A question of balance

There's a lot of talk about rebalancing the economy; moving away from financial services and towards manufacturing. We all understand the basic premise, but NESTA*, together with Oxford Economics, has been a bit more analytical about it. The pair have developed four scenarios for the future balance of the economy (full report can be found here), and applied them to an economic forecast model, showing how each will affect economic growth, regional performance and employment in the UK. The four scenarios are: [1] 'Business as usual', in which the UK continues to rely on financial and business services, with no significant rebalancing; [2] a full-blooded manufacturing renaissance, where we close half the gap between the UK and leading EU manufacturing nations; [3] a high-tech growth scenario, where recovery is driven by growth in high-tech sectors; [4] an innovation scenario, where investment in innovation across the economy increases productivity. Within the manufacturing sector, scenario [2] is probably what most mean or would like to see. The results of the NESTA/Oxford Economics study indicate that business-as-usual is slow to generate jobs (employment growth does not occur until 2013) and delivers poor growth in the UK's regions and nations (employment growth in Wales is projected to be an anaemic 0.1 per cent per year over the decade, 0.2 per cent per year in the North East). So what about the broad-based manufacturing renaissance? This, says the report, "strains credibility". While manufacturing output is expected to grow in all scenarios, an increase in the sector's contribution to the economy by 3 percentage points from today's levels of 12 per cent by 2020 implies levels of manufacturing growth not seen since before 1945 – around 6.2 per cent per year. Okay, so what are we left with? The other two scenarios, though ambitious, are both "more plausible in terms of the factors required for them to occur". They would, it is said, generate higher rates of growth outside London, a faster return to employment growth (by 2011, rather than 2013) and a very sound overall level of economic growth. Both do include high-tech manufacturing. Regardless of the scenario, however, business services continue to be the largest contributor to UK economic growth, showing the centrality of services (including creative sectors such as software and advertising), even in a more manufacturing-oriented economy. The report recommends that policy for growth should be focused on two targets: fostering an environment in which innovative firms can flourish; and making sure that government actions support high-potential, high-tech sectors, wherever possible. So, while the 'big bang' moment for manufacturing on its own may not be reality, the government is shining a spotlight on the sector, having earlier this year announced a rolling programme of themed displays demonstrating excellence in British design, engineering and manufacturing. The theme for the opening programme was the engineering supply chain, with exhibits provided by JCB and three of its supply chain companies: Craftsman Tools, Renishaw and Mazak UK. And these events lead up to the Government's new manufacturing framework, to be unveiled by the end of the year, which will detail specific plans for encouraging growth in the sector. So, for manufacturing, not a Big Bang, but not obscurity, either. *The National Endowment for Science, Technology and the Arts, which invests in early-stage companies, informs innovation policy and encourages a culture that helps innovation to flourish. See also this related Comment piece First published in Machinery, December 2010