In his November 12th Lord Mayor’s Banquet Speech, Conservative Party leader David Cameron—acknowledging that “Britain is in a global race that is a moment of reckoning for every country” (as ITIF argues in Innovation Economics: The Race for Global Advantage)—called on Britain to unabashedly articulate a “modern industrial strategy” to help Britain “compete and win” in the intense global race “for high-knowledge, high-value goods and jobs.” Cameron’s phenomenal speech is in fact revolutionary in its call―coming from the heart of the conservative movement―for a far more proactive role for government in stimulating an economy’s ability to compete in global competition.
Cameron observes that government’s first role is to get the framework (or factor) conditions right, and he notes that, even facing budget deficits, Britain has “cut corporate tax rates to the lowest in the G20,” introduced generous tax breaks for early stage investment in start-ups, and launched a patent box whereby firms and individuals only pay 10 percent tax on profits made from intellectual property. There are two key things about this. First, Cameron recognizes that these tax expenditures are an investment that will grow the UK economy, and that like other investments, should be expanded, not cut, even when facing budget deficits. Second, Cameron notes that “reducing tax and regulation is not enough.”
Cameron proceeds to lay out specific steps the British government will take to boost the competitiveness of key sectors of Britain’s economy, from finance to defense to life sciences, arguing that Britain “needs a more strategic, modern approach to maintain and develop our global comparative advantage and make the most of it,” including:
- Developing a UK Lifesciences competitiveness strategy that includes creating a £180 million Biomedical Catalyst Fund to bridge the gap between laboratory and the market and making NHS data available to researchers and companies to create the next generation of technologies and medicines.
- Publishing new strategies for aerospace and agritech alongside nuclear, offshore renewables, and oil and gas early next year (with even more to come)!
- Investing £1 billion in carbon capture and storage and creating the world’s first green investment bank.
- Supporting high-tech clusters including Tech City in London, creative industries in Manchester, and marine technology in Bristol.
- Introducing sensible financial regulations that protect consumer interests but empower the competitiveness of the British financial sector.
- Supporting entrepreneurship (last year, Britain had a higher rate of new business creation than in any year in its history…while U.S. new business starts fell to a thirty year low).
Cameron clearly explains that Britain’s modern industrial strategy is not the dreaded industrial policy of the past that picks winners and losers but rather “relies on the convening power of national government to get behind what works and to position our key sectors so they have the best chance of winning the global race.” It’s about “creating an ambitious, coordinated and muscular approach to government which allows them [the private sector] to flourish.” Moreover, as Cameron explains, it’s not about “keeping dead industries on life support like the industrial strategy of the 1970s” but rather “supporting industries where Britain has a competitive edge and encouraging the high growth industries of the future.”
This is exactly the kind of thinking that U.S. policymakers―from both the Right and the Left―need to embrace. Yes, the private sector creates economic growth, but as we argue in Innovation Economics, it can only do so effectively with government as a partner that helps get the technology, tax, trade, and talent (skills, education, and immigration), and regulatory policy environment right and that robustly invests in R&D (both basic and applied) to help seed the development of next-generation technologies that set the basis for the industries and occupations of tomorrow. Moreover, it’s imperative that U.S. policymakers, like Britain’s, recognize that countries are in fact in a race for global innovation advantage and should want to win it, which requires putting in place a sophisticated set of policies to do so.
Finally, Cameron’s speech closes with him flatly rejecting protectionist calls (e.g., to limit inbound foreign direct investment) and forcefully embracing a “leading role for Britain in forging new trade agreements…including launching negotiations on EU deals with the US and Japan in the next year.” As ITIF has called for, the United States needs to start pursuing a Trans-Atlantic Partnership consisting of Commonwealth, European, and other like-minded countries genuinely committed to the principles of free and fair trade. Cameron’s speech has provided an opening and an invitation for U.S. trade officials to engage Britain as a key partner in such an effort, and the Obama Administration should seriously consider making this a focal point of U.S. trade policy in its second term.
In short, Prime Minister David Cameron’s speech shows the path forward, particularly for conservatives and Republicans in the United States, for how a stronger national government role is critical to winning the race for global innovation advantage.