Industry (Government Policies)

Part of the debate – in the House of Commons at 8:10 pm on 10th July 1980.

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Photo of Mr Ernie Ross Mr Ernie Ross , Dundee West 8:10 pm, 10th July 1980

In the last few months the speed of Britain's economic and industrial decline has accelerated to a frightening pace. A stream of major companies—from motor components to confectionery and from textiles to toys—has announced redundancies and closures. The existence of whole industries is in question. Previously prosperous regions in Britain have seen their economic and industrial base crumble. With unchanged policies, the 1½ million unemployed have only one prospect—that they will soon be joined by hundreds of thousands more jostling them in the dole queues.

The catastrophic economic policies of the Tory Government have massively increased the difficulties. High interest rates and the high value of the pound—the result of monetarist dogmas of the Prime Minister and her supporters—threaten permanently to weaken British manufacturing industry. At the same time, the immediate economic outlook for the whole of the capitalist world is bleak.

In 1979 the United Kingdom imported more manufactured goods than it exported. British manufacturing industry employed 1,170,000 fewer people than in 1970. Manufacturing output was a mere 6·4 per cent. higher than at the start of the decade. These three statistics show clearly the extent of the decline of British manufacturing industry during the 1970s.

In the past Britain has relied on a surplus of trade in manufactured goods, together with a surplus on invisible trade, to pay for imports of raw materials and food. The surplus on invisible trade has declined in recent years. Although it still remains important, it is unlikely to expand very much. The decline in the surplus in manufactures is at present being offset by North Sea oil production.

The decline in manufacturing industry is severe, but in the engineering industry it is even more severe. Britain's past industrial and economic success has depended to a large extent on engineering. But the figures for the last decade show clearly that, if the performance of the whole of the United Kingdom's manufacturing has been bad, that of engineering has been worse.

The range of statistics available for the engineering industry is narrower than for manufacturing industry as a whole. Looking at output, employment, import penetration and trade performance, it is clear that only in employment has engineering fared better than United Kingdom manufacturing industry or engineering in France and West Germany. The figures for output are perhaps the most striking. Between 1970 and 1971 manufacturing output grew by 6·4 per cent. The output of engineering and allied industries grew by 2·5 per cent. While the rest of the economy was slowly recovering from recession, engineering output declined still further.

The extent of the decline of the United Kingdom's engineering industry becomes immediately apparent when United Kingdom engineering output is compared with that of West Germany and France. This shows a 1 per cent. decline in the United Kingdom's engineering output between 1975 and 1979, compared with a 20 per cent. increase in France and an 18 per cent. increase in West Germany.

When these figures are combined with output figures, the picture of productivity growth which emerges is as follows. In West Germany engineering productivity increased by 19 per cent. between 1975 and 1979. In French engineering the increase was 25 per cent. In overall British manufacturing, productivity grew by 8 per cent., but in British engineering the productivity increase between 1975 and 1979 was only 2 per cent. Unfortunately, comparable investment figures, which might go some way to explain the difference in productivity growth, are not available.

Between 1970 and 1979 imports sharply increased their share of the United Kingdom market for engineering products. Details are not published for the engineering and allied industries sector as a whole, but there are figures for the six main areas making up this sector. These show that, with the single exception of shipbuilding, all areas of United Kingdom engineering have lost a share of the United Kingdom market to imports. In each case, imports rose more rapidly than imports of manufacturing as a whole. The largest rise was in vehicles where the imports share of the United Kingdom market more than trebled between 1970 and 1979. In mechanical engineering, the largest single area, imports increased their market share by 60 per cent. over the period.

The whole of the engineering sector has been hit. One example is the electronic consumer goods sector. The decline of the electronic consumer goods industry—television, radio, tape recorders, and so on—is now so advanced that the British Radio Equipment Manufacturers Association considers that the industry needs important controls in order to survive. That was the point made in the NEDO progress report, published in January 1980. Overall import penetration in the industry rose from 16 per cent. in 1970 to 46 per cent. in 1978. Statistics from the same organisation show that in the colour television market, the industry's most important area, import penetration has risen from 7 per cent. in 1970 to 27 per cent. in 1979.

It is particularly worrying that no United Kingdom manufacturer makes the product with perhaps the greatest growth potential, namely, the video cassette recorder. In 1979, the United Kingdom imported 150,000 video cassette recorders. A study of the United Kingdom electronic consumer goods industry, by the Boston Consulting Group identified three main reasons for Japan's better performance in the manufacture of colour televisions: better design, better quality components and larger scale production.

In its recent report on the microelectronics industry, the NEDO sector working party criticised the Government for reducing support for the development of microelectronics. In July 1978, the previous Labour Government allocated £70 million to encourage production in Britain. The Government have cut that by at least £15 million. In an earlier report, the working party pointed out that the Japanese Government spent £140 million on the development of very large-scale integrated circuits.

Figures for expenditure on research and development in absolute terms and per head of the population show that the United Kingdom has almost slipped to the bottom of the league. There are two other disturbing elements in the United Kingdom's research and development programme. First, in real terms, the amount spent by the United Kingdom on industrial research and development fell by 12 per cent. between 1967 and 1975. In the same period, West German research and development expenditure rose by 44 per cent. French expenditure rose by 17 per cent., and Japanese expenditure rose by 90 per cent.

Secondly, the United Kingdom overall research and development effort has been distorted by defence. In the United Kingdom, 46 Per cent. of expenditure goes on defence. In West Germany the figure is 11 per cent. That represents an obvious misdirection of necessary manpower and funds.

