A YouGov poll this week says 85% want the next government to promote a stronger UK manufacturing base, with 62% believing it will give the country more economic security. They’re absolutely right of course, and that is the centrepiece of my book The State We Need: Keys to the Renaissance of Britain. But it isn’t going to happen unless there is a profound sea-change in the conventional wisdom of the 3 main political parties.
As long as economic policy is driven by austerity-first, there will almost certainly continue to be desperately low levels of investment, little or no growth or rise in output per head, no increase in living standards, all accompanies by rising national and government debt, increasing unemployment and relentless relative if not actually absolute decline.
There are several reasons for this. A staggering £440bn of the UK’s prime industrial assets were sold off in the Thatcher era and the following years. Industrial policy was sacrificed on the altar of market fundamentalism. Deregulation of finance allowed the banks to disengage from their real role of supporting industry in favour of foreign speculation, offshore tax avoidance and toxic derivatives. Short-termism and churning of shares in the City of London enforced on industry a regime of quick returns rather than building market share. And the dominance of finance had one other lethal result: it led to a semi-permanent over-valued exchange rate which destroyed industry’s competitiveness. Our chronic balance of payments problems and our continuing loss of share of world trade show this conclusively.
ONS figures show that on average about one-third of the costs of manufactured goods is made up of imports and the remaining two-thirds in sterling. That means that our manufactured exports have to have that sterling two-thirds of costs – our cost base – priced at an exchange rate that is competitive in world markets. That is well below the current level of £1=$1.60-1.70, and needs to be pitched instead around $1.30. This is a necessary condition for attracting the big increase in industrial investment so desperately needed, which would then begin to pull in the large numbers of previously unemployed or under-employed people into the labour force. That has been the secret of the Tiger Economies – South Korea, Taiwan, Hong Kong, and Singapore – as well as of most of Europe in the high growth 1950-60s, as indeed of China and the Pacific Rim countries now.