The best economies are the ones that produce the best ideas and for the UK to remain a successful and creative economy it has to be a centre for ideas, risk taking and innovation. The role for government should be to create the conditions which make the best and most creative people want to stay in or come to the UK. This can be achieved by supporting the infrastructure of the economy and providing incentives for innovation and enterprise.
'The Growth Factory' report which we published on Thursday (www.thegrowthfactory.co.uk) brings together new thinking on how we can rebalance the economy to provide the growth the UK needs in the 21st century. At the heart of this is a modern industrial strategy which defines the relationship between government and business and focuses on different sectors which we believe will be vital to the UK's success in the coming decades.
The UK can compete with the best of the world in many sectors of the 'making it' economy, where your wealth is based on your ability to make products you can sell, and not just the services around them. The UK has just become a net car exporter for the first time since 1976, and in the creative and digital sector Tech City in London is now the world's third largest digital hub.
The industrial strategy of the 1970s saw governments give direct financial aid to failing industries in order to protect jobs. Here people were in effect being paid to build cars that customers didn't want to buy. That approach was unsustainable and it was in time new ownership, leadership, design, innovation and the commitment of the workforce that ultimately saved businesses like Jaguar and Land Rover from the state run motor industry. 21st century industrial strategy is not just about identifying where direct financial assistance can help accelerate the development of a business or economic region, as we are seeing in the government's strategy for enterprise zones and the regional growth fund.
This has also been important in the development of new economic clusters, like Tech City, where government support has acted as a catalyst for private enterprises to bring in much greater levels of investment. In addition to this we have to ensure that our tax and regulatory environment helps UK firms that are competing in a global economy to thrive. This is why, for example, the tax credits announced in the last budget for the production of high end television series, animation and video games were so important. Despite the UK having some of the best practitioners in the world, we were losing business to other countries that could undercut us on price significantly because they offered tax incentives to investors.
Given the turbulence in the world economy it would be easy to say that the idea of laissez-faire economics, where the government simply looks to create the best possible conditions for growth and leaves the rest to the market, is dead. With high levels of unemployment in Europe in particular, people require more of their leaders and to see evidence that they are straining every sinew to help create competitive advantage in their economies. In truth, laissez-faire never existed. Governments have always looked to support business innovation and growth through offers of matched funding, inducements for overseas investors and changes to the business tax regime. The challenge is to get the right policies for the right time.