Reindustrialising regions: rebuilding the manufacturing economy?

In many OECD countries, over the past 30 years or more, the contribution of manufacturing to national employment and output has fallen markedly. This process of ‘deindustrialisation’ has been attributed to several factors: the rise of cheap production competitors, such as China, and a surge in import penetration; ‘offshoring’ and the relocation of manufacturing activity from Western nations to lower cost locations elsewhere in the global economy; technological advances, which have reduced the demand for labour per unit of output; inadequate investment and innovation; and a shift in consumer tastes towards services, to name but some. There has also been a widespread view that this process is not in fact problematic and should be seen as ‘positive deindustrialisation.’ The reasoning is that Western advanced nations should focus on knowledge intensive services, finance, and so-called ‘creative’ sectors, and leave manufacturing to the newly industrialising and industrialised nations. But recent developments and events have brought this view into question. Knowledge intensive services are not the panacea for growth that many imagined, and they have proven to be far from recession proof. The banking and financial crisis that erupted in late-2007, the Great Recession that the crisis then engendered, and consequent on-going fiscal austerity programmes in many Western countries, have stimulated a realisation that Western economies have become too imbalanced, too dependent on a narrow range of services, especially financial services, and that there is a need to rebalance economies somewhat, to assign more weight to the contribution that manufacturing can make to economic growth and resilience. In fact proponents of this view emphasise that in some Western economies the decline (both relative and absolute) of the contribution of manufacturing to the national economy should be considered as more the product of failure and weakness, of slow productivity growth, disinvestment, and a lack of competitiveness in overseas markets, than a result of technological advance and wealth effects. They point to structural, managerial, organisational or financial factors that have held back the modernisation and upgrading of a country’s manufacturing industry, thereby hindering its ability to hold on to or to expand overseas markets or even to ward off flows of cheap manufacturing imports from new producers elsewhere, especially in the Far East, and the BRIC countries (Brazil, Russia, India and China) more generally. The problem has been compounded, according to this perspective, by the offshoring strategies of Western domestic producers bidding to reduce costs by relocating production, and sometimes research and development functions, to such cheaper overseas sites, in effect exporting jobs and incomes. The loss of domestic capacity, it is argued, has fed back to reduce home investment in plant and research and development, which has reinforced the deindustrialisation process. Proponents of this ‘negative’ interpretation of deindustrialisation dispute the idea that services have adequately filled the gap left by manufacturing, and moreover point to the failure by national policy makers to support and promote their domestic manufacturing base. In reality, the manufacturing performance of the Western economies, regions and cities has been highly uneven, with some showing impressive rates of innovation, productivity and output growth. At the same time, rising labour costs in what were previously cheap manufacturing countries possibly signal an end to the progressive shift of world industry to these zones, affording scope for a revival of manufacturing in Western economies. And, in any case, the growing wealth of the BRIC bloc opens up significant export opportunities for Western manufacturing firms. Thus, contrary to what many were predicting, manufacturing in Western economies may not be fated to grow slowly at best over coming decades. As Fingleton (In Praise of Hard Industry, 1999) argued nearly a decade and a half ago. the gloomsters could hardly be more wrong.… it is absurd to suggest that the world’s manufacturing industries are suffering from a general glut of capacity. In the twenty-first century, as in the past, the world’s consumers will be more than happy to increase their consumption as fast as their budgets will allow, and that they will provide a ready market for all the merchandisable goods that can be made, Moreover, they will increasingly insist that these goods be made in the most environmentally friendly ways possible. All of this adds up to a historic challenge for the world’s leading manufacturers—and an historic opportunity (op cit, 165). What then is the scope for, and the limits to, reindustrialising the regions of Western advanced economies? There are signs that some former leading industrial regions that suffered from deindustrialisation are finding a ‘second wind,’ with signs of a revival of manufacturing activity. Are such regions shifting into new manufacturing activities? Or are their prospects shaped, or hampered, by their past specialisms? How does regional path dependence influence and condition the opportunities for reindustrialisation? Why have some regions experienced faster rates of deindustrialisation than others? How are manufacturing firms and regions responding to disintegrated production networks? What sort of strategies and policies are needed to revitalise and revivify manufacturing in the regions of the advanced economies? The purpose of this Special Issue of the Cambridge Journal of Regions, Economy and Society is to address these and related issues. World manufacturing value added has been growing rapidly in recent years. Over the period 1992–2012 it expanded in real terms by 80% to represent some 8.9 trillion US dollars (constant 2005 prices) (United Nations Industrial Development Organization, (UNIDO, 2013). By 2013 the sector was generating some half a billion jobs worldwide if allowance was made for associated formal, informal and manufacturing-related services. This was 16% of the World workforce (UNIDO, 2013). There has also been significant change in where manufacturing value added is created around the world. In 1992, 82% of it was in the industrialised economies and much of