Not a month goes by without the CBI or a similar organisation putting out a call for a cut in interest rates. Apart from grabbing headlines what long term effect does it have on the health of UK industry? Not as much as investment in innovation I suspect.
Over the last five years UK manufacturing output has had its ups and downs as industry has dealt with high interest rates and overseas competition. According to the Office for National Statistics, manufacturing now accounts for 15% of the UK economy, down from 40% before WWII. The sector is now growing at a similar pace to other developed countries and overall has a record of which I personally feel proud. According to CBI figures there are 150,000 businesses that manufacture in the UK, accounting for 60% of UK exports in 2006.
Within the FTSE 100, 21 companies manufacture goods including pharmaceuticals, machinery and food. Mostly these items are highly sophisticated, bringing added value, high margins and make the UK a more prosperous nation in the process.
Why this helps the UK
Manufacturing jobs are increasingly less labour intensive but rather require higher levels of technical expertise, which is great for Engineers. Engineering is leading the UK into manufacturing in areas like cleantech where it can compete effectively against low-cost economies. All the labour intensive work in textiles and basic manufacturing has moved to the Far East due to the very strong competition in terms of labour costs, however the newer industries are proving surprisingly resilient.
It has become clear that UK industry and individual companies have to continue to innovate with new processes and products, and invest in their businesses. In this continually changing global environment, some industries like medical devices and space science are growing, while others like clothing and metal bashing continue to decline and move to the developing world. I believe we will find the mix of manufacturing in the UK will be completely different in ten years time from how it looks today. I find this incredibly exciting, engineers will be at the forefront of directing and managing this changing manufacturing mix.
How do we stay in the top tier?
Once we accept that no particular industry inherently deserves to continue in the UK, and that individual industries will be started in the UK, grow, mature, and maybe eventually move onto other countries, we can be more rational about our manufacturing investment decisions as a country. We can operate UK plcs like a conglomerate which is constantly evaluating which business units to create, invest in and divest. We can identify future growth areas and increase education in those sectors, invest to derive maximum added value for a period during their growth phase. Finally we can proactively divest businesses where margins are dropping to lower cost countries and reinvest quickly, retraining those employees for the new hot spot sectors.
An attitude along these lines in the UK would free us to create a policy regime that concentrated on industries with high margins and growth potential, and focussed government policy on investment, education and taxation. It would lavish dedicated support on industries with growth attributes, rather than ‘manufacturing’ in general or a particular industry in decline with which we have an emotional attachment.
This is the ‘creative destruction’ that Joseph Schumpeter talked about all those years ago working on a global industrial scale.
In summary, it is now time for all of us who can influence industrial policy to start thinking about industry lifecycles and not just product life cycles – if we intend to keep the UK in the top six of manufacturing nations.
I work in medical devices and see the continued growth of this sector and the levels of engineering skill required to develop good products. I can also foresee industries like industrial automation and clean technology rising to replace ‘old’ industries which will move to lower cost economies when we can no longer compete. I for one welcome this dynamic environment. We are entering an exciting period when the industrial landscape of the UK will change into a more interesting, more technologically dependent age where Engineers will be leading these businesses from the front, keeping the UK in the first tier of manufacturing nations.