Linking Science and Manufacturing: an Industrial Policy for a Better Society

Scott Nicholson sets out some ideas for linking science and manufacturing.

Introduction

I believe that Scottish Labour should make the case for using science and innovation to power growth in our regional economies. Universities could be engines for regional growth via the creation of publicly owned spin-out manufacturing companies.

I feel the best use of resources would be to target funds towards universities in the poorest areas of Scotland and the rest of the UK or areas with the greatest unemployment. Glasgow would be a good example as it already has good universities and is positioned in one of the UK’s poorer regions. We cannot compete with low skill/pay economies in many areas of manufacturing but by linking science and manufacturing we will create high and middle skill jobs and allow us to take advantage of Scotland’s world class research to produce products for export that are only available from Scotland.

Industrial Policy

I do not believe the term “industrial policy” should be restricted to the industry that we normally associate with it. I think industrial policy should be about the state taking an active role in shaping the economy and providing people with what they need.

I know that there are market fundamentalists who wince at the term and wish the market to determine what it produces, without any interference. However, I think there is difference between an economy full of companies making chips for innovative medical equipment and an economy full of companies making chips for the oven.

If we as the Scottish Labour Party are not having open discussions about the direction our economy takes, it takes the direction wished by special interest groups. In the UK we have a kind of industrial policy of shifting resources to the financial sector and allowing them to engage in risky practices. Why would the British people want this policy?

I do not think they would but because government are not steering the policy, the financial sector and their influence can. I see a problem in a society in which students that should solve the world’s problems as scientists and engineers, move to the City of London, rather than create something useful. However, I also see a problem with scientists too often looking to solve intellectual puzzles, rather than actually producing that something useful.

We have problems like climate change, disease, hunger, energy supply and even internet provision, which industrial policy could be directed to tackle. However, we also have a problem with unemployment and I feel too often that innovation is directed toward ways of saving labour. So how do we provide society with what it needs (including jobs)?

Manufacturing

Following the global financial crisis, we need to start looking seriously at less reckless industries like manufacturing. With regard to jobs, wages tend to be higher in manufacturing than service industries (which involve a lot of part time work). These middle-income, middle-skill manufacturing jobs build a sense of social cohesion which is not present in service industries. As a result I feel that manufacturing can help prevent a society dividing into rich and poor.

Manufacturing accounts for the majority of Scottish exports and without being able to export something, Scotland cannot really look to long-term economic growth. Germany is the EU’s largest and most successful manufacturers yet pay higher unit wage costs than the UK. So what is our problem? As already mentioned, there is a lack of political support for industrial policies and monetary policy is set to benefit the City. The short-term nature of the UK financial system disadvantages manufacturing, which requires long-term investment is skilled staff, research, development and equipment. In addition to this, the UK is also more relaxed about foreign purchases of indigenous firms, compared to other nations. This leaves UK manufacturing more open to research and development cuts and its staff to redundancy.

Science Policy

Science policy is very political and ideas that can be traced back to Friedrich Hayek float around suggesting that science is a force that cannot be steered and evolves in response to the demands of the market, in an almost Darwinian manner. I admit that this is probably the case in research and development with low barriers to entry, like someone in their bedroom developing an app for a mobile phone. However, it takes on average 9 years and $2.17 billion of research and development spending to produce a single new drug (including the cost of all the failures) in the pharmaceutical industry.

Successive governments have asserted the promotion of economic growth as the primary goal of science policy (which I disagree with) but in the past the state has sponsored companies like ICI with guaranteed contracts or monopolies. Government can attempt to correct market failure by giving money to companies, through subsidies, tax concession ,extending patents or even cash prizes but at the end of the day, the state is supporting expenditure that the companies should be making anyway and there is no guarantee that the UK will retain that economic benefit.

Resistance to innovation also comes from representatives of incumbent economic interests. Incumbent capitalists have lower incentives to invest in research and development than new entrants as innovation causes a lowering of profits from their existing businesses. Perhaps our political system that gives excessive weight to the holders of economic power, is putting a brake on investment, even though it would be beneficial for society?

The fundamental problem is that the social value of science, innovation and industry does not correspond with its market value, so there is no financial reward for private sector undertaking the research, development and production, to create the jobs that society needs. I personally feel that a UK Labour government should directly commission the research and development that society needs but the neoliberal dogma is that governments ‘can’t pick winners’. Mariana Mazzucato in her 2013 book, The Entrepreneurial State, discusses how the state can lead innovation and criticises the risk and reward relationships in current public-private partnerships. Mazzacuto argues that the state can be entrepreneurial and inventive and that we need to reinvent the state and government.

I feel that for years the private sector have generated huge profits by patenting state-subsidised research and selling it back to society at a profit. Science, innovation and industry – like the banks – are too important to fail and in capitalist hands, we see the results of short-term profit-maximising corporate interests. That is why we need to invest in publicly owned companies.

