The UK is a wonderful place to live for many people,
but it has its dark side too.
At one time, we were the workshop of the world,
nowadays, away from high-tech industries
such as aerospace, vehicles, pharmaceuticals and arms,
we manufacture almost nothing.
Our shops are full of imported products,
mostly made in the Far East.
This film is about why this is happening, and what we can do about it.
As late as 1970,
almost a third of our national income came from manufacturing.
Now it is barely ten percent, and this is not an accident.
It happened as a result of policy decisions
taken with the best of intentions,
but with dire side effects and unintended consequences.
In the 1970s and 1980s,
everybody was worried about inflation,
which was indeed very high, and a real problem.
The solution adopted across most of the western world
was sky-high interest rates to squeeze inflation out of the system.
Now look at this graph highlighting what happened to the UK exchange rate.
It went up by about 60 percent
between the late 1970s and early 1980s.
Meanwhile China, on returning to the trading world,
devalued by about 75 percent.
This was the first major shock to the UK's industrial base.
The result was a wave of factory closures in the UK,
as manufacturing fell
from 32 percent of our national income in 1970
to 20 percent by 1990.
Over this period,
the number of people working in manufacturing jobs in the UK
fell from 6.6 million to 4.8 million.
But there was another shock to come.
From the late 1990s onwards,
the UK went on an unprecedented selling spree.
Unlike any other country in the world, all our national assets were for sale.
We sold our ports,
our airports,
our football clubs,
our power stations,
our utilities, water and gas,
and most of whatever industry we had left.
UK car manufacturing is now almost completely under foreign ownership.
As are two thirds of all UK manufacturing companies
employing more than 500 people.
Because of these huge sales, the exchange rate went up again,
and stayed at about two dollars to the pound.
This made it far more expensive to produce almost all medium- and low-tech products
in the UK, rather than in the Far East.
The inevitable result was another huge round of closures
as further swathes of UK industry went out of business.
Now, only ten percent of our national income
comes from manufacturing,
and only 2.6 million people are employed there.
Does this matter?
Yes it does, for three key reasons.
One is that productivity increases are much easier to achieve
in manufacturing than they are in services,
so the more manufacturing there is, the faster the economy is likely to grow.
Manufacturing produces ten percent of our GDP,
but only employs eight percent of our labour force.
So productivity's about 25 percent higher, on average,
in manufacturing than it is in services.
The second is that wages, conditions,
output per hour and job satisfaction
are all much higher in manufacturing
than they are in far too many service industries
where the pay is low and insecure.
Far too many people in the UK have lost out from globalisation
as they have seen the good, blue collar jobs
which they and the generation before them had
disappearing off to Asia.
Third, most of what we sell abroad
is still goods rather than services,
and nowadays we simply do not have enough
to sell to the rest of the world
to pay for our imports.
The result is that we have a massive foreign payments problem every year,
about six percent of our national income.
To plug this gap, we have either to borrow money,
or to sell assets on a massive scale, every year.
And this is what we are doing.
We are selling UK national assets to foreign interests,
at a rate which enables us to enjoy a living standard
about six percent higher than we are actually earning.
This is madness.
It is completely unsustainable, and cannot last.
We have to put things right,
otherwise we are going to see the economy
flatlining into the indefinite future
as wages stagnate, inequality gets greater,
and we run up more and more debt which we will never be able to repay.
What can we do about this situation?
Well first, there is plenty upon which everybody can agree.
We need better roads,
schools,
hospitals,
rail services,
and housing.
We need much more focused education and training,
especially in technical subjects.
We need to reform our banking system,
we need to make sure we have enough energy,
but these supply-side reforms on their own are not enough.
We also need to make sure
that there are the right signals from the demand side,
and this takes us back to the exchange rate.
The UK has a very divided economy.
We have huge natural advantages
such as our language, geography, legal system, and skill base.
This means that our service industries,
which are not generally very price-sensitive,
can operate fine
with an exchange rate perhaps as high as $1.50 to the pound.
This is why we have a big export surplus on services,
running at about £80 billion a year.
Unfortunately, however, this is nothing like enough to offset
the much larger deficit we have on goods,
which is about £130 billion a year.
We can't, therefore,
afford to have an exchange rate
which just suits services.
We need one which works for manufacturing as well.
And because we have far fewer natural advantages on manufacturing,
and because markets for goods are much more price-sensitive
than they are for services,
We need a much lower exchange rate
to get manufacturing in the UK back on its feet again.
