Britain endures meagre economic growth, a cost-of-living crisis and alarmingly slow progress towards its climate goals. These challenges are not accidental. They are the result of policy choices. Overcoming them requires a new type of economic policy that can be achieved through five big resets.
First, growth requires investment. Britain bears the consequences of austerity measures implemented in 2010. In addition to challenges ranging from crumbling schools to knife crime, austerity has undermined the UK economy. Contrary to discredited arguments in favour of austerity, notably from economists who link public debt to weak economic growth, debt sustainability depends on what the government is investing in. In other words, how debt is being used is more important than the level of debt. Government spending is necessary to invest in the drivers of productivity and growth, such as education and training, and research and development. By investing, the government can expand the productive capacity of the economy, leading to a fall in the debt-to-GDP ratio.
Second, the direction of growth matters. Mission-oriented industrial strategy can turn challenges such as climate change, health crises and the digital divide into market opportunities, catalysing cross-sectoral innovation and investment. Britain’s leaders need to stop thinking in terms of focusing on growth first and social and environmental priorities second. Public investments, through grants, procurement contracts, loans, guarantees and debt- and equity-instruments, can create market opportunities that align with the government’s long-term goals, drawing in private sector investment focused on solving specific challenges. Waiting for the economy to start growing before increasing investment is like waiting for your car to start moving before putting in fuel.
Since I developed the idea of mission-oriented industrial policy in Mission Economy: A Moonshot Guide to Changing Capitalism, the idea has been taken up by governments around the world – as well as by the Labour Party, which launched its mission-oriented manifesto on 13 June. To succeed, this approach must break down the typical policy silos that exist between economic, social and environmental policy. Notably, growth must be seen as an outcome of all well-designed missions, rather than a mission in and of itself.
The third reset that is needed is to move beyond the false dichotomy between the innovation state and the welfare state. This distinguishes between the development of economic policy aimed at fostering dynamic, entrepreneurial activity on the one hand and delivery of social services on the other. In the US, the CHIPS and Science Act of 2022 bridged this divide by setting conditions on access to CHIPS funding – to support the US semiconductor sector – that require, for example, commitments from recipient firms to community investment, workforce development and provision of childcare for employees. By tying these provisions to an agenda focused on building cutting-edge manufacturing in tech, the act recognises the link between innovation and welfare.
Fourth, the government must reverse the trend of undermining its own capacity through cuts and outsourcing to the big consulting firms. To direct growth and shape markets, the state must invest in its own tools, institutions and capabilities. As I argued in my latest report, Mission Critical: Statecraft for the 21st Century, if Labour’s promised mission-oriented approach is to be more than lip service, radical reform of our systems of governance will be needed. This means redesigning policies, budgeting and public finance, public-private partnerships, and the machinery of government to be mission-oriented.
Labour’s commitment to a new national wealth fund, for example, can take lessons from the London Borough of Camden, which partnered with the UCL Institute for Innovation and Public Purpose to design a new community wealth fund aimed at generating reinvestment in the community aligned with Camden’s “renewal missions”. There is a huge opportunity for development banks to become mission-oriented, to align finance both globally and domestically with the UN’s Sustainable Development Goals.
Public procurement should be another area of focus. With nearly a third of spending in the UK flowing through public procurement, this represents an occasion to use existing budgets more strategically. Moving beyond than the UK’s existing social-value framework, which allows commissioners to look at considerations beyond price when evaluating the potential public benefit of competing bids, the government should leverage the market-shaping potential of procurement to create market opportunities aligned with its policy goals. For example, public procurement could be used to create demand for net zero energy, construction material and transportation solutions, catalysing private sector investment and innovation that will contribute both to growth and to the government’s goal of achieving net zero by 2050. As another example, Britain could use procurement to create demand for healthy, sustainable school meals that both feed kids and create new opportunities for domestic food production, following in Sweden’s footsteps.
This approach must be grounded in a participatory approach to governance. While the direction set by the government must be bold and clear, the activity required to achieve sustainable and inclusive growth must come from across all levels of government, across society and across sectors. Rather than prescribing top-down solutions, the government must play a catalytic role that fosters bottom-up development, working collaboratively with public, private and civil society partners.
Britain is stuck in a cycle of underinvestment that is hurting its economy as well as its people. Escaping this cycle requires a government brave enough to part ways with old assumptions about how the economy functions, and how the role of the government is shaping its trajectory. Let’s hope that we get a government on 4 July that is up to this challenge.
This article is part of the series “How to fix a nation”
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