Britain’s Industrial Base

Lord Giddens Excerpts

Tuesday 9th October 2012 Lords Chamber

[Lord Giddens]

My Lords, I also welcome the noble Lord, Lord Marland, to his role, and I look forward to many interesting debates with him.

I have been a practising social scientist for several decades—a sign of a misspent life, one could say—and never before has the future of world society and the world economy seemed to me so opaque and imponderable as it does now. To me, this is not a recession like other recessions; it is an expression of much more deep-rooted forces that none of us at the moment fully understands. When we look at manufacture worldwide, it is a big mistake to suppose that the dominant force in the world economy is a simple transfer from west to east. That is happening, of course; in 2010 China became the world’s largest manufacturing country by output. Yet that simple statistic conceals complex changes whose consequences are not at all clear—at least not to me.

Manufacturing output has risen sharply over the past 30 years the world over, but the proportion of jobs created has actually gone into reverse. Worldwide, there has been a net reduction in manufacturing jobs since 1990 in spite of the rapid growth of manufacturing in China and other emerging economies. When we see areas in the UK, the US or the EU where unemployment is over 20%, this results as much from technological innovation as from a shift of manufacture eastwards. In other words, the advance of manufacture is very different from the creation of net new jobs. Moreover, much manufacture now takes place in global chains rather than in particular countries. As the FT journalist Peter Marsh points out, to be a star manufacturing company you do not need to make anything, and the biggest manufacturers in the world do not in fact make anything. Rather, what happens is that the company co-ordinates a diversity of businesses in different countries. This is radically different from the past.

We are currently experiencing what Marsh calls, in his book of the same name, a “new industrial revolution”. It is initiating an era of mass personalisation, much more decentred than old manufacturing processes. A good example is the firm Essilor, based in Paris. It is the leading maker of lenses for glasses in the world, making 100 million lenses, unique to each customer —amazing—that are sold to 400,000 opticians in 100 countries. In order to do this, the company has a network of 20,000 computers in Essilor offices around the world. This is a totally different pattern of manufacturing from the past, and we do not quite know—as social scientists, anyway—where it is leading us.

Against this backdrop, it certainly makes sense that we should build up and expand the UK’s manufacturing base, but we have to do so in terms of the trends that I have been describing and to be very sensitive to them. I have three brief points to make in working this through. First, although it is right to emphasise a return to industrial policy—the new wisdom, as it were—it will actually have to be totally different from the 1970s. It will not be a matter of picking industries or of simple investment in infrastructure; if it is going to work, it will have to be much more holistic and involve large chunks of the economy and of government, and at the same time be highly flexible. That is a great challenge. At the moment we do not really know how to do this and an awful lot of work will have to be done, so loose talk about industrial policy should be avoided.

My noble friend Lord Adonis mentioned renewables, but they are very unlikely to create new jobs. It is no good just saying that they create jobs; they have to create new net jobs, but jobs will be lost in the older fossil fuel industries as renewables come on track. New technology tends to destroy jobs rather than just create them, at least in terms of net jobs.

Secondly, we have to be very careful about borrowing naively from what appears to be current best practice—for example, “Let’s be more like Germany”, “We need more technical skills”, “We need more apprenticeships” and “Let’s create the equivalent of the Mittelstand”. It is only 10 years ago that Germany was regarded as the sick man of Europe, and its status as a manufacturing country gained enormously from its membership of the euro. A detailed study shows that if Germany exited the euro, it would lose probably 40% of its manufacturing capacity competitively in world markets. One should reflect on that.

Thirdly, we should not assume that current trends are unilinear. I do not understand why people in this country are not taking notice of the reindustrialisation debate in the United States, which I have mentioned in previous discussions. The Boston Consulting Group reckons that 3 million net new jobs in the US can be created by 2020, but these result from a reversal of the existing chain transfer from west to east. The price of oil, the need to protect patents and the rising costs of labour in China are likely to reverse some aspects of the current trend of movement of manufacture from west to east. These are likely to be not in high-tech industries but in low-tech ones. That debate should be pursued in detail in this country too.

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[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland)]

My Lords, my wife said to me in the car as we came down from Birmingham that this was going to be a very interesting, high-quality debate. As always, my wife is right. I am very grateful for the support of my noble friends Lady Garden and Lord Gardiner, who are obviously showing their trade at skills very early on.

[Lord Giddens]

I thank the Minister for allowing me to speak. I find it interesting that there are no women taking part in this debate. Perhaps one thing we might do is encourage more female entrepreneurs—viz, your wife.

[Lord Marland]

My wife does not need any encouragement, but I am sure she will be very grateful.

I thank the noble Lord, Lord Adonis, for making this debate available because this is a massive challenge for the country, for the Government, and for those of us who have to set about the challenge. What came through to me about this debate was how passionate we all feel about the future of British industry, British manufacturing and Britain plc. We have a lot to do and we can all play our part. If we have passionate people who want to be involved, that is very good.

The noble Lord, Lord Adonis, summed it up by saying that we have been negligent in the past. That is true, and it is not just the previous Government but the Government before that. As has been referenced by the noble Lord, Lord Bilimoria, the present Government have inherited a reduction of manufacturing output from 22% down to 11% in the past 20 years. Why has that happened? It is because there has been a lack of investment, as has been referenced, and a lack of competitiveness, which we need to reverse.

However, it is not the end of the world. Years ago, as the noble Lord, Lord Hennessy of Nympsfield, reminded us, 92% of the activity in this country was in agriculture. The right reverend Prelate mentioned the industrial output in Blackburn. My family on both sides were involved in Ashton-under-Lyne, of all places, and further south in Manchester in the cotton manufacturing industry, in Lancashire Cotton. Now look at that industry; it has changed out of all recognition. As has been referenced by many noble Lords, including the noble Lord, Lord Haskel, we live in a global world with fast-changing global dynamics, where Britain has been at the forefront of moving with those dynamics and changing our economy into a diversified economy, which, of late, has become overdependent on the financial sector, and we are licking our wounds from that overdependence.

