House of Commons - Business, Innovation and Skills Committee

Exporting out of recession - Business, Innovation and Skills Committee Contents

Memorandum submitted by Trades Union Congress (TUC)

INTRODUCTION

1.1 The TUC is the voice of Britain at work. Our overall objectives are to raise the quality of working life and promote equality for all. The TUC represents nearly 6.5 million workers in 59 unions. That means that one worker in every four belongs to a TUC affiliated union. Trade unionists include factory workers and computer programmers; office staff and shop workers; bus drivers and airline pilots; teachers, soap stars and fashion models.

1.2 The TUC welcomes the opportunity to give written evidence to this inquiry. We have taken a close interest in the fortunes of British companies, including their ability to export, over many years. We are represented on various Government bodies, including the Ministerial Advisory Group on manufacturing and the Learning and Skills Council. We have submitted evidence to various inquiries and consultations, including the implementation strategy for "The Race to the Top: A Review of Government's Science and Innovation Policies", along with "A vision for science and society", both conducted by the Department of Innovation, Universities and Skills. We also contributed to the Leitch Review of Skills.

1.3 In his Budget Speech on 22 April 2009, the Chancellor of the Exchequer told the House of Commons that the UK is the world's sixth biggest exporter of goods and its second largest exporter of services. Moreover, the TUC agrees with the view of the Select Committee, set out in its call for evidence, both that exporting companies enjoy higher productivity than their non-exporting counterparts, and that exporting can increase a firm's productivity still further. However, we take the view that exports will not simply "happen" as a result of the hidden hand of the market. We cannot "wish" for more exports. Rather, the TUC shares the view, set out in recent academic literature, that there are exporting countries and there are consuming countries. Whichever category a country finds itself in, it is not there by accident, but by strategy.

1.4 To this end, we do not believe that the UK can simply export its way out of recession in the short term. We recognise the discussion, for example in Lord Digby Jones's oral evidence to this inquiry, that UK Trade and Investment (UKTI) has an important role to play and we are open to the idea that UKTI, as well as Foreign Office and BERR operations, on trade missions and elsewhere, could be improved. That might marginally improve our export performance, but it will not fundamentally change the way in which our economy, its aims and objectives, are structured.

1.5 Instead, we believe the current economic crisis provides an opportunity to restructure the shape of the world economy. That forms the first argument of this submission.

EXPORTERS AND CONSUMERS

1.6 The writer that is, perhaps, leading this discussion is the Financial Times commentator, Martin Wolf. In his article, "Why Obama must mend a sick world economy", published on 20 January 2009, Wolf quotes Michael Pettis of Peking University, who has divided the world into two economic camps: "in one are countries with elastic systems of consumer finance and high consumption; in the other are countries with high savings and investment. The US is the most important example of the former. China is the most significant example of the latter. Spain, the UK and Australia were mini-versions of the US; Germany and Japan are mature versions of contemporary China."[71]

1.7 Wolf explores this theme in much more detail in his book, "Fixing Global Finance". Describing China, Wolf says: "Despite having the highest investment rate of any significant economy in history, China has a huge excess of savings over investment … The sources of Chinese savings are also fascinating, because they are so different from what many believe them to be. Chinese households save enormously. But the core of the Chinese savings story over the past five or six years has been the rise in corporate savings … the government itself is also a large saver. China has about 800 million poor people, yet the country now consumes less than half of GDP and exports capital to the rest of the world. This is highly peculiar. It is also why the country has such a huge current account surplus."[72]

1.8 In European terms, the eurozone has been in balance. Germany had a large surplus of savings over investment (5% of GDP in 2006), while Spain had a huge deficit (of around 9% of GDP in 2006). Moreover, Germany, with its historic (and understandable, in the light of its 20th century history) fear of inflation, is happy to keep things this way. Speaking to the Financial Times, the German Chancellor, Angela Merkel, argued that Germany is an over-indebted, export-oriented economy with an ageing, shrinking population. It cannot boost consumption at the expense of exports. "The German economy is very reliant on exports, and this is not something you can change in two years. It is not something we even want to change", argued Merkel.

