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Germany calling

7 Mar 2012 By Ian Campbell

Planning? Who needs it! The UK has done without a national industrial policy for years. And just look what it’s done for Britons: insufficient housing, a shrinking manufacturing base, a poor transport system and a boom-bust economy. Vince Cable, the UK business secretary, points this out to his own prime minister in a now leaked letter. Perhaps David Cameron should listen to the painful truths.

Cable will be accused of wanting to ’pick winners’, as if industrial policy can mean nothing more or less than government investment in particular companies or industries. But right now UK policies on new technologies, transport infrastructure, housing, energy, defence, finance, procurement, skills and immigration are all made up on the run and independently of one another. The British, who find planning terribly difficult, have overdone laissez-faire.

The policy incoherence is blatant and costly. In transport, for example, the government has recently committed some 33 billion pounds to high speed rail in the UK’s west coast line – while leaving undecided its plans to address the country’s limited airport capacity. One idea, a brand new estuary airport for London, would be expensive and involve new road and rail links. Big decisions on rail shouldn’t be taken independently of airport plans – or a broad transport policy.

For businesses, the lack of industrial policy and planning is a big problem. In sectors such as energy and defence, the large investments in research and development which are needed to keep up to date are much less likely to be made if the government is considered a fickle partner.

In finance, too, the UK needs a better way. Small and medium-sized companies in the UK lose out from not having the equivalent of the Germany Hausbank system – a long-standing relationship with one main bank which provides steady finance and support in difficult times. Cable’s call to split up Royal Bank of Scotland may not be the best solution but the problem of small business financing must be tackled.

If the UK wants a more diversified and better economy, the government must make plans for it. Free markets are essential but won’t by themselves build the country the UK wants. Planning doesn’t mean recreating the Soviet Union. You can plan to be like Germany instead.


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