Kitchen blenders used to be made in the UK, but now no blenders are made here
What do kitchen blenders tell us about the UK economy?
Kitchen blenders are well-known labour-saving devices, popular all over the world. Millions of them are sold every year, many of them to British homes. They used to be made in the UK, but now no blenders are made here. All of them, every single one, is imported from abroad, mostly from China. What has gone wrong?
This is indeed a sad state of affairs. Kitchen blenders are relatively simple to manufacture. Until the late 1980s Kenwood made its iconic blenders in the UK, before moving its operations to China. But why don’t we still make them? The production processes involved – tool setting, machine minding, assembly, testing and packing – can mostly be learned by a workforce in a couple of days.
You don’t need much management experience to run these kinds of operations; to order the right components, ensure the correct specification and quality standards, to keep waste to a minimum, and to make sure that costs are kept under control.
Private sector manufacturers cannot thrive with the odds stacked against them and with little chance of profit
Making kitchen blenders is not rocket science. So why are none of them produced in the UK today? There is a simple reason: the cost base in the UK is too high. Essentially, it costs far more to produce them here than it does in the Far East. As a result, not only kitchen blenders but thousands of other medium and low-tech products, which could perfectly well be manufactured in the UK, are all imported from abroad, mostly from the Far East.
The story of kitchen blenders is symptomatic of UK manufacturing today. We were once a country of makers and producers, we were large-scale manufacturers of clothing, textiles, household goods, aircraft, industrial vehicles, ships, trains, packaged goods such as chocolate and sweets, and so the list goes on. But since the 1960s we have moved slowly, and then from the 1980s onwards much more rapidly, from being a nation of producers to a country of importers and consumers.
Since the 1960s we have moved from being a nation of producers to a country of importers and consumers
This move from producer to consumer did not seem such a problem in the 1980s and 1990s. The service sector was rapidly expanding and we were not that far away from the big new opportunities created by the internet. But in 2016? Now we realise that we have lost more than just a few factories as we stopped making things and sold off one great company after another into foreign ownership. To a large extent we have let our industrial base go and with it the foundation for creating the new generation of manufacturing entrepreneurs we so desperately need to assure our future prosperity, in or out of the EU, and on the global stage.
There is a major factor at work here: the exchange rate. Since the Brexit vote, sterling has fallen and manufacturers across the UK have almost universally welcomed this dip. In August, against a backdrop of dire predictions, the manufacturing industry recorded its biggest month-on-month rise in output for 25 years.
Large areas of the country are likely to remain discontented with their lot, and we will continue to live beyond our means with a gaping balance of payments deficit
This helps to prove that the exchange rate matters to manufacturing in the UK. But imagine how much greater the result would have been for the UK economy if we had not already lost the vast majority of our manufacturing base.
The exchange rate is critically important for competitiveness. While the state will always have a major role to play in the provision of social infrastructure investment in housing, schools, hospitals, road and rail, experience across the world has shown that, when it comes to manufacturing, the private sector is where it has to happen.
But private sector manufacturers cannot thrive with the odds stacked against them and with little chance of profit. It is hard to over-estimate how damaging decades of over-valued currency has been to manufacturers and the UK, but the imbalances in the economy tell the story.
Because we manufacture so little we have a huge trade deficit. For this and other reasons, we also have a huge balance of payments deficit every year – currently running at about 7pc of GDP – financed by net sales of UK assets and borrowing on a scale unmatched by any other developed economy. On top of this, our levels of investment both in manufacturing and more generally have been pitifully low.
Since the Brexit vote, sterling has fallen and manufacturers across the UK
This situation has created other significant challenges for the UK. The Leave vote at the EU referendum highlighted the huge disunity in the country. On the one hand are the winners who have prospered as a result of increased trade, travel and interaction across the world. On the other hand are those who have lost out as their good-quality, well-paid manufacturing jobs have disappeared.
There is only one way both to rebalance the UK economy and ensure that the benefits of globalisation are much more evenly spread. This is to adopt an exchange rate policy which will make medium and low-tech manufacturing profitable again. This would encourage investment in light industry and elsewhere while helping to get our balance of payments deficit under control. We will then run up less debt and have economic growth driven by investment and exports instead of by consumer demand.
When we have manufacturing as a percentage of GDP back to around 15pc and physical investment above 20pc instead of 13pc, only then will our economy be capable of sustained growth. Only when we see new entrepreneurs opening factories to make kitchen blenders in the UK will we know we’ve turned a corner.
Until this time comes, we will have little or no increase in productivity and no rises in take home pay; large areas of the country are likely to remain discontented with their lot, and we will continue to live beyond our means with a gaping balance of payments deficit, financed by selling off UK assets on a scale unmatched anywhere else. Sooner or later this unsustainable trajectory will come to an end and the pound will crash. Let’s hope we act before this happens.
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