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LORD SAINSBURY: We cannot continue in this race to the bottom

LORD SAINSBURY: We cannot continue in this race to the bottom, forever cutting the wages of the workforce in a desperate attempt to compete with developing countries

There are many who dismiss Boris Johnson’s vision of a high-productivity, high-wage Britain as something of a gimmick. Yet more boosterism to tide him over a difficult political period.

Yet I believe his conference speech was important and really could herald a new era of economic policy-making.

In the past, the British government has too often seen its job as holding down wages so that poor-quality goods and services can be sold cheaply in world markets.

This has never been a successful strategy.

And today when many developing countries have learnt to produce the same quality of products – but can sell them more cheaply – it is nothing short of disastrous.

Britain must start to see itself in a ‘race to the top’, supplying world markets with attractive, innovative goods.

Britain must start to see itself in a ‘race to the top’, supplying world markets with attractive, innovative goods. Pictured: Boris Johnson giving his annual Tory party conference speech

We cannot continue in this race to the bottom, forever cutting the wages of the workforce in a desperate attempt to compete with developing countries.

While I applaud Boris’s sentiments, this is easier said than done, however. The reality is that we can only break away from our low-growth economy if both government and industry raise their game.

Nothing will be gained if politicians and commerce continue to blame each other for our parlous situation.

First, British industry must become more innovative.

We need companies like Apple and products such as the iPhone which sell at premium prices around the globe.

This will only happen if firms recruit high-skilled engineers and scientists and are prepared to invest in them.

And if they bring a stream of new goods and services to the market – even if this might, in some cases, mean edging out their current products.

It will only happen, in other words, if British companies put innovation and creative product design at the very heart of their business.

Government, too, must play its part. And it can start by learning lessons from abroad.

We should understand that we live in a new, highly competitive world where rival countries pour huge energy into successfully supporting development and innovation in their own industries.

China is an obvious example.

Its ‘Made in China 2025’ plan states that China will promote breakthroughs in ten key sectors: information technology; robotics; aerospace equipment; ocean engineering equipment and high-tech ships; railway equipment, energy saving and new energy vehicles; power equipment; new materials; medicines and medical devices, and agricultural devices.

It is essential that we drop the damaging notion that manufacturing no longer matters to Britain and that we can rely on the growth of financial services instead (stock image)

It’s a list worth noting.

Yet what has Britain been doing recently? As ever, we have been debating whether not we should even have an industrial strategy in the first place.

It is essential that we drop the damaging notion that manufacturing no longer matters to Britain and that we can rely on the growth of financial services instead.

Remember, British research, design and engineering continue to produce high levels of productivity and wealth. Just look at our vaccines or the continuing success of our aerospace industry.

It is a sad fact that our decision to replace the business of making things with low-productivity services – think call centres or Deliveroo – is the main reason we’ve had such a slow rate of growth in recent years.

Almost every other country understands that manufacturing is essential.

One of the reasons that Singapore is the wealthiest country in the world – if we leave out tax havens – is that, while it has roughly 25 per cent of its economy in high productivity financial services, it has deliberately ensured that another 20 per cent of its economy remains in high-class manufacturing.

This is in contrast to the UK and the USA, where only around 10 per cent lies in this crucial sector.

Secondly, the Government needs to make good on its professed support for science and innovation.

The recent Government White Paper on Innovation said many of the right things but science and industry will be watching this autumn’s Spending Review closely. Is the Government serious about reaching 2.4 per cent of GDP on research and development, a modest target?

Thirdly, the Government needs to continue its overhaul of the country’s technical education system. 

In view of the skills crisis the country faces, we must speed up the introduction of the new T-Levels, a new national system of technical qualifications understood by both students and business, and promote them, instead of behaving as if we had all the time in the world to train the technicians and technologists which our industry so desperately needs.

Finally, the Prime Minister is right to say that levelling up the poorer regions of the country must be a key part of the Government’s strategy. But we should be clear that regional inequalities are a long-standing problem which will not be easy to solve.

We have had 90 years of policies attempting to boost growth in the regions, but the gap in performance has widened over this period.

The historical context is important.

For a number of reasons, but mainly because of the presence of coal, the Industrial Revolution in the UK took place mainly in the north.

And the cities that gave birth to the Industrial Revolution, such as Sheffield, Manchester and Stoke-on-Trent, have come under intense competitive pressure from the developing countries of the world in recent years.

Prime Minister (pictured) appears to believe that by simply encouraging industry to pay higher wages he will create a high-productivity economy. Sadly this is not the way the world works

If we only take the years from 2008 to 2015, the North East lost 24,000 manufacturing jobs, the North-West lost 93,000 manufacturing jobs, and Yorkshire and Humberside lost 44,000 manufacturing jobs.

And where these jobs have been replaced, it is only with low-paid jobs with poor prospects in call centres and distribution sheds.

It is important to understand this dismal story because if we are going to level up these areas it is not going to be through cosmetic changes to our high streets or by training young people for jobs that don’t exist in their areas.

We need the high-productivity, high-wage businesses of today.

We should also understand that such a revival of our Northern cities cannot be orchestrated by civil servants or politicians sitting in Whitehall. 

In the UK the only people who are in a position to do it are the regional Mayors. We need to give them additional powers over planning and further education, allowing them to carry out this vitally important task.

For mainly historical reasons, the R&D spending of the Government is heavily concentrated on centres of excellence in the south of the country.

But a proportion of it needs to be targeted at less wealthy areas.

The Prime Minister appears to believe that by simply encouraging industry to pay higher wages he will create a high-productivity, high-wage economy. Sadly this is not the way the world works.

If that worked, we would soon be a fabulously wealthy country and Germany would be nowhere.

Better productivity must come first, and only then can we start paying higher wages.

Today, we live in a highly competitive world economy – and Britain is taking a beating.

Matching our competitors will not be easy, but it is the only option.

Windows of Opportunity – how nations create wealth by David Sainsbury is published by Allen and Unwin

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