Theresa May’s new administration is taking a fresh look at three vital components of economic success, with green papers on industrial strategy and corporate governance and the launch of the Taylor review into modern employment. Each is important, but success will hinge on understanding how they interrelate.
The economy is a social construct, not a natural phenomenon. This statement might seem self-evident but its significance is that economic success lies with the good design of the rules and institutions that govern everyday economic interactions.
The true meaning of laissez-faire is that no central authority should micro-manage the decisions of players on the pitch. It does not mean abolishing the rules or sacking the referee, for without these there is no game.
In sport, it is essential to regularly adapt the rules to keep up with changes in technology and advances in levels of human skill and athleticism. So too, the economy.
So the energy and focus that the new Government has brought to industrial strategy, corporate governance and employment practices is most welcome. In these vital components of the economy, we are long overdue a refresh of the rules of the game. Or as Greg Clark put it in a recent speech on industrial strategy, it is time for an upgrade.
But the economy is much more complex than sport, and as a complex system it is always important to identify dependencies, complex causal relationships and feedback loops between different parts of the economy and the policies that affect them.
So here are three such relationships worthy of close attention as the Government pursues its upgrade of some of the key rules and institutions that underpin our economic success.
From corporate governance to industrial governance
Greg Clark identifies corporate governance reform as one of the four components of successful industrial strategy, along with infrastructure, skills and regional regeneration. So this dependency is already explicit.
However, we need to expand our discussion about corporate governance to include the actions of, and interaction with, government itself. The body of evidence and analysis of industrial strategies in different countries at different times invariably identifies good governance as a critical success factor.
This is necessary to guard against the political capture of industrial strategy to pursue the narrow, short-term or sectional interests of political factions. Equally important is to guard against corporate capture of industrial strategy to subvert the pursuit of national interest toward the private enrichment of particular companies or vested interests.
Government exhortations to companies to aspire to the highest standards of integrity, transparency and stakeholder participation in corporate governance will in part depend on these design principles being applied equally rigorously to how government itself formulates and implements industrial strategy.
What this might mean in practice is that good governance in industrial strategy will need to extend much further than simply inviting comments on policy, to include more participatory and deliberative methods. It also means challenging lobbying practices that take place behind closed doors.
From worker representation to stakeholder representation
Worker representation is rightly in the corporate governance spotlight, but to futureproof proposed reforms we must have flexibility to include non-employees within governance structures.
The review into modern employment practices will grapple with the challenge of bringing legal structures into line with changes in the substance of working relationships. If we include workers within corporate governance, but define them in terms of whether they have an employment contract, we might even make matters worse by privileging a full-time employees at the expense of expanding cohorts of self-employed workers, dependent contractors and whatever new legal contractual forms we invent for the new economy.
If you are working, and your work is contributing to the creation of value for an organisation, you should be equally represented regardless of what your contract says.
This may pose the biggest challenge to trade unions. Those that adapt their outlook and structures to extend their traditional skills of organising, representing, supporting and advising to all workers regardless of contractual form will be powerfully beneficial partners with companies in an era of more inclusive corporate governance.
From skills for employers to skills for workers
Skills is one of the four components of industrial strategy. However, this is another area where we need to build a bridge between industrial strategy and an understanding of the new world of work.
Traditionally, collaboration between companies, government and education providers has been a fruitful component of industrial strategy as exemplified by the Automotive Council.
However, good co-ordination of mapping the skills required for an industrial sector needs to be complemented with understanding the skills required to prosper in an age of rapid technological change and automation. Here, a more flexible and individualised lifelong learning approach is necessary that is not readily supported or identified by taking a sector based approach.
It would be unwise to set in stone the skills component of industrial strategy until the review into modern employment has concluded. However, a comprehensive systems analysis would go even further. For example, it might examine whether the Universal Basic Income, by supporting workers to move more easily between education, training and paid work, could create a more benign context for successful industrial strategy.
Any one of these three initiatives would have been welcome by itself. To be pursuing all three is admirable. However, the real prize is to pursue them all in full recognition of how they fit together.
The RSA is Prospect's Social Policy Think Tank of the year
The government is right to refresh the economic rules of the game in industrial policy, employment practices and corporate governance, but that success will rest on treating all three areas as interdependent.