Tsk

https://www.ons.gov.uk/economy/economicoutputandproductivity/output/timeseries/k222/diop

Volume not back to the same level as pre-global financial crisis. Lot lower due to lockdown. ICI taken over in 2008 so I suppose possible he means pre-2008, but more likely he’s thinking of 80s and 90s.

But Jim, it wouldn’t do RR’s share price any good to buy anything but the cheapest parts. Can you imagine what the Wall Street hedge fund managers would do if they announced they’ve decided to spend 0.2% more to have some diversity of supply as insurance against any future CCP decision to stop exporting said parts and insist the manufacturing is instead moved to Chongquing, along with all the intellectual property?

And we all know, in neoliberalistan that risk is merely RR’s to bear. If all its knowhow is stolen by a mercantilist, fascist dictatorship with a state-industrial complex hell-bent on expansionism and world domination, well that’s just the way things work out in a free economy, isn’t it. So we must keep buying Chinese stuff without tarrifs or other hindrances. The fact that soon there will only be Chinese stuff to buy isn’t a cost, it’s a benefit, etc.

Sheesh, at this rate you’ll be demanding agricultural subsidies to insure against our reliance on food from countries that might turn out to be our enemies.

Take roller bearings. They are crucial to keeping machinery working. If you can’t get a replacement bearing for a broken down machine then you don’t have any output of whatever you are trying to produce. You have a chunk of scrap metal, not a machine. A large proportion of bearings are made in China now. Yes, there are other non-Chinese suppliers, but in an emergency they couldn’t supply the world’s requirements. Like the PPE fiasco, everyone would be screaming blue murder wanting to order supplies, and it just wouldn’t be there. There’s certainly no UK bearing makers. Even Western brands like Timken are manufacturing in China now. It would be interesting to know exactly what proportion of world bearing production is under the control of the Chinese Communist Party, and what exactly would happen if they suddenly said ‘No more bearings for you!’

@jim

The Chinese did this briefly with rare metals. Sparked a period of investment in alternative sources of supply – Tim W wrote about this when it happened. Causes some short run problems, but goes away thanks to price incentives.

Global supply chains help to reduce costs and increase incentives for countries to get along. Post various disasters (Bangkok floods and the Tohoku earthquake) many companies altered their supply chains to remove single points of failure and diversify supply.

@Tim the coder

Yes, this is a well known measurement problem. It particularly affects value added by industry and employment by sector, both areas where outsourcing and specialisation led to a decline in manufacturing whilst the actual jobs remained the same.

@MBE,
Well no, actually.
When freelance, I worked as a Limited Company, it being the only form acceptable to HMRC at the time (how times change!).
Hence my remuneration was paid as salary, just as it had been before. Only the company paying that salary changed: which also had advantages for continuity in pensions etc.
So no impact on ‘self employed profits’ as I was never self-employed in the HMRC terminology.
And ‘selfish’? When your employer has gone bust, you take what work you can get, and in the depths of the 80s recession, with ‘peace dividend’, all the bigger companies only wanted contractors, they would not risk being saddled with (yet more) employees, thanks to the 70’s legislation making redundancy almost impossible without insolvency.
So you do what you can, go with the flow: or you sink.

@Battery Chicken. SKF do indeed make a few types of roller bearings in an old factory in Luton. Other factories, of various vintages, make other types of bearings in dozens of countries all over the world which then get shipped around.

I understand that in the dim and distant past each factory was theoretically able to make any type of bearing. Things would have been more hands on and labour intensive in those days.

I think you mean investment fund managers, Commander Jameson. Not Wall Street hedge fund managers. The rationales are different. But since hedge fund managers, particularly Wall Street hedge fund managers, are the current incarnation of ultimate evil…

@ Commander Jameson
I don’t know about Hedge Fund Managers but when, a long lo-oo-ong time ago, I was a semi-specialist fund manager covering several market sectors including engineering we *did* expect RR to pay more than Ford for components because RR had higher spec.How much is it worth to reduce from 0.0001% to 0.0000001% the chance of a Ford Fiesta engine failure on a motorway? But how much is it worth to reduce the chance of a RR jet engine failure over the Atlantic or a city?

@jim – manufacturing is diversifying from China. Japan and Korea are ‘re-shoring’; US companies are moving some production to Vietnam. Firms will still use China because of the size of the labour market there, but more and more are looking for alternatives.

