by Roger Eglin, associate business editor of The Sunday Times.
Last Updated: 31 Aug 2010

It is beginning to sound like Noel Coward's familiar song: the prime minister supports it; MPs debate it; Mrs Thatcher might have changed her mind about it; and even the man in the street knows he should be concerned about it. The 'it' in this case is manufacturing. If worthy pronouncements could be turned into exports, our economic troubles would be behind us.

Many might think it has taken long enough for the message to get through to Westminster. But John Major is taking - and has taken - a more positive line on manufacturing than Mrs Thatcher did and it has not gone unnoticed. 'There's a different attitude and I think we have to thank the man at the top for that,' enthused Neil Johnson, the director-general of the Engineering Employers' Federation in a recent speech.

It is certainly time someone in high office took a serious view. Manufacturing has taken a battering from the recession. Large parts of it have been wiped out and much of the rest is now obsessed with retrenchment and survival.

Johnson pointed out in his speech that in 1993 the engineering industry's sales are likely to be some £18 billion lower in real terms than they were in the peak year of 1989. The trade deficit widened to £4.5 billion in the first quarter of the year and one of the major constraints on future economic expansion will be the lack of a manufacturing base big enough to supply many domestic needs. Nor does there seem any end in sight to the contraction. Worse still, it is doubtful whether ministers really grasp the seriousness of what is happening to industry. The run-down of the defence industry is driving an ever bigger hole through the heart of manufacturing. The MoD's cat and mouse game with Swan Hunter, over the job of completing three frigates, is evidence of this.

Few doubt that British Rail is badly lacking in investment, and the uncertainty over railway privatisation has further aggravated the situation, contributing to a series of redundancies among rolling stock manufacturers. With this loss of British capacity, any future orders for rolling stock will, I suspect, have to be met by foreign suppliers.

Cut-backs in high-profile sectors of industry, such as defence or transport, run right through the economy. The EEF's director-general has stressed how important it is to keep the Eurofighter project going. 'Just take a look at the supply chain on Eurofighter, where there are over 300 first-tier suppliers,' he says.

A positive strategy - one that recognises the value of projects like Eurofighter or rail modernisation in creating work right across the economy - is essential. It is naive to expect to be able to chop away at the heart of the economy without this, ultimately, being reflected in deteriorating trade figures. Our industrial rivals, including Germany, Japan and France, fully understand the need for consistent strategies. Over the years, the French, helped by the close link between businessmen and politicians that engenders such a strong sense of national purpose, have settled on key strategies, particularly the need for powerful aerospace and transport manufacturing industries. The result is that the Tunnel rail link between France and Britain will be dominated by French technology. At the same time the French aerospace industry is outpacing its British counterpart.

The Germans, for all their ostensible commitment to market-led capitalism, have developed strong strategies backed by state aid. Many small to medium-sized German firms benefit from a complex support system that helps with cheap finance for expansion and innovation.

The Government has begun a broad move in this direction. The DTI is concentrating its resources, particularly for innovation, on small firms who are such a large but underrated part of the economy. The aim of the recent White Paper on science is to see research and development spending more closely focused on wealth creation.

Despite the ravages of the recesssion, UK industry - or what is left of it - has never been better placed to succeed in an upturn. Productivity is rising and labour costs are as competitive as they have ever been. A survey by the Policy Studies Institute suggests that, contrary to widespread belief, the quality of the workforce is improving. The training revolution of the last five years has led two-thirds of the workforce to increase their skill levels.

Made in Britain, a project developed jointly by IBM Consulting and Professor Voss of London Business School to measure the performance of industry, found only 2% of companies were 'world class', but was encouraged by the fact that there were 42% who were real 'contenders' to join the elite.

But if the foundations are stronger than ever, the beef is still missing from the growth strategies. Companies and their workers are fitter and leaner but industry is still ultra-cautious when it comes to spending: the latest DTI figures show that British industry committed less to R and D than its rivals and slipped further behind last year. Words will not be enough to persuade industry to change gear. Within a stable economic framework, the Government must step up spending on infrastructure, introduce a tax system that encourages spending on innovation and business expansion rather than property, and it must target policy on the small to medium-sized firms.

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