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Reversing decades of decline means focusing R&D on imitation and adaptation, says Pranesh Narayanan
The Labour party won the general election on a simple mandate: change. In the days since, attention has turned to what that broad mandate means. What change did 2024 Labour voters actually want, beyond a change in government?
Analysis carried out by the Institute for Public Policy Research (IPPR) think tank and Persuasion UK, a non-profit research organisation, has found that, broadly, this base is united by a desire for economic change. There is also consensus on climate change, where over two-thirds of the Labour voter coalition believe that government should be going further and faster.
Labour’s manifesto recognised both these priorities, stating that the “clean energy transition represents a huge opportunity to generate growth”. This view emphasises the experimentation and innovation—rather than the spending—needed to achieve a net-zero economy.
This is particularly true for the UK manufacturing sector, which is in dire need of renewal. IPPR research shows that Britain’s manufacturing capabilities, in terms of the number of products that can be made competitively here, has declined by a third over the past 30 years, suggesting that British manufacturing has become less diverse and technologically advanced.
This matters, even for a country that prides itself on its service industries. Countries such as the US and France, which are similarly services-focused, have not seen any equivalent decline in manufacturing.
Green opportunity
The green transition is an opportunity to turn things around. The International Energy Agency projects that by 2030 there will be a shortfall of manufacturing capacity in several low-carbon technologies. UK manufacturing already has a comparative advantage in a third of the products and components needed to achieve net zero.
These seeds of green industry will only bloom if businesses, researchers and government work together. Much of the debate around innovation-led growth—and much of the lobbying from the research sector—emphasises the discovery of new technologies. Decades of decline, however, mean that, on manufacturing at least, a more developmental attitude is needed.
The new government should target what the economists Ricardo Hausmann and Dani Rodrik call self-discovery—the process by which sectors and countries identify opportunities for growth in established industries. Rather than pursuing the technological cutting edge, this often involves importing and adapting production processes from leading countries.
In the late 19th and early 20th centuries, for example, Japan used this approach to grow both its cotton textile and steel industries. On cotton, it imported American technology. On steel, it hired British and German companies. Both experienced teething troubles but, with government support, were adapted to local circumstances, becoming international leaders.
More recently, in the 1970s, government subsidies and protectionist policies helped the South Korean giant Hyundai adapt ship designs and production process from Scotland, eventually becoming the world’s largest shipbuilder.
The common themes are collaboration between public and private sectors, and the transfer and adaptation of technology and skills from pioneering to developing countries. Public-sector support is vital because, as with other forms of R&D, the companies that drive self-discovery create knowledge that others can use without paying the same costs, meaning that, without other incentives, pioneers are at a disadvantage.
Follow the leaders
By our analysis, Britain is well placed to develop industries in supply chains related to wind equipment, green transport and heat pumps. Many of the skills, infrastructure and supply-chain networks needed are already present.
In some cases, such as electric trains, some manufacturing is already going on. However, self-discovery is needed to scale up this production efficiently.
As the world seeks to ramp up production of green technologies, there are likely to be shortages in manufacturing equipment. Importing cutting-edge equipment from industrial conglomerates based in places such as Japan and South Korea, and adapting these to the UK’s economy and environment, could bring much-needed productivity growth.
The research sector can play a major part in facilitating this process, particularly by identifying and building links with technological leaders around the world.
The government’s mission boards for economic growth and clean energy are likely to drive the strategic direction for industrial and innovation policy. The newly announced National Wealth Fund is another potential vehicle for bringing cutting-edge production processes into the UK, as it seeks to co-invest with the private sector in green industries.
Innovators should engage with these institutions to highlight opportunities to learn from technological leaders and help design an economic strategy that creates a balance between research into new technologies and those related to self-discovery.
Pranesh Narayanan is a research fellow at the Institute for Public Policy Research’s Centre for Economic Justice