Mike Haynes, Professor of International Political Economy
With huge fanfare the new JLR plant is opening today (Oct 30, 2014) at the i54. Britain's newest car plant is strategically situated at the junction between Wolverhampton's Stafford Road and the M54, just a couple of miles away from the M6. It is, says the local Express and Star, 'the crowning glory for the West Midlands'.
The excitement is understandable given the uncertainty of the economic recovery. The speed of the building of the plant and the remodelling of the road system has been remarkable. When the plant is fully operational it will be producing cylinder heads, blocks and crankshafts and assembling petrol and diesel engines at the rate of nearly two a minute. This will help the JLR luxury brand compete globally with the likes of BMW, Mercedes and Audi.
What is being made is also important. The engines from this plant will replace those that have been brought in from Ford. Enthusiasts hope that this will be the basis of a local reinvestment strategy in skills and technology which will help local economic recovery and boost local engineering.
But it is important to be realistic. There is an irony in the fact that this huge investment 'in Britain' and the 'West Midlands' is being done by JLR's owners - the giant Indian conglomerate Tata. Tata seems to have the cash, foresight and appetite for risk that has been lacking under JLR's previous owners. But the global car market is fiercely competitive so Tata's strategy, and within it JLR's , is a global one too. Alongside the West Midlands, production is also being geared up in several other parts of the world including Brazil and China.
The luxury car market is vibrant. This is partly because the world is getting a richer but much more because the rich are getting richer a lot faster still. Most of the JLR cars 'made in Britain' will go for export to feed the appetite of the super-rich, what their critics call the 1%, and not least those in the BRICS - Brazil, Russia, India and China.
And we need to be realistic about the production process too. A half century ago, when the Midlands car industry was at its peak, supply chains were local - now they tend to be global. So while there will be a boost in terms of some Midlands produced components the fact that much of the work of the i54 plant will involve assembly is also important.
So too is something that economists call capital intensity. This is the balance between workers and machines. Once manufacturing employed millions because machines needed a lot of people to feed and operate them. But technological change means that machines have become more sophisticated. Capital intensity has risen. Any manufacturing renaissance, nationally or locally, is unlikely therefore to produce an enormous job boost.
You can see the problem in the publicity figures for the JLR plant. We simply do not know how much the plant has actually cost and how many jobs will be created. But assume that the publicity figures are right and the plant does cost £500 million and will create 1600 jobs. Then crudely this means that the amount of capital per worker is around £300,000. This is huge in global terms but increasingly commonplace in the advanced countries. As manufacturing output increases, the number of workers employed to make it is diminishing. When the plant is fully up and running, therefore, it will be interesting to see how the workforce figures break down between production workers and office staff, security guards, cooks and cleaners.