Back in 1980, shortly after the Conservative Prime Minister, Ms Margaret Thatcher, came to power, Labour politician and former Chancellor of the Exchequer, Denis Healey, gave a dire warning about the prospects for British industry.
Staggering under a “savage squeeze” of high inflation, interest rates, exchange rates and low demand, the nation faced the prospect of “industrial collapse,” he warned.
He called on the government to take action, pointing to what other European nations, and particularly Germany and France were taking to support their industries.
The call went unanswered from a government that blamed the decline on what the then Industry Minister, Keith Joseph, termed “years of decline in competitiveness,” “unrealistic practices on the shop floor, excessive wage claims, and a refusal to achieve” higher productivity. Instead, it focused its efforts on championing other sectors, and most particularly the financial.
On October 27, 1986, the Thatcher government launched the much-hyped “big bang:” a major deregulation of the British financial services sector, including removing the barriers that allowed commercial banks to partake in investment banking activities, which went far beyond what even the US allowed at the time.
“As the City of London experiences the liberating sensation of its Big Bang, American financial markets continue to be burdened by regulations inhibiting competition,” declared a banking executive, writing in The Wall Street Journal at the time, warning that the US would continue to lose business should it not follow suit.
MOMENT OF RECKONING
What followed then is well known: Britain, the cradle of the industrial revolution, experienced a steady decline of its manufacturing sector — which fell from around 30 per cent of GDP in the 1970s to less than half that figure, reinforced by the Labour governments that followed the Conservative years.
At the same time, the steady stream of deregulation ensured Britain’s rise to financial services stardom, a status that it continued to maintain well into the financial crisis: in 2009, the World Economic Forum ranked London as the world’s top financial centre, ahead of 55 cities globally, including New York.
From the early days of the crisis, and particularly with Britain’s economy showing little signs of exiting the doldrums, politicians have inevitably turned to the question of where the nation’s future growth and employment will come from, if not from the capricious financial sector.
Unveiling last year’s budget, Conservative Chancellor of the Exchequer, Mr George Osborne, gave the nation his answer: “We want the words: ‘Made in Britain’ “Created in Britain” “Designed in Britain” “Invented in Britain” to drive our nation forward,” he told MPs. “A Britain carried aloft by the march of the makers.” In other words, a refocusing on the very sector, of whose demise his party had been instrumental.
In this year’s budget, he challenged industry to meet the highly ambitious target of doubling exports to 1 trillion pounds by 2020 (manufacturing currently accounts for around half of exports).
Since those lofty proclamations, there have been the odd policy developments: a multi-billion pound credit easing scheme for small firms, improvements to research and development tax credits, a 100-million-pound investment into university research facilities, and the creation of a centre for aerodynamics (an unusual move for a government and party that has always steered clear of supporting specific industries).
But what has failed to emerge is anything like a strategic vision for what a nation powered by the “march of the makers” would look like.
“The government has a very clear fiscal plan but has failed to provide clarity on the growth story, including the structure of the economy,” says Andrew Johnson, senior economist at the EEF, Britain’s manufacturers’ organisation.The refocus on manufacturing — in rhetoric at least — has exposed the challenges the nation faces in reviving a sector neglected by government at least for many a year, and which will undoubtedly take years to fix.
Surveys continue to point to the difficulties companies, and particularly small and medium-sized businesses have faced in accessing funding, despite various government initiatives to kick-start lending by banks.
“To support the re-balancing of the UK economy towards exports, the government must do more to access finance, particularly for SMEs that are potential exporters,” said the British Chamber of Commerce (BCC) in a report this month following a survey.
SKILLS DEFICIT
Others have pointed to the failure of the top notch research and development work carried out at Britain’s top universities and research institutions, to make its way into industry: the Campaign for Science and Engineering, for example, has contrasted British initiatives for investment in science and engineering research in British universities and the commercialisation of research to Germany, which raised federal research and education spending by 10 per cent, to 11.3 billion pounds for 2012.
However the nation’s biggest challenges lie in meeting the potential demand for a skilled workforce: the dearth of skilled workers, particularly in areas such as engineering, has been long lamented (particularly as youth unemployment remains at high levels).
Earlier this month, a senior Nissan executive warned that jobs in Britain could move India, Brazil and China, should Britain not get its act together when it comes to its skills base and education system (Nissan itself recently invested 125 million pounds into Britain).
In a survey of firms last December, the BCC found that growth plans of larger firms were hampered by a lack of skilled workers in Britain.
Unsurprisingly, many within Britain have looked to Germany, and its famed system of apprenticeships. According to a recent study by the Institute of Public Policy Research, a prominent think-tank, there are just 11 apprentices for every 1,000 employees in England, against 40 in Germany, and 39 in Australia.
“A large proportion of the economy is based on low-wage, low skilled sectors, a condition underpinned by persistent problems of poor management skills and unambitious firms operating low value, low productivity business strategies,” the think tank said by way of explanation, arguing that while apprenticeships could become important tools for addressing the high levels of unemployment and a more dynamic economy, it would require far deeper structural change than simply increasing their abundance.
These are big issues for any policy makers, and will take decades to begin to address: the trouble has been that while there’ve been moves in the right direction, there’ve been as many if not more missteps that continue to baffle industry.
Such as the renewed focus on immigration both by the Coalition government (whose tightening up of immigration has been widely condemned, particularly for the blow it will strike on the nation’s universities), and by the opposition Labour Party which last week called for measures to protect British workers — a move that was swiftly condemned by business.
“It should not be about protecting UK workers from foreign competition, but instead we must ensure they are equipped with the right skills to compete with the best in the world,” said the British Chamber of Commerce.
A sensible message, if not a popular one, in a nation still adjusting to new economic realities and its less assured position in a turbulent global economy.