David Cowan: When Conservatives Got Industrial Policy Right

Finding inspiration from the most misunderstood statesman in modern British history

A fight is on to decide exactly how conservatives should reshape the British economy. The battle lines have already been drawn: on one side stand the free marketeers, bemoaning high-taxation, low-productivity malaise. The opposing side agrees with the diagnosis, but not the cure, speaking instead of ‘industrial policy’. The latter group face an uphill battle in popularising their ideas, liable as they are to accusations of statism or, even worse, feverish accusations that such reforms might repeat the disasters of the 1970s. To the ears of too many MPs and diehard activists, industrial policy still sounds “un-conservative”.

Conservative politicians might not care for industrial policy, but the rest of the world does not feel the same way. Global economic competition is reaching new heights as we enter the early onset of a cold war between the United States and China - even the European Union is joining the subsidies race. British critics of industrial policy portray it as a foreign concept that owes more to French dirigisme or German Christian Democracy, but a cursory examination of modern British history reveals this to be utterly untrue. ‘Industrial policy’ has roots in Britain that stretch back centuries, with the Conservative party producing one of the most effective practitioners of the doctrine. Fittingly, he was dubbed by the historian Lord Lexden as “the most misunderstood statesman in modern British history”.

Neville Chamberlain is rarely held up as a model of leadership. The taint of appeasement continues to define the popular memory of this remarkable politician despite the best efforts of revisionist historians who occasionally challenge the post-war narrative. But before becoming Prime Minister, Chamberlain was a powerful, talented, and effective Chancellor. After holding the position briefly during the 1920s, he served as Chancellor under the National Governments from 1931 to 1937. Chamberlain dominated domestic policy making and ushered in an innovative period for conservative economics.

At the macroeconomic level, Chamberlain appeared to be a conventional Chancellor. Leaving the gold standard and cutting the bank rate to 2 percent allowed cheap money to support an economy recovering from the deep impact of the Great Depression. Alongside this, Chamberlain maintained fiscal restraint and kept the budget deficit under control. Biographer Robert Self argues that “Britain’s experience of the Great Depression was relatively mild and its subsequent recovery was strong, sustained and impressive as rising real wages stimulated dramatic improvements in living standards during an era of remarkable economic growth and prosperity.”

It was in microeconomics where Chamberlain displayed his true radical colours and defied the orthodoxies of his Treasury officials. His achievements as Chancellor included the creation of a Special Areas Reconstruction fund, giving greater powers to local government, cartelising the iron and steel industries, building 2.8 million new houses, introducing the Agricultural Marketing Act, and setting up London Transport. These efforts helped boost car production and new industries such as man-made fibres. These efforts even extended to rearmament. Chamberlain increased investment in the RAF, especially the fighter bombers that would deliver victory in the Battle of Britain. Aircraft production was a fundamental part of Chamberlain’s industrial recovery.

Having served as Lord Mayor of Birmingham and run a manufacturing business, following the illustrious footsteps of his father, Chamberlain understood the value of local leadership, civic pride, and national cohesion in economics. But he was no socialist. As he put it, the conservative mission “is to use the great resources of the state, not for the distribution of an indiscriminate largesse, but to help those who have the will and desire to raise themselves to higher and better things.”

To reinvigorate industrial policy, we need a departure from the technocratic managerialism of the past thirteen years. In many ways, this requires more active government that thinks creatively about how procurement rules and subsidies can benefit British industry, and invests in places, skills, R&D, and infrastructure. As Juliet Samuel argued at the recent National Conservatism conference, “policy should respond…not according to some dogma or template devised for somewhere else, but according to the conditions present here, in this nation.”

But there is also scope for government to step back in some areas. Cutting certain taxes and regulations can help unleash growth. Advocates for industrial policy share free marketeers’ opposition to a flawed net zero policy that is denying cheap energy to British industry and consumers, and a sclerotic planning system which holds back not only housebuilding but also roads, railways, and airport expansion. Ending mass migration and our addiction to cheap labour can also be supported by both sides to help prioritise visas for high-skill workers.

Rather than focusing on how big or small government ought to be, conservatives should concentrate their efforts on how to design a better state that can strategically and efficiently carry out its core responsibilities. There have been too many half-hearted attempts at reform and changes of direction in government decision-making since 2010. The Conservative party needs to commit itself fully to a genuinely conservative economic philosophy while looking ahead to future generations. In that spirit, Chamberlain’s combination of fiscal restraint with industrial policy is a successful and long-term formula that is ready to be rediscovered and embraced.

David Cowan is co-editor of The Conservative Reader.