Britain

Made in Britain

Nov 19th 2008
From The World in 2009 print edition
By John Rose

A leading industrialist puts the argument that the time is ripe for a manufacturing renaissance

Getty ImagesBack to the heyday?

Paradoxically, today’s challenging economic conditions provide a unique opportunity for Britain. A fundamental examination of how this nation earns its living is long overdue. The credit crunch could provide the impetus we need to answer a question that has defeated policymakers for more than 50 years: how can manufacturing be encouraged to create wealth as part of a competitive, high-value British economy?

Manufacturing’s problems began with the mis­guided notion that Britain should become a “post-industrial” economy: that we would focus on services and the creation of ideas, with other nations taking on the less attractive task of making the finished product. The results speak for themselves. Manufacturing now generates just 13% of GDP, compared with 32% in 1970.

The credit crisis has exposed the risks of an unbalanced economy. At a recent conference a senior British industrialist, about to address German government and industry representatives on our industrial policy, was introduced as follows: “Our speaker is now going to explain how you run an economy based on real estate.”

These imbalances have also prompted our politicians and commentators to consider seriously, some for the first time, the importance of high-value-added manufacturing in a developed economy. The government has published a new manufacturing strategy; the Conservatives are reviewing their policy towards industry. Our objective as a country must be to build on this work and define the policy and financial mechanisms required to encourage an expansion of manufacturing as part of a more balanced economy. We have to be ruthlessly honest about both the scale of the competition we face and the focused action which other countries are already taking to promote manufacturing.

Stop treating manufacturing as a relic of the industrial revolution

The first priority should be to stop treating manufacturing as a relic of the industrial revolution. High-value-added manufacturing brings huge benefits. It penetrates the economy of the entire country, not just London and the south-east. It pays well but avoids bewildering distortions of income. It drives and enables a broad range of skills and stimulates the growth of serv­ices. In short, it creates wealth.

The benefits are seen clearly in Derby, where around 11,000 people are employed by Rolls-Royce and a further 15,000 in its supply chain. Nearly 12% of the city’s workforce is involved in high technology, the highest figure in the country, and the number of skilled employees is 2.4 times the national average. Derby’s contribution to the British economy, measured by gross value added, is growing faster than that of any other city.

Manufacturing generates over three-quarters of R&D investment made by British businesses. This creates a strong technology base which opens new options for all businesses.

That is why Britain’s decision to proceed with new nuclear is so important: it has the potential to catalyse a manufacturing renaissance. If we can become a nuclear “first mover” we will develop our nuclear capability and supply chain, enabling us to benefit from a growing glo­bal market. This industry also demands a very broad range of skills, from project management to materials science, most of which are transferable to other sectors.

What is true of civil nuclear is true of high-value-added manufacturing more generally. I am struck by the fact that almost all developed and emerging economies have well articulated plans to capture and promote this sort of manufacturing. Britain risks being the only country out of step. We need an economic route map for attracting and retaining high-value-added investment, identifying Britain’s competitive advantages with ruth­less honesty and prioritising both public and private investment accordingly.

This is not about protectionism or “picking winners”. It is simply an acknowledgment that most nations with these goals have a clear strategy for achieving them, with that clarity being part of their competitiveness. Britain’s success in the 2008 Olympics was based on precisely the sort of competitive assessment and focused investment that we must bring to our economic decisions. It has sent a strong signal to aspiring young sportsmen and women. The same will, I submit, be true of the signals sent to young people in education if we bring a similar clarity to addressing our economic competitiveness.

So how do I see British manufacturing faring in 2009? We still retain a strong industrial capability and science base. By setting the right priorities we can develop within a generation a more broadly based economy, with greater resilience and stronger exports. We will see a high-value-added manufacturing sector with deep product knowledge enabling growing services, and renewed demand for science-based subjects in schools and universities. It is entirely feasible that this new direction can be set in 2009 and that today’s economic difficulties will create the right conditions to inform this fundamental shift in attitude and policy.

Sir John Rose: chief executive, Rolls-Royce