Manufacturing an argument

From time to time in this blog I rehearse arguments I intend to use in a forthcoming speech; partly to prepare my lines but also to see if readers will offer helpful nudges. This evening I will be stepping well outside my comfort zone and speaking on the topic of manufacturing to a conference of business leaders who work in the sector, and bankers who help finance it. I am not on until quarter to ten so I suspect my audience will want bold brush strokes not intricate policy detail, which is just as well.

As an outsider I have perceived advocacy for manufacturing as a mixture of idealistic yearning and pessimism. We generally view manufacturing positively, associating it with a golden past when Britain was the workshop of the world, but we also assume that the days have long passed when we could see ourselves as significant global players or believe that manufacturing is an essential part of our overall economy.

Arguably, Government policy reflects these feelings, as well as a continuing scepticism towards economic interventionism. Responding to our affection for manufacturing the Coalition has pursued a number of policies which favour the sector, and particularly at its leading high tech edges, but has also resisted the kind of full blooded national commitment to manufacturing which formed the centre piece of President Obama’s State of the Union address in January 2012:

‘So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed’.  

Ambivalent attitudes to British manufacturing are reinforced by a mixed reality. On the one hand, Britain remains a relatively important manufacturing nation – around the eighth or ninth largest producer in the world depending on what metric is used and in certain sectors, aeronautics, pharmaceuticals (including life sciences) and automobile, we have genuine strength. On the other hand, manufacturing continues to be in decline in terms of our global ranking and there is little sign of any significant bounce back in terms of activity levels. Most depressingly, British manufacturing seems to have taken very little advantage of the effective devaluation by a quarter in the international value of the pound which took place after the credit crunch. The statistics for February this year show the UK running a trade deficit on goods of close to £10 billion pounds a month.

The manufacturing sector is diverse (indeed in many areas the divide between manufacturing and services is fuzzy) and the arguments about it complex and long running. There are few easy answers. So tonight I will be in exhortation rather than analytical mode.

The supporters of manufacturing need to make their case in terms not just of the needs of the sector but in terms of a broader account of the kind of economy and society we would like to exist.

We should start with the evidence of what economists call ‘spillover benefits’, whereby investment in manufacturing has been shown to have a positive impact on productivity in other firms. These externalities provide a basis for justifying preferential tax and allowance regimes for manufacturing. Given how important jobs are right now it is also important to argue that – counter to the common view – that areas of rising productivity need not also be areas of declining employment; if productivity gains lead to cheaper, better products it can also lead to more jobs. Also, manufacturing investment generates jobs in other sectors. As Obama Advisor, Gene Sperling, puts it; if an auto-plant opens up, a Wal-Mart can be expected to follow. But the converse does not hold – Wal Mart openings don’t tend to bring auto plants in their wake.

When manufacturing was collapsing in the early eighties – a poignant memory today - there was a view that many areas had become too dependent on certain industries. But in the wake of the economic slump and with the international desire to tame financial speculation that argument can be flipped. For the economy as a whole we need as a matter of wise policy to foster diversity in activity and jobs and right now that means strengthening manufacturing. As well as economic balance, manufacturing can also contribute to a more balanced spatial strategy – it is a cheaper to build factories in the north than the overheated South East.

This is a blog post not a speech so I will make the other points in brief:

As Jaguar Land Rover exemplifies, manufacturing – more generally than services - has a powerful role in the projection of national image of excellence and creativity.

While the UK has a weak self-image in manufacturing, we pride ourselves on our design skills. But modern manufacturing, with a growing emphasis on innovation and customisation can involve very close working between designers and producers. Strong domestic manufacturing and strong design are complimentary.

In terms of global trade, as a forthcoming RSA report will argue, the combination of rising labour costs in developing nations and the possibility over the medium term of higher transport costs is starting to shift the argument decisively away from outsourcing. A number of high profile American firms - including General Electric and even Apple - have announced their intention to bring manufacturing investment and jobs back to America. The big challenge for medium sized firms may be less about expanding exports and more about the capital, know-how, networks and confidence to build factories in other countries.

Also on an environmental tack, while manufacturing has in the past been associated with various forms of pollution, future growth areas of investment, innovation and jobs include green industries and also re-engineering manufacturing processes to minimise waste – the subject of the RSA’s Great Recovery project.

Finally, and this is a matter of conviction not evidence, understanding how things work and being confident about making and inventing should be an important part of national and individual character. It is clear that access to skilled workers is the critical factor in manufacturing competitiveness. This is, of course, about bright students choosing science, maths and engineering and about the need for more and better industrial apprenticeships, but it is also about a wider recognition of making stuff as an activity which combines creativity, analytical and problem solving, and kinaesthetic skills, and which provides distinctive and deep forms of satisfaction and fulfilment.

Ultimately this is why the manufacturing sector has to choose to tell a positive story. When people complain, the assumption is that they are not enjoying themselves. However, hard the challenges facing manufacturing we need people (especially the young) to believe - as they readily do about sport and music – that investing time and commitment to developing manufacturing skills pays off in enjoyment and pride as well as the possibility of a career and good income.