top-down economic planning, which has propelled it to the second-largest economy globally, and addressing climate change.

Starmer’s Labour government, despite starting late and with limited funding, is expected to navigate the political landscape more smoothly due to a substantial parliamentary majority. This has allowed for the rapid initiation of projects and reforms. For instance, since the election just weeks ago, the government has launched a public company for renewable energy projects, announced a National Wealth Fund, and created cross-governmental panels led by the prime minister. These actions are seen as exemplary of modern industrial policy.

However, significant challenges remain. The British economy is plagued by lackluster growth, underfunded public services, low productivity, and insufficient investment. Despite these hurdles, Labour’s policy is inspired by the multibillion-dollar industrial strategy of President Biden’s administration in the U.S., which focuses on advancing critical technologies like semiconductors and electric batteries. Although Starmer’s budget is smaller, his strong majority may ease the implementation of green initiatives compared to the contentious political climate in the U.S.

Ed Miliband, Britain’s new energy secretary, has already approved solar farms capable of powering 400,000 homes and proposed ending rules that allow communities to ban onshore wind projects. Rachel Reeves, the new chancellor of the Exchequer, announced a review of the approval process for critical infrastructure, suggesting that national decisions could override local opposition. This is crucial as local resistance has stalled wind development across Europe.

Moreover, Labour plans to mandate the construction of 1.5 million homes over the next five years and is deploying 300 new planning officers to support this goal. Other potential measures include tightening regulations on internal combustion engines and transitioning households to heat pumps.

While the European Union is also advancing its industrial strategy with initiatives like the Green Deal Industrial Plan, internal disagreements and rising nationalist sentiments pose challenges. In contrast, Britain’s unified approach under Labour’s majority government could facilitate swifter action.

Despite these ambitious plans, Britain faces inherent obstacles such as a fragmented set of institutions and the lowest investment rate among G7 countries. Experts emphasize the necessity of having an industrial policy in the face of significant digital and energy transformations.