#1 Sustaining a thriving economy

The relationship between manufacturing and services European cities is more nuanced than the tug-of-war waged between proponents of manufacturing and services suggests. On one side of the argument, the basic function of the economy is provided by locally oriented needs.¹ At the other side of the argument, the economic base is produced by finance generated through exports.² Either way, manufacturing and services are inextricably entangled.

A vital service for the local economy 

A significant proportion of the economy is underpinned by activities in manufacturing. A study based on the European NACE statistical system in the UK³ found that the direct impact of the manufacturing sector was responsible for nine percent of the UK’s Gross Domestic Product and provided 2.6 million jobs. Furthermore, the indirect impact, the economic effect supported in the supply chains of those businesses, increased this statistic to cover 15 percent of the overall economy and over 5 million jobs. The induced impact, the effect of the spending by people employed directly and indirectly in manufacturing, brings this number up to 23 percent of the population and 7 million jobs.⁴ One reason for this large indirect impact is the outsourcing of activities from manufacturing firms. Activities which would once have taken place within a manufacturing business, such as cleaning, catering, finance and logistics, have been outsourced over the last few decades. Their economic contribution is no longer counted within manufacturing, but such services businesses will rely heavily on the manufacturing sector and would suffer without its presence.⁵ 

Indeed, many service businesses depend on manufacturing and local technical knowledge. Printing, for example, is needed by businesses from restaurants to law firms; carpenters fit out shops; and dressmakers produce costumes for theatres. This kind of production has been termed regional processing to denote activity which needs to take place in proximity to where it is used, either because close relationships are required between producer and client, or because the products don’t have a long life.⁶ Manufacturing also supports a vast range of mundane daily needs that residents of any city depend on, referred to as the foundational economy,⁷ which involves basic aspects supporting the foundation of civilised life. This includes manufacturing related activities such as food production to waste management, infrastructure maintenance and construction. Regional processing and the foundational economy are often invisible to many residents as it is based on business to business relationships or it involves things that people take for granted. For cities with a strong services economy, foundational forms of manufacturing therefore remain important. These activities not only cover the largest number of employees in manufacturing but are also are most resilient to international competition and changes in technology. Although the study of economic resilience is in its infancy, available research concludes that economic diversity within a city enhances its resilience.⁸

Import replacement and local value added

Jane Jacobs identified that import replacement (creating local alternatives to goods that were previously brought in from elsewhere) is an important path to innovation and improving local economic purchasing power. In the 1950’s, Japan, Taiwan and South Korea transformed their crippled post-war economies by firstly copying technology and then developing their own adaptations. In Shenzhen (China) this technology counterfeiting and copycat culture is called shanzhai.⁹ Jacobs refers to the genesis of the Japanese bicycle industry, which emerged by repairing bike parts and piece by piece began replacing imported parts with locally made interpretations. The locally produced bicycles not only replaced imports and satisfied local demand but also became a major export.¹⁰ 

Through import replacement money can be reinvested in the local economy, such as via purchasing locally made products, which is believed to have a multiplier effect. For example, a cabinet maker buys wood from a local forester and sells furniture to a local boutique. All three will spend their profits at local food markets, visit local hairdressers and doctors, all the latter invest their profits in buying furniture from the cabinet maker. In other words, for every currency unit invested, there is an additional value produced as currency is circulated from business to business or consumer. There is a noticable difference between the multiplier effect of tradable sectors (such as manufacturing) compared to non-tradable sectors (such as the public sector or restaurants).¹¹ In the US, a study found that each dollar invested in a locally manufactured product supported $1.33 in additional output, which was more than twice that of sectors like retail ($0.66) and professional and business services ($0.61).¹² It is hard to generalise about such results but it shows that the economic benefit to society of local manufacturing producing locally needed goods can be much larger than what shows up on a business’ profit sheets.

Consumers may not be concerned about the economic benefits, but local sentiment is showing the capacity to capture a market niche. A recent wave of place-based branding, think of ‘Made in NYC’, has shown that there is a market for locally made products even if prices are higher. This has been particularly a hit for tangible consumable products, such as craft clothing and food. In 2012 there was only one remaining brewery in Brussels, by 2020 this number exceeded twenty, profiting from the local branding. 

