Leading Article: A manufacturing culture

THE Prime Minister's reaffirmation, in his interview with Andrew Marr, of the importance of manufacturing industry marks a welcome break with the intellectual fashions of the Eighties. Manual and engineering skills have, he said, been undervalued. Making things matters. Services are important, but they are not enough. In a recession they are the first sector to be cut. Manufactured goods are needed to increase exports and substitute for imports.

Mr Major's logic is unarguable. Only a fifth of services are tradable. Britain's balance of payments deficit is a major constraint on the growth of the economy. Only the manufacture of products that people in this country and abroad want to buy can ease it: in 1986, while Sir John Harvey-Jones was chairman of ICI, he calculated that it would take an extra 6 million tourists to replace ICI's contribution to the balance of payments. The importance of a strong manufacturing base is not as a creator of employment: with growing automation industry employs fewer and fewer people. It lies rather in sustaining the growth of the economy as a whole.

But how can the Government boost it without repeating all the old errors of the post-war era? It would be ridiculous if the pendulum were to swing back from non-intervention to the recreation of the kind of 'industrial policy' that cost the taxpayer so dearly in the Fifties and Sixties. Markets know better than civil servants, and much better than ministers.

The quality of education and training is vital. Although imperfect, the Government's educational reforms represent a serious attempt to remedy serious deficiencies. But it has shown no real understanding of what is required to create a genuine training culture. Attempts to raise the status of vocational qualifications have been half-hearted. The Government still does not give grants for vocational rather than academic courses. When the recession ends, there will be no protection for companies that have carried on training from having their staff poached by companies that have done nothing.

Another field in which our competitors, especially in Germany, are reckoned to enjoy a more favourable climate is in their relationship with their banks. In Germany, the big three banks have substantial holdings in the equity of industrial companies to which they lend, generally with a representative on the company's supervisory board. Coupled with the management of large portfolios and transferred voting rights, they have a powerful say and interest in a company's long-term future. In such a relationship clients do not shop around for cheaper loans in good times, and banks shrink from calling in their loans when the going is tough.

Britain's own Big Four have been reluctant to take an equity stake in client companies, and even to lend money on a business assessment rather than on traditional forms of collateral. Such short-sightedness hinders recovery. Attitudes are changing, but not fast enough, and the Bank of England still imposes low limits on equity holdings by banks.

The measures to help manufacturing will take time. They will often be unglamorous. Most important of all, they will help to change the climate within which our businesses work, rather than direct rainfall to the top of particular industrial hills.