The UK economy has grown only .2% in the second quarter of 2011. Earlier this month Siemens, a German company, won the UK government’s Thames-Link procurement contract. Winning over Bombardier, a Canadian company operating in Derby, which will be forced to cut its workforce by 50% to 1,500.
This is obviously a huge loss. A failure, for UK workers, and UK companies. But whose failure?
We have been hearing that the UK government made a mistake, and that it should have chosen Bombardier in order to protect UK workers. But given EU procurement rules which require European countries to choose the bids that are best on price-quality grounds, is it so surprising that Siemens, a company that has won many awards for its green technologies and based in a country that has one of the most activist and dynamic industrial policy, has won the £3billion Thames-Link procurement contract to build modern, faster and greener trains? Siemens have probably won based on their more innovative technology, which promises to provide better quality for money, notwithstanding the fact that German labour is more expensive than UK labour.
Geography matters since proximity to high skilled productive workers is very important, as is proximity to good science. This is similar to the reason that Pfizer recently left Kent, UK and went to Boston, USA not exactly a low wage haven. Pfizer went to Boston due to the better science-industry links, and the proximity to the US publicly funded National Institute of Health (NIH) laboratories which have been and continue to be lavishly funded and responsible for producing most of pharma’s research that has resulted in actual new molecular entities rather than variations of existing drugs (most of what pharma does).
The UK is instead living under the dream that everything can be done through the private sector, with a simple nudge from the state to get it moving. If and when the state gets involved it is to correct ‘market failures’. Instead what is needed is market creation.
Germany itself is an award winning innovation nation—often ahead of the game when it comes to new technologies. It, like China, Korea and Japan, understands that spending on green technology today, when the technology is still in the early highly uncertain stage, is of course risky but will allow it to be one of the ‘first’ in the green technology race. And, as with all technological revolutions, being first matters.
Germany, like the rest of the world, has been forced to institute its own austerity budget as a result of the banking crisis. Overall federal expenditure is being cut from €319.5bn last year to €307.4bn this year, yet funding at the Ministry of Education and Research is rising by 7.2%, which includes €327m for university research excellence, and support for research and development (R&D) at the Federal Economics Ministry is also increasing. This is congruent with Chancellor Angela Merkel’s past argument that “the prosperity of a country such as Germany, with its scarce mineral resources, must be sought through investment in research, education and science, and this to a disproportionate degree”.
As can be seen in the table below, after the crisis Germany has spent more not less on R&D, precisely as part of its recovery strategy. And the confidence this has given to business is currently reflected in their high growth rate (compared to the rest of Europe). The fact the UK economy has grown in the last quarter a mere .2%, is a direct reflection of its mistaken Plan A: growth through cuts strategy rather than growth through spending (on green and other high growth areas).