The Sunday Times raised the question when will the march of the makers speed up? When will the UK make more items and export them? It was a good question, but the answer was disappointing. The article concluded the government’s target to double exports by 2020 would not be hit, and gave as its main reason economic weakness in Euroland.It doubted the ability of the manufacturing sector to increase as a proportion of the whole economy.
The background is the relative strength of the UK service sector, and the resulting inability of manufacturing to grow faster than services. The reasons are more complex than recent weakness on the continent.As the article rightly pointed out there are some good successes in UK manufacturing. There has been strong growth in vehicle manufacture. UK pharmaceutical and aerospace are still good strengths. The main reason the proportion of the economy represented by manufacturing is not growing is the strong growth of the much larger service sector, itself no bad thing.
Over the week end I went to the shops. I saw a stunning array of manufactured consumer products available. Some of them were on sale at very low prices, making one wonder how the supplier of the raw materials, the manufacturer, the shipper and the retailer could all make a worthwhile profit from selling them. I bought a plastic handled washing up brush for 99p, only to given a free one as they were on two for one offer. I bought a pleasant looking and practical dustpan and brush set for Ā£1.99. Leisure shirts were on offer for a few pounds each. I could have bought two excellent folding armchairs with carry cases for Ā£10 for a pair. There was a stylish metal and glass table, four carver chairs and a centrally mounted umbrella for under Ā£50 for the set. Meanwhile a two course lunch with a soft drink and coffee in a typical chain restaurant in the shopping centre would cost about Ā£20 per head.
The value added seemed to be in the service sector. As always, the biggest winner from my shopping was the UK public sector, with a high car park charge, VAT, and fuel duties on my travel.
The UK is unlikely to find investors wanting to make simple plastic or textile items in the UK to compete with these prices, at a time of excess capacity in Asia. The UK’s skills lie in finding ways to retail and use the cheaper items. UK manufacturing is impeded by high energy prices, a common EU problem. Ceramics, aluminium, steel, glass, bricks, cement, tiles, petrochemicals and a wide range of other manufactured materials and products have very high energy costs. Even assembly activities these days may well incur energy costs several times the labour cost given the high degree of automation. UK manufacture usually needs to include strong branding, good design,and a high technical content, to be successful.The branding and marketing requirements in turn provide value added opportunities for the business service sector.
The UK’s long march of the makers will take time. It requires more engineering and science graduates, more manufacturing entrepreneurs, better transport links to raw materials and to final markets, and above all cheaper energy. The government has policies for these, but they are not quick fixes. In the case of energy EU controls make it very difficult to get competitive energy prices here in the UK. Meanwhile services are adding considerable value and are attracting more and more custom. The maker of the cup and saucer or the grower of the coffee or the farmer producing the milk may make less money than the coffee bar selling the finished product of the perfect latte or whatever. Brewing the beverage, retailing and providing a place to relax and drink adds more value in current markets, so that’s what more people do in the UK. If they sell these services to foreign visitors then it helps pay for the imports. If we sell the services to each other it generates incomes.
August 10, 2015
I studied Mathematics then Physics and later electronics at Universities but found it far easier to make more money in Financial Engineering, Property Investments and buying and selling companies. I am all in favour or more engineers but so often it is much easier to make money as Lawyers, Accountants, HR experts and other often largely parasitic jobs. This largely due to the endless & often totally absurd laws, tax rules and regulations flowing from government and the EU.
Engineers are far more likely to be undercut by cheaper imported labour than Lawyers, Civil Servants and the like. Or have the jobs exported/located to cheap labour areas.
August 10, 2015
I entirely agree. Engineers have for long been undervalued in this country.
Perhaps many people will recognise the name “Brunel”, at least I hope they will.
But how many could name the holder of the World Land Speed Record? He is British, and the team that built the car is British and proud to be so. And the Team Leader was the previous record holder; and how British is that to be the inspiration and driving force of a project the objective of which would result in you loosing your own very hard won record?
August 10, 2015
yea but the new Thameslink trains are being built in Germany
August 10, 2015
The German way works. The following link is a must read.
http://www.tradegood.com/en/insights/viewpoints/manufacturing-lessons-from-germany.html?targeted=
‘Management’ is the key from the top down. Take note D.W.D.C.
We as a country will never equal let alone exceed due to our system.
Having said that I am avoiding buying anything German. due to recent serious issues with German cars, fridges, cookers, cooker hob and hood, freezers, boilers & washing machine etc., you name it. Never again for their over hyped products. It wouldn’t be so bad if they worked properly.
August 10, 2015
Yea, but your point eludes me!
August 10, 2015
Why do all Tory politicians seem to be former bankers or professional policy wonks (NM Rothschild spring to mind). Where are the people with experience of actually designing and manufacturing a non financial product ?. Someone with a logical mind capable of applying a little common sense ?.
Someone who can get things done and not just talk a good game..
Perhaps if we had a leader from this background instead of a spiv ex TV company PR man we might have a PM with a handle on the problems Mr Redwood has highlighted.
Reply Why do people remember I once worked for NM Rothschild, but never remember I later chaired a major industrial Group (Norcros)?
August 10, 2015
Re:NM Rothschild – no offence intended to our kind host Dr Redwood !
Reply I last worked for NMR in 1989!
August 11, 2015
I have nothing against persons with a banking or legal background become politicians they have valuable experience ….although I do believe they are over represented in parliament.
I think we suffer from a relatively narrow range of opinions being considered and ‘group -think’.
I am no banker basher.
My point is we need more independently minded people like yourself with business experience. I’d rather a few more former plumbers, electricians, architects, mechanical Engineers etc. enter parliament than more media people from the same pool.
August 10, 2015
The establishment in this country is largely composed of a privately-educated Oxbridge elite. That educational background prepares them for jobs in the senior civil service, law, and finance and when they get there they ensure those jobs pay far higher and with more benefits than jobs in engineering. I think it is somewhat different in other countries such as South Korea and Germany.
