In announcing her Programme for Government at the start of this month, the First Minister committed to publishing a Manufacturing Action Plan for Scotland in the autumn.
For someone such as me who’s long advocated for manufacturing this can hardly be anything but a positive development. But it does beg a question: what does manufacturing require that isn’t already covered in the lengthy Government Economic Strategy published only six months ago?
The clues are there in the Reindustrialising Scotland paper published by the Scottish Government in the latter stages of the referendum campaign. This was an interesting paper. Clearly timed to bolster the economic case for independence, its proposals shared the surprising characteristic of being at least partially implementable under the current devolution settlement. The Scottish Government has, for instance, already made significant progress towards ‘launching a Scottish Business Development Bank’ to provide growing businesses with the kind of patient, committed capital which has too often eluded UK based manufacturers. The Fair Work Convention stands testament to progress already made in ‘building a partnership approach to workforce relations’. These are not trivial actions but ambitious strategies to overcome deeply rooted structural problems.
Sadly, Reindustrialising Scotland couldn’t help indulging in Scotland’s favourite post-Devolution pastime of rearranging the institutional deckchairs. So while “establishing a Scottish Innovation Agency” seems inoffensive enough, it implies that current structures (particularly Scottish Enterprise) are inadequate or ineffective. What’s the evidence to this effect? Will the gains of establishing a new agency really be worth the start-up costs and upheaval of shifting responsibilities between it and existing bodies? Similarly, “fully aligning skills development with employability policies and the priorities of industry” suggests there’s something wrong with how SDS, SE and Industry Leadership Groups are currently developing sectoral skills plans.
Other proposals were a touch banal (“establish a modern and efficient tax system”), utterly pointless (“establish a long-term target for boosting manufacturing”) or just the kind of thing Government does until circumstances dictate that it doesn’t (“establishing a rule which sets a minimum level for public sector capital spending a percentage of GDP”).
Reindustrialising Scotland read as a hastily assembled late addition to the economics of independence case; some sensible proposals but less than compelling overall. How might the proposed Manufacturing Action Plan provide something more convincing?
A real plan for action
First, it would be good to see policy proposals firmly rooted in a comprehensive and coherent analysis of why the Scottish Government believes manufacturing has suffered in the UK. While the relative under- performance of UK manufacturing is sometimes exaggerated, in other European nations the sector does continue to account for a larger share of total output. Despite consistently bemoaning a failed and failing UK economic model the Scottish Government has singularly failed to identify what they believe to be the model’s distinguishing features and how policy at Scottish level – under current or future constitutional states – might provide an effective remedy. The Action Plan really should be prefaced with a forensic analysis of why the UK model is detrimental to manufacturing.
What might explain the Scottish Government’s reticence in attacking the UK model in anything but the most nonspecific way? Perhaps it’s because any credible critique quite quickly bumps up against powerful interests or deeply embedded economic orthodoxies of the type that are difficult to challenge without inviting ridicule. Explain why the scale of the UK’s financial sector drains talent and investment from manufacturing? Expect retorts that you’re talking down a key industrial sector and potentially driving investment abroad. Expound on why the UK’s intensely relaxed approach to ownership and control is at the root of our comparatively severe industrial decline and expect to be labelled “protectionist”: anathema to the seriously minded politician. The trouble for the Scottish Government is that any effective strategy to grow manufacturing simply must confront these issues.
Second, the policies proposed in Reindustrialising Scotland simply didn’t justify the transformative rhetoric accompanying its publication. Building on its good aspects – the Business Development Bank, Fair Work Convention – what new measures should be included in the Action Plan?
The UK’s endemic short-termism is the curse of manufacturing and therefore a focus on improving corporate governance seems a reasonable place to start. Yes, the Scottish Government has no real powers in this area but lacking powers over employment hasn’t prevented the First Minister appointing a Cabinet Secretary for Fair Work. It could be argued that by aiming for 50/50 gender representation on boards the First Minister has already dipped her toe in the water but this is not an area with which the Scottish Government has generally been comfortable. There was not a single mention of corporate governance in the independence white paper. But, as Andy Haldane of the Bank of England recently pointed out, poor corporate governance is at the heart of the UK’s twin problems of under investment and inequality. It is difficult to envisage a Scottish manufacturing renaissance without substantial change in the way companies are run and how they reward their executives.
The myth about small firms
Next, politically convenient but economically useless tax breaks and subsidies provided to small firms on a generalised basis (e.g. the Small Business Bonus) should end with the savings channelled to the Business Development Bank or the Innovation Agency where they might actually flow to manufacturing businesses with the capability to invest them productively. As Marianna Mazzucato has argued:
While some SME’s and entrepreneurs contribute to innovation and growth, most do not and the ones that do are atypical. The majority of start-ups end up as marginal, undersized, poor performance enterprises that can drive down profits, increase factor prices for high-potential firms, confuse investors and fail to generate benefits commensurate with the amount of public support they receive”.
Quite. It is tremendously encouraging that the First Minister recently appointed Prof Mazzucato to her Council of Economic Advisers. Let’s hope she’s listened to.
Ministers should also embark on a programme to better align Scottish industrial capacity with future procurement opportunities. The recent orders for new Calmac vessels placed with Ferguson’s signal what might be possible. Can Scotland build capacity in other sectors where Ministers make or exert significant influence over procurement decisions? Railway rolling stock seems like a decent place to start.
The Action Plan should also commit to a re-shoring initiative. While this may have seemed hopelessly optimistic just a few years ago, failures of global supply chains (e.g. post Fukushima) and changing markets suggest it is now a reality in some sectors; for example the drive for “fast fashion” is already benefitting UK textile manufacturers. In contrast to the heavily laissez faire rhetoric, BIS has been active in this area for some time, while in my experience, Scottish officialdom has often been intensely relaxed about the offshoring of Scottish jobs and highly sceptical about reshoring.
However compelling the new Action Plan, some caution is advisable on what it might ultimately deliver. The deep seated structural problems contributing to manufacturing’s decline are not easily overcome and the long run rate of productivity growth in manufacturing dictates that the employment dividend is likely to be limited.
Despite the renewed enthusiasm at all levels of government for “making things”, the recovery has been largely driven by services, especially those financial and business services to which manufacturing’s resurgence is intended to provide balance. And warm rhetoric about manufacturing spouting from policymakers across the developed world cannot disguise the simple truth that every nation cannot be a net exporter of manufactured goods. Rebalancing the economy? Easy to say, tortuously difficult to deliver.
‘100 Glasgow Truck’ illustration courtesy of Tommy Perman.