1.9 So what of the United States? As Martin Wolf points out: "A number of large and important regions have an excess of savings over investment. The United States has, in turn, been absorbing about 70% of the surplus savings in the rest of the world, with the difference accounted for not by increased investment but by higher consumption and a lower rate of savings."[73]

1.10 This leads to an interesting paradox. In her Financial Times interview, Angela Merkel argued that the global financial meltdown is the result of countries, the US but also others, pumping ever cheaper money into the financial system, thereby living beyond their means. "After the Asian crisis (of 1997) and after 9/11, governments encouraged risk taking in order to boost growth. We cannot repeat this mistake. We must anchor growth on firmer ground." The problem with this argument is that, if the US and others did not consume in the way they did, Germany would not be able to sell its exports and its economy would come under even more threat.

The dangers of a strategy based on export-led growth

1.11 In a nutshell, the TUC's message in this submission is "balance in all things". Below we make the case for exports, given the UK's balance of trade deficit. From the perspective of our economy, there are too many imports relative to exports. This could lead the observer to conclude that exports are, by themselves, the answer. It is true that exports are a sign of industrial strength. They are most certainly a good thing. But an export-led strategy, to the exclusion of other economic objectives, is problematic.

1.12 As noted above, Germany's economy is based on exports, and it is seductive to believe, given Germany's economic strength throughout much of the post-war period, that this shows the way forward. However, writing, once again, in the Financial Times, Ralph Atkins explains that the current economic downturn, the result of reckless lending by many banks, should not, in theory, have caused too much damage in Germany. Yet, as is so often the case, economic theory lets us down.

1.13 Atkins quotes Jorg Kramer, chief economist at Commerzbank in Frankfurt: "From a structural point of view, this recession should never have happened.". Atkins goes on to say: "With hindsight, however, Germany was a sitting target after the collapse of Lehman Brothers investment bank in mid-September. Its exports were equivalent to more than 47% of GDP last year—compared with less than 20% in Japan and about 13% in the US. It's industrial base is skewed towards producing machinery and equipment—'investment tools' account for more than 40% of its exports—and towards emerging economies … after Lehman's failure paralysed banks, and confidence nosedived globally, companies around the world shelved investment plans—leaving German factories turning out goods nobody wanted to buy."[74]

1.14 Gustav Horn of the Hans Bockler research foundation makes the crucial point: export dependency "was always a problem to some extent because it was at the cost of domestic demand". Bart van Ark, chief economist at The Conference Board, the New York based business research organisation, argues that a large economy cannot be run on "export fuel" only in the long term: "the dominant effect of Germany's manufacturing efficiency is that consumers abroad benefit from lower prices of goods the Germans produce."[75]

1.15 German trade unions have made this point repeatedly. The export-led policy of the German Government stresses wage moderation in order to work. It has become customary, whenever unions talk about higher wages, for commentators to fear inflationary wage claims and to paint frightening scenarios reminiscent of the UK in the 1970s. Yet wages have not fuelled inflation in recent years, in the UK or in major European economies. Furthermore, not only is it socially just that workers are paid a decent wage for the job that they do, but wages are also, of course, the primary factor determining demand. Germany has sought wage moderation and then has wished to sell its products in export markets. Now that those export markets have dried up, consumers at home cannot afford to buy the goods produced in German factories. Put simply, during the good years, Germany squandered the chance to boost real wages.

1.16 For all of these reasons, an export-led UK economic policy is not what the TUC seeks. We do seek more UK exports, but we also seek the production of goods and services for domestic consumers. The inflationary threat at present is of low inflation, perhaps deflation, rather than high inflation, (at the time of writing, RPI was already negative, although CPI remained above the Bank of England's central target of 2%) but we must not be complacent. However, we are clear, as were the Treasury and the Bank of England, that the inflation suffered in recent years was the result of high food and oil prices, not high wages. We therefore believe there is no prospect that our proper role, to bargain for good terms and conditions for our members, would bring the threat of inflation. Indeed, proper pay for workers is not only just, it is necessary for a well functioning economy.

