Can we manufacture? Yes we can.
Should we manufacture? Yes we should.
As someone who has worked in private sector manufacturing, in private sector services, and in government, I feel I have an unbiased view of the worth, achievement and desirability of each sector.
We need all three. My period in government confirmed my view that we could do more for less in the public sector, as even then government was way behind the best practises of the private sector. The efficiency gap has got much larger since.
In those days Gordon Brown and Labour bemoaned any contraction in manufacturing. Some Labour figures even challenged the idea that services generated wealth or were worthwhile. How that has changed, now we have seen a sharp decline in the relative importance of manuacturing under this government, and now we are entering a savage recession which is hurting manufacturing more than services.
We also see many UK manufacturers who have done all that could be asked of them to raise their game. Managers have developed new products and pushed through better ways of working and managing working capital. Employees have co-operated, improving working practises, gaining new skills and recognising the need for profitable activity.
The closures and contractions of steel plants announced this week are a sad commentary on where we are. Of course we should be producing steel here at home. We need it to make cars and white goods, steel frames for buildings and components for many products. At the current level of the pound the UK should be especially competitive. Corus ought to be looking at plans to divert more steel production from the continent to the UK, as it must now be better value here.
It should be a good time for manufacturers to dust down daring plans to expand and capture more of the world market from our more comeptitive base. That is why manufacturers are so angry about the banks with government money in them. They want more support for their longer term plans and for their short term working capital needs, so we have some capacity left to take advantage of the big swings of the currency.
20 Comments
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January 27, 2009
Didn’t we try all that in the 70s? Picking winners, supporting them with tax payers money, and they all turned out to be losers.
If you want to help businesses, no matter which sector they work in, cut taxes and regulations. Then leave the market to decide if manufacturing should have a home in the UK.
January 27, 2009
No question, you are right but, can you see any politician believing this.
Socialist ministers are (they think) omnipotent and are compelled to lead change even though history shows their forebears always got it wrong, and this disease has spread to much of the opposition parties.
Lets hope John stays faithful to the cause and continues to promote market economics, he is possibly now our only hope.
January 27, 2009
We like the optimistic tone that you demonstarte in some blogs to contrast with the necessary coverage of what’s gone and is going wrong.
It’s too easy to say that lower overseas labour costs will always defeat us. UK MANUFACTURING should be extracted from the amorphous mass described as ‘industry’ and given it’s special priority for the reasons you outline. It then makes sense to concentrate on 3 sectors:
1. Those things on which we have a technical edge or traditional reputation.
2. Those things that are heavy, bulky and too expensive to transport economically from overseas.
3. ‘Tomorrow’s products’ – items that we invent or are launched into long-term growth markets.
In the way the Japanese have come over to show us how to make cars economically we should import management talent and techniques.
When this writer lived in Australia he advocated, and got at State level, a ‘Minister for the way they do things overseas’. Britain needs the same – although in our case we don’t need the dead hand of government but you gat the drift.
There’s absolutely no reason why we should not again become a manufacturing force but, as with other problem areas, it needs a clear-headed 10-year plan plus flair and impetus.
January 27, 2009
The Government should immediately reform the bankruptcy laws relating to companies. Something more like US Chapter 11 should apply in this country. This would allow more time to see if a company can be saved or sold on to a third party. This is an important issue in manufacturing and in the saving of jobs. Our current bankruptcy regime was designed for another era and is inappropriate in 2009. As ever, the Government should also benchmark with other bankruptcy regimes in the EU and elsewhere to see if they have something we can learn from.
January 27, 2009
Labour cost will not always pull industry offshore. It may do so for the simplest non-technological processes, to the benefit of both us & the countries making our socks, but at the hi-technology end we have a massive advantage – nobody is going to buy high spec steel forged in Zimbabwe.
In fact with increasing automation labour is forming an ever declining part of manufacturing costs. What is forming a higher part is the costs heaped on by government.
