Construction gets one of the first Sector Deals
Industry policy has been out of favour for the last couple of
decades, especially in countries like the US, UK and Australia. Partly this is
ideological, a view that it is about government intervention and picking
winners, and partly because some issues traditionally addressed by industry
policy (like tariffs and market access) have moved into negotiations around
trade policy, at both the global level with the WTO rounds and in the
increasing number of bilateral trade agreements. Mainly though it is because
few industry policies have really been successful, and many have been expensive
failures. Traditionally manufacturing was the focus for industry policy, but
these days the approach
is more about coordinating a wide range of policy to achieve objectives across
the economy and society.
There is also the problem that results take time to happen
and thus take longer than the electoral cycle to develop, so there is little
benefit to the government of the day even if a policy is working. While it is a
fact that governments can have major impacts through regulation, tax, and R&D
these policies are spread across departments, and although many inquiries have
recommended leveraging purchases of materials, machinery and equipment and buildings
and structures to policy outcomes there are significant institutional
constraints on government buying power. What history generally does show is
that it is hard to get industry strategy right, implementation is difficult and
outcomes are uncertain in dynamically evolving economies.
Given this background it was a notable occasion when, on the
27thof November 2017, The UK Government launched their new Industrial
Strategy, “setting out a long-term vision for how Britain can build on its
economic strengths, address its productivity performance, embrace technological
change and boost the earning power of people across the UK.” In the prolix way
of such documents there is much talk of innovation, partnerships between
industry and academia, preparing for the future, high tech industry clusters
and next generation technologies and so on, all of which are well-known
elements of a modern economy. Nonetheless, combining them into an overall
policy backed with funding and resources as this strategy has done may become
something of a template for twenty-first century industry policy, in the same
way Australia has followed the UK with PPPs and City Deals for infrastructure.
The industry strategy includes four Grand Challenges, five productivity foundations, and
various sector deals. The Grand Challenges of the future are artificial
intelligence (AI) and data, low carbon/clean energy growth, health and ageing,
and transport and infrastructure. Productivity depends on people, places,
ideas, infrastructure and the business environment. No surprises in those lists,
and the paper includes a great deal of conventional thinking and hand waving on
those topics. There will be more funding available for technology start-ups
through the British Business Bank, which gets a £2.5bn fund from money that
would have gone to EU investment programmes, and changes to pension fund rules will
allow them to invest in small companies.
A proposed national industrial strategy council will have
oversight of implementation of the proposals, and theoretically will hold this
and subsequent governments accountable for progress. The strategy includes establishing
several new councils and offices and renaming others, like the new UK Research
and Innovation body, which brings together all the research councils, and Innovate
UK, the operating name of the Technology Strategy Board, a non-departmental
public body. This plethora of initiatives means the strategy lacks clarity and
a meaningful target, with the potential for much energy and money to be spent
on process rather than outcomes.
Construction is one of the four Sector Deals (along with AI, the car industry and life
sciences) launched in
the strategy, and there is a lot of discussion about housing in the context of affordability and energy efficiency: ‘The government and the construction
sector, through the Construction Leadership Council, have agreed a Sector Deal
to transform the productivity of the sector benefiting the wider economy. The
deal will substantially boost the sector’s productivity, through greater
investment in innovation and skills, creating new and well-paid jobs and
maximising its export potential. This will also reduce the environmental
impact, improve the efficiency and reduce whole life cost of new projects and
buildings to help build the houses, schools, hospitals and major transport
projects we need.’
The Construction
Leadership Council is a heavyweight group of senior industry executives
that promotes off-site manufacturing and increased digitisation in construction,
and appears to have had significant input into the industry strategy. The key
points in their 2013 publication Construction
2025 have been included, often using the same language, in the Industrial
Strategy paper, and the Council given a leading role in the implementation of
the sector deal. There is a recent video
of a speech to the Council (16th November, 60 minutes) by Ann Bentley,
Chairman of Rider Levett Bucknall, which argues for change and puts her view of
industry development (digitisation) and policy options (value based
procurement). While the ideas are not particularly original they are cogently
argued and very relevant, and probably representative of the viewpoint of management
in the UK industry. She discusses industry potential around three ideas:
- Use outcome-based procurement to drive capital delivery and lifetime performance.
- Increase transparency on the performance of suppliers and assets.
