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Rebalancing the economy will never happen without dedicated government input

Made_In_Great_BritainAll parties are in favour of rebalancing the deeply lop-sided and grossly imbalanced British economy, but it isn’t happening. It’s true that Jaguar Land Rover achieved a 14% year-on-year increase in sales in the first half of this year and that the company (owned by the Indian conglomerate Tata) is one of the UK’s largest exporters, generating 85% of its revevues from car exports overseas. But while almost everything in the car industry from the smallest widget to the finished vehicle can be made in the UK, far too much of the component parts continue to be imported from abroad, as Nissan’s Washington factory and Honda’ Swindon facility will attest.

The same is true of Britain’s other strongest industries, notably aeroplane manufacture, pharmaceuticals and food. Apart from these UK giants, large UK manufacturers are not themselves global leaders but rather tend to supply specialist parts to much bigger businesses in France, Germany and Italy. The main reason for this is that so many of Britain’s largest firms were sold off abroad in the deregulated market frenzy of the 1980-90s and the supply chains which were dependent on these big corporate leaders were broken up.

It was also a reflection of the ideological frenzy at the time that the market always knows best and government should simply get out of the way. Choosing champions was out of fashion and safeguarding national strategic sectors or companies, the policy adopted by all other advanced economies except Britain, became anathema to the dominant corporate interests.

The result was the meltdown of British manufacturing from which the country has still not recovered. In 1996 industry employed 4.2 million people and accounted for more than a fifth of GDP. Today it employs 2.6 million and accounts for only 12% of GDP. Manufacturing has reduced in most Western economies over the last 2-3 decades, but nowhere as steeply as in Britain. Indeed in Germany, one of the world’s most dynamic manufacturers and biggest exporters, almost a quarter of the workforce is still engaged in manufacturing.

Today the two factors which most heavily weigh against the very necessary rebalancing of the economy are the government’s continued prejudice in favour of finance (from which the Tory party gets half its income year after year) and indifference to industry, and secondly the sterling exchange rate. At least 45% of all UK manufactured goods are exported, so the value of the pound on the foreign exchanges is absolutely critical. It dropped by a quarter after the 2008 crash, but manufacturing businesses chose to raise prices rather than expand output. And now over the last 6 months sterling’s value has regained some 10% of that lost value. Unless this government (or the next) fundamentally alters both these conditions for the UK’s manufacturing survival and prosperity, rebalancing will remain what it currently is, just airy rhetoric.

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