‘Manu-services’ sector deserves government support

A new report from The Work Foundation today (18 February) makes the case that if the government is serious about helping ‘the real economy’, loan guarantees and emergency funding ought to be extended to the manufacturing sector. With the UK’s strength in financial services in question, those high and medium tech manufacturing businesses which have also developed strong service portfolios on top of their traditional product offerings – the ‘manu-service’ sector – represent one of ‘the best hopes’ for the upturn, the paper argues. Ian Brinkley (pictured), associate director at The Work Foundation, said: “The question needs asking – what are we going to live on in the future? Modern manufacturing is once again facing a battering from the recession, but it would be a big mistake just to write the sector off. We need to preserve as much of the industrial base as possible because once it is lost it is near impossible to get back again. Despite the mythmaking around the demise of manufacturing, the sector remains extremely important for jobs, exports and GDP.” The report, Manufacturing and the Knowledge Economy, describes the transformation of manufacturing over recent years. The old way of separating manufacturing and services does not now reflect the inter-connected, interdependent nature of modern manufacturing, it says. Companies such as Rolls-Royce make as much, if not more, money from service contracts, sales of licences and hours of flight time on their engines as from the engines themselves. Car makers run finance houses; and pharmaceutical companies offer healthcare services as well as drugs. Such manu-service industries are typically adaptable, highly profitable and very knowledge intensive. In the UK the share of manufacturing in total value added declined from 35 per cent to below 15 per cent between 1970 and 2005, whereas the share of ‘knowledge services’ (highly skilled, ICT-intensive service work) rose from 23 per cent to 46 per cent over the same time. However, a key driver behind the growth of knowledge services is manufacturers adding services to their primary manufacturing function. Frequently, products have become relatively cheaper as services have become more expensive. High to medium tech manufacturing is producing nearly as much added value to the UK economy (10 per cent) as high tech services (11 per cent). And with the pound so low against other major currencies exporting opportunities have never been so competitive. This is welcome news, since 70 per cent of all manufacturing exports came from high to medium tech ‘knowledge economy’ manufacturing sectors. The report concludes by recommending that the Government build on the recent government strategy review of manufacturing by: · Backing manufacturing and ensuring it has access to the necessary finance to continue to evolve and grow. The same criteria used to support the financial service sector through the recession – ‘timely, targeted and temporary’ - should be extended to manufacturing. · Continue to focus on, and do not cut, support for research and development, the utilisation of the science and technology base, and the development of future high-level skills. · Implement a short-time working scheme to help manufacturers avoid making redundancies. · Drive a more regional pattern of growth in modern manufacturing by encouraging Regional Development Agencies to build manufacturing into their strategies. Knowledge intensive private sector business is too concentrated in London and the South East.