Brexit or not, Bri­tain’s econ­imic threat re­mains

Busi­nesses seek fu­ture in­vest­ments, growth out­side of the com­mon Euro­pean mar­ket

The Mercury News - - Sports - By Tara Pa­tel and Lucy Meakin

In the re­lent­less po­lit­i­cal drama of Brexit, the clo­sure of a small ball-bear­ing fac­tory 95 miles west of Lon­don barely reg­is­tered out­side the lo­cal com­mu­nity.

The loss of the Stone­house plant will cost 185 jobs, hardly the thou­sands some com­pa­nies say are un­der threat be­cause of the upheaval from leav­ing the Euro­pean Union. Nor did the De­cem­ber an­nounce­ment come with the kind of po­lit­i­cal noise sur­round­ing Ja­pa­nese car­maker Nis­san Mo­tor Co.’s re­cent de­ci­sion to scrap plans to build a model in the U.K.

By end­ing man­u­fac­tur­ing at the site in 2021, though, Swedish owner SKF AB high­lighted a dan­ger­ous un­der­cur­rent in the Bri­tish econ­omy that ex­ists re­gard­less of what hap­pens with the di­vorce from the EU: the coun­try’s pro­duc­tiv­ity. And un­cer­tainty about Brexit has made com­pa­nies cau-

tious about in­vest­ing in the au­to­ma­tion that might help boost it.

The prob­lem has been on the radar of politi­cians, ex­ec­u­tives and cen­tral bank pol­icy mak­ers for a while, but it’s now be­com­ing more ur­gent. Busi­nesses are look­ing to a fu­ture out­side the com­mon Euro­pean mar­ket as Prime Min­is­ter Theresa May tries to get her Brexit deal through Par­lia­ment and they face a stark choice: mod­ern­ize or die.

It’s not that the coun­try isn’t work­ing hard enough, more that it’s not work­ing smart enough. On av­er­age, French work­ers toiled for 10 per­cent fewer hours in 2017, yet they pro­duced more while they did so.

That’s ag­gra­vat­ing an al­ready dis­mal stand­ing among peers. In­deed, SKF said it’s shut­ter­ing Stone­house and mov­ing pro­duc­tion to sites in Italy and France, where the com­pany can “make bet­ter use of more mod­ern ma­chines and man­u­fac­tur­ing


Data com­piled by the In­ter­na­tional Fed­er­a­tion of Ro­bot­ics, an in­dus­try group that cham­pi­ons the de­ploy­ment of au­to­ma­tion equip­ment for man­u­fac­tur­ing, shows the U.K. is fall­ing be­hind.

By one mea­sure called ro­bot den­sity — the num­ber of au­to­mated ma­chines per 10,000 em­ploy­ees — the coun­try ranks 22 in the world, bang in line with the av­er­age. Ger­many is third, un­der­scor­ing the scale of the chal­lenge fac­ing the am­bi­tions of Brexit sup­port­ers to boost the U.K.’s global stand­ing.

The dam­age caused by that short­fall can be seen in the U.K.’s pro­duc­tiv­ity record, said Ram Ra­mamoor­thy, a re­searcher and doc­tor­ate su­per­vi­sor at the Edinburgh Cen­tre for Ro­bot­ics.

“If the U.K. wants to be com­pet­i­tive with peers that are in­vest­ing in mod­ern tech­nol­ogy, then we have to do that too,” he said. “We’re not at a point of no re­turn, but it would take a sus­tained ef­fort to turn things around and that won’t hap­pen overnight.”

Bri­tain is home to some

of the weak­est growth in out­put per hour worked among Group of Seven na­tions. Be­tween 2010 and 2015, it near flat-lined at 0.2 per­cent a year, far below its long-term av­er­age of 2.4 per­cent from 1970 to 2007 and lag­ging that of France and Ger­many. That’s par­tic­u­larly trou­bling be­cause con­sult­ing firm McKin­sey es­ti­mates about 90 per­cent of fu­ture eco­nomic growth will need to come from im­prove­ments in pro­duc­tiv­ity just to keep pace with his­tor­i­cal growth rates.

“Some dam­age to the econ­omy can’t be un­done even if Bri­tain does stay in the EU. The dif­fer­ence be­tween our pre-ref­er­en­dum po­ten­tial GDP fore­cast and how we think trend GDP has evolved since the vote…is 1.4%. We think Brexit can ex­plain about a third of that with the re­main­der re­flect­ing the U.K.’s per­sis­tent (and per­sis­tently sur­pris­ing) pro­duc­tiv­ity weak­ness.”

