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“Train building contract should go to Derby factory”, says CRESC

12 Jul 2011

State procurement should take much of the blame for the 1,400 job losses at Canadian train maker Bombardier, according to a new report by researchers at The University of Manchester’s Centre for Research in Socio-Cultural Change (CRESC).

Co-Director of CRESC Professor Karel Williams, said Coalition Government ministers and their Labour shadows support a state procurement system which behaves like a consumer with a copy of ‘Which?’, balancing narrowly defined cost and quality considerations.

This was despite opposing the outcome of the decision to award a £1.5bn train-building contract to the German company Siemens, rather than UK-based Bombardier.

The CRESC report argues for maintaining jobs at Bombardier in Derby as part of a commitment to reconstructing UK supply chains and rebalancing the economy.

Professor  Williams said: “ The train building contract should go to the Derby factory.

“The current mistrust of industrial policy both misunderstands the earlier failure of government policy at companies like British Leyland and stereotypes all forms of active intervention as ‘caring for lame ducks’. This view is outdated and wrong.

“There is a large unexplored knowledge space between picking winners and the generic neo-liberal enterprise policies which have failed us for the last thirty years.

“We need a new generation of planners within the civil service and politicians on the left and right who can envisage a politics that could inhabit this space.”

According to CRESC, Bombardier was initially handicapped by the terms of the contract which bundled train building and rolling stock financing together so that  Siemens’ superior credit rating gave them an advantage over Bombardier on the financing costs.

Broader calculations of costs and benefits, including the income tax paid by British workers would make the Bombardier bid more financially attractive they say.
Assuming that 1,000 jobs at Bombardier would have been saved by the award of contracts to Derby, the UK government’s tax receipts would be nearly £20 million per annum by 2012 excluding pension contributions; the cumulative social gain would be over £100 million, after discounting for the time value of money.
The CRESC report says: “The other decision relevant consideration is the re-employment prospects of Derby workers which are poor given the UK’s past record of heavy dependence on publicly funded employment.”
“The government accounted for 45% of all extra jobs created in the decade 1997-2007, 40% in the East Midlands region around Derby.
“But this kind of filling in for the private sector is no longer possible in an era of public expenditure cuts.”
Bombardier also suffered, they say, both public sector and private owner neglect. The lack of national rail investment in the 1980s and clumsy privatisation of the network in the 1990s left train builders exposed to an erratic flow of orders.
The Derby works then experienced ‘pass the parcel’ changes of private ownership by foreign conglomerates, whose British operations were side shows. After 5 changes of ownership in 12 years, the result was chronic underinvestment in process and product which left the declining UK train builders at a competitive disadvantage.