When I was at grammar school the brightest boy in the class who was equally talented at arts and sciences was channelled into taking PPE at Oxford as that was seen as the pinnacle of achievement. He ended up as a middle-ranking civil servant. Things are no different now.
August 10, 2015
I have a different theory.
You need clusters of people to make money. Think Silicon Valley, the City, Hollywood, even the Bresciani in the Italian steel industry in earlier times.
We have no manufacturing clusters worth talking about. Cambridge is an embryo of an embryo in hi tech engineering, but most good ideas quickly head off to the USA for manufacture. We have some really imaginative people in design, particularly in that geographic location, but they don’t have much idea about manufacturability, so good designs quickly go west. Design as seen as fashionable, but engineering and manufacturing aren’t, so by and large we employ low or no calibre people in this area. In turn this discourages the brightest and best from getting involved. They’d rather go and work for a bank, and they end up catching the poor manufacturer on the other end of their financial knife.
August 10, 2015
Yes, one pound for a set of 5 screwdrivers seems a bargain not made in heaven but somewhere near Heaven’s Gate in China. I dare say we will pay the real cost later.
I am not sure whether selling services to foreign visitors is a good little earner as we Brits tend to journey abroad in great numbers giving money back.
The service industry and its “income” amount to Cash Flow. Some Fund managers rave about cash-flow when analyzing a company’s performance. Well it is crucial in goldmining companies because of their particular financing. But in ordinary terms it is somewhat of a nonsense. For instance JR, if I were to give you a Ā£10 note every time you gave me a Ā£5 note, I would have remarkable cash flow and many pension fund managers would flock or swarm to invest in me. I would also possibly become your friend to boot until the money ran out for such success JR is brief…as a woman’s love…
” Manufacturing ” has always been a clarion call for UK political parties. I see Mr Corbyn in banging on about it. He does not say which particular manufactured item he wishes us to produce more economically than anyone else.. Cannot be screwdrivers, or rockets.
Perhaps self-erecting mobile homes for which we could use migrant labour thus making a killing on two fronts.
*Everyone please take note you first heard it here in the Comments Section of John Redwood’s Speaking for England.
August 10, 2015
I think that would be a good idea for the French and one I thought about weeks ago when I saw the conditions they were living in. This might encourage these immigrants to stay in one of Europe’s most beautiful Countries.
August 10, 2015
I’m sure ,given the opportunity, Mr Corbyn will do wonders for tractor production figures!
August 10, 2015
Those chocolate screwdrivers only make sense if you are attempting to fix a cheap and ultimately disposable work piece .
Otherwise if the blade of the screwdriver crumbles and rounds off the head of a fastener then you are in trouble .
One could do hundreds or thousands of pounds of damage with a 20p screwdriver . A properly sized hardened Ā£25 one would virtually eliminate the risk .
etc ed
August 10, 2015
Christopher Houston
I suggest you go and find out what service industry exports and cash flow actually mean, as both your examples aren’t very accurate
August 10, 2015
I suggest you read what is actually written in the article by JR, perhaps not what was intended to be written nor what you expect it to mean.
In point of fact I did not make any comment whatsoever on service industry exports. I suggest you re-read by comment correctly.
Also my my quip regarding Cash-Flow was not actually original. It was voiced a year ago or so by a gentlemen who ran a pension fund and successful hedge-fund. I believe he knows what cash-flow means.
In future perhaps you would care to drop the veil of “Libertarian” and perhaps use at least your Twitter account hat-off motif before making unwelcome and and totally incorrect criticisms. It is only polite.
August 11, 2015
Christopher Houston
I suggest you take your own advice
This is what you wrote about services
“The service industry and its āincomeā amount to Cash Flow. ”
No it doesn’t you’re wrong .
I dont care who your annoymous friend is he’s also wrong and god help us if he runs a pension fund, maybe you can tell us so we can avoid him. No one and I mean no one would invest in a business based on cashflow forecasts.
You dont have a clue what youre talking about.
Awaiting an apology
August 10, 2015
Its not just the price of Power John, although that is a factor.
It is also the cost of premises, the huge investment required for machinery, insurance, wages, and of course the availability of skilled and semi skilled people.
Then add on the inevitable overhead cost of Heath and Safety, Employment laws, National Insurance, Pension and payroll costs.
If you are an originator of your own product, (as opposed to being a subcontractor) then you also need design skills, marketing, and an R& D facility and ability.
Once you have such a set up, it requires a constant workload of orders for your product, because machinery or labour standing idle, is a cost that can never be recovered, thus you need labour that is flexible and will be prepared to work overtime when you have peaks in the business, so that the troughs can be covered.
Those in Government who think our manufacturing ability can simply be doubled in a short space of time, are simply deluded, and are blind as to how it operates in much lower cost centres throughout the World.
Yes of course we have high tech industries who are at the cutting edge, but they will never employ the millions of people who have left the industry over past decades.
There will always be room for the the box shifters, fast food outlets and coffee shops, but you cannot build a Countries stable commerce and wealth for ever on such businesses.
More than ever, we need teach our young people to get the work, drive, and entrepreneurial ethic that some of our more competitive less developed Nations have bred into their societies.
Something many of our pupils in our Schools and Universities seem to lack.
August 10, 2015
spot on. We avoid the hard long term manufacturing exports in favour of the relatively easy services that almost anyone can do. In the short term you get less unemployment, in the long term more. The non engineers running the country don’t have a clue, how can they ? All they have been schooled in is the quick turn around services, often also borderline crooked.
The analogy is also wrong. To say we cannot compete in the toilet brush export is true, but the conclusion then becomes we cannot manufacture to export. In Germany they make the machines that make the machines to make the toilet brushes. That is much more difficult, has larger barriers of entry and commands large profit margins. That is the level of exporting that we should be in. Not necessarily competing head to head with the Germans(their IQ is higher than ours!), but at that technical level. Not down below in the toilet brush market. That is the beauty of exporting, the entire world is your market as opposed to a tiny 60 million, the massive market ensures you will always find a niche if you do the hard graft.