this in the West. The remaining 18% was in the industrialising countries. By 2012 the proportion in the traditional industrialised economies had fallen to 65%, with 35% in the industrialising nations (UNIDO, 2013). The five countries of China, India, Mexico, Brazil and Turkey accounted for some 70% of world production, with China representing half (UNIDO, 2013). The pace of change across the traditional industrial nations of the West has been quite varied (Table 1). In 1970, it was estimated that there were around 140 million direct jobs world-wide in manufacturing with nearly 39% of these being in the industrialised group of Italy, France, Germany, the UK, USA and Japan. By 2010, of world-wide direct employment of 200 million, just over 17% of this was in these countries. In contrast China’s share had increased from 10% in 1970 to around 34% in 2010. Manufacturing employment, 1970–2010: millions and share of global manufacturing employment): selected nations Source: UNIDO (2013). Manufacturing employment, 1970–2010: millions and share of global manufacturing employment): selected nations Source: UNIDO (2013). Tables 2 and 3 provide further insight into how the character of manufacturing activity varies across countries and how it has changed. Thus, in 2011 Japan and Germany had the highest manufacturing value added per capita at around US$7000 (2005) per capita. Chinese manufacturing gross value added (GVA) was some 14% of this. However, whilst Japanese and German manufacturing value added had changed little in real terms over the period 2006–2011 in China it increased by 68%. The older industrialised nations of the West like France and the UK continued to experience a reduction in the share of their national GVA associated with manufacturing over the period but in the USA the relative share remained much the same and although there was a small reduction in Germany the share was still virtually double that of the UK. Manufacturing gross value added: various countries Source: UNIDO (2013). Manufacturing gross value added: various countries Source: UNIDO (2013). Manufacturing exports: various countries Source: UNIDO (2013). Manufacturing exports: various countries Source: UNIDO (2013). The USA was responsible for 20.5% of world manufacturing exports in 2011, with China at 16.4%. Whilst the USA’s proportion had fallen over the period 2005–2011 in China it was still increasing relatively quickly. All of the other major Western manufacturing producers were losing world market share. Table 2 also shows that there were significant differences between the countries in their share of manufacturing output in high tech and medium tech activities. In Germany and Japan, the proportion was above 50% but considerable variation across countries is evident. The export performance of the German economy, particularly in the higher value added technology sectors, indicates a resilience in manufacturing that has been much less apparent in the UK. The German economy increased its manufacturing exports per capita substantially over the period (Table 3). And whilst the German economy lost a little of its share of manufacturing world trade, it still had a share that was three times that of the UK. The relatively higher value added (VA) associated with Korean manufacturing also stands out, as does its ability to increase its presence in medium and high technology sectors. This brief overview highlights that, whilst world production of manufacturing goods has been shifting relentlessly away from the traditional industrialised countries to newly industrialising countries, deindustrialisation in the former has been highly uneven. In addition, the economic disruption of deindustrialisation, to jobs and incomes, has not been felt equally across regions and cities. While some places have been able to adjust and adapt, and to re-orientate their economies around service activities, others have been much less successful in doing so. Neither deindustrialisation nor the rise of services has been a spatially neutral process. In some nations, such as the UK, manufacturing as a share of total regional output has continued to decline in all regions. However, in other countries, there are far more variable outcomes, with some regions showing signs of a turnaround in the importance of manufacturing in their economies. A good example of this is the USA where over the period 2003–2011 10 states increased the relative share of manufacturing GVA in their economies by over 10%. In Texas, Utah and Oregon the increase was 23%, 28% and 76%, respectively. The papers in this issue consider the potential for, and determinants of, a revival in manufacturing regions and how this may be best supported by policy. There are several key themes and questions that run through the papers. The first is whether, how far and in what ways old industrial regions have benefitted from reindustrialisation considering its limitations and constraints, particularly with regard to employment and workplace governance. The first paper by Rutherford and Holmes (2014) uses a study of the Great Lakes automotive region to critically evaluate the concept of resiliency and manufacturing resurgence. The authors argue that the region has a number of key accumulated strengths and advantages in automotive manufacturing, especially in research and development and specialised skills. Investment in and the exploitation of these assets demonstrates how the recent regional industry trajectory resonates with the concept of resiliency. However, the authors argue that resilience needs to be reframed to take more account of global production networks, including transnational corporation (TNC) strategies, and the restructuring of workplace governance and relations. With this reframing, they are cautious about the potential for regional manufacturing revival, highlighting worsening terms and conditions of work. Global competition has meant that regional employers have reduced their labour costs, made contracts more flexible and turned away from unionisation. Indeed, the authors conclude that the breakdown of the region’s unionised settlement may make it harder for the region to follow a high-wage, high-skill trajectory and may lead to a widening divergence between the interests of TNCs and those of the regional workforce. The second paper continues the focus