Manufacturing is an integral cog in the country’s economic engine and it will be crucial in Britain’s recovery, says David Millar, managing director of Heap & Partners.
Japan’s economy was left in disarray by the Second World War. Key industries which made up the country’s backbone were brought to their knees. The country was stalling with no end in sight. In 1950, Japanese businessmen turned to an American from Wyoming to help them rebuild their shattered economy. An industrial expert, William Edwards Deming taught Japan’s manufacturers how to produce high-quality products economically.
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Companies such as Toyota and Sony adopted Deming’s concepts and became world-class producers in their fields. Other Japanese manufacturers followed suit and Japan turned the global economy on its head, beating US industry at its own game. From its post-war hardship, manufacturing inspired Japan’s meteoric economic rise. It was the spark which ignited the Japanese economic miracle.
Fast forward to 2020 and the UK too is now staring down the barrel of a recession. The coronavirus pandemic has brought about unprecedented challenges, with the British government tasked with the unenviable balancing act of protecting public health, while trying to keep the economy from coming to a standstill.
But as Covid-19 tore through the nation, there was no other option but a national lockdown. Britain’s people retreated into the sanctuary of their homes. Businesses and spending stopped, the streets fell silent, the economy teetered.
As a result, the economy suffered its biggest slump on record between April and June as the coronavirus lockdown measures pushed the country officially into a recession. The economy shrank by some 20 per cent compared with the first three months of the year. It’s the first technical recession since 2009.
But as the country cautiously comes out of lockdown, getting the economy back up and running is a priority. As the government looks to get the cogs turning, manufacturing will be a powerful source for economic growth and prosperity if used in the right way.
Manufacturing is an integral cog in the country’s economic engine
Despite the devastating impact of coronavirus manufacturing remains a staple of the British economy. In 2019 – 2020 the manufacturing sector’s annual output accounted for £192bn to the UK’s economy. The industry accounts for 47 per cent of exports and 66 per cent of R&D investment. It saw some 2.7 million people employed with the average salary in the sector standing at £33,5000 – some 13 percent higher than the rest of the country.
The adoption of industry 4.0, which includes connectivity, advanced analytics, automation, and advanced manufacturing technologies was gaining momentum before Covid-19, helping companies transform their operations in everything from production efficiency to product customization, with improvements in speed to market, service effectiveness, and new-business model creation. It can help the industry lead the economic charge.
Indeed the opportunity for the manufacturing industry to drive the country’s economic fightback is still very much there. Not all sectors of the manufacturing industry have been decimated by Covid-19. The medical devices, pharmaceutical, chemicals, and defence sectors have remained relatively unscathed from the virus. While we have seen the best of the manufacturing sector through its PPE response, rising to the ventilator challenge, and increased drug production.
While pockets of growth in the sector since lockdown have been linked to the healthcare industry, other areas of potential growth are emerging. Chancellor Rishi Sunak vowed to spend a record £600bn on infrastructure over the next five years. Placing the UK’s manufacturers at the heart of delivering this will be key to ensuring Britain can thrive post-Covid-19. Meanwhile, the automotive, textiles, electronic and aerospace sectors are all expected to see output growth on 2019 levels by 2021.
With the industry’s infrastructure still very much in place to hit the ground running, manufacturing already has the tools at its fingertips to lead Britain’s recovery. It has all the instruments available to promote Job growth, production and R&D investment. The limited reopening of the economy in May, that accelerated in June, saw strongest growth in manufacturing and construction where workers were able to return to factories and building sites.
Manufacturing is an integral cog in the country’s economic engine. Ensuring the sector takes every advantage, from government support and investment to collaboration among industry leaders, will continue to drive this growth. It will be crucial in manufacturing Britain’s recovery.
David Millar is managing director of Heap & Partners
The problem is the finance sector (and the rentiers – FIRE sector Finance, Insurance, Real Estate) have become too powerful, siphoning off money from the productive sectors of the economy. This is an old debate from the 19c and classical economists such as Adam Smith, John Stuart Mill, Marx, etc. would be horrified at today’s distortions.
The financialised economy (money making money) depends on asset growth (shares, property, financial derivatives, …) has resulted in housing (an asset) becoming unaffordable to buy & increasing rents as a proportion of their income for the others. The rich 1% (who are asset rich) are taking a greater proportion of the wealth whilst the 99% of the population have stagnant or declining prosperity, see Picketty.
The banking sector should be directed to finance the business sector, not speculation particularly as they have been given by the government (we the people), the privilege to create money. Cutting interest rates reduces banks lending margins forcing them into mergers and further into speculative financial instruments. A strong local network of banks which need good lending margins have been the success of the German Mittelstand – small and medium industrial sector. see Richard Werner.
The neoliberals came up with tools to deal with stagflation but all built upon an economic model based on equilibrium, an incorrect view of the role of money creation and a political view that small government spending and the market could cure all. Well it hasn’t.
