Are we about to see a renaissance in British manufacturing?

I was born in 1948 and grew up in what must have been the worst period, in history, for British manufacturing. It was typified by decline, poor productivity and strikes. My father was a buddy of Sir William Lyons, the founder of Jaguar cars and of Bill Heynes, Jaguar’s chief engineer, the man who designed the famous XK engine.  In those days, Jaguar was one of the most prestigious car manufacturers in the world; but there were plenty of other prestigious British manufacturers as well. However, during that terrible period, from the end of the second world war to 1979, we saw the remorseless decline of many of our manufacturing companies and, indeed, entire industries.

By contrast to my own background, my wife’s father, who I didn’t know until 1975, was a shop steward in the Steel Company of Wales’s plant at Port Talbot. He was actively involved in some of the crippling strikes of the 50s, 60s and 70s. He was also a buddy of Hugh Scanlon, the leader of the engineering union, the AUEW.

I mention all this to highlight the contrasting views and ideologies that I encountered in my youth and early adulthood and, therefore, the perspective that they have given me.

If we are to understand that period of decline, we really need to go back not just decades, but centuries.

Towards the end of the seventeenth century, the foundations of the British Empire were laid, with new colonies in North America. The empire continued to grow throughout the eighteenth century and was accompanied, first by the agricultural revolution and then the industrial revolution.

Agriculture became mechanised – one of my own ancestors was Jethro Tull, who invented the seed drill. There was a huge migration of people from the land to the cities. Steam driven manufacturing grew, as all manner of new machinery was invented. And transport systems were created, firstly with the canals and then the railways. Britain was leading the world.

The growth of empire and the growth of manufacturing drove one another. Raw materials were imported from the empire and finished goods were exported to the empire. It was a closed shop but, in 1776, it was nearly derailed, when the American Colonies declared independence. The key issue for the colonists was the control over their trade and manufacturing exerted by Britain. It’s interesting to speculate what would have happened if the government of Lord North, the Prime Minister at the time, had been more forward thinking and relaxed those controls, as the colonists had demanded. The US may now be an independent monarchy, within the Commonwealth, with the Queen as Head of State!

As it turned out, the loss of the American colonies proved to be a wobble rather than a show stopper. Despite setbacks, with various wars and recessions, 25% of the land surface of the world eventually submitted to British control. The Empire continued to grow throughout the nineteenth century and so did British Manufacturing.

Britain was dominant, politically, financially, commercially and militarily. But in the second half of the nineteenth century, things started to change. Bismarck united the German states to form the German empire and American industrialisation started to gather momentum. Japan was also beginning to industrialise. So the threats to Britain’s dominance were emerging.

The early years of the twentieth century saw the British Empire at its peak; but the cracks were beginning to appear. Then, of course, came two world wars, which wrecked the economies of Europe and Japan, whilst giving an economic stimulus to the US.

It’s what happened next that was, in my view, the defining factor. Germany and Japan, with American financial support, set about rebuilding their countries, their economies and their manufacturing industries. Britain, on the other hand, focused on developing the welfare state and, under American pressure, dismantling the empire.

However desirable Britain’s priorities may have been politically and socially, the consequences for manufacturing were disastrous. Without an empire, our closed shop disappeared and we were exposed to competition from other manufacturing nations, particularly Germany and Japan. Despite the magnitude of our earlier glories, we had never really encountered international competition on this scale before; and we proved wanting. But compounding the problem was the development of the welfare state, which consumed huge resources that may otherwise have been available to invest in manufacturing. Germany did, of course, develop its welfare systems but only after it had rebuilt its manufacturing base and could afford to do so. Finally, we had the un-mitigating disaster of nationalisation, which saw several of our key industries taken into public ownership and run by bureaucrats and politicians, who were managerially incompetent and prioritised political objectives over commercial ones.

Lack of investment, industrial unrest, over powerful unions and poor quality management all combined to decimate our manufacturing base during the 60s and 70s.

In 1979, a phenomenon called Margaret Thatcher became Prime Minister. Some people, including my late father-in-law, would say she decimated British manufacturing industry. I believe that, in the future, when historians can look back with complete objectivity, they will agree that the decimation occurred prior to Thatcher and that it was her government that established the foundations for its recovery in a very different world from the one that existed when British manufacturing was at its peak.

The Thatcher government did four key things. It addressed the union problem; it deregulated the financial markets; it privatised the state controlled businesses; and it stopped propping up inefficient businesses.

By addressing the union problem, managements were able to start managing their businesses, once again, without the constant fear of disruption and reprisals. This was a massive achievement.

The deregulation of the financial markets facilitated the availability of investment capital and venture capital, which are crucial to manufacturing industry. Despite the current problems, this was a hugely important move.

Turning back the role of the state meant that previously state owned businesses could become less politically driven, more commercially led, more dynamic and more capable of competing in world markets.

Not propping up failing businesses is probably the factor, for which the Thatcher government is most disliked because it resulted in large scale job losses and industrial wastelands in some parts of the country.

The underlying problem was that these companies and industries were operating in increasingly international markets and unable to compete. Propping them up might have worked, if during that time, they had adapted and changed; but they didn’t and the position became unsustainable. Maybe the process should have been extended over a longer period to reduce the amount of personal suffering; but it wasn’t and we are where we are.

