By David Bailey, Caroline Chapain and Stephen Hall
23 July 2009
With mass manufacturing redundancies back
on the agenda, there needs to be a permanent task force to deal with the economic shocks. David Bailey, Caroline Chapain and Stephen Hall report
UK unemployment soared by 281,000 in the second quarter of this year – the biggest rise since records began. And it is set to continue increasing well into next year, with some analysts forecasting it will reach 3 million even if – as some lead indicators suggest – the economic downturn is bottoming out.
The recession has affected sectors across the board but manufacturing has been especially badly hit, with large-scale redundancies by Corus, Jaguar Land Rover, Nissan and others. The public sector is not likely to be spared. Chancellor Alistair Darling might predict a quick bounce-back for the British economy in 2011 but others, including the International Monetary Fund, take the view that recessions with a credit crunch dimension take longer to recover from.
So the government’s 3.5% growth forecast for 2011 is optimistic to say the least. That affects the government’s ability to balance the books, or get anywhere near to doing so. The bulk of the fiscal tightening that we will see will come through slower growth in public expenditure. This is likely to lead to public sector job cuts at some point.
All regions and localities will be affected by the recession, but some will fare worse than others. The areas with the largest increase in people claiming benefits are the ‘core cities’ of the North, the West Midlands and Scotland, along with areas linked with traditional manufacturing, which have suffered disproportionately in previous recessions.
It is no surprise then that the West Midlands has been especially affected, and now has an unemployment rate of 10.3% – the worst in the UK.
Economic decline and restructuring are, however, also influenced by ‘local’ factors, in the sense of the institutional, cultural and political make-up of an area. It is important to consider the degree of local resilience to the effects of recession. Major local factors determining how different areas cope include: the extent of economic specialisation; how central or peripheral the area is in a national and regional economic context; its connectivity in terms of transport infrastructure; the composition and flexibility of its labour force in terms of skills and adaptability; the availability of land and property; and the strategic planning capacity of regional and local institutions.
Research shows that both reactive and proactive approaches are needed in a time of recession to improve the chances of success in the longer term. Intelligence gathering on the effects of the recession and what it means in terms of the robustness of existing regional and local social and economic development strategies must be considered. This might require a revision of existing strategies.
As many effects of the recession are going to be felt over the medium to long term, building on and working with voluntary and community organisations should be a part of any action to promote recovery in an area. And, as the MG Rover case in the West Midlands has shown, it is important to recognise and support the development of bottom-up initiatives.
When MG Rover went into administration in May 2005, some 6,300 jobs were lost at its Longbridge plant in Birmingham. Our research, funded by the Economic and Social Research Council, showed that the vast majority of the redundant workers found jobs, albeit on substantially lower wages on average. Indeed, by April 2008, almost 90% of workers had found new employment and most of them were in permanent jobs.
Training played a vital role in helping these workers find new jobs, giving them confidence and new skills. Six out of ten workers reported having undergone some form of training and education. Two-thirds took up the offer of free training places offered by local agencies and many others were trained by their new employers.
The need for workers to change their type of job and/or occupation to find employment resulted in significant pay cuts, with average pay falling by £5,640 per year in real terms. Indeed, two-thirds of workers suffered wage falls while a third reported an increase in their salaries. The jobs at Rover were high-quality manufacturing jobs paying above the average for the West Midlands region, so it was always likely that workers would not be able to find directly comparable work.
Overall, the 31% of workers who stayed in the manufacturing sector earned roughly the same as they had at Rover, but the 60% who moved into the service sector mostly earned less. People who found work in four particular sectors – wholesale and retail, real estate and business services, education, and health and social work – took average cuts of more than £6,000 in annual income.
As could be expected, the areas around the MG Rover plant were particularly affected by the closure but the impact extended much further. People who were already unemployed had to compete with ex-MG Rover workers coming into the labour market, resulting in an increase in long-term unemployment. Shops and restaurants closed, while others experienced a fall in turnover.
Critically, the ability of southwest Birmingham to respond to the closure was limited due to a legacy of long-term local decline and limited community capacity to deal with change – what academics term local ‘social capital’. This was linked to a traditional dominance of big employers. For example, for decades people had expected to get a job at the ‘Austin’.
In dealing with MG Rover’s collapse, the government set up a task force co-ordinated by the regional development agency, Advantage West Midlands. This brought together public agencies, trade unions, the council and others to deal with the situation.
The task force model proved very effective within its particular remit but was limited in scope. Indeed, its focus (on ex-MG Rover workers and the supply chain), composition (economic development agencies) and lines of accountability (to sponsor ministries) meant that it was poorly placed to deal with broader social and economic effects.
Birmingham City Council attempted to fill the void and deal with the ‘collateral damage’ of the Rover collapse. Working with local partners such as Bourneville College, the Rover Community Action Trust and the Longbridge Advice & Resource Centre, it set up support services, including a telephone helpline, debt advice and local training programmes.
While the local authority is a necessary actor in such a response, it is also an imperfect vehicle given its very specific and restricted powers. In interviews, local authority staff reported a mismatch in their skills sets (the benefit system, debt advice) and the immediate needs of shocked and disoriented redundant workers (in particular, the need for counselling).