- Improve procurement efficiency and get the basics right
There are some big numbers attached to the industrial strategy,
mainly through the Industrial Strategy Challenge Fund which will
invest £725 million in a range of new programmes to ‘capture the value of
innovation’. (These programmes are not the same as the four Grand Challenges
but are obviously linked). This could amount to serious money if it
materialises, although the funding included in the strategy is spread thinly
and seems low given the scale of the challenges and the ambition of the
strategy. The Challenge Fund ‘aims to bring together the UK’s world-leading research with business to
meet the major industrial and societal challenges of our time.’ There is a
lengthy list of challenges on their page:
Transforming construction is one of the Challenges, and there is potentially
£170 million (around
AUD$300m) allocated, with the aim to change the way buildings are created. This means manufacturing and will
be targeted at off-site and modular construction, which in turn is linked to
other Challenges in energy, robotics and manufacturing. It may take some time
to see how this works in practice and there are no details on the how or where
this investment will happen. In the Challenge Fund at the Transforming
Construction link above it says:
The way we create our buildings has not changed substantially in 40 years and needs a drastic overhaul if it is to deliver the buildings that the UK needs. Construction is currently expensive, and too many buildings waste energy.We need to transform construction so that we can create affordable places to live and work that are, safer, healthier and use less energy.By taking a lead in the UK, we can also increase our ability to export: global demand for efficient buildings is rising rapidly, due to the pressures of urbanisation, affordability, and the need to cut emissions.
Export potential is clearly the motivation behind many of the
strategy’s ideas, because post-Brexit the UK will be looking to expand into new
markets to replace as much as possible of the 43% of trade currently done with
the EU. It is worth noting here that UK imports of building and construction
products have doubled in the last decade, much of it materials from the EU and
wood from Sweden. On the other hand, importing materials and exporting
higher-value off-site construction products and methods may turn out to be a
great strategy.
The strategy also promises more spending on education and
training, infrastructure and urban development, extending a wide range of
existing programmes and adding emphasis in areas like STEM teaching, including
‘a £64 million investment for digital and construction training’. There will be
a new regulator, the office for students, to address employer and student
needs, and a national retraining scheme targeting skills shortages in key
sectors: ‘We will provide £34 million (AUD$60m) to expand innovative
construction training programs across the country, including a program in the
West Midlands, focused on supporting the country’s housing needs and building
upon existing good practice’. However, there are no details on what this actually
is or how it will be implemented, and this is a criticism that can be levelled at
almost every initiative proposed in the strategy. Skills policy, business
support and planning are policy areas in the strategy that are devolved, and thus
the responsibility of administrations in Scotland, Wales and Northern Ireland. The
recent Final
Report of the Industrial Strategy Commission argued strongly for ‘further
and faster’ devolution in the UK. (This was another major source of the ideas
and initiatives in the strategy).
The document presents policy ideas like a prospectus, with
breakout boxes of examples and endorsements to support the strategic initiatives,
most which are not new and were flagged in the January 2017 Green Paper that led,
after the rounds of submissions and discussion, to this November White paper. For
example, the strategy links to a previously announced boost to R&D, with a
target of 2.4% of GDP by 2027, and an existing teacher recruitment and retention
scheme. Proposals like a new office for AI have no funding attached, and any
discussion of Brexit is absent.
On the one hand, delivering an ambitious and comprehensive
industrial strategy is a laudable achievement and there is no shortage of
issues and challenges to be addressed in the UK and elsewhere. If nothing else,
developing a comprehensive policy like this focuses minds and involves many
participants. Government policy does not have to be original or innovative to
be useful and effective, so the lack of new ideas or perspective is not the
problem. It is probably better to have a strategy that brings together issues
around productivity, innovation, skills and technology, than not have one at
all.
However, on the other hand, a policy that lacks credibility
or substance is not helpful. There is a lot of rhetoric in the strategy, embellishing
the very many ideas and initiatives included. Many of the proposed initiatives
are to be implemented through various regulatory and funding bodies, some
existing and some new, with much of the thinly spread funding being channelled
through current programmes, but details are lacking. There are no firm
commitments to invest in any of the challenges, or to any specific investments
in the sector deals. Local and regional governments, universities, regulators
and industry bodies have all been given significant but generally unspecified
roles, and their engagement will be an important determinant of any successes.
How the UK Government moves into the next phase of their
industrial strategy will tell whether this is a serious effort at industry
development or a publicity policy, aimed at announcements and PR but lacking support
and commitment. At some point next year the challenges and sector deals should
lead to expressions of interest and applications for funding of new projects, which
will be the litmus test of the substance of the strategy. Establishing the
proposed national industrial strategy council and other offices should provide
a stream of positive events and announcements in 2018, but achieving the
strategy’s goals will require a great deal of coordination, determination and
long-term commitment, qualities not always associated with government industry
policy.