BTW the reason why things seem so cheap is because free market economics(even relative non free markets like these) ensure innovation efficiencies. Things are now so cheap because we know now how to make them more efficiently than before. Schumpeter’s Creative Destruction on the march. While the silly dinosaurs attempt to always preserve the status quo.
August 10, 2015
Good explanation Alan of the problems facing manufacturers but another important point is that, despite Gordon Brown’s boast that he had eliminated boom and bust, this is exactly what governments always seem to do which consequently plays havoc with the fixed costs of a manufacturing plant. They don’t appear to look more than about 5 years ahead to the next election whereas machinery is often written down over a much longer period.
August 10, 2015
Whilst you continue with the stupid policy of shutting down major power stations and building silly windmills which double the price of power industry will suffer. Coupled with Gideons financially illiterate living wage, why would anyone want to contemplate starting a manufacturing business here.
I see today not only do we finance infrastructure projects in Eastern Europe we take their excess labour and treat all and sundry to free NHS care.
Why are you so incontinent with our taxes
August 10, 2015
Indeed power at twice its true cost, the financially illiterate living wage, plus the over regulation of virtually everything, expensive water, over restrictive planning laws, high rates, expensive housing and factories, insane employment laws, lots of misguided & OTT health and safely regulations, lots of expensive litigation, employment tribunals, daft fake “equality” legislation, huge over taxation (and over complex taxation), the half baked workplace pensions ………….. not easy to compete in manufacturing in the UK – mainly thanks to government.
August 10, 2015
Remind me what Tory Prime Minister secretly signed us up last year to 2030 energy targets? The same day he made a big pretence of insisting he would not pay the Ā£1.7 billion EU surcharge. We know the answer from cast iron!
August 10, 2015
Unfortunately it’s not as simple as saying “Oh we like you now. That stuff we said about you being the past and irrelevant for twenty odd years, let’s forget it, we didn’t mean it.”
The volume is gone and isn’t coming back. It’s not just the salaries and energy costs. My company built a facility in Mexico for the cost of one year’s rent and rates in Wokingham. That’s all the land, the design, construction, and fitting out – the full capital cost was the same as renting for a year in the UK. And the Mexican facility was built to a high standard on a much larger plot than the Wokingham one.
The reasons to make ordinary stuff closer to home than China or Mexico are lead time and transportability. So fashion chains will place volume orders in China but use the UK for trial runs and to top up volume for hit items when they need stock quickly. Some things like concrete slabs are heavy and low value and best made close to the point of use.
Note that the Chinese are building a railway to Germany that will change the transport equations further in their favour.
The areas we need to concentrate on are the high quality and high value added new technologies. The niches.
As for the skills in retailing. Let’s say an item cost Ā£5 to make in the UK and sold at retail for Ā£10. Then they switched to buying in China for Ā£1 but kept the retail price at Ā£10. They look brilliant in business terms. The thing is, what do you do for your next trick? And it isn’t sustainable in a free market because there is now plenty of opportunity for the discounters and the likes of eBay importers to come and take your market share. Customers like me who know the “China price” for things won’t ever again pay the full UK retail price if we can help it.
Hence deflation.
August 11, 2015
I’ve read the theories of comparative advantages and how both sides are supposed to benefit but ….
What happens to those people who used to make the garments and everything else in the U.K. when production is offshored ?
They cannot all be redeployed and there is no longer enough work for them . The situation is made worse by allowing people in from overseas to do jobs which they are vastly overqualified for .
So society ends up having to subsidise the displaced British ex-workers and they no longer have enough money to buy from their fellow Britons so this money stops circulating in the economy .
What really irks me is that we award Knighthoods and Royal Appointment to (mainly) retailers whose product all comes from overseas and has no British content .
Some even have the cheek to include “British” as part of their name !
August 10, 2015
I think you refer to the junk sold here from the far East. Shirts to fit the Asian model often. Buy it and quickly bin it. Most of the big retail stores employ seriously dumb buyers and seem to miss the fact that strong spending on clothes likely arises from the older generation. How are most of us after 40 going to fit into silly modern boy/girl clothes? Even their shareholders bitterly complain!
There are loads of jobs we need to do that immigrants have taken. Thats causing difficulties for both sides of any job. I was lucky to get into work when radio and electronics were at their most interesting and worthwhile. That didn’t last obviously, and software is not a replacement. Small black box changing has reached to very big black box changing often using guesswork. Really interesting, not to the bill payer though.
Services may turn over huge amounts of money in the insurance, banking and money fiddling organisations but I would not class that as worth much at all. Tax take is always about filling an ever deeper/wider wasteful money demand hole.
Talking about simple things…when is the milk problem going to be fixed. Or do I have to think about owning a few cows? Oh, BBC this am were on about goat farming…more real irrelevance. And the morning prayer man not getting his campervan fixed in England. Shetland mechanic fixed it good/fast. Praise be to God for the Scottish fixer?
August 10, 2015
“If we sell the services to each other it generates incomes.”
In the main selling to each other is what most people do at the moment – from the state employee to the child carer. If the coffee chain owner is avoiding tax by off-shoring, and using subsidised imported labour (funded by the long suffering taxpayer) then this is a drain on the country, not an income generator.
August 10, 2015
Anonymous
Er if we don’t sell things to each other who should we sell them too?
August 10, 2015
We should buy from companies employing locals and paying local taxes, where possible. Otherwise, too much m0ney leaks abroad.
Hence the Buy British idea, from years ago, though I expect it is prohibited now because it’s racist.
August 10, 2015
Robert Christopher
Whilst I agree to some extent how does what you posted relate to what I asked ?
August 11, 2015
Libertarian – Child minding and coffee shops do not generate national income. They offer services within an economy but are not wealth creating activities for a country except those being bought with foreign money – otherwise it is just the same money recirculating within a closed economy.
Robert – I do not advocate a ‘buy British’ attitude either (unless British really is best) but I do advocate a ‘sell British’ attitude.
Reply We can and do create wealth by trading with each other as well as trading with people in foreign countries!
August 11, 2015
Anonymous
Sorry you are just plain wrong. 85% of GDP is internal trade.
