The financial crisis has brought many of the UK's problems sharply into focus. But, perhaps most worryingly of all, is the realisation that we no longer make anything, at least, anything that the rest of the world seems to want. Recent data from the Purchasing Managers Index showed that manufacturing activity had fallen to its lowest level for 16 years, while forecasts from the Engineering Employers Federation (EEF) predict a 5 per cent fall in UK manufacturing activity in 2009.
So, with the once raging torrent of credit suddenly turning to a trickle, the UK's dependence on its financial sector suddenly looks very worrying indeed. In 2008, the finance industry directly accounted for 10 per cent of UK GDP and over a million jobs, and is the largest contirbutor to net exports. That doesn't include the huge indirect job and wealth creation that flows from the City.
And, of course, the banking industry has become more critical to the rest of the economy than perhaps ever before. Bank lending underpins almost every other industry – whether it be retail or real estate, the economy has become so reliant on cheap bank credit that, after building up highly leveraged business models that worked in the good times, companies simply do not know how to survive when the taps are turned off.
Is it, then, time to go back to basics? Rather than throwing vast quantities of cash at a financial sector that has proved itself to be little more than a chimera of industriousness, or pumping more and more money into the public sector at the expense of private sector productivity, should we instead be pouring that money into reviving the UK's manufacturing base? The EEF, for one, is calling for more government support for manufacturing.
Yet to many, the vision of restoring the UK's industrial might may seem a rose-tinted solution to the nation's woes. Some think it's too late altogether – manufacturing employment in the UK has fallen by 20 per cent since 1997, mirroring a decline in manufacturing investment.
But, the economic circumstances could mean times are in fact ripe for a rebirth. The pound's value is plummeting, and that makes UK exports more attractive, just as imports become more expensive. And factory prices are falling, too, as the cost of raw materials plummets. It's unlikely, of course, that the UK could seriously compete with the ultra-low cost manufacturing destinations like China, but the UK still has a role to play in high tech manufacturing.
And the de facto nationalisation of the UK banking industry means that it will no longer be able to rely on reckless speculations to generate its profits – a return to the well run loan book of old may be its only way forward, and those loans will be looking for a good home. Well run, export-focused manufacturing industries may, at last, be an attractive destination.
