Exports will depend on demand in the world economy and considering that there is a downturn in the world economy with this reflected in UK exports to non EU countries down £2.4 billion this past year. Exports to the EU have stayed the same this year.
Anthony Hilton: What do we have to sell following the Brexit vote?
"Theresa May, our shortly-to-be-anointed Prime Minister, has said that Brexit means Brexit, which presumably means we will leave the European single market at some point in the not-too-distant future. This implies departure whether or not we secure a deal that will allow us to keep at least some of our current benefits.
It will put significantly greater emphasis on our trade with the rest of the world. Indeed, a major reason advanced for leaving the EU was that it would leave us free to negotiate trade deals with the countries of Asia, Africa and South America that, although significantly poorer than the EU, have the advantage of growing faster. Nevertheless, we trade more with Ireland than with India and China combined, so abandoning one and gambling on the other is not something which will be easy to achieve without pain.
The first question to ask is what do we have to sell? What does the UK produce that the rest of the world wants? And what will it want in return?
We need to face up to an uncomfortable truth. The UK is not a great manufacturer.
It has some great manufacturing companies, but not enough of them. Manufacturing is only about 12% of the economy, and only a handful of companies within that are good enough to export.
Management consultants McKinsey did a study of UK manufacturing a few years ago in which it divided businesses into five categories that ranked them on their international competitiveness and ability to export down to their lack of anything special and consequent vulnerability to foreign competition.
Top of the list came innovative producers with a genuine competitive edge — firms such as Rolls-Royce and the pharmaceutical industry. The second category was for strongly branded producers with strong British links, which would be lost if manufacturing was moved overseas. Jaguar Land Rover is an obvious example.
Third were locational producers — firms that have to be close to their supply of raw materials or their market. Food processors are one example. A frozen-pea plant has to be close to farms where peas are grown; sugar refiners cluster in East Anglia, near where the beet is grown.
The fourth category was what McKinsey called exposed producers — companies that use technology and labour but don’t have much flair. These are OK at what they do but nothing special, and are clearly vulnerable. In this category, the bankruptcy of much of British steel and the struggles of Tata show the shape of things to come. Finally, there is a fifth category of cost-based producers that have no edge other than being cheaper than anyone else.
The challenge is not that manufacturing is small in relation to the economy as a whole because it is roughly the same proportion as in France or the US and less than Germany — reflecting the fact that as economies mature, they become more services-oriented. Rather the problem is that we have too few internationally competitive companies.
McKinsey estimated that only 9% and 5% respectively or our manufacturing employment is in the top two categories, and a further 22% is here for locational reasons. So 64% of our manufacturing jobs are clearly vulnerable to cheaper producers.
Three things flow from this. Any trade deal opens us to competition just as we hope to get free access to their markets. So any such deal is likely to take a heavy toll on the two thirds of British manufacturing that is uncompetitive — suggesting that leading Brexit economist Patrick Minford was close to the mark when he said before the vote that he expected manufacturing and agriculture to disappear once we left the EU.
Second, even if our leading sectors double their exports — which is asking a lot — it will not be enough to sort out the balance of payments deficit. Third — like it or not — services are what we are good at, and trade deals almost never do anything for services.
Nor is the manufacturing sector likely to grow enough to fill the gap because we are no longer that kind of economy. Successive governments since Margaret Thatcher have neglected those things that would make a difference. Our labour productivity per hour is one of the worst among developed nations and 17% behind France, reflecting years of under investment. Our school leavers are 28th in international league tables of mathematical attainment, reflecting years of substandard education for much of the population.
The World Economic Forum ranks us 33rd in the quality of infrastructure — relied upon by manufacturers as well as Southern Rail commuters — reflecting misguided government priorities and excessive reliance on private-sector funding for national needs. And British management, though it pays itself as if it is the best in the world, ranks poorly according to academic studies of the skills needed in a manufacturing environment.
There are things we are good at, but Brexit actively damages these. Financial services will suffer from the loss of the single market, and so will tourism. Currently, 60% of jobs in the London tourism and hospitality industry and almost 30% nationally are filled by non-British labour, which Brexiteers want to exclude. So service levels will dive.
Health, another major London business, is similarly reliant on non-British employees while higher education takes a double hit. It recruits internationally and much of its research funding is international, and therefore liable to be cut while immigration curbs will limit the ability to recruit foreign undergraduates. About 100,000 students from China currently spend an average of £20,000 a head on tuition fees in this country. That alone is £2 billion a year. But they can’t study here if we don’t let them in.
Finally, technology is heavily dependent on non-British labour —indeed, the mix of cultures helps make it innovative, creative and dynamic. Again immigration curbs can only do harm.
Being a successful trading nation is not about having trade deals, it is about having something to sell.
Successful countries know what they are good at, and work out what structures best play to these strengths. Perhaps we should work out what these things are first, then decide what to do".
