'BEYOND RESILIENCE'

SPEECH BY DAVID MILIBAND MP TO THE NORTH EAST MANUFACTURING SUMMIT

NEWCASTLE CIVIC CENTRE, 30TH NOVEMBER 2001

It is an honour to speak at this important summit. I am here with a genuine sense of humility, because however much people say politics is a tough business, the merciless bottom line in industry is even more demanding than the Government Whips Office.

I have called my speech 'Beyond Resilience' because I think that is our challenge - to move beyond surviving the big blows of industrial change and build a distinctive North East model of regional economic development, built on our history but not bound by it, and based on the insight that only by exploiting our unique strengths can we overcome our undoubted problems.

The theme 'Beyond Resilience' was put to me by a constituent. I was discussing my view of how South Tyneside needed a Business and Employment plan to provide a vision for the future. The man summed it up well. "I am sick of being told we are good at taking a battering and surviving. We are good at taking blows, but we've got to start shaping the future on our terms. We have to move beyond resilience."

I believe what applies to South Shields and South Tyneside equally applies to the North East. My case today is simple:

First, that manufacturing is vital to my vision of a dynamic, productive, broadly-based North East economy.

Second, there have been two fundamental shifts in the nature of competitive advantage in the modern economy: regional policy is now the heart of industrial policy, but regional policy must itself change . National government can and must help, but only when we have a distinctive vision of manufacturing in the future, built on our own strengths, our own history, and our own assets, will we build a future of prosperity.

Third, we will only realise that vision if we focus our attention on the high impact, long term changes we need. For me there is a virtuous circle of innovation based on ideas, people, infrastructure and business development, powered by a culture of collaboration and risk-taking, that is the heart of manufacturing success, and we must seek to develop it here.

I passionately believe that social regeneration and economic renewal go hand in hand. Build a strong society, give more people the chance to develop themselves to the full, and you have the best chance of building a strong economy. But the focus today is on developing winning businesses. My message is that calling for government action is important, but if we develop a strong and practical vision of our own, then we will be in a much stronger position to bang on doors in Whitehall; if we show in our public policy the entrepreneurialism we want from our businesses, we will find willing partners in central government; if we innovate we will persuade them we are serious. There is a partnership to be forged, but it needs to be a two-way process.

Manufacturing and the New Economy

Manufacturing does not just 'matter'; it is distinctive because of its traded content, contributing over two thirds of UK exports; it is unique because of its link to innovation; and it is vital to the historic identity and confidence of this region. Manufacturing in the North East still accounts for about 165,000 jobs; gross value added from manufacturing in the North East is worth some £7 billion per year; and nearly 4000 manufacturing businesses are truly the lifeblood of the region.

I know this from personal experience. 800 workers in my constituency have for 10 weeks been working for a Receiver at ViaSystems. Management, workers, One North East and politicians in London have been making heroic efforts to re-launch the company. The future is uncertain, but all involved have gone the extra mile because of the importance of the plant to the town.

So I am happy to join others and say loud and clear: a confident and innovative manufacturing sector is vital to the future of the North East, and I want to do all in my power to help it develop. It is as wrongheaded, in my view, to argue that manufacturing does not matter, as it is to say that service sector jobs - whether in finance, retail, media or law - are somehow second rate.

Nicholas Kaldor was right that manufacturing is the 'flywheel of growth' but the truth is that manufacturing and services are umbilically linked: a successful manufacturing sector will promote a strong service sector, and vice versa. The 4 million manufacturing jobs in Britain create through direct supply chain links alone 2.4 million service sector jobs. A dynamic North East economy, and a dynamic North East manufacturing sector, creates and needs a thriving service sector.

I don't need to tell anyone here that manufacturing is itself changing. Change is the key to success, as well as a threat to it. Let's understand the business climate in which we live:

the astonishing revolution in technology means that every car built today has more computing equipment than the Apollo space craft, every Pentium III microprocessor has 28 million transistors, compared to 2300 in a 1971 Intel

the extra wage earned by someone with a college degree is now 31%, nearly double the figure of twenty years earlier, while employment among unqualified workers actually fell between 1993 and 2000 when nearly 2 million more people found jobs

the nature of economic integration means that decisions by finance houses in Texas affect house prices in South Shields, while outsourcing to perform tasks traditionally done in house has turned manufacturers into network managers

R&D, the 'weightless' part of the economy, now stands at 5% of net output, and is higher for the most successful manufacturers and the combination of trade liberalisation on the one hand and competition from millions of people in the developing world on the other, means that we will be blown away by cheaper production unless we add enough value through the production process to overcome wage differentials - in other words the pace of innovation here needs to outrun the force of imitation abroad .