1.17 Finally in this section, Martin Wolf argued on 31 March that G20 leaders would fail to deal with the big challenge that they faced at the London Summit: "What is needed is both a large increase in aggregate demand and a shift in its distribution, away from chronic deficit countries, towards surplus ones. On both points, progress will be far too limited"[76]

1.18 The TUC believes the G20 summit was a success, although we concede that the issue of deficit countries and surplus countries has not been dealt with. Given that Germany believes its export led policy keeps it safe from high inflation, and given the fear of inflation seared on the German psyche, this issue will not be dealt with quickly. Turning China into a greater consumer of Western goods, and moving the US away from consumer of last resort, will all take a long time. However, if we have a once-in-a-generation opportunity to reshape the world economy, moving from chronic deficits and chronic surpluses, to greater balances among all economic players, is a project that must be pursued.

WHITHER UK EXPORTS?

2.1 According to the "Pink Book",[77] the balance of payments draws on a series of balances between inward and outward transactions, provides a net flow of transactions between UK residents and the rest of the world and reports how that flow is funded. Economic transactions include:

— Exports and imports of goods, such as oil, agricultural products, other raw materials, machinery and transport equipment, computers, white goods and clothing;

— Exports and imports of services, such as international transport, travel, financial and business services;

— Income flows, such as dividends and interest earned by foreigners on investments in the UK and by the UK investing abroad;

— Financial flows, such as direct investment, investment in shares, debt securities, loans and deposits;

— Transfers, which are offsetting entries to any one-sided transactions listed above, such as foreign aid and funds brought by migrants to the UK.

2.2 The Pink Book notes: "The UK has recorded a current account deficit in every year since 1984 … Since the last surplus was recorded in 1983, there have been three main phases in the development of the current account. In the first phase, from 1984 to 1989, the current account deficit increased steadily to reach a high of £25.5 billion in 1989 (equivalent to—4.9% of GDP); during the second phase, from 1990 until 1997, the current account deficit declined to a low of £1.0 billion in 1997; in the third phase, since 1998, the current account deficit has widened sharply. The deficit in 2007, at £52.6 billion, is the highest recorded in cash terms but only equates to—3.8% of GDP, which is a lower percentage than in both 1988 and 1989."

2.3 The TUC believes that current account deficits began when the government of the day stopped believing in the importance of manufacturing industry. The 1980s was the decade when the service sector was elevated in importance, alongside flagship manufacturers and inward investors. The growth of financial services, especially the primacy of the City of London, was to follow. Following the economic downturn, many commentators are starting to argue for a strong manufacturing base once more. For example, almost exactly a year ago, Ruth Sunderland, the business Editor of the Observer, wrote: "Some observers think … without any hard evidence I have seen, that the possible departure of a few hundred non-doms is more important than tens of thousands of lost jobs in industry. I don't. Quite apart from the social and human consequences, manufacturing does matter to the economy: now that the credit crunch has exposed the folly of entrusting our prosperity to a bunch of bonus-grabbing bankers, it matters more than ever."[78]

What do we export?

2.4 Speaking in the House of Lords on 31 March 2008, Baroness Vadera told peers that manufacturing accounts for 50% of UK exports. The TUC has identified defence, aerospace, pharmaceuticals and motor cars as strategic manufacturing industries in the United Kingdom. Indeed, Shriti Vadera told peers in the same debate that "we have the best pharmaceuticals, aerospace and electronics industries and are now manufacturing twice as many cars as we were 25 years ago",[79] suggesting that she shares the TUC's analysis.

2.5 According to BERR, the UK aerospace industry exported 67.1% of its total sales in 2007, worth £14.28 billion, and contributed a net £628 million to the UK's trade balance.[80] Trade union members working in the aerospace industry are proud of the contribution they make to this industry's success.

2.6 A House of Lords debate on the motor industry on 19 January 2009 was told, by Lord Harrison, that 73% of cars and vehicles made in Britain are sold abroad as exports, principally into Europe. However, 86% of motor cars sold on the domestic market in Britain are imported. Lord Rowe-Beddoe told the same debate that the Ford engine plants at Bridgend and Dagenham produce 25% of Ford's worldwide engine requirement, a major export. Nissan and Toyota are consistently numbers one and two in the European productivity league. In productivity terms, Vauxhall's plant at Ellesmere Port is one of General Motors' best performers, if not the best, in Europe.[81]

2.7 Indeed, the TUC endorses the view of Lord Mandelson: "[The motor] industry is not a lame duck… The industry has been transformed over the past decade. Productivity has risen, catching up and overtaking that in both France and Sweden. In Britain today, we have some of the world's most productive car plants."[82] Of course, there is an issue of overcapacity in motor vehicle production at the moment that must be addressed. Nevertheless, it is important to hold onto the skills, the research and development and the innovation of motor manufacture, ready for when the economy moves out of recession.

