From Luke Johnson - chairman of Channel 4 and manage of Risk Capital Partners, a private equity firm - in today's FT:
Something has been troubling me for a long, long time. I have a certain regret about the industries to which I have devoted my attention. I love fields like hospitality and the media, where I have spent much of my career. I understand how the economics work: restaurants and broadcasting can offer high margins and excellent cash flow, and providing diners and viewers with pleasure is hard to beat.
But a part of me would have loved to have been a genuine manufacturer. There is something authentic, something noble about making physical objects. It appears to me the essence of capitalism. Service and support sectors are all very well, but their output feels so much less tangible than a production business. Moreover, economies need balance: that way they are better equipped to ride out downturns.
Success in manufacturing needs at least four ingredients that are in short supply in countries like Britain. First, it needs patient capital - returns are rarely quick or indeed easy in many manufacturing spheres such as automotives, machinery or electronics. Second, it needs steady capital expenditure - unlike activities such as media, for example, which demands little. Third, it needs an army of sub-contractors and suppliers supporting the core fabrication. And finally, it needs engineering and technical skills in the workforce.
In truth, I have found service industries an easier and more certain path to profit than manufacturing. I served as a director and part-owner of a producer of large print presses, but the wild fluctuations in orders and work-in-progress were scary, and the quality of the global competitors was intimidating. Endless research and development expenses absorbed heavy amounts of cash flow. Low-cost foreign rivals can always undercut you. Meanwhile, regulation and taxation place an ever-greater burden on any factory owner. In this safety-first age, it often feels as if we have become almost too squeamish to cope with the grit and noise of manufacture.
But manufacturing matters not simply because of vaguely romantic notions about creating things. It provides well-paid blue-collar and professional jobs. It generates exports to help offset trade deficits generated elsewhere in the economy. It adds far more value pro rata than service industries. Every major plant fosters clusters of other businesses. And with R&D, patents, investment and original technology, it is possible to construct formidable barriers to entry for rivals.
And I think high-quality manufactured goods stimulate a pride and belief in industry and business that other outputs cannot match. Just look at how confident Germans are in their motor vehicles and machine tools.
Meanwhile, in the UK, our largest industry is financial services: what reputation does that profession have among the public? I would think it ranks alongside grave-robbing and arson in general esteem.
These days most manufacturing of scale needs to be global and best in class. That means great technology, a highly skilled workforce and solid leadership. And it probably requires investors and management to tolerate lower pay and returns than the rewards available in the City.
Government could do much to balance out these challenges - probably through favourable tax policies. I have never fully understood why lines of work such as property development, investment banking, hedge funds and private equity are so lucrative, and engineering much less so.
In almost any country, dealing in property, shares or companies will likely lead to riches far faster than running factories to produce the goods we all need. I would love an economist to explain to me the flaw in our system that leads to this far from ideal outcome.
Most intelligent entrepreneurs and executives desire to invest their work with meaning. They like the idea of improving the world while earning a living. And many of us who mostly shuffle paper secretly admire those in the Hard Industries, who manufacture things, in spite of all the obstacles.