This is the challenge that faces all advanced industrialised countries. It is a future of great promise but also great fear, great riches but also greater inequality. Some nations and regions are adapting well, some badly, but all are adapting. What of the North East?

Manufacturing is a larger share of our economy than that of almost any other UK region; we have shown ourselves successful at attracting inward investment; under foreign ownership, our car workers have shown themselves able to match and beat productivity levels achieved anywhere in the world; in our diverse company base we have some world beaters; and surprisingly perhaps in the latest data, from 1997, capital investment per employee in the North East is the highest in England.

That is the good news. We can do it. But there is bad news too.

Skill levels are below the national average; levels of business start-up are some of the lowest in Britain; the Annual Competitiveness Index puts us at the bottom of the UK league table; our older industries and companies are under increasing strain; R&D expenditure per head at less than 1% of GDP is the lowest in Britain; and our entrepreneurial base is too narrow.

Overall regional income per head is lower than the national average by over 20%, and an excellent Treasury/DTI document published on Tuesday shows that around two-thirds of that differential is accounted for by lower productivity - the output of each worker, which they argue is driven by skills, investment, innovation, enterprise and competition .

So what to do?

The National Role

Let me start with the role of national government. It has key responsibilities:

economic instability destroys businesses and cost us a million manufacturing jobs in Nigel Lawson's recession ten years ago, so the most important thing Gordon Brown can do to build on the revolution in monetary policy-making with the independent Bank of England is ensure that tax and spending decisions make their contribution to low inflation, low interest rates and steady growth

underinvestment in infrastructure, skills, science and research hobbles our competitiveness, so it is vital that the Government sticks to its ambitious public spending targets, for example to double net capital investment by 2003/4

uncompetitive and unstable exchange rates are a danger to any manufacturing company, which is one reason why the commitment to join the Euro when the economic conditions are right is so sensible and so important, and why this region needs to ensure that if there is a Euro referendum, we deliver the biggest possible vote in favour

uncompetitive tax and regulatory structures undermine our businesses, which is why the Government's commitment to investment allowances and tax credits for R&D are an important complement to competitive standard and capital gains tax rates

'one size fits all' planning policy can hinder growth where it is most needed, which is why many of us are pushing for a more differentiated approach, with revision of the Regional Planning Guidance as it relates to the site North of Nissan

and as a nation our skills deficit is so large that it needs national action, of the sort announced by the Chancellor on Tuesday, to make a dent on the problem.

So central government has a key role. But my reading of all the evidence from Britain and abroad is that while Government can help economic growth in a region, it cannot achieve transformation for a region; that has to come from within.

Ten years ago Michael Porter wrote a book called the Competitive Advantage of Nations. It became a manual for anyone concerned with manufacturing in developed economies. But today I believe we need to rethink its founding idea: it is harder and harder to find the competitive advantage of nations, and more and more important to think about the competitive advantage of regions.

Two Canadian academics put it well: "More than ever before, the region is recognised as providing the fundamental basis for national, and even international, economic wealth, growth and trade. Regions provide the wherewithal for firms to compete successfully at all geographical scales."

It is at regional level that technology transfer can be organised, that informal networks become effective, that shared culture emerges. Our job is to marshal our own resources, be they physical or intellectual or cultural, and link them up with partners drawn from Britain and more widely, to produce an economic package that works for us because it is distinctive to us.

The New Regional Policy

Gordon Brown has talked about three generations of regional policy:

first there was the ambulance work of the 1930s to tackle the distress of mass misery

then there were the top down grants and incentives of the 1960s

and now a third generation of regional policy built on the unique strengths of each region, and combining in the right way the people, the ideas and the finance that can bring success.

The birth pangs of the RDA have not been without drama or pain. But we do now have an instrument dedicated to meeting our needs with a dedicated budget of nearly £200m. My vision of the RDA is that it is a powerhouse of regional strategy, able to take tough decisions, forge new partnerships, and bang heads together, all in the interests of the region as a whole.

