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The Economist explains: Why “industrial strategy” is back


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Dec 13, 2015
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Why “industrial strategy” is back

THERESA MAY, Britain’s new prime minister, has certainly been bold, maybe even foolhardy, in some of her cabinet appointments. But she has been equally bold in elevating “industrial strategy” to the top of her new government’s agenda—a move that could mark a clear break with her predecessor’s governments. The very term has been frowned upon in Conservative Party circles since Margaret Thatcher’s leadership. Yet Mrs May argued for “a proper industrial strategy to get the whole economy firing”, in her pitch for taking over from David Cameron. And once installed in Downing Street she quickly created a whole new department, of “Business, Energy and Industrial Strategy”. Why has Mrs May decided to buck a generation’s worth of political orthodoxy?

Mark Littlewood, head of the Institute of Economic Affairs ... argues that adopting even a limited industrial strategy could tempt the government into going further by propping up loss-making industries such as steel—especially once Britain leaves the EU and is no longer bound by European rules against state aid. So far it seems mild enough. But, aware of a popular mood souring against globalisation and a government keen to occupy the political centre-ground abandoned by Labour, many Tories will be on the lookout for signs of mission creep. Well-intentioned interventions could quickly become counter-productive. Yet as the economy deteriorates, the calls for an industrial strategy will grow louder.

Let's not be led astray by the word "industrial", with its connotation of blazing furnaces making steel, and production lines popping out cars. Industrial nowadays includes, for a much larger part, hi-tech. An iPhone, for instance, innovated in the US but now made in China (or wherever else tiny-fingers necessary to assemble them may be found). We are in the New Industrial World, where more physical labor-intensive work is being pushed out to third-world companies. The intelligence labor-intensive work will remain in developed countries.

Thus I also reiterate, somewhat like a broken record, that the US cannot "build the manpower talents" for the NIW without free (or nearly free) Tertiary Education for its young, as well as re-educating the unemployed who do not have the right skills to access better paying jobs. (I.e., climb the "skills ladder".)

PS: There are at least a hundred other "economic conditions" necessary - but more so in the US than Europe (which has already adopted Free Tertiary Education. When it comes to profit share-out, the gross inequality of sharing corporate revenues between Management and Staff must stop. Not all need be treated equally, but all fairly. Meaning more of the revenue stream must come back to those lower down the corporate ladder who also contribute to a corporation's success - and that includes stock-options.

It is very easy for companies to redefine who gets stock-option down below - fewer options perhaps but just as equitably as for those above. Corporate Taxation incentives could help move companies in that direction ...
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