The same argument would equally apply to a European market or a global market, at the end of the day they are all finite. The Wealth is created by using new resources in different ways, by expanding the products and services on offer and by selling to different market segments.
August 12, 2015
Anonymous
We do NOT have a zero sum economyā¦ā¦ blimey I seriously worry about this country and its lack of very basic business knowledge
August 10, 2015
I don’t think we need more science graduates to make things. We don’t want to discourage these qualifications yet when we were at the height of selling our products it wasn’t due to science graduates.
These dinky little plastic things are always handy in the kitchen and agreed they are inexpensive , especially the dust pan and brush where you don’t have to go on bended knee. More devices should be made for those ageing who need light and easy devices. Look at these monstrous dustbins which fill up our green spaces. Why did we all get these huge things ?It is a case of blanket thinking .The mentality which says if I live in a big house I am rich or if I choose to live in a flat or a small house, I am poor or if I have an art degree I have no conception of scientific matters or vice versa.
At one time when we went to the shops it was a more regular event. The trip now is more difficult and not as enjoyable , due to parking restrictions and amounts of people out there.I will not go into Manchester as the one way systems make it impossible to find a straight way home and I need the car to go back to with heavy shopping before I continue, so going on a train is out of the question.
August 10, 2015
Science graduates don’t make things – it is too much like hard work and you tend to get your hands dirty.
August 10, 2015
Scientists make the first one. It works, but it’s too big, too heavy and too expensive, but it is new and it works.
Engineers then make it suitable for production, marketing and selling, and durable.
It then gets made abroad, because of the overheads, already mentioned.
August 10, 2015
Agree JR, but services in the UK are trending to low wage low skill hospitality type services. It is difficult to get large productivity gains in such sectors. Professional services rarely require large fixed capital outlays; hence are transportable to other climes, at the end of a fibre-optic data busbar.
The automotive industry has done well in the UK, particularly UK engineering designers. But, we build cars with nearly two-thirds of the components supplied from outside the UK; a large share of those coming from within the EU.
KPMG has done a report for SMMT on the matter and is a very good read. The theme of the report is applicable to the UK economy-wide; not just the automotive sector. (Not recommended for Eurosceptics š )
https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sector/Automotive/uk-automotive-industry-and-the-eu.pdf
August 10, 2015
Acorn
” services in the UK are trending to low wage low skill hospitality type ”
No they’re not. You do know what the full range of service industries are don’t you?
August 10, 2015
The IoS increased by 2.7% in May 2015 compared with May 2014. In order of their contribution to growth (listed in ONS reference table IOS1 ):
1. business services and finance increased by 3.1%
2. distribution, hotels and restaurants increased by 4.2%
3. transport, storage and communication increased by 3.7%
4. government and other services increased by 0.5%
The currently interesting bit is legal services (SIC 2007 Group 69.1: Legal Activities), which is responsible for the gain in the “Business Services and Finance group”, (the ONS distils down the data, into the four above groups). It appears that the volume and complexity of regulations, vomited by the EU/UK House of Commons, is filling the wallets of the UK legal profession, big time.
August 10, 2015
Acorn
Thanks for proving my post
3 of the 4 areas you mentioned are not low skill low pay .
Unless you think all lawyers work on minimum wage
August 10, 2015
“(Not recommended for Eurosceptics ? )”
Acorn, your premise being, presumably, that in order to have free trade with a country, one needs to be in a political union? I have never heard a Eurosceptic say we need to turn our backs on Europe.
Proximate nations in most parts of the world are very likely to have close trading ties which involve far more than the exchange of finished goods; what of it?
August 10, 2015
If the UK was outside the EU, it would be subject to a different set of tariff and none-tariff barriers. That affect, is currently presumed to have a negative impact on the gross margins of UK vehicle manufacturing plants; within a portfolio of competing plants worldwide, owned by any particular manufacturer. Hence, the mainly foreign-owned, UK motor industry is currently; shall we say, pensive!
Bilateral trade agreements won’t fall out of trees for the UK. Why would the EU continue to export significant quantities of motor vehicle components to a foreign country, when its own manufacturers could take the whole supply chain profits, straight into dealer showrooms world wide?
Reply The rest of the EU will not introduce new tariffs on the auto trade because Germany is such a large exporter and beneficiary of the current arrangements into the UK
August 10, 2015
OK JR, so how come BMW has started producing the MINI in contract plants in Graz (Austria) and Born (Netherlands). What sort of question mark has BMW management, put on the Oxford / Hams Hall / Swindon plants???
http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_com/produktion/produktionsnetzwerk/wo_wird_was_gebaut/mini.shtml
You Westminster guys, spend too much time, “behind the curve”, playing your Mickey Mouse / Punch & Judy politics game. The UK needs an EXECUTIVE that knows its arse from its elbow; your lot don’t. The UK needs a President with an appointed Board of specialist Directors, of proven private sector, capability.
Reply This contract production is taking place whilst the UK is a member of the EU so its clearly nothing to do with that issue.
August 10, 2015
Acorn
Er BMW have manufacturing plants in San Luis Potosi Mexico Shenyang China & Spartanburg USA
Whats your point?
August 10, 2015
Foreign owned plants are subject to transfer pricing, reducing the declared added value in this country, irrespective of whether owned within or without the EU; why move plants when an accountant can simply move a few numbers about?
There are many risks associated with foreign ownership which will not necessarily be mitigated by conceding our country, as well, to foreign ownership.
August 10, 2015
A great cost to manufacturing is housing.
This is why the coffee shop owner must charge a higher mark-up than the manufacturer of imports. She has to pay her staff reasonable living costs – even where they are migrants prepared to live four to a room.
Housing costs are our greatest barrier to competitivity, not energy.
Ironically high house prices are what is paying for it all. The country is living on equity release, not productivity.
August 10, 2015
Certainly the crazy house prices in this country are a national scandal.
August 11, 2015
Crazy house prices ARE the economy.
August 10, 2015
A job may exist in the UK whilst wages are only 3X those in the developing world but if the difference is much greater than this then those industries will probably be off-shored .
