In the absence of today's expected Manufacturing Framework, Howard Wheeldon sets out a few things that should be on the agenda
Continuing a trend that began over a year ago, confirmation that UK manufacturing output grew by a healthy 0.6% in October – twice the rate anticipated – is clearly excellent news for the economy and for the Coalition Government. But before anyone gets too excited about this small turn of the tide we should not lose sight of the fact that manufacturing still only accounts for maybe 13% of total UK GDP. Back in 2002, manufacturing as a percentage of GDP had been around 20%, in 1979 it was around 30% and back in 1946 it was an altogether healthy 40%. Set against the fact that consumption has risen dramatically over that time, that manufacturing has declined brings the point that we are just not manufacturing nearly enough of the goods we use here at home.
At a fairly rough guess I would say that manufacturing will probably add in the region of £160bn to the British economy this year. In the context of the government deficit and more importantly the national debt this figures looks small fry. But while the total figure for manufacturing looks small the Coalition Government will be well aware that not only is manufacturing responsible for the employment of many hundreds of thousands of jobs but also that it accounts for roughly one half of our total exports.
In an address that I gave to the Royal Aeronautical Society in April this year I made a call for manufacturing as a percentage of GDP to double over the next 15 years. I was of course very well aware that to achieve such a target could not be done without a substantial amount of government support. At the time we were of course playing out the final days of ‘New Labour’ government which through a period of fourteen years had done nothing but discourage manufacturing development. While it is true enough that the most dramatic declines in post war UK manufacturing output occurred during the two decades prior to the Blair and Brown governments, the point is that during the past fourteen years the government did absolutely nothing to encourage manufacturing industry to develop. So much for the past – what about the future?
Ever the optimist and with some evidence already that despite the necessary period of so-called austerity the Coalition government really does mean business when it comes to assisting manufacturing industry to develop, I am quite confident that we will now see good progress being made over the next few years. Already the Coalition government has put some much needed new vigour into UK manufacturing export development and particularly in defence. Indeed, by ensuring that senior government ministers from the Prime Minister and Secretary of State for Defence down will always be available to provide visit support on agreed defence export campaigns there is at long last a feeling that a reversal of some of the more retrograde attitudes of the last government are being made.
But while some government based motivational support in the form of lower taxation is already in evidence for small and medium sized enterprise, if we are to achieve a target to double manufacturing capability by 2025 government and industry will need to do one hell of a lot more than they are already doing. Government for its part will need to have in place a fully committed and formal UK industrial strategy that includes looking at a vast number of aspects that have been missing over the last thirty odd years. For instance, does the traditional system of apprenticeship and training still work or does the fact that so few wish to go into engineering and manufacturing show that we need to revamp the whole system. A proper industrial strategy needs to look at how we may need to re-educate those teaching in our schools and colleges that engineering and manufacturing jobs really are full of opportunity as opposed to being two rather dirty words. Indeed, while service based jobs will probably always remain the biggest part of the UK economy it is possible that the largest area of jobs growth over the next few years will be in manufacturing jobs. Moreover a formal and fully funded industrial strategy should be designed to open new doors that will incentivise an increase in spending on research and development – both by government and industry. It should also define new boundaries perhaps over what we should be in 2010 regarding as being in the national interest, over how we protect technology through product licensing, over how we should address well worn issues that along with our inability to be competitive and to understand that the world no longer owed us a living brought the industrial base almost to its knees. These include consistently failing to provide adequate levels of through life product support in the form of maintenance and spares support and of course of addressing what we have sometimes been accused in the past, telling the customer what he or she can have as opposed to asking him first what it is that he wants!
An industrial strategy must also address the changing attitudes to what we and many of our international competitors and customers consider should be done about the increased signs of protectionism evident in some previous customer countries and perhaps also decide what, if any of our industry participants should need to remain in UK owned hands.
From the outset an industrial strategy should aim to encourage industry to participate in extended international partnerships and far more joint ventures both at home and abroad. It should state an intention within EU based law that it will support as best it can those who wish to invest in the UK. It should of course set out to encourage foreign investment that will create new jobs but it must in my view also address the issue of what we regard as true manufacturing against what some regard as merely gluing together of parts and components that come in from abroad. In other words we must take a long and hard look at what is still missing in the UK industrial base – the supply base of component manufacturing. Naturally a defined industrial strategy will set new guidelines that industry would be best advised to operate in terms of licensing and for issues that cover any transfer of technology to a third party or country that we intend to set up a wholly or partly owned manufacturing capability.
Of course a formal industrial strategy should encompass wholesale support and encouragement for the creation of new product ideas, for research and development and funding solutions, set out to at least attempt to create an easier and far less bureaucratic environment for all the participant industrial companies to work under both in term of government and cost at one end of the spectrum and for working more closely with say our Universities at the other. Most of all though a formal industrial strategy should set out to encourage small and medium sized enterprise that right now we may regard as a sector that for too long government has not only taken for granted and ignored but also failed to foster, encourage, develop and grow. It is not that hard to do and neither is it rocket science even in these very tough times for government to provide extra incentive to small and medium sized enterprise, to remove the burden of red tape that so often restrict the willingness and ability for them to market new product technology that they may have designed and developed. Government can also lay the framework that should with luck begin to dismiss short term thinking and hopefully start a process of encouraging the rebirth of medium and long term research based development funding and thinking.
Government should also through a wide industrial strategy perhaps encompass the urgent need of industry to obtain funding support from banks or whatever else. Maybe it should do this by going down a well proven route providing some kind of guarantee perhaps or then again, maybe not! Certainly it does need to address more of the concerns of small and medium sized enterprise and industry and also concerns long expressed about the system of export credit guarantee. The above are just some of the many issues and concerns that government will need to either address or directly take on board. But be in no doubt that by providing the kind of motivation and if necessary financial and other incentivised support to small and medium sized enterprise whilst at the same time attempting to reduce bureaurocracy that industry will rise to the bait and the challenge.
Can all this be done? Can we reverse the years of wasted opportunity that have placed Britain in such a vulnerable position in terms of limited manufacturing skills and ability? Well despite all the odds industry managed to sort out the lack of competitiveness so it is not beyond the bounds of probability that we can achieve a significant increase in manufacturing capability. The defence industrial base is already preparing for a promised new formal defence industrial strategy – let us hope that before too much longer the rest of UK industry gets one too!
Howard Wheeldon is the Senior Strategist at BGC Partners