I said in my previous post I wanted to think about about 'rebalancing' the economy. I was struck by a piece by Paul Mason, the Economics editor of Newsnight, which was shown at the end of November. It was a packed programme and there was no discussion afterwards, but I think it was a very significant film in which he went back to his native North West to discuss how we might grow manufacturing. The North West is still apparently the largest area in the UK by value for manufacturing. Fortunately, a good deal of the essence of the programme is captured in his blog.
Go behind the detail, probably at the point about half way down when he says, 'I've spent the week in the north of England...' and you get the essence of the policy changes needed. The reason for my interest in this is that, of course, it's pretty obvious that the West Midlands is an area that has just as much of an interest in making manufacturing work as has the North West. And as I have said before, over the past nearly fifteen years the 'output gap' of the West Midlands compared with the UK average has widened, despite the best efforts of the now defunct Advantage West Midlands regional development agency and all those other people and organisations that worked with them. And as I have also said previously, with less resources the prospects don't look good for our Local Enterprise Partnerships.
The reality is, however, that the kind of long-term structural changes that Paul Mason is talking about are beyond the remit of the LEPs. As the graphs at the end of his article show, we would need to move from a country and society that has based so much of its economy and life on consumption to one that embraces investment and trade in the sense of making and selling things. Some of those 'things' might be intangible like the manufacturing services that Mason uses to illustrate his article, but they would not be ephemeral like so much of the 'output' of the financial services industry, much of which, as again I have said before, is a zero-sum game of moving money around.
Manufacturing has withered in this country to the extent that now it produces only 12% of GDP, and employs only 2 million people, although the proportions are higher in the West Midlands and even in Worcestershire. By comparison, financial services creates nearly as high a proportion of GDP (around 10%) but employs only 1 million people and many of them are in ordinary high street banks and not the City. In the US, Wall Street is one sixth of the size of US manufacturing. And whilst much is made of the taxes financial services have paid that are claimed to have supported welfare spending and things such as tax credits, research has shown that the financial sector paid only £193bn in tax between 2002 and 2008 compared with £378bn paid by manufacturing.
Whilst it would be foolish to reduce the role of financial services too quickly, I am still of the opinion that devices such as a financial transactions (or Robin Hood) tax should be a means of putting sand in the wheels of the mass of socially useless transactions carried out in the City (and hedge funds in Mayfair) as part of reducing the excessive role of the financial sector in our economy and society. Obviously, I wouldn't agree with Mr. Cameron's EU veto, nor with my MP who was toeing the party line in a letter to me on the subject of the transactions tax a couple of months ago.
On the other side, if manufacturing and productive services are to grow there is a need to stimulate demand. Much of the Chancellor's Autumn Statement was about easing supply side restrictions and making more credit available. However, firms won't invest unless they can see a demand for more production and the current melancholy state of much of the market-place provides little encouragement. With options so constrained in stimulating the economy, Mr Osborne is trying hard to free up some of the private money held by pension funds and the like who need a reliable dividend stream by encouraging them to invest in infrastructure. Ultimately, this kind of quasi-Keynesian investment will make the economy more efficient and productive and thus grow demand, but infrastructure takes time and can't simply be turned on.
There are no real quick fixes. As Mason says, it is 'about all the buzzwords politicians like to use - skill, tax-breaks, clusters, apprenticeships, seed-funding', but these are long-term policies, many of which we've supposedly been trying for some time. It is also about our state of mind as a nation that begins to say again that production and creativity are more important than consumption and dealing. On Panorama on 12 December (How to Survive the Downturn) James Dyson was bemoaning the number of science, engineering and similar graduates who could make far more money in the City than in working for him or similar firms. The Church has produced some thinking recently about the nature and meaning of work, such as the recent series of essays in Crucible (January -March 2011). It may be time to take this further than the nature of work at an individual level to look instead at the wider significance of different types of work.
This may connect with the distinction I have alluded to already, and that I heard Professor David Green make at the seminar organised by the Diocese with Worcester University Business School last May and also Andrew Dilnot in his talk at the diocesan clergy conference, between the value of production and consumption within our society. This it seems to me is an area of Christian ethical thinking that merits further attention.
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