Can UK manufacturing thrive after BREXIT?
24th June 2016
Manufacturing matters and Brexit can help. Although a service sector economy, UK manufacturing is vital in achieving balanced and regional growth and reducing the large trade deficit.
Strong global influences are challenging manufacturing, not least low-cost producers led by China. These will continue, whatever the referendum outcome. But Brexit provides greater flexibility to cope and position for the future.
There is a reason why our internationally competitive manufacturing companies such as JCB and Dyson support Brexit. To survive and compete the UK has to expose itself to international competition and needs to focus on selling into the fast growing markets of the future.
The alternative of remaining protected behind the tariff wall and regulations of the EU makes companies flabby and less competitive in global markets. Yes, there are many big firms who want to remain in the EU. Not only do those big firms have the ability to lobby Brussels but they all too often focus on the short term and their next quarter's results.
For once we need to think long term and about what positions us best for future investment, jobs and growth.
Brexit would probably lead to a weaker pound and lower rates. In a low inflation global environment this would be good for manufacturing. But it is much more than this.
It is not always appreciated the extent to which the UK has moved into higher end manufacturing, dependent on high value added, not low wages. This makes sense and needs to continue. We can compete either on price or on quality, and while we need to be competitive we must avoid a race to the bottom. It is no good for productivity or wages. EU membership has not helped us address our productivity challenge. High-quality production is the focus, but it requires us to compete internationally and we can only do that properly outside the EU.
People often say: "But look at look at Germany." Apart from the obvious need for us to invest more like them, the reality is the euro has crippled industry elsewhere in the EU, while the EU expansion to the east has allowed Germany to hollow-out the expensive parts of their supply chains.
If we stay in the EU our hands are tied. Take steel. Despite the media stories at the time about dumping and tariffs, the key issue was that this hi-tech sector with modern working practices could not be supported or protected when needed. Take energy policy. All too often firms here complain about the cost of EU energy policy and how it puts us at a disadvantage. We kid ourselves we are environmentally friendly and end up exporting the pollution, and no doubt some jobs, to Asia.
Leaving the EU will allow a sensible energy policy, a key input cost for firms. Likewise, many EU regulations are seen as a big problem by many small- and medium-sized firms. Brexit also allows the flexibility to reverse poor regulations, unlike the EU, where once in place they are impossible to remove. Naturally, many regulations will stay and, sensibly, workers rights are enshrined in UK law.
In the future we can craft policy to suit domestic needs, not least the possibility of an industrial policy if we wanted it.
We could directly help sectors. The US, never accused of not being free market, directly targets help to strategic sectors, like autos. So too could we if we wished. EU state aid rules prevent the ability to selectively help areas or sectors. Add in the need to abide by EU regional development criteria, and our hands are tied on regional policy too.
The country needs to innovate, invest and spend on infrastructure. The latter has been a failure of policy, nothing to do with the EU. Yet if we were to leave we have greater flexibility on infrastructure and could decide to award more contracts to UK firms, if we so chose.
But what about trade? Within the EU it is not always appreciated how poor the EU is at conducting trade deals, and when they do the UK's demands are just one of 28 countries. It is perhaps just as well that a trade deal is not necessary to trade. This is often overlooked. Thirty-six non-EU countries have seen faster export growth than us into the single market. This highlights once again that you do not need to be in the single market to sell into it. And as the strength of our auto sector shows, many of the big future opportunities are global.
Source: The Guardian
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