Comment: Identity crisis for European industry

Take three items of European industrial news yesterday: Lucas announced that it was shedding 2,750 more jobs, many of them in Britain; Siemens said it was cutting 3,500 jobs from its semi-conductor division; Volvo announced that it was considering closing two assembly plants, which between them employ 1,630 people, by November.

Those companies are by no means the walking wounded. All have some problems, but at this stage of the cycle so would every substantial industrial company. If one takes, instead of one day's news stories, the position of a relatively successful industry in Europe's most competitive economy, much the same picture emerges. The Berlin motor show is taking place this week against a background of plunging production and rising job losses. Mercedes-Benz plans to shed 20,000 jobs, of which more than half will go by Christmas; VW/Audi is losing 12,500; BMW 3,000; Porsche 1,850.

The problem of analysis here is to separate the cyclical from the structural: the extent to which these items represent an inevitable reaction to the excesses of the late 1980s boom, and the extent to which they signal a structural change in the size of European industry. Certainly in the case of the German motor industry, the plunge is from an artificially high base inflated by the pressures of unification. But there is also surely an enormous structural shift taking place: the downsizing of European industry.

If one talks to these companies that are currently shedding labour, they will usually confess that, even when demand returns to something more normal, they will never replace the jobs they have cut. Never is a long time, and it is easy to envisage a boom in the late 1990s when companies do again increase their labour force, but clearly it will not be built up to the levels of 1992. Jobs lost are jobs lost.

One can see this more clearly by taking a look at the longer-term trend in industrial employment in the 1980s. Britain and the United States cut back their industrial sectors: employment in industry in Britain fell from 38 per cent of the labour force to 29 per cent; in the US from 31 per cent to 26 per cent. This sort of decline reflected a run-down of industry as a proportion of GNP and, to judge by the current account deficits of both countries, was probably too fast given the appetite in both countries for manufactured goods.

One response to this - made coincidently yesterday by the Engineering Employers' Federation - would be to establish an industrial strategy to seek to reverse the decline. That might be a strategy to help the balance of payments, although in practice the most obvious way of correcting a structural deficit of this nature is to import the necessary best-practice technology: in the case of the motor industry, from Japan.

This will, in the case of Britain, go a long way to correcting the structural deficit in the current account, but it is not going to have a significant impact on employment. Germany and Japan, the two most successful manufacturing nations, also saw the proportion of the labour force employed in industry fall during the 1980s. The decline is slower but it is still there: from 44 to 40 per cent in Germany and from 35 to 34 per cent in Japan.

So both those countries, despite running up enormous export surpluses over the last decade, which in the case of Japan are still creating grave trade tensions, saw manufacturing industry actually cut its labour as a proportion of the total workforce. Come a decline in demand for those exports, as is happening in Germany at this very moment, and the decline in manufacturing employment can only accelerate.

This presents the gravest problem for European policy-makers, far graver than the policy issues that poor Norman Lamont found himself trying to defend yesterday: what will people do? (Actually in some ways Britain may be better placed than her continental competitors, simply because UK industry has adjusted earlier, but of course this is a problem for the UK too.)

The British answer in the 1930s to very high levels of structural unemployment was twofold: a building boom, principally in the South-east, and the development of new industries producing consumer durables. But neither of these is available now. The last thing the South-east property market needs is an increased supply of homes, and there are no obvious new consumer durables, such as cars in the 1930s, on the horizon.

It is only possible to catch glimpses of the way employment patterns will develop a decade ahead: few people in 1979 could have predicted that the financial services industry would increase employment by 1 million over the following 10 years. But US experience would suggest that there is considerable capacity in Europe to increase employment in relatively low-wage service industry jobs.

Anyone who doubts this should visit Euro Disneyland outside Paris, where after a shaky start admissions are now running ahead of the levels at its Tokyo counterpart at the same stage of its development. Being a 'cast' member of Euro Disneyland, ushering queues of people on to fairground rides or serving overpriced fast food, might not seem the sort of high-skill tasks for which Europe's youth is being supposedly educated. But these are jobs which five years ago, when the site was fields of corn, did not exist.

That is one way of employing people - the North American pattern. One might say that there was also a Japanese derivative, using low-wage labour even more lavishly in service jobs: employing women to bow to customers when they go into a lift at a department store. Is there a European alternative?

It is an enormous question and one that Europe as a region has hardly begun to confront. To talk of the need for industrial policy or for infrastructural investment is to side-step the issue: can Europe, with its cultural diversity, find ways of developing service jobs that add enough value to justify higher wages? Put another way, can service industries be developed which will employ the people who will no longer work at Lucas, Siemens and Volvo at their former salaries?

To put the question is not to answer it. But the right response to a day like yesterday is not to look for new jobs in industry, but rather to look for higher-wage jobs in services.