EEF blog

With all the talk of rebalancing, Robert Allen at Oxford University takes a look back into history and asks why the first industrial revolution took place in 18th century Britain and not elsewhere.

His answer? Britain was a high wage, cheap energy economy that encouraged investment in technolgoy rather than labour:

"It is still not clear among economic historians why the Industrial Revolution actually took place in 18th century Britain...Answers to this question have ranged from religion and culture to politics and constitutions....[But in reality] the British Empire’s success in international trade that created Britain’s high wage, cheap energy economy, and it was the spring board for the Industrial Revolution

The technologies of the Industrial Revolution were only profitable to adopt in Britain, that was also the only country where it paid to invent them. The ideas embodied in the breakthrough technologies were simple; the difficult problem was the engineering challenge of making them work. Responding to that challenged required research and development, which emerged as an important business practice in the eighteenth century. It was accompanied by the appearance of venture capitalists to finance the R&D and a reliance on patents to recoup the benefits of successful development. The Industrial Revolution was invented in Britain in the eighteenth century because that was where it paid to invent it."

So now that we're in a high wage, expensive energy economy will we really see another industrial revolution?

Yes, but as Allen suggests, only if it pays to invest in technology and develop innovations in the UK.

The £1.5 trillion question is does it pay to be a manufacturer in the UK as opposed to any other country in the world?

Probably, but not nearly as much as it used to. And that's the challenge facing our economy today.

It has now been two weeks since we found out that just 55 countries (many of these EU countries) have signed up to the Copenhagen Accord - the political deal that was struck in the dying moments of the UN climate talks in a snowy Copenhagen. The dust has settled but the impact of Copenhagen on British manufacturing is little clearer for it. 

Let’s recap on the Accord. Unfortunately it is a vague document. It establishes a commitment to attempt to restrict temperature increases to 2°C. It sets monitoring and reporting requirements for all countries. And it provides initial funding of $30 billion over a three year period to assist developing countries in mitigating and adapting to climate change, rising to $100 billion a year by 2020. But it is the last two pages of the document which hold the most interest. They contain two annexes. One records the emission reduction commitments of developed countries. The other lists the actions pledged by developing countries. 

The pledges fall far short of the cuts scientists say must occur in order to get anywhere near the 2°C goal. However, that 55 countries have submitted pledges is not to be sniffed at. Although many of these countries are based in the EU, the US, China, India and Brazil have for internationalised pledges for the first time. A year ago this would have been inconceivable. Together those making pledges account for around 80% of the world’s emissions. Sounds pretty impressive.  Certainly Joan Ruddock, Minister for Climate Change, thought so when we met her recently to discuss the fall out from Copenhagen. 

However it must not be forgotten that this document has no legal recognition. Until it is enshrined in domestic law, we have just the promises of politicians. I’m not a gambling woman but I would not like to hedge any bets on Obama’s ability to pass his plans on climate change through a Senate which is ultra sensitive to the current state of the economy. And China’s targets, while avoiding emissions that would have been generated on a business as usual scenario, will still allow growth to continue unabated. 

So what does this mean for us? Well, it means we are still exposed to the risk of carbon leakage for one - where market share, investment decisions or production is driven into other economies to avoid the costs and limits imposed by the regulation of greenhouse gases. And so we definitely don’t think now is the time to impose even stricter regulation without real thought about how to protect our vulnerable industries. 

Instead, we think government’s focus must be on helping industry cut energy costs and emissions through focussed and easily accessible funding for research, development and deployment. This could generate green technologies and help to secure jobs. And if government is serious about cutting substantial amounts of greenhouse gas, now is the time to step up diplomacy with countries like China, India, Brazil and the US. Rather than burdening UK manufacturers more, let’s try and get others to adopt comparable regulation and financial constraints.  

You can read more about what happened in Copenhagen here, along with our messages to government on what we think the next steps should . 

2009 was a painful year for most manufacturers, but it looks like the sector ended the year on a strong note.

Today's Index of Production figures for December suggest that manufacturing grew by 0.8% between q3 and q4 last year.

Although that strong growth reflects a weak summer - there were plenty of shutdowns in August - the growth in the Autumn was broad-based. And that's (hopefully) a sure sign that there's decent amount of momentum behind the recovery.

Will q1 2010 be just as strong? I'm beginning to change my mind. Activity could fall off because of the wintery start to the year, but we're starting to hear more positive stories from manufacturers about their prospects.

Many companies I've spoken with over the past 6 months said that spring 2010 was always their target date for recovery - the question was what happened in between now and then. The encouraging news is that spring is getting closer and the potential pitfalls - exchange rate volatility, slower global growth and withdrawal of stimulus - are falling by the wayside.

Two big concerns remain: China and the public finances.

Can China avoid a wage-price inflationary bubble without derailing its economy? Can the (next) UK government credibly repair the public finances?

Those are the two big questions remaining for 2010.

A few month ago, I spoke at a North West RDA's launch of its Manufacturing Strategy. My talk was on innovation in manufacturing, but during the panel debate afterwards, I got a fairly pointed question:

"Do the politicians get it?"

The answer I gave was a resounding 'No'. Beyond Lord Mandelson, there's little understanding of what makes modern manufacturing successful.

The audience grumbled, so I pressed them: Why, did they think, did finanical services get a light-touch regulation over the past 20-plus years? Because they stood up and asked for one. They argued fairly persuasively that the UK needed to move to a 'post-industrial' economy, and the politicians gave them what they wanted.

While the devastating depth of the recession has proved the City wrong and got people talking about manufacturing again, where are the manufacturers standing up, demanding to be at the heart of a healthy economy?

At EEF, we're doing our bit - our Manufacturing. Our Future. report was the first step in a campaign to shout about what manufacturers need to be successful.

But as an election draws closer, it's time for manufacturers themselves to stand up and get engaged.

That's why we've started our 'We ♥ Manufacturing' campaign. It's not really driven by EEF, but by manufacturers talking about why manufacturing matters. The audiance is prospective MPs and the public. If you support manufacturing, then tell us why. 

How else are the politicians going to 'get it'?

Readers from outside the world of skills policy (a confusing place of shifting sands, jungles of tangled bureacracy and constantly mutating acroynyms) may be forgiven for not knowing that it is currently National Apprenticeship Week.

The initiative is being led by the new National Apprenticeship Service (NAS), one of the new bodies which along with the SFA and YPLA is replacing the LSC (do keep up).

Apprenticeships are hugely valued by employers, as an establilshed model for high-quality work-based training, and it is reassuring that there is a degree of cross-party support for them. 

But the squeeze on public spending presents challenges, and the case for apprenticeships (including those for post-19 learners) needs to keep being made.  As I have said in an article for Personnel Today a long-term outlook is essential if we are to guarantee that apprenticeships are valued for life, not just for this one week.

Another day, another set of data suggesting that UK manufacturing is starting to shake off the worst of the recession.

And that's good news because without exports, there's little else in the economy that's going to give the wider recovery the spark it needs.

This morning, the CIPS/Markit UK Manufacturing Purchasing Managers' Index put manufacturing activity at 56.7 - a 15 year high. Anything above 50 on the index indicates growth, the higher the number, the stronger the growth.

The survey showed that growth was fairly broad based. New orders were the strongest in six years because of both domestic and export demand.

And even the employment index managed to squeak above 50.

The one (small) red-flag in the report was on the cost side. The strong global manufacturing recovery - especially in China, which posted a record PMI for January - and the weak sterling are pushing up costs of imported raw materials. that means manufacturers are likely to keep one eye on inflation and continued cost control.