Manufacturing –a Terminal Case?


A Personal Perspective

“In June 2002 manufacturing output fell by 5.3% the largest decline since 1979”

“500,000 jobs lost in manufacturing since 1997”. Here Dick Evans offers a detailed explanation of the causes and suggests some practical ways forward.

Hardly a day passes without the press and media reporting the ongoing problem with manufacturing in this country. This state of affairs is not new – it’s been occurring over the past few decades with many commentators predicting the impending demise of this essential and strategically important activity.

The issue of manufacturing in this country has not really seriously figured on any political agenda and has in a sense been in limbo for over 30 years. Manufacturing has been declining as a proportion of GDP in most industrialised nations over this period but it has been declining at a higher rate in this country. In fact between 1995 and 2000 the rate of decline in this country was twice the average for the other G7 countries. This reflects the political indifference and inaction shown towards manufacturing in this country by successive governments. The decline in the traditional heavy industries was largely inevitable as demand patterns changed and this country failed to compete with the newly emerging economies of the far east and/or other countries who had invested heavily in new plant, research and development and whose governments adopted a long term strategy for manufacturing and macroeconomics that recognised the need to achieve a realistic balance between service based industries and manufacturing. One of the long-standing problems was the country’s inability to develop and manage high volume production coupled with low productivity levels. In spite of warnings the manufacturing base collapsed during the 80s and 90s – the symptoms had been clear to everyone – following the assumption that the country could survive on service-based/financial-based industries and the so-called invisible earnings, an increasing trade deficit and massive pockets of regional unemployment resulted.

Other signs of these transformations in the work force were evidenced by the decline in student numbers in colleges and other providers offering engineering and related disciplines – whole departments closed or were merged with other areas of provision. These changes have continued to date in colleges, universities and other training providers. When providers declared increased student numbers the reality was that they had recruited students who would have attended the providers that had closed or no longer offered the required provision. The supposed free market philosophy coupled with the funding methodology, which operated in the 1990s particularly in the FE sector, resulted in the destructive practices of “dash for growth” and “bums on seats”. Although these approaches could maximise funding for the provider it was at the expense of strategically important pro-vision such as science, engineering and construction, which were high cost and low recruiting. This resulted in the provision being dropped and replaced by low cost and high recruiting provision and this directly contributed to the imbalances in the skill base and work force profile witnessed currently. As a result the situation in colleges and other training providers began to reflect the overall position nationally of manufacturing namely one of invisibility, low priority and lacking any real investment, resource or support.

Another element associated with the poor take up of courses in engineering/technology was related to the negative perception of manufacturing enterprises shown by the fact that parents and other relatives who had been made redundant from manufacturing industries were hostile and resistant to their children entering that world of employment so resulting in a downward spiral in recruitment. Even with the emerging newer technologies this hostility and consequent suspicion of the more practical and vocational areas of employment continued. Successive governments attempted to encourage increased participation in engineering/technology/built environment technologies but all failed to appreciate the fundamental and underlying causes of the problems. In spite of frequent statements about the paucity of mathematics/science/engineering students at all levels of education and training no effective strategy was introduced. Initiatives abounded but these were never properly resourced or evaluated and the current spectra of skills shortages became more manifest.

So at present politicians inform us about the problems and possible impending crises associated with shortages of skilled craftspeople and technicians when they have created many of the causes. They have dismissed the importance of manufacturing – the Tories arguing that service based industries would create the country’s wealth whilst this government have argued that it’s the knowledge-based industries that will secure our futures. The problem with these approaches is that both beliefs are flawed. The mathematical reality of an economy based primarily on the service industries is now discredited. There has to be an effective and efficient manufacturing sector providing products and services that the rest of the world want and which complements the service based industries. The current trade deficit is the highest ever and for the first six months of last year stood at £15 billion, which dramatically highlights that as a nation we no longer make anything but continue to have a love affair with imports. This government constantly proclaims the importance of the information technologies and the knowledge society inventing a whole new series of meaningless and vacuous e-expressions such as e-government, e-commerce, e-democracy, e-learning, e-summits and have even appointed an e-envoy – the only one not used is e-by-gum! Sadly in spite of all this hype this country is already well down on the international league tables for exploiting the potential of information technologies. A major failing is the lack of an adequate infrastructure for these technologies because of the vacillations and penny-pinching approaches by the major telecommunications companies in developing a comprehensive national broadband system.