Jim,

“Thats all very well, maybe the UK still makes the very expensive stuff, like jet engines and bits of Airbuses, that sort of thing. What about all the other stuff we use in everyday life? Thats all got made in China stamped on it, when it used to be made here. If Covid has taught us anything, it should be that its pretty stupid to assume that supplies of stuff that we need on a day to day basis will always be available from the other side of the globe. Vast parts of the UK economy would grind to a halt if supplies from China were cut off. Even Rolls Royce might have to stop production because some silly little spare parts or consumables were only sourced from China now. Thats not very strategically sensible, to be utterly reliant on a Communist Dictatorship.”

Go and actually learn about what companies do, rather than listening to the sort of pro-autarky lobbyists in the media.

Every company thinks about this problem, were doing so long before Covid. Not just for infectious disease, but earthquakes, strikes, bankruptcy, shipping problems, suppliers being arseholes. You try and use generic parts that everyone can supply, distribute your supply to multiple suppliers, select countries based on security, buy and store a lot of product, maybe.

The word miracle is perhaps a little strong, but the robustness of global supplies has been damned impressive during Covid. I know there’s been a few problems, but you’ve barely noticed them.

It would be interesting to know exactly what proportion of world bearing production is under the control of the Chinese Communist Party, and what exactly would happen if they suddenly said ‘No more bearings for you!’

This scenario assumes the CCP can do such a thing without cost to China’s economy, which is something that strikes me as unrealistic. China is the largest exporter in the world, and there is no possible way that economy could withstand a significant reduction in exports… Chinese domestic demand couldn’t come close to offsetting such a reduction.

China exports roughly $500B to the USA annually, and imports $120B. Does anyone really think China sits in the catbird seat in its relationship with the USA with that sort of export/import ratio?

The problem with the debate always boils down to the simplistic interpretation that if you cant drop it on your foot it ain’t manufacturing.

Just to add to those blurry lines between manufacturing and services. The company that makes care parts is manufacturing and the company that pulls those parts together to produce the end car is also manufacturing and not only that they are deified by many politicians.

Applying that to my own industry, telecoms. The companies that make the various electronics, boxes for the electronics, cabinets, antennas, powers supplies etc are classed as manufacturing. But what about the telecoms operator who buys all those in and builds their own sites, is that manufacturing? In the car analogy they should be deified.

What about the engineers who plan where those site should go, what equipment should be on them, how it should be configured, how they should be connected, how handovers should be set up etc, are they manufacturing? When I was doing that stuff my time was capitalised. How about when I was doing exactly that same job, overseas but UK based, was I in a manufacturing company or service company?

I think I can play this game.

I used to produce a lot of paper. That was manufacturing.

Now it’s all stuff on a screen that no one ever prints out. More like porn …

@Tim the Coder

I hoped the “embuggery” would make the tone clear but there’s indeed great communicative power in a couple of misused punctuation marks 😉

Oddly I’ve done a fair bit of freelance work the other way round, generating export revenue for the UK while mailing off contracts to Asia and Africa. In practice, regardless of the formal legal regime, I suspect my rights are the square root of diddly squat – I recall one contract where I acknowledged in the event of any dispute I would have to sue them in Beijing, fat chance of that. And goodness knows what Chinese equivalents of our labour laws, self-employment definition, tax and NI are. The whole thing is basically skipped over.

Re the official stats, I think the ONS is primarily interested in the economic substance and knows this doesn’t match the silly buggers that get played with the taxes etc.

@BIND

Yes, also related to the enviropanic over how we need to stop economic growth now or else somehow we will run ouf of Stuff that we can Make Things With. Can’t have infinite growth on a finite world! Without really grasping it’s about value, and a particular configuration of Stuff may have greater value despite consisting of less Stuff (or indeed even because of it – wouldn’t want to drop an early 90s brick of a phone on your foot, compared to today’s).

When thinking about the industrial might of China it’s worth reflecting how much of the value chain they’re grabbing and which bits. In terms of the everyday stuff that Jim rightly points out they dominate in, how much does it matter that my pencil sharpener or phone case was Made In China? When it comes to telecoms kit, different considerations apply of course..

Another point about those local lockdowns and banning multiple families getting together – just by coincidence those areas are predominately Muslim and its Eid Mubarak. Just saying.

