Saturday, March 10, 2012

James Dyson reinvented the vacuum. Now he wants to remake the economy | Doug Saunders | The Globe and Mail

James Dyson reinvented the vacuum. Now he wants to remake the economy

DOUG SAUNDERS TETBURY HILL, ENGLAND— From Saturday's Globe and Mail Published Friday, Mar. 09, 2012 6:39PM EST Last updated Saturday, Mar. 10, 2012 10:35AM EST

You have to drive far out into the West Country, through forested hills and ancient villages, if you want to find the last of the mad British inventors. His wide glass desk perches amid a clutter of aluminum tubes, DC-pulse motors, lithium-polymer batteries and whirring prototypes in a distant corner of a sleek, silver building that contains 1,450 engineers, accountants, marketing people, managers and lawyers, and not a single labourer.

A furtive industrial evolution gives Britain hope for economic recovery

Behind that desk sits the silver-haired man who has become the only living British inventor every school kid here can name, a guy known for building actual things. Five years ago, that status would have been almost quaint. Today, it puts him in the political vanguard, both at home and, increasingly, across the Atlantic.

James Dyson's surname adorns an expanding array of bag-less vacuum cleaners, blade-less fans and washroom hand dryers that actually dry your hands. His private company claimed more than a billion pounds in worldwide sales last year, growing right through the recession.

Now, though, Mr. Dyson, 64, is even better known as the leading proponent of the suddenly popular idea that Western nations ought to return to manufacturing and exporting physical goods, after decades of shifting the roots of their economies to services, property and finance.

His call for an assembly line renaissance has echoed far beyond Britain, where he was appointed a senior adviser to Prime Minister David Cameron's coalition government and has spawned a raft of policies.

In the United States, his argument has become a key front in the current electoral battle: Reindustrialization is a byword in many Republican primaries, such as this week's showdown in the Rust Belt state of Ohio. Meanwhile, President Barack Obama's lines on “green” manufacturing, innovation and education closely track with those of Mr. Dyson, who took to the U.S. airwaves last month, arguing that the school system should be far more oriented to science and engineering, especially in poor neighbourhoods.

The problem, he explains in his crisp middle-class English, is that countries such as Britain, which was known two generations ago as “the workshop of the world,” have had the factory stripped from their DNA.

“We're traders and exploiters, we're the City of London, that's our culture,” he says. “So you have a greater status if you go into banking than you do if you go to a manufacturing firm in Birmingham and make something real and export it, and create wealth that way. That's the problem – it's historical. It's in our schools, it's in our culture and it's in our government.”

In fact, Mr. Dyson, Britain's most famous manufacturer, doesn't actually manufacture anything in Britain. He hasn't done so for 10 years, since he was refused local permission to expand his Wiltshire factory and came to the realization, as thousands of other manufacturers have, that hardly any of the components of his machines were made in Britain any more. So why not move everything to Asia, where it's simply easier to build things?

“There ought to be huge advantages to manufacturing in England,” he says with an indignation that hasn't dulled over the decade. “This is where our headquarters are, it's where our managers are, our engineers. We've got two bigger offices in Singapore and Malaysia, and we don't want to do that – it's a logistical nightmare – but we're forced to do it.”

It's not the labour, he says. Few companies shift their manufacturing overseas because of lower wages; in fact, many of the factory jobs for companies like his require some postsecondary education.

“Wages are a tiny percentage of our manufacturing cost,” he says. “We'd happily pay British labour costs rather than Southeast Asian labour costs and not have to manufacture 8,000 miles away. The reason we went there is that we weren't allowed to expand, and all of our suppliers were in the Far East. Why buy a British plug cable made in Taiwan, ship that all the way back to England to install it, then ship that all over the world? The problem we face now is that China and the Far East are manufacturing economies, and shortly probably India and South America. And we can't compete with that. … It's the cost of our whole infrastructure, our employment laws and our skills … the management skills in particular. And we're a very expensive place to make things.”

Before 2008, this was simply the complaint of one businessman, railing against an economic system that was designed around services, software and real estate, and seemed to be running very smoothly indeed. But the global economic downturn has given his message a new universality. After all, it was the financial-services and property sectors that collapsed; industry-driven economies such as Germany and Singapore experienced record-breaking export booms and avoided the crisis.

Countries such as Canada and Britain have a weakness: Having abandoned manufacturing almost completely, they are vulnerable to the uncontrollable destinies of natural resources and the financial industry. But Mr. Dyson describes it as only one symptom of a larger problem: a Western world, especially the former branches of the British Empire such as Britain and Canada, that has lost its will to invent and make things.

“The trouble with Britain is that it built its success on the riches of its empire, rather than building its success on a manufacturing economy – we went out to the empire and flogged them what products we had, and took their resources, and made money off it. There was no need to be the best.”

Canada followed a similar path, shifting its economy away from manufacturing and into a greater reliance on natural resources and financial services (although not as much as Britain – Canada still maintains some export leaders, such as Bombardier and Research in Motion). This, Mr. Dyson says, is a recipe for vulnerability, as it has made his country, and ours, dependent on the shifting fates of resource pricing and market activity. The solid employment and export earnings of an industrial would provide more stability, he says.

Can we compete with Asia and South America?

But he fears it may be too late. “The problem now is that China is rising rapidly, the Southeast Asian countries, the United States is very strong on technology, Japan, Korea and now South America – so what on Earth is [Britain's] future going to be? No empire any longer, the North Sea oil drying up and we're not a cheap manufacturing nation; we've even lost our ability to manufacture.”

