Manufacturing in Transition

Rick Delbridge, James Lowe

• Publisher: Routledge
• Year: 2005
• eBook ISBN: 9781134672592
• Topic: Business
• Subtopic: Business General
• Index: Business

The future of British manufacturing is of immense importance and topicality. As we slide towards a service sector economy based on finance and tourism, it is worth reflecting on whether this is the most appropriate or inevitable scenario.
Manufacturing in Transition makes a genuinely interdisciplinary contribution to the debate over the UK's strategy for industrial renewal. Aimed primarily at business, economics and industrial relations students, it looks at the current state of British manufacturing sector within the global economy and asks whether manufacturing matters in the twenty first century.
The books explores key issues such as:
the chances of renewal
* developments in the management and organisation of operations and supply chains
* the differences made by Japanese methods
This is a timely assessment of the UK's industrial development and makes a major contribution to debates over the industrial strategy and the position of manufacturing within industrialized economies.

Part I

An appraisal of UK manufacturing

1
British manufacturing in perspective¹

Rick Delbridge and James Lowe

I do not believe it is possible for Britain to trade its way into the future primarily as a service dominated economy A robust manufacturing base is a crucial element in a modern competitive economy.

(Tony Blair, quoted in The Economist, 15 June 1996)

Introduction

The premise of this book is that manufacturing matters and that the UK needs a manufacturing sector that is internationally competitive for its long-term economic well-being. There are many who argue that a ‘modern economy’ will inevitably be services dominated and that deindustrialization is a signal of economic success. On this basis the eighteen years of Conservative government of the UK were extremely successful, presiding as they did over the collapse of manufacturing employment and the disintegration of traditional industries. Our rejoinder is straightforward: the dominant economies have a strong and dynamic manufacturing centre as their basis. The United States, Japan and Germany have manufacturing at the very heart of their economies and newly industrializing economies are enjoying rapid growth founded on their ability to produce and trade manufactured goods. A strong and internationally competitive economy cannot be based upon services alone.

In this book we present a series of empirically grounded accounts of aspects of the UK’s manufacturing sector. In Part I, authors provide an overview of the current state of UK manufacturing with regard to the impact of deindustrialization, its causes and effects (Kitson and Michie), the nature of flexibility in British manufacturers (Ackroyd and Procter), and the comparative performance of UK, US and Japanese companies in the UK electronics sector (Munday and Peel). Part II covers recent developments in the management of manufacturing organizations and explores changes with regard to buyer-supplier relations (Bresnen and Fowler), the strategic choices of ‘mid-corporate’ firms (Jones and Tang), shop-floor reorganization and the introduction of team working (Parry et al.), and the impact of adoption of ‘Japanese’ manufacturing techniques on financial performance (Oliver and Hunter). In Part III, we reflect upon some of the implications current developments may have for manufacturing in the UK in the future. In working towards an outline agenda for renewal, these chapters deal with issues of regional policy development to support economic growth (Pike and Tomaney), the professionalization and wider role of engineers and managers in developing the manufacturing sector (Glover et al.), the UK defence industry’s relationship with the state and development prospects in the wider European and North American context (Lovering), and the prospects for encouraging and sustaining high-value-added manufacturing activities and the associated research and design investment that will be the defining characteristic of successful manufacturers and economies in the twenty-first century (Delbridge et al.).

In this introductory chapter we establish the argument for the central importance of manufacturing, briefly review the debates over the reasons for the UK’s longstanding relative decline in manufacturing performance, and establish the themes upon which our various contributors reflect in more depth. Certain issues—such as the role of the state and macroeconomic policy; skill formation, training and education; the local implementation of management tools and techniques; investment in (and management of) innovation—recur and appear fundamental in understanding both our current situation and our future prospects. These imply that some significant reform of the UK’s central institutions will be necessary as a precursor to future economic growth and enhanced manufacturing performance. An agenda for these reforms is outlined in a final chapter.

Why Manufacturing Matters

That manufacturing matters would now appear to be conventional wisdom in politics, yet the debate about the importance of the manufacturing sector and its influence on the UK’s economic performance continues. Some point out that Britain already has a service-dominated economy and that the percentage contribution of manufacturing to the UK’s GDP dropped from 35 percent in 1960 to just 21 percent in 1995 (The Economist, 1996). More generally, the share of manufacturing in total employment has also fallen across all OECD economies as service-sector employment has risen in its place. Thus it has been argued that Mr Blair, and others who share his view, have a misplaced nostalgia for Britain’s manufacturing past and that the big opportunity, and challenge for government, lies in improving the efficiency of the non-traded sectors, many of which are services (The Economist, 1996).

While the relative decline of manufacturing has been seen as part of a somewhat inevitable historical process, we would argue that this sector remains fundamental to the continuing growth of mature economies. The foundation of global trade is in manufactures and the basis of much service provision is manufactured products; as Kaldor (1972) put it, the manufacturing sector is the ‘flywheel of growth’ underpinning economic development, international trade and improving living standards. Indeed, 80 percent of world trade is in manufacturing and, as the head of one of Britain’s largest retailers himself confirmed, ‘Any serious analysis has to conclude that, to achieve sustained growth, we need a growing and dynamic manufacturing sector as much as a successful services sector’ (Sainsbury 1996:116).

Greenhalgh and Gregory (1997) recently outlined the case for the importance of manufacturing to the continuing prosperity of an advanced economy through the identification of four separate contributions made by the sector: productivity, jobs, technology and trade. In short, their position may be summarized as follows:

1 Productivity—The rate of productivity growth is consistently higher in manufacturing than services, and consequently, manufacturing makes a disproportionate contribution to economic growth.