Since 1979, we’ve seen British manufacturing shrinking, driven by competition from Germany, Japan and other nations too. We’ve also seen more and more outsourcing of manufacturing to China and the Pacific Rim, where labour costs have been much lower. Furthermore, our increasing wealth and standard of living, during the 90s and early 21st century, have been largely based on the success of banking and financial services not on manufacturing.

So where does all this leave British manufacturing? Are we going to let it go on declining or are we going to do something about it?

I believe that we are at a crossroads and that it could go either way; and which way it goes will depend on whether there are enough manufacturers prepared to grasp the nettle and do what needs to be done.

So what does need to be done? But before I answer that question, let’s look at some of the positive signs for British manufacturing that are already there.

The car industry has seen a huge renaissance. We’re producing more cars than ever before; and we’re seeing some real success stories – Jaguar Landrover: Honda: Nissan: Mini: Rolls Royce: Bentley: and others as well. But they’re mostly foreign owned; and I’ll come back to that point later.

We have other world class businesses such as BAE Systems in defence and aerospace, GlaxoSmithKline in pharmaceuticals and Rolls Royce in engines, turbines and power systems. So we can do it.

We have many excellent smaller manufacturers in specialist niche markets. So we have the ingenuity.

Our political leaders are, at last, beginning to understand that we have become too dependent on financial services and that we need a stronger manufacturing base. So we are likely to see more help and support for manufacturing over the next few years.

There seem to be some signs that the drive to have 50% of school leavers go on to university is creating huge problems by devaluing degrees, by promoting degrees that are of little practical value and by undervaluing trade and manual skills. So maybe the tide is starting to turn.

We’re also seeing the return of apprenticeship schemes and, although they may not be as good as we’d like, in the words of the Chinese philosopher, Lao-Tzu, “a journey of a thousand miles begins with a single step”.

So we need to take these positives and build on them. But first, let’s try and identify our core weaknesses, for which there are two interrelated clues.

The first is that we have outsourced huge amounts of manufacturing to China and the Pacific Rim because of cheap labour rates; and yet, for many products, labour is a relatively small proportion of the final selling price; so the gains are not always that big. Germany has, for many years, had higher labour rates than us but lower labour costs because of its higher productivity. It does outsource, particularly to Eastern Europe; but not as much as we do and, as a consequence, it retains a much larger manufacturing sector. Basically, they manage their production processes better than we do.

The second is back to the car industry. Our car industry is now world class. It employs British work forces and, within its organisational structures, most of the management is also British. But it’s largely foreign owned; German, Japanese and Indian; and their management styles and cultures have been able to influence their UK businesses in a way that has created stable, effective, efficient, well paid and well looked after workforces. They achieve higher standards of operational excellence than we do and they’re better at managing their people.

Despite the passage of time, British management still tends to be influenced by the period of empire, when we didn’t actually need to be that good and by the culture of welfare that promotes “the world owes me a living” attitude.

The Germans have shown that, in many instances, high productivity can support high wages and successful manufacturing. Our own car industry shows that British workforces can perform at world class levels. The real weakness we have – and many manufacturers won’t like me saying this – is the way we run our businesses and the way we manage our employees.

Governments and banks have a significant influence; and the economic conditions that have existed since 2008 have made life much more difficult for manufacturers; but they aren’t the core underlying problems.

There is now a real chance for a renaissance in British manufacturing. But, for this to happen, owners, shareholders and directors of manufacturing businesses, from the smallest to the largest must come to terms with their strategic, operational, organisational and leadership weaknesses. And then they must put plans in place to address those weaknesses and create the levels of excellence that others have proved are achievable.

If manufacturers can grasp this nettle, the future for British manufacturing will be bright. If they don’t, there are likely to be several more generations of decline.

3 thoughts on “Are we about to see a renaissance in British manufacturing?

  1. To be competitive an economy needs to be producing (something) and/or needs to be providing a value added service (more efficiently than another economy). The UK certainly continues to suffer from “..the world owes me a living” attitude amongst some workers and failure to adapt to change “.. this is the way it’s always been” attitude from some managements and academia.

    The UK economy contains and has always had some of the most adaptable minds and spirits and I think, Anthony, you use some great examples that prove the case at the beginning of this article. We need need a change to energise just such spirits and persons today.

    So we clearly need significant levels of leadership to recognise this and lead!

  2. “is the way we run our businesses and the way we manage our employees.”

    May I add:

    1) the unfair rules governing money – people and goods

    – if I want to move to China to compete with Chinese Engineers or Managers I can’t ; but the goods produced by Chinese managers and engineers under a cheaper set of EHS rules (e.g.) can be sold here.

    – If I want to move to US and compete with Engineers and Managers there: I can’t. If US investors come in Europe and build a conglomerate that destroy my SME ( 😉 ) they can.

    2) World is much more complex than in the ’70 but also much more stable.

    – the number of rules I have to comply to make business today is a Mammooth compared to those of my parents’

    – The consolidation effects of de-industrialization in Western Emisphere has led to a world where SME has a drammatically hard time to find their space:

    consider Gas turbine business: today there are 5 players and 3 proprietary technologies, yesterday almost each country had it’s National Champion served by dozen of Small players.

    So:

    Entering the market space todays requires not only good ideas and personal passion, but also a clear understanding of macrodynamics and end-to-end business models.

    And these are points of view that seldom can be find within a start-up or a smaller Company.

    For this reason I think confronting with external experts (or thinkers: ingenuity is also an external point of view) is key to move the niddle in today’s business environment

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