Gathering strength: Backing clusters to boost Britain's exports

If the UK is going to rebalance its trade account, and stop living beyond its means in the global economy, then it needs to boost its exports – and clusters are a key way to achieve that. Evidence shows that, contrary to standard economic theory, the countries that are most competitive in the global economy – such as Germany – tend to diversify their exports rather than specialise. The UK, however, has become more specialised in its exports.

This report publishes new analysis of 'economic fitness', which shows that the UK lags behind comparator countries, and more successful countries, in terms of the diversity of its exports. It also shows that this situation has been getting worse: the UK's 'export basket' is less varied now than it was 20 years ago, and the average complexity of its products has fallen as well. Therefore, a primary aim of economic policy should be making the UK economy look more like those economies that perform well in global markets, in particular by increasing substantially the number of product areas that are export strengths.

One way to achieve this aim is to support industrial clusters. Focussing industrial policy on fostering clusters would mark a crucial change from the sector-neutral policies of the past 30 years, but also from the 'picking winners' policies of the 1970s, because within supported clusters the 'winners and losers' would still be determined by market forces and commercial success, and government would not be favouring or 'propping up' individual firms.

IPPR report Gathering Strength December 2014