Looking beyond the banking crash

Mar 05 2009 by Nic Paton Print This Article

Our banks have been such an important and dominant engine of the global economy for so long that it is hard to imagine a world beyond them.

But now they have been so comprehensively broken on the wheel of their own hubris and arrogance, it is important managers look at what are likely to be the alternative drivers of growth in the economy in the future.

According to two new British reports, while the banks flail about, managers and politicians should be focusing their attentions on building and supporting a new economic world order driven by high-tech, knowledge-based manufacturing industries.

Green and environmental businesses, nimble service-oriented manufacturers, biotech firms and healthcare and creative industries could all point the way in leading us out of recession, according to a reports by the National Endowment for Science, Technology and the Arts (Nesta) and The Work Foundation.

This may seem somewhat counter-intuitive, given that many manufacturers and industries right now are shedding jobs left, right and centre and contracting rapidly.

But, Nesta has argued, this recession needs to be "attacked" in just this sort of a way if we are ever to clamber our way back to growth and prosperity.

In a research paper it has called for a strategy to be formulated that goes beyond simply responding to the economic buffeting of the recession and actively looks at ways forward.

"The UK should aim to emerge as a more innovative, greener, more sustainable and diversified economy," it argued.

The key was to develop new growth sectors to would make up for the dynamism that has been lost from financial services, it suggested.

"The development of those growth sectors will require a mix of intelligent public investment, partnership with business and entrepreneurship," it has urged.

"Decisive government leadership and public investment will be critical to innovation in many fields, from scientific research to cultural funding," it added. Within this context, green energy, creative industries, environmental services, biotechnology, healthcare and services for an ageing society were all likely to be key areas of future growth.

By 2013, for example, the green economy and healthcare could have a combined market size of £93 billion, it estimated. And the creative industries, in turn, could contribute some £85 billion. "These need to form part of a national economic strategy able to set long-term goals, and with the political credibility to help deliver them," the report suggested.

Within this there would need to be more decentralised entrepreneurial activity, and more active searching for new markets and opportunities.

And at its heart the UK would need a "total innovation" strategy that brought together public and private, social and commercial innovation and entrepreneurship.

"The recession will create a new platform of growth if business entrepreneurs emerge to take opportunities in new growth industries and social entrepreneurs address emerging social challenges," it emphasised.

At the same time, The Work Foundation has suggested that loan guarantees and emergency funding ought to be extended to the manufacturing sector, as that is where much of the future prosperity of the country now lies.

In a new report it argued that with Britain's strength in financial services in question, high- and medium-tech manufacturing businesses that have also developed strong service portfolios on top of their traditional product offerings, what it termed "the manu-service sector", represented one of the best hopes for the upturn.

The old thinking of separating manufacturing and services did not now reflect the inter-connected, interdependent nature of modern manufacturing, it suggested.

Instead companies such as Rolls Royce made as much, if not more, money from service contracts, sales of licences and hours of flight time on their engines as from the engines themselves.

Car makers ran finance houses and pharmaceutical companies offer healthcare services as well as drugs, it pointed out.

Moreover, high- to medium-tech manufacturing was now producing nearly as much added value to the UK economy (10 per cent) as high-tech services (11 per cent).

Therefore, backing manufacturing and ensuring it had access to the necessary finance to continue to evolve and grow was absolutely imperative, it argued.

The same criteria used to support the financial service sector through the recession Ė "timely, targeted and temporary" - should be extended to manufacturing, the foundation recommended.

Ian Brinkley, associate director at The Work Foundation, said: "The question needs asking Ė what are we going to live on in the future? Modern manufacturing is once again facing a battering from the recession, but it would be a big mistake just to write the sector off.

"We need to preserve as much of the industrial base as possible because once it is lost it is near impossible to get back again. Despite the mythmaking around the demise of manufacturing, the sector remains extremely important for jobs, exports and GDP," he added.