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Dave Beans

30 Years Ago 96 Per Cent Of A Jcb Digger Was Made In Britain. Today It Is Just 36 Per Cent. Why?

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http://www.dailymail.co.uk/debate/article-1319223/30-years-ago-96-cent-JCB-digger-Britain-Today-just-36-cent-WHY.html

I was born in October 1945, shortly after the end of the Second World War. I grew up at a time when the world was looking at the reconstruction of Germany after wartime devastation with some amazement.

Its industrial heart had been destroyed, but within a matter of years, there was an economic miracle or 'Wirtschaftswunder'.

Little over a year ago, Germany plunged into its worst post-war recession, yet now it seems that an export-driven V-shaped recovery is well under way, with the chemical, engineering and elec trical sectors forecasting overall export growth of 50 per cent.

Business confidence in Germany is surging, particularly in the car industry. Volkswagen reports that, for the first time in its history, it sold more than five million cars in the first nine months of this year.

It's the same story for other German carmakers such as Daimler and Audi – they're all working flat-out. Overtime, special shifts and recruitment are the order of the day. This growth has confounded many experts, including the International Monetary Fund.

So what, exactly, is going on? Are we watching a second economic miracle? My personal view is that it has nothing to do with divine intervention.

It has a lot more to do with the country's sensible industrial policy and forward-looking employment legislation. Manufacturing industry in Germany rose like a phoenix from the ashes of wartime destruction for one reason: successive German governments decided that manufacturing was important.

Factories might have been destroyed during the war, but not the ingenuity of its many well-qualified engineers. Engineering has always been the backbone of Germany's manufacturing prowess.

The profession is a source of personal pride for a man or woman who studies many years to design and manufacture products someone wants to buy. Being an engineer in Germany earns instant respect.

Sadly, we've lost our way in Britain over the past 30 years. Manufacturing as an industry and engineering as a profession don't have the same importance in this country.

I'm not suggesting that our politicians made any conscious decisions to diminish their importance. That would be a bit harsh. However, I would argue that many of them attributed too much importance to other things – the financial sector, for example, and service industries.

n the end, it was at the expense of manufacturing and the consequences are plain to see: an ever-declining contrib ution from manufacturing to our GDP, declining employment in industry generally, reduced investment in production technology and an inevitable diversion of young talent into careers in different areas.

Is it any wonder young people question why they should go into what they perceive to be a sunset industry? Only last week, it was reported that the UK's steel production – an important indicator of manufacturing strength – has slipped to just 0.6 per cent of world output, putting it below Spain, Mexico and Iran.

Today we are 18th in the world. In the early Seventies we were fourth. I regularly come across overseas business people who firmly believe that our industrial edge has long gone.

It's a false perception and I challenge it head-on every time I can. But perception is reality for many people and that's why many foreign investors feel that they would be far better off going to Germany for engineered products.

According to a Sunday newspaper I read last week, the Chinese can't get enough German-made cars and this is helping to drive the export-driven recovery in the German automotive industry and, in turn, the rest of the German economy.

I can't help wondering what might have happened if our various Governments in recent decades had put in place a long-term industrial policy and promoted engineering as a professional career for young people.

Maybe Britain would be enjoying the same recovery in economic growth that Germany is going through right now. When the global financial crisis struck, the response of German policymakers was inspirational.

Faced with a steep drop in the industrial order book and the prospect of a huge number of engineers, tech nicians and production-line operatives having to be laid off, what did they do?

They found a way of retaining these valuable skills. They introduced short-time working, with the German government paying employees for hours not worked due to the downturn so that their employers could keep them on the payroll.

JCB employees in Germany benefited from this forward-looking approach. However, our British employees didn't benefit, because no such short-time working policy existed in this country.

We had no choice but to make people redundant – although I'm pleased to say we're starting to recruit again. It's just a great tragedy that we had to let good people go in the first place.

In Germany, the industrial workforce was spared the indignity of unemployment. It remained intact, ready for an upturn which has now arrived in style.

It was only 18 months ago that German carmakers were putting hundreds of thousands of employees on short-time working and now there is more work than they can handle.

It's all down to good old-fashioned economic and political management. Is there a lesson for Britain here? Well, the first thing to do is accept that some damage has been done to our industrial fabric.

Some industries have declined to such an extent that JCB is unable to purchase certain components in this country any more. For example, castings are used to make our diggers but our foundry industry couldn't cope with the intense competition from low-cost economies.

This is one reason why, as I've said many times before, the British content of a JCB backhoe loader has dropped from 96 per cent in 1979 to 36 per cent in 2009. In many instances, the companies that supplied JCB 30 years ago are simply not there now.

There's not a lot we can do about the past. We need to look ahead and get our policymakers to focus on the future – urge them to make manufacturing important once again, treat engineering with the respect it deserves and use it as the driver for economic growth and wealth creation in Britain.

Attracting young people to become part of our manufacturing industry is a crucial first step that must be taken now. JCB is doing its bit by sponsoring an engineering academy for 14 to 19-year-olds in Staffordshire.

My hope is that the young people who graduate from The JCB Academy will be inspired to become great engineers and business leaders and develop the important products of the future.