The developing world persuaded Western manufacturers to relocate to the East and is now incentivising banks and other service companies to do the same .
15-30 years ago this area (Wokingham , Bracknell , Reading , M4 corridor) used to be Silicon Valley UK but the opportunities in I.T. in the UK are a fraction of what they were as is the remuneration .
If accommodation prices are not brought into line with what a manufacturing worker can earn , then those jobs and industries will disappear .
People working in the domestic economy have remuneration packages which are uncorrelated with the rest of the world . Many are living in cloud cuckoo land . They seem to think everyone else is too .
e.g. Osborne and the rest of the public sector seem unwilling to acknowledge that manufacturers may be unable to pass increases in employment and regulatory costs on to their customers .
There are not enough high margin activities which the UK is uniquely positioned to perform . The only solution is measures to stop pricing ourselves out of the market – e.g. affordable housing .
If the UK needs manufacturing , how are you going to persuade people leaving school/college/university in 2015 to go into manufacturing when it is higher risk and pays lower than jobs in the domestic economy ?
August 10, 2015
Nobody wants cheaper accommodation apart from some of those who have to pay for it, and their views don’t count for much in comparison to those who want property prices to keep rising, and rising faster than general inflation.
August 10, 2015
There is plenty of affordable housing in the UK. Better to move manufacturing to where housing is affordable.
August 10, 2015
It’s all about the 3 P s
People, willing and able to make things to the standard required.
Property, unencumbered by planning restrictions and cost
Products, the relatively easy part because government isn’t interfering, but still finding niche products with a significant market here (few companies earn their first million on exports alone) is a challenge.
August 10, 2015
Good post John. Agree with everything you say here.
The price of our energy is behind much of our inability to compete on prices. China and India and much of south America can’t be fussed with all this global warming rubbish and carry on as normal thinking about the economy of their countries while we in Europe hand wring over something which cannot be controlled (weather and nature) and some problem which probably doesn’t exist in the first place.
I just hope that Obama and his ilk are told their fortunes at the Paris summit on Climate Change. With a strong economy we can build our lives around anything the weather throws at us and that is the way forward.
I get fed up having no choice sometimes other than to buy from China or India or some other place making things we used to make because of the failure of our politicians to get to grips with the importance of cheap energy.
August 10, 2015
I would make a guess that your brush and other items came from China. The meal possibly had a larger UK input. Last year I flew from Valencia to Mallorca, parking my car about a mile from the airport. I was driven to the airport past about half a mile of Chinese warehouses handling just the sort of goods you were shopping for. They enter the port of Valencia by the container load for sale in dedicated Chinese hypermarkets.
You are absolutely correct in that high energy costs deter much manufacturing in the UK. You blame the EU. I would add the green lobby and the insane department of energy in the coalition government. On these grounds alone I find the stance of your leader intellectually bereft.
We as a manufacturing country should concentrate on making high tech items of considerable added value. However such items are also subject to high energy costs. Were I such a manufacturer I would look around the World for a politically stable place with a low tax regime and low energy costs. The UK could be that place but for the ineptitude of it’s politicians and detached civil service.
The obscenity of your handling of the milk industry and their main outlets deserves another days submission. Today amounts to an absolute need to regain control of our country and it’s sovereignty. I am also moving to the view that government is in drastic need of downsizing. It is not sustainable as it is , run on ever increasing debt. To that end a tax regime based on consumption rather than income and corporate would provide a direct link between everybody who pays and government that spends. Having a system where 10% of the people pay 30% of the tax, figures not absolute but indicative, leaves the population at large detached from the overburdening cost of government.
August 10, 2015
Agricola – I’m of the view that I’d rather buy one item that worked very well rather than a multi-pack of items that don’t.
This could apply as easily to a Ā£1 pack of cheap Chinese watch batteries (which I’ve given up on buying) as it does to UK politicians (which I’ve given up on buying.)
Why do we need so many if none of them are able to do the job they are meant to do ? While we remain in the EU I fail to see why we need two governments ?
August 10, 2015
Manufacturing has high start-up costs and poor legal protection. Taking out a patent is expensive, it doesn’t guarantee that similar copies won’t be made and it is of short duration. Copyright on the other hand can be free and can extend 75 years or more.
Having bought an object like your dust pan and brush you only paid for it once whereas if you paid for the services of a cleaner you could be paying week after week. Buy music on a tangible medium and one only pays once; buy it via a streaming service and one continues to pay indefinitely.
August 10, 2015
A while ago I bought a plastic handle washing up brush. It was cheap. It didn’t last long.
I bought a replacement, with the same result. I found all I could buy locally was cheap and shoddy.
When next I travelled to the city I was able to buy a different product that cost a bit more but has already lasted so much longer that it is clearly better value.
It seems much advertising for consumer products seeks to differentiate on price. It seems many consumers have lost the ability to judge value.
It can even be difficult to be guided as to value by brand name as the names don’t seem to stand for what they used to.
But buying from a local producer, such as from a micro-brewery, can be a joy as you can go and speak to the people who make what it is you are buying.
August 10, 2015
Somewhat off-topic, I see that Philip Hammond has just flatly contradicted the myth that we are economically better off thanks to uncontrolled mass immigration.
Millions-of-African-migrants-threaten-standard-of-living-Philip-Hammond-says
I suggest that he should now take advantage of the withdrawal provisions written into both the 1951 UN Convention on refugees and the 1967 amending Protocol, one year’s notice is all that is required, and as far as I can see under the UK’s opt-out from the relevant provisions in the EU treaties he could that despite the EU’s commitment to those UN agreements, the second of which was quite mad.
But of course Osborne would have to accept that total GDP, and his tax revenues, might not rise quite so quickly with the discontinuation of mass immigration.
August 10, 2015
http://www.telegraph.co.uk/news/uknews/immigration/11792798/Millions-of-African-migrants-threaten-standard-of-living-Philip-Hammond-says.html
August 10, 2015
no it destroys work for middle and higher earners too
as the ……….. outsourcing movement demonstrates daily
August 10, 2015
But then the higher paid have to subsidise the lower paid to a greater extent, in one way or another, so it affects them as well.