The MMT Modern Monetary Theory essentially gets it right that the government can spend in their own currency (have deficits) up to full employment carefully watching for inflation and putting in controls. In the current situation because everyone is spending, exchange rates are relative. The IMFs role in permanently indenturing poor countries with US dollar loans is scandalous.
see The Use and Abuse of MMT
https://www.nakedcapitalism.com/2020/04/the-use-and-abuse-of-mmt.html
Since the financial big bang in the 80s private debt (business and household debt) has increased significantly threatening the stability of the market system with boom and bust cycles. It was the change in the rate of private debt to GDP leading to a deflationary spiral that is characteristic of depressions. It was government spending that got us out of it. In traditional eastern economies it was commonplace to give a debt jubilee when a new ruler arrived cancelling household debt.
A modern debt jubilee to reset the economy has been proposed with for example households paying off debt and those households not in debt only being able to buy private debt of companies thereby reducing private business debt. see Debt Jubilee
https://www.washingtonpost.com/opinions/2020/03/21/debt-jubilee-is-only-way-avoid-depression/
The domestic manufacturing sector needs to be invigorated even if import tariffs are necessary at first. This would result in a stronger economy for the 99% … Witness the 1950s-60s, when the USA, Australia and later in Japan were producing …most could afford a house, or the rent was a small fraction of income, and income inequalities were much smaller.
We now know that MMT Modern Monetary Theory has been tacitly acknowledged by most central banks and that like in the 2008 GFC Great Financial Crisis, the government/central bank can print money in their own currency up until near full employment without inflation. Indeed in the UK in some cases, they are not even going to the market and direct dealing between
treasury and the BoE Bank of England ie. really “printing money out of thin air.”
We thus have the resources that can be directed to becoming a productive & GREEN economy bringing down house prices and rentals, investing in renewables & efficiency, to bring global warming under control and improving the lot for the 99%.
The danger is that those in power will continue to featherbed the 1% and worse misallocate resources for unnecessary and costly boondoggles eg. nuclear SMRs.
see Fixing The Economy video
https://www.realvision.com/shows/the-interview/videos/rebel-economists-unpick-historical-path-to-global-recovery
transcript
https://econintersect.com/pages/opinion/opinion.php?post=201704082350
The inflection point represented by the advent of low-code could provide UK industry with an opportunity to leapfrog a generation of older technologies to close the manufacturing productivity gap.
The ability to be ‘innovative’ certainly relies on a creative mindset and nothing dulls creativity more than the burden of carrying out dull and repetitive tasks. Designers and engineers freed from monotony spend more time creating and innovating.
It is well recognised that the UK has a productivity problem. According to an often quoted FT report
“The average French worker produces more by the end of Thursday than their UK counterpart can in a full week”.
Much of the gap is due to historical under-investment in the automation of routine & prosaic business and engineering processes compared to other countries. This is where the advent of low-code can help.
Not to be confused with other Industry 4.0 goodies like IOT, AI etc, low-code involves the rapid design and development of business applications with minimal amounts of coding. It relies on complex but reusable chunks of code being ‘commodified’ into so called ‘components’, ‘building blocks’, ‘widgets’ or ‘services’.
These can then be combined in all kinds of different ways to produce comprehensive & reliable business applications that are tailored to the needs of users. Think of it as mass customisation for software applications.
And they can do this far more quickly than would otherwise be possible, with better performance & reliability and without upgradeability concerns.
This means companies can iterate more quickly towards productivity boosting and value creating applications designed to make their operational processes more productive. Kind of a virtuous circle.
If a traditional bespoke business application were to take six to twelve months to develop, you should probably expect a low code approach to cut that down to a month or two and reduce the budget by as much as 90% for the simple reason that you’re not creating code from scratch.
Because low-code development is very agile and iterative, it plays an important role as an ‘agent of change’ and as business transformation tool. It pushes business to understand and capture often opaque process often for the first time. I’ve heard many people say that “nobody actually knew the full process before but low code has created an opportunity to shine a light on it and work out the art of the possible”.
The advent of low-code coincides with an explosion in the use of cloud computing resources. This is a kind of a perfect storm because it means low-code applications can be published to the cloud with 1 click and released to business users without building and commissioning all kinds of complex IT infrastructure.
During a recent conversation, the IT Director of a typical mid-sized UK manufacturing business, told me that, what he really needed was business applications “that work well with the way the business really works with as little code development as possible” so that “…we can do more with less.
He said that although they were on a ‘digital journey’ and there was much left to do (not least because every improvement raised people’s expectations further), low-code had forced him to confront and understand existing processes in a way that had never been done before. This was a good thing.
See Low-Code and UK Manufacturing Productivity
https://www.aessis.com/tech-hub/low-code-uk-manufacturing-productivity