Sunday 3 May 2009

Is Manufacturing the answer: Debate

Read this link here first. It is even at a skim a very good report by PWC on the manufacturing sector in the UK over the last 30 years.

It makes some key points such as:

The sector has grown substantially, doubling in size since Thatcher came to power, just not as fast growth as the services sector.

Under the Thatcher Government (it does not say this, but look at the graphs) and Major Government manufacturing increased hugely; by comparison it has been weak under the Callaghan and Blair/Brown Government.

All countries, even Germany and Japan have suffered similar relative falls in employment in manufacturing, due to both globalisation and productivity improvements.

So, should a new future UK Government have an industrial policy? Is the future of job creation to go back to having a larger manufacturing base?

My view to start the ball rolling, is that Government's are poor at picking winners and should use tax breaks rather than state interference for most areas of manufacturing. Also service sector growth and employment rates are better globally, so re-orientating the economy back towards manufacturing will lower the growth potential of the economy. Manufacturing has a key role in the UK and should be seen as a key sector, but not a special one....


Tuscan Tony said...

manufacturing works as a sector provided we are better skilled than our competitors - grunt jobs are best done in China. For the time being, Chinese made engineering or clothing product (in my experience) look as good as Western ones but fail the use test. Live example: I bought a pair of Ralph Lauren deck shoes last summer, and 2 months later the leather has started to split and crack along a seam. They looked perfect, but when I showed them to Paolo The Peasant (as an ex-leatherworker from a shoe factory), after a few seconds he said "they've cut the wrong part of the hide for this sort of job, plus the leather should be turned 90degrees). OK, Western man won that one, but it won't taken the Chinese factory long to learn that skill I reckon.

Best we stick to more cutting edge things than mass-manufacturing, and leave it to others to build the damn' things.

Raedwald said...

Remember Kaldor's growth laws; manufacturing is the engine of economic growth, generating faster rises in GDP than its share would warrant, disproportionately increasing the multiplier effect and driving growth in the non-manufacturing sector.

And a positive correlation between growth and productivity - i.e. that manufacturing growth is a virtuous upward spiral, driving productivity gains and increasing competitive advantage, makes it an essential target for national economic policy.

Yes, tax breaks and deregulation are the way - government is simply not capable of the level of market knowledge required to centrally control manufacturing in any form of command economy.

The low pound gives us a huge natural advantage. An uncoupling from the EU's regulatory framework whilst maintaining open and tariff-free trade with Europe would allow UK manufacturing to reap dividends.

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

I disagree with you, CU. Not for your answer but for asking your question - you're asking it far too early.

I also disagree with Tuscan. Why shouldn't 'grunt work' be done here in Britain ?

Answer: welfare.

Welfare is Britain's problem. How to limit welfare is Britain's answer.

The remedy will be hard and bloody, I grant you that, but it needs to be faced head on if Britain is ever to recover. National bankruptcy is a good start - this will mean no half-hearted measures.

There are far more serious problems in Britain than the defunct economy - things that could make an economic depression very nasty indeed. In fact it has been during our most prosperous times that the gravest damage has been inflicted upon our civilisation and our freedom.

(I rarely venture into politics on my own blog now. Thanks to you and your like for giving me this outlet.)

Old BE said...

Tax breaks are just as much "picking winners" as anything else. They just distort investment rather than nurture growth. Manufacturing and other industries will only thrive when the overall tax burden is lowered.

Britain was very competitive internationally by 1997. We can be again but we must have a bonfire of controls and a massive cut in the size of the state.

CityUnslicker said...

BE - I am not sure about tax breaks, it depends how you do them. Tax breaks for start-ups and and R&D seem like to make sense to me.

INdustrial policy is different - it is mandarins picking the winners not the market.

I think that you cannot leave it all to the market as the market is imperfect and other countries game the system in the global economy.

The balance is to get the intervention as minimal and non-distortive as possible.

idle said...

Good post and thanks for the report.

Barring an EU implosion, UK manufacturing's massive devaluation advantage might very well last for a decade, given the govt's massive borrowing requirements. This is more important than govt attitudes to manufacturing.