2 Jobs—The number of jobs sustained by industry is not reflected in the totals directly employed. Manufacturing requires goods and services provision, and production activity generates output and employment in related sectors; when output declines there are indirect effects as well as direct job losses.

3 Technology—The manufacturing sector is the dominant source of innovations. Greenhalgh and Gregory (1997:104) comment: ‘As the domestic manufacturing sector shrinks, the fountain of domestic technology dries up and the capacity to generate innovation dwindles.’

4 Trade—Services are much less tradable than manufactures, and Greenhalgh and Gregory conclude that the volume of trade in services that the UK can generate is insufficient to balance the demand for imported manufactured products.

Deindustrialization is not a uniquely British phenomenon, but it has been more severe in the UK than elsewhere and it may reflect negative factors such as a small or uncompetitive manufacturing base as well as positives such as rising incomes and industrial maturity. Analysing the cause and effects of deindustrialization builds on the paper by Greenhalgh and Gregory (1997). In a recent paper entitled ‘Does manufacturing matter?’, Kitson and Michie (1997) complement the analysis of deindustrialization they give in Chapter 2 of this volume. Their paper makes four points that are central to our concerns (ibid. 71–95):

1 deindustrialization can be a serious problem for advanced industrial economies (and not just for the industrial sector itself);

2 the UK in particular is suffering from the adverse impacts of deindustrialization;

3 the key reason for the relatively poor performance of the UK economy has been underinvestment in manufacturing; and

4 this underinvestment and deindustrialization have been allowed to persist due to the lack of any strong modernizing force within British society, with government policy having been at best ineffectual and at worst positively harmful.

In Chapter 2, Kitson and Michie explain how the service sector is partly dependent upon the size and rate of growth in the manufacturing sector. Deindustrialization can create a spiral of decline which may spread from manufacturing and depress the social and economic environment more generally, and particularly with respect to training and investment. As discussed above, manufacturing is highly integrated in terms of international trade. Manufactured goods represent over 60 percent of Britain’s total exports (Greenhalgh and Gregory 1997), so a deteriorating position in manufacturing trade creates major balance of payments problems and this, in turn, may result in damaging deflationary macroeconomic policies. Such is the experience of the UK during the 1980s.

As Smith (1997:30) has noted, manufacturing’s influence over the rest of the UK economy is such that industry’s plight during 1980–1 was big enough to produce the deepest recession since the Second World War:

The problems of manufacturing ripple out to the rest of the economy in myriad ways: through the threat of declining turnover of service-sector suppliers to Britain’s manufacturers; through the knock-on effects on demand of industrial redundancies; through the wealth effects of a weaker stock-market performance as corporate profits take a hit; and through the pressure on policymakers to take further action to slow the economy if falling exports produce a widening of the trade deficit. Compartmentalising the economy, neat though this would be, doesn’t usually work.

Debates over the causes of Britain’s relative economic decline have been wide-ranging and extensive. In the following section we reflect upon some of the key issues by way of introduction to the rest of the book. In particular, we draw attention to: the issues of finance, investment and the role of the state; the education and skills of Britain’s workforce; and the adoption and implementation of new techniques.

Emergent Themes in Britain’s Relative Economic Decline

Finance, investment and the role of the state

A central theme in discussion of Britain’s industrial decline is a historic failure to invest in sufficient quantities and over the long term (Hutton 1995; see also Kennedy 1990; Pollard 1982). The UK’s record of investment is certainly relatively poor in comparison to other industrialized countries. Treasury figures show that overall UK investment as a percentage of GDP in the period from 1960 to 1995 was 18 percent, compared with an OECD average of 21 percent and the Japanese level of 32 percent over the same period (Management Today 1997). While whether inadequate investment is a cause or a symptom of decline may be a somewhat circular argument, it is clear that basic problems include rigidities in UK capital markets, the policies of postwar government (the so-called crowding out effects of large public sector deficits and stop-go economic policies which caused greater economic volatility and uncertainty) and the misuse of investment funds by private enterprises, which brings correspondingly low returns (Dintenfass 1992; Hutton 1995).

It is increasingly evident that the role of the state is crucial, not directly in corporate decision making, but in providing the context for competitive manufacturing performance. Government is thus central, even if it may not play a ‘starring role’ in international competition (Porter 1980). Will Hutton (1995) is among those who have identified the state itself as an institutional weakness of the UK. Alford (1997:330) comments that

The nature and effectiveness of the relationship between government and industry in Western European countries and Japan is a subject of very active debate, but the evidence still points to the inferior performance of Britain in this regard… Government, no less than private enterprise, is open to the charge that it could do better.

In their analysis in Chapter 2, Kitson and Michie conclude that new government policies are required to promote economic stability, particularly in order to reverse the chronic underinvestment in British industry. Currently, they argue, the high levels and volatility of interest rates have discouraged investment and undermined business confidence. This confidence can only be provided by a switch in emphasis in government policy away from deflationary policies, which have led to the increasing severity of recessions and damage the long-run growth potential of the economy, and towards expansionary policies that seek to provide stability. Recent figures from Cambridge Econometrics demonstrate that manufacturing, particularly the major sectors of electronics, motor vehicles and chemicals, are especially vulnerable to recession primarily because of their high sensitivity to the value of sterling (Management Today 1997).

Recessionary pressures and macroeconomic instability are fundamentally damaging to investment, and UK government has been widely criticized for failing to establish greater economic stability. Nonetheless, the nature of Britain’s financial markets has also been frequently cited as a contributory cause in the UK’s poor investment record and relative industrial decline. In a recent analysis, Lee (1996) argues that UK fir...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Notes on contributors
• Preface
• List of abbreviations
• PART I. An appraisal of UK manufacturing
• PART II. Manufacturing management in transition
• PART III. Policy implications for future development
• Index