August 10, 2015
Why should I invest in a hostile, xenophobic place like the UK with confused Tories in power pandering to the middle class? The UK is only good for tie-wearing politicians, pamphleteers and bankers flipping buy-to-lets and second homes. It’s not a good place to be an entrepreneur or indeed a saver (cf. pension chaos). That is why I have invested in manufacturing in India. Initially, I bought equipment from small UK firms but I have now had it reverse engineered and fabricated at a fraction of the cost in India. This is also happening in many many sectors that UK companies supply to. In markets, you need more than just overconfident assertions to make SALES.
August 10, 2015
A cynical view.
Manufacturing is developing well and employment and profits are up in this sector.
August 10, 2015
It’s pruning time so I treated myself to a new pair of secaturs . I was attracted by the Union Jack symbol on the wrapping and thought “Good British stuff – I’ll buy them”. They were not as good to use as my old ones and , as I discarded the wrapping I noticed in very fine print “Made in Taiwan” ; I felt mislead and cheated .
Given the option I would always buy British ; sadly the option is not usually available and one finishes up buying stuff of very inferior quality . Manufacturing is highly dependent on innovation , design and product development ; these were always traditional features of our industry . The manufacturing element was driven abroad by restrictive practices and the high cost of labour , the innovation and design bits remained here . In the automotive sector the Royal College of Art has long been the breeding ground of automotive designers supplying its graduates to automotive manufacturers around the globe . This situation still applies today .
If manufacturing is to return here in a significant manner , it will have to feature high added value to the imported materials if the products are to be received in the world markets . This can be done providing the understanding of these markets is properly understood . Such products will always have to include a high content of design and innovation . The Universities are still a source of creativity in the research they undertake and still produce graduates of talent for the market ; at the moment there are not enough opportunities for them and they still have to seek openings abroad . The Government has to take this matter seriously and plan for the longer term ; whether this can be incorporated into a 5 year political term is questionable .
August 10, 2015
Graduating in Maths in the 70s I went straight into computing in British Aerospace. Three years later a colleague realised that he could earn 40% (yes 40%) more by joining the computer company’s training arm, so I duly followed him. Years later my move into services gave me an opportunity to join with some colleagues to start an IT Consultancy and our constant drive was to keep “moving up the value chain”, offering high value advice to the boards of blue chip companies, a concept that is never explained by our dumbed-down media.
So that’s why Aerospace, Pharmaceuticals, mobile phone chip manufacturers and our thriving roboticised car industry are all doing well, while we import all the low-end wood and plastic products you mention. I wrote to Hornby years ago, pointing out that their revenue and profit growth lay in middle aged men re-living their childhood memories of the steam age, not in selling toys to kids. Not surprisingly they now sell super models (manufactured in China) for Ā£135 per locomotive – hardly a stocking-filler for little Jack but great profit for Hornby as a “manufacturer”.
Similarly in Services – accountancy, tax, medical and legal services will always attract the highest fees and the brightest graduates, whereas commoditised IT and call centre work has been off-shored. There’s nothing wrong with having a large Services sector provided it focuses on higher value services that are hardest to replicate. But so long as we punters are prepared to pay Ā£3.95 for a coffee or Ā£20 per head for a meal as you say our town centres will be awash with restaurants with migrant servers and baristas – amazingly Wokingham has 12 Italian restaurants and take-aways you know ?!
August 10, 2015
Mike.
Only twelve?
August 10, 2015
Energy costs are a big factor but so are labour costs and high taxes not to mention the administration costs imposed by regulations which hit small business much harder as they take up a higher proportion of the workforce.
Meanwhile the grey economy is doing much better as it always does in highly regulated countries. The government has just announced a crackdown on firms that employ illegal workers. Theses firms are winning business and providing employment (albeit illegally) because they carry lower costs.
Rather than having a crackdown (which I admit is probably more spin than substance) perhaps the government would do better by legalising these firms by removing most of the regulations they are breaking.
The immigration issue can be taken care of by entrants to the UK paying a Ā£bond. More efficient all round, and much better for the good of the country.
August 10, 2015
off-topic
the march of the takers
“A loophole is allowing people who have never paid tax in Britain to bill the NHS for healthcare in their own countries, an investigation has found.”
August 10, 2015
sm
“A Loophole…….NHS…”
No real surprise is it !
They give away National Insurance numbers like confetti after a single days work, why do you think they would bother with checking the electoral register to see if people really lived in the UK before giving them an overseas NHS card.
We must have the Dumbest System in the World, open to all especially those who do not pay.
It make you want to cry with despair and frustration at the stupidity of our Government, Civil Service that our State run organisations could be so profligate with taxpayers money..
August 10, 2015
The anti-pollution regime which makes it too expensive to produce here and simply moves the pollution to other countries is a failure. The intellectual property protections which see the best production improvement techniques invented here but quickly copied abroad are a failure. That’s the nub of it.
August 10, 2015
In Kent we have at least 2 very successful large scale British manufacturers of plastic & rubber Doo dahs etc . I visited one a few weeks ago and they showed me their very clever and advanced 3D printing technology. I recently hosted a conference where we discussed manufacturing trends. The biggest 2 are the move to smaller manufacturing units and re-shoring. That is bringing back small scale manufacturing from overseas. The intellectual and technical components of manufacturing blur the distinction between making and services. Reading some of the comments on here it would really help if people understood what the service industry is. Most people think its either finance or catering. Whilst both of those are included the scale of our successful service industry is very diverse and successful.
Here’s a thingā¦.. In what year did service export income first exceed manufactured export income? Answer 1956
However in the last decade manufactured export trade has risen 72%
Though in the last decade service export trade has risen 156%
August 10, 2015
As usual libertarian you are spot on.
August 10, 2015
“The intellectual and technical components of manufacturing blur the distinction between making and services.”
Only in terms of how they might be classified by government statiticians; in reality, they are both parts of the manufacturing process.
August 10, 2015
forthurst
That is exactly my point. A lot of the intellectual component of manufacturing is recorded in the statistics as services.
