This article was originally published as an edition of the Green Transition, New Statesman Spotlight’s weekly newsletter on the economics of net zero. To see more editions and subscribe, click here.
Britain is in a profound economic quagmire. Since 2008, we have moved from an acute response to the global financial crisis, to the crystallisation of a set of chronic economic weaknesses. Some are shared with other advanced economies, but others are unique to Britain. We have the lowest investment in the G7, poor productivity and stark levels of regional inequality.
As a nation, we face three generational challenges that the government’s policies must address. First, the need to reinvigorate our economy with sustainable economic growth. Second, the need to tackle the severe economic inequalities across the regions, particularly outside London and the south-east. And third, to decarbonise and shift the UK economy towards net zero.
But as the IPPR argues in a new report out today, to meet these three goals we need a radical shift in economic policy, one that overhauls the outdated model of the 1980s and 1990s, which posited that ministers and markets should not mix, and that the state should absolve itself of interfering in the allocation of capital and let the invisible hand and shareholder value decide. Today this laissez-faire approach exists only as a form of British exceptionalism, compared with the collaborative models now common among the US, European and Asian economies, and it has stifled innovation and slowed progress.
What is needed is a more active state based on a partnership with businesses and workers, rooted in economic and political stability, increased investment and supply-side reforms. Moreover, our future economic prosperity cannot rely on services alone. Of course, the City of London has a big role to play, but so too does manufacturing if we want to create good jobs, grow as a trading nation and meet our climate ambitions.
The green transition provides us with just the opportunity. We already know the products and technologies needed to hit net zero, and the race to seize the economic upsides will likely be won by the countries that can support the industrial change needed to deliver them. The UK faces a choice between just buying our way to net zero, or, instead, supplying our way to net zero.
We need to grapple with the challenge of how to manufacture and supply green products at sufficient scale and pace. There is simply not enough manufacturing capacity around the world today. Regions in the north, Midlands, Wales and Scotland all have industrial capabilities that are well placed to branch into green manufacturing. Yet our work highlights how Britain has lost over one-third of its manufacturing strengths since the 1990s, making the sector much less diverse and less technologically advanced. This was not – and is not – inevitable. Countries such as the US and France have maintained their manufacturing strengths at 1990s levels – even as services have become more dominant within their economies.
Manufacturing matters for three reasons, even for a country that rightly prides itself on its world-class services industries.
- First, manufacturing matters because countries with the highest economic growth potential typically have a wide and diverse set of strengths across both manufacturing and services.
- Second, the decline of manufacturing has led to fewer well-paid job opportunities for those with meaningful skills but without university degrees. Manufacturing uses different skills and knowledge to the high-value services that have typically driven recent growth in the UK. It also happens in different places (typically, far more likely to be outside of London and the south-east). Rebuilding the UK’s manufacturing strengths can lead to more economic opportunities and less regional inequality.
- Third, recent crises have exposed the vulnerability of UK households to trade shocks and supply chain disruptions. While we should reject calls to turn inwards – we must remain an open, competitive trading economy – our dependence on importing a few key essential goods, like energy, from abroad poses significant risks to our economy. The net zero transition offers a unique opportunity to reverse our current trajectory. There is a gap in the required global manufacturing capacity of green products which the UK can plug.
As Labour is now loudly signalling, where things are made and who makes them matters. Rachel Reeves said in her recent Mais lecture that for too long, government has been guilty of “turning a blind eye to where things are made and who they are owned by”. Rebuilding domestic supply chains in the green manufacturing industries of the future can help us solve a policy trilemma: to truly level up parts of the UK historically starved of investment; to simultaneously boost sluggish growth, creating positive multipliers for people and places; and to improve energy resilience and help us on our net zero journey.
Britain wouldn’t be starting from scratch – we already have export strengths in one out of three of the products and components needed to decarbonise the economy, and we are the eighth largest green product exporter in the world. Businesses and government can work together to build on and expand these strengths through strategic policy and investments.
However, we must recognise that it’s impossible to do everything and we must play to our strengths. We do not have the economic scale or fiscal firepower of the US or China. As a result, we must specialise. The UK government should choose which industries to focus on, based on a strategic framework to help make this choice, based on the size of opportunity, our existing industrial capabilities, and strategic supply chain considerations. Our latest IPPR report has found that our capabilities are particularly suited to expanding supply chains in wind energy, green transport and heat pumps. These are some of the industries where the UK could become a genuine green superpower.
Forging a new economic path will not be simple or easy, but Britain’s well-trodden path of economic exceptionalism has proved to be a dead end. We need a new economic model, driven by a long-term industrial policy to secure faster, greener and fairer economic growth.
Read the full report, Manufacturing Matters: The Cornerstone of a Competitive Green Economy
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