Seamus and economics

They don\’t really mix, do they, Seamus Milne and economics?

That\’s what makes Mandelson\’s sudden conversion to industrial policy – anathema under the New Labour ancien regime – all the more emblematic. The new business secretary\’s commitment to "industrial activism" to support low-carbon, hi-tech manufacturing, spelled out last night in his Hugo Young memorial lecture, is potentially almost as significant a turn as the nationalisation of Northern Rock. This is a politician, after all, who almost embodied corporate "light touch regulation" in his earlier incarnation. But with engineering employers warning of a wave of manufacturing bankruptcies "within days or weeks" without state support and the prospect of three million unemployed by the end of next year, such dogmas have become a luxury.

Naturally the move is dressed up in all-purpose New Labour-speak about "what works" and will undoubtedly be nothing like as ambitious as French president Nicolas Sarkozy\’s new €20bn state investment fund, complete with public equity stakes in strategic companies and industries.

It ain\’t manufacturing that\’s going to crater this time around. It\’s services.

You might have noticed that the pound has fallen a tad here and there. That\’s going to boost manufacturing all on its very own. Manufactured imports will become more expensive to us and our exports to others become cheaper to them. Because we have a floating currency (ie, we\’re not inside the disastrous euro) we\’ve already done pretty much what is necessary to set off a boom in manufacturing. We just don\’t need to start spraying taxpayers\’ cash all over "strategic companies and industries".

6 comments on “Seamus and economics

  1. I do wish people would make a distinction between ‘industrial policy’ in normal times, and during periods like this. It makes perfect sense for the government to be activist in the latter but not the former. There is no turnaround, no change of heart. Somebody send him a copy of Krugman’s ‘the return of depression economics’.

  2. I hate to disagree, but a boom in manufacturing is going to be difficult without more liquid cash, but instead banks are still tightening up everything.

    If there’s no money available for materials for next month’s production then they go out of business this month.

    Cos of lead times for materials I reckon manufacturing is more precarious than services.

  3. he spells his name Seumas

    As it is in the Granuid, can we be sure?

    If there’s no money available for materials for next month’s production then they go out of business this month.

    I really do not understand this obsession with being in debt. I’m guessing these are established businesses, not startups, probably in mature markets, rather than a fast growing new market. Why do they not use savings to even out cash flow rather than debt? Why have any debt at all?

    Positive balance sheet, no debt and at least 6 months gross revenue in cash. Fund new investment from surplus cash, or in extremis from savings. That’s what they should be doing.

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