Photo by Nathan Stirk/Getty Images

Against industrial decline

The Green Industrial Revolution was not enough to revive British industry

Artillery Row

It is passé to bemoan Britain’s decline as an industrial power. The trade deficit in goods has worsened considerably since the 1990s and has not been sufficiently offset by service exports. In that time, the nation has turned from an energy exporter to an importer — wasting the potential of North Sea hydrocarbons on tax cuts whilst next door Norway cultivated the world’s largest sovereign wealth fund. 

Domestic infrastructure is increasingly auctioned off to pay for trade deficits. In 2017, 93 per cent of British offshore wind assets were owned by foreign utility companies like Denmark’s Orsted. The turbines are manufactured by Danish maker Vestas and Germany’s Siemens Gamesa — only sometimes from UK plants. All operating nuclear plants are owned by the French state. Solar photovoltaics are totally reliant on coal-guzzling polysilicon foundries located in Xinjiang. Britain was once the world’s workshop. Today, it is primarily a consumer of European and Chinese-made modernity. 

Politicians have perceived the decline and its effects on the consciousness of the electorate. They love visiting factories, decked out in hard hats and high-vis jackets. George Osborne indulged in this when he hailed the “march of the makers”. 

‘Green technologies’ don’t pack sufficiently high growth

Yet, despite this, industrial production has been effectively stagnant for twenty years. This leads some to argue we should specialise further in where we are strong — service exports. Why be a bad Germany instead of a better version of yourself? 

It is an alluring but wrong argument. Manufacturing equals higher productivity jobs on average, increases export opportunities and tends to redistribute wealth across different geographies. Today’s economy, so dependent on services, will further concentrate around London. Why be a PR agency located in Nottingham if you could be in Clerkenwell? Germany did not become Germany through comparative advantage. It required considerable subsidies, preferential trade arrangements and coordination between business and industry. 

The argument also understates the level or importance of industrial decline. On key metrics like automation, Britain is below the world average. The fall in capital expenditure relative to competitors is not a quirky and acceptable side effect of just having more representation in the Billboard Top 100. The problem for the last twenty years has not been thinking industrial revival is important, but misguided policy frameworks. The latest example of this has been unmerited faith in a “Green Industrial Revolution (GIR)”.

Boris Johnson’s 10-point plan for the GIR, published in November 2020, was his central framework for revitalising British industry. The premise is simple. Britain will enjoy a large industrial renaissance based on renewable energy and associated “green” infrastructure while becoming a climate leader — another pillar in our soft-power superpower strategy. 

The GIR seems perfect from a policy perspective. It disentangles all tensions between environmentalism and industrial progress. Right-wingers often prioritise extraction over nature. Many environmentalists argue the problem is human civilization and the need for growth in the first place. Both these views deal with the climate problem by dismissing the importance of something (nature or human civilization). But GIR is positive-sum. There is no tension between industrial growth and reducing energy consumption because the economic benefits will be so significant. The outgoing prime minister was often criticised for “cakeism”. But this “to be good to be true” policy framework has buy-in from all the major political parties, most businesses and many foreign governments.

The problem with the GIR is that its impact will not constitute a sufficient revolution to offset industrial decline. A paper from the University of Oxford estimates the dividends of shifting to renewables. Its estimate for the global economy between 2019 and 2070 is £19 trillion. The U.K. is 2.34 per cent of the global economy today and will decline. Assuming a 1.5 per cent share over 51 years equals £285 billion (£5.9 billion annually).

Individual technologies have lower estimates for their value. Floating offshore wind will provide £33.6 billion between 2025 and 2050, or £1.3 billion a year annually. Tidal, wave and floating offshore wind assets can cumulatively produce a total GVA of £79.6 billion between 2030 and 2050, or £4 billion annually. These figures all represent the most optimistic scenarios in their respective studies.

By comparison, North Sea production contributed £15 billion annually between 1990 and 2021. In 2022, Britain is expected to beat its North Sea tax receipt record with £17 billion in revenue. “Green energy” could optimistically provide a third of this by the middle of the century. Consider other industries it would be worth subsidising at similar levels to get better returns. Chemicals, perennially unfashionable, contribute £12 billion to the economy. For aerospace, it is £9 billion. In 2050 or 2070, they should be providing far more. 

“Green technologies” don’t pack sufficiently high growth to avert an industrial decline in other sectors. Indeed, their rollout has accompanied a general slowdown in production, consumption and economic growth across the West. Good environmentalism will always be about mitigating the worst externalities of growth.

The GIR framework is poor at the conceptual level

Another acronym worth mentioning when assessing the GIR is the “low carbon and renewable energy economy” (LCREE), as defined by the office of national statistics (ONS). This taxonomy includes energy and other associated industries to the point it contains large sections of the British manufacturing and construction turnover. This effectively blurs the green economy with traditional industry to inflate its size. LCREE was worth £41 billion in 2020 — virtually what it had been in 2014. While there had been growth in some actual “green” industries, LCREE is so all-encompassing it was able to mimic the general stagnation of the British manufacturing sector. For example, almost all LCREE growth was in low-emissions vehicles (LEVs). But during the same period, the overall automotive sector’s output decreased markedly. Total car production dropped from 1.7 million units in 2016 before to 860,000 in 2021. 

The GIR framework is poor at the conceptual level. It is perhaps just as well the actual commitments were so limited. £12 billion in government investment was to be supplemented by £42 billion in projected private investment by 2030. This effectively just over £5 billion a year. Consider our commitments to overseas development aid, which was £11.4 billion in 2021. Then consider total spending on research and development, which lags other countries and is only marginally greater than what Amazon spends. Discharging money for its own sake is far from sufficient, but it would be hard to argue the UK spends too much on industrial policy. 

Industrial stagnation has been confused with economic progress for too long. There is no reason to accept it in perpetuity. The last government never stood a chance of improving the situation because its resources were insufficient and its framework was misguided. Future governments will need to address both these problems. Some initial suggestions could be drastically increasing automation in line with our neighbours to improve productivity. 

There are also plenty of case studies to draw inspiration from. The recent success of Singapore shows how active state involvement can reverse deindustrialization. But if future leaders wish to benefit from another industrial revolution, they will have to stop relying on the “Green” label.

Enjoying The Critic online? It's even better in print

Try five issues of Britain’s newest magazine for £10

Critic magazine cover