The real clue to Corus is the warning that Europe’s CO2 regulations wopuld force them overseas, made some time ago http://www.independent.co.uk/news/business/news/corus-we-will-quit-eu-to-avoid-carbon-regime-1065639.html plus the fact that our electricity, a major factor in their costs, costs 4 times what France’s does because of our Luddite government.
The cost to government of employing regulators is 1/20th what these regulations cost the economy. If we had had a relatively free market for the steel industry, including a free market choice in producing power, it would indeed be taking trade from abroad rather than the opposite. I believe this applies to a very large proportion of our economy & that while finance may be the particular cause of the recession the general cause is long term government enforced Ludditism.
January 27, 2009
And where are the customers?
Where are the loans that enable the firms to take advantage?
The answer is missing. Brown’s screwed it, and so far the Tories have no answers
January 27, 2009
The manufacturers may be angry with “the banks with government money in them”. They are probably forgetting two things:
1. The government itself is soaking up available funds to the tune of ÂŁ100 billion this year – why would anyone put their money in a (perceived as relatively risky) bank at near zero percent when they could buy (perceived as safe) gilts instead and get a decent return?
2. Why would a bank lend money when the government has been telling it to increase its reserve ratios, when interest rates on its lending are close to or below the cost of its capital and when the demand for the goods the manufacturers want to make is dropping?
We really need to get over this “blame the banks” game. The issue is not the banks. It is incompetent government policy both here and in the US.
January 27, 2009
Higher interest rates – Yes we do need them.
Cut spending
Lower coporate taxes – compete for business with other countries. Since most countries have gone for fiscal nonsense all taxes will be high. If we do this right it should not decrease the tax take (laffer curve).
Balance the books.
We need to contract the debt (private and govt) and save instead.
We need asset values to continue to come down.
The danger of the whole world looking for keynsian stimuli cannot be understated. It means that world demand will be depressed for up to 10 years.
Basically we need a recession. Unfortunately Its the the nasty medicine we need.
Yes there will be unemployment but it is a choice between people being unemployed for 2 years or for 5 years.
Lets rip the plaster off.
January 27, 2009
Until UK energy prices come down, it will be expensive to site energy intensive industries like steel production in the UK. Once the realities of current production constraints become manifest, the days of oil at <$40 bbl are fast dwindling (if you accept we will escape the Big D in favour of a long R). This will exacerbate the problem.
We are paying for years of neglect in building up our energy infrastructure, and the timing is now terrible. But instead of firehosing our money at consumers, we need to pay serious attention to things like our energy and other infrastructure if the manufacturing base we so desperately must expand is to be able to compete in a fluid and fluent international market.
In the meantime, the billions that could have been devoted to this exercise were blown on a malfunctioning tax credit and benefits system, IT programmes whose development and implementation is world-class only in its incompetence, the massive inflation of the nonproductive components of the public sector and a host of other government initiatives too depressing to catalogue. Oh, and let’s not forget our bank package that rescued the world, while we’re at it….
January 27, 2009
A little OT, but ref. Mandelson’s “support” for the car industry, via consumer loans. If he wants to help car drivers and manufacturers, why not just reduce fuel tax ? But no, Labour wants an ever more complex system of taking with one hand and giving (some) back with the other, creating dependency. There is a big danger that the financial crisis will be used as an excuse to systematically increase government interference in our lives.Are the Tories ready to counter this ?
January 27, 2009
A very good point and one I made some weeks ago.
The Government has been heaping more and more taxes on the cost of motoring (increasing petrol tax and VLD)
Is increasing the purchase tax (Showroom etc) of new cars which has depressed the value of most used cars, and wonder why no one is investing in a new vehicle.
The problem is lack of joined up thinking by the Government.
If you get blood out of a stone once your very lucky, but more than once !!!!!!!!!!.
We now underwrite the failure of the above policies, just like most of the others this Government have introduced.
If Brown &Co can do things the complicated and expensive way they do. Too many policies to list.
If Brown & Co can interfere with micro management they do.
If Brown & Co can distribute/spread the money around to vast amounts of people who do not work and have no intention to work they do.
