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24 July 2018

Jeremy Corbyn’s “cheap labour” comments miss the economic point

Focusing on manufacturing ignores the fact that the vast majority of Brits work in the service industry. 

By Jonathan Portes

“We’ve been told that it’s good, even advanced, for our country to manufacture less and less and to rely instead on cheap labour from abroad to produce imports while we focus on the City of London and the financial sector.”

Was Jeremy Corbyn – as many on social media initially thought – complaining about UK firms’ reliance on migrant workers, and suggesting that as a consequence post-Brexit Britain would benefit from the ending of free movement?

Apparently not. In fact, the final text of the speech spoke only of “cheap labour abroad”, and did not mention migration at all. That is a relief to those of us who worry about the tendency of politicians across the political spectrum to blame immigration – with little or no evidence – without mention of the UK’s largely home-grown problems of low skills, low pay, and low productivity.

But that doesn’t mean the quoted sentence makes much sense. What’s the alternative to relying on “cheap labour” from abroad to produce many of the goods we import, from toys to mobile phone handsets to clothes? Of course, workers in Bangladesh get paid far less than workers in the UK would. But exporting textiles to the UK and other developed countries has helped Bangladesh halve extreme poverty since 2000 – as well as yielding wider social benefits, making girls less likely to marry early and more likely to get an education.

Banning or restricting imports because they were produced with “cheap labour” would have a double impact. First, it would leave poor people in developing countries even poorer because they’d no longer have access to those opportunities, and second, it would make Britons – especially poor ones – poorer by raising prices.

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That doesn’t mean we shouldn’t continue to press Bangladesh and other countries to improve workers’ rights and working conditions. But this wouldn’t mean we would stop relying on “cheap labour” – it would just mean we’d pay slightly more for our imported clothes, and hopefully ensure development was more sustainable. 

In fact, looking at the rest of Corbyn’s speech, it turns out he’s not really complaining about imports produced by “cheap labour” at all. Instead, he’s worried that the UK government is awarding contracts for building trains in Germany and printing our post-Brexit blue passports in France. To state the obvious, neither France nor Germany competes on the basis of their low labour costs. The contracts were awarded abroad because foreign suppliers offered better value for money, or higher quality at a lower price, than UK-based firms could offer. The Labour remedy? “Supporting our manufacturing industries and the skills of workers in this country. We want to make sure the government uses more of its own money to buy here in Britain.”

I don’t want to be too fundamentalist here. There’s sometimes a case for taking a more strategic, long-term approach to public procurement. But it’s simply a fantasy to suggest, as this speech does, that this will make any significant contribution to “reprogramme our economy so that it stops working for the few and begins working for the many”. It’s true that, as Corbyn states, over the last four decades, manufacturing as a proportion of GDP has fallen steadily – it’s now about a tenth of the economy. But – despite pursuing much more statist, “national preference” policies of the sort Corbyn is advocating – the picture for France is virtually identical.

And, more importantly, even a successful strategy for UK manufacturing will not deliver an economy that “works for the many”. Although the share of manufacturing GDP has declined, manufacturing output has been fairly stable. On the other hand, the decline in manufacturing employment has been precipitous. As a matter of arithmetic, that’s because productivity growth has been extremely fast: it takes fewer and fewer workers to produce the same output. Over the medium term, that trend will continue. By contrast, productivity growth in the service sector has been much slower. So would the UK be more prosperous if we can create more high-value, high-productivity manufacturing? Yes – but the impact on job creation will be minimal at best.

So the speech is a strange mixture. Much is the same boilerplate commitment to a “modern industrial strategy” we’ve heard so many times over the past 15 years, from Peter Mandelson, Vince Cable and now Greg Clark – pledges to improve training and skills, to develop a “clean, green, 21st century economy”, to (more or less in Theresa May’s own words), an economy “that works for every city, town and village in the country.” Some, as explained above, harks back to a golden age of British manufacturing that, even if it weren’t largely mythical, simply isn’t coming back. 

What it lacks is any recognition at all that the vast majority of British workers is employed in services of one sort of another, from finance to retail, or the creative industries to the health service. Any meaningful set of policies that would “work for the many” therefore needs to work out how to generate high wage, high productivity and high skill jobs in those sectors where the job growth of the future will come from. So far, there’s little evidence Labour has yet begun to grapple with these issues.

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