Only a manufacturing manifesto can restore Britain’s lost wealth and prestige, argues Austin Mitchell
Current political debate is so obsessed with debts and deficits that it totally ignores the looming disaster facing Britain. We can no longer pay our way in the world. Unless 2010 becomes the year of manufacturing revival, our future is bleak indeed.
When this country was the workshop of the world, manufacturing paid our way in it. However, as finance and the City grew in power and influence, Britain went into long decline. Manufacturing needs a low and competitive exchange rate. The City prefers a high and stable one, the better to acquire assets and manipulate money around the world.
Manufacturing needs investment and continuous improvement. The City would rather invest in Dubai than Doncaster. Finance’s hegemony culminated in Margaret Thatcher’s creative destruction which devastated both basic industries and manufacturing. Sadly, Labour continued with this process. The battle against inflation was fought with a high exchange rate designed to make imports cheap and force manufacturing to remain competitive by cutting costs and workforces.
The result of all this was manufacturing decline. The country lost jobs, capacity, markets and even independence as the City raffled off British companies. Manufacturing’s share of gross domestic product fell from 20 per cent in 1997 to perhaps 11 per cent today. The trade deficit grew ever wider. At 6 per cent of gross domestic product, it has become even bigger than that of the United States.
Over recent decades manufacturing has contributed around 60 per cent of our exports. Oil has contributed some 20 per cent, with finance and the City about the same. Now oil will decline, the City is deeply damaged and manufacturing is still declining. The result must inevitably be a widening deficit to be financed by borrowing overseas or selling the family silver until our credit finally runs out.
Only a manufacturing revival can check that withering process. We must export more and import less. That’s not quite the same as “Export or Die”, as huge posters preached when I was young. However, we must export or sink into debt and be faced with lower living standards and higher unemployment.
The opportunity to change course is here and now. Sterling has been devalued by 25 per cent, making it profitable to produce in this country. That would be a huge gain, because the exchange rate is crucial to manufacturing. It is not a phallic symbol, but a market clearing mechanism. A low and competitive exchange rate, properly defined as one which clears markets in conditions of growth and full employment, is essential. Since it translates our costs into prices on overseas markets, it can allow us to bring our cost base below that of our competitors. We then have to keep it there, because competitiveness must be sustained in order to boost investment. That requires a long-term guarantee of profitability and competitiveness.
From Germany to China, all Britain’s competitors started with a very low exchange rate which made exporting profitable. This built up powerful exporting sectors – attracting investment, developing economies of scale and boosting productivity into a virtuous cycle of increasing competitiveness and continuous improvement.
We’ve enjoyed this in Britain, because manufacturing was focused on a home market it gradually lost. The only alleviation of decline was periodic devaluations forced on us in 1949, 1967, 1972 and 1992. All boosted manufacturing, productivity and growth – only for it to be choked off as the exchange and interest rates rose again.
Now, after 10 years of bubble economics, that opportunity recurs. While seizing it requires the pound to be kept low, success needs more. Competitiveness is a necessary, but not sufficient condition of growth. We must also rebalance our dangerously lopsided economy, tend the dominance of the City and empower manufacturing by developing an industrial strategy to channel investment, clear bottlenecks of skills, planning or transport. That would give us the chance to finance research, design and marketing and provide venture and start-up funding. Far from being old hat, manufacturing can grow and flourish quickly, given the right conditions. That’s what has happened in competing countries.
As far as Britain is concerned, since all this would be such a reversal of the norms of economic policy, it would be understandable if it came with Gordon Brown’s hallmark slowness. Unfortunately, developments up to now have been in the opposite direction. We pumped money into the banks that caused the problem, not into manufacturing which has suffered the consequences. Apparently, creative destruction is fine for manufacturing but it’s unfair on the banks. Even the Bank of England’s quantitative easing – printing money to buy back debt – helps finance and hedge funds, the main debt holders, and pushes up asset and share prices. It doesn’t help manufacturing.
Although there are glimmers of revival, Britain is yet to seize the opportunity of its new competitiveness and manufacturing is still suffering as a result of closures, redundancies and excessively tight credit. Neither investment nor bridging finance is forthcoming from banks preoccupied with rebuilding reserves or from financial institutions busily flogging off British companies and assets to keep their fat fees flowing. They regard manufacturing as expendable, not expandable.
Unless manufacturing and industry are regenerated, we fail as a nation. Revival must start with the existing manufacturing base. We can build outward and upward from it. That’s a prescription to redress the imbalances which have concentrated wealth and opportunity in London and drained industrial areas. It would spread jobs, higher pay and development throughout the country – as only manufacturing can. Following such a strategy could also reduce the levels of unemployment and deprivation caused by industrial decline by bringing work and investment back home and reusing skills currently destined for the scrap heap.
This isn’t just an issue of regional revival. What’s good for Yorkshire is also good for the whole of Britain. Our country has to choose between carrying on as before, with a dominant financial sector and a poor people, dwindling gradually into a debtor nation, or putting people and factories back to work making products we can sell around the world. This is a choice between national destinies, although no one in government seems prepared to see or think about it in those terms just yet – and still less to restore manufacturing to the primacy it must resume.
Austin Mitchell is Labour MP for Great Grimsby
