Search

Construction Industry Policy and Industry Culture



In a time of rapid urbanisation and great social and environmental challenges, the built environment and associated housing, infrastructure and urban policies have become central issues in public policy. The quality of the built environment is a major determinant of the quality of life. Further, cities are at the centre of the modern economy and, in a fundamental sense, how well cities function depends on how well the many and diverse industries, firms and organizations across the built environment sector can design, deliver and operate the projects required. The resilience of cities to climate change is being tested as temperatures increase and fires and floods become more intense. However, because of the range and complexity of these issues it is difficult for governments to develop and implement coordinated built environment industry policies that address these issues satisfactorily.


Industry policy was out of favour for a couple of decades before the financial crisis in 2007-08 in the US, UK and Australia, although the European Union (EU) and many Asian countries followed well developed national strategic plans. This was partly ideological, a view that policy is another government economic intervention that requires picking winners, and partly because some issues traditionally addressed by industry policy like tariffs and market access moved into negotiations around trade policy, at both the global level and in the increasing number of regional and bilateral trade agreements.


Following the financial crisis governments looking for sources of economic growth and employment creation began focusing on specific sectors in manufacturing and services where they saw opportunity in global value chains. Environmental standards and policies supporting renewable energy were developed. Industries like pharmaceuticals and biotechnology, semiconductors, aerospace, IT, AI, cars and steel have featured in industry policies in many countries. Any policy intervention intended to strengthen the economy is an industry policy, and governments regularly establish priorities and target industries. Countries protect or favour industries with legislation for many reasons but some of them are strategic and long term, like innovation programs with their associated challenges, roadmaps and milestones, and many of these programs currently involve digitization and automation in some form.


These is little practical difference between a country’s industry policy and national industrial strategy. They are both typically framed around competitiveness and productivity, focus on innovation and R&D, and follow pathways and roadmaps through scenarios and scoping studies. Some industries like agriculture, steel and automobiles are regarded as strategic and have always been surrounded by rules and regulations and subject to government intervention. Governments’ have science and technology policies that influence industrial structure and macroeconomic policies that affect economic development. For many countries the emphasis in industry policy has shifted to industry 4.0 technologies and AI, as governments and industry respond to these technologies.


Government policies like these that target supply side issues are not as high profile as others, they don’t get regular updates like monthly unemployment or quarterly GDP statistics and capture attention like announcements of interest rate changes. Because productivity has become the measure used for industry performance, despite the statistical questions that raises, it has often been the target for government policy. However, many of these policy measures will only affect productivity in the long run, examples are education, training, infrastructure, innovation, R&D, capital expenditure subsidies, and pilot or demonstration projects. Therefore, results take time and thus take longer than the electoral cycle to develop, so there is often little benefit to the government of the day even if a policy is working well.


When the intention of such policies is to influence a country’s economic structure and industry development they can be described as industrial strategy or industry policy. What history generally does show is that it is hard to get an industry strategy right and implementation is difficult. Traditionally manufacturing was the focus for industry policy, but after 2007 the approach became more about coordinating a wide range of policies to achieve both economic and social objectives.[i] Climate change and environmental issues have become a focus for a range of industry policies aimed at reducing emissions.[ii] The rollout of protective equipment and vaccines during the Covid pandemic in 2020-21 both tested and accelerated this new approach.



Construction Industry Policy


As well as common industry policies targeting innovation, training or business investment, construction of the built environment is also subject to many other government regulations, legislation and policies. On the demand side interest rates, taxes, public infrastructure spending, urban development and housing policies are all important, but are also external to the built environment sector itself and are determined by a wide range of factors beyond the sector. Then there are the effects of planning and environmental regulations and restrictions limiting the supply of new housing or infrastructure, an issue that has featured in recent debates in many countries and spills over into other issues around the affordability of housing and the location and cost of major projects. The number of different government departments and agencies involved in regulating the built environment is often a major barrier to innovation because coordination is difficult and there are many opportunities for incumbents to delay or derail progress when reforms are proposed.


The public sector in many countries is collectively the largest client for construction, but the expenditure is spread over departments like health, education, transport and defence, and there is unrelenting pressure from public sector clients for the lowest possible cost of work. In practice, there are significant institutional constraints on government buying power. Although reports in many countries have recommended leveraging public procurement of buildings and structures to push industry reform this is not widely used, despite being common practice in Asian countries like Singapore and Japan.


While it is a fact that governments can have major impacts through regulation, tax, training, innovation and R&D policies, their effect is uneven and can be hard to discern. For example, large firms in capital intensive industries like cement respond to industry policies differently to large contractors, as do professional service SMEs compared to construction trade SMEs. Two areas where governments have had some success in promoting industry development are discussed in previous posts: BIM mandates and building standards and codes.


Industry Policy and Industry Culture


Contractual relationships were the focus of much of the reform agenda of the 1990s and 2000s. In the UK the Simon Committee report in 1944 on building contracts called for cultural change, as did the Latham Report 50 years later. Egan in 1998 introduced benchmarking against best practice to improve productivity and Constructing Excellence documented demonstration projects. In their book on UK Construction Reports Murray and Langford thought the ‘demands on the industry cannot be met and so lead to an industry that cannot attract staff to deliver buildings on time, with increased costs and questionable quality.’[iii] Other critics attacked the reform movement for its technocratic and managerial approach[iv]and the language used. By 2011, when the new UK industry strategy was launched, there had been little change in the industry, clients awarded projects to the lowest bidder while contractors offloaded risks and maximised profits.


