Does the British state have what it takes for its industrial strategy?

The Labour government is in the process of developing a new industrial strategy, which is meant to deliver the economic growth promised during the election campaign. A Green Paper called Invest 2035: The UK’s Modern Industrial Strategy was submitted to consultation last year.

This is the first attempt at formulating an industrial strategy for the country since then Business Secretary Kwasi Kwarteng decided in March 2021 to abandon his predecessor’s industrial policy. We are promised that ‘this time will be different’, the Invest 2035 Industrial Strategy will be ‘unreservedly pro-business,’ and solve Britain’s low productivity problem.

Yet, does the British government – in its current state – have what it takes to deliver the goals outlined in the industrial strategy?

A key reason to doubt that it does, lies in the fact that these two promises – being unreservedly pro-business and increase productivity – may work at cross-purposes. Somewhat paradoxically, the state’s capacity to improve productivity may be undermined by the government’s rhetorical and ideological commitment to being ‘pro-business.’

Being ‘pro business’ through deregulation?

The government’s stated goals are “to capture a greater share of internationally mobile investment in strategic sectors and spur domestic businesses to boost their investment and scale up their growth – an essential step in achieving sustainable, inclusive and resilient growth.”

Attracting investment while being ‘unreservedly pro-business’ may hint at a well-established ‘industrial strategy,’ namely deregulation. The Green Paper avoids the mention of ‘deregulation’ and the section on regulation hints at a fairly balanced approach that acknowledges the need for some regulation rather than promising a ‘bonfire of red tape’ as politicians on the other side of the aisle have done.

Still, regulation is listed as one of the ‘obstacles’ to investment in the UK. The Green Paper explicitly states that ‘policy must make it simpler and cheaper for companies to scale up and invest in the UK.’

This suggests that the focus will be on easing the ‘regulatory burden’ on businesses including possibly weakening (or ‘streamlining’ in the government’s terms) labour-, health and safety, and crucially environmental regulations – as the ongoing planning reform for instance suggests.

Escaping strict regulation in the public interest and thus taking advantage of ‘regulatory arbitrage’ across countries is a key reason why companies go international in the first place. It is therefore plausible that the government could ‘capture a greater share of internationally mobile investment’ by simply deregulating.

The impact of the unreservedly pro-business approach on productivity

Yet, decades of research on industrial strategy and economic development have shown that industrial strategies based on deregulation can be detrimental to some businesses. Namely to those who seek to adopt a ‘high road’ competitive strategybased on high quality and high productivity – and hence those businesses with the greatest potential to contribute to the government’s stated goal of solving Britain’s productivity problem.

Indeed, deregulating often results in companies choosing the ‘low road’ to competitiveness, i.e. competing on low prices, low quality, low environmental standards, using low wage and low skilled workers. Being ‘pro-business’ by deregulating hence paradoxically leads to undermine companies’ incentives to enhance their productivity.

In contrast, regulations that impose  ‘beneficial constraints’ on businesses in the short run, can enhance long-term investment in productivity enhancing activities such as the education and training of workers, technology, and R&D. These constraints thus support ‘high road’ strategies to competitiveness. For instance, labour regulations and relatively high minimum wage or strong labour unions make labour more expensive. But they tend to strengthen workers’ commitment to their employers and reduce labour turnover, which in turn encourages firms to invest in the training of their workforce.  Moreover, with labour more expensive, firms cannot afford low productivity, further creating competitive pressures to invest in training, skills, and technology.

Businesses may not like such constraints due to the costs they cause in the short run. Yet, various examples show that such constraints can generate long-term socio-economic benefit for businesses (in terms of competitiveness and quality), their employees (in terms of wages and skills), and the country as a whole (in terms of productivity and growth).

Being ‘anti-business’ to be ‘pro-business’

Therefore, what it takes for a state to implement a productivity enhancing industrial strategy is the willingness and capacity to impose a regulatory framework that rewards firms that invest in quality, innovation, and skills. This also means ‘punishing’ the firms that seek to pursue a ‘low road’ business model based on short-term profits through low wages, low quality, and low safety standards. High regulatory standards put strong competitive pressures on ‘low road’ firms to upgrade their standards or go out of business. While this may prevent certain firms and investors from investing in the UK – namely those seeking quick returns on their investments – it would attract investors with a longer-term horizon. Such ‘patient capital’ providers are what firms need to pursue high road strategies that rely on significant re-investment in the business to increase productivity.

