10/07/2013 11:25 BST | Updated 09/09/2013 06:12 BST

A Conservative Case for Industrial Strategy

Britain is an innovative, creative nation with world leading industries in engineering manufacturing and services. Our entrepreneurs continue to develop new products that take on the world. Manufacturing's share of national output may have fallen but we remain a major and successful manufacturing nation.

Conservatives should celebrate this success and seek to create the conditions in which the successful industries of today - and the up-and-coming ones of tomorrow - find the right conditions for growth here in the United Kingdom.

But low taxes, free trade and deregulation alone cannot achieve this ambition. A successful strategy to underpin this aspiration requires more than these three foundations. The strength of global competition leaves no cosy hiding place for a country without the willingness to support its aspiration in every way possible.

The government thinks the same and is developing an Industrial Strategy based on eleven sectors. But does this owe more to Coalition than to Conservatism? Should Conservatives welcome or deplore this new industrial activism? And will the approach being adopted actually work?

In fact every post-war government has - rightly - had an industrial strategy, whether it acknowledged the fact or not. Looking back over a much longer period, it's probably true that every UK government has had such a strategy, whatever words were used to describe it at the time.

The introduction of the Corn Laws in 1815, for example, was a strategic industrial act. In the same way their repeal in 1846 was an act of industrial strategy, albeit a mercantilist one.

The important thing is that the strategy must suit the needs of the period. A globalised economy in the twenty-first century demands a very different strategic approach from the British government to the one it deployed at the height of Empire, when Britain was the workshop of the world.

Conservatives would argue that the approach of early post-war Labour governments, when nationalisation lay at the heart of their strategy, was profoundly mistaken. But the Conservative response under Margaret Thatcher - privatisation, trade union reform, and deregulation - was also an industrial strategy.

Mrs. Thatcher's government went even further and developed an explicit strategy to spread the gospel of free trade to Europe, through its advocacy of the Single Market. One of the most successful post-war acts of industrial strategy was that same government's heroic and successful efforts to attract every significant piece of internationally mobile investment, especially by the Japanese car giants, to the UK. It is to that strategy that we owe the revival of Britain's automotive sector.

While politics will colour the chosen strategic approach, the real choices facing a government will always be constrained by the economic realities of the period. Austerity, though, is not a reason to turn our backs on an industrial strategy, for two reasons. First, a good strategy will ensure money is well spent - it need not need cost more money to implement. And second, industrial success is central to restoring growth and ending austerity.

So Conservatives should not recoil in horror at the thought of an Industrial Strategy, even if it appears to be championed by a Liberal Democrat Business Secretary with a perceived fondness for intervention of an un-Conservative kind. The broad approach of Vince Cable's analysis, set out in a speech in September 2012 , should be relatively uncontroversial. Rather, we should be characteristically pragmatic and ask ourselves what the key aspects of our Industrial Strategy should be - from a Conservative perspective.

Even the strongest proponent of free markets must accept that there are some things only government can do. There are issues affecting industry which government directly controls and issues over which it has significant influence. Getting its actions and influence right can have a big impact on industrial activity.

A well-founded industrial strategy looks at these issues and adopts policies towards them that offer the country the best chance of prospering and competing - of winning what the Prime Minister has described as the global race. Put simply, an effective industrial strategy consists of a coherent and consistent set of policies that are designed to improve the performance of the economy. Across the political spectrum views will differ as to the best set of policies to achieve that, but any government will still need policies to that end.

An effective industrial strategy can only work if the background policies in other areas of government activity are working effectively - everything from law and order to welfare policies - an industrial strategy per se will operate at two levels:

1. Over-arching policies relevant uniquely to all the industries covered by the strategy that can be influenced by government activity, and

2. Specific polices for different industrial sectors, taking account of the unique characteristics of each identified sector.

Conceptually both the general and specific industrial strategy will need to take account of four themes:

• Skills

• Infrastructure

• Innovation & Technology

• International trade

A fifth theme will often be relevant in individual sectors

• Clusters

So I believe that the government is absolutely right to want to take a strategic approach to industry sectors - but as I will show in a second article, the approach we have adopted is confused and complex. Urgent simplification is needed to make it credible and effective.