The local authority response was also restricted to some extent by a paucity of local voluntary and community sector organisations through which to channel programmes of assistance. Conversely, local third sector groups were frustrated by the rules, regulations and ‘project management’ mindset of major statutory organisations. Our research suggests that the statutory sector tended to prioritise expenditure within prescribed timescales over innovation and investment for the future.
In particular, the high threshold of managerial competence, financial competence and probity that voluntary groups needed to demonstrate to access government funding meant that small local organisations struggled to participate. Rather, large national organisations tended to be the ones best placed to demonstrate these competencies and thus to provide the services required, such as training and counselling.
Of course, the current recession is very different from previous downturns in that closures and redundancies are much more widespread, and far fewer resources are available to deal with the effects (some £150m was made available to the MG Rover Task Force). However, the need to maintain some kind of ‘permanent capacity’ to deal with closures and to build community organisations and resilience can be generalised beyond MG Rover.
For example, in the case of van maker LDV, which went into administration in June, a task force has been set up, drawing on the MG Rover experience.
The use of regional task forces is also welcome. In the West Midlands, for example, the current regional task force was able to quickly introduce financial support for businesses to offset (in a small but important way) the credit crunch dimension of the downturn. This response was modelled on what had been done in the wake of the MG Rover closure, such as the Advantage Loan Transition Fund.
Equally, planning ahead to ameliorate and – if possible – avoid catastrophic closures is also essential. Advance work by the RDA in the MG Rover case saved around 10,000–12,000 jobs in the supply chain. Here, the RDA worked with firms from 2000 to 2005, after the first Rover ‘shock’, to help them diversify away from Rover. Slowing down the effects of such events is critical so that everyone – workers, suppliers, related industries, and communities – have the time to plan ahead.
Our research suggests that thinking ahead by regional and local actors is essential in such situations. Such expertise and the ability to anticipate and respond to shocks need a permanent ‘home’ so that they are not lost. The regional task forces could be developed into such a capacity. The newly created Department for Business, Innovation and Skills could act as a ‘clearing house’ for good practice, such as the use of active risk registers to identify vulnerable firms and towns.
There will be more plant closures. Dealing with them requires a careful mix of regional and local policies that are effectively co-ordinated across all the relevant agencies.
David Bailey is a professor at Coventry University Business School and is chair of the Regional Studies Association; Caroline Chapain is a research fellow at Birmingham Business School; and Stephen Hall is principal lecturer at the University of the West of England
23 July 2009
With mass manufacturing redundancies back
on the agenda, there needs to be a permanent task force to deal with the economic shocks. David Bailey, Caroline Chapain and Stephen Hall report
UK unemployment soared by 281,000 in the second quarter of this year – the biggest rise since records began. And it is set to continue increasing well into next year, with some analysts forecasting it will reach 3 million even if – as some lead indicators suggest – the economic downturn is bottoming out.
The recession has affected sectors across the board but manufacturing has been especially badly hit, with large-scale redundancies by Corus, Jaguar Land Rover, Nissan and others. The public sector is not likely to be spared. Chancellor Alistair Darling might predict a quick bounce-back for the British economy in 2011 but others, including the International Monetary Fund, take the view that recessions with a credit crunch dimension take longer to recover from.
So the government’s 3.5% growth forecast for 2011 is optimistic to say the least. That affects the government’s ability to balance the books, or get anywhere near to doing so. The bulk of the fiscal tightening that we will see will come through slower growth in public expenditure. This is likely to lead to public sector job cuts at some point.
All regions and localities will be affected by the recession, but some will fare worse than others. The areas with the largest increase in people claiming benefits are the ‘core cities’ of the North, the West Midlands and Scotland, along with areas linked with traditional manufacturing, which have suffered disproportionately in previous recessions.
It is no surprise then that the West Midlands has been especially affected, and now has an unemployment rate of 10.3% – the worst in the UK.
Economic decline and restructuring are, however, also influenced by ‘local’ factors, in the sense of the institutional, cultural and political make-up of an area. It is important to consider the degree of local resilience to the effects of recession. Major local factors determining how different areas cope include: the extent of economic specialisation; how central or peripheral the area is in a national and regional economic context; its connectivity in terms of transport infrastructure; the composition and flexibility of its labour force in terms of skills and adaptability; the availability of land and property; and the strategic planning capacity of regional and local institutions.
Research shows that both reactive and proactive approaches are needed in a time of recession to improve the chances of success in the longer term. Intelligence gathering on the effects of the recession and what it means in terms of the robustness of existing regional and local social and economic development strategies must be considered. This might require a revision of existing strategies.
As many effects of the recession are going to be felt over the medium to long term, building on and working with voluntary and community organisations should be a part of any action to promote recovery in an area. And, as the MG Rover case in the West Midlands has shown, it is important to recognise and support the development of bottom-up initiatives.