There is always a case for more funding, more flexibility, more powers - for example I think the RDA is the obvious body to handle RSA applications. But the RDA has to be about leveraging outputs not just raising inputs. The test of the RDA, the test for all of us in this room, and the key to leveraging active support from government is whether we rise to the big challenges, not manage the small ones:

How do we create through our higher education institutions one of the most fertile seedbeds for innovation in Europe?

How do we raise demand for training to bridge the productivity gap?

How do we transform our transport and communications infrastructure to make us one of the most accessible peripheral regions in Europe?

How do we make something world beating of our unique assets, like the River Tyne?

To meet these challenges, to achieve this sort of transformation, we are going to have to lift our game.

Challenge 1 is about ideas. The heart of modern manufacturing, the anvil on which products are made and reputations won and lost, is the process of turning knowledge into products and services.

In the US, universities are not just seats of learning, they are drivers of industry and innovation. We have five universities in the North East. Universities for the North East is the oldest regional university consortium; the Knowledge House and the Regional Technology Centre try to stimulate two-way flow of ideas between academia and business. Thanks to an outstanding piece of work by consultants AD Little, commissioned by One North East, we have a route map to the future.

The AD Little study maps our comparative research strengths: chemicals based at Billingham, energy and offshore engineering, multimedia and digital media, electronics and nano-technology, and biosciences.

And it highlights us some ideas about how to milk research outcomes for competitive benefit: establishing a Science and Industry Council to drive regional research strategy, creating research centres of excellence , promoting the North East as a place to do science and technology, and re-directing money locally and from central government to support a research-led industrial strategy.

But the AD Little study also highlights some of the roadblocks in the way of progress: parochial thinking, vested interests, institutional rivalry. I look to the university Vice chancellors to match words with deeds so the region is at the cutting edge of economic renewal, not lagging behind. I see the launch of a joint venture, recommended by AD Little, bringing together all five universities, venture capital and business angels as a test of their commitment, and I hope it will be launched as a soon as possible.

Challenge 2 is people. I believe that schooling for children should be the top priority for cash and legislative time at Westminster. But if we wait until today's schoolchildren are ready for work we will have missed the boat. We need to talk about people in the workforce in the next five to ten years.

Bringing students into the region to study at our universities is a first step. And the fact that Newcastle is now ranked as the 8th best party town in the world should make that easier…

But our people challenge is not just about top grade skills. The latest Skills Audit for England makes grim reading. More than half of new jobs will be at NVQ level 4, university level, with a further third at level 3 (A Level). Meanwhile skills shortages mean that amongst the UK working population 7 million people lack basic skills; and in the North East over 60% have no qualification above GCSE standard.

My perception is that the biggest obstacle to tackling the skills gap among adults is the resistance, in some ways natural and in some ways irrational, that many underskilled adults feel about the education system. No country has properly tackled the problem that in any training system those most likely to train are those with the highest skills already. That is why I strongly support the idea that we need to stimulate the demand side of training - putting money in the hands of adults for them to buy training.

This was the theory behind Individual Learning Accounts. This programme has recently been suspended because of worries about fraud, but in my book any programme that stimulates new demand for training must be worth getting right. The principle of access to universities is that everyone able to benefit should be able to do so; the same principle should apply to those needing training, with government, employees and employers forming a three-way partnership to make it a reality.

I believe we should take the principle of ILAs and apply them in our region, without waiting for the government to come up with a new scheme. In fact, we should make ourselves the pilot region for solving the problem of how to recreate a form of ILAs that succeeds in stimulating training without allowing fraud.

Challenge 3 is infrastructure. We know transport is vital to businesspeople and to goods. We also know that the UK has one of the poorest transport systems in Europe. In the North East we need to buck the trend. We have one of the more successful train operators in GNER, plus the benefit of the Tyne and Wear Metro; in Newcastle Airport we have a good airport with enormous potential to grow; and we have in the Port of Tyne one of the most innovative and diversified ports in Britain. But we also know that competition between ports and airports has hindered development; the A1 and A19 have too many traffic clots; it takes 3 hours to get to Manchester and Birmingham; and we have no transatlantic flights.

