Friday 18 September 2009

Industrial resolution

Nations Choose Prosperity: Why Britain Needs an Industrial Policy, edited by Ruth Lea (Civitas 2009)

Manufacturing. The word and the concept are both deeply uncool. They summon-up images of smoky factories, cloth-capped dole queues, slums and trade union militancy. But this could be about to change. In the light of the present economic situation, the contributors to this collection of papers published by the civil studies institute Civitas consider whether the British have been too complacent regarding the decline of manufacturing and, correspondingly, over-reliant on financial and service industries for continued prosperity. They go on to discuss the need for an industrial revival and what can be done to help start it. But just how relevant, or viable, is all this?

The introductory paper by Ruth Lea, economic advisor and director of Arbuthnot Banking Group plc, starts by pointing out that manufacturing represents nearly 13 percent of Britain’s Gross Domestic Product (GDP), 75 percent of business research and development, half of UK exports and 10 percent of total employment. However, she gives a health warning on the way these figures have been compiled the Office for National Statistics (ONS). The ONS ‘classifies a business as a manufacturing business if more than half of its revenue comes from making goods. If more than half of a business’ revenue comes from other activities, for example consultancy, it will be allocated to another sector’. (It should be mentioned here that, for those readers who prefer narrative to numbers, statistics in this publication are kept to a merciful minimum.) Lea then goes on to point out that, whilst it’s not true to say that we no longer make things in Britain, there has been a fall in manufacturing’s share of GDP due to factors such as competition from emerging, low-wage economies like that of China.

A much more disturbing view comes from Alan Reece, owner and design director of Pearson Engineering Ltd. His paper was originally written in 2006: it was unacceptable to both the Government and the Opposition because the ‘notion that we could not have a long term future without making, growing and mining was greeted with repugnance by those in power, people who make money out of money. Now that they have become somewhat discredited, a small demand has arisen for an updated version of the paper.’ (This says little for the capacity of our political masters to master ideas which challenge the status quo.) Reece goes on to state that there is a view ‘that we are so good at services that we do not need to try very hard at making the goods we require’. Not true: financial services are the only one in which we have a positive balance. All other services make a steady trading loss of about £10 billion a year! We cannot increase exports as we no longer have the factories, skilled workers, scientists and engineers needed for this, and there is no sign of reduction in the rate at which manufacture is moved overseas. A knock-on effect of this situation is the closure of university science and engineering departments.

Such manufacturing as remains is carried out by small low-technology companies. They cannot afford research or high salaries. Reece has a devastating comment to make on all this. ‘It is sometimes said that we are becoming a developing country. This is an understatement: we are a de-developing country!’ We cannot combine technology with business sense and good management. He seems to see little possibility of change so long as there is a concentration of political power in City of London ‘where it is wielded by men who know little about anything but money, and, as we have painfully learned, little about that either!’

But do we need to worry? Aren’t Reece’s concerns simply the products of fear of globalisation and nostalgia for an industrial past? No. As he points out, in a sovereign state with its own currency, the sum of exports must equal the sum of imports. Manufacturing is essential for this. Robert Rowthorn, Emeritus Professor of Economics and Fellow of King’s College Cambridge, points out that - whilst British industrial decline was masked by the ‘euphoria of a prolonged economic boom and the recent bubble in house and share prices’ - there are now worries about food and energy security due to limited supplies and expanding world demand. Whilst manufactured exports are three times as large as the export earnings of the entire Cityof London, we cannot predict the economic future. Stronger manufacturing would make us less at risk from adverse shifts that may emerge elsewhere in the balance of payments.

So what should be done? In the foreword David G Green, the director of Civitas, reminds us that Adam Smith, often seen as the champion of laissez-faire ‘was in practice highly pragmatic when recommending what the government should do’, Following on from this in his paper, Green goes on to say that that neither command-and-control nor laissez-faire economies provide the conditions in which businesses can thrive, whilst ‘light touch’ regulation of financial services has had catastrophic results. Going on to quote economist Friedrich von Hayek’s view that the alternative to a controlled economy is not laissez-faire but a ‘rational framework for competition’, Green points out that government should ‘create a viable legal structure for businesses, regulate effectively without excessive cost, conduct a sound fiscal policy with a balanced budget over the normal trade cycle, ensure low national debt, provide sound money, and endeavour to maintain a stable exchange rate’.

Regulatory burdens, such as regulations on money-laundering, working time and employment tribunals - along with the proposed Equality Bill, which will add significantly to the compliance costs of employment problems - need to go. Meanwhile the lowering of benchmarks for university entrance - which should be based on merit only - has left employers without the good quality recruits they need whilst, despite government attention to apprenticeships, many of these are of poor quality. Stating that government must ensure that policies provide the best possible conditions for free enterprise, he concludes by quoting Hayek’s comment that we should aim at ‘the gradual improvement of the institutional framework of a free society.’

