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Manufacturing can't fend for itself

04 April 2011

Last week, I invited Bosch UK president Peter Fouquet to comment on the roles of engineering and engineers in relation to the key global issue of climate change. This week, I've lowered my sights a little to concentrate on an important subject that is likely to have some influence on the way we develop as a nation: the strength of our manufacturing base.

The question is: can we expect the private sector, alone, to achieve a revival in UK manufacturing's fortunes? According to this week's newsletter contributor, Softstart UK's Stuart Harvey, national government must be prepared to nurture the revival of UK manufacturing, actively encouraging investment and development so that it grows to become a significantly stronger contributor to the overall economy. He presents his case and indicates what steps must be taken.

"Go back a few years, and the government was talking about ‘re-balancing the national economy’. The thought at that time was that we had become overly dependent upon some sectors and let other key sectors slip. To many people it all seemed a bit academic, and something of a distraction from the issues of the day.

"But then came an economic collapse of epic proportions! Fortunately, we are probably through the worst of this now and in a position to learn lessons.

"Looking globally, it is clear that those countries with strong and growing manufacturing sectors fared better in the downturn than those with a greater focus on the banking, financial and service sectors.

"China and other emerging nations with dynamic manufacturing economies hardly faltered. Germany, which accounts for a large proportion of European manufacturing, became an engine for recovery.

"Now as the UK recovers, manufacturing is leading the way. Growth is clocking in at around 2 per cent and tipped to continue steadily for a number of years. It even weathered this year’s snows where other sectors fell back. And very similar figures are coming out of American manufacturing.

"In the thick of all this, the UK has had a change of government, but party politics needs to be put aside. The new incumbents should maintain the drive to re-balance the economy, not throw the baby out with the bath water just because their predecessors thought it up!

"Manufacturing currently accounts for 12-15% of the UK economy, about half the figure of a generation ago. Again these figures are similar to America, and both countries have seen capacity and jobs move offshore in recent years as companies have sought to compete in globalised markets.

"Conversely, Germany and Japan spent the second half of the twentieth century growing their manufacturing capacity. The smaller Asian Tiger nations benefited enormously by developing manufacturing capabilities in the 1980s and 1990s. And now Brazil, Russia, India and China (the 'BRIC' countries) are reaping rewards.

"The inescapable conclusion is that national economies must have a robust, healthy and forward-looking manufacturing sector, plus the engineering and technology to support it.

"Several factors can be identified as vital for success, and it is the responsibility of the government of the day (of whichever party or coalition) to get at least some of these in place. Investment must be encouraged, through tax breaks, enterprise initiatives, and other financial measures.

"The worsening skills shortage has to be addressed. Current workers need to be up-skilled, and youngsters encouraged into the engineering professions. For the latter, good career possibilities have to be seen, and the number of technical courses at colleges and universities increased massively. A mere five percent of UK students are on an engineering course, compared to nearer 50 percent in China and India.

"Children need to be excited at the thought of making things; teenagers need to be shown the advantages of secure stable jobs in technical sectors; young adults need to see a career path of promotions and on-going opportunities.

"A complete change of culture is what is required. Britain rose to world leadership at a time when engineering and production were celebrated. America followed suit mid-century, then Germany and Japan and later the Asian Tigers. Now the BRIC countries are riding the wave.

"Today’s managers and senior engineers need to be encouraged to invest in production capacity and redevelop their plants for tomorrow’s markets. Automation is critical; it is the only way to produce consistent product quality at globally competitive rates. It must be noted that automation is not simply about tomorrow’s markets; its real role is future-proofing production for years and decades to come.
"Interestingly, most manufacturing companies will need the support of their banks if they are to invest effectively. Banks need to reinvent themselves so that they are able to invest in manufacturing companies large and small, instead of chasing notional paper profits and enormous personal bonuses.

"Tax and regulatory regimes must be developed to encourage innovation in manufacturing. Small and medium enterprises should be given every opportunity to blossom, for it is often they that lead the way with innovation. Some SMEs will fail, others will be bought up by bigger organisations; but that is the way of enterprise, a fact that needs to be recognised if enterprise is to flourish.

"Manufacturing is a global business, so manufacturers need to be world class if they are to compete. It’s a tall order, so they need every help they can get. But if they don’t get it, the national economy will never be able to succeed."

Do you agree?  Please let us have your comments.

Les Hunt

Reader comments:

From Mr Paul Barton:

Regarding the government's task of reinvigorating manufacturing, wouldn't it be great if manufacturing emerged as the great revolution it once was and took us from a rural (or should I say, 'service') economy to an industrial one. It would seem an impossible task, given that the audible end of recent governments have been made up of lawyers and accountants. The previous most successful Tory PM fostered the city culture of "loads o' money" for risky speculations (and still going strong); meanwhile, the rump is made up of town hall wallah's. None of them would consider a spanner as anything other than an insult.

If only the Unions would remember where they came from - the craft guilds - there may yet be time to rediscover the skills that we were once known for. As a nation we seem to have sold our preference to buy cheap and not pay a bit more for quality. It's not surprising that our customers abroad follow our lead. In a world where resources are becoming more  precious there are as many raw materials in a cheap ipod as an expensive one, only the soft parts - brand name, software (and where it was made) make the difference.

Perhaps we should be patient and wait for the day when we are the third world economy where manufacturing is cheap. Sadly by that time all of the skills that are fading now will be completely gone and we can outsource training to, er, China or Taiwan. I wonder if they will give their  manufacturing expertise away quite so freely.
From Mr Garry Bow:

One of the huge, but often overlooked, impacts of a moribund manufacturing sector is the potential future strategic national security implication.  A stunning converse example is how a previous generation was saved by the enormous productive capacity of US heavy industry during WW2.  This capacity was not deliberately built to fight a war, but became the very foundation of the allied war effort. Industries that have been largely exported to the east over the past two decades such as steel making, (just one example) figured prominently in this capacity.  Our policy makers in the western developed economies tend consider these heavy industries to be “rusty” and more suitable for the low wage economies, and therefore not worthy of systemic support.   We tend to mold our policies around our collective short term memory, and neglect the lessons of history.

In the event of a calamitous world event, how is manufacturing capacity halfway around the world going to assist local recovery if the transport means are unavailable or incapacitated?   Nations must retain enough diversity of capacity and skills to be self sufficient and self sustaining just in case the brave new GLOBALISED world economy is derailed.  The specialist skill-set of a performance artist would not be very much use in a hunter-gather world.  Neither could a nation of bankers and fashion-designers recover from a complete and sustained collapse of world trade.   Excessive specialization may be usefull when times are good, but can be disasterous when economic structures fail or are interrupted.  Diverse industries and skills such as food production, manufacturing, construction, transport are all necessary as an insurance premium for our long term security and all must treated strategically as well as economically.   A certain critical mass must be maintained to ensure that the seed capacity of those skills is available if required.  Once seeds are gone rapid regrowth is impossible.

Unexpected things do happen.  That’s why they’re called unexpected.  Whilst we should always plan rationally and on the basis of evidence and experience, we should also allow some margin for the things that we can’t predict.   And we should be prepared to pay for that contingency, just as we are prepared to pay to insure our house.

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