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Re-Manufacturing the Boring but Smart Economy?

Updated Wednesday 16th March 2011

How can economies remain competitive when challenged by those with cost advantages?

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My favourite word in German is langeweilig, which means boring, and may be an appropriate one to describe the Germany economy.

It’s boring because it is the fourth largest in the world; the powerhouse of the European Union and its comparative advantage is built on good old-fashioned manufacturing.

In spite of the comical claims made for the knowledge-based economy (all economies are knowledge-based) by many observers who would be better off in The Muppet Show, this unsexy economy seems to forge ahead, with its impressive recovery from the nadir of the financial crisis. Why should this be so?

In the 1970s, British manufacturing was caricatured as being “I’m all right Jack” tea-break fixated. By the time of the mid-1980s, when Thatcher-inspired yuppies were apparently becoming the masters and mistresses of the global financial economy, Germany was being lampooned as the ‘six beer-breaks a day’ factory economy.

Yet, below the caricature is a universal truth: any modern economy worth its salt has a thriving manufacturing sector.

Manufacturing Copyright free image Icon Copyright free: By Eric Sakalowsky (Cyfac International) [Public domain], via Wikimedia Commons

But how can an economy that generates continual trade surpluses and a ‘strong’ exchange rate continue to be internationally competitive when challenged by the emerging economies who have a significant cost advantage?

There are three main, but not exhaustive reasons:

  1. Quality of output in key sectors;
  2. Appropriate financial institutions;
  3. Comprehensive vocational education and training (VET) system.

The competitive advantage of many German firms is rooted in these three factors.

The first consists of the production of machinery, electrical equipment and chemicals, with manufacturing accounting for 22% of national income in 2009. The existence of networked small and medium-sized economies (SMEs), in the form of the Mittelstand, is a crucial component of the institutional basis of sustaining the competitive advantage of Germany industry and the comparative advantage of its host economy.

In the second, Germany’s financial system is closer to Hilferding’s Finanzkapital (finance capital): the combination of industrial capital and banking capital. Furthermore, the Landesbanken, the state-owned regional banks, are important sources of finance for infrastructure, both in Germany and abroad. The significant exposure of German banks to the financial crisis notwithstanding, the absence of the dominance of a financial mode of production and financialisation in the Anglo-Saxon orientated economies has been led to a faster recovery (3.6 per cent annual growth in 2010).

For the final factor, the commitment to VET in Germany is almost legendary. Benjamin Disraeli set up a commission to investigate how Britain could learn lessons from their continental neighbour. Almost a century later in 1956, a government commission sought to understand the same lessons.

For a knowledge-based economy (sic), the UK still appears to be rather ignorant in its ability to absorb best practice. What is apparent is that the animal husbandry applied to one successful and resilient economy is not being replicated in a rather less luminary one. This brings us to the question of fast growth versus fast growth.

In Gil Scott Heron’s classic song, B Movie, he refers to the narrative of smart bombs in the first Iraq war. Ironically Scott Heron points to dumbness of this weaponry in killing so many people, often euphemistically called “collateral damage”.

There is perhaps a far-fetched analogy with the fixation on fast growth in the emerging economies, but there were some pretty dumb outcomes from pursuing the path of the hare rather than that of the tortoise.

We have all seen the consequences of pursuing rapidity over a more measured development path. More importantly the outcomes of growth depend upon the base from which you start. Many of the emerging economies have impressive growth rates, but they often start from a low base: 10 per cent of £10 is a fifth of 5 per cent of £100, for example. But more importantly, economic welfare is based on income and wealth per head and not total size.

In their book, Manufacturing Consent: The Political Economy of Mass Media, Edward Herman and Noam Chomsky analysed the news media as global business, as this of information gathering and dissemination activity has become corporatised. This shift in corporate emphasis resonates with the growth in the perceived dominance of business and financial services in the UK.

Given that the responsibility for the financial crisis rested on a part of the economy that generates about 2.5 per cent of GDP (investment banking), that manufacturing accounts for about 12 per cent of GDP, and 75 per cent of business expenditure on research and development, something is awry in the balance of the British economy.

The essential problem is that if we want to move from the lightness of a tea and biscuits to the being of a sausages and beer manufacturing economy, then we need to re-manufacture some consent. A starting point would be to develop the institutional support basis of manufacturing enjoyed in Germany.

However, the cultural biases against manufacturing and a general lack of knowledge about its contribution to the economy maintain barriers to understanding.

Too many media commentators seem like they are Dick Dastardly and his dog Mutley in a version of the cartoon series Wacky Races constantly taking part in exotic car races they never win.

The wacky focus on limited examples of successful British manufacturing (outmoded fighter aircraft and bicycles for bourgeois bohemians) overlooks the complexity and global and local reach of UK manufacturing. The fourth estate should go back to its constituencies and look under their carpets and prepare stories about how manufacturing governs their economies

When my esteemed colleagues at the Open University, Allan Cochrane and Julie Charlesworth posited that Milton Keynes had the characteristics of a global city many us thought that they may have lost the plot. Yet the Open University’s home is at the centre of a complex economy that has significant global reach. It may appear as the logistics capital of Europe with its collection of sheds, but it is home to the research centre of a major German auto manufacturer and the winning Formula 1 team. It is also the location of the manufacturer of a key component in wind turbines that generate power around the world, among many other examples.

Alongside other local and seemingly mudane examples, they still make shoes in neighbouring Northampton. It is apparent that if the UK is to re-balance, re-invigorate and sustain its economy, manufacturing is central. Developing the institutional basis of the langeweile (boredom) economy is a starting point, re-establishing the smart and solid conditions that had been sacrificed for a fast and loose development strategy, based on the imagined performance superiority of business and financial services, appears to be fundamental.

Re-manufacturing consent about all parts of the economy is an imperative, but without manufacturing a conflictual rather than a consenting economy may re-appear. If ‘made in Britain’ is still to resonate in the world, then these modest proposals may prove to be important.

 

 

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