Give the sector an incentive to change

UK manufacturing needs more than words of encouragement to
up its productivity. It needs an action plan from employers and Government to
help it embrace new ways of working

Gordon Brown claims he wants to do more to recognise "the vital
contribution of modern manufacturing to exports, innovation and our great

The results of a productivity survey by the Engineering Employers’
Federation suggest there are plenty of issues the Chancellor can get his teeth
into – highlighting a widening productivity gap between manufacturing in the UK
and the US.

The tough climate manufacturers have faced in recent years has put greater
emphasis on the need to boost productivity and competitiveness. Both employers
and the Government need to do more and learn from our American cousins.

One possible solution, as demonstrated by US firms, is lean manufacturing.
US-owned firms in the UK are having greater success with lean manufacturing
than UK-owned firms because they are using it more intensely. But a large
proportion of British firms have not ventured into lean manufacturing at all.

The EEF is seeking to work in partnership with the DTI to tackle the lack of
awareness of the lean manufacturing model, and improve lean skills levels
across the sector workforce.

Economic research of the US experience in the 1990s provides convincing
evidence that new work practices have also been a contributing factor to
productivity growth in manufacturing.

According to the EEF survey, UK manufacturers are embracing new practices.
Many are using output monitoring, individual performance appraisals, employee
involvement schemes, suggestion schemes and total quality processes. However,
incentive or profit-based pay is not being used as widely as in US companies.

In the UK, resistance to change is by far the biggest barrier to their take
up. This reflects the attitude of both managers and employees and shows a
concerted effort is needed to make companies more receptive to change.

Attracting the right people is also a problem for the sector. UK
manufacturers try to get around the issue by focusing on offering good basic
salaries. However, these companies could learn from the example of US-owned
firms in the UK which are benefiting from offering employees additional
benefits, such as work-life balance, bonuses, training and personal

But beyond this, the market is not delivering enough people with the right
skills. The Government must concentrate on addressing the shortfall in modern
apprenticeships and re-develop the Individual Learning Accounts for training in
the workplace.

More generally, under-investment in manufacturing has been damaging. Recent
data from National Statistics shows things are getting worse, with
manufacturing investment falling at the sharpest rate on record in the third
quarter. Lack of orders, uncertainty over future demand and the exchange rate
have all undermined current and future profitability.

If increased manufacturing productivity is a serious economic goal for the
Government, it must try to break the long-term trend of under-investment in the
sector and offer more incentives to help firms invest. This must include an
R&D tax credit for larger firms in order to stimulate innovation.

Boosting manufacturing productivity requires a partnership between
government and employers. If Gordon Brown is serious about doing more for
manufacturing in this country then it is time he matched sound words with firm

By Dougie Peedle, deputy chief economist of the Engineering Employers’

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