In short, the government’s avowed goal to create an ‘unreservedly pro-business’ environment in the UK is no basis for a successful, productivity enhancing industrial strategy. What is needed instead is a plan to strengthen the state’s willingness and capability to forego investment from ‘low road’ businesses and impose regulations that are ‘anti-business’ in the short run.  Such regulations will turn into ‘beneficial constraints’ for those firms willing to make the necessary investments for a high road approach. The government’s determination to be ‘unreservedly pro-business’ may inadvertently mean that it becomes ‘anti-business’ towards those firms it urgently needs to achieve its productivity goals.

First published on Encompass Europe in June 2025 by Merve Sancak and Gerhard Schnyder.

My Favourite Conspiracy Theory: America Does Not Exist

Growing up, one of my favourite conspiracy theories was that America does not exist.

The theory is this: Back in the 15th century, a Spanish king, who was bored by his jesters was looking for a new one; but instead found an idiot by the name of Colombo – or Colombin as his mother would call him. When the King asked the young boy what he wanted to become later in life. Colombin did not know what one could become and asked the King himself for advice. The King suggested that seafarer was a fine profession. Colombin was convinced, but the people at court laughed at this idea. Seafarer did not seem like an obvious choice for an idiot. In his shame and anger Colombin loudly announced in front of the King and the whole court that he would be finding a new land!

Off he ran, out of the palace… …into the woods where he hid behind bushes. After several weeks he cautiously left his hiding place and returned to the palace where he announced to the King in front of the assemble court that he had found a massive new land beyond the sea. Among the general murmurs and excitement at court, Amerigo Vespucci’s – a seasoned seafarer – interest was piqued. ‘Where do I find this land?’ he asked Colombin. ‘Straight ahead across the sea. You can’t miss it!’ he lied.

Amerigo set off on his own exploration, with Colombin anxiously waiting back at court for his return thinking he would be found out. Several weeks passed. Then one day the fanfares blew and Amerigo cam striding into the Palace curtsying before the King on his throne. Colombin’s anxiety levels were through the roof, but Amergio winked at him reassuringly. “So?” – the King asked – “what about that land beyond the sea?” – “It exists, your Majesty! I saw it with my own eyes” – he said, winking at Colombin again. Relieved and happy, Colombin ran towards Amergio, hugging him and exclaiming: ‘Amergio – oh my dear friend Amergio!’

People standing further at the back of the throne chamber couldn’t quite hear what was being said at the front…“What? The new land is called America?”

Ever since, people travel to “America” and come back telling amazing stories about cities called New York and Los Angeles; About cowboys and skyscrapers; about wonderful mountain ranges and forests with huge trees. In fact, the stories are remarkably similar. Too similar perhaps?

The story (summarised and paraphrased from memory) – “America doesn’t exist!” – was written by Swiss author Peter Bichsel who passed away last week shortly before his 90th birthday. Here is the German version. There’s also a short film from 1976 based on the story (here). Bichsel’s ‘Stories for Children’ and his other works made a great impression on me. Not least, because he lived in my hometown where you could often see him hanging out in bars, walking the alleys, and taking the bus (here in German).

As a kid the “America doesn’t exist!” story particularly appealed to me. At a time when air travel was prohibitively expensive for working-class families, ‘America’ was the stuff of dreams and movies, of TV news and history books, not something you could actually set your foot on. When my classmates started travelling to the US during high school – California primarily – and came back with remarkably similar stories about Skid Row and photographs of the sea lions in the harbour of LA (I’m still convinced some of these photos – often taken several years apart – actually showed the exact same individual), I was always reminded of Bichsel’s warning to be sceptical of people who claimed to have been to America.

America doesn’t exist became my favourite conspiracy theory. I used to love conspiracy theories in general – the ones about JFK’s assassination, the ones about the moon landing, the ones about the Qumran scrolls, but especially the ones developed by another author from my home town: Erich von Däniken, who has written many books explaining why Aliens built the pyramids and human civilization.

I did of course not necessarily believe any of these theories. What I liked about them was that they were thrilling and fun; but also that they were incredibly effective in challenging even the firmest ground of reality on which we think we are standing. Thus, opening up all sorts of new ways in which to think about our past and the world we live in.

In the context of the 21st century, I feel very differently about conspiracy theories than I once did. Creationists’ rejection of evolution, anti-vaxxers’ rejection of modern medicine, and climate change deniers’ views on the origins of hurricaneshave gone far beyond harmless thought experiments and have instead become dangerous political ideologies.

