Also by Colin Wren. ECONOMIC DEVELOPMENT POLICIES: An Evaluative Study of the Newcastle Metropolitan Region {with Fred Robinson and John Goddard)

Transcription

1 INDUSTRIAL SUBSIDIES

2 Also by Colin Wren ECONOMIC DEVELOPMENT POLICIES: An Evaluative Study of the Newcastle Metropolitan Region {with Fred Robinson and John Goddard)

3 Industrial Subsidies The UK Experience Colin Wren Department of Economics University of Newcastle upon Tyne

4 First published in Great Britain 1996 by MACMILLAN PRESS LTD Houndmills, Basingstoke. Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN (ebuuk) DOI I / First published in the United States of America 1996 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division. 175 Fifth Avenue. New York, N.Y. JOO IO ISBN X Library of Congress Cataloging-in-Publication Data Wren. Colin. Industrial subsidies: the UK experience I Colin Wren. p. cm. Includes bibliographical references (p. ) and index. ISBN X I. Subsidies-Great Britain. 2. Industrial policy-great Britain. I. Title. HD3646.G7W I '02--dc20 Colin Wren CIP Softcovcr rcpri m of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written pem1ission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WI P 9HE. Any person who docs any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages Printed in Great Britain by The Ipswich Book Company Ltd Ipswich, Suffolk

5 To Shirley and George

6

7 Contents List of Tables and Figures List of A bbreviations Preface x x i i xv 1 Introduction 1 The rationale for industrial subsidies 2 Defining an industrial subsidy 5 The book's structure 7 2 Industrial Assistance in Pre-War Britain 9 Early forms of intervention 9 Intervention for strategic purposes 11 Economic crises in the inter-war period 13 Government interventions in the early 1920s 15 Structural interventions and the Bank of England 17 The beginnings of regional policy 21 The origins of assistance to agriculture 24 Industrial subsidies in pre-war Britain 26 3 The Legislative Basis for Industrial Intervention ( ) 29 Wartime planning 29 Relocating industry 31 The encouragement of investment 33 Price guarantees for agricultural products 38 Industrial subsidies in abeyance 39 The end of the boom 42 Sectoral interventions 43 Unemployment and the development of regional policy 45 Assistance spending in the 1950s 48 4 The Expansion of Industrial Assistance (1960s) 52 The economic context 52 Towards a regional policy 52 The institutional framework 55 Interventions in the aircraft and shipbuilding industries 57 vn

8 Vlll Contents Investment incentives Difficulties with investment grants Employment taxes and employment premiums Further protection for agriculture The growth of industrial subsidies The Retrenchment and Reinvigoration of Industrial Subsidies (1970-4) The cutting of subsidies Industrial disengagement and the helping hand The policy reversal The new regional policy A framework for national assistance Administrative matters The arrangements for Northern Ireland European Community membership National state aids The revival of industrial assistance The Heyday of Industrial Assistance (Late 1970s) Economic conditions Labour's industrial strategy Rescue operations The revised approach and sectoral interventions The development agencies The failure of regional policy Special employment measures Further investment and employment measures Shipbuilding The European Community contribution From regional to urban policy The Urban Programme Local authority financial assistance Technology support Assistance expenditure in the 1970s Change and Continuity in Industrial Assistance (Early 1980s) The policy outline The review of industrial aid Unemployment

9 Contents The enterprise measures 134 Urban measures 13 8 Constructive interventions 141 The framework for technology support 145 Steel rationalization 147 European Community funds 150 Modifying industrial support The Recasting of Industrial Support (1983-Present) 154 Economic recovery 154 The elimination of the blanket subsidies 154 The revised regional policy 156 Collaborative research programmes 160 Redirecting technology support 164 Small firm advisory assistance 167 Regional aid from the European Community 169 Industrial closures and the 'blackspot' approach 171 Privatization 173 Effectiveness in urban policy 177 Rural development 181 Long-term unemployment 182 The 'enterprise initiative' 185 Inward investment 188 Reform of the structural funds 190 Programmes initiated by the Community 193 The European Commission and state aids 195 The withdrawal from industrial subsidies 197 Recent developments Conclusions 203 The pattern of expenditure 203 Explaining subsidy expenditure 207 Lessons from the UK experience 210 Appendix: The Assisted Areas 215 Notes 219 Bibliography of Parliamentary Papers 230 General Bibliography 233 Index 242 IX

10 List of Tables and Figures Tables 2.1 Population and employment, Spending on public works, Subsidies to agriculture, investment and local employment, Rates of assistance to capital, Employment by industry, The origins of post-war financial assistance, UK unemployment by industrial sector and region, Gross expenditure on aircraft assistance, Gross expenditure on shipbuilding assistance, Gross expenditure on national assistance, Gross expenditure on regional assistance, Gross expenditure on regional policy assistance, Gross expenditure on shipbuilding assistance, Grant equivalent expenditure on industrial subsidies, Expenditure on the sectoral schemes, Expenditure on the special employment measures, Sectoral incidence of assistance expenditure, UK spending under community structural funds, Expenditure on new technology measures, Spending on the special employment measures, Enterprise and urban policy measures, DTI support for industrial research and development, Industrial support in Northern Ireland, Community financial support in the UK, Gross expenditure on national assistance, Gross expenditure on regional measures, Gross expenditure on shipbuilding measures, Gross expenditure on industry assistance, x

11 List of Tables and Figures XI 8.5 Spending by the Urban Development Corporations, The pattern of DTI expenditure, Long- and short-run determinants of industrial assistance Costs and employment effect of regional policy Job effect of regional policy instruments 213 Figures 2.1 Unemployment in the staple industries, Employment in the staple industries, Expenditure on industrial subsidies in the 1960s Unemployment and inflation, Expenditure on industrial subsidies in the 1970s The rise of the special employment measures, Expenditure on industrial subsidies in the 1980s Expenditure on UK industrial subsidies, A.l The pre-war Special Areas 215 A.2 Assisted Areas, A.3 Assisted Areas, August A.4 Assisted Areas, August

