June 10, 2021
Recovering through an industrial policy.
Industrial strategy has historically involved both horizontal policies that try to improve conditions across the national economy – such as taxation – and ‘vertical’ policies that target interventions in specific areas, notably sectors – such as manufacturing incentives or a framework specifically for life sciences. This vertical and horizontal dimension have become the conventional understanding of industrial strategy. It ignores the opportunity of a mission-oriented industrial strategy that reinvents the vertical dimension to focus on problems that draw on many different sectors. It also ignores the importance of supporting general purpose technologies that have the potential to transform production distribution and consumption across an entire economy.
In a post-COVID environment, where ‘building back better’ is of utmost importance, one needs a new industrial strategy to not only attract investment but to also be an important leverage tool to find solutions to societal challenges. In this case, the focus is on the problems or challenges, and the industrial strategy is built around trying to solve them through transversal policy actions and strategic investments. Through well-defined missions to solve important challenges, policy makers can influence the direction of growth by making strategic investments and using suitable instruments across many different sectors. These create new industrial and innovation landscapes that build the confidence and growth expectations of the private sector that is crowded in. Here, governments act as market-shapers or market-creators rather than market-fixers. There is a compelling case for building a modern industrial strategy that addresses these challenges by stimulating investment across, rather than through, sectors.
As Malta starts to look at the post-COVID horizon and discuss its recovery strategy, a renewed industrial strategy should form the basis of not only an economic but also a broader innovation-led and technology-powered recovery. Several so-called misisons or areas that require transversal action can be identified including clean growth, mobility, sustainable construction and a building a proper digital society built on AI and big data. There are a number of pillars which I believe should be the backbone of such a strategy.
First, it should serve to steer the direction of innovation-led economic growth. A challenge-oriented industrial strategy can help achieve an economy that is more inclusive, sustainable, and driven by innovation. By structuring policy to deliver economic spillovers and harness technological advances, it can also help deliver ambitions in research and innovation.
Secondly, it should drive Malta’s international competitiveness. Over the years, Malta has already been very competitive and attractive and has established itself as a key regional hub in several areas. The renewed industrial strategy must be used to capture political and social imagination around an economic vision of progress and to drive its future international competitiveness.
Third, it should solve grand challenges through cross-sectoral missions. The framing of missions must provide a bold, targeted way to address challenges which bring together multiple sectors and stimulate bottom-up innovation. Formulating missions within the grand challenges is the best way to stimulate cross-sectoral innovation – technological, social and creative – and to produce a definite roadmap for delivery. Cross-sectoral missions must be developed and clearly prioritised with transparent delivery plans.
Fourth, it should support sectoral capabilities and absorptive capacity. Intersectoral collaboration on missions must be built upon sectors that have the capacity to be at the forefront of organisational and technological changes and whose firms can recognise, respond to and shape those changes and develop appropriate business models to capture value from them. It is essential for industrial policy to understand and address specific sectoral system failures that inhibit the ability of existing firms and potential entrants from shaping and capturing value from emerging technological and market opportunities.
Fifth, it should systemically support the development of science, technology and the arts. The industrial strategy must champion a dynamic innovation system, which includes support for strategic, applied and basic research. It must also support general purpose technologies and capabilities needed for implementation and application of technology towards such missions.
Sixth, the industrial strategy needs to invest in public sector capabilities and work across government. A mission-oriented industrial strategy works best when it is implemented across all departments. The machinery of government must become more agile and work across silos between departments to take a new and innovative approach to industrial and innovation policy.
Seventh, the industrial strategy should also connect with citizens, mobilising social and behavioural change. Citizens must be engaged in the creation, selection, implementation, and assessment of missions to ensure that a mission-oriented industrial strategy solves problems that matter to them. An industrial strategy designed around grand challenges and support for general purpose technologies can capture the imagination of citizens and provide a framework to mobilise supporting social and behavioural change. Government should use innovative technologies to connect innovation to citizens and citizens to innovation.
Finally, it needs to leverage and crowd-in other forms of investment, primarily private investment. An ambitious industrial strategy structured around solving grand challenges and stimulating technology development can increase business expectations of growth in new areas stimulating private sector investment.
Now is the time to start charting a new way forward. As Malta will start to leverage the new EU funding budget, including the Green Deal, as well as other funds, a renewed industrial strategy should set the scene for a fresh take on enterprise, innovation and industry. A mission-oriented industrial strategy can harness the potential of technologies and sectors with a revived purpose, to influence the direction of innovation and to generate solutions to grand challenges.
A data-driven and analytical exercise coupled with a broad consultative process should support Malta in identifying and defining the grand challenges that should position the country as a regional leader in several areas. One hopes that the various initiatives underway can bring all this together.
The future is now.
JP Fabri is a co-founding partner of Seed.