New Times,
New Thinking.

  1. Technology
26 April 2022

Britain’s passé neoliberalism could leave it at a permanent disadvantage

While governments across the world are scaling up their critical industries, the UK is contemplating the sale of its biggest chip-maker.

By James Meadway

The planned sale of Britain’s biggest semiconductor plant, Newport Wafer Fabrication (NWF), to a Chinese-owned company exposes the confused and inconsistent approach of the UK government to a fundamental 21st-century industry.

Semiconductors are the backbone of all digital products – from smartphones to laptops to, increasingly, a range of older consumer goods such as cars. As the data processing requirements of our economy and society have expanded, demand for semiconductors has exploded with them. But the supply of these key products is becoming fraught: a global semiconductor shortage is now stretching into its second year, the product of surging demand during the pandemic, trade wars and extreme weather hitting major producers.

Recognising its importance, governments across the world are pushing through state-backed plans to overhaul their chip-making industries. Yet the UK’s is still clinging to free market dogma. The cost for the country could be immense, leaving Britain at the mercy of major suppliers elsewhere in the world.

Nexperia, headquartered in the Netherlands but owned by Shanghai-based Wingtech, bought NWF last summer. At the time, neither the Secretary of State for Business nor the Welsh government raised security concerns. Nexperia already owns a smaller manufacturing facility near Manchester. But crucially, NWF is a lead manufacturer in the Department for Business’s newly established “compound semiconductors” cluster. This is intended to give Britain an edge in the production of semiconductors, from alternative minerals to the standard silicon, delivering faster speeds for heavy-duty image processing – including for defence and security purposes such as target recognition.

It is this link to defence, and the Chinese government’s express intention to develop compound semiconductor manufacturing, that has set Westminster’s flock of China hawks squawking. The Foreign Affairs Select Committee, chaired by the perennial sabre-rattler Tom Tugendhat, produced a highly critical report on the sale last month. Meanwhile, Ciaran Martin, the former head of the National Cyber Security Centre, has described the sale as a “level one” security issue for the UK, way ahead of the comparatively minor concerns raised by the involvement in 5G of Huawei (whose ban from UK networks, Martin noted, was mostly a reaction to the Trump administration’s becoming “obsessed with it”).

The White House has raised concerns about the potential for “malicious supply chain disruption” of semiconductors, pointing out that outsourcing increases the risk. This could include directly blocking production as a form of economic warfare, but the US government notes that the “design step is particularly vulnerable to alteration of insertion” of malicious code intended to, for example, provide back-door access to potentially millions of electronic devices, from mobile phones to electric vehicles, which could be particularly vulnerable to “weaponisation”. The more sophisticated the chips, the more exposed they are, leaving the advanced semiconductors that NWF can produce among those potentially at risk. The US Republican-led China Task Force has called on Joe Biden’s administration to try and block the sale, including threatening to restrict high-tech US exports to NWF. It is possible that the Business Secretary Kwasi Kwarteng will halt the sale, although no decision has yet been made.

The semiconductor industry is one of the few sectors in which Britain retains a genuine international foothold. Factories such as NWF are at the cutting edge of manufacturing technology, while the Cambridge-based chip designer ARM is a world leader – with more than 200 billion ARM-designed silicon chips produced since the company was founded. (Earlier this year, the government blocked the sale of ARM to the US chip manufacturer Nvidia, citing national security concerns, despite having waved through its sale to the Saudi-backed SoftBank in 2016.)

Digital technologies may contribute little to economic growth, but in a world of growing resource constraints and instability, they are fundamental – to warfare and security, and to the management of energy supply and consumption. ARM’s globe-spanning work means it has a direct impact on the production and use of digital technologies all over the world.

Likewise, if semiconductor supply chains are to be continually disrupted – whether by environmental shocks or, potentially, hostile action – access to high-quality domestic production is essential. And developing this domestic manufacturing know-how would require a determined shift in the approach of the Conservative government.

The general drift of UK economic policy is clear. The railways have been partly renationalised. Parts of the National Grid are set to be brought back into public ownership. One gas supplier, Bulb Energy, was nationalised last autumn. The Treasury, meanwhile, has quietly taken equity stakes in 158 start-ups via the Future Fund, from vegan food makers to a cinema chain. And plans to grow both infrastructure investment and research spending depend on public funding. Like major economies across the Western world, Britain is leaving privatisation-first neoliberalism behind and reverting to state intervention.

[See also: Lithium will be as era-defining as oil, and China is dominating its supply]

But the shaky and uncertain manner of this retreat from neoliberalism will cost the economy dearly. China, the US and now even the EU are moving towards putting their advantages of scale and resources to use, planning to grow their domestic semiconductor manufacturing capacities rapidly over the next decade. Without the same focus, the UK’s smaller size will leave it at a permanent disadvantage. Instead of drift, an anti-neoliberal drive is needed.

The government has announced that it will be publishing a semiconductor strategy next month. This could be an opportunity to iron out the inconsistencies in its approach, but, by historical accident, current cabinet-level arrangements mean that digital technologies fall in the same department as the Platinum Jubilee celebrations and the one-time “Festival of Great Britain”: the Department for Digital, Culture, Media and Sport. Valuable as these events may be, their link to, say, gallium nitride semiconductor fabrication is not immediately obvious, and the misallocation of ministerial responsibilities won’t help resolve the ongoing confusion over semiconductor policy. A useful first step would be to move the whole of digital out of the culture department and create a distinct cabinet-level responsibility.

The second step should be to avoid approaching major decisions about the industry on a case-by-case basis. To wave through the Newport sale to a Chinese-owned company while barring the sale of ARM to a US-owned company on national security grounds is weirdly inconsistent. Better instead to treat the industry as an integrated whole, and fundamental to Britain’s post-Brexit future. This should, of course, include substantial state investment.

The third measure would be the most dramatic for this government. But just as the Treasury is now prepared to take equity stakes in smaller companies, it should also be acquiring shares in strategically important businesses. It was absurd to sell off a critically important national economic asset like ARM to the slush fund SoftBank in 2016, and it is absurd, six years later, to be selling a crucial high-tech manufacturer like NWF to a strategic competitor while allowing ARM to be stripped down, ready for its expected sale to the public markets.

It should be obvious that the NWF sale should not go ahead, even if preventing it necessitates state support for the company. The quid pro quo for that support would be to take shares in the company. Even a small equity stake in NWF and ARM could give the government meaningful strategic leverage. The rules of the game are being rewritten globally. A failure to grasp this will all but guarantee the loss of a critical industry to the UK.

[See also: Why Elon Musk desperately wants to own Twitter]

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.

Content from our partners
<strong>The future of private credit</strong>
Peatlands are nature's unsung climate warriors
How the apprenticeship levy helps small businesses to transform their workforce

Topics in this article : ,