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Dan Lewis: Another day of bad news... but our battered manufacturers can rise again
THE grim news just keeps on coming. Yesterday's announcement of 2,500 job losses at Corus, including hundreds of redundancies in Rotherham, and further cuts in Scunthorpe, presages hard times ahead.
Yes British manufacturing is down, but not out. Manufacturing still makes up a greater proportion of the wider economy than the financial services industry.
And, beyond the dark clouds of recession, a brighter future still beckons. Thanks partly to the devaluation of the pound, a new wave of foreign and domestic investment could be in prospect – if the right incentives are in place.
To do that, the UK must pursue aggressive fiscal and regulatory competition that is combined – for the first time – with a revolution in our staid and woefully under-performing education system.
You can't really blame Corus. Steel manufacturing is a very tough business to be in. According to figures from the World Steel Association, global crude steel production grew by nearly 70 per cent to 1,344 million metric tonnes in the 10 years to 2007.
But once you strip out China's near-fivefold increase over that period to just under 500 million tons, it becomes clear that this is a static to declining business for the rest of the world. And the UK's role in it has never been smaller. In 2007, British steel workers produced a mere 14.3 million tonnes.
Moreover, steel is uniquely positioned to be hit hardest by the credit crunch. That's because its two biggest customers are the automobile and the construction industries.
As office blocks, homes and cars are the largest investment anyone will ever make, the high price or non-availability of credit is destroying world demand for steel. No wonder steel prices have halved since September.
You could, though, blame Tata Group, Corus's parent company. By buying Corus at the top of the market in January 2007, we can say – admittedly with hindsight – that they paid well over the odds and reduced their cash resources to weather any future downturn. The same goes for their purchase of Jaguar/Land Rover.
Meanwhile, Lord Mandelson, the Business Secretary, is probably right to extend loans to the car industry to stimulate sales. The British car industry, or more accurately, the foreign-owned car industry in Britain, has never been more efficient.
So long as two-thirds of vehicles are sold on the basis
of credit, a loan is probably justified until the banks start lending again. It will be interesting to see who is invited to tomorrow's car summit.
My guess is that it will be a carefully stage-managed
event of on-message people. That's a pity, because we could do with a few outspoken characters like Jeremy Clarkson throwing a few spanners in the works and telling Mandelson how it really is.
There is though a small silver lining in the cloud. Not all economists agree, but sterling is no longer over-priced. When demand picks up again, some manufacturing companies will have been sheltered from the worst ravages of the recession by a currency that reflects their trying circumstances.
If you're in any doubt about this, just take a look across the Irish Sea and thank God that we never joined the euro. Ireland's economic situation is far worse than the UK's ever will be. Had they kept the punt or even adopted the pound, it's unlikely they would be facing the calamity that they
are now.
But temporary currency adjustments are not enough. In the long run, human capital – the skills of your workforce – are the most important asset.
Here, there has been next to no progress.
British manufacturing seems to succeed in spite of its skills base. Last year, we produced 25,000 engineers and had vacancies for 37,000 staff. In an education system that was market-driven rather than a centralised-bureaucracy, this would never happen.
It's also very disappointing that even relatively minor initiatives like Sir James Dyson's four-year quest to create Britain's first Engineering and Design School, were allowed to be blocked by the Environment Agency – what do they know about anything apart from how to mismanage our flood defences?
In the last 20 years, manufacturing has done its bit to modernise and has changed out of all recognition. It's not dirty metal-bashing any more, but about the careful and profitable application of very clean and precise technology.
The record of the Government, though, has been poor. They
just don't understand that the world is not beating a path to
our door in the global economy. We're in a constant competition and can never rest on our laurels. Sadly, Gordon Brown did just that by believing his own rhetoric about
ending the cycle of boom and bust.
That's why we have to blame the Government for many of the struggles of manufacturing today. Since coming to power in 1997, one million British manufacturing jobs have been lost.
When the economic history of the Blair/Brown period is written, it will be rightly seen as a missed opportunity without equal. Inheriting a golden economic legacy and a mandate for change, resources and time were haemorrhaged on quangos, targets, unreformed public services, while all the time, ramping up government debt for future generations.
It could all have been so different.
Dan Lewis is the research director of the Economic Research Council www.ercouncil.org
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Saturday 11 February 2012
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