Our economic future: Other.

So, reading the LSE Growth Commission report. There’s the usual stuff about infrastructure, and they want both an infrastructure bank and an infrastructure planning commission (I remember that!) and crappy provision for small and medium-sized firms’ financing needs, hence a KFW-analogue. So far, so radical consensus.

There’s also a weird fetish for academies; apparently we need them because British schools aren’t doing well enough by the most disadvantaged kids. Well, it wasn’t that long ago that academies/specialist schools/whatever were there to stretch the sharp-elbowed middle classes’ gifted and talented kids and therefore to keep them in the system. It’s like Paul Krugman’s joke – how many European finance ministers does it take to change a lightbulb? Austerity! – just with academies.

If the most disadvantaged kids’ problems are really so ingrained that we need to tear everyone else’s schools up, you might think it would be a better idea to stop disadvantaging quite so many of them.

I snark, but actually there is a good, new idea in the report – as well as GDP and inflation, median household income should be reported and treated as a policy target. I’d sign up for that, on condition that it is calculated in real terms, using RPI or something similar rather than CPI aka “inflation with all the important stuff like food, housing, and energy taken out”.

Meanwhile, IPPR Juncture (oooh, IPPR, look at him, probably buys rocket salad on the internets and has a beeper) has a really interesting piece about 1970s industrial policy from Alan Bailey, the head of industrial policy in the Treasury at the time.

Two points here. The first is that Bailey notes and regrets that the policy framework didn’t really care about the service sector.

The fact that the services sector was a large and growing part of the economy was briefly recognised, but the remainder of the white paper, and the sectoral analysis, concentrated on manufacturing industry; the needs of services were to be handled separately (if at all).

As I said in this post on the NESTA innovation report, why is there no Council on Industrial Service Design?

The second is this:

I recall that the best-performing sector under ‘General Engineering’ was ‘mechanical machinery not elsewhere specified’, the statisticians’ residual ragbag

Bailey recalls this as an example of the statistics, or possibly the assessment process, being flawed.

But I think there may have been something else going on – what if the statistics were right, and a lot of productivity was concentrated in firms whose outputs were purely intermediate, often very specialised, but not easily allocated to a sector defined by the end user?

This basically describes the idea of the “industrial commons” or “clustering”, and it strikes me that the British engineering firms that survived Tory Macroeconomics Experiments 1 and 2 are very much like that. There aren’t so many that have a well-known final product; there are a lot that make recondite intermediate products and do rather well.

Jakob Whitfield’s awesome blog has a case in point. When Frank Whittle was looking for technical partners to work on the jet engine, he found them all over the UK; Firth Vickers in Sheffield forged the main turbine, High Duty Alloys Ltd. of Slough the compressor, and although most of the people he asked thought it was impossible, a Scottish firm he found at the British Industries Fair took on making the combustion chamber.

Later, when the project became a national priority, all kinds of other firms were involved via the Gas Turbine Coordinating Committee. Ricardo, still going today, provided engineering consulting on control systems. My favourite, though, is the Leicester Shoe Machinery Company, which helped Power Jets invent several new machine tools to productionise various bits of the engine and lent them engineers to advise on the problems of mass-producing them.

This stuff is important. I guess it’s the charismatic megafauna vs. smelly jungle thing again; the West Midlands lost Triumph and Rover, but it kept Ricardo and a huge range of subcontractors. Depressingly, though, I suspect that it might be hard to operationalise this as policy in a way that wouldn’t tend to concentrate investment in the West Midlands and the South-East.

3 comments

  1. Metatone

    Surely the big concern from an eco-system point of view is that as we have lost the mega-fauna it’s harder for our smaller companies to find regular, collaborative customers for their offerings. Company X in Coventry may be better than Company Y in Stuttgart, but it simply costs a lot more for Company X to develop and maintain a relationship with Daimler/Mercedes…

  2. Jakob

    Belatedly popping in to say that shamefully I didn’t know about the shoe machinery story. Does the often-praised Mittelstand count as smelly jungle in this analogy?

    (Also, if this were 1996 I’d totally be making a web banner along the lines of ’The Yorkshire Ranter says this is an awesome blog’… Once the twins settle down a little I hope to put more gas turbine nerdery up.)

  3. Pingback: Weihnachtsmarktwirtschaft | A Fistful Of Euros

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