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 £1.99. Leisure shirts were on offer for a few pounds each. I could have bought two excellent folding armchairs with carry cases for £10 for a pair. There was a stylish metal and glass table, four carver chairs and a centrally mounted umbrella for under £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 £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.