Labour’s mission-oriented industrial strategy for the UK requires a restructuring of how government operates.
To reverse the United Kingdom’s anaemic economic performance of the past decade or more, the new Labour government led by Keir Starmer has said it will introduce a mission-driven industrial strategy. But to succeed the government must transform itself and invest in its own capabilities.
Starmer and his cabinet appear to understand this. Within days of the election, they launched Great British Energy (a new public company focused on investing in renewables), announced a National Wealth Fund and created ‘mission-delivery boards‘ to oversee the five core objectives outlined in Labour’s election manifesto (inspired by Mission Economy). The party aims to ‘kickstart economic growth’, ‘make Britain a clean-energy superpower’, ‘take back our streets’, ‘break down barriers to opportunity’ and ‘build a National Health Service fit for the future’.
New approach
As we detail in a new report, other countries’ experiences offer valuable lessons for the UK government as it pursues these goals. First, whereas industrial strategies in the past would ‘pick winners’—identifying specific sectors or technologies to receive government support—now they should pick missions, which in turn will galvanise investment and innovation across sectors. This turns big societal challenges, such as climate change, threats to public health or housing crises, into market opportunities.
Fundamentally, this means embracing a new approach to growth. Growth is not the mission: it is the outcome of well-designed missions that bring economic, social and environmental goals into alignment.
Though Labour has committed itself to a mission-oriented strategy, it will need to be careful not to fall into the usual industrial-policy traps. A mission to ensure cheaper, zero-carbon electricity by 2030 clearly has the potential to improve living standards (through lower energy bills and greater energy security), protect the environment and drive growth. But others, such as building an NHS ‘fit for the future’, will need to be translated into clear, measurable goals that correspond with cross-sectoral market opportunities. For example, the government could set a date by which it will have reduced the incidence of chronic disease and deaths from the biggest killers.
Another risk stems from how policies are sequenced. The chancellor of the exchequer, Rachel Reeves, has been careful to signal that the government will adhere to fiscal rules that limit government investment until the debt has fallen and growth has risen. But too much restraint could undermine the role public investment plays in generating sustainable and inclusive growth. Moreover, a mission-oriented industrial strategy uses public investment to crowd in private investment, which can then increase the economy’s productive capacity, generate spillovers and create a multiplier effect, ultimately lowering the ratio of debt to gross domestic product.
A second lesson learned elsewhere is that mission-oriented industrial strategies should involve all departments, rather than being confined to ministries focused on innovation, industry or trade. The point is to co-ordinate efforts across agencies and this generally requires a change in how governments operate.
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The UK government’s mission boards represent a deliberate attempt to break down departmental silos and, in a promising sign, Starmer has indicated he will chair them personally. But the boards (as we have recommended in recent and past work) will also need to be well resourced and empowered to work with experts across and outside government, to take risks, to remove barriers to implementation and to design whatever policies, tools and institutions the mission demands. That means plugging them fully into normal government processes, so that they remain a priority in annual budgets and planning and reporting procedures (as the government of Barbados has done).
Structural changes
Thirdly, missions require deeper structural changes in government. Starmer is off to a good start with the National Wealth Fund, which aims to catalyse investment in national infrastructure projects (including green steel, carbon capture and electric-vehicle chargers). The fund could channel patient capital (loans and equity finance) towards these and other projects aligned with the government’s missions but only if it is deliberately designed for that purpose.
In mobilising private capital, the new fund should ensure that public investments are structured to share not only the risks but also the rewards. Workers, not just owners, should stand to benefit and sustainability must be a key condition. Through profit-sharing across the portfolio, gains from successful deals can make up for losses on others. The UK government can find useful models in the London Borough of Camden’s community-wealth fund and the Scottish National Investment Bank (which were informed by our institute’s work), as well as Germany’s KfW development bank, the Brazilian Development Bank and the Canadian Infrastructure Bank.
Another powerful tool is public procurement, which accounts for nearly one-third of UK public spending and has the potential to shape market opportunities and stimulate investments and innovations aligned with the government’s policy priorities. This was the thinking behind the Brazilian government’s Health Economic-Industrial Complex, which leverages the procurement budget of the country’s universal healthcare system to bring down prices and create market demand for domestically manufactured pharmaceuticals.
Our own work with Camden shows that the Starmer government will need to move beyond the UK’s current social-value-based procurement model. Though it allows procurement officials to weigh factors beyond price, these considerations tend to remain peripheral and ad hoc, rather than becoming priorities.
Bottom-up solutions
Fourthly, the government will need to work in partnership with businesses, trade unions, civil-society organisations and other levels of government. Missions are not a top-down process: they are about incentivising bottom-up solutions that reflect local realities and people’s everyday concerns.
The standard relationship between the public and private sectors needs a reset. Since the government’s industrial strategy will provide substantial benefits to companies, access should be conditional on mission alignment and maximising public value—not just private profit. This is especially important in the UK, where business investment has been conspicuously low.
The task is to shift from being ‘business friendly’ to demanding mutually beneficial forms of collaboration. For example (while it could go further), the United States CHIPS and Science Act—a core plank of US industrial strategy—has made funding conditional on companies limiting share buybacks, investing in workforce development, offering fair wages and childcare for employees and committing to sustainability and profit-sharing provisions. Faced with these requirements, companies have stepped up.
Finally, the government must buck the shortsighted trend of cutting state capacity and outsourcing core functions to big consulting firms—for-profit companies that have no incentive to help clients learn. This dependency has severely eroded public agencies’ capacity to deliver on ambitious missions.
Ending the UK’s cycle of chronic underinvestment and ‘band-aid’ policies will require a mission-oriented industrial strategy that sets a new direction for growth. But for that strategy to succeed, government will need to be transformed.
Republication forbidden—copyright Project Syndicate, ‘What Labour needs to succeed’