UK: Engineering - the lost resource.

UK: Engineering - the lost resource. - Can mechanical engineering be a growth industry when few can name one significant British-owned example? asks Roger Eglin.

Last Updated: 31 Aug 2010

Can mechanical engineering be a growth industry when few can name one significant British-owned example? asks Roger Eglin.

Asked to name a market which could show real growth of 4% a year during the 1990s and expand by a half over the decade, few would suggest mechanical engineering. We have become accustomed to writing off the engineering industry as one of the casualties in the reshaping of British industry during the 1970s and 1980s. Engineering, which played so central a role in this country's industrial development, now has little more than a bit part, according to many economists and politicians.

There is no doubting this decline. Engineering companies like GKN and Vickers, once household names, are no longer the significant force in the economy that they once were. Certainly few would see the engineering industry as a powerful engine of future economic growth. Yet the great potential for growth of the mechanical engineering industry is a central theme of a recent study in the Deutsche Bank Bulletin.

It is Deutsche Bank which confidently asserts that the industry will grow by 4% a year over this decade and its conclusions are encouraging, seen from a European standpoint. Leaving aside the former Eastern bloc countries, the bulletin estimates that the world market for mechanical engineering is worth about DM 1,500 billion a year. Assuming that the growth of the OECD economies averages some 3% a year during the 1990s, the bulletin reckons that continuing pressure on the industrialised countries to modernise their manufacturing base will generate real annual growth of at least 4% for mechanical engineering - hence the expected increase of 50% in world market volume by the year 2000.

During this period of growth, European Community manufacturers will do well. They account for over a third of the western world's output of mechanical engineering products and should, says the bulletin, maintain this position. The United States, with a world market share of around 30%, will remain a significant force. The Japanese, with just under 30%, will be chasing the lead hard, but above-average growth in Germany, helped by the stimulus of unification, will keep Europe in the lead.

Where Britain stands in this bullish picture is less encouraging. The birthplace of the Industrial Revolution is no longer as dominant as it once was. German engineering output could grow at about 5%. Italy could also perform better than the EC average of 3%, as could Spain - with the admitted advantage of starting from a smaller base. Regrettably the UK comes into the category of the also-rans, together with France, with less than average growth in the latter part of the 1980s and only average growth in the 1990s.

The German study spells out how catastrophic the past 15 years have been for the now emasculated British industry. Over this period Italy expanded its output of machinery by two thirds, Germany by over a half and the French by a tenth. British output actually fell - by an eighth.

The contrast with Germany is an uncomfortable one. Where the decline of British engineering has diminished the industrial base and opened a black hole in the trade balance, the growth of German engineering output, matching that in Japan and America, has helped create a near impregnable manufacturing trade surplus. It is the biggest manufacturer of mechanical engineering products in the EC with 44% of the total output - a disproportionate share as Germany only accounts for a quarter of total EC output. Export performance is outstanding. In 25 out of the 45 main engineering export categories Germany is the leader.

What any German industrialist will tell you is that his workforce is better trained than the UK's. It enjoys more respect in society. It gains more fulfilment from the jobs and in the end, backed by a high level of innovation, produces a better product.

Genuinely skilled workers in this country are simply too scarce for the sort of industrial base we want to create. During his last weeks as Chancellor, John Major toured the Midlands, speaking to industrialists. When he asked them why they were giving such big pay increases in a difficult period, they said that it was because they feared losing their skilled men.

Contrast this, for example, with Porsche, most of whose workforce is skilled. Chief executive Arno Bohn told me that securing skilled labour for its Stuttgart plant was no problem. Every major employer in the area ensures that their workforces are trained to uniformly high standards. Not for the Germans that weary British cry that if we spend money on training workers, someone will poach them.

This suggests that if manufacturers spend on training, it is difficult for rivals to achieve the level of competitiveness that will allow them to poach workers or markets. Germany's performance seems yet another example of a successful rival economy taking the sort of long-term view that still eludes us.

(Roger Eglin is managing editor of the Business section of The Sunday Times.)

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