on the automotive industry and its global networks. Bailey and DePropis provide an overview of the extent of reshoring in UK manufacturing and discuss the degree to which UK manufacturers are repatriating parts of their value chain that were previously offshored (Bailey and De Propris, 2014). The authors conclude that reshoring is a perceptible trend but that its extent has been limited. In their view, the perceived risks of geographically extended supply chains and the servitisation of manufacturing imply a significant reshoring opportunity. However, the case of UK automotive demonstrates that reshoring in the UK is severely constrained by the lack of coherent supply chain systems, the shortage of high-skilled labour and the lack of finance for small and medium-sized enterprises (SMEs). The authors conclude that there is little hope that domestic supply chains will be rebuilt without a pro-manufacturing industrial policy that provides incentives for reshoring. A second key theme concerns the role of path dependence in traditional manufacturing regions, and how it is that actors can adapt and turn this legacy into a resource. The paper by Amison and Bailey (2014) takes up the idea of ‘Phoenix industries’ (Christopherson, 2009) to describe the revival of clusters of SMEs in former industrial areas. The paper asks whether the cluster of automotive design and engineering firms in the West Midlands, UK can be seen as a Phoenix industry. In some ways this cluster of specialist service and niches firms, many supplying Jaguar Land Rover and other multinational corporation producers, does resemble a Phoenix industry as its firms exploit their personal networks and inherited knowledge. However, the authors point out that, despite its upturn, the cluster has failed to develop some of the key Phoenix industry features such as a strong supply of skilled labour and development finance. Nevertheless they conclude that the turn to open innovation has allowed this specialist cluster to re-establish its reputation and offers a potential base for further growth. Greco and Di Fabbio (2014) examine the causes of path dependency in Taranto, Italy and consider the ways in a deeply rooted lock-in to steel production may have been broken. In this case, the authors show that path dependency has its roots in a political and institutional clientelism and a cultural and cognitive framework that was blind to alternatives. However, the authors argue that privatisation of the key steel firm and its shift to flexible and non-unionised labour relations has caused local actors to question their allegiance to the existing path and its damaging effects on health and the environment. Privatisation has unintentionally broken the region’s coalition of interests and opened up a space for its actors and civil society to begin to imagine alternative economic trajectories. A third theme provides a critical perspective on gaps and opportunities in policy, and emphasises the need to rethink and reshape industrial policy in order to support regional manufacturing systems and rebuild supply chains (Clark, 2014). Clark argues that manufacturing has suffered from an absence of appropriate and supportive policy. In her view, the potential for a manufacturing revival lies in the networks of small producers that have survived deindustrialisation, together with the small firms emerging with a new round of craft-based flexible specialization. Crucially, the author insists that these firms need to be supported by regional intermediaries that can build collective agency and co-operation. Using evidence from the USA, the paper identifies three main types of regional organisations; supply chain intermediaries; innovation intermediaries and labour market organisations. In each case these intermediaries act to resolve co-ordination and knowledge problems and facilitate process rather than product innovation. The paper refocuses industrial policy on a regional intermediary model that is offered as a way of building shared interest and embedding firms in regions. Winther and Hansen also argue that manufacturing policy has been too heavily dominated by high technology industry and this has overlooked the needs of low-tech manufacturing sectors (Winther and Hansen, 2014). Their paper reviews the key requirements of low tech sectors and points to the importance of process innovation, human capital, investment in machinery and new technology and close relations between producers and consumers. The authors critically examine Danish industrial policy and argue that, while its preoccupation with human capital is helpful for all types of manufacturing, it is poorly attuned to these low-tech needs and places too much weight on research and development spending. The paper emphasises the potential contribution of low-tech manufacturing and concludes by suggesting that industrial policy needs to more finely tuned to the needs of different types of manufacturing. A related debate in these papers concerns the scale of action and agency that is fundamental to understanding the causes of manufacturing revival or decline. Bryson and Ronan argue that in order to understand the resilience of manufacturing in traditional industrial heartlands we need to pay close attention to changes in firm routines and capabilities (Bryson and Ronayne, 2014). Looking in detail at the cases of carpet manufacture and technical textiles in the UK, the paper shows that there are considerable differences between the long-established carpet industry and the emergent industry of technical textiles, which prospers by combining chemistry with new forms of weaving. However, the authors argue that both sectors show how alterations to firm routines underlie the potential for non-price competitiveness. These product and process oriented innovations include the use of design assets and libraries, the ability to exploit branding and heritage, and increased speed of delivery and proximity to markets. The paper claims that understanding how firms learn to improve non-price competitiveness is fundamental to the debate about the future of manufacturing regions. Tomlinson and Branston (2014) concur that the firm scale is crucial but also add a broader concern with collective governance by industry groups at the regional scale. 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