So can this country regenerate a manufacturing base, which is appropriate for the 21st century and which can compete with our competitors in the global economy? Before one attempts to answer this important question it must be accepted that many manufactured products and services will be made abroad in developing countries where labour costs are much lower. The mass migration of companies reflects this fact of globalisation e.g. Black and Decker, Dyson, Doc Martins, Massey Ferguson tractors and Raleigh bicycles. The high exchange rate for sterling and the continued uncertainty in joining the euro has also contributed to the outsourcing trend. Major companies who are currently based in this country are increasingly voicing concern about the delay in joining the euro e.g. Ford and Honda. These threats real or imagined do nothing to instil confidence in any renaissance of manufacturing or rebuild an effective education and training system in these important areas. Another worrying factor against a regeneration of manufacturing is the continued low rate of productivity in this country compared with other countries. The latest figures from McKinsey show us trailing the US by 55%, France by 32% and Germany by 29%.

Two examples of how the country sought to compensate for the massive jobs losses in manufacturing are now given. Each promised much but soon proved problematic. The first which took off in the 80s and 90s was the relatively high level of inward investment into this country by a number of multinationals which brought hope to many areas affected by the demise of heavy industry. However after a decade or so of success this positive is now diminishing as evidenced by recent figures that show that the proportion of this country’s share relative to mainland Europe has declined 26% to under 18% as more countries invest in euro- land.

The other employment generating development was the rapid growth of call centres especially in areas hard hit by factory closures. The government boasted about the country becoming the call centre of the world and this seemed to happen in the 80s and 90s in spite of accusations of low pay and working conditions. However this development was relatively short lived as the multinationals like British Airways, General Electric, Zurich Insurance and ABN-Amro relocated and moved eastwards – McKinsey have predicted that India will earn £6.4 billion by 2008 with an annual growth of 50%. The reasons for these moves bear an uncanny similarity with the demise of manufacturing namely its up to 80% cheaper and the staff are more motivated. The fragility of these employment sectors reinforces the fact that there needs to be a clear national strategy for industry and commerce and how a balance can be achieved between the service and manufacturing bases. Services and manufacturing must not be seen as economic alternatives they co-exist and possess a synergistic relationship. In this context it is interesting that the US which is the most productive manufacturing nation is also very good at services. Interesting to note how small and ineffective the DTI is in relationship to other government departments its influence and importance seems to have diminished over the past few decades.

These and other factors do not bode well for the regeneration of a manufacturing base however it is defined. Once the structures have been dismantled they are not easily replaced. This is particularly true for the providers of education and training. If government accepts that manufacture is strategically important then it has to provide a long term framework that supports the companies by reducing the burden of regulation and current high levels of tax. Equally important learning providers should be managed and funded openly and fairly. Already there is evidence of differential funding between colleges and training providers. All the providers should be treated equally and effective partnerships encouraged with a culture that engenders trust and confidence between them. Each provider should work to its strengths in an overall provision that is complementary and not competitive or divisive. The CoVE initiative must fully recognise the important part that training providers can play in areas like engineering.

So what is the government doing to maintain and enhance manufacturing? The answer from my perspective is very little. Every time the press publish information on manufacturing output ministers respond by engaging in semantic gymnastics arguing that manufacturing needs to be redefined and that really no problems exist if one accepts these new definitions. In spite of excellent reports from the EEF and the occasional broadsides from the CBI little seems to happen. The usual knee jerk reaction establishes a working party or focus group or initiate skill summits, which revisit and discuss ad nausea the same issues highlighted over many years.

The way ahead -(it’s all been said before)!

  • If this country is to arrest the decline in its international competitiveness both for manufacturing and services based industries it must as a matter of urgency be placed on the government’s agenda.
  • A long-term strategy must be created which recognises the realities and consequences of the global economy.
  • Strategies must be developed that improve productivity and tackle skill shortages.
  • The increasing burden of regulation and direct and indirect taxation on companies must be halted and reversed.
  • Tax incentives should be given to employers to release employees to improve their skills.
  • A comprehensive, coherent and consistent set of strategies developed for post-16 education and training which once and for all resolves the issues associated with parity of esteem.

Equally important is to rebalance the economy it is currently skewed with an undue emphasis on financial services and banking.

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