Having just written that, I received an email from The Royal Academy of Engineering (www.raeng.org.uk), notifying me of a debate on manufacturing in which the motion was to be: "This House believes that a manufacturing sector accounting for at least 20 per cent of GDP will provide the only basis for a balanced UK economy".
It continued: "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, is it time to rethink economic policies to encourage a greater contribution from manufacturing? Have countries that have retained more manufacturing benefited from greater economic resilience? Could other sectors or activities substitute for manufacturing in terms of adding value and export potential? Is there an optimum proportion for manufacturing's share of a developed economy? Or is target setting a waste of time?"
Well, it's good to discuss this, of course, but I am afraid, great as we might think it would be, getting back to 20 per cent of the economy (manufacturing is 13 per cent now) is close to impossible. To say this is not to accept that manufacturing no longer has a place in the UK economy; it does, a more prominent place, in fact, but a look at the scale of the task, vis á vis the 20 per cent figure, is instructive.
Let's agree that, in order to regain lost ground, UK manufacturing must grow at a faster rate than do other parts of the economy for a sustained period. As the Royal Academy points out, currently UK manufacturing is growing faster than the economy as a whole. But relative decline for manufacturing, as measured by percentage of GDP, has been the story in all major industrial countries over recent years, not only in the UK. This relative decline does not equal absolute decline – manufacturing output in the UK has still grown in real terms, but at a slower rate than the rest of the economy (see http://chilp.it/ba50f3 for an explanation).
Fundamentally, to make manufacturing 20 per cent of the economy today, its output must become some 50 per cent greater than it is (updated: 50% was 150%).
So what does that look like? The following gives an indication. UK GDP in 2009 was £1,264,650,000,000 (www.ukpublicspending.co.uk); 13 per cent of that is £164,404,500,000; another 50 per cent of that, to get us to 20 per cent of GDP, is £82,202,250,000. Big figures, aren't they, but they need context for us to get the full impact. Global aero engine giant Rolls-Royce's 2009 turnover was £10.4 billion (£10,400,000,000). So we need something like eight more Rolls-Royces.
Debates about growing UK manufacturing are very welcome, but there needs to be a sense of reality. Absolute growth in manufacturing should clearly be a target (but that has already been true over the long term), with above the average of GDP growth another – a more difficult trick. What that then adds up to, as a percentage of total GDP, we will see. But just plucking a nice round figure out of the air, because that's where it once was, is not a basis for a strategy. And, in fact, the debate motion was defeated by a small majority.
First published in Machinery, December 2010
