Earlier this week, the campaigning think-tank Onward published a report which examined how supporting a renaissance in manufacturing could level up the UK economy.
It builds on some of the themes that have been reflected in this column over the last eighteen years namely that manufacturing - especially here in Wales - has been sorely neglected by politicians and policymakers despite the evidence that it is now an industry utilising highly skilled workers to generate high quality products that are sold internationally.
Yet as the report shows, if the UK is to close the productivity gap with its main competitors, then there needs to be a greater focus on supporting the manufacturing industry. This is because productivity growth in manufacturing has been higher than the rest of the economy with output per job in manufacturing growing by 0.64% in manufacturing between 1979 and 2019 as compared to an average of 0.36% across the economy as a whole.
Given this - and the fact that Wales has one of the lowest levels of productivity of any of the UK nations and regions - it remains a mystery why there has been a greater effort to support the sector here over the last two decades.
In fact, “levelling up” between the poorer and more prosperous parts of the UK economy forms the main rationale for greater support for the manufacturing industry which has the potential to provide higher numbers of well-paid and highly skilled jobs in those areas which have been left behind in recent years.
For example, output per hour for the UK outside London was 20% higher in manufacturing than the economy as a whole with manufacturing wages also being greater than the average across other industries. In addition, the premium in earnings amongst those in manufacturing applies across all qualification levels and not just for those at a graduate level. For example, those with A-levels (or equivalent) experience a 20% hourly earning premium when working in the sector.
Despite its overall national decline, manufacturing accounts for a larger share of the economy in less prosperous parts such as North-East Wales or the South Wales Valleys which suggests that it is jobs in the industry that are pushing up salaries in such deindustrialised locations.
And whilst the sector accounts for a small share of total employment as a whole, productivity growth in manufacturing was more than 40 percentage points higher than overall productivity growth in Wales since 1998.
Therefore, if we are to have a greater levelling up not only across the UK but within poorer nations and regions such as Wales, manufacturing could be a significant contributor in raising productivity outside those urban areas – such as Cardiff and Swansea - that have benefited from the massive increase in office jobs in recent years. More importantly, it can support those on low- and middle-income earnings which are the main beneficiaries of the manufacturing wage premium.
So what could be done to support the UK manufacturing industry? Certainly, one of the themes of the paper is that despite some positive one-off policy initiatives, there has not been a co-ordinated strategic approach to grow the sector, at least compared to other countries across the World that are our main competitors.
Given this, the main recommendation is that a National Manufacturing Plan should be launched to reverse the decline of UK manufacturing by recognising the importance of key sectors that are disproportionately beneficial to the economy and signalling to the market that the UK will remain a competitive place to make products in the long term.
There also needs to be greater access to finance especially for manufacturing SMEs and more long-term funding to those anchor institutions that can support the growth of the sector. This needs to be matched by investment in the industrial rollout of physical or digital infrastructure -such as 5G - that can help to facilitate the growth in advanced manufacturing utilising Industry 4.0 in those areas that need it the most.
Investment in individual firms also needs to be encouraged with better and more focused tax breaks that can assist capital allowances and better procurement rules that can supply chain firms.
Of course, devolved administrations as well as city deals across the UK could also do more to take a more ambitious approach to supporting the industry and it is enormously disappointing that the sector is not seen as a key priority by the Welsh Government especially as it those poorer parts of the nation that would benefit from any increased focus through higher wages and improved productivity.
Therefore, after years of decline and disappointment, a modern high tech manufacturing industry could be supported to provide well-paid and highly-skilled jobs in those poorer communities that need them the most. One can only hope that politicians in both Westminster and Cardiff Bay have the ambition to seize the opportunity to make this happen.