I agree with e-k that something must be found for the millions of bovine halfwits who will otherwise remain unproductive for the whole of their lives and milk welfare dry. I have in mind a treadmill, or somesuch.

Deregulation by reverting to free trade status with Europe is a no-brainer, as it has been for twenty years.

Ditto cutting the state back to 35% of GDP (max).

Electro-Kevin said...

A treadmill, Idle ?

I'm on it already. Yet another bank holiday worked (with no extra pay) ferrying benefit chavs from one pub to another.

Bill Quango MP said...

Militarily, we can't beat the Yanks.
We can't create tanks or rifles of Air to air missiles that compete on performance and price,yet we insist we can. Because of jobs. Not even that many jobs either, some 200,000.
We never try and beat the Japanese on AI/domestic robot technology, we haven't offered our Video Gaming industry { a sector that is as large as the movie industry} a bean to try and develop a new generation PSP that would sell in 100, 000, 000's of units at huge profits ~+ add ons + software + the whole time generating exports.

What are we suggesting we make? Where do we compete?
Is it just engines and torpedoes?

dearieme said...

Get out of the way - the best thing that Government can do is get out of the bloody way.

Tuscan Tony said...

E-K - I'd roll the issue back even further than your suggestion of cutting welfare: make the UK borders entirely open/porous and cut all social housing. Anyone not up to the job, regardless of origin (native English or otherwise) can either stay and make the UK the Hong Kong of Europe, or take their skills elsewhere. I'm afraid that I disagree with you re low-skill jobs: the UK is in my view (as I've said for years) overpopulated by 30+million, grunt jobs often go with pollution, noise and industrial ugliness: leave that sort of thing to India, China, and, yes, Africa. Western Europe should be concentrating on clean skills.

Tuscan Tony said...

Raedwald: Kaldor's Growth Laws were applicable when they were formulated around 70 years ago, but why today - what is the difference between say the manufacturing of a pallet of galvanised steel buckets and the manufacturing of a financial instrument? Almost nothing, I would say, with considerably less risk of industrial disease in the latter.

AntiCitizenOne said...

No. Manufacturing is only a proxy (i.e. less efficient) for time exchange via goods and requires a massive dead-weight in factory costs..

Electro-Kevin said...


30m + overpopulation.

Then the answer surely is a reality check. Credit crunch right on cue. Looks like we're about to get it.

An onslaught on the very thing which enables such grotesque overpopulation.

I only wish I could remember the name of every important person, their wife's names, their kids' names, their birthdays ... Alas I can't.

Then I wouldn't be mired in this shit.

Tuscan Tony said...

With you there, Anti, you put it much more succinctly that I did.

E-K - I suspect we'd mainly be in agreement on the next face-to-face meeting.

Electro-Kevin said...


I don't doubt that there'll be anything less than agreement at our next meeting... whenever that may be.

I suspect that I'd get on really well with Paulo - bring him along.


Philipa said...

"So, should a new future UK Government have an industrial policy? Is the future of job creation to go back to having a larger manufacturing base?"

Yes in that manufacturing is one of the wealth creating industries along with farming and fishing. The government does nothing to protect or nurture these industries or indeed attract denovo investment. Increasing the public sector does not create wealth it just moves it around. It has to come from somewhere and at the moment a good chunk of it is being borrowed. Unless the UK can offer services that are attractive offshore - such as banking, which it won't/can't - that generate wealth then the historic wealth creating industries of manufacturing, fishing and farming are what we have, let's use them.

Tax amendments to nurture yes, but other methods should be considered. At the moment the animal husbandry/animal welfare laws are so strict here in the UK they are counter-productive in that imported meat that is trimmed or even packed here I believe can be sold as British. As other countries can produce meat cheaper due to not having to adhere to our strict laws then it's not a level playing field. At the very least the packaging laws should be changed to reflect the true origin of goods.

Simon Fawthrop said...

I've often wondered about the distinction between manufacturing and services jobs. One hundred years ago it might have been easy now I'm not so sure.

Take mobile phone networks, for example. Firstly we have the metal bashers who make the cabinets the equipment goes in. Then we have the component manufacturers, the assembly board manufacturers and the people who put them together.

