The era of globalisation dawned in the 1980s. Swathes of British industrial heartlands, industries that had defined these commuities since the 19th century Industrial Revolution, left for the low cost environment of China. Britain established itself as a global leader in financial services, allowing the City of London to drive economic progress. Yet nostalgia for the earlier days remain. A remnant of the Northern Powerhouse, the emotional desire for the return of manufacturing amongst derelict and unemployed communities has the power to swing an election; a desire shared by the Leader of the Opposition.
This week Jeremy Corbyn joined the quorum of the disenchanted – those who have lost from the globalisation idyl that was sold to us 30 years ago. Launching his ‘Build it in Britain’ initiative in Birmingham, the Labour leader declared that “change is needed, we must aim for something better”. A pledge to reverse the tide of manufacturing outflows to East Asia, returning Britain to its position as the ‘workshop of the world’ that it held in the mid-19th century. At just 11% of GDP, British manufacturing has diminished from importance; previously the centrepiece of the North, a rejuvenation would have vast consequences for the region.
Support for a manufacturing return has solid logical foundations: job creation, reduced geographical inequality, green production and economic diversification will all be welcome benefits. Yet Corbyn’s method for achieving this is flawed. Whilst lambasting Donald Trump later in the speech for his protectionist desires, Corbyn’s plan draws him ever closer to both the White House, and the new closed border world order that is rapidly – and dangerously – emerging.
During the speech, Corbyn mocked May’s fondness of exclaiming her desire to “take back control of our laws, our money and our borders”. Yet Corbyn himself is proposing changing the law to prevent public money flowing out of our borders. With government contracts to private firms worth £200bn annually – 7.6% of GDP – Corbyn plans to redirect them towards British manufacturers in an effort to rejuvenate the sector. He lambasts the £1bn worth of NHS contracts shipped abroad from 2014-17, and even hinted at the absurdity of transferring production of British passport production from Gateshead to France.
This is economic nationalism. Awarding contracts purely based on nationality and not economic efficiency is a form of protectionism that would damage this fundamental principle of economics. It is an insurance lifeline for firms; with the government as a backstop to liquidation, the incentive for investment is drastically diminished.
What the government should instead be addressing is the fundamental roots of the manufacturing decline; productivity. The economic indicator with the power to make or break industries in the era of global trade. The reason why Britain has the smallest manufacturing sector as a proportion of GDP in the G7, which hasn’t run a trade surplus in goods since 1981. Corbyn noted in his Birmingham address that despite being governed by the same rules, in Germany “you’ll struggle to find a train that wasn’t built there”. Yet whilst portrayed as the economic nationalism of Merkel’s government, this omits the fact that annual German R&D expenditure is 1.2% GDP higher than Britain’s, reflected in a UK productivity that is 25.6% lower than Germany’s. This is purely an example of economic efficiency at work. Britain’s dire record on investment and productivity must bear the brunt of the blame, and as such should be the priority for government investment.
The Competition and Markets Authority have warned of the danger of public selective choice of manufacturers – swimming against the tide of globalisation will divert investment away from efficient firms, and thus away from the interests of consumers. Government should instead be a guide; through a system of incentives it should once more make the UK an attractive destination for industrial capital, rather than using an iron fist to blockade money at our borders.
Corbyn does acknowledge the need for this, yet does not assign it the priority it deserves. Whilst Britain cannot claim a cost advantage over the developing world, it’s speciality in logistics, technology and management must be further developed and displayed in the limelight. Coercing manufacturing back to British shores is now within the realm of possibility; 1 in 6 who relocated to China have now returned. Shenzhen’s average wage has tripled from £2500 in 2007 to £8000 today. As labour costs rise and ever-greater importance is assigned to speed of bringing new trends to market, relocating to British land would localise the supply chain and enable production closer to its consumers. Indeed, the businesses that returned cited logistical expertise, speed of production as opposed to cost and technological advancement as their core reasons for relocation. Manufacturing globalisation is on the cusp of a reverse that Britain must capitalise on.
Manufacturing therefore need not be forced home through selective, economically damaging public contracts. The government instead must create the right incentives for it to flow back naturally. Corbyn’s suggestion of investment in the “industries of the future” is a welcome proposal, particularly in forms of green energy where Britain can utilise its scientific expertise to truly dominate the market. Yet his criticism of the government in misguided; it is a decade of underinvestment in technology, research and logistical capacity – the ingredients of incentives – that have left the former Northern industrial stalwarts as desolate towns of stagnation.
The public sector is not the culprit. It is merely responding to incentives. The private sector must incentivise these contracts to stay onshore; for which government investment can help to create an environment of SMEs and technological progress to finally end a decade
of stagnant productivity. Whilst Corbyn’s plan is flawed, his idea for an industrial rejuvenation is powerful; and if productivity trends are reversed, this idea may soon turn into reality.
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