Monday, July 10, 2006
Is there a future for manufacturing and science in Britain?
Posted by David Smith at 06:30 PM
Category: Independently-submitted research

This is a summary of a paper written by Dr Alan Reece, chairman of Pearson Engineering, a Newcastle-based engineering firm. It makes a passionate case for manufacturing but is also gloomy in its assessment. Anyone who wants a copy of the full paper should e-mail me.

We live in a world of global corporations and nation states whose interests do not entirely coincide. Britain asserts its independence by having its own currency but gives more freedom to the corporations than any other major country. The result is the second largest negative trade balance in the world.

While manufacturing output grows in Germany, US, Japan and France, here it has declined by over 30% of the goods we consume in the last 10 years. In 2004 it could only provide £190bn of exports to offset £250bn of imported goods. (Compare this to Germany’s £360bn exports) To this £59bn deficit we have to add an extravagant taste for holidays abroad and government foreign expenditures of £18bn and £11bn respectively to reach a negative balance of £88bn.

The basic process which drives the decline in manufacturing is very simple. If labour is a significant part of cost of production then moving the same tools and processes to a low wage economy is unbeatable. Design cannot be divorced from manufacture and R and D follows. Unless something changes the decline will continue and will soon include pharmaceuticals.

We have lived with this so far because of the extraordinary world leading performance of the City of London which generates a positive balance of £65bn from Financial Services and Investment Income. However this still left a Current Account deficit of £32bn in 2005. We pay for part of this by the sale of U.K. companies to foreign owners.

Science is dependent on manufacturing, agriculture, mining and construction to help to provide the critical mass of money and people required to sustain it. Both science and manufacturing are needed to ensure that Britain’s standard of living is maintained and the Britain retains a significant place in a world where society changes because of advancing technology.

The reduction in manufacturing has already led to a near collapse in the teaching of maths and science. This is because of the lack of demand for highly-paid technologists. It is concluded that Britain’s rapid decline in technology and science is partly due to a relative incompetence in manufacturing, coupled with an extraordinary political consensus that actively discourages making, growing and mining.

There is an urgent need to consider whether a Britain without science and manufacturing will have a long term prosperous future. This would be possible if our success at exporting financial services lasts forever. This seems very unlikely. Could manufacturing be re-established?

Comments

Dear David.

I'm an editor at Valor Economico, a leading Brazilian economic newspaper. Could you please send me a copy of the paper written by Dr Alan Reece? I couldn' find your e-mail address, so I opted for this "blog path". Please forgive me for the inconvenience.

Many thanks for your time.

Posted by: Cyro Andrade at July 11, 2006 03:15 AM

At last someone has pointed out why fewer students are studying science and engineering - because the career opportunities are much worse in the UK than in other countries. You won't be well paid or have much job security compared with occupations that are protected from international competition such as the public sector adnd accountancy, law and medicine.

Why is this? Because we have to keep interest rates higher (and thus also exchange rates) to keep inflation at the same levels as other countries. Why? Because of inflationary pressures generated by these largely protected groups. Become a doctor in the UK and you will be paid more than almost anywhere else in the world and you don't have to worry about competitive pressures. Become an engineer and you have (for example) to pay the costs of these doctors whilst having to compete internationally against engineers in countries where (for example) the cost of medical care is much lower and where engineers can therefore be paid less for the same standard of living. You also have to do it with an overvalued currency.

Becoming a scientist or engineer in the UK is not a sensible career choice. The number of jobs in these areas has shrunk hugely in recent years and many engineers have been forced to find new careers.

It will be a disaster in the long term of course, but from an individual point of view, science and engineering should generally be avoided.

Posted by: HJ at July 11, 2006 10:06 AM

I believe that the general thrust of Dr. Pearson’s argument is correct, but the outlook need not be so gloomy for UK science and manufacturing.

It is indeed true that many UK companies have found it attractive to move manufacturing and increasingly R&D offshore. The core reason they are able to do so, as Dr. Pearson points out, is that similar skills are accessible more cheaply abroad. In essence, the ‘strategic control’ of the UK workforce is largely cost-based and the value they add by being located in the UK does not outweigh the cost savings from offshoring. Furthermore, it is true that this trend is not helped by an underinvestment in science education and R&D, so that UK skill levels are no longer superior (and in some cases inferior) to many low cost competitors.

So the question for the future of manufacturing and R&D in the UK is really: what advantages can a UK-based workforce give to a manufacturing / R&D led business by being located here. I can think of some potential situations (not exhaustive):

1. Superior customer service e.g. through ability to tailor products to the local market, and deliver goods more quickly
2. Lower distribution costs e.g. manufacture of goods which are expensive or impractical to transport long distances should be more likely to remain in the UK (especially given rising fuel costs and capacity constraints on ships / ports)
3. Access to pockets of differentiated knowledge e.g. ‘clusters’ of R&D knowledge centred around leading universities or research facilities
4. Access to networks of closely located manufacturers / interdependent suppliers
5. Superior regulatory and IP environments e.g. the most differentiated and proprietary parts of the R&D or manufacturing process are likely to remain “on-shore” for longest due to concerns about IP protection in places such as China


From a policy point of view, the UK should be positioning itself to lead in areas of manufacturing / R&D which fit similar criteria to the ones above. This will probably result in a significant shift in the mix of manufacturing and R&D jobs vs today. However, I’m not sure though that the characteristics of the likely “winners” and “losers” from globalisation has been articulated by the UK and acted on.

Posted by: CM at July 12, 2006 01:48 PM

The reason that engineering (and science) opportunities are much worse in the UK is because of the social stigma attached to being an engineer. It has nothing to do with economics. Mechanical Engineer? You can fix a car then? Why should a graduate with a BEng earn any less than a BA graduate in a company such as BP?

The sucessful global companies have ex-engineers in positions of power. Running a manufacturing/engineering company with an accountant as CEO is just asking for trouble. See Ford and/or GM history for references.

I graduated with a BEng. I went into IT since the starting salary for a graduate was higher in an IT post than in a graduate engineer post (had to pay off those Student Loans you know).

There are several hurdles to overcome. The easiest is for engineers to be paid their worth - one shouldn't have to be a manager to earn more money. Rolls-Royce have a 'technical expert' stream that ensures people who want to remain non-managerial have a decent career path ahead. Whilst in London I was earning more than my manager. The IT industry learned this quickly.

CM has some good proposals but I have one that the British manufacturing industry (in general) seems to have forgotten : make the best product. We shouldn't be buidling cars anymore, we should be building nuclear power stations. We don't care about vacuum cleaners : build new communications mediums.

Posted by: Matt Bunter at July 13, 2006 11:43 PM

Through Lean manufacturing the sector will get more productive, making more goods with less people. Still it will remain.

Posted by: Torsten at July 17, 2006 10:25 AM

Through Lean manufacturing the sector will get more productive, making more goods with less people. Still it will remain.

Posted by: Torsten at July 17, 2006 10:32 AM

I worked with Alan for 14 years, an inspiring, if somewhat erratic leader. I would be very interested in a copy of the full publication.

Posted by: Julian Steward at January 24, 2009 10:52 PM