If Brown & Co can make as many people reliant upon the State they do. Either with complicated benefits, top ups, rebates, or State employment
Why, because they can, and because if you are reliant upon the state to live, you tend to vote for them that puts the bread on the table !!!!
The problem. The fewer and fewer people who are in work will be paying in taxes for more and more that are unfortunate and cannot /or will not work.
The lesson will be learnt by the majority at some time that this cannot continue.
The hope, it will be soon.
January 27, 2009
We need more world-class companies like Rolls Royce who can combine high tech manufacturing with associated services, e.g. they lease their aircraft engines by the hour with full maintenance included.
http://www.economist.com/business/displaystory.cfm?story_id=12887368
January 27, 2009
A question: what are clever sixth formers aiming at when they grow up?
I have only one pupil at the moment, and she (idiot!) is determined to be a secondary school teacher!
Girls seem to do much better than boys, so, I suppose girlie subjects are now the most popular?
I suspect that most school leavers want to be lawyers. That leads into politics, perhaps even the EU gravy train.
Then a lot want to go into some form of government paid employment. (Doctors? Prison Governors? Police?) You can make a lot of money, do very little work and rise to the top of, say the NHS, and become a Baron(or something).
What about a nice job on the Telly? Or a model?
You do not want to go into a geeky subject like science. What about, perhaps for a few boys, something in computers?
The last thing you want is to get your hands dirty with, say, farming, or plumbing or building or manufacture. That is for failures.
And if you want to make money, the State is the place to do it.
I wonder if I have got this right?
January 27, 2009
I fear that the “Tipping point” of manufacturing was reached some years ago. At the heart of manufacture is engineering and, increasingly, good high design none just metal bashing engineering.
With a few notable exceptions, such as aerospace, the UK is generally second rate in the field of engineering.
Locomotives, machine tools, ships, the “design” of automobiles that are assembled here are all imported. Thirty years ago nearly all of the printing presses in the UK were manufactured here; today you may find them on small regional papers.
We can’t build our proposed aircraft carriers without foreign help, or our nuclear power stations.
Students can get into university to study engineering with very poor grades, such is the lack of competition.
Then a lot of the best graduates leave to train as accountants, lawyers, jobs in the financial sector.
This shows a certain logic, engineers can easily find themselves made redundant and on the scrap heap in mid life.
How many engineering graduates leave the best universities to take jobs in smaller specialised engineering companies?
I count my blessings that I went into the softer option of accountancy, most of peers, who were far more intelligent than myself, have earned less, been made redundant now and again end up having their futures decided by a few accountants and marketing men population the boardroom.
The status of engineers is quite low in the UK
Go to an average German city and you will find a wealth of small specialised engineering outfits.
This helps the country become a huge exporter.
Most of the entire infrastructure in the UK does not exist anymore, we just threw away any leads that we had – The UK is the only nation to have launched a satellite into space once.
Today look at the need for this technology and the spin offs that derive from it. Now nations such as India and Pakistan are more advanced in missile technology than ourselves.
A far cry from the Victorian pioneers, for a time engineering was the thing to do – look at the base of the Albert Memorial – Of the four corner structures one is dedicated to “Manufacturers” “Engineering” and another to “Commerce” the other I think is to agriculture.
We had Lord Armstrong and a string of other entrepreneurs. Today it’s just gone out of fashion.
When we call for manufactures to step into the breach and take advantage of the cheaper pound it ignores the fact that most of them are no longer there.
In summary if you’re going to have world class industries you need the best and brightest to go into industry and it just doesn’t happen.
Sorry to sound despondent about it, but it’s what I believe to be true.
Mrs Thatcher’s changes, rolling back the state and taming the unions was a huge help, but the steady decline in manufacturing has continued under governments of both persuasions.
(See letter from Singapore in today’s FT – UK has nothing to replace North Sea oil exports and the shrinkage of the financial sector)
February 7, 2009
Bill, I don’t agree that engineering is a career which, only students with poor grades opt for. Infact engineering is one of the popular career sectors opted by the oxbridge students, here’s the link for more details of the report http://www.topemployers.co.uk/oxbridge-students-graduate-jobs-survey-08-page4.html . Accountancy is less popular when compared to engineeering as per the oxbridge survey.