We have also failed to store the benefits of our prosperity for a rainy day. So many other countries do so, such as Norway, which has a marvellous sovereign oil fund and so much of its oil profits have gone into those oil funds.

We have to redress the mess and we intend to do so. It will not happen overnight. Nothing does happen overnight. This is a big country where we need to change things. People have got used to a way of life that has revolved round a very munificent European purchasing economy and that is now changing as that economy goes into the doldrums. The Government are at odds with the noble Lord, Lord Bilimoria, in the sense that we believe businesses do better when government does less. We also believe that people do better when government does less. That is why it is important for government to set a framework for business and allow business to take things forward with the right initiatives and incentives, which I shall come to later. However, we cannot hold the hand of business. We can take it to the trough but we cannot make it drink.

The corporation tax plan that the Chancellor has outlined, which takes corporation tax down to 22% by 2014, which will make it the lowest in the G20, is a real incentive for business. Our Red Tape Challenge is being looked at very closely by this Government with a view to reducing 1,200 red tape regulations. We have revolutionised our UK trade and industry department with a very outward looking, purposeful export drive. Export is the key to our growth recovery. That is why, as I referenced earlier, I have done 25 country visits in the past 10 to 12 months. The noble Lord, Lord Green, has carried out some 43 such visits. The Prime Minister always takes a large delegation with him when he goes on overseas visits because without an export drive we will not get growth.

Time does not allow me to go through all the various schemes that we have put together. However, noble Lords will know that we have the regional growth fund, the Plan for Growth, mentoring schemes and schemes to develop education and skills, a lot of which I mentioned at Question Time yesterday. In manufacturing alone we have the Advanced Manufacturing Supply Chain, the Manufacturing Advisory Service and the High Value Manufacturing Catapult centre. I applaud the excellent work of our colleague, the noble Lord, Lord Bhattacharyya, who has been at the forefront of that as he has been at the forefront of the excellent Tata company, for which we are very grateful.

As the noble Lord, Lord Adonis, put it, we can all go round the country finding examples of good news and bad news, and he gave eloquent examples of each. The most important thing is to support the bad news stories and turn them into good news stories and that is the job of government. I am grateful to my noble friend Lord Bates for pointing out that all is not lost. We have 1 million new jobs in the public sector and 450,000 businesses have registered with Companies House in the past 12 months—the highest figure since records began, so there is a platform for starting this change of emphasis. Both the noble Lord, Lord Adonis, and my noble friend Lord Bates mentioned—

[Lord Giddens]

I thank the noble Lord for giving way. Could he also give an analysis of the businesses that have closed down?

[Lord Marland]

I cannot take too many questions as I shall never get through my speech in the 12 minutes which have been allocated, but I think the figure is about 290. However, we can give the noble Lord exact figures later.

The noble Lord, Lord Hennessy, talked about having a business Select Committee. That is a very good idea. There is, in fact, a BIS Select Committee and a Lords inquiry into SMEs. One of the initiatives that I have undertaken is a trade representatives programme appointing specific trade representatives for specific countries. This will be announced by the Prime Minister in the not-too-distant future. We need to look at initiatives as regards how we can review trade. I am very grateful for that suggestion.

The right reverend Prelate referred to the British Aerospace and EADS merger. We think that we will know more about that tomorrow evening. Therefore, I think he would not expect me to talk about that at this point. We regret hearing that he will not be with us for much longer. We wish him every success. His contribution was extremely beneficial.

The noble Lord, Lord Selsdon, talked about energy and the rail infrastructure as being key areas of development and I cannot but agree with him. I have already mentioned the noble Lord, Lord Bhattacharyya, who has so much experience and knowledge of this area and feels deeply about the need to enhance our skills to provide a platform from which we can emerge into growth.

The noble Lord, Lord Empey, talked about trade and manufacture. He talked very interestingly about Northern Ireland, of which he has great knowledge. I take on board everything he says. The speech that the noble Lord, Lord Giddens, made was an immense tour de force. I compliment him on it and I totally agree that the holistic view has to be taken and that we need to consider globalisation. I am not going to be able to deal with all the questions the noble Lord, Lord Bilimoria, raised. I make the offer to him and to all noble Lords that I will be happy to discuss any of this at a later stage or at further debates. The noble Lord, Lord Haskel, again talked about globalisation and he is absolutely right. The noble Lord, Lord Hunt of Chesterton, reminded me of the need for laboratories but, again, all is not lost as Sir John Gurdon has been rewarded for his expertise.

The noble Lord, Lord Young of Norwood Green, talked about broadband. Broadband is fundamental; I was discussing it with the Minister responsible today and urging him that we should move on further. As a Government we took the initiative to sell 4G, which we are in the process of doing. It takes a while but it was an initiative I am proud to say our Government took part in.

We have a world-class country. All of the countries I travel to want to do business with Britain. We are in the top three of any countries in the world that countries want to deal with. We have design and technology of the highest quality, architecture, accounting, agriculture, oil, defence, aerospace, digital music, motor cars. For the first time in many years we are exporting more cars than we are importing. We have insurance, strategic planning, medical, education, et cetera. We are a world-class country which is looked upon with huge favour by the world. I invite all Peers who feel as passionately as I do to support and champion business as we try to get ourselves out of the economic problems that noble Lords have all very kindly addressed. With that I thank all noble Lords for their contribution.