Industrial strategy and economic growth – Page 2 – Soft Machines, by Richard Jones

The Year in Soft Machines

The Soft Machines blog has been going for more than twenty years, I’m astonished to say. It’s good to see a substantial increase in the number of readers in 2025’s later months – no doubt helped by the fact that, with a bit more time on my hands, I’ve been writing a bit more regularly. For the benefit of new readers and old, here’s a review of some of the year’s posts, set in the context of some of this blog’s recurring themes.

The UK’s productivity and economic growth problem

The UK’s continuing economic stagnation remains a continual preoccupation, unfortunately. A recent post presents the most recent data for GDP per capita, showing that the country is around 30% worse off than if the pre-2008 trend had continued. Such a dramatic change in economic fortunes must have a cause – or causes. Stating what should be obvious, but doesn’t seem to be, to many commentators, I insist that the causes must precede the big break in 2008, and that there may be long lags between cause and effect. But one can always make things worse with subsequent bad decisions.

The UK’s continuing economic growth crisis

Fundamentally, our economic problems are problems of productivity growth – or lack of it. I’ve been writing about this for about a decade, with a post from earlier in the year summarising some of the arguments:

Ten Years of Banging on about Productivity

Why does this matter? From the government’s perspective, projections of future productivity growth make a big difference to how much public spending can grow or how much taxes have to rise to keep the government within its fiscal rules. The role of the Office of Budgetary Responsibility in making forecasts is key here, but its record in predicting future productivity growth is frankly risible, as I discussed in the context of the Spring Statement:

Why productivity growth is important – Spring Statement 2025 Edition

Productivity and GDP per capita are technical concepts, so it might be thought that these issues aren’t relevant to people’s everyday lives. Nothing could be further from the truth – the slowdown in productivity is directly reflected in peoples’ earnings, shown dramatically in this plot from:

The End of Wage Growth in the UK

Average real weekly UK wages. Green: Composite Average Weekly Earnings series, corrected for inflation using consumer prices index. Thomas, R and Dimsdale, N (2017) “A Millennium of UK Data”, Bank of England OBRA dataset. Brown: ONS, Real Average Weekly Earnings, total pay, using CPI (seasonally adjusted). 18/2/2025 release.

Everything that’s wrong with politics and economics in the UK can be traced back to stagnating productivity.

Towards economic growth, energy and progress

Is this economic stagnation inevitable? I don’t think so – I believe it to be the result of policy choices the country has made, and different choices are possible. I welcome a growing movement of commentators and think-tanks exploring concrete policy ideas to break the stagnation, though I don’t always agree with their priorities. At the end of last year, I wrote what I hope comes across as a sympathetic critique of one strand of thought –

Taking Anglofuturism Seriously

One theme that is at the centre of much of this kind of writing prioritises cheap, abundant energy, with a new roll-out of nuclear power put centre-stage. I’m in sympathy with this, though I don’t think the analysis of the recent failure of the UK to build new nuclear power stations goes far enough. In 2014, the government planned to build 18 GW of new nuclear power; as I write, none has been delivered, and only 3.2 GW is under construction. Much emphasis is placed on the need to remove regulatory barriers; this in my view is necessary, but not sufficient: more thought needs to be given to how to rebuild national capabilities, as I argue here:

Ownership, Control, National capability: learning lessons from the UK’s nuclear new build debacle

Another recent feature of the UK economy is a rapid decline in the share of the economy accounted for by manufacturing – a decline shared by other developed economies, but which has been particularly large in the UK. Manufacturing now accounts for 8% of UK economy; should we try & increase this? I think so, but it’s important to distinguish some good arguments for this from bad ones (and recognise some uncertainties). Manufacturing matters for its potential for productivity growth – what’s important is the value it creates, not the jobs. Manufacturing capability is also important for national security, but realism is needed about UK’s position as <3% of world high tech economy – we need to aim for security, not autarky.