The Dyson solution involves shifting the education system, the tax system and the government's priorities to making industrial manufacturing something that is once again desired, supported and rewarded.

For example, Mr. Obama, buoyed by the success of George W. Bush's Detroit auto-industry bailout and the strong uptick in exports with the cheaper dollar, is pushing for a U.S. industrial policy designed to make goods exports easier. As he points out, manufacturing made up 25 per cent of the U.S. economy in 1980; it has now fallen to less than 10 per cent. A study last month by the Washington-based Brookings Institution makes the case for a reindustrialization of America, finding that manufacturing jobs boost average salaries and productivity, provides the research and development investments that are the main source of innovation for the service industry and, perhaps most importantly, provides a large-scale rise in foreign-exchange earnings that would reduce the U.S. balance-of-payments deficit – the fundamental cause of the economic crisis.

“Economists agree that the United States must rebalance growth, away from consumption and imports financed by foreign borrowing, toward exports,” says Laura D'Andrea Tyson, the economist who chaired Bill Clinton's Council of Economic Advisers. “The only way the United States can … make a significant dent in its trade deficit for the foreseeable future is by increasing exports of manufactured goods.”

In a tip of the hat to Mr. Dyson, George Osborne, Britain's Chancellor of the Exchequer, tabled “a budget for making things” last year and loaded it with tax relief for small business, laws to reduce planning and bureaucratic barriers, grants to entrepreneurs and plans to double the number of technical colleges and apprenticeship programs.

Indeed, Mr. Dyson played a large part in the election of Mr. Cameron's government: He wrote a report, “Innovative Britain,” calling for tax and education systems designed to move people into design and manufacturing; it was a major subject of the 2010 election, and almost all of its recommendations have been implemented.

Now, he is pushing particularly hard to reinvigorate the inventing trades in Britain: He points out that only 6 per cent of British graduates study engineering, compared with 13 per cent in Germany and 40 per cent in Singapore.

It could be a good moment to bring manufacturing back home: Overseas wages and employment costs are rising, as are long-distance shipping costs, and political instability and natural disasters have shown the weaknesses in long, complex, multinational supply chains. Perhaps it is easier, some companies now say, to have all your suppliers within driving distance, even if that costs more. That's what auto manufacturers have long done.

What is a job? What's a factory?

But this is not a simple or uncontroversial matter.

A big reason why manufacturing jobs and factories moved to the Far East was because Asia and the rest of the developing world have a very different definition of “job” and “factory.” Western manufacturing, by the end of the Second World War, had come to be based around what some economists called a Fordist model: After the innovations of Henry Ford and his industrial comrades, factory jobs became lifelong, secure relationships between employer and employee, and factories permanent features on the landscape.

When Mr. Dyson complains about the 25-year leases he is expected to sign on British factory land, or the employment laws that make it a big burden to hire an additional worker (in large part because it's so expensive to fire them), he is complaining about the legacies of Fordism.

Asian manufacturers work in a “post-Fordist” economy in which labour and capital are flexible and fast-moving. If he sets up a vacuum-cleaner factory in Malaysia, he can ask his aluminium-tube supplier to set up a parts factory down the road, and within a year it can be built, staffed and operational. If his sales fall, he can cut staffing levels quickly.

Millions of Westerners, perhaps the majority, live the post-Fordist life: the call-centre workers, the piecework food processors. But our governments and unions have spent generations making full-time industrial jobs secure and permanent. Changing that will be controversial and jarring. It's what the Detroit auto workers effectively did: In exchange for the Washington bailout, they and their unions agreed to sharp reductions in job security and benefits.

Some labour and political leaders argue that the sort of policies proposed by the Dysons of the world amount to the beginning of a levelling-down of Western standards to developing-world levels, when the opposite should be occurring.

Other economists argue that it isn't really about manufacturing: There is no reason, on paper, why a good is more valuable to the economy, more export-worthy or more productivity-enhancing than a service. Most employment takes place in services, and in many countries the lion's share of exports are services such as software, banking, consulting and things like waste collection. And the barrier between the two is breaking down: Is Amazon's Kindle operation really retailing goods, or are the readers themselves merely the physical front end for the much larger downloading service?

When people talk about using government to boost manufacturing, what exactly are they talking about subsidizing, and to what end? As Jared Bernstein, a former economic adviser to U.S. Vice-President Joe Biden, told a reporter after Mr. Obama proposed his industrial policy: “Every barbershop is now going to claim that they manufacture haircuts.”

Mr. Dyson and his allies dismiss such arguments. “It's a false view that services are just as good,” he says. “Services are very hard to export, and even if you do export them, they're very easy to copy. And manufacturing does provide a better living. The average salary at Rolls-Royce is £41,000 [$65,000] per year; the average salary at Lloyds Bank [Britain's largest service employer] is £17,500 [$28,000] per year. There's a very high standard of living in Switzerland and Singapore, and they're both manufacturing economies – the average salary in Singapore is $57,000 a year.”

He sees the source of salvation in Britain, Canada and similar countries in their universities – “our last remaining source of innovation and industrial leadership,” he says.

“It's always said about the British,” this quintessential Englishman says, “that we invent things and everybody else exploits them. And it's true. But I don't think it has to be that way, and now we have a grand opportunity to change it.”

It is perhaps fitting that this idea is being promoted by the man best known for reinventing the vacuum cleaner. This time, after all, what he is trying to fix is nothing less than a political and economic vacuum.

Doug Saunders is a member of The Globe and Mail's European bureau.

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