January 27, 2009
Writing as someone heavily involved in a manufacturing business (in my case materials for the electronics assembly business) I fear I have to point out that we cannot compete with Chinese manufacturers for the simple they are (still) artificially repressing the value of their currency. They also impose arbitrary quotas, foe example on metals exports, which has the effect of suppressing prices of commodities within China itself. This plainly isn’t free trade, it is mercantilist behaviour, yet all western politicians seem to be turning a blind eye to it. In the meantime we continue to lose jobs & market share.
January 27, 2009
Every letter here has a valid point to make and it highlights the fact that this country has been drifting along without any coherent stratagy for too long. The present system has got us where we are and nobody knows if the actions taken to recover are going to be effective, in fact the goal of getting back to where we were seems rediculous. This is a time of great difficulty and as always it presents an opportunity of the same magnitude. People are beginning to understand that cheap energy, food, and other goods are not guarenteed, and that if you are not in control then you are at someones mercy, a commodity that may itself be in short supply. We have abundant coal stocks. as do many developing countries, is it really beyond us to create a clean and efficient way of using it? our land and seas could feed us if they were returned to our control. Why were we a more literate nation before we had public schooling? is it really so difficult to inject pride and self reliance into children? Does a city council really need over 100 managers on 50K+?
The truth is we have become bloated on easy money and that is now going to be in short supply. So what should we do? well a little democracy would be a nice change, we could lose large chunks of the state apparatus and act locally with local people giving their time for the benefit of their own surroundings, we used to know how to do that. Apply that thinking to miuch of the great body of state and we would save billions. KISS has a lot going for it, slash pointless regulation and simplify taxes, make it worthwhile being in business, and give all those soon to be unemployed uncivil servants a good reason to get up in the morning, they will thank you for it (but not just yet).
January 28, 2009
Manufacturing must be allowed special-tax-status by a Conservative government with new business even being allowed to operate tax-free for a given time so that it can grow and is given the time to develop a job-creating infrastructure.
Manufacturing is particularly important in providing the much needed safety-valve of exports, as well as making us less dependent on the economies of the East.
Manufacturing can also provide the real vocational skills and apprenticeships that the youth of our country need. The concept of a skill for life can become a reality once again.
January 28, 2009
Energy costs are a major problem for ‘big’ manufacturing.
Energy costs for end users are rising, because politicians have been duped into introducing inappropriate taxes and levies on energy by the Climate Change mob, the truly hideous unintended consequences of which will unwind over the next decade.
Long term security of supply and price stability is a major issue for the really big users. Again, the political class has been duped by a cabal of various NGOs, the EU, and certain ‘scientists’ that experimental and untested environmentally friendly technologies offer a trump card in the fight against climate change, a proposed theory which is currently being tested to destruction by the scientific process (belatedly). The Tories in their ‘Dash for Gas’ in the early 90s, and Labour in their boneheaded prevarication, have messed up the Energy supply so much in this country. Let’s see the result of those policies:
An aluminium plant employing 500 people is scheduled for closure on Angelsey, because the nearby Wylfa nuclear plant is nearing closure. Ironically, it looks like permission will NOW be granted for a new plant, but not in time for there to be an orderly transition. The operator would rather close the plant than mothball it for several years.
Get used to this happening.
I would like to see as small a state as possible, but there are cases; like the one above; where the Government must take long term decisions. Why can’t we have some French style ‘Joined up thinking’? It will be interesting to see how the present political class (Government and Opposition) are judged by History. The upcoming Energy crisis, created by perverted science and lack of foresight, will be a fitting obituary for the lot of you.
January 28, 2009
John, the Conservative City Technology Colleges were rebranded as City Academies by Labour. Do you think there is a case for City Technology Colleges as distinct from academies. Which could have a largish proportion ‘selected’. We – as a nation – need to develop kids who have talent in this area.