APGDI debate: What role for Manufacturing?

Although the ‘our economy is in dire straits’ mantra is undoubtedly getting boring, the figures demonstrating the decline of the manufacturing industry – and its economic consequences – make alarming reading.

On the 27th October, Derek Wyatt and the APGDI invited speakers Sir Alan Rudge of the ERA Foundation, Nick Hussey of Manufacturing Insight, and Sunil Chopra of TCS to address an audience of Parliamentarians and industry experts, to challenge the perception that ‘Made in Britain’ is obsolete. In fact, the opposite is true, but over the last 10, 20, 30 years the reputation of the manufacturing industry has famously taken a beating. By contrast, the financial services industry (at least until 18 months ago) had been lauded as the cashcow of the economy. In apparent prosperity we have been content to rely on such services. But the recent crisis has placed the viability of this source of income under scrutiny. The parliamentary meeting was called to evaluate and debate the contrasting contributions of these two industries – manufacturing and the financial services – to the economy.

Ian Lucas MP, Minister for Business and Regulatory Reform, opened the discussion by alleging his personal passion and dedication to British manufacturing. He compared the paradigm shift we are currently facing as a challenge not unlike those of previous eras – such as the Industrial Revolution – and asserted his confidence that this opportunity could be handled equally boldly.

But in spite of the Minister’s optimistic outlook, the picture painted by the three guest speakers was bleak. ‘It’s wartime’, said Sir Alan Rudge, ‘and compared to other nations we are losing.’ This view was supported by members of the audience, who argued that even current ‘progressive’ targets relating to infrastructure – water and transport – will still leave the UK ten years behind the rest of Europe.

A glance at the ONS statistics (click here to see the numbers) demonstrates the ongoing importance of manufacturing as a sustainable economic base, particularly in balancing trade. But the industry has suffered from neglect. Rudge used the figures to demonstrate an economic imbalance that existed well before the recent banking crisis (critically the ONS data was gathered before the disruption of the last two years), but an imbalance that has seemingly gone undetected, or at least poorly addressed. The ONS figures show clearly that although there has been growth in the services industries – largely financial and other business – their net contribution was never balancing the loss in manufacturing trade, resulting in an ever-growing deficit. Financing our short term consumption of goods by the sale of debt and equity assets is clearly not a sustainable model. In terms of balance of trade, manufacturing contributes 6 times as much as financial services per £ of GDP. But, although still providing about half our exports and direct employment for 3 million people, the industry has shrunk to only a 7th of GDP.

Taken as read that the manufacturing industry is in rapid and systemic decline, the question of how to reverse the situation – with the shared understanding that a reversal is crucial – was the main topic of debate. Nick Hussey, editor of The Manufacturer and Director of Manufacturing Insight, outlined some key questions for directing the future of the sector. In a global market, with global supply chains, the question of domicility is complex. Where is revenue generated, tax due, a contribution to society made? And on a larger scale – how can any tax system cope with this trend? A second issue is one of positioning: which parts of the production process do we want to capture and in which sectors?

A greater acknowledged presence of the industry through branding would help shatter the other critical ‘cultural’ barrier to recovery. Dry statistics such as ‘18% of GDP and 50% of exports’ do little to convince a public whose received wisdom comes through the media – responsible for a great deal of negative, ‘Britain doesn’t have a manufacturing industry’, press – and an older generation pining for an earlier age of factories and large-scale industrial production. The reality, according to Hussey, is that most modern manufacturing is highly efficient, highly advanced, innovative, creative, dynamic, diverse. It is crucial that public perception is positive, even aspirational, so the industry attracts the brightest and best. Not doing so detrimentally impacts the quality of manufacturing in a continuous downward spiral. Some of the blame lies at the door of the traditional class system – the distinction between professional and craftsman by which other more currently successful manufacturing nations are not plagued – but it is not only that. The stated mission of the recently launched ‘Manufacturing Insight’ group is: ‘to drive a fundamental and sustained improvement in the image of UK manufacturing capability’. National figures, ‘manufacturing heroes’, were proposed as a means of raising the manufacturer persona, as well as a clearer message about career routes – establishing ‘manufacturing’ as a profession – communicated to children at a much earlier stage.

The financial services have equally suffered bad press of late. Sunil Chopra, Vice President of Tata Consulting Services (the consultancy arm of global manufacturing conglomerate Tata) brought some balance to the debate by speaking in support of the banking sector. Whilst recognising the value of manufacturing, he stressed the importance of not undermining the enviable position of the UK’s financial sector by continuous short term and perhaps negative coverage. Financial services provide employment for over 1 million people nationally – not solely in London as is often believed. And the interplay between the two industries is crucial – the element of financial services that supports business and industry obviously cannot be allowed to fail; and banks will need to support manufacturing, particularly new and growing areas, to make money in the future.

There is undeniably some conflict of interests. In the current climate, trading in Euros, thus neutralising punitive exchange rates, would undoubtedly benefit manufacturers who have to buy much machinery from Europe. There is also anecdotal evidence of European manufacturers pulling out of Britain because of the constant and laborious converting of currency – in spite of favourable exchange rates. But from a banking point of view, the independence of Sterling is no doubt a major factor in retaining London’s global primacy in the financial markets.

The low carbon agenda was another point of contention. The main thrust of Ian Lucas’s words related to the drive to place Britain at the forefront of the low-carbon future. He described it as a ‘key driver’ and praised industry for rising to the challenge. However low-carbon pressures were questioned by members of the audience, concerned about an emphasis on one agenda (although not denying that it is non-optional: in the future there will only be low-carbon manufacturing) at the expense of many others. There is also a point of clarification to be made between manufacturing low-carbon products, and using processes that have a low-carbon footprint.

In closing his presentation, Sir Alan Rudge used the analogy of ‘the greenhouse’: ‘if most of the plants in your greenhouse are suffering, it’s time to examine the greenhouse rather than the individual plants.’ One-off individual cash injections won’t succeed in a poor climate. There is little point bolstering Universities if the downstream take-up of ideas is not in place – otherwise an act of reinforcing the rest of the world. (Ian Lucas alleged the government’s understanding of joining-up issues between academia and industry, and praised the work of the TSB.) Equally there is no point training thousands of designers when there is a scarcity of manufacturers with which to collaborate. He suggested a long list of measures – including deregulation, better IP protection, more favourable capital gains tax – which together could ‘fix the greenhouse’. Although it is easy to expect too much, and we must accept that some problems are not within Government capability to solve, the Minister agreed that at a strategic level, the public contribution was paramount. Getting the greenhouse right is very much within Government’s capability. As Sir Alan Rudge summarised, ‘What is required is not a few isolated initiatives, but a massive coordinated programme aimed at optimising the greenhouse parameters.’

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