Two years on, Mr Blair's words have come back to haunt him in his own Sedgefield constituency. Addressing 570 workers made redundant by the Japanese semiconductor firm Fujitsu two weeks ago, he trotted out the same rhetoric as its disconsolate casualties of globalisation listened.
UK plc has suddenly lost some of its most high-profile inward investments. In the past three months Siemens, Fujitsu, Viasystems, and National Semiconductors have all closed hi-tech plants or scaled back production, despite investing billions of pounds in state-of-the-art assembly plants.
The closures stem from a sharp cyclical downturn in the semiconductor industry caused by massive oversupply and rock-bottom prices. The bad news is one of the first manifestations of a truly globalised industry succumbing to the acute effects of a global downturn. While semiconductor makers are unlikely to be in the doldrums for long, the same cannot be said of countries left to support redundant workers each time production is switched elsewhere.
Despite Government assurances, the stream of plant closures raise serious questions about the future of inward - or foreign direct investment (FDI) - in the UK. The nation is no stranger to closing factories. But the closures of cutting edge technologies are a world away from those of shipyards and textile factories.
Government strategy has been to lure the foreign owners to use Britain as a European base of operations. But it has not yet addressed what Britain should do when these same investors cut back on their world-wide operations.
Robert Crawford, head of inward investment at accountant Ernst & Young, believes the closures are an inevitable part of globalisation. "The semiconductor business is not a spent industry: it's a blueprint for the future of global manufacturing," he says. "The firms fabricate in the UK, assemble and test components in Asia, before selling chips worldwide. They must have global reach and be able to shift resources, or risk losing their foothold altogether."
In a downturn, "shifting risk" means deciding which plants in which countries to close. Stephen Regan, a Cranfield School of Management lecturer, says: "When companies seek to be truly global they leave themselves nowhere to hide. So drastic action is required."
Andrew Fraser, chief executive of the Invest in Britain Bureau (IBB), says the closures are unique to the semiconductor industry. "Billions of pounds spent on rolling investment in new plant and products coupled with an unforeseen downturn caused the closures."
But Mr Regan argues that other foreign investors in other cyclical industries, including commodities, oil and pharmaceuticals, may soon be copying the semiconductor business. Should this happen, Britain's impressive record in FDI might look very different. There are some 8,100 foreign- owned firms in the UK generating 40 per cent of all exported manufactured goods, and 400,000 jobs in 13 years. United Nations figures show Britain has an impressive 10.66 per cent of the world's $400bn (pounds 232bn) FDI stock, achieved with just 1 per cent of world's population and about 5 per cent of world trade.
Economists predict that, despite the crisis, global foreign direct investment will continue to grow as markets' ears are opened to the deafening mantra of free trade. Before the Asia crisis, FDI was growing at 9 per cent a year, over twice as fast as the world economy.
The IBB is bringing record levels of investment to the UK - pounds 9.42bn for 1997/98. But with boom turning to bust the challenge is defensive: to prevent foreign companies from quitting the UK, and to persuade firms to cut production elsewhere. The IBB says the UK is still creating more FDI jobs than it is losing. But there are no loyalty cards in a global economy.
In this sense Britain could be heavily exposed. In the 1980s Britain stole a march on other Europeans by attracting massive amounts of foreign investment. A cheap workforce and generous grant packages lured many a multi-national to the UK. But Sean Ricard, head of management economics at Cranfield School of Management, says: "The UK has been importing industrial expertise using FDI, instead of strengthening domestic manufacturing."
The point is not lost on Peter Mandelson, Secretary of State for Trade and Industry: "I want to see more home-grown hi-tech industries where British know-how can be harnessed to develop and launch our own manufactured products in the UK."
Mr Crawford says: "For the last 20 years big assembly plants have been the order of the day. But the UK will not hold on to companies that simply assemble or manufacture products ... There will always be somewhere cheaper to go. We have to provide the infrastructure and a labour force for design and development - the life blood of any manufacturer."
The UK is now the call centre capital of Europe, but Mr Crawford says: "[They] are not connected to core product development. They are mobile assets which can be set up anywhere and will probably be gone within five years." The IBB refutes this, but is well aware of the need to embed inward investors in the UK.
Mr Fraser, of the IBB, says: "Fifteen years ago Nissan set up a plant factory which critics labelled a screwdriver factory. It is now the most productive car factory in Europe, exporting 80 per cent of production and sourcing 200 British suppliers. That is embeddedness."
More recently Microsoft spent pounds 12m setting up its first research and development facility at Cambridge Science Park where no financial inducements are on offer. The park brings together academia, training and industry to deliver an integrated long term approach to attracting FDI.
Mr Fraser believes clustering related firms is the way forward. "It becomes a magnet for inward investment ... in the same way the City of London is a must for international finance."
Vicky Pryce, chief economist at accountant KPMG, agrees: "The growing diversity of FDI will force countries to create domestic centres of excellence."
The euro is the first challenge the UK will have to face next year. In theory European Monetary Union should level the economic playing field across the Continent and attract greater amounts of FDI. Ms Pryce believes EMU "will make it easier for inward investors to evaluate the productivity of a country's workforce". But preliminary findings from a McKinsey report on UK economic growth suggest the UK lags way behind France and what was West Germany in productivity. This strikes at the very heart of the UK's competitiveness, and will take years to reverse.Reuse content