August 10, 2015
Indeed,Libertarian.I am involved ,as an investor rather than manager,in a small(total turnover subĀ£20m) privately-owned conglomerate which comprises three businesses.One is a low technology,high service content manufacturing business which is extremely reliable,grows modestly most years,makes amazing margins and throws off comparatively large amounts of cash.
August 10, 2015
“[The long march of the makers] requires more engineering and science graduates…”
In the bad old days such graduates attended grammar schools where they studied for academically rigourous exams taught by graduates (not of the non-subject, Education) to prepare them for a free education at universities and technical colleges for careers in industry. Now, many of the present much smaller crop of new science and engineering graduates are drawn to the City where their skills are deployed in spivery.
Meanwhile, Rolls-Royce which recently recruited an engineer as CEO finds itself under attack by foreign financial engineers (etc ed).
Until the Conservative party offers at least as good educational opportunities as previously to those with the requisit aptitudes and intended career paths, protects strategically important businesses (all exporting businesses including confectionery manufacturers are arguably, strategic) from foreign predation, repeals the Climate Change Act, its claims to want to promote science and technology sound hollow.
August 10, 2015
off topic. I see the argument about illegals in hotels has got them moved elsewhere. Great. Now they get a multi-centre holiday, free travel and spending money. That punishment for committing crime will really put the rest of the 3rd world off from invading us. Your leader must be so happy the “masterplan” for the destruction of our nation is going so well. I hope he reaps what he sows – and I hope I am still alive to see him reap it.
August 10, 2015
Having spent 30 years involved in manufacturing in the engineering sector, I am impressed by recent Govt intitiatives to help and aid manufacturing.
There are a number of successes of this recent redirected policy.
Previous attempts, in my opinion, focussed too much on the few large companies.
It is a fact that 80% of manufacturing jobs are in companies who employ less than 50 people.
Yet they have been ignored as PLCs get all the headlines and help.
The future for UK manufacturing is world partnerships for the large companies and national Govt support for the many small companies.
Concentrate on aid for innovators and companies who can be very profitable making small numbers of components but with a high technology input and resultant high profits.
I’m glad this Govt will support already successful companies rather than always trying to support struggling companies as this is the way towards success and employment growth.
August 10, 2015
Edward2
Absolutely agree.
I have been making the point quite a lot ( broken record) for the last 4 or 5 years that we are moving into an entirely new era. Where small is beautiful , local, independent units are the future. Already 47% of private jobs are in sub 50 employee companies, small manufacturing and engineering firms are making a huge impact on what we make and are leading the charge in re-shoring
Here is a report from last year ( already a conservative estimate as has already been shown) by Price Waterhouse
http://www.pwc.co.uk/the-economy/publications/uk-economic-outlook/reshoring-a-new-direction-for-the-uk-economy-ukeo-march14.jhtml
August 10, 2015
I’m optimistic that at long last, Government is getting this message.
If every small company employed just a few extra people unemployment would fall dramatically.
Thanks libertarian.
August 10, 2015
Hmm typical Mr Redwood finding something he can blame on the EU High energy prices. Not sure if that is that important for most of manufacturing. We should be building high value goods. We do have the brain power, look at the spin offs from Oxford, Cambridge. RAL and others. World beating high value exportable technologies. But the problem is the lack of ambition. Our entrepreneurs and venture capitalist often after a quick exit strategy, lack the ambition to grow the companies in to global British based giants. We too often sell out our promising technologies to US and other foreigners who have more global ambitions. The purchaser may keep the UK side going for few years before transferring the operations, technology and the profits to their home country, and the original UK office becomes merely a sales office. We need our own home grown Bill Gates, Jeff Bezos, Elon Musk. This more of a culture change than anything else.
Reply Modern factories use large quantities of power as they are highly automated. Industry often entails transforming materials into something else, which usually needs large amounts of heat and power.
August 10, 2015
You have to look at all the inputs, energy is just one of many – a minor input for most. For High value technological industries cost and access to capital and the access to qualified staff far more important factors.
August 10, 2015
“lack of ambition” sometimes it is actually lack of opportunity within your area of expertise.The co I am involved in his a large net cash position, we can’t find anything to invest in so we intend to return it to s/holders,
August 11, 2015
Depends on your attitude to risk. One of the reasons the US has been successful is its attitude to risk, more willing to take it on. I have worked for companies who have had potential global winners but the companies have been more worried about the internal business planning process, and generating the perfect business plan, which you can never do (in reality one is not god and cannot predict the future). Often you have to take the punt just like Bill Gates, Jeff Bezos, Elon Musk have
August 10, 2015
What about the do nothing nimby planning laws ?
August 10, 2015
Regarding your final paragraph, Mr R, it’s the govt’s continual sidling up to the big coffee and catering companies etc which is annoying the other people you mention in that paragraph.
Without milk, coffee, cups, food, and so on, as well as components for the ‘makers’ to grow the industries we’d like to see rejuvenated, nothing much will happen. And without farmers, fishermen, and hauliers, the point of sale and the product will cease to exist.
No need to expand further I’m sure.
August 10, 2015
Your fourth major paragraph:
Energy costs are indeed a major concern and Marxists and middle class lefties of the Labour Party arise from your slumbers! You should learn by rote what JR wrote:
“Even assembly activities these days may well incur energy costs several times the labour cost given the high degree of automation.”
The comfortably employed petty-bourgeois armchair-Marxist-revolutionary usually in a lecturing capacity complete with casual jacket, floppy hat, beard and a cheese and onion sandwich in his top pocket is convinced all costs arise from The Worker and all value is imparted by The Worker.
But energy IS a major cost.
Well France’s half ownership ( nationalisation ) and stock and dividend manipulation of EDF ensuring British utility customers in effect help pay the pensions of French OAPs has nothing to do with a fair market place. It raises energy costs.
In fact in most ways we are not living in a country where a businessman can actually decide to make a product and sell it in a free market. The WTO and, the Fed with its QE longstanding manipulation of the dollar makes a nonsense of “strong branding, good design,and a high technical content “. We can only manufacture what the US and others allow us to make at a profit. And the EU does not help but hinders our trading relationships with every country and business on earth.
