Brexit: bad for Scottish manufacturing

Manufacturing industry in Scotland is suffering.

As a consequence of the relative strength of sterling, weakness in export markets and the knock on effect of the collapsing oil price, manufacturing here contracted in the first three quarters of 2015 (Q4 data will not be published till April). Manufacturing is in technical recession and there are few signs that a durable recovery is on the way.

But Scotland is hardly an outlier: UK manufacturing failed to grow in any quarter of 2015 (0.0, -0.6, -0.4, 0.0); manufacturing Purchasing Managers’ Indexes – reliable indicators of future prospects – across the world signal low or no growth through 2016 (US manufacturing PMI in February was the weakest for over three years). Weak demand from emerging markets led to a 13.8% contraction in world trade in goods last year: the worst performance since the immediate aftermath of the global financial crisis.

This is the world into which the Scottish Government this month launched A Manufacturing Future for Scotland, an action plan the Deputy First Minister explained as ‘seeking to re-imagine and re-position manufacturing here in Scotland as an essential sector in our approach to inclusive growth’.

John Swinney frames the issue wisely. Distributed around the country and supporting middle income, middle status and skilled jobs, manufacturing is a force for social cohesion in a way that services are not. In 2015 the median wage in Scottish manufacturing was 31% higher than in services and, for workers in the bottom income decile, a remarkable 110% more.

A Manufacturing Future for Scotland genuinely improves on previous approaches to manufacturing policy and represents a massive advance on the messy, hyperbolic Reindustrialising Scotland paper published by the Scottish Government during the independence referendum. It delivers tangible support through a Centre for Manufacturing Excellence and Skills Academy, emphasises the pressing need to fill the investment gap and stresses the relevance of workplace innovation. But it does avoid or gloss over some pretty important issues.

Political leadership please

First, the paper has much to say about leadership. Manufacturing leaders, we are told, ‘need to be adaptable and agile to take advantage of the opportunities available to innovate, grow and trade internationally’. Fair enough perhaps but the leadership that really matters is the political leadership that has so often been lacking in the past. In Scotland as in the UK the political class has been hugely complacent about the comparatively large decline in manufacturing and the ability of services to sustain growth and create decent jobs. Industrial policy has been weak, inconsistent and erratic. For years prior to the financial crisis, simply using the term risked the ridicule of senior policymakers. Monetary policy has tended to be set to benefit the City and at times – the early 1980s in particular – has simply been disastrous for manufacturing.

The Scottish Government might reasonably argue that its strong support is implicit in the strategy and accompanying new funding but this has to be sustained over time and potentially difficult trade-offs with other sectors confronted.

Which brings us to the second omission: having correctly identified comparatively low levels of investment as a key problem for Scottish industry, the paper fails to set out a coherent analysis of why manufacturing firms in Scotland have so often failed to find patient, committed finance to help fund productivity enhancing investments in people, plant and research. This is a failure of the financial sector, not government. It should be identified as such even if changing the incentives and culture behind endemic short-termism often seems tortuously difficult in the Scottish/UK context.

One factor contributing to low investment/short-termism is the lack of ownership and control retained within Scotland’s borders, the third significant omission from the paper. The new strategy could have prioritised support for different ownership models (e.g. cooperatives, trust firms) recognising that strategic decisions tend to favour a firm’s home market.

Finally, the paper is as guilty as most recent strategies of drawing an unhelpful distinction between high and low value manufacturing. The line is not as easily drawn as might be inferred from policy papers and the majority of jobs remain in what are recognised as ‘low value’ sub-sectors such as food processing.  These jobs deserve the support of policymakers too.

Despite these omissions – which I’d argue are fundamental to any approach which seriously aims to grow manufacturing as a proportion of total output – A Manufacturing Future for Scotland does provide a very decent basis for unions, employers, government and agencies to work together to strengthen Scottish manufacturing. Let’s get on with it.

The folly of #Brexit

Yet the most valuable contribution the Scottish Government could make this year to manufacturing’s future is to fight a vigorous, evidence-based campaign to remain in the European Union. Is it chutzpah or a special kind of ignorance that leads #Brexit advocates to invoke manufacturing in support of their case? Listening to some on the Tory right suddenly arguing for exit on the basis that it would be easier to subsidise struggling manufacturing firms and sectors is a truly grotesque spectacle. The hypocrisy is as stunning as the poverty of the economic analysis.

The four decades since the UK entered the EU have witnessed massive and all too often appallingly managed industrial change. Swathes of Scottish manufacturing have disappeared and, as the numerous closures over the past year testify, too much of what’s left is fragile. But given the centrality of EU markets, currently the destination of 58% of manufactured exports, #Brexit would significantly exacerbate the fragility of Scottish-based production.

Despite many legitimate concerns over the inadequacies of TTIP, the UK negotiating its own trade agreements – particularly under a government like the present one – hardly bears thinking about. As, post global financial crisis, all developed countries endeavour to maximise manufacturing growth, the UK would be seriously outgunned in trying to safeguard the interests of the sector against increasingly mercantilist global trading blocks.

The future of Scottish manufacturing will continue to be determined largely by factors beyond the control of the Scottish or UK Governments. Better policy development and implementation will help of course but the best thing government can do is to avoid doing bad things. And #Brexit would be a very, very bad move for Scottish manufacturing.

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