I do not believe the private sector is very good driver of innovation and that Scottish Labour should not court big businesses like the SNP, who would be the only businesses capable of substantial investment needed for an idea like spin-out manufacturing companies. I feel that successful, long-term research and development, that results in the manufacture of products that benefit society and contribute to long-term economic growth, would lower profit in the short term but then provide income streams to fund future research and economic growth.

I believe excessive financialisation in research and development causes the loss of a lot of invested monies to corporate lawyers and shareholders. There seems to be a perception that corporate reorganisation can provide quick returns for shareholders, so private companies attempt to increase profits through mergers, acquisitions and tax evasion. I do not feel this is the most effective way to use Scotland and the rest of the UK’s resources.

Before Friedrich Hayek, John Desmond Bernal in his 1939 book, The Social Function to Science, argued for more spending on innovation, as science was not merely an abstract intellectual enquiry but of real practical value. Bernal placed science and technology as one of the driving forces of history. I believe we in Scottish Labour should look to follow this path.

With regard to democracy, the Labour Party could give citizens a greater say in what is researched in order to help shift our society away from its reliance on the market to provide what society needs. The market responds, not to what society needs, but to what will create the most profit. This is a reoccurring theme throughout science. A UK Labour government should undertake consultation work with the general public and make the case for innovation not to be driven by greed but for the service of society.

Scottish Labour also needs to understand that for long term economic growth, Scotland must export something. Successful UK companies doing this seem to be producing higher tech/skill, custom goods like bespoke pH meters or horse ridding saddles.

Scotland cannot compete with China’s 1.5 billion low-paid/low-skilled workers but roughly 50 per cent of people go to university in Scotland so we can perform much better in higher-paid and higher- skilled work. By linking the manufacturing to the world leading research and development, we can produce products that are only available from Scotland. Perhaps, more profit would be reaped if the manufacturing was out-sourced but the overall goal of the industrial policy is the well being and quality of life of the Scottish people, who need jobs as well as technological advances.

I do not think a focus on international relationships is best for Scottish science, innovation and industry. Last year when the US pharmaceutical giant Pfizer was trying to take over the UK pharmaceutical giant AstraZeneca, I assumed that the reason behind this was to take advantage of the UK’s corporation tax rate of 21% which is substantially lower than the US rate of 35%. However, what really got my attention was that people were worried because they understood that if the deal went through, the UK would lose one of its few world-class companies and more specifically its jobs and investment. That seemed a well founded worry as Pfizer reduced research and development expenditure from $9.4 billion in 2010 to $7.8 billion in 2012 and closured its laboratories in Sandwich, UK.

As a result I would like to see legislature in place to allow government to block sales of companies to non-domestic owners. I would also like Scottish Labour to seek to make it easier for small biotech companies to grow in Scotland so the owners will not just look to sell off to a large international firm. I think Scottish Labour should look to build Scottish industry, rather than allow the sale of Scottish companies to foreign owners. This is obviously easiest when companies are in public ownership and for this reason, along with the many others listed, I feel the spin-out manufacturing companies should be state owned.

Conclusion

The UK needs to move away from an economy based on unstable and reckless financial services. To do this Scottish Labour and UK Labour need to discuss industrial policy. These industrial policies will need enduring political and financial support to produce long-term reliable economic growth. Linking Scotland’s world leading science to manufacturing can help avoid direct competition from low pay/skill economies but also provide jobs and social cohesion for the people of Scotland. More importantly, greater investment in public ownership can allow the Scottish people to decide what they need, rather than what the market decides is profitable.

Scott Nicholson

SMITH COMMISSION

The Red Paper Collective welcomes aspects of the Smith Commission:

  • the maintenance and indexing the Barnett formula to take account of the newly devolved areas which supports the principle progressive redistribution within the UK;
  • powers over some benefits like the ‘bedroom tax’ (under-occupancy penalty)  and disability benefits, which can pave the way for an end to blatant injustices  in both these areas;
  • powers to enable public sector companies to bid for rail franchises which could at long last provide the basis of a publicly owned rail system in Scotland;
  • an increase in borrowing powers commensurate with greater tax raising, which could allow the Scottish government to end the iniquitous use of PFI/PPP.

We believe that the power over income tax (which does not include unearned income) should be used to bring about better and more Scottish and locally provided services such as health, education and social care. It is therefore regrettable that the Commission made no attempt to address the undermining of local democracy by enshrining powers of local government especially over the right to raising income and local economic development.

Indeed there are no significant new powers for economic development. In light of this austerity will continue and intensify unless policies at UK level (as impacted by the EU, for example EuroPlus Pact) are changed.

As the Red Paper Collective has argued for the past three years, it is how these power are used that will determine whether they are progressive or not.

We note that The SNP government programme announced yesterday contained no proposals for income redistribution via tax and postponed implementation of any policies to end the council tax freeze for implementation in 2017-18.