It is almost as though the whole world has been “nationalised” by the US Fed, the EU, China and, we British somehow have to fit into the scheme of things and ask humbly if we may perhaps do up the odd second-hand car parked on our driveway and sell it for a modicum of profit.
August 10, 2015
Perhaps politicians should stick to what they know best (chatter) and allow Adam Smiths advice to be given a chance.
Some still believe it will work although many have already migrated to Keynes.
It keeps the egos busier.
August 10, 2015
I’m generally not a fan of today’s regulators but there is one very big benefit to the books. The large foreign companies (and domestic) that base here, many household names, need consultancy services to find their way around these complex regulations and legislation.
Unlike some other country’s in the news of late we are on the whole an honest operator that plays by the rules and so there is a lot of trade in this area to get it right and efficient. If we weren’t that way we would not have such a large trade in this area. One such company has today moved 1000 well paid employees to the City from another country from where it was founded.
These company’s may not be regarded as the type that produce a product but in a country so regulated they provide the ability to for others to do that here.
Is a software IT company regarded as a manufacturer of a product? For all I know it may not be but in today’s modern world software is as important a product as the wheel. Are we measuring that area as “making stuff”?
Another area that is very grey is risk insurance. London is just 1 of 3 cities in the world where you can get the risk and investment forted to build a damn in Venezuela, a mine in South Africa or Olympic or World Cup stadiums etc etc. All tangible real made things that the City excels at facilitating their construction. No doubt that’s recorded as services.
August 10, 2015
In the case of energy EU controls make it very difficult to get competitive energy prices here in the UK.
Didn’t you mean to say damn near impossible?
It is not just “big industries” the little man working from home or his back garden shed still need lighting, heating and power and it all adds up. Why do the government not stand their ground and repeal the Climate Change Act? The charge for renewable energy is now akin to a religion. For far too long politicians have stood back in awe about all the greencrap being spoken, basically because they don’t and won’t question the sermons made by the high priests of RE as they do not even begin to understand it and the full impact on the countries financial situation.
Would it not be long term cost effective to reduce the costs on the degrees that the country needs engineering, science and mathematics whatever with the caveat that if you get your degree then you have to commit yourself to working within the UK. Companies are screaming out they do not have enough qualified people so that should mean that jobs and careers are obtainable.
Then it all the other things, cost of properties and rents, health and safety, community charges and so the list goes on.
August 10, 2015
I ask how the Chinese have the skills, knowledge and machinery to as it were ‘beat us at our own game’. We and the Americans gave them away for nothing.
Such was the misguided belief in the financial economy of borrowed and printed funny money over the real one of goods and services, foolish politicians decided we didn’t really need to make anything anymore.
Why do politicians think that globalisation and free trade is the route to prosperity – globalisation has been a disaster for us!. How many company’s have been swallowed up and sunk by sharp elbowed mega corporations.
This seems to stem from the naĆÆve and anti British view of politicians of the world as a benign and friendly global village. It never occurs to them that if we de-industrialise, squander our energy reserves, lose skills and knowledge we are in serious danger of being exploited. Perhaps the Chinese and others are playing a ‘long game’ of flooding the market with cheap goods so that competitors are forced out.
Instead of having a sensible industrial policy of supporting key industries with tax breaks and other incentives, we have let them go to the wall.
This kind of sink or swim mentality exists today – instead of saying lets keep steel manufacturing in Rotherham and have a sensible energy policy we are allowing it to slip away.
Reply Western business has helped the rise of competitors, not the UK government. Large companies have decided they need to do business in emerging markets, so they enter technology sharing agreements or set up factories in those countries. Nor can business stop emerging market companies buying and analysing western product with a view to making something similar. Lots of things happen in the world for reasons other than a past incompetent UK government
August 12, 2015
Thank you Dr Redwood, A fair point the world has changed in ways that politicians cannot control..however certain countries that have a strong sense of national interest and sensible industrial policies have done better than us.
August 10, 2015
I suspect many of the items mentioned by Dr Redwood will be filling a landfill site sometime very soon. The brushes are on 2 for one to soften the blow when the brush falls apart the first time it is used in anger.
But never mind, someone is making a profit from our grotesque need to ‘self worship’ by constantly purchasing a range of eye catching and above all cheap imported goods that we often don’t really need.
If this is the future god help us.
In the olds days we often bought a quality British made product that cost a little more but lasted a lifetime. Why is paying people to be sick and unemployed and destroying the environment filling our rubbish tips with cheap **** better than this ?.
Reply I do use this washing up brush, and it has not fallen to bits – it is fine!
August 12, 2015
Re: Dr Redwood’s new washing up brush – time will tell I have my doubts over the durability of this product!
August 11, 2015
The mainstream has it that the trade deficit is an unsustainable imbalance
that takes away jobs and output.
BUT
Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living. Jobs are lost because taxes are too high for a given level of government spending, not because of imports. In economics, itās better to receive than to give!
Therefore, as taught in 1st year economics classes: Imports are real benefits. Exports are real costs.
In other words, going to work to produce real goods and services to export for someone else to consume does you no economic good at all, unless you get to import and consume the real goods and services others produce in return. Put more succinctly: The real wealth of a nation is all it produces and keeps for itself, plus all it imports, minus what it must export.
A trade deficit, in fact, increases our real standard of living. How can it be any other way? So, the higher the trade deficit the better!
The mainstream economists, many politicians, have the trade issue completely backwards.
Reply Under the theory of comparative advantage a country with strong exports is better off, because it can use the export revenues to buy more things that the rest of the world makes better and cheaper. Germany does quite well with a large trade surplus.
August 11, 2015
But is there added value in our service EXPORTS? We have a chronic balance of payments deficit. Austerity (reducing imports) and a floating exchange rate are meant to cure this problem. Why isn’t it working?
August 11, 2015
The Euro has dropped like a stone, Better to export from there now. More competition for us. Now if we were a part of the Euro………