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Wednesday, 23 May, 2001, 11:16 GMT 12:16 UK
Manufacturing - does it matter?

by BBC News Online's Mike Verdin

While Labour claims credit for a strong economy, there are signs of weakness in the UK manufacturing sector.

Gordon Brown wants to raise the productivity of UK industry to European levels, but a key report this week showed the UK trade deficit at a record 2.1bn, thanks largely to falling exports.

And a series of high-profile job losses throughout the UK, from steel jobs in Wales to the shutdown of the Vauxhall plant in Lution, have helped to keep manufacturing in the headlines.

Indeed, the manufacturing sector, which even in 1970 accounted for almost one third of the UK's economic output, today contributes less than 20%.

Factory jobs go

But the plight of manufacturing gets relatively little mention by Labour, a party which relies on manufacturing heartlands for so much of its support.

Cammell Laird shipyard on the River Mersey, Liverpool
Cammell Laird: under threat of closure
"Manufacturing matters to Labour," the party says in its business policy documents proposing tax concessions, and the launch of regional sector advice and support centres.

Yet the sector gains only two mentions in the 30,000 words of Labour's main manifesto.

"Remembering Labour's past terms in office, you might have expected the economy overall to suffer mishap, but for manufacturing to emerge relatively unscathed," an analyst at a major European bank said.

"In fact, quite the opposite seems to have happened."

The Conservatives give the sector even less specific coverage, while the Liberal Democrats say that a stable exchange rate, with the UK joining the euro at a reasonable rate, would help manufacturing.

Media coverage

The question is, however, does manufacturing's decline really matter?

To the media, it clearly does.

Finance jobs lost in last six months
Lloyds TSB/Abbey National: 9,000*
Bank of Scotland/ Halifax: 2,000*
Prudential: 2,000
Sun Life Financial: 1,700
Barclays/Legal & General: 750

* jobs threatened

"It seems almost a knee-jerk reaction that whenever a steelworks closes it gains masses of coverage," said Richard Brown, a former economist at the International Monetary Fund, now visiting fellow at Manchester Business School.

Banking union Unifi has long protested over the acres of newspaper space afforded, say, the loss of 2,000 jobs at Vauxhall when the loss of 2,000 posts through the proposed Halifax/ Bank of Scotland merger receives scant coverage.

"If such job losses were announced in the manufacturing sector, there would be intense scrutiny," general secretary Ed Sweeney said in a letter last week to trade watchdogs.

Key sector

The Confederation of British Industry, the UK's main business group, argues the sector's case.

"Manufacturing is responsible for about 80% of exports, one fifth of economy directly, and more if you take into account parts of the rest of the economy which depend on it," CBI economist Sudhir Junankar told BBC News Online.

But many economists would argue that the UK's car plants, shipyards and steel works, while historically important, should not be treated as special cases.

Mr Brown, with Bank of England economics guru DeAnne Julius, in 1993 published a widely-acclaimed paper proposing that the decline in manufacturing is not of such concern as people imagine.

DeAnne Julius, retiring member of Bank of England's monetary policy committee
DeAnne Julius: co-author on key study
As consumers get richer, they will boost spending on holidays and health rather than washing machines, the paper said.

It is a view Mr Brown maintains.

"We may mourn the loss of jobs in heavy manufacturing," he told BBC News Online. "But in fact they are doomed.

"We simply cannot compete against areas such as the Asia Pacific, where the cost base is so much lower."

Where manufacturing has a future is in small volume, high quality operations.

"It makes sense for Mercedes cars to be made in Germany, with state of the art procedures, and top engineers, on site."

Otherwise, we should be looking to tourism, education, financial services, health, industries of Silicon Fen and Square Mile, to underpin our future prosperity.

Threat from abroad

Not that this switch in sector emphasis represents the end of the UK economic story, Mr Brown said.

"I was dumbstruck the other day when I found out that General Electric had moved two call centres from the UK to India. And most US medical records are held [electronically] in India.

"But they speak English there, and in a 24 hour society, geographic location can be less important."

So soon it might be the booming service sector where the UK faces competition from abroad - an even bigger challenge for the next Chancellor.

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