But what practical steps can be taken to encourage manufacturing in Britain? Brendan Barber, General Secretary of the TUC,says we should identify what we are good at and focus there. Quoting from Lord Sainsbury’s review of government science and innovation policies ‘The Race to the Top’, Barber mentions high skill growth sectors such as ‘aerospace, pharmaceuticals, biotechnology, regenerative medicine, telemedicine, nanotechnology, the space industry, intelligent transport systems, new sources of energy, creative industries, computer games and the instrumentation sector as among the opportunities before the UK’. We also need a workforce which receives proper training, not short-term courses. Ian Brinkley, Director of the Knowledge Economy programme at the Work Foundation, also sees the future lying with high-tech manufacturing, creative and cultural services, ICT-based services, environmental industries and energy. He also suggests that manufacturing companies need support to preserve their knowledge, and skills, through the recession and also focus on high-tech work to maintain our position in global manufacturing markets. Poor regions need to keep as many as possible of their manufacturing firms so that they can be built into regeneration strategies for the future, whilst there also need to be new financial institutions to help with financing high-risk high-tech sector firms.

But, for all this to become a reality, education and other resources are needed by industry. lan Peters, recently appointed Chief Executive of the Institute of Internal Auditors, points out that skills need to be maintained if manufacturing is to make a comeback after the present recession ends. More seriously, there is a limited awareness about engineers and engineering amongst young people. Among people applying for courses in science, technology, engineering and mathematics - Peters notes - medicine, sports science and forensic science are more popular than engineering, chemistry and computer science when it comes to those studying for first degrees. Young people on the threshold of choosing careers need information about science and engineering - especially about innovations which make major contributions to things like climate change or combating disease - via the media, role models, company visits and work experience.

Workers for manufacturing need not only to be recruited and properly trained: they also need good management once they’re in employment. John Philpott, Public Policy Director and Chief Economist at the Chartered Institute of Personnel and Development, points out that workers in UK manufacturing are the worst-managed, with productive people-management methods rejected because of inertia and lack of management or workplace skills (although good managers who can win the hearts and minds of employees are able to bring about effective reorganisations). There is a need for government to increase the amount of investment in public bodies offering skills advice. Finally lan Fells, Professor of Energy Conversion at the University of Newcastle since 1975, and Candida Whitmill, an entrepreneur based in the south-west of England, remind us that energy concerns have been about carbon emissions rather than security of supply and potential costs. Market-led energy strategies aren’t providing secure energy or protecting the environment from climate change. And we lack energy in sufficient quantities: much energy-producing plant due for closure will have to be retained, whilst the National Grid also requires substantial investment.

The overall picture painted in Nations Choose Prosperity is a damning indictment of British attitudes to industry and its resulting poor performance. But is the existence of those attitudes really so surprising? Since the 19th century, science has been regarded by British cultural and educational policy-makers as being somehow inferior to the arts. The Romantics had a dislike of the Industrial Revolution which was seen as dirty and responsible for the harsh living conditions in industrial towns. Public schools concentrated primarily on an arts-and-classics based curriculum designed to help produce gentlemen, with grammar schools offering a watered-down version of this (though, possibly, with a more positive view of science) and secondary schools producing factory and shop fodder.

Standards of technical education and training were - at all levels - inferior to those of America and Germany. Post Second World War British industrial planning failed because it was carried out by amateurs rather than - as was the case in France and Germany - properly trained technocrats. Today, few people seem to see the link between science, manufacturing, and the production and development of the day-to-day technology - such as the internet and computer games, cars and aircraft - which we take for granted and whose loss we would note very quickly.

Feminism has also - arguably - been influential in the downgrading of science. Changing its tune from the 1970s when it sought a situation where women could go on to emulate - and draw ahead of - male achievements, contemporary feminism seems largely to have withdrawn into a sort of soft separatism where, rather like the Romantics, it sees science and technology as coldly masculine: they are not touchy-feely. Yet, without them, manufacturing cannot take place. Pundits advocating Green sustainability appear to share the same outlook, despite their espousal of low-energy technology. British managers and workers - unlike those of post-war West Germany and America - arguably have yet to learn to see themselves as being on the same side in the nation’s trade war. Finally, manufacturing demands the sort of hard work which this country’s workforce - at all levels - finds uncongenial (do the French or Germans have an equivalent for the term ‘water cooler moment’, one wonders?).

One wishes the Civitas team well: it makes a compelling case. But it has a mountain to climb in attempting to rejuvenate - or, rather, resurrect - British manufacturing policy. Effecting change will not be easy, especially when it comes to the determined slaying of disparate sacred cows like equality legislation, laissez-faire, protectionism, and the all-must-have- prizes attitude which results in education lacking intellectual rigour. Politicians and financiers may not like having to listen to - and heed - rude mechanicals. However, in his foreword, David Green explains that Nations Choose Prosperity is the first in a series of publications from the Civitas Manufacturing Renewal Project, and that it will be followed by a stream of pamphlets on specific issues. We should look forward to their emergence and hope that they spark debate about what has for too long been regarded as a closed, unfashionable subject. And one which is now more important than ever.


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