The North East will never be a manufacturing centre of choice as long as we lack an agreed regional transport strategy based on the good of the region not a compromise of our different parts. It is never easy to make choices and choose priorities but that is what is needed. On the basis of genuine regional data about opportunities and strengths, let's develop an international class airport to rival Manchester which now has 17 million passengers a year and 17 000 staff, develop a strategy for our ports that makes the most of these assets, get the A1 upgraded as a priority in the Government's massive commitment to transport renewal, and develop our own inter-city rail plan to link up with each other, and link ourselves to the rest of the country.

Infrastructure is not only about moving people and goods; it is also about carrying words and pictures without having to move the people. The cutting edge of communications technology today is broadband - which offers us permanent, ongoing and fast access to the internet, without the hassle and costs of dialing up, as well as fully interactive communication in real time.

The Prime Minister has said broadband has the potential to revolutionise many aspects of our lives - from productivity to public services - and I agree. At the moment take-up of broadband around the North East is slow, around half the national average for businesses according to figures from BT, despite the fact that nearly 70% of North East businesses and homes can be connected to high speed lines, which is higher than the national average. To deliver affordable access to business we are going to need to aggregate public and private sector demand, using schools as a battering ram, which is why the sooner we get the whole curriculum on line the better.

At the tireless prompting of Northern Infomatics, the North East has been first to establish FE and HE broadband networks, first to link up the Regional Libraries, and first to create an e-business incubator network. One region in Britain will be the leader in broadband communications in 5 years' time. One region will give businesses a competitive advantage through direct access to the Global Internet backbone. Let's forge a public-private partnership to make the North East that region.

Challenge 4 is business development.

The region has been successful over the last 15 years in attracting inward investment. Long may it continue. But we cannot rely on that: indigenous growth, development of existing businesses and creation of new businesses founded in the North East, is vital.

Let me give you an example of how I believe we need to exploit our natural strengths. It concerns the future of shipbuilding, ship repair, and shipping on the River Tyne and elsewhere. I believe that a strategic decision about work on and related to the Tyne is critical to any discussion of the future of manufacturing in the North East.

The MOD will in 15 months announce the winners of the £3.6bn order for two huge aircraft carriers; the European ship repair market is growing; the offshore
industry has potential to continue to grow steadily, including diversification into renewable energy.

Important efforts are underway to ensure the North East puts itself in the lead. The North East Maritime Group has brought together the shipyards; the Baltic in Gateshead will be home to a Knowledge Campus; Tyne Offshore Suppliers is the first supplier led ICT platform in Europe; and of course South Tyneside College is the world's leading college of marine studies.

But these need to be brought together, to move beyond ad hoc collaboration to genuine strategic leadership. Play our cards right and we could have a thriving centre of estuarial and offshore industry competing, collaborating and supported by a network of public and private agencies, with the generation of skills from local colleges, and relevant research from local universities.

Beyond Resilience

These are simple and maybe simplistic ideas. But if we get the big things right others will fall into place, including the hardest of all: culture. Culture is the oil of the entrepreneurial machine; it thrives on informal networks, business clubs and trade unions; it demands collaboration; it requires a recognition of good news and good practice, not a constant harping on what is wrong; and it requires us to put aside local interests to realise that what is good for Newcastle in growing the regional economy is also good for Sunderland, what is good for Middlesbrough is also good for Durham, and even what is good for Jarrow is also good for South Shields.

Moving Beyond Resilience means shaping a clear vision of our own future. Beyond Resilience means building on our strengths as well as tackling our weaknesses. Beyond Resilience means taking the tough choices that bring bad headlines for five days but deliver lasting prosperity in five years. Beyond Resilience means looking at ourselves as well as looking to others.

Others have done it. Just think of the tyre manufacturer that is now Nokia and the run down city, Helsinki, that is now a telecomms hub. Closer to home, Huddersfield has demonstrated how a traditional manufacturing town can reinvent itself and become a regional centre of excellence. They have done it through collaboration as well as competition. And they have done it above all by rejecting nostalgia, rejecting sectional interests, rejecting the quiet life and the easy option.

The North East is resilient. That is admirable and important. But now we need to make it prosperous. This conference is an important part of the process. You are the people whose creative spark has created the businesses we have got; public policy should be here to help develop that spark, and spread it round the region. I look forward to working with you in that task in the years ahead.