This is the eighth in a series of blogs on the UK Industrial Strategy Green Paper published recently by the UK Government. In Blog #7 we discussed the importance of engaging with the green agenda across all aspects of the UK industrial strategy and provided an outline for how to achieve this.
This blog addresses questions 18,19, 20 and 25 posed in the Green Paper:
18. Where you identified barriers in response to Question 7 which relate to competition, what evidence can you share to illustrate their impact and what solutions could best address them
19. How can regulatory and competition institutions best drive market dynamism to boost economic activity and growth?
20. Do you have suggestions on where regulation can be reformed or introduced to encourage growth and innovation, including addressing any barriers you identified in Question 7?
25. Which international markets do you see as the greatest opportunity for the growth-driving sectors and how does it differ by sector?
In some ways the most significant omission from this document looking at industrial strategy is the total absence of any mention of ‘tariffs’, in the text or in any of the questions posed above. This is remarkable particularly given the election of a new President in the USA (a major trading partner for the UK) who has explicitly declared that his trade policy will be shaped by the imposition of tariffs on the two major trading blocks, China and the EU, and possibly others including the UK. This will have significant consequences for the UK economy, compounded by our unclear post-Brexit situation.
Conventional macro-economists have long championed the importance of free trade and the consequences of tariffs, which can have significant implications for competition policy (in-country and cross-border), and regulation of markets, products & services, technology, and more recently data.
In some ways, as we have discussed already in Blog #7, the UK has become more of an outlier with a steadfast commitment to free markets. As a consequence until now, UK policy has been based on a total commitment to free and fair trade – we believe this will probably need to change, given the notable shifts in global orthodoxy.
The assumptions on which this approach is based are rapidly unwinding, with some support from economists backing the idea of US tariffs, citing the importance of protecting and growing the country’s manufacturing base. This of course mirrors ‘protectionist’ measures we have already seen from China & India. What is different this time round is that a major strategic ally and trading partner is now set to embrace this.
Developing a new approach to competition policy and regulation which tackles this new reality will not be easy, but we believe this must be done in a granular fashion based on meso-economic principles which directly address issues across three different but linked vectors, not at a global macro-economic level where the implications are not understood at a sufficient level of granularity.
This is clearly a major task, but we suggest that this analysis and synthesis should reflect the following:
- Understanding the different market spaces and their associated value chains, so we can take advantage of the UK’s particular strengths and weaknesses and design policies consistent with our industrial strategy priorities. For example, a differentiated approach to tackling healthcare & lifescience market spaces vs the electric vehicle space to reflect our different strengths in designing vs manufacturing new products and services (this means using the framework underlying Vectors E1 and E2).
- Understanding the ways in which new products and services are designed, manufactured and taken to market. In particular, understanding how these products and services are regulated. For example, we may need to review how we regulate medical devices and products vs other countries; we are already seeing pressure from the USA when it comes to genetically modified crops and some types of pesticides. If we wish to resist this, we may need to align ourselves with other markets in this area with strong growth prospects and develop a nuanced approach to regulation.
- We must be prepared for very robust and self-interested dialogues when it comes to technologies, particularly pervasive digital technologies such as AI, where we may find it advantageous to align with the EU, which has invested significant efforts into looking at AI regulation. The alternative may be to accept whatever the US technology companies want to dictate. By the same token, we must be aware that semiconductor technology underpins much of the growth coming from new products and services. Attention needs to be given to supply chain security as the UK does not have independence in this technology.
- The final critical area when it comes to trade policy, competition and regulation is likely to be about data regulation. GDPR regulation driven by the EU has already created frictions with the US: given the hegemony of US tech companies, we may need to think hard about where we draw the line, in terms of data ownership, privacy and exploitation rights; for example, this is already rearing its head in debates around genetic data, biomarkers, and intellectual property rights. Using Vectors I1, I2, I3 and I4 to understand this can provide valuable insight at the right level of granularity.
Key takeaway from this Blog
Our recommendation is that the Industrial Strategy Whitepaper, when it appears sometime in 2025, should explicitly tackle this challenge. We need to model the most likely scenarios expected to result from future changes in the international system and their implications for how we deal with different market spaces, products and services, technologies and data. One way of doing this would be to use the meso-economic Vector model and profile the likely impact, treating each scenario as a different ideological stance we must contend with.
One of the implications of this changed focus will be the need to review and probably re-write Competition Policy, with all its implications for compliance management. Our view is that this may be a challenge but an opportunity to simplify UK regulation, which could have a significant impact on things like clinical trials management, which could have a dramatic impact on reducing go-to-market timescales for new products & services, with a regulatory regime which is fit for purpose in this century, without compromising individual consumers.