Economy: Manufacturing

Lord Giddens Excerpts

Thursday 3rd July 2014 Lords Chamber

[Lord Giddens (Lab)]

My Lords, I, too, congratulate the noble Baroness, Lady Wilcox, on having secured this debate and introduced it so ably.

There is cross-party agreement these days that the economy should be restructured over the next few years and that active government intervention will be needed to achieve that. Deindustrialisation and offshoring may produce economic benefits, but once they reach a certain point, their social and economic consequences become destructive.

A key question for our times is how to achieve a resurgence of manufacture with reindustrialisation instead of deindustrialisation, and reshoring rather than offshoring. I was pleased to hear the noble Lord, Lord Shipley, mention this, if only briefly. I discussed the issue of reshoring in your Lordships’ House about two years ago and I would now like to offer an update on it because it is decisively important. It goes against a few of the things that the noble Lord, Lord Carrington, just said.

To understand this debate, we have to turn to the United States. The reshoring debate has been going on in the US for quite a while but has only recently percolated to our shores. We could say that we have actually reshored the reshoring debate, as reshoring has quite rightly become part of government policy and recently figured in the discussion of the All-Party Manufacturing Group. Discussion and analysis in the United States has been led by another group with a big G: the Boston Consulting Group, which has produced a series of really interesting reports on this issue. Those reports are helping to fuel a significant transformation of the American economy in respect of manufacturing.

The most recent work of the Boston Consulting Group is a study of 25 nations that account for 90% of global exports of manufactured goods. The study uses several indicators of manufacturing cost competitiveness and concludes that the old perception of low competitiveness in the West, compared to high competitiveness in Asia, is becoming obsolete. The manufacturing cost advantage of China over the US, for example, has shrunk to no more than 5%. It is tiny now. According to the study, the UK is not far behind. In other words, we could put it this way: the tectonic plates of the global economy are shifting quite radically, which creates very significant opportunities for not just the UK but other pre-existing industrial countries.

According to the BCG, more than 50% of US manufacturing companies with a turnover of more than $1 billion are actively contemplating bringing their production back to America. That is in its detailed survey study. The reasons given are: rising productivity in the United States; a more transparent regulatory structure than is achieved in other countries; better patent protection, which is important for businesses functioning in some countries elsewhere; the increasing costs of transportation; the positive impact of automation; and low energy prices associated with the shale gas revolution. That is a very significant package of changes, so big change is imminent in the nature of the global economy and its competitive structure. In the United States, local and regional activism has also made a big impact—as should happen here.

Looking at the situation here and the debate about reshoring, your Lordships can see that it is only just beginning. We simply do not have enough research in this country to know how we compare with the United States. A study carried out in 2013 found that 15% of companies surveyed were thinking of bringing back production to the UK. However, that was a pretty limited study and it described it as,

“a trickle rather than a flood”.

We simply do not have the data and we must gather some.

I will conclude by making a number of brief points, which I will enumerate. First, more research is needed into what firms are actually doing and how they take their decisions. That needs government support: will it be forthcoming? Secondly, and crucially, the results need to be made available to businesses. The American research shows that many companies are operating with obsolete assumptions about the global economy and are therefore taking decisions without the full array of relevant information.

Thirdly, experience in the United States shows that regional activism is crucial. As other noble Lords will no doubt ask, have the Government really done enough to follow up on the Heseltine report?

Fourthly, there is an extremely high level of technological innovation in most areas of manufacturing, especially IT and robotics. Reshoring is therefore going to be much more complex than simply bringing back pre-existing processes and jobs. Handled properly, as the very interesting experience in the United States shows, these innovations can facilitate reindustrialisation and reshoring rather than inhibit them, partly because of the impact they have on labour costs.

Fifthly, it is often said that as a country we lack the skills necessary for reindustrialisation to be successful. This has been mentioned by noble Lords. We have to approach this with some caution, given the landscape of enormous technological change. Rather than fixed skills, we are likely to need open and adaptable learners. For this reason I go slightly against the orthodox wisdom of my party. I have reservations about the role of apprenticeships, which are so often talked of as of key importance. We have to prepare ourselves for a complex world in which there will be processes of deskilling as well as of reskilling and where established skills can become redundant almost overnight. There is likely to be a different pattern of learning and adaptation from the past, and I would welcome any comments from the Minister on these points.