That a series of UK reports were required, averaging over two a decade for 50 years (many others were not included in Murray and Langford), shows how ineffective they were in developing policies to address the issues raised. The explanation for this policy ineffectiveness offered by Latham and Egan in their reports was industry culture, broadly seen as the custom and practices underlying the business model in UK construction. Latham focused on procurement and contractual relations with recommendations to change an adversarial culture, calling for more collaboration between clients, contractors, subcontractors and consultants, and more cooperative practices. He recommended ‘Partnering’ between clients and contractors to realise this.


Culture is clearly important, but it is also clear that culture is not malleable and does not change easily or quickly. A better explanation for the lack of impact of these reports and their recommendations, and the ineffectiveness of public policy in reforming construction is required. Is the problem the policy making process, resistant to evidence and subject to ministerial whims and churn, with issues becoming politicised once they enter public debate? In a technocratic system of production like construction regulatory proposals often lack a convincing evidence base, and can be poorly integrated with impact assessment and policy development processes. The generic ‘problem-inspired’ industrial strategies developed by central policymakers also have to be interpreted by the ‘problem-solving’ implementers responding to nuances of local context and capability.


Construction is better viewed as three industries when the differences between residential building, non-residential building and engineering construction are taken into account. Within the broad culture of construction they have their own permeable but distinct subcultures, based on differences in processes, products and markets. If the culture in each of the three industries is different, recommendations and policy directed at construction as a single industry are unlikely to be relevant across them and will thus be disregarded by many firms and clients. Clients are also different and can be generalised as households, businesses and the public sector, and their relationships with contractors varies accordingly. Another example is design, where house builders have pattern books, commercial building uses architects, and infrastructure is designed by engineers.


These structural differences between the three industries affects the way clients, contractors, designers and suppliers will interact, thus each industry has developed individual characteristics over time within the broader culture of construction that become that particular industry’s subculture. The specific nature of these industry subcultures often makes recommendations and policy directed at construction as a single industry ineffective. With separate industries and separate subcultures, separate policies are required. A broad industry policy of the sort that targets construction as a single industry will be challenged by three deeply entrenched subcultures with limited, though important, similarities. Research and reports that treat construction as a single industry share this problem.


The UK government mandate on use of BIM on public projects has been much more effective in the last 10 years than the previous six decades of exhortations and recommendations to change industry culture. Recognising this, the provision of clauses covering contentious issues in construction contracts (such as intellectual property and data ownership) worked with rather than against industry practice and culture. The BIM Framework provided a roadmap for the firms and clients and the development of standards provided a toolkit. Also, local governments, universities, regulators and industry bodies were all given significant but loosely specified roles in these policies to support industry engagement.


The UK construction strategy applied to all firms involved in public projects, and thus included designers, consultants and suppliers as well as contractors and subcontractors. The strategy targeted technology adoption not the ‘construction industry’, which is really three separate industries of residential building, non-residential building and engineering construction each with distinctive characteristics.[v] The differences in the subcultures of these separate industries accounts for the differing rates of uptake of BIM found across firms in the UK since the launch of the strategy.


Industry culture is a complex outcome of social, institutional and economic factors. Because of the range and dynamic interplay of those factors it is not an appropriate target for industry policy, as the history of construction reform efforts that argued cultural change was necessary for industry improvement in the UK, documented over decades in a series of reports, clearly shows. When a new construction strategy was launched in 2011 the focus shifted from using public procurement to foster cultural change to requiring BIM on public projects, and over the next decade succeeded in increasing the use of BIM to around half of firms and the majority of public projects. Despite all the claims made for BIM changing industry culture and increasing collaboration, if it were to come about it would be as a consequence not a cause of industry improvement from the new construction strategy. Recognising this, the provision of clauses covering contentious issues in construction contracts (such as intellectual property and data ownership) worked with rather than against industry practice and culture.


Another aspect of construction industry culture is that the nature of the work attracts many people with technical skills who use ‘technological thinking’ to find solutions to the various problems a project will encounter between inception and delivery. Technological thinking is essentially problem-solving through trial and error. Regardless of which part of construction they work in, for the vast majority of these people there is a great deal of satisfaction in doing this work well, following relevant codes of practice and meeting the required standards. Basing policies to improve industry performance and the quality of buildings on technocratic measures like ISO accreditation and BIM use levels works with industry culture.



References

[i] Chang, H-J. and Andreoni, A. 2020. Industrial Policy in the 21st Century, Development and Change, 51(2): 324–351. [ii] Acemoglu, D., P. Aghion, L. Bursztyn, and D. Hemous. 2012. The Environment and Directed Technical Change. American Economic Review. 102(1): 131-166. [iii] Murray, M. and Langford, D. 2003: 7. Construction Reports 1944-98, Oxford: Wiley-Blackwell. [iv] Green, S.D. 2011. Making Sense of Construction Improvement, Oxford: Wiley-Blackwell. [v] Although there is an economic activity called construction in the SIC the characteristics of the three divisions makes them different industries. The manufacturing SIC includes glass, wood products, steel, plastics and concrete, but they are regarded as separate industries and are not grouped together under a construction products SIC. An industry policy for the steel industry is not thought to apply to plastics or concrete because it is not relevant to those industries. The same applies to the differences between residential building, non-residential building and engineering construction.

16 views0 comments

About the Blog

This blog is concerned with the organisation of the building and construction industry, in the economic sense of combining factors of production to create output.

 

The modern industry's origins in the 19th century can still be seen in many of its characteristic features, and many contemporary issues are also found in projects from the past.

 

Like many industries, it is being reshaped by unprecedented rapid and widespread advances in materials, technology and capability.

Email List Signup

Recent Posts