Cross-posted from the Treasure Islands blog:
From the Financial Times, a short video entitled Bright Future for British Engineering? It looks at some promising stuff going on in the Advanced Manufacturing Research Park, a collaboration between the University of Sheffield and Boeing Corp.
The video is notable not just for the fact that the t-word is absent. Nobody seems to be talking about tax subsidies: they are too busy getting on and making stuff and innovating. But the main point I wanted to make now was about a company called Icetope, which apparently makes liquids that can be used to cool computer equipment, without messing up the innards. The reporter dunks his phone into the liquid, just to prove the point. But it’s the short interview with Icetope official Peter Hopton that illustrates the point for me:
FT: Despite the strength of London’s financial centre, Peter Hopton said he had to look overseas.
Hopton: “We’re very good at inventing stuff: but not so good at commercialising and turning stuff into big businesses with big visions. We have a difficult funding culture here in the UK, compared to, say, Silicon Valley. When you have a something that has a big international stage for it, the funding seems to flow over the borders and into the UK.”
It’s a useful anecdote to illustrate what Martin Wolf pointed out in the Financial Times recently:
“As of August 2013, loans outstanding to UK residents from banks were £2.4tn (160 per cent of GDP). Of this, 34 per cent went to financial institutions, 42.7 per cent went to households, secured on dwellings, and another 10.1 per cent went to real estate and construction. Manufacturing received 1.4 per cent of the total. UK banking is a highly interconnected machine whose principal activity is leveraging up existing property assets.”
My emphasis added. So there’s this enormous financial centre on the doorstep, but it isn’t serving what people would imagine is it’s primary purpose. What, then, is the point of all this finance?
Is there a revival in UK manufacturing? Well, if there is, it’s not a particularly big one. But there seem to be some promising signs. The UK manufacturing sector has certainly received a huge boost since the financial crisis, in the form of a massive exchange rate stimulus, with the Pound Sterling having fallen from around 1.50 per Euro to around 1.20 today.
And what brought about this decline in the exchange rate? A massive decline in the UK financial centre, amid the onset of financial crisis back in 2007 and 2008. When the financial sector suffers, the exchange rate falls, the brain drain lessens, and prospects for manufacturing improve.
A less ‘competitive’ financial centre may mean a more competitive country. David Ricardo would have understood.
A Finance Curse, anyone?