Good reasons and bad reasons for supporting manufacturing (and some uncertainties)

On artificial intelligence

Inevitably, I have written about artificial intelligence. I don’t think anyone knows how this story is going to play out, least of all me, so back in May I sketched out three scenarios for the economic impact of AI:

1. Intelligence explosion – the Silicon Valley vision of AI entering a state of recursive self-improvement, leading to artificial general intelligence, and a winner takes all economy, in which the controllers of the new technologies enjoy unprecedented political and economic power.

2. Excel in prose – in which AI is understood as a powerful normal technology, whose applications lead to significant productivity gains across a number of sectors, but with a delay as business processes have to be adapted to make the most of the new technology.

3. Crash and burn – in which the revenues generated by applications of AI are disappointing, and can’t justify the huge capital investments have been made in AI infrastructure. The subsequent bursting of a financial bubble leads to systemic damage to the world financial system and the real economy.

Writing in May, I described “Crash and burn” as a contrarian scenario, but in the last few months it seems to have become mainstream; one can’t open up the Financial Times app without coming across an AI Bubble article.

The economic impact of AI: three scenarios

One aspect of the AI story that I think has been neglected is the state of the material base that underlies the technology – the integrated circuits that are used to train and run the AI models. For many decades, we came to rely on an exponential increase in computer power, arising from the miniaturisation of the circuit components expressed in Moore’s Law.

Moore’s Law is still evoked by commentators as a symbol of accelerating technological change, but in fact the rate of increase in raw computer power has slowed substantially over the last two decades. Available computer power for applications such as large language models is still increasing, but this increased power is coming, less from miniaturisation, more from software, specialised architectures optimised for particular tasks, and advanced packaging of chips.

Minimum transistor footprint (product of metal pitch and contacted gate pitch) for successive semiconductor process nodes. Data: (1994 – 2014 inclusive) – Stanford Nanoelectronics Lab, post 2017 and projections, successive editions of the IEEE International Roadmap for Devices and Systems

In the classical heyday of Moore’s Law, from the mid 1980’s to the mid 2000’s, computer power grew at a rate of 50% a year compounded, doubling every two years. In this extraordinary period, there was more than a thousandfold cumulative increase over a couple of decades.

Now, in contrast, it is not the supply of computer power that is increasing exponentially; we have an exponential increase in demand, while the increase in supply has more of a linear character.

Moore’s Law, past and future

In “AI and the manufacturing firm of the future”, I ask how AI will change ht world of manufacturing. Sam Altman, CEO of OpenAI, has written about a manufacturing singularity, with AGI powered humanoid robots building factories to make more robots. I ask, as politely as I can, whether this vision reflects his lack of understanding of the material base of our industrial world, is a somewhat overheated metaphor, or is just bullshit (in Harry Frankfurt’s sense – i.e. an utterance whose intended effect is uncoupled to any truth value).

An alternative scenario is of AI driving process & system optimisation in increasingly automated factories. If Altman’s vision is driving strategies in the USA, I think the latter scenario is the one being aggressively pursued in China. We’ll see which is closer to reality.

AI and the manufacturing firm of the future

UK science and university policy

Until my retirement at the end of September this year it was very much part of my day job to think about science and university policy in the UK. UK Universities have been under huge financial pressure in recent years, so some might be tempted to step back from their role in their communities. In this piece I argued that this would be a big mistake, and instead they should take even more seriously their role supporting regional economies.

The civic university in hard times

The next piece offers a much more personal view of the role of universities in their regions – it’s a retrospective on my time as Vice-President for Regional Innovation and Civic Engagement at the University of Manchester, reviewing the progress we have made working with partners in the city-region to realise the University’s potential to support Greater Manchester’s economy.

On leaving the University of Manchester

Finally, my most popular post of the year was this rather provocative piece: UK Science in a post-liberal world. Here, I argue that a multi-decade period of consensus in UK science policy is likely soon to come to an end, and that the UK’s research system must respond to a new focus on re-building, re-energising, re-arming and re-industrialising for a changed & hostile world.

