I’ve talked a lot recently about reindustrialisation. Now, I’m fairly certain David Cameron hasn’t been reading what I write. But I’m also fairly certain we have been looking at the same statistics: Manufacturing has shrunk from nearly 40 percent of Britain’s gross domestic product in the late 1950s to not much more than 10 percent now. And while Cameron might not put it this way, that has left Britain as a shrivelled husk of an economy: overly reliant on services, foreign oil, Chinese manufacturing, junk food, corporate handouts, and too-big-to-fail-too-big-not-to-fail financials. So it’s no surprise that Cameron has been talking up manufacturing. From Bloomberg:
Prime Minister David Cameron has latched on to manufacturing as a cure for Britain’s economic hangover and its 7.9 percent jobless rate. U.K. Business Secretary Vince Cable says that for sustainable, long-term growth, “manufacturing is where we need to be.”
“One of the main growth sectors of the economy in recent years has been banking,” Cable said in an interview. “For reasons that are blindingly obvious, that’s not going to be so important in future.”
But all these decades of deindustrialisation has taken its toll. Britain lacks a domestic supply-chain infrastructure:
British manufacturing lacks Germany’s advantages. Germany has long had industrial apprenticeships for young adults: Cable is trying to launch a U.K. apprenticeship program as well.
In Germany, midsize companies supply producers and export on their own. In contrast, there’s GM’s supply chain in Britain. Only 10 percent of the value of parts used at its main U.K. plant at Ellesmere Port are made domestically. The pound’s 25 percent drop since 2007 against a basket of currencies drives up the cost of imported parts even as it makes exports cheaper.
More to the point, British goods made in Britain and sold in Britain can’t compete with goods made in China and the developing world on price. And why is that? The Chinese labour market, the staggering Chinese supply chain infrastructure, and the low, low cost of shipping.
Western nations that want to reindustrialise should restructure taxation to favour manufacturing, and the development of supply chain infrastructure. That means either cutting corporation tax on manufacturers to zero, or at least making each manufacturing job created tax deductible. It means more government spending on manufacturing infrastructure, instead of bailing out the too-big-to-not-fail destructo juggernaut mega-banks. It also means allowing currencies to appreciate, so that manufacturers can afford to import more raw materials. A weaker currency does not necessarily mean you will export more: in the modern, globalised economy prices are more and more sensitive to foreign exchange rates.
But most importantly it requires Western nations — especially America — to cease policing the world. Global “stability” attained through military spending lowers the cost of shipping, and insurance on shipping to artificially low levels. That means that Chinese goods can be sold for far, far less in Britain and America than otherwise, which as we have seen wipes out domestic manufacturing because of the cheapness of foreign labour. And the ironic twist is the “global stability” is subsidised by Western taxpayers who can no longer find employment in manufacturing!
And if drastically cutting military spending is not considered palatable, then the least Western nations can do is implement tariffs on imports from the East. This would go some way to pay for the subsidisation of “global stability”, and would create a more level playing field for Western manufacturing to bounce back, and redevelop the manufacturing, supply chain, and human infrastructure that they have allowed to degenerate.