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Britain can learn lessons from Taiwan’s industrial strategy

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At every roundtable I’ve attended recently on the UK’s response to a rising China, I’ve heard the same refrain: we are too small, too insignificant, too poor.

Faced with the same conundrum, the European Commission has launched a strategy for economic security that emphasises “technological sovereignty and resilience of EU value chains”. The era of industrial ambition has arrived everywhere, except the UK. Uniquely among its rich peers, when faced with the prospect of global competition, the British tendency is to pre-emptively admit defeat.

I understand the pull of declinism. For those of us who came of age during the financial crisis, economic decline is all we have known. Politics has become a source of crisis, rather than stability and foresight; as a result, businesses have become wary of the government, and as a nation we lower our expectations for what we can achieve. We barely pay our nurses enough to feed them; how can we build the complex infrastructure needed for high-tech industries?

As tech minister Paul Scully put it recently in an interview with the FT: “We are not going to recreate Taiwan in south Wales”. We should indeed concentrate on our strategic advantages in research and development as a nation of top universities, rather than attempt to out-scale existing giants in manufacturing. But Scully’s remark raises the question of what was necessary to create Taiwan in the first place.

Taiwan’s then ruling Kuomintang party would have had grounds to feel as defeatist as contemporary Brits, if not more so, at the outset of its economic development push in the 1950s. We may have just had a prime minister whose legacy was compared to a lettuce. Taiwan was run by a regime which had just fled from power after losing a continent-sized country to a guerrilla army of peasants: Mao Zedong’s Communist Party of China.

“In Taiwan’s Kuomintang, as with South Korea’s post-independence regimes, state incompetence was staggering. They had to build from scratch,” says economic historian Ha-Joon Chang.

None of the “Asian Tigers” that enjoyed development miracles in the late 20th century had starting conditions for optimism. Yet because of their sharp need to survive in the close presence of geopolitical enemies, their governments exemplified ambitious missions. As a small island economy within striking distance of the Chinese mainland, Taiwan has had to learn to thrive in far more hostile an environment than the UK ever has had to face.

The Asian Tigers had nothing to lose; they were forced by defeat to think ahead. Perhaps it is Britain’s very wealth, its glorious industrial history, and the sophistication of its institutions that mean that we take decline for granted? It seems easier for us to imagine great loss or great triumph than it is to conceive of what the historian David Edgerton calls “a more modest politics, a politics of improvement”.

We can learn from those who start small. Before we try to train a generation of quantum physicists, we need the basics. Industrial policy makes sense in the context of a broader economic development strategy. Land and educational reforms were the first targets for the Taiwanese government; in China, creating a literate population was an essential part of nation-building.

We in the UK of course start with much better fundamentals. But we have also long neglected what the economist Karel Williams has termed the “foundational economy”, and what feminist economists call “social infrastructure”: the parts of the economy that supply everyday necessities, such as social care, education, food, housing and utilities. Addressing these root failures, which are so close to our everyday experience of a dysfunctional economy, may also improve our national imagination for what a flourishing economy looks like.

Indeed, the term “industrial policy”, meaning policies used to promote structural economic change, can be misleading in the modern age. Any vision for the UK economy will have to encompass the service sector, which provides four-fifths of our output and employment.

The economist Dani Rodrik suggests instead using the term “productive development policies”. Doing so highlights how our economy develops from our social fabric. An industrial policy toolkit that is overly focused on rewarding outputs at the point of production neglects the question of where the people making the innovations come from and how they live. We are not a developing economy. But we have much to learn from those that are.

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