UK Science in a post-liberal world

Family matters

To turn to personal matters, my mother, Sheila Jones, died on October 31st this year, a little more than two years after the death of my father, Robbie Jones. I found it helpful to write these two pieces to celebrate their lives, and to reflect on where I have come from.

Sheila Howell Jones (1934 – 2025) , Robert Cecil Jones (1932 – 2023)

On leaving the University of Manchester

This year marked the end of my full-time career as an academic – I retired from the University of Manchester at the end of September 2025. I was a lecturer at Cambridge University from 1989 to 1998, when I moved to the University of Sheffield. I was a professor of physics at Sheffield, and also, between 2009 and 2016, Pro-Vice-Chancellor for Research and Innovation. I moved to the University of Manchester in 2020, where latterly I have had the role of Vice-President for Regional Innovation and Civic Engagement. I was touched and honoured by the kind words spoken about me at an event to mark my retirement in September. UoM President Duncan Ivison, Manchester City Council Chief Executive Tom Stannard, and the Chair of UoM’s Board of Governors Phillipa Hurd all spoke, and GM Mayor Andy Burnham sent a video message. In response, I said something along these lines:

Thanks for all your kind words. I’m conscious that I’ve only been at Manchester for 5 years, in contrast to many of you who have devoted a much longer time to the institution.

My career has taken me from Cornell, through Cambridge, to Sheffield (with quite a lot of time in Swindon, first on secondment to run the cross-council nanotechnology programme, then as EPSRC Council Member), and, as Duncan said, it’s taken a number of twists and turns – I often describe myself as a deviant physicist. There’s been science – both blue skies and highly collaborative with industry, public engagement, science policy, and contributions to local economic development and attempts to influence national policy.

I think my time at Manchester has been a culmination of that career, where I’ve been able to bring together all those different strands in the service of a great university in a great city.

The UK’s continuing economic growth crisis

Between 1955 and 2008, GDP per person in the UK grew at an overall rate of 2.3% a year. Periodic booms and the inevitable following recessions produced deviations, but before 2008, growth always returned to this steady trend. That changed in the global financial crisis. In the following 18 months, GDP per person fell by 11.4%. In contrast to all previous recessions, growth never returned to the previous trend line. Between 2010 and 2019, GDP per person returned to growth at the lower rate of 1.4% a year. The shock of the Covid epidemic resulted in large parts of the economy being shut down, since when there has been a sputtering recovery.

But the bottom line is that GDP per person is now £16,500 – 29% – lower than it would have been if the 1955-2008 trend had continued.

GDP per person for the UK, in real terms (reference year 2023). Quarterly data from the ONS, annualised, 13/11/2025 release.

GDP measures the total value of goods and services produced by the economy, that value to be shared between wages and returns to owners of capital. So GDP per capita is a good measure of how much of that value is available for an individual citizen, through the wages they earn, the return on their investments, and the public services that are available to them. Of course, not everyone gets an equal share. There is considerable inequality in incomes, though in recent years this has been relatively stable. Wealth represents claims on future GDP, and here the inequality is considerably greater than for incomes, and has been substantially increasing.

AI and the manufacturing firm of the future

How will artificial intelligence change the world of manufacturing? Sam Altman, CEO of OpenAI, has no doubt that the effect will be transformational [1]:

“If we have to make the first million humanoid robots the old-fashioned way, but then they can operate the entire supply chain—digging and refining minerals, driving trucks, running factories, etc.—to build more robots, which can build more chip fabrication facilities, data centers, etc, then the rate of progress will obviously be quite different.”

It’s difficult to know what to make of this vision. Taking it at face value, it seems to represent a profoundly unimaginative view of the future, in which there is a straight replacement of workers in factories by humanoid robots. Factory automation has developed hugely since my brief period as a production line worker in 1980, but this hasn’t occurred by a one-for-one replacement of people by robots.

