Industry is dying a slow, lonely death

What's left of the British steel industry was on the edge of the precipice last night. Corus, the company that owns the former British Steel, said further big job losses and plant closures were inevitable to stem losses running at £400m.

Twenty years ago, the idea that a major steel plant faced the axe would have been the cause for great soul searching. Thirty years ago, the plight of manufacturing would have been seen as a reason for a change of government policy. Yet today, the hollowing out of British industry continues almost without comment. We are, it seems, living in a post-industrial world where manufacturing has shrivelled in size and importance. The new Britain is based on knowledge-based services and the hi-tech end of manufacturing.

The Bank of England gave assessment in its latest inflation report of what has been happening to manufacturing. We should not be surprised, the report said, that manufacturing's share of the economy is declining, because as countries become richer they spend proportionately more on services and less on goods. What's more, globalisation has meant some parts of UK manufacturing - the parts that are competing with low-cost rivals elsewhere - have no real future. The "giant sucking sound" for UK manufacturing is booming out from China, where exports rose by 18% a year on average between 1983 and 2000. Back in 1970, less than 10% of manufactured goods sold in the UK were made abroad; today the figure is approaching 60%.

Finally, the Bank points out - correctly - that Britain is not the only country where manufacturing has been falling. The US, France and Japan have all seen similar declines. The difference, however, is that manufacturing output has been rising in other developed countries, but the service sector has been growing more rapidly. In Britain, recent years have seen both a relative and an absolute fall.

Cambridge academic Bob Rowthorn is one who feels that the insouciant attitude towards the withering away of Britain's manufacturing base is a mistake. "Too much manufacturing capacity has been shed, and the failure to develop a more dynamic manufacturing sector may eventually turn out to have serious consequences for the balance of payments and the overall prosperity of the country," he said last year. Almost 90% of the increase in demand for manufactures in the late 1990s - a period when manufacturing was doing less badly than it has been in the past two years - was met through imports.

Explanations for this woeful performance are plentiful. It's the fault of management, which is poorer here than elsewhere. It's the fault of the unions, who are bolshier here. It's the fault of the strong pound. It's the fault of the City, always looking for short-term returns. It's the fault of the education system, pushing the brightest into anything other than industry.

What's indisputable is that the malaise in manufacturing has been with us for decades. Rowthorn points out that in 1973, the US produced an estimated 22% more manufactured goods per head of population than the UK - a significant but modest gap. By 2000 the difference was 91%. America is a great manufacturing nation, he concludes. Britain is not.

Manufacturing matters for a number of reasons. It is a source of innovation, rapid productivity growth, which has spillover effects into other sectors of the economy. Exports of goods are still worth more than five times exports of services, making a robust manufacturing sector indispensable if we are to keep the current account deficit to manageable levels. Finally, the growth in modern service industries has been disproportionately concentrated in the already-wealthy south; manufacturing's well-paid jobs are needed for regional regeneration.

The government's policy for manufacturing is to end boom and bust, thus providing a climate of long-term stability in which manufacturing can thrive. And it is a good dose of market forces. As Gordon Brown said last month: "The best industrial policy for success in a global economy is to help markets work better."

Industry is no longer impressed by such platitudes. It wants help in the Budget to stimulate investment; it wants lower interest rates, it wants a cheaper pound to make it worthwhile doing business. It wants an industrial strategy and it wants it now. The idea that America's industrial renaissance was purely down to market forces is plain wrong: there were activist government procurement policies, there was military Keynesianism, there was heavy spending channelled through the universities on research and development, there was protectionism, there was a helpful macro-economic climate of low interest rates and a cheap dollar in the late 1980s and early 1990s. At Corus, those workers threatened with redundancy will find the notion that the government has abolished boom and bust utterly ridiculous. And even if it had, it would not be enough.