The whole lot is bloody useless without the radio engineers who work out how it should work and the software engineers who stitch it all together. Are the in academic, manufacturing or services jobs?

And then there's the (in)famous outsourcing. If a widget factory employees 1000 people they are all counted as manufacturing. If they then outsource the 100 people in IT that provide the software for the machine does manufacturing jobs drop by 100 and services jobs rise by 100? A net switch of 200 jobs.

Philipa said...

EK - you seem obsessed with benefit chavs and seem to think they are the root of all evil. Why don't you just shoot me?

Anonymous said...

If Britain wants to compete with low labour cost countries, such as those in the far East, the only way it can be done is by selling products that are both genuinely better quality and are perceived as better quality by the consumer, thanks to marketing that enforces this message.

Competing with low labour cost economies is not an option (BL/Rover is a sorry example.)

Rather than looking to the far East or the US, our best lessons are probably to be learned from the Swiss - particularly their horological industry or pharmaceuticals - high skill and high value added industries.

Unfortunately, our Universities are turning out a generation of Media Study and Forensic Science graduates...not quite high skill / high value added graduates.

Mick said...

We can't create tanks or riflesWell yes, the SA80 is awful. But we do make some damn fine sniper rifles.

Anonymous said...

"Is Manufacturing the answer:"

To what?

Eckersalld said...

Manufacturing isn't the answer, as we have to import most of the raw goods - which means eventually ways will be found to reduce the supply chain taking the UK out of the equation (see cotton mills).

We could look at more high level manufacturing, but since we've spent the last couple of decades devaluing material and engineering sciences that would require massive investment just to maintain existing skill levels in the employment market. A quick look in most Uni's engineering departments will leave you a depressing stench of decay, we were using failing and outdated equipment in the 90's, and since then its got worse by all accounts.

We would also need to tackle the current lack of work ethic out there, otherwise it'd be immigrant labour and not native getting those jobs, thus doing precisely bugger all about unemployment.

I'd like to see the UK initially become something of a tax haven and global educational centre, those are foundations to build a future from, merely trying to fix the present is simply going to result in a series of half-assed bodges that'll bust open when the next ave of economic pressure comes along.

Anonymous said...

Philipa, benefit chavs may not be the root of all evil, but they sure don't help.

Philipa said...

Anon - neither do the bankers or indeed the politicians.

Sebastian Weetabix said...

I am late to this discussion (work intervened) but I am baffled by AC1's comments: "Manufacturing is only a proxy (i.e. less efficient) for time exchange via goods"

Hmmm. As an ever so 'umble engineer who works in a mfg business, all I know is we take 'stuff' & turn it into 'things'. I sell these 'things' for a lot more money than the 'stuff' cost; indeed we sell them not just for considerably more than what the 'stuff' costs, we sell it for considerably more than the transformation itself (known to us insiders as "processing") costs. In other words, we objectively add value. I enjoy that added value in the form of "money" which allows me to buy other stuff.

My problem with an economy which does no mfg at all, is where do you create value? Through funny money fiat currency?

You might all giggle at the stupid Chinese doing the donkey work of actually making stuff, but you watch... the service businesses will follow. So will the R&D. Eventually they will have all the money & we will work - if we work at all - in a sharecropper economy.

As to what the government could do to help us: here is a real mfg man's manifesto.
GET OFF MY F***ING BACK. Stop making it difficult for me to hire people & fire people. Stop bombarding me with thousands of bullshit regulations every year. Tax me less so the money can fructify in my pocket & my employees' pockets. Simplify the tax code so I don't have to employ legions of specialised professionals even to understand what the HMRC actually wants. Abolish the vile protection racket which is the HSE. Try to create a level playing field - when the devious mercantilists in China (& elsewhere) engage in currency manipulation & illegal cartels/subsidies etc., don't turn a blind eye - penalise them.

Most of all, don't tax value-adding enterprises such as mine to fund twat bankers who have pissed all the money up the wall. Restore moral hazard & don't waste 14% of GDP propping up the dead of the financial world.

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