Anchors Aweigh!

There has been much talk recently from politicians about manufacturing and bringing back ‘Made in Britain’. The theory is that this will solve all of our current economic ills. It is a popular political gesture to talk about such things in times of austerity because when we think of manufacturing we think of mass employment for blue-collar workers for whom the pain of long-term unemployment can be particularly harsh.

Only the most hardened voter can fail to be seduced by the alluring claims of bringing back the ‘golden age of manufacturing’ and yet it is all an illusion. It is in fact, a symptom of a physiological nuance called ‘anchoring’.

Anchoring is where our minds set our standards and preconceptions based on the most favorable point in history. If nostalgia, which is a filtered view of our past taking out all of the bad stuff and leaving only the nice cuddly stuff, is a shotgun then anchoring is a sniper rifle. Anchoring is common in most aspects of our life but is especially noticeable when it comes to our money and how we view the economic world.

To prove the point, try asking anyone you know how much their house is worth. The answer they will give you is not how much it is worth now, but the highest value it was ever worth. Their response will start with

‘Well, in 2006 it was valued at £(insert wildly optimistic valuation from zealous estate agent desperate for business here)’

Or

‘Bob next door once thought about putting his up for sale for £(insert absurd figure here based on how much Bob needed to sell his existing house for in order to buy his next house, despite the lack of any credible, let alone mathematical link between the two)’

And so anchoring is why we always think the TV, toys and childhood that we had as youngsters are better than today’s and why our musical taste does not progress beyond the age of thirty five.

Interest rates are another good example of how psychological anchoring can wreak havoc with your wealth. For the generation that had savings throughout the eighties and early nineties, they view getting an interest rate of 5% today as an insult. This is because they enjoyed 13.5% in 1991 and they have anchored that in their minds as normal. The fact that inflation was then 15% and they were actually making a real loss of 1.5% is missed in their irritation at only now getting 5% growth when inflation is about 4% depending on who you believe. Ironically they now make a real return of 1% rather than losing 1.5% per year and yet still view this as disappointing. Talk about hard to please.

And so on to manufacturing and this so called golden age. When exactly was it? Well we can tell you the exact date. It was the 1st May 1851 and it was called the Great Exhibition.

The exhibition, pioneered by Queen Victoria and especially Prince Albert was a huge showpiece of our engineering genius held in a specially designed glass and steel structure of huge proportions called Crystal Palace. The exhibition was crammed full of new gadgets including locomotives and exquisite artistry designed to flaunt our knowledge and design prowess to the rest of the world. That was the pinnacle and everything else is just nostalgia. Today, the closest we get is ‘Britain’s Next Top Model’.

All this industry led to us getting rich and most of it was spent habitually fighting the French. The rest was just wasted.

In the first part of the 20th century our factories either made weapons to fight the Germans or materials to rebuild things destroyed by the Germans. This inertia carried manufacturing through the fifties and into the sixties despite signs already that other countries could do it much cheaper than we could. By the late sixties and early seventies the game was up. Our standard of living had gone up to such a level that it cost more to pay the wages of the staff to make something than those same people would be prepared to pay for the thing that they had made.

Even one of our most famous exports, the Mini, never made a bean of profit in over fifty years. They cost more to make than they could be sold for, yet we continued to make more of them and pat ourselves on the back for doing so.

‘Well done guys, that cost us fifty quid more to make than we could sell it for. Let’s make another!’

British Leyland epitomized the madness of trying to keep an industry going that we could no longer do effectively. It employed about 500,000 people both directly and indirectly and when it went bust in 1975, the left wing government of the day panicked and under pressure from the unions to ‘do something’ it brought it under government ownership and went about wasting mind-numbing amounts of public money to prop up something that was inherently broke rather than make large swathes of angry voters unemployed. The almost communist business model was so orientated towards the rights and pay of the workers without any thought to the actual viability of the product that it would even have made Bob Crow blush. It limped along before being renamed MG Rover in 1986 and finally, mercifully, dying in 2005.

And so when we hark back to the ‘golden days of manufacturing’ it is really just an illusion that hasn’t existed for 170 years, yet the politicians are happy to peddle the sound bites about ‘rebalancing the economy’ etc.

We shouldn’t feel bad though, every country goes through this as it matures and its wealth increases. That is why as you get older and wiser you stop doing paper rounds and start paying someone else to deliver your papers for you. The same will happen with China as the wage demands of its workers increase and soon, manufacturing will move to Africa. When the Africans get too rich to make their own stuff we’re jiggered, but we’ll worry about that when the time comes. Maybe Cliff can sing us a song to get us through.

Anyway, back to the point. Let’s look at the iPhone which retails at £480. Of that, £240 goes to the retailer, £190 to Apple, £45 on taxes and shipping and £5 to the manufacturer in China. So, do you want to be the person paid a pittance to make it or the well paid person who designs it? And that is the point, the Great Exhibition wasn’t about manufacturing, it was about technology and innovation.

We were very good at designing trains when it was known as technology, before building trains became thought of as manufacturing. We were brilliant when inventing automatic looms was deemed to be sorcery like magic, before making them became something anyone could do. We never were, and never will be able to mass-produce simple things at a profit and nor should we want to. Just because you sit on your wicker chair in your orangery, reading the Daily Mail and pontificating about the good old days doesn’t mean you actually want to get on your BMX at daft o’clock every morning and deliver papers.

Maybe our politicians need to stop throwing around political sound bites and start telling the truth. We can still mass-produce things but they need to be at the forefront of technology. They should to be things that countries without our knowledge and technical skill can’t do. Let the Indians build the cars as we make more profit from one electric battery than they make from producing the whole vehicle. There is more profit for us in one wind turbine than can be made from exporting unimaginable tons of coal. So instead of dreaming of the days of ‘Made in Britain’, would it be so bad if we were happy with ‘Created in Britain’?

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