Manufacturing can save the UK economy, but not by itself

Posted on 22 Oct 2009 by The Manufacturer

Thirty nine per cent of an audience of 120 manufacturers and industry representatives thought manufacturing alone can save the UK economy, but won't in its current form, at a senior panel Q&A event held by EEF on Wednesday.

The consensus view of a large group of industry representatives mustered on Wednesday by EEF, the manufacturers’ organisation, was that manufacturing is able to save the UK economy, but not within today’s policy and economic framework. The sector is key to a recovery but cannot do it alone.

Asked this question at the start of the 1.5 hour Q&A panel session held last night at the Royal Society, 29% of the audience voted that manufacturing will save the economy, which grew marginally to 36% by the session’s close. At the outset, 19% of attendees thought manufacturing could save the economy but that it won’t, while by the end this proportion had risen to 39%. The number of people who thought manufacturing has the potential to save the economy, regardless of whether it will, rose from 48% to 75% aggregate. The change in sentiment might have been attributed to the size of the job in hand, identified by the heavyweight subjects raised in the debate covering the skills gap, the tax and regulation framework, capital allowances, public procurement of UK manufactured goods, and national attitudes to manufacturing.

The panel, chaired by the BBC’s economics editor Stephanie Flanders, comprised the cultural commentator Stephen Bayley; Juergen Meier, managing director of Siemens Automation and Drives; John Hutton MP; John Redwood MP; and John Wilman, business editor of the Financial Times. John Hutton kicked the debate off by reminding the audience of the relative strength of UK manufacturing, generating 13% of GDP and rather more in gross value added (GVA) product — but that the sector’s size has receded gradually over the last 30 years. He stated that everyone wants to see the regulatory burden kept to a minimum, but that government alone can’t solve the “manufacturing problem”. John Redwood, who up until a year ago had chaired a mid-size automotive engineering firm in Birmingham, gave a quasi-rousing speech about efficiency and lean manufacturing and the need for British manufacturers to get lean and become world-beaters by reducing waste. The idea, while delivered with gusto, was bizarre given that, as pointed out by Siemens’ Meier soon after, the UK has been forced to become one of the leanest manufacturing sectors in Europe over 30 years of evolution with, as Meier said, little direct government support.

Design critic Stephen Bayley, who has no manufacturing experience but was very partisan about the subject, began by lamenting the dearth of domestic UK manufactured products in the Liverpool hotel he had recently patronised (zero per cent made in Britain), as well as on his subsequent journey to London, involving a trip in a London black cab made by Mercedes, a notion he found “simply crazy.” He emphasised the dangers of losing tracts of manufacturing to foreign competition, which once lost would be impossible to recover, as well as losing upstream and downstream parts of such business such as design, marketing, and sales skills. Margaret Thatcher, he said, whose strategy was to develop a service-based economy of “red braces wearing financiers and cappuccino markers” had been proved indubitably wrong.

Juergen Meier of Siemens Drives, whose parent German company employs 18,400 people in the UK (5,000 in the manufacturing divisions), said manufacturing can play its part in saving the economy, and identified four key ways how it can; more political backing, where the financial crisis has helped to focus on industry; the high competitiveness of UK manufacturing; that companies are learning the answer is not to offshore production, with signs more companies are ‘onshoring’ factories from overseas (where Siemens is an example) and the areas of strong comparative advantage the UK has in key areas like civil aerospace, defence, and healthcare. The Financial Times’ John Willman emphasised the importance of UK companies in global supply chains, where their contribution to end products can lack visibility, citing the example of Apple’s iPod where the chips are designed and made by Wolfson Electronics based near Edinburgh (although their manufacture is mainly offshored).

Other points raised by the debate included:

• Both John Redwood and John Willman questioned the role for government as a procurer, not only in the amount it spends but in the signals that are sent to UK manufacturers as a result. Panellists contrasted the fortunes of the robust pharma and aerospace & defence sectors with the demise of key domestic civil manufacturing like train makers and nuclear power contractors, when the UK is preparing to to spend billions on both

• Attendees spoke of the importance of shifting national attitudes about the image of manufacturing

• The skills gap, highlighted by the majority of participants. Siemens’ Meier citing the shortage of technicians available for wind farm operations being one example

• Tax revenues: Government cannot easily relax the tax burden on manufacturers. However, if this policy were to be reversed, the resulting potential for growth is liklely to reduce the trade deficit and help to lift the burden on public finances and borrowing