John Manners-Bell, CEO of Ti Insight and The Foundation for Future Supply Chain, launched his book ‘The Death of Globalization’ in a special event in London on 9th November 2023. Here is an extract from his book, on reshoring and industrial policies.
Many governments have needed no second invitation to support businesses or erect barriers to protect manufacturing and retailing markets. These invariably are very popular with the electorate even though in the long term they are often counterproductive. Making the case for open markets is certainly more difficult than slogan-driven policies which involve, for example, ‘taking action to protect jobs’ as it requires an understanding of the benefits of a liberalized trade policy plus an ideological commitment. Both have been lacking over the past decade especially with a vacuum of leadership from the WTO which has become mired in unsuccessful trade negotiations. For a whole host of reasons, not least cultural, the creation of manufacturing jobs has become a major political imperative. Although this does not strictly require government subsidy, in reality this is often the case.
There can be economic, strategic or security imperatives behind attracting manufacturing jobs back from Asia (reshoring). However, in many other cases, the reasons are often nakedly political and the results disastrous – governments are very bad at backing ‘winners’ and often capricious with tax spend due to competing priorities. Many countries have adopted support policies for ‘infant-industries’, that is, those which in the opinion of politicians might go on to thrive but have been let down by a ‘market failure’, lack of foresight or capital. In some cases, this support might take the form of financial subsidy. In others, the government may play a facilitatory role in creating the environment or ‘eco-system’ in which new businesses can develop, such as clusters of suppliers, training or ICT networks. In the past, high levels of investment have been shown to successfully kickstart an industry such as semiconductor manufacturing in Japan in the 1970s or ship building in China in the 2000s, by ‘engineering comparative advantage’.
However, history is littered with evidence of examples of when industrial strategy has failed, not least the British government’s support for electric vehicle battery manufacturer, British Volt. Not only is subsidy expensive and often futile, but it can disadvantage consumers by keeping prices artificially high. It can also tie up capital and actually reduce innovation by artificially extending the life of companies with failed business models or technologies.
Author: Julia Swales
Source: Ti Insights