When two worlds meet: Howard Davies looks at why manufacturing matters to the economy

ONE of the more curious features of British public life over the past 15 years has been the continued debate about the role of manufacturing in the economy. Brought to a head in 1985 by a House of Lords select committee report, which Nigel Lawson vigorously rebutted, it has stuttered on ever since.

Foreigners find it bizarre; nowhere else does it seem to be worth arguing about whether a large developed country needs a manufacturing base. They just get on with it.

Even in 1993 the debate goes on. Writing in the Spectator recently, John Kay of the London Business School ridiculed what he described as the 'cult of manufacturing'.

He caricatured the 'manufacturing worshippers' as 'irredeemably masculine' and noted with glee that 'Bill Clinton's hair stylist earns more than a steel worker'.

As the only so-called 'worshipper' named in the piece, I suppose I should be stung by this attack. But somehow I have managed to live on. I am, I have to confess, a male - and 'irredeemably' so, I think. Most of us are.

But though I do believe that manufacturing matters to the British economy, the CBI does not maintain that only manufacturing matters, nor that there is anything especially virtuous about manufacturing workers themselves.

What we do believe is that Britain's manufacturing base has declined to a point at which it puts our prosperity at risk. There are a number of reasons for this.

First, manufacturing still employs about 4 million people directly, with the same number again employed in businesses that depend on manufacturing.

Of course these jobs could, in theory, be replaced by employment in service industries. But the reality is that many of those workers are not qualified to be hairdressers, and are unlikely to become so.

More seriously, there are high transitional costs involved when a nation's industrial structure changes rapidly. We have been living for a decade with the costs imposed by the manufacturing shake-out of the early 1980s.

Second, with a weakened manufacturing base we have found it difficult to take advantage of the trading opportunities presented by the rapidly growing economies of the Pacific Rim and Latin America.

We know those markets are growing fast, but we have simply not had the products they want to buy. In the early stages of development their appetite is for manufactured goods, particularly capital goods. We have been heavily outgunned by the US, Japan and the rest of Western Europe.

Third, and a related point, our weak trading performance threatens to act as a constraint on growth.

We do not entertain some of the more extreme propositions advanced by trade gap fetishists. And the old model of the UK economy whereby we export manufactured goods to pay for imported food and raw materials is now far from the truth. It is also true that a balance of payments deficit is not necessarily, in itself, a problem.

But our current deficit, in the depths of recession, is worrying, particularly when it is associated with low investment and a large public sector deficit.

In those circumstances the balance of payments may well be a constraint on recovery. The best way to loosen that constraint would be to expand manufactured exports, or displace imports. We are unlikely to be able to achieve that without expanding our manufacturing capacity.

These are not sentimental arguments. They are not based on a 'masculine' view of the superior worth of manufacturing over other occupations. They arise from a careful assessment of the state of the UK economy, and its future prospects. And I believe they are attracting more and more support from across the political and economic spectrum.

The question is, what do we do about it? Can a plausible set of policies be devised that stand a chance of reversing, or at least halting, decades of decline? We think so.

Our National Manufacturing Council has put together a robust programme of activities to that end. The focus is fourfold. First, to improve the economic climate within which manufacturers operate. That means, for example, improved investment allowances, and economic policies that deliver low interest rates without taking risks with inflation.

Second, we want to promote improved understanding between manufacturing industry and the City. That does not mean revisiting the old 'short-termism' controversy. It means improving the ways in which manufacturers explain themselves to investors. So we have developed a new approach to investor relations.

Third, we want to raise the image and status of manufacturing as a career. We have prepared a range of activities, in collaboration with the National Council for Education Technology, to bring manufacturing to life in secondary schools and colleges.

Fourth, we want to help to spread best practice within industry in the drive for world-class performance standards and will be launching our new Competitiveness Forum in the autumn.

The CBI, of course, represents more than manufacturers. Yet none of this activity is controversial among our service sector members.

One of our most enthusiastic smaller members is, in fact, a hairdressing company - Graham Webb International. Mr Webb, indeed, supplies products to the Clinton White House.

Perhaps John Kay was aware of that when he penned his piece, but I doubt it. The only way Mr Webb can supply the Clintons, however, is because he has moved into manufacturing his own salon products. Thus do the two worlds meet and, pace Mr Kay, strengthen each other in the process.

The Independent is sponsoring a conference in London on 20 October to generate ideas that the Chancellor might like to ponder. The Manufacturing Matters conference costs pounds 295 plus VAT. For booking details, call 071-267 2565.

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