On The Decline Of British Manufacturing

The changes in the United Kingdom economic structure, from a manufacturing based economy to a service based economy are often the subject of debates and are most often considered as positive. However, before making any conclusion on this, it is very important to have an historical look at what happened, far away from sentences like ‘the Tories sold off our industries’.

Britain created most of its current wealth thanks to manufacturing and, as most people know, the Industrial Revolution started here. The relative decline of manufacturing started much earlier than what is commonly thought. Indeed by the time of the First World War, Britain was outmatched by both Germany and the United States. The reasons for this decline are numerous, but the lack of technological investment was a major factor at the time. Real decline in the sense commonly understood, only started for good after the Second World War and accelerated once the seventies were reached.

Beyond statements like ‘Maggie destroyed our pits and our factories’, the truth is clearly not at the advantage of the ‘defenders of British industries’ namely, the Labour Party. One of the reasons of the decline, was the lack of properly trained workers. Indeed manufacturing requires skills which are very different from the ones required for white collar jobs, one of the aspects of the Tripartite system were Technical Secondary Schools. These schools very similar to the ones existing in Germany and to the French Lycées Techniques, had a very clear role, providing the engineers, scientists, machinists and technicians of tomorrow. They were nevertheless starved of cash by the Labour Party and its trade unionists cronies. Now let’s talk a bit about, the crazy mergers and then nationalisations made by Harold Wilson. Labour involvement in the motor industry had only one result, the creation of an unmanageable juggernaut, offering similar yet competing products whose dire fate was already sealed in the seventies, the same can be said for the steel making and the shipbuilding industry. Excessive taxation of profits and the free hand given to the trade unions, also did a very good job in wrecking what was working, in the few industries still in private hands.

It is perfectly fair to say that the eighties were not a nice decade for manufacturing, but when the core of a fruit is already rotten, as that was the case in the car industry, there is absolutely no point in attempting to save it. In fact the situation of manufacturing was way better under Major’s government than now, as soon as Tony Blair came to power the trade deficit went on the increase and is now one of the worst if not the worse in Europe.

But does this matter, as the UK economy is ‘service based’? Yes it does, since some sectors of the service economy depends upon the manufacturing sector. While there is a net capital inflow to the UK, this is not enough to cover the huge trade deficit and the balance of payments is negative, while this may not matter in the short term, it will matter in the long term. There is also another looming problem in the strategy adopted by the government of concentrating on the service sector, an oversupply of graduates with at best average qualifications. This oversupply is essentially the economy answer to the ‘higher education targets’ made by Labour politicians. The quality of the diplomas went down, as the tougher selection of graduates made by private sector companies shows. This also has two other consequences both of them very important. First of all, an increase in the number of ‘management’ jobs in the public sector, ie more bureaucracy, since the government will always provide jobs for the graduates rejected by the private sector. The second consequence is the huge increase in immigration seen during the last few years, the UK will always need carpenters, plumbers or industry workers and since due to Labour’s policies on education there is an undersupply of British nationals to do these jobs, employers are forced to look abroad to find their workforce.

A third consequence of the decline in manufacturing, apart from a negative trade balance and imbalances in the workforce (which started before Labour’s targets) is underinvestment in research and development. When China and India are investing massively in their universities, investment in British universities remains stagnant as is investment in other sectors such as engineering and electronics. If we are to find solutions to meet for example our future energy needs, or just simply in order to enhance the performance of our armed forces, investment will be needed and companies like Tesco or Deloitte will never invest in those sectors because this would not fit their interests.

It is a pure fantasy to consider, that our decline in manufacturing will be eternally matched by something else. Financial services do create wealth, but they can’t create masses of jobs. Consultancy needs secondary sector companies to be profitable. Design has always been linked to industry. Advertising depends partly on new manufactured products and can be done in house by companies in order to reduce costs. The Irish Republic which has the most buoyant economy in Europe, has 46% of her GDP coming from the secondary sector, despite their over protective social systems, the Scandinavian countries often manage to have growth rates of more than 3% per annum, thanks to their ultra developed R&D sectors and high tech companies. While we can’t compete against China on quantity, we can compete on quality and by developing new products.

Can Britain halt the decline in her manufacturing sector then, and become once again a great manufacturing nation? Yes we can, but this would need some very clear policies. Ending for good the implicit motto adopted by socialists and trade unionists alike of ‘Industrial jobs are bad, dangerous and don’t provide opportunities’, would be a significant step forward. The socialists now wishing an easy job in an office, job which would not pay their mortgage and sustain a wife and children, need to remind themselves that factory worker were able to sustain large families without any trouble back in the fifties and sixties. The first step in that direction, would be to recreate Secondary Technical Schools, where technical and vocational training would be provided. A revamp of the current education system would have to follow, but it is conceivable at first to imagine some kind of ‘technical A levels’ done in the new schools. All the different targets set by Labour politicians in education would then be scrapped, with the aim of reducing the pressure on universities and ending the teaching of subject like ‘Media studies’. The tuition fee system would then be reviewed, with an abolition of tuitions fees for science and engineering based subjects. In order to increase R&D spending, the corporate tax rate would be slashed to 20% and every pound spent on R&D would be deducted from the sum paid to the exchequer, effectively scrapping corporation tax for companies which favour high R&D investment. In order to boost exports, it is perfectly possible to use the power of networks such as the British Council, in order to provide knowledge of the local markets through specialists and British expatriates.

Everything is possible if we adopt a ‘can do’ attitude, far from the ‘the government has the answer’ attitude of the Labour Party. As much as Nationalisation was not an answer in the past, targeting and bureaucracy are not answers as well. If we are to find solutions to reduce our carbon emissions by 60% in 2050, these solutions won’t be found by creating armies of Medias studies graduates, nor by having an economy with a deficit in the balance of payments. Nationalisation was a lunacy; targeting and bureaucracy are also lunacies, so let’s go back to common sense now as it’s the future health of British economy which is at stake.