Who is failing British workers?
Today we are told that the UK economy has grown only 0.2 per cent in the second quarter. Earlier this month Siemens, a German company, won the UK government’s Thameslink procurement contract. Winning over Bombardier, a Canadian company operating in Derby, which will be forced to cut its workforce by 50 per cent to 1,500.
This is obviously a huge loss. A failure, for British workers and British companies. But whose failure?
We have been hearing that the Government made a mistake and that it should have chosen Bombardier in order to protect British workers. But given EU procurement rules which require European countries to choose the bids that are best on price-quality grounds, is it so surprising that Siemens, a company that has won many awards for its green technologies and based in a country that has one of the most activist and dynamic industrial policy, has won the £3billion Thameslink procurement contract to build modern, faster and greener trains? Siemens probably won based on their more innovative technology, which promises to provide better quality for money, notwithstanding the fact that German labour is more expensive than UK labour.
Germany, a nation similar to the UK in many ways, has been forced to institute its own austerity budget as a result of the banking crisis. Overall federal expenditure is being cut from €319.5bn last year to €307.4bn this year, yet funding at the Ministry of Education and Research is rising by 7.2 per cent, which includes €327m for university research excellence, and support for research and development (R&D) at the Federal Economics Ministry is also increasing. This is congruent with Chancellor Angela Merkel’s past argument that “the prosperity of a country such as Germany, with its scarce mineral resources, must be sought through investment in research, education and science, and this to a disproportionate degree”.
Thus, after the crisis, Germany has spent more not less on R&D, precisely as part of their recovery strategy. And the confidence this has given to business is currently reflected in their high (compared to the rest of Europe) growth rate. Today’s low growth rate for the UK economy, a mere 0.2 per cent, is a direct reflection of its growth through cuts rather than grow through spending (on green and other high growth areas) Plan A.
The UK instead believes that winning the globalisation game can be done via ad-hoc policies. Procurement needs to be part of a more systematic approach to industrial policy. It is not about protectionism but about having a system that opens up new opportunities, brokers the interaction between public and private agents, and facilitates commercialisation.
But most importantly, if it wants to compete with countries like the US, the UK needs more state not less. In The Entrepreneurial State, I argued that Silicon Valley was a result of an activist, albeit decentralised, state, engaging through various agencies (DARPA, SBIR, NIH, NSF, etc) in the most risky technology, with no dream that the private sector could be simply nudged. From pharma to computers to the internet to today’s nanotech, the US state is making large investments in early stage high risk technologies, and engaging actively with commercialisation though its public investments in new early stage firms and contracts for small firms.
So, the Government should be blamed, not for choosing Siemens’ greener trains, but for not having the industrial policy that is currently guiding Germany into high growth territory, and driving the UK downhill – as evidenced by today’s dismal growth figures, and even more dismal projections in the future. A green-oriented Plan B is screaming for attention.