Thursday, October 16, 2008

"And what will happen to us?"

One of the reasons comments returned is that I missed the knowledge and inspiration of the commenters, from whom I have learned - and continue to learn - so much. Thank you.

I wrote in my post on Rubery Owen about :

"the infrastructure which is so essential to any hi-tech industry - the network of small, specialist-skill providers which grows organically round the major firms. I'd imagine that in China and Korea there are a host of such small firms servicing the computer industry - the motherboard and memory manufacturers etc. It's impossible to build those sort of skillsets quickly. Take a look at the list of engineering contractors and weep for a lost past - and a bleak future"
and lo - commenter jrackell pointed me to James Dyson's Dimbleby Lecture, containing the following :

"the biggest lesson came four years ago when I located our assembly in Malaysia. Much as I was resisting the change, there were very clear reasons why we had to change direction.

We needed to invest heavily in research and development. But our manufacturing costs were going up and our market place prices were going down. And we were trying to expand our factory in the face of local planning opposition.

Meanwhile all our competitors were manufacturing in China, while we were watching our profits go into freefall. I could see our demise.

But the biggest problem was that we had no local suppliers. Our British three-pin plugs were made in Malaysia. Our polycarbonate plastics came from Korea. Our electronics came from Taiwan. It was a logistical nightmare. We needed our suppliers on our doorstep so that we could drive them to improve their quality and keep pace with technology.

In the 1970s, when I was developing the Ballbarrow, I needed some bent metal tubing. I got in my car and went to Birmingham. In the space of a few streets, I found workshops and suppliers who between them could provide the tubing, cut it, bend it and coat it. It was an extraordinarily vital environment. And it was absolutely essential to the small engineering entrepreneur.

You might ask what happened to these British suppliers and subcontractors? Quite simply: we drove them out of existence. Employment and property laws made it difficult for them to take on extra staff and premises. They needed a tax regime that appreciated the volatile nature of their business. Instead, Governments imposed PAYE and hammered them with high interest rates, year after year. By the mid-1980s, most had gone to the wall."
I rest my case. But there's a lot more in the Dyson lecture.

I'm frequently told that championing manufacturing is yesterday's game. That we live in a post-industrial society. That the service and creative industries have replaced manufacturing.

Well consider this:

Of the world's ten largest corporations by revenue, nine make big, heavy things. Like cars or ships' turbines or computer hardware or consumer electronics. These companies rely on their engineering and their technology – not their styling – for their wealth. Only one – WalMart – is a service company. Look at the most profitable companies and again the facts speak for themselves. In the top ten, only three are service companies. And as for the world's least profitable company? Why it's Vodafone, a service company that made a loss of more than 15 billion dollars last year.

So why does Britain need a manufacturing industry in this supposed age of the service economy?

My answer is simple. We have no choice. Only one in seven British jobs is in manufacturing, yet they generate nearly two-thirds of exports. Manufacturing creates the wealth and spending power that feed the service industry. It's obvious. The rest of the world relies on manufacturing for its wealth. Why do we think we can be different? If we want to maintain our position alongside other leading nations, we've got to join the rest.

We must take steps now. In ten years time China, with its mantra of employment over profit, will not only be the workshop of the world, it will be the technological superpower.

And what will happen to us?

Laban :

"I suppose the theory is that a combination of lethargy and convenience (between time zones) will keep the dosh rolling into the City, even when world manufacturing is centred in Asia.

Just the way that Florence and Antwerp remained the capitals of world banking despite the rise of Britain, the USA and Germany, eh ?

It may take time, but inevitably the services will follow the manufacturing."

Dyson again :

Britain's service industries will wither without their manufacturing customers. Call centres and software developers are already disappearing to efficient service economies. Such as India.

Innovation will be stifled. We will be surrounded by products that we have not made. That's something that is already culturally destructive. Ultimately we will be at the mercy of the buying habits of Chinese shoppers. The impact on the trade deficit will be ruinous.

The loss of manufacturing expertise will compromise our military strength. History repeatedly shows the correlation between a nation's wealth and its diplomatic and military powers. Before the Industrial Revolution, Britain accounted for just one fiftieth of the world's manufacturing output, while China spoke for a third.

Fewer than a hundred years later, China had been invaded by a small British army. Its industry was now backward. Britain, with two per cent of the world's population, was making nearly half the world's goods. And politically we led the world.
Now Laban doesn't want to invade anywhere or dictate to anyone. But it's sensible not to put ourselves in the situation where others can do that to us. At least the current invasion is self-inflicted.

