BAE job cuts are a wake-up call for economic policy

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The Independent Online

It is easy enough to rant about the irony of BAE Systems cutting 3,000 jobs at a time when politicians of every persuasion talk of little else but the need to rebalance our economy away from financial services towards the kind of hi-tech manufacturing at which the defence company excels. However, the job losses announced yesterday do not represent a setback, a failure for that rebalancing act, but something else entirely.

These cuts are the straightforward result of a sharp fall in demand for the products made at BAE's plants in the north of England. Partly that reflects the huge pressures being felt on defence budgets across the western world, with such spending in the sights of finance ministries' getting to grips with austerity

It is also the case that defence industry procurement is beginning to adjust to the needs of a world where western commitments in Afghanistan and Iraq are finally beginning to reduce.

That is not to say we should simply shrug our shoulders about these job losses. It may well be possible to mitigate the worst effects of the cuts, particularly with regard to the tens of thousands of jobs at risk further down the supply chain, with specific action at a local level, just as the Government intervened in the car industry during the recession.

What we shouldn't do, however, is give up on the attempt to remodel our economy before it has even has a chance to begin.

For over time, it is possible to create the sort of conditions in which BAE and other advanced manufacturers can thrive.

The CBI complained yesterday that the Government has still to publish a long-awaited White Paper on defence, setting out its vision of long-term procurement in the wake of the cuts to spending announced last year. Without that vision, companies such as BAE are finding it impossible to plan for anything other than short-term demand fluctuations.

One of the differences between manufacturing and financial services is that the former frequently requires major capital investment in plant and machinery that can only be justified if a certain level of demand is guaranteed for many years to come. Even then, such investment may not be possible without some sort of financial support, whether through capital allowances or via grants and loans.

It is not just in the defence sector where we have yet to hear how the Coalition Government thinks it might begin to build such structures. Indeed, one of the biggest criticisms of the Coalition, that after being so quick to unveil its plans for cutting the deficit it has been frustratingly slow in setting out a strategy for growth, remains valid.

That delay becomes more inexcusable by the day.