Tuesday, April 14, 2009

Support for protectionism from an unlikely source

As anyone who has been following my blog for sometime knows, one of my favourite sayings is that a nation that makes nothing is worth nothing - well it's nice to see someone in the media agreeing with me.

Britain has a strange attitude towards manufacturing. We pride ourselves on great inventions past, voting Brunel the second greatest Britain after Churchill. We flock to watch Top Gear, a programme that celebrates brilliant engineering. Yet we have lost our appetite for inventing: we imagine factories to be Dickensian workhouses that repair rather than create, and file fewer patents per head of population than Finland or New Zealand.

To be honest, I don't think Britain has a strange attitude to manufacturing - just the political elite. It is they who fail to understand that the service industry is just that - a service - and, as the name implies, it is a supporting component of the economy, not a driving force.

Where did it go wrong? Consolidation, nationalisation and union unrest suppressed our automotive industry. Soaring interest rates and increasingly complicated employment law stifled small engineering firms. The inventiveness demonstrated in the Second World War was not used to build an industrial future.

To be fair, a big reason for that is that we were broke after WW2 and the money we got from the Marshall Plan (more than Germany or Japan) we blew on creating the welfare state (while Germany and Japan invested it in rebuilding their industry - which they now protect with a vengeance) - but Dyson is right. Consolidation, nationalisation and union unrest did kill our automotive industry as well as our aerospace industry, steel industry, shipbuilding industry and just about every other major industry. And as Dyson points out, increasingly complicated employment laws - which mostly originate from the EU - make it difficult for smaller companies to compete with the big global conglomerates and they end up either getting swallowed up by them or pushed out of business by them.

All of this is indisputable, but what Dyson fails to address is how we deal with it. His business recently went through a very public globalisation recently as he admits.

At Dyson, for example, we invent in Britain but assemble in Malaysia and Singapore. Our exports count as British, and bring in £500 million of foreign currency a year.

It's funny that we count hoovers made in Singapore as British exports, but Japanese cars assembled in Sunderland as British too. Sounds like there are some odd, "creative" accounting practices going on. Anyway, regardless of how they "count" the exports, the fact is that the jobs for people working at Dyson plants are not for British people.

Nine of the world's 10 biggest corporations make tangible goods, whether they are cars, turbines, computers or consumer electronics. Of the world's 20 most profitable companies, three are in services. Although British firms increased research and development spending by 7 per cent in 2007, the increase was largely in oil and gas production, software and computer services, pharmaceuticals and banking. We need more research that results in exportable, patented goods.

And the fact is that those companies are spending that money in foreign countries, providing jobs for foreign workers - not Britain or British workers. As Dyson says, we need more exportable, patented goods - but where are they going to come from?

Every year, the number of science and engineering graduates falls. In the last decade, 18 physics departments and 28 chemistry departments have closed. We produce 24,000 engineering graduates a year, compared with over 60,000 psychology graduates.

Well, as I've said before, we need an education system that promotes worthwhile degrees through grants. It's easy to address - let those psychology students make do with student loans and tuition fees and give money through grants to engineering students - that will encourage more people to do engineering and fewer to follow quack science.

As I've been saying for a long long time, the government needs to protect our industry. Protectionism is a dirty word in the modern dictionary, but it shouldn't be. As Dyson points out ....

JCB has been hit hard by a downturn in the construction industry. This pressure has led to inevitable redundancies: JCB is letting go of skilled workers. Some will secure employment elsewhere, but often on a lower salary. Yet in Germany JCB's plant has been supported by the government, which is subsidising salaries so that the country can handle the upturn when it comes.

Germany supports its industry in recession, stagnation and boom times - it is highly protectionist. As is France, Italy, Spain, China, Japan, Indonesia and the USA. Anyone who thinks otherwise is deluding themselves. Just about the only modern developed nation that doesn't protect its industry is Britain - we play by the rules that everybody else ignores and suffer as a consequence.

We need to protect what is left of our industry. Where we are lacking in key sectors the government needs to develop industry in those sectors and protect it from foreign competition. You can moan about how this goes against the principles of "free trade" all you like, but that won't stop this country becoming an economic basket case in the very near future.


Anonymous said...

You will not get more engineers by fiddling around with University funding; you're addressing the wrong end of the problem.

Go and look at job adverts and compare the starting salaries of graduate engineers with those of entrants into banking, accounting, or law. Then you won't wonder any more why nobody much wants to study engineering (or physics, or chemistry, it's the same difference).

When we have industry again, and industry needs engineers, and there aren't enough to go round, those salaries will start to rise, and the rest follows.

It's called a market. And it's telling us loud and clear that we need more accountants than engineers just now.

Stan said...

That's a fair point - and duly noted - but that's arguing over the chicken and the egg. Yes we need industry and yes those industries need engineers - what comes first?

BTW - round my way there are no job adverts for engineers or accountants unless it's working for the council - and, as far as I'm aware, accountants still need a maths degree don't they?

It's also worth remebering that there is more to life than the starting salary. I've got engineering mates who earn very substantial salaries - one of them works in Dubai and is earning a fortune. None of them, however, works for a British company.