Politicians from across the UK’s political spectrum seem to agree on one thing: growth. But for all the talk of resuscitating the UK’s flagging economy, there is little evidence (yet) to suggest that any party will succeed in charting a new course. Political leaders of all persuasions are – to echo the words of John Maynard Keynes – captive to defunct economic theory.
Rishi Sunak is advancing a piecemeal industrial strategy while painstakingly avoiding this label, focusing on wooing companies such as Jaguar Land Rover to base operations in the UK and on building the competitive strength of certain sectors. On the other side of the aisle, Keir Starmer is framing Labour as “economically responsible”, with a focus on growth rather than “big spending”, and is scaling back or delaying previous commitments, including a green prosperity fund. While Sunak’s plans show a lack of confidence in the state’s role in the economy, Starmer’s are falling victim to a false dichotomy between spending and growth.
By taking a forward-looking, ambitious approach to how they spend and invest, governments have significant power to foster and direct growth to be innovation-driven, inclusive and sustainable. Setting bold objectives that require public-private collaboration can work to expand private sector investment, stimulating jobs, training and productivity growth. These benefits are a byproduct of this mission-oriented investment; they are not the core objective. Done well, this approach can bring economic, social and environmental priorities into alignment.
For example, in addition to contributing to better health, education and economic outcomes for young people, well-structured investments in healthy and sustainable school meals can create a massive market opportunity for UK agriculture and food industries. This potential to leverage school meal procurement to transform food supply chains has already been recognised in Sweden. In the UK, Starmer has so far avoided committing to free school meals for all primary schoolchildren, citing spending constraints and a focus on fixing a broken economy. Not only has Sunak ignored calls for free school meals, he is also battling claims that underinvestment in infrastructure has led to schools that are crumbling.
Instead of seeing spending on education, school meals and other priorities – such as tackling the climate emergency, health crises or the digital divide – as an expense, it should be recognised as an investment. And one that can drive innovation.
In my 2013 book, The Entrepreneurial State: Debunking Public Vs Private Sector Myths, I made the case for governments to invest (rather than cut) their way to growth – and to do so in an entrepreneurial way that embraces the collective risk-taking needed. But, as I warned, it is vital to ensure that both risks and rewards are socialised. What was the point of government investing in the technologies that make our smartphones smart (yes, the internet, GPS, touchscreen and Siri are all fruits of government investment) if we don’t ensure that the resulting wealth is distributed rather than absorbed into massive excess profits in the private sector? A decade later, governments around the world are advancing industrial strategies, notably in the US, where the government has compared the scale of its ambitions to that of the Apollo space programme and is investing $2tn into its economy through the Bipartisan Infrastructure Law, Chips and Science Act and Inflation Reduction Act. But most still shy away from maximising the potential of these investments by bringing social and environmental objectives into alignment with industrial strategy goals. Realising this potential requires four shifts in thinking.
First, it requires setting a clear direction. Governments can orient industrial strategy investments around bold goals – such as healthy, sustainable and tasty school meals for all children – to shape economies that not only grow, but grow in ways that are designed to benefit people and the planet.
Second, governments should approach the relationship between government, business and labour in such a way that risks and rewards are equitably shared. This is about establishing a new social contract. While public-private partnerships can and should create private value, the government’s role is to maximise public value. This requires setting conditions on any benefit granted to the private sector – through grants, loans, procurement deals, tax incentives or other means – to, for example, ensure affordable prices (as with the Oxford-AstraZeneca Covid-19 vaccine during the pandemic), share profits or IP rights, require fair labour practices and carbon emissions reductions, or limit shareholder buybacks (as was done with the US Chips and Science Act) and require reinvestment in research and development or worker training.
Third, it requires citizen engagement. At a time when public disenchantment with government leadership is rife, it is all the more vital for economic strategies to benefit and resonate with the people they are ultimately for. As politicians closely watch the polls and refine their policy agendas, they should be looking for ways to meaningfully engage in a ground-up conversation with the people of Britain and really listen to them.
Finally, directing and shaping growth requires investments in dynamic public sector capabilities, tools and institutions – to build back the state’s entrepreneurial capacity. Conversely, it means avoiding the pitfalls of over-reliance on consulting firms, a tendency that the UK has repeatedly fallen victim to and is the subject of my new book, The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies. The language of cost-saving and fiscal responsibility can lead to downsizing and gutting the capacity of governments to advance ambitious strategies. This becomes a self-fulfilling prophecy: when governments outsource critical functions, they do not develop the internal skills and knowledge to manage these functions.
The importance of taking an active hand in the UK economy is not about big v small government; rather, it is about advocating for smart, capable governments that understand their role in directing growth. Unless this direction is aligned with sustainability, health and inclusion goals, a thriving, resilient economy will remain elusive.
Mariana Mazzucato is a professor in the economics of innovation and public value at University College London and the founding director of the UCL Institute for Innovation and Public Purpose