How low would the pound have to be?
Look again at where we are vis-à-vis China.
We don't need to be fully competitive with the Chinese,
because it costs a significant amount, typically about ten percent,
to bring goods from the Far East to the West.
We also have the benefit of strong service sector exports
but we will have to close most of the gap
between Chinese and UK costs
to regain the competitiveness we need in world markets.
To get the scale of investment in light industry we need,
the pound will have to be rather lower than this,
perhaps at $1.10 or a little less,
and for a simple reason.
Unless it is profitable to invest in manufacturing industry,
it won't happen.
And we have to make sure that it does so,
not only by getting the pound down to where it needs to be,
but with the government committed to keeping it there.
And no-one is going to make the necessary investments
if they think that as soon as the economy shows signs of recovery,
the pound will go back up again.
After the EU referendum,
the pound went down, from $1.45 to $1.22,
by the autumn of 2016.
What would happen if we could rebalance the UK economy again,
so that it produced enough goods to enable us to pay our way in the world?
There is a huge prize to be won.
We can get the economy to grow at four percent or five percent per annum
and crucially, the benefits of globalisation
would be spread much more evenly.
We would stop accumulating debt
which we are never going to be able to repay,
we would have a solid and sustainable future.
With an unsustainable balance of payments deficit
of six percent per annum,
this really should not be too difficult.
We could use the tax and regulatory system
to restrict capital imports.
The Bank of England could be made to aim at getting and keeping the pound down,
rather than holding it up.
The government needs to have an exchange rate target
which the markets understand.
Plenty of other countries in the world do all of this.
There is no reason why we could not do so as well.
So why don't we do it?
It's because we've been brainwashed into thinking it's impossible.
But it isn't.
We can achieve all of this transformation
if we realise that the objections
to a lower pound are all based on flimsy grounds.
What are they?
People claim that the exchange rate can't be changed
because it's fixed by market forces,
True, but governments can easily influence what markets think,
and they do this all the time.
The Japanese recently brought down the value of the yen by a third.
If they can do this, so can we.
Would inflation go up?
Import prices would have to rise,
but on all past experience,
inflation generally would almost certainly not increase.
Price rises actually fell
when we came out of the Exchange Rate Mechanism in 1992.
The rate of inflation barely flickered when the pound went down from $2 to $1.50
over the period of the crash between 2007 and 2009.
Would there be retaliation?
Very unlikely.
There wasn't any when the pound went down from $2 to $1.50
between 2007 and 2009.
With our huge balance of payments deficit,
it is obvious that something needs to be done
to get our huge foreign payments imbalance under control.
Some people have claimed
that if the pound goes down this must make us all poorer.
If you measure living standards in dollars, of course this is true.
But people in the UK do not shop in dollars.
Would a lower pound really make a difference?
History indicates that both in the UK, and elsewhere,
that it definitely wouldn't.
The problem with the UK
is that we have had an overvalued pound for so long
that the devaluations we have had in the past
have almost all been too little and too late.
Finally, we are told that the UK is no good at manufacturing,
so we should not try it.
What rubbish.
The UK invented the Industrial Revolution,
and we still have some outstandingly successful companies.
If light industry was profitable, of course people would go for it.
But they will not do so if the pound is so strong
that it is impossible to make any money
by investing in most sorts of manufacturing.
Now let's look at the upsides.
If, for the first time for many years, we had a really competitive exchange rate,
say $1.10, or even $1 to the pound,
this is what we could then achieve.
We could get the percentage of our national income
we spend on physical investment every year
up from 13 percent, one of the lowest in the world,
to north of 20 percent.
And this is how to crack our productivity problem.
We could get the economy reindustrialised, not least in our industrial heartlands.
This will make globalisation work for everyone,
not just in London,
and a few other favoured areas of the country.
We could pay our way in the world,
instead of having huge foreign payment deficits every year
because we do not have enough to sell to the rest of the world.
We could stop running up debts which we cannot repay,
both as a country, as consumers, and through our government.
We could get the economy to grow
at perhaps four percent or five percent per annum.
And we could then get real wages rising every year, on a sustainable basis.
By spreading prosperity much more widely than we are at the moment,
we could begin to reverse the huge inequalities
which disfigure our society at present.
Now, here is a vision which is really worth pursuing.
Will you join us in pressing to get it implemented?