The future of manufacturers based in Britain, such as Rolls-Royce, Toyota, Bombardier, JCB and countless other small-to-medium-sized firms, depends on it.

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One issue is our vulture financial people load the companies up with debt, and give dividends to themselves. So then the poor company has to not only pay the costs of wages, research, new equipment etc, but also all the cost of all that debt.

Meanwhile in Japan and Germany they generally pay off the debt. Over the long run our companies just aren't competitive while having that large extra burden of managing all that debt, and go down.

One thing Germany has in place is its virtually impossible for private equity and friends to buy any major companies in Germany. First the state governments own large portions of the company. Also the unions own large chunks. And often individual families with a long history in the business also own substantial stakes. And the voting shares are not neccessarily the same as the common shares.

In Britain we could instantly have this if we wanted. Since the state pension funds could be actively managed by the political leadership to seize control of major decision making of the corporations. And so could the private union pension funds.

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To give an example, VW, which is probably Germany's largest company by revenue.. only something like 5% of the shares are available on the stock market. Its a different(and more successful) type of capitalism than we have here.

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One thing Germany has in place is its virtually impossible for private equity and friends to buy any major companies in Germany. First the state governments own large portions of the company. Also the unions own large chunks. And often individual families with a long history in the business also own substantial stakes. And the voting shares are not neccessarily the same as the common shares.

Good post. A castle has a drawbridge, moat, walls and archers for good reason. Take away the defences, and it is only a matter of time before it is plundered and stripped bare.

archers-g.jpg

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I read companies were doing that in this country. Taking on debt so they can pay shareholders a bigger dividend today. Absolutely crazy. A) the company now has debt, so aren't (shouldn't) the shares now be worth less? b ) they now have to service the debt.

There should be rules against it. When people look at a company to see if they want to buy shares in it, how do they tell how much debt the company has? Do they have to look at the balance sheet,or is it normally summarised nicely for them somewhere?

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I read companies were doing that in this country. Taking on debt so they can pay shareholders a bigger dividend today. Absolutely crazy. A) the company now has debt, so aren't (shouldn't) the shares now be worth less? b ) they now have to service the debt.

There should be rules against it. When people look at a company to see if they want to buy shares in it, how do they tell how much debt the company has? Do they have to look at the balance sheet,or is it normally summarised nicely for them somewhere?

debt is not a problem in the right conditions, it is a benefit, debt will produce wealth through sustainable growth if timed correctly, such as the last 40 years, at other times it is a killer, when the economy is soaked with it such as now, its just about timing like everything.

And yes a companies accounts will generally give you all the information you need regarding its health and ability to service debt, most people spend lots of time on the P&L and balance sheet but the most important section is the notes accompanying these as they are most likely to highlight in a round about way any financial jiggery pokery and if you cant understand them, avoid

Edited by Tamara De Lempicka

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Possibly not disconnected with the fact that 25ish years ago, my Uncle's plant hire firm switched from JCB to Case diggers becuase although he reckoned they weren't as good, they were about 40% cheaper and he'd have gone bust if he hadn't'.

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re. the debt thing - it has absolutely nothing to do with investing in the future of the business. the executives and city slickers decided a long time ago that to pay less tax on the profits they would take on debt and return the money to the shareholders. If a business makes £100k a year they pay tax on the £100k, the same business now takes on £1million of debt doing a return of capital to shareholders (big pay day in the boardroom/city) now they can offset say £60k a year interest against any future 100k profit pay tax on only the 40k and drive around in the sports cars and live in their big houses 'today'! Doesn't give us a competitive edge mind but short term riches rule at the top.

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2 comments on this article , compared to 500 on an article about house prices or katie price.

Most people just don't care anymore.

Not so, I submitted my comment hours ago and I am still waiting for it to appear.

I'm hoping it's just a Sunday morning lag in moderation.

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Germans makes great vehicles, vehicles which people actual want to buy... we didn't. We crafted $hit buckets like the Maestro, Montego and Metro.

We also spent 60 years paying Uncle Sam for the right to participate in WW2.... Japan and Germany were given money to rebuild their shattered economies.

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30 years ago the British voted in Thatcher. Why all the rest of the guff? Why even ask the question when the answer is self evident?

she didn't steal your milk either. Do you actually believe that sort of rubbish or have I missed the subtlety in your sarcasm ?

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re. Shareholder value, that is of very little concern to the fund managers.... they consider all dividend, coupons and redemptions/capital repayment as their income while the shareholder gets diddly squat and the majority of those shares are held in our pension funds no matter how small. I worked in the city for five years and when I moved up North in 2001 my pension fund was valued at circa 20k and promised to pay me a small income in retirement as my statement based it on a 7% return. My last January statement valued the same fund at £1,700 up from £1,200 the year before... I have decided to laugh about it and in thirty years time i'm going to exercise my right to take out 25% of it on retirement and buy myself a hot dinner. :P

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My comment:

I have an MEng in electronics and electrical, as well as an MSc in chip design.

