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POID Research

Industrial and innovation policy

Team Leaders: Anna Valero and Richard Davies

In recent years, many governments have begun to pursue more activist industrial policies. Most recently, these have been linked to a "green" recovery from the pandemic.

POID researchers documented the strongest evidence for a potentially positive impact of UK industrial policy in: "Some causal effects of an industrial policy". And we have been heavily involved in the policy debate surrounding UK industrial and innovation policy.

In the 2017 LSE Growth Commission report, and a series of articles since, we have highlighted how the longevity of frameworks and strength of institutions governing industrial policy fall short compared with other areas of UK economic policy.

The case for industrial policies that are protected from political cycles is even stronger in the context of the recovery from the COVID-19 crisis, the legal commitment to meeting net-zero greenhouse gas emissions by 2050, and the need to "level up" economic performance and opportunity in the UK.

In a series of recent papers we highlight policies for a strong, sustainable and inclusive recovery, highlighting the importance of a well-designed, long-term and coordinated industrial strategy as a key component for stimulating the investment and innovation required to achieve this.

We set out the evidence on policies to promote innovation in a recent paper, providing a "toolkit" for policymakers.

What is needed is to link across the various levers to have a coherent industrial policy for the 21st century. This requires thinking about incentives through tax, regulation, trade (e.g. supply chain), competition policy and those created by government investments in infrastructure and innovation. The work of POID researchers has influenced the creation of the new National Infrastructure Bank and we will work with this to look at how to maximize crowd-in effects of government involvement.

Central to policy evaluation is whether it requires public intervention. The presence of spillovers will often mean that the private sector will not deliver what social efficiency demands.

Undertaken work