Dyson :

In 1950, we produced a quarter of the world's exports; in 1970, just one tenth. By the mid 1980s our international goods trade was in deficit. Fast forward to today.

We rely on our service industries to prop up our alarming trade deficit. And this sorry situation, is often presented as the conclusive argument, that we have tipped from a manufacturing economy to a service economy.

Time and time again, I'm told Britain can rely on service industries. "It doesn’t matter if we buy all our low-cost goods from abroad," I hear. "We can rely on our service industry to finance it."
For which see my post quoted above. Services will in the end follow the money.

Look at those trade figures. The cultural collapse and the economic collapse ran in tandem. Contrast with Japan or Germany- a lot of flattened buildings in 1945, hi-tech export giants within 30 years.

Dyson :

Since 1997, we have closed 18 physics departments and 28 chemistry departments.
As a result, we now produce only 3,000 physics graduates a year. Compare that to an astonishing 15,000 psychologists !
Makes sense of a sort. We're living in a fool's paradise where mental illness is one of the few growth industries. I bet counselling of all sorts is growing too - drug, alcohol, smoking, eating, "sexual health". But where will the money come from? Can our 3,000 physicists create enough wealth to feed 15,000 trick-cyclists ?

I think not. One of the effects of the global financial crisis IMHO will be a move away from the dollar and sterling, the weakening of US and UK financial institutions, and the start of the decline of London and Wall Street. At some point we may HAVE to start making things again if we want to eat.

(Thanks also to jrackell for this Dyson MIT lecture (video) - fascinating stuff, and to Mark Holland for links to this archive cinema of the Black Country)


Thud said...

Well put,concise and frightening.

Anonymous said...

yeah well put, but how are we going to start producing stuff again?
We have little left of raw materials, and much of the farmland especially in the South-East has been concreted over, if we hit really hard times we would not be able to feed ourselves.

My dad this year was able to produce 5 ton per acre of wheat, sounds good when 10 years ago we only hoped for 3-4, and before that 2-3. But without the expensive fertilizers and chemicals we could probably only hope for 1-2 tons, 2.5 at very best. Thats when the economic meltdown would really be felt!

Martin said...


The performance of R & D functions always follows the physical location of manufacturing - this is a point the Reagan Administraton economist Paul Craifg Roberts has made on time and time again.

What is galling about Dyson's lecture is the fact he felt forced into offshoring his industry. Just like the USA, we have hollowed out our economy for no reason other than to reap the promised rewards of the false religion called economics. For it is a religion.

Anonymous said...

There's a mix of sense and silliness.

Given the rise of far Eastern economies, even if British exports had remain static they would have declined as a portion of world trade.

So the statement In 1950, we produced a quarter of the world's exports; in 1970, just one tenth. tells us little.

After the 1870s British manufacturing continued to grow but it was no longer the leader in innovation. We relied on a legacy of quality to maintain demand to some extent and also the fact of empire to restrict the ability of others to compete. It seems logical to suppose that if British goods had suffered fair competition earlier the complacency and inertia that typified our industry might not have been such a problem. Having an empire enabled us to continue riveting through and after WWII, when even the Russians were welding.

Instead, Governments imposed PAYE and hammered them with high interest rates, year after year. By the mid-1980s, most had gone to the wall."

I get the interest rates but PAYE needs far more explanation to be useful. It comes across initially as a complaint about paying tax. The real problem is the burden of bureaucracy that is imposed. A large company can afford to pay admin staff to fulfil regulatory requirements - it is a small part of the total cost base. But for an organisation employing say 10 people, the owner finds it hard to do such things. He probably isn't skilled in that task and it takes up a disproportionate part of his time.

This time is effectively a tax imposed by the state on small businesses and as the saying goes: if you want more of something then subsidise it, if you want less then tax it.

Big companies love bureaucracy. They know that it tilts the playing fields in their favour.

A little economics is a good thing.

Anonymous said...

Japan still has a collapsing demographic.

Anonymous said...

Most of us would like to see a revival of manufacturing,it's really only common sense,but I wonder where any new manufacturers are going to find staff.

As noted, this is now a country that produces 3 times as many psychologists as physicists.

It is also a country where not many young people,in my experience, have any desire for work that involves getting their hands dirty.

Anonymous said...

that should of course be 5 times as many psychologists as physicists.

Anonymous said...

An illuminating lecture. Dyson has been unfavourably vilified for decamping to Malaysia, in search of cheap labour.

