Short circuiting: the Government is failing to recognise the importance of the electronics industry

Civitas' Stephen Clarke argues that the days of British manufacturing are unfairly consigned to the past.

Last week, in response to higher than expected borrowing figures, George Osborne launched a "coordinated push for growth" across Whitehall. In this push the Chancellor and the Government would do well to take a broader look at the British economy.

Before the financial crisis a political view that we do not make things in Britain any more had become disturbingly common. The official line was that we, as an advanced nation, had become a "knowledge economy" where we conceived and designed things that less intelligent people (and countries) would make.

This dangerous fallacy has now been exposed and there is an acceptance that Britain does and should produce and manufacture things. The Government has trumpeted success in a few manufacturing sectors; aerospace, the automotive industry and the pharmaceutical sector are all ministerial darlings. However Britain’s prowess goes beyond these.

The British electronics industry does not have a very large media profile yet it employs more people, pays those people more and produces more British profits than the aerospace or automotive sectors. According to official statistics, in 2010 the electronics industry employed over 200,000 people, generated a gross value added (GVA) of £13.8bn and a GVA per worker of £68,000. In contrast the automotive sector employed around 120,000 people in manufacturing and generated a GVA per worker of £45,000. The aerospace sector generated a GVA per employee of £54,000.

GVA is an important measure because it indicates how much value has been created by an industry and strips out the value of goods that an industry has consumed or transformed. GVA embodies the adage: "revenue is vanity. . . margin is sanity. . . cash is king". Profit is generated by the value a firm or an industry creates not the value it simply passes on.

The electronics industry creates a lot of value because it produces complex products for niche markets with relatively high margins. The UK stopped producing consumer electronics en masse over a decade ago and since then the industry has transformed itself. The UK is the 5th largest producer of control & instrumentation electronics, the 9th largest producer of medical electronics and the 8th largest producer of radio communication electronics. In addition, Britain is the leading designer of microchips in Europe.

Given such success one could be forgiven for thinking that it is best for the Government to continue to leave the sector to it. Unfortunately the industry faces some serious challenges, with its ability to respond to them hamstrung thanks to years of governmental neglect.

Electronics is an immensely competitive industry. Along with the technology leaders, Japan and America, countries previously specialising in low value, high volume goods, such as China, are increasingly entering the high-value markets in which the UK currently operates. As a result the British industry’s future is unclear; leading industry analysts Reed Electronics Research predict growth of only 5 per cent in the next three years.

The Government cannot afford to sit idly by and let another important British manufacturing sector slide into mediocrity. More needs to be done to stimulate Britain’s venture capital market and the current myriad of public venture capital funds should be replaced with a handful of larger public-private investment funds. More British youngsters need to be encouraged to study Electronic and Electrical Engineering and should be able to afford to do so. Most importantly the Government needs to be ready to support manufacturing: Britain may have world-class electronics designers but without greater investment in manufacturing design jobs will continue to relocate to be near production.

Britain’s politicians were almost alone in swallowing the "knowledge economy" myth. Other countries were far less blasé about the loss of productive capacity. In 2004 the President’s Council of Advisors on Science and Technology advised President George Bush on the future of the American electronics industry. They told him that "design, product development and process evolution all benefit from proximity to manufacturing". Clearly he and other American politicians were listening; the US Government has continued to support advanced microchip production, recently investing $1.4bn in a new microchip plant near New York.

Osborne and his colleagues can learn from this. Specifically: electronics form the basis of a successful industrial economy and should be supported. More generally: the idea of the "knowledge economy" has been partially jettisoned, what is now needed is a broader understanding of what makes a "productive economy".

Selling Circuits Short: Improving the prospects of the British electronics industry by Stephen L. Clarke and Georgia Plank was released yesterday by Civitas. It is available on PDF and Amazon Kindle.

A Sony PSP, the wireless chip for which comes from ARM in Cambridge. Photograph: Getty Images

Selling Circuits Short: Improving the prospects of the British electronics industry by Stephen L. Clarke and Georgia Plank was released yesterday by Civitas. It is available on PDF and Amazon Kindle

Nicola Sturgeon and Tony Blair. Photo: Getty
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Nicola Sturgeon's SNP, like Tony Blair's New Labour, is heading for a crash landing

The fall of Tony Blair should be a set text for anyone wishing to know what happens next to the SNP.

If there was one thing the SNP and New Labour had in common, it was the hope. Both offered themselves as a burning torch of optimism to publics that had become tired of the same old gang running things in the same old way. Both promised a fairer, more equal society and a fearless embrace of the modern world with an appealing freshness and energy. The voters bought it: both won big, repeatedly.

The thing is, if you’re elected on a mandate to be different, you’d better be different. In many areas, for a long time, New Labour managed to be just that. The smiling PM with the huge majority pushed through radical policies, some of which even worked. Tony Blair’s methodology was so successful and so convincing that the Conservatives and the Lib Dems reshaped themselves in his likeness. Arguably, a form of New Labour won in 2010 and 2015.