Yet, the conspiracy theory that ‘America does not exist’ rings truer than ever. In the context of the Trump 2.0 administration, it has acquired a new meaning for me. Namely, that the United States of America as a state never existed.

This claim requires a bit of explanation: What I’m referring to here is Wilhelm Hegel’s theory of the modern state. Hegel sees the modern state as a political sphere that exists alongside two other spheres: the family and civil society.

The family is the sphere of ‘particular altruism’ where family members are bound together by family ties based on love. In this sphere, parents sacrifice their time and energy for their children e.g. by working to provide for them. Children sacrifice income, time, and energy to care for their elderly parents etc. But altruism in the family spheres stops at the frontier of kinship. Hence ‘particular’ altruism.

Civil society, on the other hand, is the sphere of ‘universal egoism’ – it is the sphere where (economic) interests compete; where – according to the late Hegel specialist Shlomo Avineri – “I treat everybody as a means to my own ends.” In this sense, economic life belongs to the sphere of civil society.

The emergence of the modern state transcends these two spheres of “particular altruism” and “universal egoism,” by creating a sphere of “universal altruism.” In Hegel’s theory, the modern state is not about self-interest as early liberal thinkers theorised it. It is not an arrangement to safeguard my (enlightened) self-interest in the Hobbesian or Lockian sense of protecting the individual from the “war of all against all” or from the overpowering absolutist monarch. Rather, the modern state transcends self-interest and is held together not by enlightened self-interest, but by solidarity and “the will to live with other human beings in a community” (Avineri, 1972, 134).

Hegel’s key evidence for this argument that the state is not about the protection of self-interest but about solidarity are taxes and wars.

Taxes pay for services we all benefit from. But not in a transactional sense like in the sphere of civil society where you buy and sell services in a straightforward exchange. Taxation means you pay taxes that may be used to benefit someone else more than you or even benefit exclusively someone else. As such, it is a form of solidarity.

Same for wars: Risking your life on the frontline cannot be explained by (enlightened) self-interest.  Hobbes himself acknowledged the difficulty of squaring the participation in war as civic duty with his contractualist conception of the state as a guarantee of the protection of one’s life, liberty, and property (Avineri, 1972, 135). Hegel’s “universal altruism,” provides a better explanation of “the readiness to put up sacrifice on behalf of the other, the consciousness of solidarity and community” (Avineri, 1972, p.135).

However, Hegel noted in Reason in History that by this standard, the USA of the early 19th century were a country, but not a state. Avineri – writing in 1972 – thought that was still true in the 1970s. Specifically he wrote:

“That problems of war and poverty seem to create so much stress in American society today is probably to be attributed to the fact that America has never been a state (in the Hegelian sense), only a ‘civil society’, where the common bond has always been viewed as a mere instrument for preserving individual life, liberty and the pursuit of happiness. [D]espite all the changes America has undergone since [the 1820s] in the American social ethos, the ‘taxpayer’ always comes before the ‘citizen’.” (Avineri, 1972, p.135, FN6)

In the 21st century, the Tea Party movement and Grover Norquist’s Americans for Tax Reform who want to “drown the state in a bathtub,” lend at least some credence to the idea that this situation (tax payer over citizen) has not changed much since and the USA are not actually a state. To the contrary, Trump 2.0 and Elon Musk’s Department of Government Efficiency (DOGE) take the “state drowning” to a whole new level. The dismantling of the Department of Education – celebrated by Republican lawmakers –  not only belies the existence of a modern state in the Hegelian sense, but even a more minimal, classical liberal state, whose crucial functions even in Adam Smith’s view (Book 5, chapter III of the Wealth of Nations) had to include public education.

The failure to morph from a civil society into a state may explain why the USA are the first major advanced capitalist economy and established liberal democracy of the post WW2 era that is crumbling. Self-interest – however enlightened – does not provide the same social glue that holds a community together as solidarity does. A country that celebrates businessmen’s ‘deal-making,’ over statesmen’s and -women’s ‘governing’ will always be vulnerable to policies that neglect the common good. A country where ‘empathy’ is considered a weakness and egoism and greed a sign of strength will always struggle to protect the rights of the weakest and reign in the power of the strongest. In 2025, the USA seems further away than ever from seeing the emergence of a political sphere where ‘universal altruism’ reigns.

In that sense, the late Peter Bichsel’s conspiracy theory that America does not exist may not be literally true, but the fact that the USA does not exist in a Hegelian sense seems to be born out by recent events.

First published on gerhardschnyder.com on 23 March 2025