Most people have seen pictures of modern car factories, with robot arms carrying out repeated operations like welding with great precision. But, as Tim Minshall explains in his excellent book on manufacturing [2], robots are just one example of the many devices that can carry out physical operations in an automated factory. If you are automating a chemical factory, you don’t do it by getting a humanoid robot to open the valves and stir the tanks. The most sophisticated factories that currently exist – the chip fabrication facilities that produce the GPUs that underpin AI, as well as the CPUs in our phones and computers – are almost entirely automated. In the fab, a silicon wafer goes through hundreds of complex process steps without being handled by a human – but the robots that move the wafers from tool to tool run on wheels, not legs.

So is Altman just saying that automation makes capital goods cheaper, and that leads to a self-reinforcing process of increasing productivity? That’s certainly true, but it’s a process that is neither new, nor having much to do with large language models or generative AI.

Ownership, Control, National capability: learning lessons from the UK’s nuclear new build debacle

In 2013, I visited the Headquarters of Hitachi in Tokyo, with Sheffield University’s VC, Sir Keith Burnett. Sheffield had recently built the Nuclear Advanced Manufacturing Centre (NAMRC) – part of the High Value Catapult Network, funded to support the UK’s ambitious new nuclear build programme at the time. Our mission was to try and persuade Hitachi that NAMRC could help them build a UK supply chain and develop the nuclear skills they would need to deliver their project of building two new nuclear reactors at Wylfa, on Anglesey. The last nuclear power station to be built in the UK, Sizewell B, was finished in 1995; in the intervening years much national nuclear capability in the nuclear sector had been lost, and, at a time when there were high ambitions for the UK’s new nuclear build programme, NAMRC had been established to help rebuild that national capability.

In Tokyo, we met the head of Hitachi’s nuclear division, and the head of Hitachi Europe. We were very courteously received (perhaps helped by the presence of the UK’s Ambassador to Japan, who had been helpful in facilitating the meeting). We had a very interesting discussion about their reactor design – the Advanced Boiling Water Reactor – and their ambitions for rolling out this technology across the world. But on our primary mission, in the most polite way, we were completely rebuffed. It was Hitachi’s technology, the UK government wasn’t paying for it, so why would they want our help to build a UK supply chain? They had a perfectly good one of their own.

In the event, Hitachi is not going to build any new nuclear reactors in Wylfa, or anywhere else in the UK. In 2019, Hitachi mothballed its plans, definitively pulling out in 2020, citing a failure to reach a financially satisfactory agreement with the UK government. It seems highly likely that, in making this decision, Hitachi reflected on the experience of the UK’s first new nuclear project, the two European Pressurised Water Reactors (EPRs) being built at Hinkley Point C, in Somerset – a dismal story of cost overruns and long delays.

UK Science in a post-liberal world

I took part in a panel discussion at the Royal Society last Thursday 20th November, with the topic ‘The future role of the state in a changing R&D landscape’. Here is a slightly expanded version of my opening remarks. My intention was to be provocative; other more optimistic views are available (and were presented by the other panel members).

The UK has seen a long period of consensus about the role of the state in the R&D landscape – and that consensus has actually been very positive for academic science. I think it’s not improbable, even quite likely, that this consensus will come to an end in the next few years. This will have huge consequences for the R&D landscape, potentially very negative, and I think it’s really important that we start to think this through.

The consensus

There’s been a great deal of continuity in UK science policy over the last twenty years. The 2004 10 Year Science and Innovation Investment Framework set out the foundations of an approach that has persisted through governments of different flavours, overseen by a series of influential science ministers – from Lord Sainsbury, through Lords Willetts, to Lord Vallance.

This is fundamentally a supply side science policy, with a focus on correcting market failure. Government supports basic science, ensures a pipeline of skilled people (including through skilled migration), and supports commercialisation of university research. There’s been some gradual change – a bumpy path to a more explicit industrial strategy since Mandelson’s return to government in 2008, to the current fully developed version. But the basic assumptions remain the same.

