The annual Mais lecture is an opportunity for leaders in economics and finance – chancellors, central bank governors, sometimes prime ministers – to set out their vision. No individual has ever given more than one of these lectures, so they are an important moment. This week it was Rachel Reeves’ turn.

Rachel Reeves is set to be the first chancellor in generations to enter the Treasury using the phrase “industrial strategy” in anything but a derogatory way. No aspect of economic strategy can prosper in the face of hostility from the Treasury, so Reeves’ support (and enthusiasm for terms like “securonomics”) is necessary if businesses are to invest in line with Labour’s industrial policy. 

Necessary, but far from sufficient. The kind of transformation Labour has called for demands active and effective intervention, at a time when the fiscal resources are simply not there for doing this in a traditional, state-dominated way. Without mentioning the dread number “£28bn” – the now-abandoned target for climate-change spending that would have provided the fuel for industrial strategy too – Reeves’ lecture is an acknowledgement of this challenge. She could not be clearer that she does not intend to achieve what she wants through the liberal use of taxpayer money – even if there was plenty at hand. Instead, she intends to bring about transformation through a three-pronged approach: stability, investment (from business), and reform.  

In that word “investment” lies the success or failure of Labour’s prospective industrial strategy. Not being able to finance its plans fiscally, a future government is going to rely on encouraging business to do so instead. If business does not step up, the approach will have failed. 

This is not just a point about balance sheet capacity, but also information. When she called for “an approach that recognises the informational and capacity constraints of government”, Rachel Reeves confirmed herself to be the sort of politician to have read the economist Friedrich Hayek, who warned of the impossibility of any central planner knowing enough to direct resources efficiently. It is not just about the Treasury being unable to afford the capital spending needed to transform the economy into something more productive and less polluting, but the government’s inability to know exactly where scarce capital ought to go. 

The suggested solution to the information problem is the concept of “partnership” – how working together with business can help the government to assess the strengths of the economy, the barriers to investment and where it makes more sense to trade with other countries. The government’s side of the bargain will be to provide the long-term strategic direction, political stability and selective policy intervention, which business in return repays by risking shareholder funds on the right investments. 

Can this work? To turn to another economist, John Maynard Keynes once wrote “anything we can do, we can afford”. In theory a business-financed industrial strategy is possible. Government has many more tools than outright grants to induce investment: regulations, procurement policy, tax. Moreover, as the economist Professor Dame Diane Coyle has observed, successful examples have relied on “bottom-up” processes for generating ideas: listening, not just telling. 

The concern must be that simply promising to engage more constructively with business does not straightforwardly answer the capital-allocation problem that Reeves alludes to. Her beefed-up Enterprise and Growth Unit (EGU) needs to acquire the skills to distinguish valuable insights from self-interested lobbying. The Treasury will need to make better and more consistent use of the experience and contacts that exist across all the other departments to do this effectively. Listening is a difficult skill. The strategy will also need an enduring means of resisting the anti-growth tendencies of the political system. Planning reform has repeatedly failed not because the EGU failed to think of it, but from the opposition of politicians unwilling to bear the short-term costs. Utility investment has been weak at times because other politicians see more votes in a promise of lower bills than more infrastructure. These are all tests that Labour can only convincingly pass when in government.