BAE feels the cuts
14 December 2010
I see the coalition government’s plan for the private sector to compensate for public sector cuts are demonstrating the obvious flaw in the idea, as BAE Systems announce that 1400 jobs are to be axed.
When so many companies serve - and are even dependent upon - the MoD, the Health Service, the education system and countless other public sectors, the obvious consequence of cutting these departments’ budgets is that their suppliers will have to suffer. How companies are expected to build, while their foundations are being knocked away, is beyond me.
BAE Systems and the rest of the defence sector are in a particularly difficult position. The 1400 job losses at BAE are directly attributable to the cancellation of the Nimrod programme and the early withdrawal of the Harrier fleet. I am not a military strategist and do not know the consequences of withdrawing these two stalwarts. While there may be those who treat such ageing war machines with some affection, and others who believe things that are not broke should not be fixed, I am inclined to think that the Nimrod and Harrier, with 44 and 30 years under their belts respectively, are probably of an age when they should be retired anyway, irrespective of budgetary requirements. Military technology, as we have discussed before in this column, is no respecter of nostalgia.
I suspect the defence sector is likely to be the hardest hit area of the electronics industry in the UK, but even then the strength and reputation of the UK as ‘defence supplier’, along with a healthy smattering of conflict around the globe, will ensure that contracts do not immediately dry up. So I do not believe that this particular BAE announcement is the tip of a vast iceberg.
Equally, other sectors, with the possible exception of medical, represent a smaller amount of the electronics that would end up being paid for by the public purse. However, if half a million people do end up being made redundant as a result of the spending cuts and millions of others are faced with pay freezes, the amount of money available for spending on luxuries – and many electronics goods are really non-essential items – is unlikely to increase in the short term.
The trick will be to increase the ‘quality of the design’ to produce cleverer, more desirable products. Companies that do that will prosper, but those who are doing a good job without setting the world alight, which in fairness is the majority, are unlikely to provide the private sector manufacturing bounce back that this government is hoping for.
END
Responses
John Woodgate of JM Woodgate and Associates wrote:
The compensation of public sector job cuts has to come from SMEs. Large companies would be cutting jobs now even if the Government were not. This is why it's such a bad situation that the banks are denying loan capital to SMEs that want to expand.
By the way, you wrote:
'Military technology, as we have discussed before in this column, is no respecter of nostalgia.'
True, but the military ethos is immersed in nostalgia - witness the legacy styles of dress uniforms!
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