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22 September 2018

Industrial Strategy

Tag(s): Politics & Economics, Business
In last week’s blog marking the tenth anniversary of the collapse of Lehman Brothers I deplored the fact that this failure of the banking system has led to a revival of the idea that capitalism should be replaced by socialism. I concluded by quoting the former communist Roberto Ampuero who saw the light by witnessing at first hand the utter failure of socialism in both East Germany and Cuba and is now Minister for Foreign Affairs in Sebastian Piñera's right –wing government in Chile. He said: “Why have we come to idealise the state and prefer it to the infinite variety and creativity of millions of individual entrepreneurs?”

Last week I attended the eleventh Low Carbon Vehicle Show this year held at Millbrook and attended by a record number of nearly 5,000. The Show was opened by Richard Harrington MP, Parliamentary Under Secretary of State, Minister for Business and Industry. Mr Harrington was remarkably refreshing for a politician as he largely spoke without notes. He did occasionally go back on script but mostly he spoke from the heart. Like me he read Law at Oxford University and like me he went into business, firstly with the John Lewis Partnership, a great place to learn, and later started his own business with two friends which grew to employ 2.000 people in seven countries.

He referred to the now discredited idea that the State should have an industrial strategy where the government tried to pick winners. That had been disastrous and led for example to the almost complete collapse of the British car industry. Then the prevailing view became a complete trust in the free market. Governments should get out of the way and leave the market to decide. That is also seen to be discredited now as probably the majority think that that kind of capitalism is too ruthless and the interests of the individual are ignored. I myself don’t feel it was ever really tried. The only so called free markets I know are the illegal ones, i.e. they are without the law and so are unregulated and therefore free. But every legitimate market is heavily regulated without exception. The fact that there are still market failures is not because of a lack of regulation but is often, as was the case with the banking crisis, Carillion, BHS and many more scandals at least in part owing to ineffective regulation and audit.

Nevertheless, I welcome some aspects of the new Industrial Strategy adopted by the Government, a part of which I am familiar with through my recent involvement with the automotive industry.

One of my colleagues on a body I chair, Dr Graham Hoare was the first speaker at the Show from industry. Graham holds the position of Director - Global Vehicle Evaluation & Verification at Ford Motor Company and sits on the Automotive Council Technology Group. The Automotive Council is an excellent example of collaboration between Government and Industry. It is jointly chaired by the Secretary of State for Business, Energy and Industrial Strategy and a leading figure from the industry. It brings together senior representatives from the UK based automotive industry, both OEMs and their supply chain. They have learnt how to collaborate in a pre-competitive manner.

Graham began by describing the Advanced Propulsion Centre, now half way through its ten year term with funding of £500m from Government and £500m of matched funding from industry. I was one of the assessors who judged the many bids to act as the hub or one of the spokes of this organisation. Then there is the Faraday Battery challenge with £246m of funding and more recently the formation of Meridian to focus on connected and autonomous vehicles.

These are all supported by the Industrial Strategy Challenge Fund which aims to bring together the UK’s world-leading research with business to meet the major industrial and societal challenges of our time. This is part of government’s £4.7 billion investment in R&D over 4 years.

But as well as money we need people and Graham identified a huge skills shortage. We need 250k engineers for these programmes and there is a 60k shortfall. 61% of employers say one of their biggest challenges is a lack of skills. We need to accelerate both the teaching of primary skills and retraining across the sector.

Another colleague, Ian Constance is CEO of the Advanced Propulsion Centre.  He gave an upbeat report on its progress, justifiably as the programme is heavily oversubscribed. The APC has already committed £715m of its total of £1bn and to date has spent £343m. 41 projects are open and the key success criterion is the weight of CO² reduced. Its target is 50m tonnes and projects approved are set to deliver 37m, equal to removing 5m cars from the roads. They are also set to create or save 30k jobs. Each project has to be collaborative and the projects average over 5 partners each with more than 150 organisations participating including OEMs, Tier 1s and 2s, Catapults, Academia and Consultancies.

Ian emphasised the importance of collaboration which he defines as “the action of working with someone to produce something.” Henry Ford put it more forcibly when he said “If everyone is moving forward together then success takes care of itself.” 

A further example of this collaboration is that between industry and universities through the spokes of the APC. I was involved in identifying some of these spokes and chair the Advisory Board of one of them, the Digital Engineering and Test Centre based at the Olympic Park in Stratford London.

Dr Ian Campbell, Interim Executive Chairman of innovate UK, that I also used to work with under its former guise of the Technology Strategy Board, gave further examples of their programmes to integrate in UK Research and Innovation. They cover £321m of grant funding to over 300 projects involving 1321 partners.

All this talk of collaboration is needed for a very clear reason. The elephant in the room is that there are no elephants in the UK. This has long been a problem. I remember the leading industrialist Professor Roland Smith bemoaning the lack of balance sheet strength amongst Britain’s major corporations. He chaired one of them, BAE and led it into its ill-fated takeover of Rover, which was at least partly about trying to create a real engineering giant to rival the US based firms.

Now those US firms have been dwarfed by the new kids on the block, Apple, Amazon and Google, all of which have their eyes on the automotive industry. Last year Amazon spent $23bn in cash on R&D. They are secretive about exactly what they are up to but at least a substantial part of it is on cars. Google is running the largest test of autonomous vehicles in the world and Apple has indicated several moves into the market, though whether with their own branded vehicle or more probably a system for autonomous cars is the stuff of rumours. Apple actually spends less on R&D than its rival Samsung but it seems to spend it more efficiently. In the recent past it’s been about $3bn per quarter so perhaps about half of Amazon’s total spend but still huge and probably more targeted.

Against this firepower collaboration is the only sensible way. There is a need to collaborate, to share ideas, to learn from each other and indeed from other sectors, and finally the need to emphasise getting stuff to market, rather than blue sky work. The universities are less happy with that but with the stakes so high and the competition so fierce and disruptive; an industrial strategy has to focus on making an impact.

Although I work with automotive companies now I have never worked directly in the sector. Much of my relevant experience comes from my time with Sony and I like to tell the story of how we learnt one of the lessons of the VHS: Betamax war. The lesson was that the market did not like multiple formats. When it came later to bringing out a digital video format there was for a while a risk that the same war was about to break out. The usual suspects were in the race. We had our ideas and patents at Sony. Panasonic, with its sister company JVC, had the same. Philips was a player as it was likely that its laser technology in the CD would be a factor. And then there was Toshiba, a new kid on the block in this sense. These companies and one or two others decided to collaborate and generate a single format. This became the Digital Video Disc, also known as Digital Versatile Disc or DVD. The important point was that each of the companies had some of its IP involved in the final format and so shared in the royalties.

So just one format was developed. When it was launched there was no market confusion. The result was that the format was the fastest accepted consumer electronics technology ever. And, of course, while we had collaborated to achieve this once we got into the market we beat the living daylights out of each other.

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