What should we export?

2.8 The TUC rejects protectionism. So if we are importing more cars than we are exporting, for example, there is clearly room for improvement. A "Buy British" message will not work. Some people renew their cars regularly, but for most, a car is an expensive, big ticket item that is bought only once in many years. People will buy the cars they wish to buy, based on performance, comfort, safety, design, price and, increasingly, emissions. The future of motor manufacture is in green vehicles. Of course, companies and workers producing older fashioned cars must be protected, as production moves gradually in a more environmentally conscious direction. However, consumers are becoming more and more environmentally aware. This is not a reason for pessimism. On the contrary, the UK has all the attributes to be a leader of the low carbon industrial revolution.

2.9 The question should really be "what can we export?" The answer is that we can export goods and services which we have the skills and capacity to produce at a level which is desired by overseas consumers. To put the question another way: What are we good at? And what can we become good at?

2.10 In his report, "The Race to the Top: A Review of Government's Science and Innovation Policies", published in October 2007, the former Science Minister, Lord Sainsbury, provided a helpful list of potential industries in which the UK could succeed in the future:

2.11 "It is not possible to predict where the new jobs will emerge in the future but it is possible to see many opportunities for UK companies to create new products and services, and new industries in areas as diverse as aerospace, pharmaceuticals, biotechnology, regenerative medicine, telemedicine, nanotechnology, the space industry, intelligent transport systems, new sources of energy, creative industries, computer games, the instrumentation sector, business and financial services, computer services and education."[83]

NEW INDUSTRY, NEW JOBS

3.1 The TUC welcomes the publication of "New Industry, New Jobs", on 20 April 2009. Indeed, we have welcomed the intervention of Lord Mandelson and his pursuit of a policy of "active industrialism" in recent months. The TUC has been a lonely voice in arguing that the absence of an active industrial policy in recent years has been hugely damaging to UK economic performance. We have used our membership of the Manufacturing Forum and its successor, the Ministerial Advisory Group on Manufacturing, among other bodies, to press for an active strategy. We were, therefore, a little disappointed that industrial policy was described as a dialogue between Government and business, with no mention of the contribution of trade unions, but we supported the development of policy nonetheless.

3.2 Responding to the publication of "New Industry, New Jobs", the TUC welcomed proposals to use procurement, regulation and a focus on green growth to help sectors with potential. However, it is Chapter Five of the document, and the summary of next steps, that offers the real development in government policy.

3.3 In Chapter Five, entitled "Unlocking our potential through targeted measures", the document argues: "there is often also a very strong case for tailoring what Government does to reflect the different circumstances of different markets, sectors and places". This reflects two powerful but simple truths:

— "the scale of the economic opportunities for the UK, here and internationally, are different from one area of the economy to another, as are the challenges faced by individual sectors;"

— "the ability of Government to make a positive impact through its actions can vary markedly across sectors and markets."

3.4 The document goes on: "This becomes even more important in an area of global specialisation. Business and Government alike will need to focus more on, and prioritise, areas where the UK holds, or realistically can gain, lasting advantages. This need to tailor policy has been recognised before, but too often in a way that has been over-cautious or reluctant… it is certainly possible to identify areas where the UK has or may have comparative strengths. By sharing the expertise of business and government, we can also identify broad areas of technology, products or services within which there may be opportunities for UK-based businesses."[84]

3.5 This is exactly the philosophy that the TUC has championed. Furthermore, in the summary of next steps, the paper sets out plans for a low carbon industrial strategy, the development of ultra low carbon vehicles, the pursuit of the "Digital Britain", project, the publication of a Life Sciences and Pharmaceuticals Strategy and the prioritising of a number of areas of advanced manufacturing. Such areas include: aerospace, specifically engine and wing design and manufacture, which must adapt to the low-carbon age; the shift from metal to composite materials, which will have important applications in the automotive, marine, aerospace, wind and wave, construction, oil and gas, and medical equipment sectors; industrial biotechnology and the redefining of chemical manufacture in the 21st century; and plastics electronics.

