Manufacturing key to economic fortunes

Published on Monday 13 February 2012 00:00

Recent reports on the allocation of public sector contracts to Scottish companies do suggest that the Scottish Government could be doing better. What it does highlight, moreover, is something more fundamental: the lack of a significant manufacturing base in Scotland.

Our economy relies hugely on the service sector and you might say “what’s wrong with that?” Well, a lot actually.

Generally, the service sector is inflationary (ie productivity gains over time will be small or zero in aggregate), work is often unskilled and low paid and you can’t export it. As a result, we have an economy dominated by supermarkets, banking, the legal profession and accounting etc. The economy has grown well in the recent past, but you can’t really make more money from banking unless you take on unacceptable levels of risk.

Supermarkets have become more prominent, but much of their activity has really been about competition for market share and a transfer of economic activity from the high street. Some services can be exported (design, consultancy) but these employ a handful of people.

Our economy is unlikely to grow faster than the general rise in prices (inflation) unless we take some radical steps to improve the mix.

So, what else could we do? I can think of a few: kickstart our shipbuilding industry; re-open our coal mines; develop a steel industry; build North Sea rigs here rather than ship them in from Norway; set up an appliance manufacturing centre in the Borders; build the railway line from Galashiels to Leith and ship the appliances overseas.

This can be achieved through tax breaks, discounted sector specific credit availability (common in the Far East) and other incentives.

The Scottish Government’s support for the renewables industry should be applauded, not derided as it often is. Nuclear power may be technically more superior currently, but there remains a resistance globally to its proliferation and unanswered questions about its true cost. There is a real opportunity for us to be at the forefront of an industry that develops and builds renewable technology. A thriving renewable industry could employ lots of people and, importantly, we could export it. The Scottish Government should support it more, in my view.

Will it be successful? It might not be, but if I told you we were setting up a state-supported steel industry run by a former army general with no business experience you might think I was bonkers, but that’s what South Korea did and it’s now the third-biggest steel manufacturer in the world. Governments can often make the right decisions about where resources are allocated for the greater good. They won’t get it exactly right every time but neither does the free market and one could argue it is the free market that has got it very wrong over the past few decades if we look at the shape of our economy today.

We need some radical thinking about the future of the Scottish economy. Continued reliance on the service sector or (worse still) the public sector will not deliver the bright economic future that we all seek.

Andrew S R Gordon

Craiglockhart View

Edinburgh

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Back To The Future

Monday, February 13, 2012 at 10:50 AM

This letter is like the curate's egg - good in parts. Yes we do need to encourage manufacturing and remove, or drastically reduce, the barriers to business which are immense and unnecessary. For example, it makes economic sense to ship raw steel from China not because the Chinese produce it at a loss, they don't. However, neither do they pay inflated prices for their power or get tied in knots with workers' rights. I am not advocating Chinese working practices just some plain common sense for a change. The bad part is placing any weight on the present class of renewables which are ancient technologies. Dead machines made to walk with vast injections of money we do not have.

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waynebijleyeerheid

Monday, February 13, 2012 at 10:41 AM

Why don't we just cut the cost of fuel? It seems the height of stupidity that we should be imposing such a high level of energy tax on ourselves when we have control of enough to substancially bring down costs to our own manufacturing base and give it an economic advantage.....................................It's the equivalent of a self imposed handicap, the competitive edge gained, with its monetary value, would more than make up for the tax bled from the British transport industry and ordinary family driver.....................Of course our "gradgrind" politicos would rather impose "competitive" wages (ie low pay) than a competitive tax structure.

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cajwbroomhill

Monday, February 13, 2012 at 07:27 AM

Safer to major in manufacture of candy floss than in renewables, the latter being of no good value to us.

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