Wider questions have to be asked as to why this country wants 50% of the younger population to go into higher education. The majority of the courses on offer are useless, such as the degree in Surf "Science" and "Technology" at Plymouth Univesity. Likewise, International Development courses add nothing to the economy of this country, but they're extremely popular. They merely perpetuate the over-blown aid industry, which specializes in "assisting" picanninies with watermelon smiles (Boris Johnson was spot on with his piece on the attitude of well-meaning liberals to cultures of the developing world).

Something else, the hard sciences are badly taught at secondary level. A few days ago, Michael Gove said that there were no science specialists teaching the subject in any of the comprehensive schools in London. This is probably reflected to a greater or lesser extent throughout England and Wales (the Scots for their many sins have an excellent education system). There is an inevitable 'dumbing down' at university level because of this.

At the end of my lifetime I expect to see the Brits shining the shoes of the Chinese and Indians. The offering of menial services will become our stock-in-trade. Quite a frightening thought.

Anonymous said...

yeah well put, but how are we going to start producing stuff again?
We have little left of raw materials, and much of the farmland especially in the South-East has been concreted over, if we hit really hard times we would not be able to feed ourselves.

Places like Hong Kong and Singapore have never had too much trouble, it just needs the right attitude and government understanding - both of which are pretty much dissapearing in this country now. (and in Europe, especially the REACH directives)

And we can't feed ourselves now anyway, and couldn't even if DEFRA wasn't screwing up the farming industry so badly.

Anonymous said...


Your Dyson quote continues:

Moving Dyson production abroad was a tough decision. Most especially because I had to make 550 people redundant.

However, it meant we could cut our costs, and expand our production. We could invest in R&D and employ more staff.

The upshot is that we now have more people at Malmesbury than ever. All of them are in higher-skilled, better-paid jobs. Most are scientists and engineers.

So not so bad at all, really.

Anonymous said...

Thanks to Laban and J Racknell for the links to the Dyson lecture. It's very satisfying to see an entrepreneurial engineer like Dyson confirm from direct experience the validity of the 'Schwerpunkt' concept (Correlli Barnett) and praise 'Hard Industries' (Eamonn Fingleton).
That's 'satisfying' in the purely cerebral sense; the practical implications for us all as citizens of a seemingly sinking ship are horrendous.

Anonymous said...

Hugh Oxford - Japan still has a collapsing demographic.

Doesnt matter too much if the Japanese are not being replaced in their own territory by immigration - which they arent.

Yaffle quoting JD - The upshot is that we now have more people at Malmesbury than ever. All of them are in higher-skilled, better-paid jobs. Most are scientists and engineers.

So not so bad at all, really.

Sorry very bad in fact!

That means work for the above average IQ folks, lets say 1/3 of the population, not to mention well educated. Where does that leave the other 2/3 exactly?

Even that wouldnt be so bad but we are importing people from the 3rd world with lower average IQs. And thats a good idea because...

Japan btw has a high IQ well educated population, they have gone into automation, labour saving technology.

Laban said...

A collapsing demographic for the UK wouldn't necessarily be a bad thing, as the Optimum Population Trust keep pointing out. England would feel a lot more spacious with a few million fewer people - say back to 1960 or 1970 levels.

What we've got is a collapsing demographic for the natives, aided by those 6 million abortions since 1967, and a spiralling demographic for the incomers.

Anonymous said...

National government, never liking to be outdone by local, has effectively halted the setting up of Dyson's proposed School Of Design Innovation in Bath.

Can we have an election yet?

Anonymous said...

Hi Laban,
With regard to the same phenomenon happening to the US...

I seem to recall reading recently that despite the change to the "knowledge economy", US manufacturing output is at 70% of its all-time peak. I would suggest that the situation is more recoverable there than here.

Anonymous said...

People don't study science because there are no jobs in it, in the UK.
I am a chemistry Phd and I would advise people not to do - study computer science or law.

I am glad that my wife is an immigrant and we are going to her country in a few years time. I reckon by the time we retire (in 30 years) her country (Colombia) could be better off than ours - seem crazy. Think about South Korea !

Anonymous said...

"Japan still has a collapsing demographic."

Which gives a country two real options:

1. Import millions of immigrants to replace the locals.

2. Create new technologies that significantly increase the productivity of the smaller population.

Britain has chosen option 1. Japan has chosen option 2.

Which do you think is a smarter policy?

The idea that you need an ever-growing population is a left-over from an industrial past where humans were required to run the machines, whereas today machines can increasingly run themselves most of the time. It's doubly absurd in a country like Britain where manufacturing has almost disappeared.