“This scenario assumes the CCP can do such a thing without cost to China’s economy, which is something that strikes me as unrealistic. China is the largest exporter in the world, and there is no possible way that economy could withstand a significant reduction in exports… Chinese domestic demand couldn’t come close to offsetting such a reduction.”

Who would collapse first if the Chinese pulled the plug on anything coming out of China, them or us? Western society runs on ‘just in time’. It doesn’t have any fat built in. It wouldn’t take long for shortages of crucial parts and materials to build up and for infrastructure to start falling apart. I saw it on the farm with covid. It was only a few months, but spares suddenly became hard to get. The part you need doesn’t have to be made in China, maybe the machine that makes it was, or the lorry delivering it has broken down and needs a part made in China.

Yes a cessation of trade would hurt the Chinese, but I reckon they would survive better than us. If food doesn’t hit the supermarket shelves every few days, the UK would descend into anarchy rapidly. We have gotten ourselves into a situation where the continued existence of our society is dependent on the kindness of strangers, which seems a pretty piss poor management to me.

But manufacturing output is only a shade off the record levels of the 00s. And distinctly larger than pre-Maggie etc. Like times larger.

Remember – its not how big a slice of pie you get, its how much bigger your slice is than everyone else’s that’s important.

Mr Lud… Legal porn is my Megan thrill at the moment

With all this foolish yellow peril stuff going on at the moment I wouldn’t be surprise if China decided to implement a punishment embargo on one of the sabre rattlers. Not the USA, but maybe the UK. Like, “you want to keep slagging us off? Fine. Two can play at that game.” and suddenly we can’t get any bearings, capacitors or substandard LED lights that want to kill you.

What I find amusing in a Spockish eyebrow raised kind of way is that the argument is that we can’t trust Huawei so we should buy stuff from them. The conclusion being therefore that we are relying on trust for security. Which means nothing is secure. If you can’t independently audit the security of your IT, you haven’t got any. Just the hope that whoever you did buy it from “wouldn’t do that would they?”

Anyway, regarding the main argument, there is a reasonable case that making a much smaller proportion of a much larger economic sector is a cause for concern, even if it hasn’t shrunk in absolute terms. The same output from farming as in the 1600s would be quite a worry, for instance.

“People chose this. What’s your solution? Round the country up with a wall and shoot anyone who tries to import anything? Then all you’ve done is import the dictatorship.”

Western governments have chosen this, the people didn’t get a say in the matter. Western States have spent the last 30 years making it harder and harder to do business in their countries, particularly of a manufacturing kind. The whole Green bollocks has driven vast amounts of economic activity overseas, to places that don’t give a stuff about CO2 emissions, or what gets dumped in the nearest river. Yet all those goods produced in such places have been allowed in the country with not a so much as a sideways glance. Why do you think we have an economy completely unbalanced with its obsession with buying and selling houses to each other at ever increasing prices? Because its impossible to make money at anything else. Why try and start a business that creates real wealth when all the State will do is try and close you down at every opportunity? Far better to scam people out of their lifes savings by selling them ‘private pensions’ and the like. Western economies are basically spiv economies, everyone trying to make killing at the expense of everyone else, because creating real wealth (making stuff) can only be done abroad.

Western governments have chosen this, the people didn’t get a say in the matter. Western States have spent the last 30 years making it harder and harder to do business in their countries, particularly of a manufacturing kind.

You chose to allow that to happen. You chose to buy the products made outside of the country.

But putting that aside – you’re complaining about governments forcing this on people but then what? Have the same governments forcing something different on people? Its still coercion.

Making “stuff” isn’t the only way to create wealth… there’s more than one way to add value, and they don’t all involve things that hurt when you drop them on your foot.

Ever heard of the physiocrats, early school of French economists? They reckoned that agriculture was the only source of true wealth, and all this namby-pamby town-dwelling crafts and manufactures lark was just worthless make-work for people who could no longer contribute in the only place that really mattered – the fields.

If they’d had someone open their minds so far as to accept that actually manufacturing is as valid as agriculture, but it’s those namby-pamby town-dwelling services workers who were doing nothing of value, they would still be wrong.