Conservative Members have argued in favour of dropping exchange controls in order to allow firms to invest overseas. Overseas investment by United Kingdom firms is clearly damaging to the British economy. If hon. Members need an example, they should consider the survey that was carried out by Houston and Dunning in 1976. It showed that United Kingdom companies were planning to service their European markets mainly from Continental bases. They pointed out that when coupled with the evidence that Continental firms are servicing United Kingdom markets, more through exports than from production facilities in the United Kingdom, it was somewhat discouraging for the future growth of the United Kingdom's economy.

Multinationals, both British and foreign, take investment and other decisions on the basis of their own interests. Their concern is for the highest profit for the corporation, not the economic welfare of the countries in which they operate. All available evidence indicates that the decisions that have been taken have acted against the United Kingdom's interests and have helped the speedy decline of British manufacturing industry.

Labour Members have argued, and will continue to argue, in favour of import controls. The increase in the number of imports is more a symptom than a cause of the decline in manufacturing industry. There are two ways in which the high level of imports makes a reversal of that decline more difficult. First, import penetration is now so extensive that the domestic market share of British industry in many sectors is too low to sustain recovery.

Let us consider the motor industry. Leaving aside the foreign-owned companies, whose investment and production plans are determined on a world-wide basis, the United Kingdom's industry is represented by British Leyland. In 1979, British Leyland sold only 386,000 vehicles in the United Kingdom. It sold 693,000 world-wide. Volkswagen sold 777,000 in its home market of West Germany, and Renault sold 692,000 in France. That contrast illustrates how difficult it is for British Leyland to generate funds to match the investment of the Western European economies.

We must also consider the effect of imports on the balance of payments. At present, a combination of the revenue from North Sea oil and a low level of economic activity has held Britain's balance of payments deficit to £2,400 million on the current account. Any expansion of the economy without controls would bring such a flood of imports that it would offset the benefits of North Sea oil and cause a balance of payments crisis.

We shall continue to argue for an extension of public sector expenditure. Experience since the war has shown that, in an economy with spare capacity and unemployed resources, the Government have the power to raise the level of national income and employment by increasing public expenditure. That has the effect of injecting spending power into the economy and of stimulating its expansion. Moreover, a substantial part of any increase in public spending is self-financing because the national Exchequer benefits from a rise in revenue from taxation, both direct and indirect. It also benefits from a reduction in the cost of unemployment benefit. The extent to which any increase in public expenditure is self-financing varies according to the type of expenditure.

Historical evidence for the United Kingdom suggests that between a half and two-thirds of an across-the-board increase in public expenditure would be self-financing after a year or so. In recent years, a line of argument has been developed to the effect that an increase in public expenditure, far from benefiting an economy with unemployed resources, would cause it harm. It is claimed that a rise in public expenditure will "crowd out" the same amount of spending in the private sector, or perhaps more. Jobs may be created in the particular public sector which are expanded, but the effect of that expenditure would be to destroy an equal number of jobs, or more, in the private sector.

That explanation of deindustrialisation was popularised by the Oxford economists Bacon and Eltis in an article in The Sunday Times of 10 November 1974, and in their book published in 1976. It has been adopted enthusiastically by Tory Ministers, who argue that public expenditure must be cut in order to make room for the private sector to expand. In November 1979, a White Paper on public expenditure declared: Higher public expenditure cannot any longer be allowed to precede, and thus prevent, growth in the private sector. However, that argument is disproved by the severe cuts in public expenditure which were made in the years 1975 to 1979. If public expenditure on goods and services had been preserved at its 1975–76 level as a share of national output in 1978–79, public expenditure would have been £8 billion higher. It has been estimated that about half the rise in unemployment of 900,000 during that period was caused by cuts in public expenditure.

Between 1975–1976, and 1978–1979 private investment rose by £1,400 million. However, there was a fall of £4,700 million in public investment. Thus the private sector took up only one-third of the room made for it by the cuts in public spending on investment. Excluding investment in the North Sea, which cannot plausibly be said to be linked to the size of the public sector, this proportion falls to one-fifth.

The evidence shows that the doctrine of "crowding out" is contradicted by experience in Britain in recent years. Manufacturing industry has not been deprived of financial or labour resources by the volume of public expenditure. There is only one area in which scarce resources and skilled manpower may be preempted by the public sector to the detriment of private industry. That is in defence. I shall not touch on defence tonight; my hon. Friend the Member for Preston, South (Mr. Thorne) did that quite adequately. What I shall say is that the present Tory Government's policies offer no solution to the problems of deindustrialisation. Their concentration on the illusions of excessive public spending and the abuse of trade union power is driving the economy deeper into recession and so accelerating the progress of deindustrialisation.

Other Opposition Members have put forward the alternatives that they would like to see the present Government adopting if decline in British industry is not to continue. I would certainly argue that the relative decline of Britain's manufacturing industry began in the previous century. Faced with the challenge of other, more dynamic countries, Britain tended to rely on privileged access to the resources of the Empire and on supplying capital and financial services to the world rather than modernising its industry. The deep-rooted belief in free trade and market forces has meant that State intervention, although it has greatly expanded, has not been used effectively to bring about the necessary reconstruction of our manufacturing industry. The long-standing overseas orientation of the City of London, which has been joined by the internationalisation of the major British manufacturing companies, has worked against the maximisation of investment in our domestic industry.

Opposition Members have heard nothing tonight to change the demand that the Government change their course now if we are to have a manufacturing industry in the late 1980s.