But, as they say, it’s the hope that kills you. When the inevitable attritional realities of governing start to weigh, when you make, as you will, bad decisions, when the list of enemies grows long, when you’ve just had your time, you’ll fall like all the rest – only, when you’ve soared so close to the sun, you have that much further to plummet.

The fall of Blair and of Labour should be a set text for anyone wishing to know what happens next to the SNP. Sunday night’s debate between the Scottish party leaders was, I think, a foretaste of what’s coming – a public that until recently was politically and emotionally invested in the Nats is growing restive. In time, this will turn to disenchantment, then anger, then revenge at the ballot box. This is the unbreakable cycle of democratic politics.

Some of us have warned since the start that the SNP had over-promised and could only under-deliver. Its raison d’etre is independence; everything else - literally everything else - is just another brick to build the path. And so education reform cannot be either radical or unpopular, even if it needs to be so to work, because the SNP cannot afford to alienate teachers or the teaching unions or parents. Bricks, you see. Same with the NHS and doctors and health unions and patients. All the separatists have done – all they could have done, given their nature - is deploy the rhetoric of the radical while in reality body-swerving hard choices and conflict at any cost. And where they have found themselves taking flak, they’ve pointed south to Westminster: "it’s no’ our fault, it’s theirs".

But voters show signs of wearying of the predictable blame game and waking up to the time-limited strategy of show-over-substance. Middle Scotland is either ignored or maligned by the middle-class socialists who drive the nation’s political debate, but it is where elections are won. The SNP has secured the support of enough of these people to win every recent election in style, but somewhere along the way the party seems to have forgotten this was a mandate not for independence, but for good government. Ten years in to SNP rule, each new audit of public services seems to wail like a warning siren – things aren’t just not improving, they’re getting worse. The SNP is not keeping its part of the deal.

So, during Sunday night’s debate it was Nicola Sturgeon, not Ruth Davidson or Kezia Dugdale, who found herself in the audience’s cross-hairs. It will have been a strange experience for a woman more used to public adulation and a clamour for selfies. There were the teachers, who complained about the damp squib that is the Curriculum for Excellence, the SNP’s flagship education policy; who pointed out that a fifth of primary pupils are leaving without basic literacy and numeracy skills; and who warned that lowering the standard of exams in order to push up the pass rate was not a mark of success.

Then there was the nurse who said she had been forced to use a food bank (the existence of which has been used repeatedly by the SNP as a stick with which to beat the Conservatives and Westminster): ‘I can’t manage on the salary I have [which is set by the Scottish Government]. You have no idea how demoralising it is to work in the NHS. Don’t come on your announced visits, come in in the middle of any day to any ward, any A&E department and see what we’re up against.’ She delivered the evening’s killer line: ‘Do you think your perceived obsession with independence might actually cost you… in this election?’

The list of reasonable criticisms is growing and will grow further. The ideological obsession with free university tuition for Scottish students is increasingly seen as a sop to the better-off, while in England the fee-charging regime has seen the number of students coming from poorer families climb. Ms Sturgeon’s demand for a quick second independence referendum, when a worried middle Scotland was focused on what Brexit might mean for its future, was tone deaf.

The SNP has another problem (one that New Labour, for all its flaws, didn’t face): its doctrine of infallibility. The Nats’ constitution explicitly prohibits its elected members from criticising the party, its policies or each other. While total unity is useful when you’re on the climb, it starts to look bonkers when the cracks are showing. Allowing public self-criticism, far from being a sign of weakness, is a necessary vent for inner tensions and a sign to voters that a political party is something more than a cult.

That ‘cult’ word has long dogged the SNP and its supporters. The party has tried hard to normalise its electoral appeal while keeping the flame of independence burning bright, but it has been a difficult balancing act. The pro-independence mob is an ugly thing when it is unleashed (and it has suited the leadership to open the cage at times). Claire Austin, the nurse who criticised the First Minister on Sunday, has found herself at its mercy. Immediately after the debate, the Nats briefed (wrongly) that she was the wife of a Tory councilor. The SNP branch in Stirling said Tebbitishly that if she was having to use food banks "maybe she needs to tighten her belt a bit more?" Joanna Cherry, a QC, MP and the SNP’s Home Affairs spokesperson, was forced to publicly apologise for spreading "Twitter rumours" about Ms Austin.

The ravening horde has largely kept its head down since the 2014 independence referendum, but we now see it hasn’t gone away - it is not enough for the SNP’s critics to be debated, they must be destroyed. This isn’t the behaviour of a normal political party: it’s the behaviour of a cult.

I might be wrong, but I have a feeling that when the SNP does fall it will fall quite quickly. Its belief in its infallibility, its inability or unwillingness to do self-deprecation or apology, will increasingly aggravate voters. There is nothing to suggest the current public policy failings will be addressed, and plenty of signs that things will get worse. How, then, do you arrest your fall?

The SNP offered hope and promised it was different, and the voters believed. The sense of betrayal could make for a very hard landing indeed.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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