23 November 2010

Rebalancing the economy: do we need more manufacturing capability?

In the second of its series of debates on the global economy on Thursday 18 November, The Royal Academy of Engineering considered the motion that:

This House believes that a manufacturing sector accounting for at least 20% of GDP will provide the only basis for a balanced UK economy

Manufacturing output now accounts for around 13% of the UK economy, a proportion that has halved in a generation. Yet manufactured goods still make up around 50% of UK exports, though the balance of trade has been increasingly negative in the past dozen years. With evidence that UK manufacturing is currently growing faster than the economy as a whole, the debate asked whether it was time to rethink economic policies to encourage a greater contribution from manufacturing.

The debate was attended by leading engineers and businesspeople who concluded that manufacturing is an important part of the UK's knowledge economy and its contribution to future prosperity and rebalancing the economy must therefore be maximised.

It was also agreed that although manufacturing was a significant source of added value for the UK economy, there was no benefit in setting a specific target percentage of GDP (gross domestic product) for manufacturing.

Debate participants:

Chair: Professor Sir William Wakeham FREng, Vice-President and Honorary International Secretary, The Royal Academy of Engineering

Panel:

For the motion: Professor Mike Gregory CBE, Head, Institute for Manufacturing, University of Cambridge Andrew Simms, Policy Director, New Economics Foundation

Against the motion: Richard Lambert, Director-General, CBI Rob Killick, CEO, cScape

The debate:

Proposing the motion, Professor Mike Gregory noted that

manufacturing was not just about making products: "It's about research and development, design, production, distribution and after-sales service," he said. "Manufacturing should be considered as an integral part of the knowledge economy." Professor Gregory stressed the need to make the best use of the UK's abilities in science and technology and how an expansion of manufacturing within the UK offered the surest method to reverse the structural defects of the economy that had led to worrying deficits on the balance of trade and the balance of payments.

Andrew Simms felt that a renewed emphasis on manufacturing was essential for society and to tackle urgent environmental problems. He said: "In recent years the balance has shifted, destructively, in a completely different direction. Politicians have been spellbound by ephemeral yet damaging financial services characterised by reckless, bonus-fuelled speculation which became an end in itself. If Britain gets back to making things we will see the benefit in more jobs and greater self reliance when it comes to pressing issues such as energy security."

Opposing the motion, Richard Lambert said that it was "a well-meaning fantasy". He added that manufacturing was an important part of a balanced economy, but that it was not sensible to prescribe a particular percentage that any one sector should account for.: "Our prime need is for a government that sets the objective of macroeconomic stability as a priority above all others; if government sets the right conditions, all businesses, including manufacturing, will be able to grow."

Rob Killick declared that growth and dynamism in the economy were the truly important factors and that it would be a mistake to put arguments for balance in front of arguments for growth. He added: "We need to focus on value, however it is created. Better a one-sided growth economy than a balanced stagnant one."

After a wide-ranging debate the motion was defeated by a small but decisive majority.

ends

Notes for editors

1. In this new series of debates, The Royal Academy of Engineering is exploring some of the fundamental challenges facing the UK as it strives to compete in a turbulent global economy. The series brings together engineers, industry leaders, economists and policy makers to test through debate the validity of a range of policies at the heart of UK competitiveness.
   
   The third debate will take place on 20 January 2011 and will address the motion: This House believes that the best innovation happens without government intervention.


2. Founded in 1976, The Royal Academy of Engineering promotes the engineering and technological welfare of the country. Our fellowship - comprising the UK's most eminent engineers - provides the leadership and expertise for our activities, which focus on the relationships between engineering, technology, and the quality of life. As a national academy, we provide independent and impartial advice to Government; work to secure the next generation of engineers; and provide a voice for Britain's engineering community.

For more information please contact:

Jane Sutton at The Royal Academy of Engineering
Tel. 020 7766 0636; email: Jane Sutton

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