An intelligent industrial policy: and pigs might fly?

The call for a return to an ‘active industrial policy’ has failed to present a modern challenge to finance capitalism. For this argument to ring true in the 21st century, it must first consider with what type of knowledge it is now engaged. How can policy itself escape the pitfalls of nostalgia, lobbying and the bailout mentality? 

William Davies
29 June 2012

The TUC hosted a lively conference this week, entitled After Austerity. There were murmurings on Twitter that the title shouldn’t have been so accommodating to austerity, implying, as it might, that austerity needs to be completed before something else can come along. Given the hosts, the resounding themes of the conference were not all that surprising: policymakers need to rediscover Keynes, re-frame the crisis as one of growth and not of debt, invest in infrastructure and actively support Britain’s most promising industrial sectors. 

‘Industrial policy’ (the use of public institutions and/or public money to support specific sectors) has made something of a comeback in recent years, at least rhetorically. One of the apparent successes of the neoliberal revolution of the 1980s was in rendering the concept something of a taboo. Financial markets and consumers were to determine which industrial sectors prospered and which ones failed, and not policymakers.

Of course, the neoliberal rhetoric concealed all manner of legislative and fiscal support for certain areas of the economy. Intellectual property rights are strengthened to defend one set of businesses against another set. Inflation-targeting by central banks implicitly acts in support of financial services. From the 1950s onwards, US military and NASA contracts created the technological underpinnings of the New Economy boom of the 1990s. And so on.

But the futility of governments trying to ‘pick winners’, as it was pejoratively known, was convincingly argued, for one beautifully simple reason: in contrast to the distributed intelligence of markets, governments could never possess enough information about specific sectors or firms to allocate funds efficiently. They would end up using taxpayers’ money to defend badly-run companies. They were much better off not even trying to influence the allocation of capital in the private sector.

Thirty years of this industrial agnosticism has left us with a policy-making apparatus which lacks even the first instinct about how wealth is actually produced, that is, specific sectors and firms. And it’s all very well for trade unionists and Keynesians to demand more active ‘industrial policy’, but if this is to be justified as more than a state handout, a new body of policy expertise needs building up, which understands Britain’s industrial makeup. Countering the neoliberal argument necessarily involves careful attention to what type of knowledge a new industrial policy would be based on. Where to begin?

Manchester University’s Centre for Research on Socio-Cultural Change (CRESC) offers a glimpse of a new form of economic policy expertise, with a paper published this week on the seldom-examined topic of pigs. As the report, titled ‘Bringing Home the Bacon’, points out:

Food and farming is very important to the UK economy, with the whole food chain contributing £88 billion per annum (i.e. 7% of GDP) and 3.7 million jobs. The food and drink sector is the UK’s largest manufacturing sector by Gross Value Added (£23.4bn) and employment (379,000).

Speaking at After Austerity, Karel Williams, one of the report’s authors, noted that policy-makers might be better off focusing on such “mundane” industries, which employ significant numbers of people (food processing employs more people than any other British manufacturing sector) across the UK, rather than focusing on more glamorous and innovative start-ups, that tend to employ far fewer people, typically in the South East.

The problem at present (as CRESC authors argued in a previous Uneconomics article) is that British policymaking is currently dominated by a generic worldview, that has zero sensitivity to institutional issues such as supply chain management, industrial organization, corporate governance and ownership forms. Remaining with the example of pork production, the CRESC report shows that British meat suppliers and processors are significantly impeded by a short-termist “trader mentality” and “opportunistic dealing”, inculcated by the major supermarkets, whose focus on profit-maximisation means that the sector as a whole lives in a state of constant uncertainty and mutual distrust. Where participants in a supply chain are constantly negotiating and seeking advantage over one another, this is inefficient as well as stressful.

By contrast, Denmark’s competitiveness in pork production derives partly from the use of co-operatively-owned processing plants, in which both suppliers and purchasers have a stake. “Producers sell their produce to processors and exporters in which they are already shareholders, receiving dividends as compensation for the periods in which they receive lower prices.” The inevitable fluctuations of the market are offset through ownership rights.

Alternatively, in contrast to Tesco and Sainsbury’s, Morrisons supermarket has integrated much of its pork supply chain, bringing meat processing in-house. The ‘trader mentality’ is thereby reduced through strategic acts of ‘vertical integration’, much as occurred with the birth of large corporations in the late 19th century. Profits are still returned to shareholders, and value to customers, but the supply chain – including its thousands of employees – is managed in a co-operative and planned fashion, rather than an adversarial and destabilising one. 

Sociologists will note with some surprise that one of the report’s authors is John Law, one of Britain’s leading proponents of Actor Network Theory, an esoteric methodology, which pays great attention to the role of “non-human actors” (i.e. material things) in creating associations and organisations. What is an Actor Network Theorist doing proscribing industrial policy?

In a strange way, it is precisely some greater attention to the mundane, material aspects of production that British policymaking needs right now (and one can scarcely argue with the suggestion that a pig is a “non-human actor”; Marco D’Eramo’s marvellous The Pig and the Skyscraper includes morbid details of the capitalist riches which were unleashed in 1870s Chicago, once pigs were persuaded to walk to the first floor of abattoirs, thereby using the power of gravity to collect their blood on the floor below). Hundreds of miles from HM Treasury, in meat-processing plants, the problems of economics appear more visceral and less abstract than they do to the apostles of ‘market failure’ as the blanket justification for policy.

Competition authorities do practice what is known as ‘industrial organisation’ economics, conducting ‘sector enquiries’ to try and accumulate empirical insights into the dynamics of specific areas of the economy. But this remains rooted in the one-size-fits-all generic worldview of neoclassical economics, which excluded historical, political and cultural questions following the methodological disputes (in Germany known as the Methodenstreit) of the 1880s. By contrast, CRESC demonstrates how qualitative data and sociological insight might be brought back in.

An industrial policy that wasn’t simply the outcome of corporate lobbying (e.g. copyright extensions) or an ultimatum (e.g. banking bailouts) or national nostalgia (e.g. rescuing cherished brands) would necessarily involve policymakers acquiring a new form of expertise, that was more sensitive to the organisational, historical and material elements of capitalism. As CRESC argues:

This is why the argument about the pig industry is so important. Yes, it is small. Yes, sectors differ so it cannot act as a generic template for industrial policy. And yes, the success of any intervention also depends on the environment created by more general fiscal and monetary policies. Nevertheless, it points to the kinds of interventions and new instruments needed to secure industrial success.

Other sectors, based around other things, need similar analyses.

Too often, we assume that we need a new Keynes to come along and rescue us, or failing that, the old one. Somewhere, a very clever man must be working on a very complicated book that will produce a new and better economic policy template. We just need to wait for him to finish. What if this is misguided? What if all we can rely on is what the American political scientist Charles Lindblom characterised as ‘muddling through’? If this is the case, we might at least strive to muddle through in an informed and competent way.

Building up this information will take time. But, as US economist Dean Baker remarked grimly at After Austerity, “we have plenty of time” – this depression isn’t going anywhere.  

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