The curious case of complex manufacturing
07 February 2012
British manufacturing is in a very delicate place at the moment. The last three months of 2011 saw a contraction in the sector, dashing hopes that manufacturing would lead the UK out of recession. Part of this gloom is a direct product of the Eurozone crisis, because manufacturing depends on exports, and Europe is our biggest trading partner. But there have been some other worrying developments that suggest our manufacturers are losing out to foreign competitors because their governments are more prepared to back their manufacturing industries, by means fair or foul. The Indian government’s provisional decision to award a fighter jet contract to Dassault, a French firm, over a technically superior bid from a consortium that included the UK’s BAE Systems, is just the latest example of how UK companies appear to be missing out in politicised contests. I’ve written about this in EGov Monitor.
There is a growing feeling that Britain might need to back certain bits of its manufacturing industry more openly in response to these developments, although this is a risky business. Most economists are deeply sceptical about so-called industrial policy, and with good reason. It is very rarely a good idea for government to give direct support to particular firms or industries, or to engage in anything that might disrupt free trade. But we may need to make an exception to this rule for certain parts of our complex manufacturing industry – particularly aerospace and defence. These complex industries, in which the UK only has a handful of major companies, whose supply chains are long and vast, don’t follow the normal rules of economics. They are delicately balanced, and once they disappear they are almost impossible to get back. For this reason, there may be an argument for treating our complex manufacturing as a special case, and becoming more pragmatic and less naïve about how we support it.
You can read a full version of my argument at http://www.egovmonitor.com/node/46310