12 List of Abbreviations AMC ATP BES BIS BOTAC BTAS BTG CADCAM CADMAT CADTES CAP CAT CEP CoSIRA CP DA DATAC DEA DED DLG DSIR DTI EAGGF EAS EC ECGD ECSC EIB EIE ERDF ESF ESPRIT EUREKA FCI Agricultural Mortgage Corporation Advanced Technology Programme Business Expansion Scheme Business Improvement Scheme Board of Trade Advisory Committee Business and Technical Advisory Service British Technology Group Computer Aided Design/Computer Aided Manufacture Computer Aided Design/Computer Aided Manufacture and Test Computer Aided Design and Test Equipment Support Common Agricultural Policy City Action Team Community Enterprise Programme Council for Small Industries in Rural Areas Community Programme Development Area Development Areas Treasury Advisory Committee Department of Economic Affairs Department of Economic Development Derelict Land Grant Department of Scientific and Industrial Research Department of Trade and Industry European Agricultural Guidance and Guarantee Fund Enterprise Allowance Scheme European Community Export Credits Guarantee Department European Coal and Steel Community European Investment Bank English Industrial Estates European Regional Development Fund European Social Fund European Strategic Programme for Research in Information Technology European Research Co-operation Agency Finance Corporation for Industry Xll

13 List of Abbreviations Xlll FMS GICP IA ICFC IDAB IDC IDE IDOP IDU ILIS IRC JCP JFIT JRS LDDC MAP MISP MSC NEB NEDC NCI NPCI NRDC NSA ODP PPDS RDA RDG RDO REG REP RIG RIN RSA RSSL SALAC SARA SDA SDA SEFIS SFES Flexible Manufacturing Systems General Industrial Collaborative Projects Intermediate Area Industrial and Commercial Finance Corporation Industrial Development Advisory Board Industrial Development Certificate Industrial Development Executive Integrated Development Operations Programme Industrial Development Unit Innovation Linked Investment Scheme Industrial Reorganisation Corporation Job Creation Programme Joint Framework for support in Information Technology Job Release Scheme London Docklands Development Corporation Microprocessor Application Project Microelectronics Industry Support Programme Manpower Services Commission National Enterprise Board National Economic Development Council New Community Instrument National Programme of Community Interest National Research Development Corporation National Selective Assistance Office Development Permit Product and Process Development Scheme Rural Development Area Regional Development Grant Regional Development Organisation Regional Enterprise Grant Regional Employment Premium Regional Investment Grant Regional Innovation Grant Regional Selective Assistance Recruitment Subsidy for School-Leavers Special Areas Loans Advisory Committee Special Areas Reconstruction Association Scottish Development Agency Special Development Area Small Engineering Firms Investment Subsidy Small Firm Employment Subsidy

14 XIV SIB SIRGS SMART SMETAS SPUR STAR STEP STWCS TES TOPS TSTWCS UDC UDG URG WDA WEP WEEP YES YOP YTS YWS List of Abbreviations Shipbuilding Industry Board Service Industry Removal Grant Scheme Small Firms Merit Award for Research and Technology Small and Medium-sized Enterprises Technical Advisory Service Support for Products Under Research Special Telecommunications Action for Regional Development Special Temporary Employment Programme Short-Time Working Compensation Scheme Temporary Employment Subsidy Training Opportunities Programme Scheme Temporary Short-Time Working Compensation Scheme Urban Development Corporation Urban Development Grant Urban Regeneration Grant Welsh Development Agency Work Experience Programme Work Experience on Employers' Premises Youth Employment Subsidy Youth Opportunities Programme Youth Training Scheme Young Workers Scheme

15 Preface Like a good fashion, industrial subsidies have fallen out of use and few will admit to ever having liked them. In their heyday these subsidies extended to virtually every area of industrial and economic policy, but, as we know, they were cut back in the 1980s as the government sought to disengage from industrial intervention. The time is ripe for an appraisal, and in this book we review the United Kingdom experience of industrial subsidies. There are two main reasons for this. First, while there exist numerous accounts of industrial subsidies as practised in the UK context, there has been as yet no attempt to tackle the subject of industrial subsidies in the round. Studies focus on the application of the subsidies to different areas of policy - such as national economic growth objectives, stability purposes, support for ailing companies and national champions, spatial development, direct labour market interventions and sectoral adjustment - but almost treat these as distinct topics. Part of our purpose is to draw these disparate accounts together, since it is often the case that the application and expansion of subsidy in one area of policy can best be seen in the light of past and ongoing efforts in other areas, so that the different interventions often serve as complements or substitutes for one another, As a second reason for writing this book it is equally clear that existing commentaries on industrial subsidies almost exclusively focus on the 1960s and 1970s, when the subsidies were applied most intensively. Part of our purpose is to examined the origins of this assistance, so that we trace the development of industrial intervention back to the First World War and before, and to consider the withdrawal from industrial support in the 1980s, which similarly has been something of a neglected area. Contrary to popular belief, small-scale subsidies continue to operate, and include financial assistance to particular firms, such as small firms; to certain industries, such as civil aviation; and for some technologies, such as information technology. It seems useful to have a single and wideranging account of the UK experience of industrial subsidies, but given the broad scope of the book we are unable to give full attention to all the related evaluative material, although the extent to which much of this subsidy was, and perhaps remains, unevaluated is remarkable. Nevertheless, if industrial subsidies should ever come back into fashion, then it is hoped that this book can provide a better appreciation of the UK experience of this policy instrument. xv