How to reindustrialise – five lessons from Defence

A series on the politics of production.

Andy Burnham wants to “reindustrialise Britain”. Bold, ambitious words, but what do they mean in practice? Responding to Ben Glover’s opening essay, “Burnham’s Politics of Production”, Future of the Left will be publishing a series of replies as part of a debate on the new politics of production.

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Written by Paul Mason, Aneurin Bevan Adjunct Fellow in Defence and Resilience, Council on Geostrategy.

To reindustrialise Britain we have to first recognise the obstacles. Manufacturing jobs are scarce because advanced manufacturing requires fewer hands and more robots. We’ve got the most expensive energy in the developed world. And the atrophy of industrial skills – ranging from the shop floor to project management – means our start-up businesses are often blissfully ignorant of how ‘manufacturing readiness levels’ intersect with their technological equivalents.

But there’s one area where Labour is ahead of the curve. In opposition John Healey’s team began the design of the Defence Industrial Strategy in 2023. We analysed the deficiencies of the Conservative government’s version, producing the scorecard the Tories had never bothered to write. And we engaged with consultancies, SMEs, think tanks and economists from a broad range – including Demos Helsinki, the German SPD-aligned Dezernat Zukunft and Bain & Co.

We had a head start: there is a thriving defence industry; it has a strong innovation culture; and there was explicit Treasury-team buy in for the idea of favouring sovereign UK production facilities and IP where possible. But having convinced the Ministry of Defence to adopt our methodology, we then struggled for money.

So the first lesson I would offer the government as it begins a wider and more thorough reindustrialisation drive is: act fast. Big, bold, unchangeable demand signals up front are always welcomed by investors - but you’ve got to back them up with clear procurement decisions and contracts.

Second: for economists, industrial strategy is brutally simple. It’s about reallocating people, capital and resources from low value sectors to high value ones, using rules and incentives. A rule might be as clear as: no foreign built automobiles in the HMG fleet. An incentive might be as blatant as a tax break, a subsidy or a public-private partnership. Either way, the aim is to de-risk private capital in the areas you want to grow – which means leaving behind the neoliberal fear of ‘picking winners’ or ‘national champions’.

Third, what I learned from our Finnish comrades is: the key to industrial dirigisme is micro-institutions. In Defence, Labour merged 41 bodies within the MOD that could fund innovation into just two. We scrapped the industry-dominated suppliers’ forum and set up a Defence Industrial Joint Council, with unions, SMEs and universities sitting face to face with the global giants. And in the Defence Universities Alliance we created a voluntary network of institutions prepared to align their research to national security.

But micro-institutions can be as small as STEM clubs that are prepared to experiment with drones, back-to-work charities for female engineers coming back from maternity leave, and designating some FE colleges as excellence centres for Defence. Do it right and it builds into an ecosystem, with a common language, a network of do-ers, and a cadre of industrial leaders.

The fourth and hardest challenge concerns place. Andy Burnham asks us to deliver growth in every postcode. But one look at Defence shows there is a vast inequality in regional investment: North East England, for example, currently hosts just 1% of UK defence jobs, compared to 31% in the North West. The answer is to make tough procurement decisions, with place as an explicit criterion.

Everyone’s heard of clusters. And all modern industrial theory approves of them. But to create new ones you have to force capital into decisions it would not normally take: a datacentre in Burnley, not Bristol; a new shipyard on the Tyne, not an extra one on the Clyde.

Fifth and finally, you have to fight the neoliberal ethos that inhabits the institutions and the brains of the people who staff them. As someone who was fighting neoliberalism back when Andy Burnham was a neoliberal, I know that this is the hardest thing to crack. Rewriting the Treasury Green Book – yet again – would be a start. Incentivising engineering graduates to become engineers, not quants in the City would be another.

By the end of it there is a clear test our industrial policy has to pass under Andy Burnham: it’s got to be easier to become a welder than to become a delivery rider; easier to set up a factory than to open ten new branches of Joe & The Juice. For that, we’ve got to squash rent-seeking investment models and rekindle the animal spirits of the factory entrepreneur.

As a party, we’ve got to become comfortable once again with Swarfega under the fingertips and the buzz of the lathe – albeit a lathe controlled by a computer, working to tolerances our parents’ generation would have deemed impossible.