In part, it’s down to Bri­tain’s more flex­i­ble la­bor mar­ket. Fol­low­ing the global fi­nan­cial cri­sis, U.K. com­pa­nies went on a hir­ing spree fu­eled by easy ac­cess to mil­lions of cheap

work­ers pri­mar­ily from the EU’s poorer east­ern mem­bers such as Poland.

Not only did that cre­ate an in­vest­ment-weak re­cov­ery, with spend­ing fall­ing in ar­eas like equip­ment, but one that could prove un­sus­tain­able should May’s gov­ern­ment ul­ti­mately suc­ceed in its Brexit goal of curb­ing the free­dom of work­ers to set­tle in the U.K.

The pro-Brexit ar­gu­ment sug­gests pro­duc­tiv­ity might ben­e­fit be­cause com­pa­nies will no longer be able to rely on cheap la­bor and be forced to in­vest in ro­bots and smarter work­ing.

“Pro­duc­tiv­ity is ar­guably still the num­ber one is­sue for the U.K. over the medium term,” said Dean Turner, econ­o­mist at UBS Wealth Man­age­ment. “That’s where the fo­cus of gov­ern­ment and in­dus­trial pol­icy re­ally needs to be if the U.K. is to off­set some of the pos­si­ble neg­a­tive im­pacts of leav­ing the EU.”

Peo­ple aren’t the only thing the econ­omy stands at risk of cut­ting off. For­eign-owned busi­nesses have, on av­er­age, pro­duc­tiv­ity that is dou­ble that of do­mes­ti­cally-ori­ented firms. That un­der­scores the im­por­tance of open­ness to trade and over­seas in­vest­ment, ac­cord­ing to the Bank of Eng­land’s chief econ­o­mist, Andy Hal­dane.

Quick­takeYour Guide to Brexit as Dead­line Looms

The Bank of Eng­land has slashed its fore­casts for busi­ness in­vest­ment to zero for 2018. Hal­dane has likened the sit­u­a­tion to com­pa­nies sim­ply press­ing the “pause but­ton.”

A new start might be just the im­pe­tus firms and the gov­ern­ment need, though, ac­cord­ing to Ben­jamin Craig, who spe­cial­izes in the tax re­lated to re­search and devel­op­ment at in­ter­na­tional busi­ness per­for­mance con­sul­tancy Ayming.

“We are lag­ging far be­hind our main com­peti­tors France and Ger­many, a dan­ger­ous po­si­tion to be in ahead of Brexit if we want to re­main a com­pet­i­tive econ­omy,” he said. “How­ever, fol­low­ing Brexit, it’s pos­si­ble that we could see a shake-up in the R&D space as we gain more in­de­pen­dence over mea­sures.”

What­ever hap­pens, it looks too late for Stone­house. In the 1930s and

then World War II, the fac­tory’s mak­ing was its lo­ca­tion out of range of Luft­waffe bombers yet on trans­port routes. Now, its ma­jor client, Rolls Royce, is phas­ing out its use of Stone­house’s ball bear­ings in fa­vor of oth­ers made in SKF’s more mod­ern and flex­i­ble Ital­ian and French plants.

SKF’s strat­egy is to con­sol­i­date its 80 or so global pro­duc­tion sites and Brexit wasn’t to blame, said spokesman Theo Kjell­berg. The com­pany opened a fully-au­to­mated pro­duc­tion line in Va­len­ci­ennes, France, on Jan. 21 to make com­po­nents for air­plane en­gine maker Safran.

Em­ploy­ees at the Stone­house plant long feared they weren’t a pri­or­ity, ac­cord­ing to Nick Bai­ley, re­gional of­fi­cer of the Unite la­bor union.

“They say lots of the tool­ing and ma­chin­ery is quite old,” he said. “With­out in­vest­ment, how can you at­tract new work?” Dur­ing talks with staff about the plan to close the site, SKF ex­ec­u­tives said the work­load will de­cline by 40 per­cent, ac­cord­ing to Bai­ley. “It’s like be­ing left to wilt on the vine.”


Ro­botic arms work on chas­sis at the Nis­san plant in Sun­der­land, Eng­land. Nis­san re­cently scrapped plans to build a model in the U.K.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.