When MG Rover went into administration in May 2005, some 6,300 jobs were lost at its Longbridge plant in Birmingham. Our research, funded by the Economic and Social Research Council, showed that the vast majority of the redundant workers found jobs, albeit on substantially lower wages on average. Indeed, by April 2008, almost 90% of workers had found new employment and most of them were in permanent jobs.
Training played a vital role in helping these workers find new jobs, giving them confidence and new skills. Six out of ten workers reported having undergone some form of training and education. Two-thirds took up the offer of free training places offered by local agencies and many others were trained by their new employers.
The need for workers to change their type of job and/or occupation to find employment resulted in significant pay cuts, with average pay falling by £5,640 per year in real terms. Indeed, two-thirds of workers suffered wage falls while a third reported an increase in their salaries. The jobs at Rover were high-quality manufacturing jobs paying above the average for the West Midlands region, so it was always likely that workers would not be able to find directly comparable work.
Overall, the 31% of workers who stayed in the manufacturing sector earned roughly the same as they had at Rover, but the 60% who moved into the service sector mostly earned less. People who found work in four particular sectors – wholesale and retail, real estate and business services, education, and health and social work – took average cuts of more than £6,000 in annual income.
As could be expected, the areas around the MG Rover plant were particularly affected by the closure but the impact extended much further. People who were already unemployed had to compete with ex-MG Rover workers coming into the labour market, resulting in an increase in long-term unemployment. Shops and restaurants closed, while others experienced a fall in turnover.
Critically, the ability of southwest Birmingham to respond to the closure was limited due to a legacy of long-term local decline and limited community capacity to deal with change – what academics term local ‘social capital’. This was linked to a traditional dominance of big employers. For example, for decades people had expected to get a job at the ‘Austin’.
In dealing with MG Rover’s collapse, the government set up a task force co-ordinated by the regional development agency, Advantage West Midlands. This brought together public agencies, trade unions, the council and others to deal with the situation.
The task force model proved very effective within its particular remit but was limited in scope. Indeed, its focus (on ex-MG Rover workers and the supply chain), composition (economic development agencies) and lines of accountability (to sponsor ministries) meant that it was poorly placed to deal with broader social and economic effects.
Birmingham City Council attempted to fill the void and deal with the ‘collateral damage’ of the Rover collapse. Working with local partners such as Bourneville College, the Rover Community Action Trust and the Longbridge Advice & Resource Centre, it set up support services, including a telephone helpline, debt advice and local training programmes.
While the local authority is a necessary actor in such a response, it is also an imperfect vehicle given its very specific and restricted powers. In interviews, local authority staff reported a mismatch in their skills sets (the benefit system, debt advice) and the immediate needs of shocked and disoriented redundant workers (in particular, the need for counselling).
The local authority response was also restricted to some extent by a paucity of local voluntary and community sector organisations through which to channel programmes of assistance. Conversely, local third sector groups were frustrated by the rules, regulations and ‘project management’ mindset of major statutory organisations. Our research suggests that the statutory sector tended to prioritise expenditure within prescribed timescales over innovation and investment for the future.
In particular, the high threshold of managerial competence, financial competence and probity that voluntary groups needed to demonstrate to access government funding meant that small local organisations struggled to participate. Rather, large national organisations tended to be the ones best placed to demonstrate these competencies and thus to provide the services required, such as training and counselling.
Of course, the current recession is very different from previous downturns in that closures and redundancies are much more widespread, and far fewer resources are available to deal with the effects (some £150m was made available to the MG Rover Task Force). However, the need to maintain some kind of ‘permanent capacity’ to deal with closures and to build community organisations and resilience can be generalised beyond MG Rover.
For example, in the case of van maker LDV, which went into administration in June, a task force has been set up, drawing on the MG Rover experience.
The use of regional task forces is also welcome. In the West Midlands, for example, the current regional task force was able to quickly introduce financial support for businesses to offset (in a small but important way) the credit crunch dimension of the downturn. This response was modelled on what had been done in the wake of the MG Rover closure, such as the Advantage Loan Transition Fund.
Equally, planning ahead to ameliorate and – if possible – avoid catastrophic closures is also essential. Advance work by the RDA in the MG Rover case saved around 10,000–12,000 jobs in the supply chain. Here, the RDA worked with firms from 2000 to 2005, after the first Rover ‘shock’, to help them diversify away from Rover. Slowing down the effects of such events is critical so that everyone – workers, suppliers, related industries, and communities – have the time to plan ahead.
Our research suggests that thinking ahead by regional and local actors is essential in such situations. Such expertise and the ability to anticipate and respond to shocks need a permanent ‘home’ so that they are not lost. The regional task forces could be developed into such a capacity. The newly created Department for Business, Innovation and Skills could act as a ‘clearing house’ for good practice, such as the use of active risk registers to identify vulnerable firms and towns.
There will be more plant closures. Dealing with them requires a careful mix of regional and local policies that are effectively co-ordinated across all the relevant agencies.
David Bailey is a professor at Coventry University Business School and is chair of the Regional Studies Association; Caroline Chapain is a research fellow at Birmingham Business School; and Stephen Hall is principal lecturer at the University of the West of England
