The Telegraph: Despite carmakers’ troubles the economy will motor on just fine

Car manufacturing is where micro meets macro. We have recently been bombarded with various bits of depressing news about the state of the industry in Britain. Does this situation tell us anything significant about the state we’re in?

From the media obsession with this industry, you might naturally believe that it accounts for a huge proportion of the UK’s GDP. But it doesn’t. Indeed, its contribution is of the order of 0.8pc of GDP, compared with a contribution from the financial services industry of 10 times that amount. I am not suggesting that the fate of car manufacturing in the UK is irrelevant. Far from it. The industry provides about 10pc of the UK’s total goods exports, with a high proportion going to the EU.

But the industry has taken on an importance in the public imagination which is way in excess of its importance to the economy. Actually, our car exports to the EU are heavily outweighed by our imports from it, whereas the reverse is true for our car trade with countries outside the EU.

Although we like to trumpet the industry as a great British success story, there are no British-owned volume car manufacturers. Most of our car production is accounted for by German, French, American and Japanese owned firms.

We have a distorted view of the industry’s importance partly because cars are tangible and we can relate to them closely as consumers. As so often, though, a key part of the explanation lies with the history. In the Fifties and Sixties UK car manufacturing was a great success. This was the age of the Austin and the Mini. But in the Seventies, the industry was the epicentre of everything that went wrong in the British economy in general and manufacturing in particular. Endemic strikes, poor quality and the need for public subsidy/intervention signalled that this was an industry in severe trouble.

Yet in the Eighties, things turned round completely. Thanks largely to substantial investment by Japanese firms, car manufacturing in the UK enjoyed a remarkable renaissance. The industry has been a tremendous success, with ramifications throughout the whole economy.

But things don’t stand still. Whereas numerous commentators have attributed the difficulties that our manufacturers currently face to Brexit, in fact the car industry faces serious challenges across the world. And these have nothing whatever to do with Brexit.

The changing role and significance of car manufacturing is nothing new. Industries wax and wane. History shows the perils of politicians trying to determine, or even worse, preserve, the industrial structure of the economy. Like generals, who are forever fighting the last war, politicians often spend much time and treasure trying to preserve the technologies of the last industrial revolution. The coal mining industry is a prime example.

It is sometimes suggested that Mrs May’s bizarre stance on the Brexit negotiations, and in particular her unpreparedness to countenance a no-deal outcome, derived in part from assurances that she supposedly gave to the Japanese car manufacturers with plants in the UK. This would represent both a travesty of democracy and a demonstration of gross economic illiteracy. Accordingly, it has the ring of truth about it. Sometimes politicians make blunders because they miscalculate but most of the time their blunders derive from a lack of basic understanding, never mind vision.

Let us hope that whatever happens with Brexit, for the sake of those workers whose jobs are currently in the car industry, much of it survives and prospers in this country. I am optimistic that it will. But it must do so on its own merits in a competitive marketplace.

We should not be deceived into thinking that this particular key aspect of the industrial structure of the last fifty years is somehow vital to the fate of the next fifty years.

The industries of the future – such as the digital and creative sectors, bioscience and artificial intelligence – are all around us. Thankfully, the UK has a strong position in them that bodes well for our future – as long as our politicians and civil servants don’t mess things up. If only they had a sound grasp of economic history.

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