3.6 The Government plans to assess the opportunities and constraints in these industries, and whether there is a role for Government in unlocking competitive potential in the UK in these industries, in the next few months.

3.7 Most of these industries are highly unionised and it is critical that the Government consults with trade unions, along with businesses and other stakeholders, in taking this workstream forward.

3.8 Furthermore, Budget 2009 included the provision of £750 million for a Strategic Investment Fund, to support advanced industrial projects of strategic importance. £250 million of this fund will be earmarked for low-carbon investments, a further £50 for the Technology Strategy Board and £10 million for UK Trade and Investment.

3.9 The TUC welcomed this announcement, but we also set this test: Government money should be provided for strategic industries, in high skill, high value sectors, that are job intensive. It is important to move away from the laissez faire ideology which supposes that so long as we get the fundamentals right, the jobs will follow. The TUC firmly believes that job growth will not necessarily happen by accident. It will only happen if the Government identifies it as a priority and allocates funding accordingly.

3.10 The TUC also believes that the UK needs a definition of industrial success, to act as a target and a weathervane. Different stakeholders with have different priorities, but the TUC believes that unless industry is providing high quality jobs, it cannot be regarded as successful, whatever its shareholder value or other indicators of success.

3.11 From the point of view of this inquiry, it would also be helpful if export potential is considered among the factors defining how Government support is offered to these industries as part of future industrial strategy.

3.12 In summary, the sectors identifies as strategic in New Industry, New Jobs, and the sectors that are able to access the £750 million of Strategic Investment Fund support, should be required to demonstrate their job creation and their export potential.

THE "GREEN" ECONOMY

4.1 No discussion of potential growth sectors would be complete without a consideration of the role and potential of the green economy. Quite simply, the environmental threat is one of the biggest and most important global challenges that we face. Whilst even 10 years ago, the science was questioned, there are no serious voices minimising the extent of the challenge we face today. Moreover, the election of a US President committed to a new approach to sustainability across the Atlantic gives further momentum to this issue.

4.2 The environmental goods and services (EGS) sector includes such areas as air pollution control; cleaner technologies and processes; decommissioning and decontamination of nuclear sites; energy management and efficiency; renewable energy; waste management, recovery and recycling; and water supply and wastewater treatment.

4.3 The EGS sector was estimated to be worth $548 billion globally in 2004, with 94% of this value residing in the EU, US and Japan.[85] In the UK, the size of the sector in 2005 has been estimated at £25 billion. It is further expected to expand in the UK by over 40% between 2005 and 2010, and by 84% between 2005 and 2015, when it is projected to generate £46 billion. The sector currently employs 400,000 people in the UK, a figure that could more than double in the next few years.[86]

4.4 Of course, there is more to greening the economy than the EGS sector. Other manufactured products will need to be made greener. Most obviously, the motor industry is producing more and more environmentally friendly cars, a trend that is set to continue, both in order to meet environmental regulations and to satisfy consumer demand.

4.5 The UK has benefited from the growth of the green economy, but we lag well behind European neighbours such as Denmark, Germany, the Netherlands and Spain. This is particularly evident when the employment records of the sectors in different economies are compared. For example, Germany has generated half a million jobs in its renewable energy sector alone, while the UK has managed just 7,000. And whilst our 400,000 green economy jobs are vitally important, Germany's figure of 1.5 million jobs is more impressive.

4.6 There is inevitable TUC concern about the decision of Vestas, the world's biggest maker of wind turbines, to cut more than half its UK jobs, as reported on 29 April 2009.[87] Ditlev Engel, the Chief Executive of Vestas, told the Financial Times: "we had been planning additional investment in the UK [because of Government targets to increase renewables]. But the UK is probably one of the most difficult places in the world to get permission [for wind projects]." The reason for the decision to cut jobs was the inability of the Government to deliver the conditions needed for renewables growth, according to Engel.

4.7 In our view, Government has a key role to play in setting the right policy framework to ensure that UK businesses are best placed to take advantage of the national and global transition to a low-carbon economy. Specifically, our competitor economies recognise that the state has a central role to play in stimulating the green economy. This is not about "picking winners", but is about having the boldness to set clear direction and incentives to kick start a key sector. Furthermore, levels of investment in technology, research and development and green innovation in the UK lag behind those in other countries.