The consequences have been significant real terms increases in government R&D budgets, and a system dominated by research in universities.

Auguries of a breakdown

Why might we think this consensus is at risk? If we look internationally, we see the USA, often seen as the natural partners of the UK in science as in other areas, we see direct attacks on the autonomy of funding agencies, and on the position of leading research universities.

Good reasons and bad reasons for supporting manufacturing (and some uncertainties)

Manufacturing industries make a direct contribution to the UK economy worth about 8% of GDP; this has roughly halved since 1990. The UK has deindustrialised more than other wealthy developed nations; in Germany and Switzerland manufacturing still accounts for 18% of GDP. Amongst the fast-growing economies of East Asia, Korea has a manufacturing share of 24% of GDP and Singapore 16%. The world’s manufacturing behemoth is China, where manufacturing accounts for about 25% of its large and rapidly growing economy. The rise of China as a huge manufacturer and exporter mirrors the deindustrialisation of the USA, where the manufacturing share has fallen to 10% [1]. Rebuilding US manufacturing was an explicit policy goal of the Biden administration, while Trump promises “a new era of American manufacturing dominance”, and this is a key motivation for Trump’s tariff policy[2]. There is less consensus in the UK that manufacturing should be a larger share of the economy [3]; I think it should be, but recognise that many reasons advanced for this are wrong. This post is my attempt to separate good reasons from bad, and to highlight some areas of uncertainty.

It’s about value, not jobs

Clearly in the bad category is nostalgia for old-fashioned factory jobs – we should support manufacturing for the value it creates, not for the number of low level jobs it makes. Overall, as shown in my first plot, manufacturing has above average productivity, though there are marked differences between subsectors [4]. Continue reading “Good reasons and bad reasons for supporting manufacturing (and some uncertainties)”

The Economics Nobel, Joel Mokyr, and the UK’s changing landscape of innovation

This year’s Nobel Prize was awarded to Joel Mokyr, Philippe Aghion and Peter Howitt, for their work on the relationship between technological innovation and economic growth. The press release credits them with having “having explained innovation-driven economic growth”, which I think overstates the case – there is much that is not yet understood about the relationship between innovation and economic growth. But the importance of their contributions is not in doubt – and it’s particularly welcome that both Mokyr and Aghion have laid out their arguments in fascinating and accessible books. What makes the award particularly timely is that we are now in a period where economic growth has notably slowed, despite apparently continuing technological progress. As the press release states, “perhaps most importantly, the laureates have taught us that sustained growth cannot be taken for granted”.

What makes a manufacturing superpower?

Some reflections on Breakneck: China’s quest to engineer the future by Dan Wang.

Dan Wang’s new book on China is rightly getting great reviews. It’s a compelling read, engagingly written, reflecting both the author’s deep understanding of China’s developing economy, and his personal sympathy with the Chinese nation. It is admiring of Chinese achievements over the last couple of decades , while being entirely clear-eyed about the deficiencies of the political system and its human costs.

The big idea behind the book is to compare and contrast the two great powers of the world today – China and the USA, summarising that comparison in a neat formula. For Wang, China is the Engineering State, while the USA is the Lawyerly Society – and from that contrast, the complementary strengths and weaknesses of the two nations can be derived.

What kind of state is China? According to Wang, it is a “Leninist Technocracy with Grand Opera tendencies”.

Another Modern Industrial Strategy

This is a slightly expanded version of an article published last week in Research Professional – The latest industrial strategy has made choices

Last week’s Industrial Strategy Policy Paper is the latest chapter in the chequered history of UK Industrial Strategies. For nearly three decades after Thatcher’s ascent to power, the UK’s strategy was not to have an industrial strategy, which was a concept associated with money-losing supersonic airliners and cars with square steering wheels. But that conventional wisdom has been challenged by a global financial crisis and nearly two decades of economic stagnation, so after a number of stops and starts over the last decade, a fully developed Industrial Strategy has now arrived. Continue reading “Another Modern Industrial Strategy”