July 29, 2008
Column: Why I’m still backing Britain
My uncle’s Austin Maxi was a tough old beast. It was the sort of car that never gave up. It carried my cousins and their parents all the way from Scotland to Spain and back again on ambitious summer holidays, but could also display a useful turn of speed, outgunning my dad’s Renault 12 with some ease.
It is strange, our nostalgia for these vanished car marques. After all, it is not as though some of these older models were really any good, at least, not compared with today’s far more comfortable and reliable cars that are so much easier to drive.
Luckily for me – and for my fellow road users – I have never had to double declutch in my life. But I do remember those cold mornings when the jump-leads had to be applied and the choke was pulled out all the way, or those long summer drives when bare legs got scorched by boiling hot vinyl seats. The good old days left considerable room for improvement.
Petrol heads of a certain vintage will have been able to indulge all their nostalgic feelings in the past few days after reading the long and largely affectionate obituaries of Lord (Donald) Stokes, the former chairman of the British Leyland Motor Corporation, who died last week.
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Tags: Manufacturing
Your view focuses on employment in manufacturing and on the idea of retaining innovation and related services in the UK while matured product or basic manufacturing may be transferred to low cost labour countries like China. There are however examples in various studies of manufacturing where the innovation and process efficiency gains inevitably also migrate to where the main workforce is as it is often the workers themselves who propose improvements. The famous case of this is the German optics industry when manufacturing transferred to the Far East. Innovation is not merely a blueprint R&D design matter. In the UK, we have been very backward in not teaching process engineering and the organisation of production, unlike the US, Germany and Japan. The UK is often said to be best at innovation, prototyping and bespoke engineering, bu not mass production. UK manufacturing has increased real output by about 1% a year on average over the past 20 years and increased productivity by half in 10 years. The latter statistic combined with the former tells us that manufacturing employment is seriously down. And most of these gains may be assigned to foreign manufacturers investing in the UK. It can be measured that it still takes 3-4 Japanese enginers to deliver the work of 1 UK engineer,but japan educates every year 4 or more times as many engineers as the UK. There is, of course, so much more involved in the success of manufacturing than design and production. Improvements in design and production tend to follow success in sales not precede it. No doubt if China enforced the 40 hour week legislation and allowed its domestic demand to grow faster than GDP, there would not only be a greater demand for imports but also for services and importing R&D. Chinese engineering design content and sourcing of components from wholly Chinese owned business in many of its new industries struggle to exceed 20-30%. Until recently, half of China’s exports were low margin clothing and timber. It has not yet elevated itself to the path that Japan was able to follow in the 1960s-1980s of having major brand names in ytechnology intensive manufacturing. But, that is coming. The future of British manufacturing (40% of which is small companies employing less than 250 people, and most of these less than 50)has to be either in new technology patents in the products or in processes to gain bigger scale output. Assuming the traditional innovation skills remain available to innvovate products and processes, then as always it is a matter of superior investment, marketing and salesmanship. Even in the workshop-of-the-world heyday of British manufacturing these were issues of competitive weakness, not strength. Something like a third of British manufacturing is foreign owned. Capital intensity varies widely across but is 50% higher in foreign-owned manufacturing plants, which are also more human capital intensive. Value added per worker is 38% higher in foreign-owned establishments. Human and physical capital intensity differences are a significant determinant of productivity gaps. Even after allowing for their higher capital intensity, US-owned (but not other foreign-owned) establishments have an additional productivity advantage of 10% to 20%. A third of manufacturing investment in the UK is foreign, 35% of exports and 20% of employees. Therefore, much of what is best in UK manufacturing is foreign determined and managed.
Posted by: Robert McDowell (Banking Economist) | July 30th, 2008 at 10:57 pm | Report this comment