Business

Harland & Wolff: Blame economic mismanagement in London

Successive governments have put the UK’s heavy engineering industry on the backburner

The Harland & Wolff shipyard in Belfast, which is due to placed into administration. Photograph: Liam McBurney/PA Wire

Eamonn Fingleton
Mon Aug 5 2019 - 19:45

With the announcement that the once world-famous Belfast shipyard of Harland & Wolff is to be placed in administration, the sad story of Northern Ireland's economic decline is back in the news. To what extent has the North's history of social unrest and political gridlock contributed to the company's fate?

Surprisingly, the answer is hardly at all.

This is obvious if you view the story in a larger context. The fact is that the UK shipbuilding industry is a shadow of its former self. The same forces that have closed the once mighty shipyards of Newcastle, Glasgow and Liverpool have also told against Harland & Wolff.

And the biggest single force has been one that is rarely mentioned these days: economic mismanagement in London.

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The pattern can be traced as far back as the 1960s and 1970s. Then, London had already visibly put the needs of the UK's heavy engineering industries on the backburner. The most obvious indication was an increasingly unrealistic foreign exchange policy. Successive governments, Labour as well as Conservative, strove to keep the pound propped up on foreign currency markets.

Strong pound

A strong pound suited the City of London, and seemingly everyone in the Home Counties who aspired to a pleasant summer holiday on the European continent endorsed the effort. But it meant that in export industries such as heavy engineering, British companies had to contend with rapidly rising foreign competition, first from Japan and Germany but soon also South Korea. The effect was compounded by the fact that the Japanese, Germans and Koreans assiduously worked to keep their currencies as low as possible.

By the 1980s, most of the nation's traditional export industries had been rendered fatally uncompetitive

The coup de grace came in the mid-1970s when the annual rate of British wage inflation exceeded 20 per cent. In the circumstances the UK, far more than its foreign competitors, needed to get its exchange rate down. But in the event, such was the influence of the City of London, the establishment generally continued to pursue a “defend-the-pound” policy. Thus major British heavy engineering companies began closing their doors and, by the 1980s, most of the nation’s traditional export industries had been rendered fatally uncompetitive.

To the extent that Harland & Wolff and some other shipbuilders survived, they did so mainly by dint of being taken into public ownership. But public ownership was always a temporary expedient and, starved of the investment capital desperately need to boost labour productivity, UK shipbuilders fell further and further behind the foreign competition.

Irreversible

As for Harland & Wolff, its fate became irreversible when it lost out to a French shipyard in the competition to build the Queen Mary 2, which was laid down in 2002. It launched two car ferries in 2002 and these turned out to be the last ships it would ever build.

At the root of the company’s problem was a British intellectual fashion for post-industrialism. In the 1970s the idea increasingly took hold – at least among opinion-formers in London – that the world’s most advanced economies no longer needed manufacturing industries. Instead they would move to a cleaner and richer future supplying so-called post-industrial services to the world. Such services notably included banking and computer software. In their more extreme statements, advocates of post-industrialism seemed to suggest that the faster the UK exited manufacturing, the richer it would become.

In reality the argument for post-industrialism was always simplistic. For a start, there is the matter of jobs. Whereas post-industrial services tend to create jobs mainly for a small intellectual elite, manufacturing scores in creating plenty of jobs for people of all levels of intellectual ability.

How might things have turned out had British economic management been wiser?

Secondly, manufacturing industries are generally stronger exporters. This applies especially in the case of the most advanced manufacturing industries (of which shipbuilding is a good example). By contrast, post-industrial services tend to be culture-specific in a way that requires providers to locate jobs near customers – and this, of course, in the case of foreign customers, means locating the jobs abroad, thereby greatly curtailing the flow of export revenues back to the home country.

Improving productivity

Thirdly, manufacturing generates better prospects of improving productivity. In part this is because, in its more advanced forms, manufacturing is highly capital-intensive, with each worker's productivity being leveraged by an array of sophisticated production machinery. By contrast the prospects for wage rises in most service industries are curtailed by the fact that such industries are labour-intensive. The point is clearly seen in software, for instance, where workers in low-wage nations such as India and Russia severely curb the prospects for higher wages in nations such as the United States and the UK.

How might things have turned out had British economic management been wiser? The place to look is Japan, where most of Harland & Wolff’s once-puny shipbuilding challengers of the 1950s and 1960s are based. These companies are now globe-spanning giants that enjoy thriving businesses in many of the shipbuilding industry’s more advanced specialities (building LPG carriers, submarines and double-hulled tankers, for instance). More importantly, they have leveraged their engineering expertise to conquer countless high-growth new fields.

Perhaps the most telling example is Mitsubishi Heavy Industries, which is a leader in everything from aircraft wings to cyclotrons. Its success can be summed up in one number: at last count it employed more than 80,000 workers. By contrast, Harland & Wolff, which employed more than 30,000 in the 1950s, was recently reportedly down to just 130 workers.

Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin)

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