4.8 The TUC, therefore, applies its "test" of Strategic Investment Fund support to the green sector. As noted above, £250 million from the Strategic Investment Fund announced in Budget 09 was allocated to low carbon investments. This, in itself, is a sign of the growing priority of the green economy among Ministers. However, this £250 million must be spent on green businesses and sectors with high job growth and export potential, in order to maximise its value to the economy and wider society. Anyone seeking to access money from this funding stream must be able to demonstrate how it will be used to develop high skill, high value jobs in the environmental sector.

HOW COULD WE IMPROVE THE EXPORT POTENTIAL OF UK PRODUCTS?

5.1 A number of factors might make products more export friendly. Cost is obviously a factor, but cost is not necessarily the same as low price. People might buy a white T-shirt on the basis of its low price, but that rule does not apply to people who buy an Italian suit. Similarly, for those buying a new car, design will be important. Quality will be a factor, as will safety, performance and comfort. As stated above, emissions will increasingly be a factor as well, both because lower emissions cars are cheaper (for example, in terms of fuel consumption and vehicle excise duty) and because consumers are increasingly environmentally conscious.

5.2 From a trade union perspective, the best way to increase the export potential of UK products is to build a highly skilled and adaptable workforce, to ensure the quality of our manufactured products; to recruit or train excellent managers, to get the best out of those workforces; and to invest in design, research and development, to ensure that our products are at the cutting edge of both performance and environmental friendliness.

5.3 Of course, we need Ministers to bat for Britain, business leaders (and trade union leaders) to champion British companies, and Government support, through Foreign and Commonwealth Office and BERR Officials (including UKTI officials) to be at the top of their game.

5.4 We must also continue to invest in science, which is vital if industry is to reach its full potential. The TUC warmly welcomed the Prime Minister's pledge, in his Romanes Lecture at Oxford University on 27 February, that "we will not allow science to become a victim of the recession but, rather, focus on developing it as a key element of our path to recovery."[88]

Skills

5.5 "New Industry, New Jobs" states: "We require a skills system that not only responds to demand but is also able to anticipate future growth in the economy in areas such as low carbon or bioscience, or in those driven by broader demographic change such as the care, hospitality and leisure sectors."[89] On this basis, the skills recommendations in the report quite rightly build on recent commitments by Government to develop a strategic skills strategy closely tied to an active industrial strategy, which is very welcome.

5.6 It is especially welcome that the significant potential for procurement and associated levers to underpin a strategic skills strategy is fully acknowledged in the report. It states that it will be important to ensure that "public procurement, regulators and regulatory frameworks all make a full contribution to raising skills levels".[90] The TUC has welcomed new government guidance on skills and procurement published last month, but we are pressing for this new approach to be rolled out as quickly as possible. For example, the new requirement on successful bidders for public construction contracts to provide training and apprenticeship opportunities should be extended to other major areas (such as large IT contracts in the public sector) as rapidly as possible.

5.7 There are some tensions on skills policy arising from the twin demands of supporting the unemployed to re-enter the labour market whilst also enabling individuals to acquire the necessary sustainable skills to build a skills base for new growth areas. For example, the Budget announced that the Government will be allocating "over £260 million of new money" to help young people get training and work experience in sectors where there is likely to be strong jobs growth over the longer-term. For this approach to succeed, it is imperative that these young people are given genuine opportunities to achieve the necessary skills over the longer-term to achieve sustainable employment in new growth areas and are not simply dragooned into undertaking short pre-employment training courses, as so often happened in previous recessions.

5.8 It is also important that major skills programmes, such as Apprenticeships and Train to Gain, are planned and delivered in the context of the new industrial activism, so that young people and adults can be confident that work-based training is equipping them for future industrial change. Government plans for the implementation of the forthcoming Right to Request Time to Train must also ensure that individuals can be empowered to access training that will enable them to achieve sustainable skills, especially where their employer is not supportive of this.

5.9 The report highlights that later this year the Government will be publishing a Higher Education Framework and an "active skills" paper further detailing how education and skills policies will be supporting the new industrial activism. The TUC will be engaging in discussions with Government on the development of both these strategies.