Engineering in the UK is poorly regarded and poorly rewarded. In a world where greed is good and x-factor distracts the masses there is no place for the engineer. Germany is a powerhouse thanks to it's engineering - India and China are going the same way. The UK is being left in the dust - we need to MAKE things again.

I don't think things will change - I'll probably leave the UK to work somewhere where engineering is respected (and boost my salary by at least two times).

Do people realise how difficult the job is, what it involves? I design circuits as small as 40nm, circuits such as image sensors for bio-cameras which can help detect cancer, circuits for high-speed comms, and more recently, circuits to drive motors for power-steering.

It makes me sick - sometimes I think I should have gone into banking and made my mint. I wouldn't reccomend engineering to anyone in the UK, which is sad.

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2 comments on this article , compared to 500 on an article about house prices or katie price.

Most people just don't care anymore.

Poosibly because this is a site about house prices and not JCB's?

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debt is not a problem in the right conditions, it is a benefit, debt will produce wealth through sustainable growth if timed correctly, such as the last 40 years, at other times it is a killer, when the economy is soaked with it such as now, its just about timing like everything.

And yes a companies accounts will generally give you all the information you need regarding its health and ability to service debt, most people spend lots of time on the P&L and balance sheet but the most important section is the notes accompanying these as they are most likely to highlight in a round about way any financial jiggery pokery and if you cant understand them, avoid

Utter drivel.

Debt driven growth, whether that be money borrowed from a bank with interest, from the stock market via shares carrying a dividend or private equity expecting its return, is an expense not a benefit.

As long any percentage is being skimmed off the top, purely for having money invested, then the company as a whole is less competitive. Debt driven growth is another example of the short term-ism that is rife in industry in the UK/US.

And we have not had sustainable growth for the last 40 years; we've been accumulating the mother of all debt mountains which you might have noticed.

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In the last 30 years Germany and the Asian exporters have been selling foreigners more than they bought. That surplus was then lent to foreigners like UK/US/PIIGS, and much of it was used to buy German and Asian goods. This is essentially vendor financing. In an age of debt defaults, it may soon prove not to have been such a smart business model after all.

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It's not that British people can't build JCBs or their components, it is simply cheaper to outsource the work. It's the same in what I do, continental truck driving. Twenty years ago, 75% of the trucks leaving Dover were British registered, now less than 25% are.

We would quote about £1400 to send an artic load from London to Barcelona, a Romanian firm would do it for £800.

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My comment:

I have an MEng in electronics and electrical, as well as an MSc in chip design.

Engineering in the UK is poorly regarded and poorly rewarded.

While I agree with the last line quoted (it's my experience too - hence why I now work for a US company), you could just be in the right place at the right time right here in Blighty. We're very much where chip design is at: it's not just Cambridge-based ARM dominating the big growth markets, smaller companies like IMG in Hertfordshire appear to be very hot too. While Intel has been in continual decline since dotcom, Sun got borged by Oracle, and the likes of AMD and NVDA are no more than treading water.

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Utter drivel.

Debt driven growth, whether that be money borrowed from a bank with interest, from the stock market via shares carrying a dividend or private equity expecting its return, is an expense not a benefit.

As long any percentage is being skimmed off the top, purely for having money invested, then the company as a whole is less competitive. Debt driven growth is another example of the short term-ism that is rife in industry in the UK/US.

And we have not had sustainable growth for the last 40 years; we've been accumulating the mother of all debt mountains which you might have noticed.

im not even sure if you even understood what i said, in the right circumstances debt is positive for a business if it has no capital of its own, companies can use it for expansion positively, i have no idea why you are highlighting the debt mountain when its highlighted in the same post you reference.

The post has nothing to do with whether it is long term healthy for an economy it just highlights using it can make people extremely wealthy if timed correctly, people have accumulated immense wealth via debt leverage in the past 40 years which you might have noticed.

the relevant word in the post is timing

Edited by Tamara De Lempicka

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To give an example, VW, which is probably Germany's largest company by revenue.. only something like 5% of the shares are available on the stock market. Its a different(and more successful) type of capitalism than we have here.

I seem to recall a British company/conglomerate that in the 1980's was "rather big over there" has now been broken up and the rump sold to the Germans. Well done City of London! Of course our utilities are now in a variety of foreign hands.

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according to a Sunday newspaper I read last week, the Chinese can't get enough German-made cars and this is helping to drive the export-driven recovery in the German automotive industry and, in turn, the rest of the German economy.

Oh I see (!) that if you make something of quality then the chinese will open their wallet and buy it.. And in fact Chinese are buying high quality british education by the plane load.

The chinese just don't want to buy the CDO, Junk Bonds and MBS.

Why haven't the US / UK government thought of that.

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im not even sure if you even understood what i said, in the right circumstances debt is positive for a business if it has no capital of its own, companies can use it for expansion positively, i have no idea why you are highlighting the debt mountain when its highlighted in the same post you reference.

The post has nothing to do with whether it is long term healthy for an economy it just highlights using it can make people extremely wealthy if timed correctly, people have accumulated immense wealth via debt leverage in the past 40 years which you might have noticed.

the relevant word in the post is timing

It depends whether the debt is borrowed to buy/build productive things or to join in at a ponzi party (where timing is extremely important).

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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