Mind you, if you’re a country that specialises in the culture and entertainment industry, pharmaceutical research, financial services and IT, and doesn’t do anything else whatsoever, you could probably do without getting yourself bogged down into any big wars or having your transport routes shut down by some natural or man-made disaster. It wouldn’t be the most resilient of places, and that has value too. Overall though Britain’s a surprisingly complex economy that does a little bit of almost everything. Have a look at this interactive diagram of UK exports (not sure if the link preserves all the settings, you may need to switch Imports to Exports) then change “UK” to Norway / Ireland / Australia / New Zealand / Russia / Slovakia (big car exporter) to see what a less diversified economy looks like – it’s really quite dramatic. Also quite fun are Iceland, Greenland, Mongolia, Madagascar, Mauritius and Nigeria … they’re all pretty guessable if you know something about the place.

(Somewhere in the back of my mind I think there’s a site with a similar visualisation but where the categories get broken down further, e.g. “Metals” is split up into the different metals that are produced, but I can’t seem to find it. If anyone knows/remembers it, that would be great.)

What I know about manufacturing ball bearings you could write on the side of Guy Gibson’s dog and still have room for the Magna Carta.

However I notice that well within my lifetime almost all Chinese made a very poor living wallowing around in pig sh!t following in the wake of a water buffalo. Now they are a major producer of steel – and, as some have said, ball bearings.

So if the Chinese chose to cut off of the West’s supply of ball bearings or rare earths or pagolin dumplings or whatever, it would not take long for a new industry to spring up somewhere – maybe Vietnam or Indonesia or even Sheffield – so supply us. After all the Chinese did it in two shakes of a lamb’s whatsit and so obviously it can be done. Maybe not in the length of time it takes to win a World War but by most standards, really a blink of an eye.

@Jim July 31, 2020 at 9:56 am
Bearings: SKF, Schaeffler and more would strongly disagree

Bongo
July 31, 2020 at 10:36 pm

. . . I’m sure if I was a resident, and lived somewhere in the USA I couldn’t legally rent my body out, or gamble, or take drugs, or hire someone based on merit then my view might be different.

There is, literally, no place in America where you can do all those things. I don’t think there’s any place here where more than two of those things are legal at the same time.

really, it’s easier to just send two blokes with a knife after someone and threaten to kill them if they don’t put their finger on the back of their phone.

Known, in the industry, as “rubber hose cryptanalysis”. There is, as usual, a relevant xkcd:
https://xkcd.com/538/

@ Bloke in Wales
IR35 was introduced by – no prizes for guessing – Gordon Brown as an anti-avoidance measure with the impact on the genuinely self-employed viewed either as “collateral damage” or as a welcome side-effect (the self-employed are naturally opposed to rule by the TUC).

“Mind you, if you’re a country that specialises in the culture and entertainment industry, pharmaceutical research, financial services and IT, and doesn’t do anything else whatsoever, you could probably do without getting yourself bogged down into any big wars or having your transport routes shut down by some natural or man-made disaster. It wouldn’t be the most resilient of places, and that has value too. ”

Exactly. Being wonderful at making F1 cars or coding computer games might be creating ‘wealth’ of a sort, but F1 and Call of Duty are not essentials for life. When the shit hits the fan we don’t need them. Nor do we need all the hospitality trade, as covid has shown. We need food, energy, water, transport and the like, and the infrastructure to make and sustain those things. The UK doesn’t have that. Its can’t sustain the basics of society from within its own resources, and as such its fucked if the people who do control those resources say ‘Bugger off’ suddenly.

“But (as has been pointed out several times) it’s diversity of supply that matters. If the EU suddenly decided they won’t sell us any more cheese, other cheese suppliers would be very happy to step into the breach.”

There isn’t much diversity of supply though is there? More and more world trade is split up into blocs, if the bloc (or the big player in the bloc) decides that you are persona non grata then no country from that bloc will dare supply you.

And of course we are talking about more strategically important things than cheese. If something like bearings is in short supply globally finding a new supplier is going to be difficult, everyone is going to be looking for the same. You can’t even trust your so called allies, as we found out with Macron and the PPE supplies he stole as they passed through France to the UK. You can agree whatever contract you like with Bearings Inc of Uzbekistan, if the lorries delivering the goods get impounded on the way to the UK there’s bugger all you can do about it. Might it not be sensible to have at least one bearing manufacturer in the UK that you can rely on, and a steel industry that can supply the required steel?

@Jim August 1, 2020 at 4:22 pm

As has been pointed out, there are many bearing manufacturers in UK. Mostly high tech steel, alloy and plastic bearings. Many will quickly make one off bearings to your spec too

They can make mass market bearings and would if RoW cut us off