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On an idea for Labour industrial policy




The aim of any industrial strategy should be to boost employment and growth in the economy. The question would then become about the kind of growth that is considered desirable and the type of jobs that the policy is seeking to create.

That a sufficient focus on research and development (R&D) by the government has been sorely lacking since Labour was last in power is now recognised, if not in quite those terms, by the government itself. In the 2016 Autumn Statement the Chancellor announced his intention to review the tax environment for research and development spending by private enterprises.

Given the Conservative Party’s tendency to use tax cuts rather than government spending to attempt to achieve their economic aims it seems that at this point the most likely outcome of this review would be to increase the amount that companies can remove from their tax liabilities when they commercialise patents arising from their R&D spending.

The problem with simply reducing tax liabilities however is that it does not directly encourage enterprise because to benefit from a reduction in the tax rate a company must be making a profit in the first place. Tax cuts add nothing to the gross domestic product (GDP) in themselves and are unlikely to have any noticeable impact on employment.

So, what is the alternative?

One option is to create a system of government subsidy, or grants, to companies - whether private sector or third sector - to be spent on R&D or ‘innovation’ broadly understood. To prevent this from being simply a transfer of wealth from the tax payer into private hands however it would be necessary to consider the aims that the policy is trying to achieve. Furthermore, to make it into a good policy the means and the ends must be desirable in themselves.

A Labour government could prioritise spending on companies that have a desirable public or social policy goal as part of the aims of the companies themselves - the policy could then further prioritise companies that had a co-operative or mutual ownership structure. A good example of this would be the granting of money to be spent on R&D projects into renewable energies by companies set up as employee co-operatives.

If this was to be done, government money could be spent on boosting growth and employment - the employment would be of high quality, it would be stable and it would also be immune to the negative effects of automation - given that in a mutual ownership arrangement it wouldn’t matter if the labour was automated because the profits would still be going to the members. All this could be done whilst promoting a social good, ie. the reduction of greenhouse gas emissions resulting from the use of fossil fuels.

What makes this a distinctively Labour policy is that considerations of social good run through it - the means and the ends are desirable in themselves. It is not only in the area of energy that this could be applied - social enterprises exist in all kinds of area’s and do all kinds of things. From criminal justice to education and beyond. 

Enterprise is not limited to companies where the sole aim is profit. The profit motive is often an excellent driver for innovation - but it is by no means the only driver of innovation. Government for it’s part should be aware of how it spends its money - and what the externalities involved with where it spends its money are. Just as price consideration are not the only ones that a private citizen uses when engaging in transactions - nor should they be when government allocates resources. 

FIN.

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Note: This started life as part of an application to work for a Labour MP - I won't say which one, it was written, as all the posts on this blog are, several weeks before it was published. (28/03/2017) Thus, if they've nicked my idea then you can credit me and I hope I got the job. If I didn't and they have nicked the idea I'm going to be well vexed. Also, if I didn't get the job but they didn't nick the idea I might not be terribly happy either.

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