As a side note, the inherent assumption that ‘local is better’ is not always correct and prudence is required when attempting to replace imports. Economies of scale and production efficiencies are not necessarily achievable at a city scale¹³ for some forms of manufacturing such as chemicals, metals, pharmaceutical products and even electronics. These can be significantly more expensive or simply inefficient if decentralised. 

Import replacement can serve for far more than simply financial gain. Many cities depend heavily on large supply chains to provide a vast range of materials and resources that cities rely on a daily basis. This is nothing new. Ancient Rome was believed to have had just a few days worth of grain reserves during its peak in the Roman Empire.¹⁴ In times of stability and growth, dependence on such supply networks may provide more affordable goods, better quality products or a broader range of choices. However, in times where supply chains are stressed due to natural disasters, conflict, infrastructure issues or political tensions, these supply chains can prove to be weak and stress local citizens and businesses. 

There are many contemporary examples of how global supply chains can have local impacts, such as the 1970’s oil crisis, the breakdown of the USSR or even the outbreak of international health epidemics like the coronavirus that have quarantined high-tech production centres in China. The recent Brexit transition is showing how much the United Kingdom depends on European neighbours for a large supply of food, construction materials, medicine and even mundane goods such as fresh flowers. Shutting down businesses that provide foundational goods and resources, due to international competition, can whittle away the resilience capacity of the local economy to deal with international supply chain problems. 

Protecting the local economy from external shocks is commonly referred to as raising autarky and fits into a very different concept for the economy than the financially oriented value-added drivers. Local producers may be less efficient compared to importing goods, but they may be necessary to deal with sudden changes in supply networks, to implement new policy (such as climate change adaptation) and also to allow local industries to change or adapt. 

Producing tradable goods 

Arguments have raged between those who view manufacturing as the economic engine of a country and those who see it as having been superseded by services. The state of a country’s manufacturing base, typically measured in terms of exports or GDP, has been traditionally used as an indicator of a country’s wealth.¹⁵ There are several factors which contribute to this. Firstly, manufactured goods are generally highly tradable and exportable. This can play an important role in avoiding crises in a country’s balance of payments.¹⁶ Secondly, manufacturing can more readily benefit from technology related productivity gain (producing more with the same amount of input) than service businesses. 

It is important to note here that productivity rises, for example through automation of production, may reduce labour intensity, and thereby reduce employment without a decline in the economic share of the sector. Therefore, citing falling manufacturing employment as an indicator of the importance of the manufacturing sector for the economy is often a statistical illusion. Consider the difference between a lawyer a biscuit maker. The lawyer’s work methods have changed little over the last centuries, still involving letters to be written (or typed) by hand while being one of the highest paid professions. In contrast the biscuit production process is largely automated, requiring fewer employees, and also possibly increasing production volumes while wages have changed modestly. 

Measures of GDP are not the ideal yardstick to equate to progress and in the backdrop of international climate change agreements, the merit of exporting large volumes of goods is weakening and this indicator needs to be revisited. The GDP does not equate to holistic economic indicators such as quality of life or happiness indexes. 

Preparing cities for the future

Technological developments hold promise for manufacturing, and economic opportunities for cities. Commentators are heralding the arrival of Industry 4.0, the moniker for a collection of technologies from cloud computing to additive (or 3D) printing, which look set to enable smaller scale, more flexible and customisable production to take place. Predictions include an increase in distributed manufacturing where, in contrast to centralised factories, production can take place in smaller sites, including within city centres. Mass-customisation is also foreseen, where individually tailored products are viably produced locally and at scale.¹⁷ 

Such technology comes with both opportunities and threats for cities. Distributed manufacturing could increase productivity, reduce production costs and be smaller or more compatible with dense urban areas. But this technology may be expensive, it may be energy intensive and may not necessarily provide more or better quality local jobs. Cities must find ways to leverage new technology to benefit their citizens and local economy. If such technology is deemed beneficial, planning conditions should look beyond traditional land use regulations and find performance based rules that can permit manufacturing to be distributed across the city.