UK Manufacturing Industry

Lord Giddens Excerpts

Thursday 8th December 2011 Lords Chamber

[Lord Giddens]

My Lords, I, too, congratulate my noble friend Lord Haskel on initiating this debate in his usual polished and persuasive way. I spent most of my career in academic life, but I am an entrepreneur. I started a company; unfortunately, it did not make nearly as much money as those started by my noble friend Lord Sugar.

I shall talk about something which I think is interestingly counterintuitive in terms of what has been said so far in this debate. I want to comment briefly on the re-shoring debate in the United States. Re-shoring is the opposite of off-shoring. It is the drawing-back of manufacturing jobs into the US economy. So far as I know, it has been barely discussed in this country, but it has had very wide public discussion in the United States—in my view, quite rightly—and there is a lot of ongoing academic work about it there on which we could draw in the UK and in Europe. A good example is the work being done by the Boston Consulting Group, which produces a volume called, Made in America, Again. Several reasons are given as to why we might see an interesting reversal in the main trends that have dominated global manufacturing for the past 30 or so years, which I shall discuss briefly.

The first is the instability of global supply chains, something which companies and Governments are much more conscious of in the wake of a series of natural disasters around the world, including the earthquake and tsunami in Japan which severely disrupted supply chains—of course, the explosion at Fukushima plant played a part in that.

The second is the rising price of oil. It seems to me that unless there is a really serious global depression, which one could not write off, the price of oil will continue to rise. It is inevitable because of the technology needed to secure oil from the very difficult places which we now have to get it from.

The third—and this figures importantly in the American debate—is the increasing level of wages in China, especially in the manufacturing centres near to the coast from which most of the goods transported to other countries come. Those wages are rising—of course, the average wage in China is very different—whereas, at the same time in the United States, American real wages have been stagnant or declining. This has been by and large true of the other western industrial economies. When higher US productivity and lower cost of transportation are taken into account, the Boston Consulting Group argues that the cost advantage of making some core types of goods outside the United States becomes entirely marginal and that manufacturers who are thinking three or four years ahead should start to plan in a different way.

Moreover, there is a renewed debate in the United States about the true value of manufacture in an economy, which cannot be measured purely in immediate economic terms. You have to measure it in terms of the skills you lose, the difficulty of replacing those skills, the investment capacities that you lose and so forth. It is very important that we get this into our debate here.

The Boston Consulting Group has done detailed research on seven industrial sectors where it says that production could return to the US. It has also done research in detail on one firm, Otis, which has relocated back to the United States, to find out the reasons. That is appropriate, because Mr Otis invented the counterweight in the elevator in the 19th century. He made possible skyscrapers and thereby, you could say, the American way of life.

The re-shoring thesis has been widely criticised, but I think that the critics are short-sighted about it. You might react sceptically and think, “Oh, well, it’s wish-fulfilment”. But this is wrong, partly because, as a social scientist, I have always found a useful operating principle to be: if you want to think ahead, do not think of current trends but think of the opposite of those trends. That is because history marches dialectically and it could very well be happening here.

Critics say that if production moves from China it will simply go to poorer countries, but I do not think, in the light of all the work that has been done on re-shoring in the US, that this is the case. The reasons, briefly put, are: the shipping time; the shipping cost; cost and quantity control, which you lose when you export your production abroad; and, crucially, lost of patents. Intellectual property rights are so important in modern industry. If you locate your production in a country which does not respect those rights, you do not have the same control as you do in your own country.

In conclusion, according to the Boston Consulting Group, the value of manufacture which could come back to the US amounts to $1 trillion a year. I ask the Minister to comment on this and its relevance to our own debate about manufacturing.