Pat McFadden is right: we need to be making things
On Monday, Pat McFadden, MP for Wolverhampton South East, former Minister at the Department for Business and one-time member of Tony Blair’s Policy Unit, published a paper entitled ‘Making things: a reassessment of British manufacturing’. This is the first chance I’ve had to blog about it. It contains a lot of evidence from Pat’s own constituency, which was formerly a part of the UK’s manufacturing heartland. And, in the main, I think it is a a good report.
Pat neatly sums up the state of British manufacturing. He says: “If we want a basic scorecard on manufacturing it would be that we make less than we once did, but more than we think we do.” Why do we make less? Pat correctly highlights the biggest wave of globalisation in human history and is right to point out that, with the exception of Germany, almost all other developed countries have lost some manufacturing capacity to Asian tigers to the East and to China in particular. What he doesn’t say is that during this time (and, sadly, on his government’s watch) the rate of job losses in manufacturing was much sharper in the UK than in comparative European countries. France, Spain and Italy all lost fewer manufacturing jobs than we did. I recognise that Italy and Spain have problems at the moment, so I understand that my last sentence may be interpreted as saying that the UK should have taken decisions which could have caused us similar difficulties. But the problems of Italy and Spain are complex and I don’t think it could be argued that if the UK had pursued a more balanced economic policy, with less emphasis on the City and more on industry, we’d have a weaker economy than we have now.
Pat correctly points out that as productivity grows, employment per product will fall. This explains the continuing success of the UK automotive industry, even though it employs far fewer people than it did in the 1960s and 1970s. But whilst that provides an explanation, it leaves us with a problem, which Pat doesn’t tackle. How do we create jobs for the group of people that sociologists used to call the “skilled working class”? I think a modern manufacturing policy must focus on specific industrial sectors and there are ways that we could identify those sectors. I’ll say more about that below but, in the meantime, I think we should specifically focus on those technologies and industries that could provide decent, well-paid jobs to those youngsters who leave school but do not, for whatever reason, go to university. Economic and industrial policy must be for a purpose, or a number of purposes: this is surely one of them.
Pat talks about the specific issues affecting energy intensive industries, which the TUC has also done a lot of work on. He discusses the role of SMEs and mid-caps. The TUC talked about small and medium sized companies in our recent report, ‘German Lessons’. We made the case for a British version of the German mittelstand, acting as suppliers to large, world-class, exporters. That’s an ambitious target, but we are struck that UK policy debate focuses on either small, often micro-companies, or on large companies such as Rolls Royce. Medium sized firms barely get a mention and the need to grow small firms into medium sized companies even less so. Some firms are naturally small, but where a company could grow into a medium sized player, it should be encouraged to do so. I think Britain has indulged a “small is beautiful” mentality in this debate, seeing small firms as a good in themselves, as if they are a testament to a healthy capitalism. We need to be more ambitious here.
Pat discusses Sheffield Forgemasters and (quite rightly) resists the temptation to take a cheap shot at the Lib Dems, instead making, for me, one of the most important points of his report: the relationship between government and risk. On the issue of specific financial support for certain companies, in this case in the form of a loan, Pat says: “the least risky response would be to say no every time”. He points out the inevitable, that not every decision taken to support a company will work out, before adding: “But it is better to be trying to do so, succeeding sometimes and perhaps not at other times, than not be trying at all and letting key opportunities pass Britain by.” A few years ago, I wrote a report for the TUC about industrial policy in France. I was told that the French expect their government to support industry and recognise that, whilst this will fail sometimes, leading to a waste of taxpayers money, it is better to try overall. This is surely correct. Of course, government should not be frittering taxpayers’ money around, but there is role for reasonable risk in the industrial policy debate.
Pat makes common sense points about skills and the image of manufacturing. He goes on to say – and is absolutely right to do so – that government needs to be an active player. Taking on the tired argument about picking winners, he says: “Picking winners isn’t the problem. It’s backing lots of losers which is the potential problem.” As he says, there must be conditions which determine how and when government intervenes. The TUC has long argued that the UK needs to focus on those strategic sectors which are or could become world leaders, capable of competiting in the age of globalisation, for years to come. That begs the question: how do we identify such sectors? ‘German Lessons’ suggested that we look at the work of the engineering giant Siemens and its focus on global mega-trends. We can try to match the way the world is going with the UK’s capacity to build the products that will be needed in the process, whilst always recognising that there are wider issues affecting industrial policy, including the need for job creation. However, whilst we must be as scientific as possible about identifying our strategic sectors, this will be, in part, a political decision. Germany is successful in the automotive sector because its government has focused on that as a key sector. I know the free-marketeers don’t like this, but there is a role for politics in industrial policy too.
Pat is correct to defend the need for a Department of Business (although I would still prefer a Department of Industry: sometimes, the name matters!). I also agree with his call for a British Investment Bank; expect to see more from the TUC on this issue later in the year.
I have saved the bit I didn’t like until the end. Discussing Jaguar Land Rover, Pat mentions the “appalling industrial relations” of the motor industry in the 1970s, before adding: “If there was an image that defined the industry then it would probably be a factory car park with thousands of workers putting their hands in the air to vote to go on strike”. That’s certainly one image, although there are others. But if 1970s industrial relations were the finest hour of none of us, then perhaps Pat could have balanced this with a mention of the very constructive work unions have been doing to underpin and strengthen so many manufacturing sectors since then, especially during the economic downturn. Pay freezes and shift closures caused real hardship to many of our members, yet they endured that hardship to protect their jobs and the jobs of their colleagues. Just last week, when Vauxhall committed to the future of car production at Ellesmere Port, the Business Secretary, Vince Cable, had the grace to say: “The unions and the Government … played a significant role in demonstrating to GM’s board that Vauxhall has a very flexible workforce…”
In ‘German Lessons’, the TUC makes the case for a Social Market Economy in the UK. We highlight the positive role that German unions play on works councils and supervisory boards, protecting their independence and defending their members, but working for the good of the company. We believe the UK could learn from this model, which is part of a more balanced, more equal, fairer and more prosperous economy. Sometimes in the UK, we talk as if the only stakeholders in industry are the management and the shareholders. The TUC rejects this approach. In our view, just as important are the workforce and the wider community, in areas such as Pat’s constituency of Wolverhampton. Unions have a positive role to play in the future of manufacturing. It would have been good if Pat’s report had said as much.