Innovation

5.10 "New Industry, New Jobs" highlights two weaknesses in British innovation performance. The first is that, although those businesses that do invest in innovation do so successfully, both UK-based businesses and the Government itself continue to invest less in R&D as a percentage of GDP than other comparative economies. The second is that our excellence in generating knowledge is not consistently translated into innovative and commercially successful goods and services.

5.11 "New Industry, New Jobs" goes on to state: "encouraging closer ties between the UK's growing pool of scientific and engineering researchers and industry and private investors is now key to ensuring that we are able to benefit economically from groundbreaking science."[91]

5.12 Meanwhile, the Department of Innovation, Universities and Science has made clear the Government's commitment to the science and research budget ring-fence. Research Councils have been asked to develop plans over the next few months to refocus their research programmes for 2010-11 into new priority areas such as the green economy, life sciences, the digital economy, high-value manufacturing systems and services and cultural and creative industries.

5.13 The TUC welcomes this example of joined up government between HM Treasury, DIUS and BERR. We further agree that these are the correct priorities for UK industry, including industries with export potential. We offer one small caveat, which is that recognition of the value of pure science, ie "science for science's sake", must continue.

5.14 The industrial spin-offs of the US mission to put a man on the moon in the 1960s is well known. The invention of the internet at CERN in Geneva is one more recent example of how scientific endeavour has led to industrial outcomes that could not have been predicted in advance. The UK's future as an exporter will be greatly assisted by science, both pure and applied.

CONCLUSION

6.1 In conclusion, the TUC does not seek an export led economic strategy, but we seek more exports, given the UK's balance of trade deficit. We also see exports as one sign of a healthy economy, so long as export policy is not being pursued to the exclusion of internal demand or on the basis of lower wages for manufacturing workers here in the United Kingdom.

6.2 However, exports are only one sign of a healthy economy. The TUC urges the Select Committee to try to promote a debate about the nature of the economy. For example, how would we define a successful economy? What components would be needed for an economy to be described as successful? In the TUC's view, one key component would be the capacity to create a large number of high skill, high value jobs, in strategic industrial sectors. But other actors will have other priorities. At present, Regional Development Agencies are charged with delivering regional economic strategies, but there is no overarching national economic strategy, setting out the Government's objectives and describing a road map to achieve them.

6.3 Rather, the Government sets out different economic measures and then uses them to describe the economy as successful. For years, the economy was considered to be successful because inflation was low and growth was steady. Those are certainly important achievements, but are there other necessary factors before we conclude that an economy is successful? With the benefit of hindsight, many commentators now say that the UK economy was unhealthy, because of its over-reliance on the financial services sector and a housing bubble. So was it successful, but unhealthy? And if an economy is successful but unhealthy, is it sustainable?

6.4 None of this is to criticise the Government, but as we begin to look towards a post-recession economy, and commentators argue about how the economy must differ from the one that existed before the recession, a Government definition of a successful economy, agreed by No 10, HM Treasury, BERR, DIUS, DECC and other interested government departments, would be helpful. Stakeholders, including businesses and trade unions, should be invited to contribute to this definition, as well as the road map setting out how we are to achieve it.

6.5 The TUC will not attempt a draft definition here, but any definition must include jobs, in terms of both quality and quantity, as well as commitments from companies to skills, innovation and investment. A successful economy, in our view, will also have a healthy trade balance, so world-class companies must be in a position to export quality goods and services, as well as meet demand from consumers at home. Unless Government targets exports, and backs this commitment with policy support, we may marginally increase exports in some sectors, but there will be no step change in our performance.

6.6 The world economy is unbalanced. It is not sustainable for countries such as China, Japan and Germany to rely so much on exports, expecting other countries, most obviously the United States but to a lesser extent the UK, to continue buying their goods. Speaking to the Financial Times on 28 April 2009, Berthold Huber, the Head of IG Metall, Germany's biggest trade union, said: "Germany was always an export nation but the question is: to what extent. Over the past decade we have neglected domestic consumption. Of course, Germany must remain an export nation. But in the long term I think this kind of dependence on exports in this extreme form is not sustainable."[92]

6.7 It is, of course, beyond the power of the Select Committee to change the balance of the world economy, but the message must continue to be sent to government that pressure to this end, through the G8 and G20, must continue.

1 May 2009