I WANT to begin by stating a principle which was expressed in typically provocative terms by Professor John Kay a few years ago. Kay remarked: "The focus of industrial policy should not be on what we do worse than other people, but on what we do better."
Kay gives many examples of areas in which national competitive advantage seems to have been built - fitted kitchens in Germany, financial services in London and Manhattan, automobiles in Japan, the knitwear producers and shoemakers of Italy - and asks why this has been the case. The most important reason is the opportunity which clusters of firms provide, once a critical mass has been established, for the growth and transfer of skills and knowledge within the sector. "It is on success in creating the networks which facilitate these exchanges that many competitive advantages in today's world depend." Kay concludes.
The competitive strength of each firm within the network derives from the knowledge base to which all contribute and have access. Some aspects of the knowledge base relevant to a particular activity are, of course, specific to that activity, but many are not, and the most important of such non-specific skill bases lies in scientific and technical training. The levels of scientific education and achievement in British universities are as high as any in the world and this is reflected in the success of British firms in industries which depend on elite science, such as pharmaceuticals, defence electronics, biotechnology and computer software. In these areas, once the product is designed, it has for practical purposes been made. Where, by contrast, countries such as Germany and Japan stand out, is in the technical capabilities of workers further down the ability spectrum. The first thing we need, therefore, in designing policies to enhance competitiveness, is to have a clear idea where our competitive advantages lie. We can then build upon them. The problem with industrial policies in the past is that they have pursued the opposite of Kay's dictum. British industrial policy was based not on picking winners, but, perversely, on picking losers. Losers that we would have liked to be winners. Attempts to revive British Leyland, for example, through state intervention turned out to be a sorry failure, and predictably so. …