The EU referendum was a watershed in British history. The UK is now committed to forging a new future outside the European Union. While this will bring many complex challenges, it also brings opportunities. One of those opportunities is to develop and implement a new industrial strategy fit for the 21st Century.
A successful new industrial strategy needs to work with rather than against the grain of change. It will need to understand and take full account of the opportunities and challenges posed by globalisation and digitisation, and it will need to think as carefully about people as it does about business. It will need to focus on encouraging and enabling innovation across the economy rather than picking winners or defending incumbents. It will need to ensure that UK remains a magnet for international investment and talent whilst also becoming a more effective engine for productivity growth and trade in goods and services.
When considering the role of digital in the industrial strategy, policy makers should focus firstly on the significant income and productivity gains that will result from accelerating the process of digitisation across the economy. These gains will come through productivity benefits and the emergence of new, more competitive business models, businesses, products and services. Digitisation is about both creating new businesses and helping existing businesses to transform so that they remain relevant and competitive in a fast changing global market.
However, the digital sector must also be recognised as an important strategic growth sector in its own right. Fast scaling digital firms have been at the forefront of growth over recent years and their success will be vital for the UK economy in the years ahead. Whilst the digital supply side will benefit directly from an industrial strategy that has digitisation at its core, there are also supply side inputs and other policies that must be secured to ensure that the sector can continue to thrive. Digital should therefore be embedded in the industrial strategy as both a horizontal enabler and a strategically important vertical.
In forging this new industrial strategy the UK should be ambitious about its economic potential while being ruthlessly realistic about the significant challenges it faces: in particular the many long-standing supply-side weaknesses that pre-date the UK’s decision to leave the European Union. Optimism is essential but not sufficient. The political challenge that lies ahead for the government in getting a huge number of policy decisions right, in a very short period of time, cannot be overstated. Government will need to work closely with the business community to get it right and ensure that it is talking to wide cross-section of firms from the largest employers to the most dynamic small and scaling businesses.