Manufacturing matters. Why I'm marching for jobs tomorrow in Birmingham... along with thousands of others.

Jobs, Skills and Capacity

One of the policies that Unite is calling for is a part-time wage subsidy. This is critical as it could be used to keep jobs and skills in place through the downturn and keep workers' skills fresh so that when demand does finally pick up (as it will eventually) the jobs, skills and capacity are still here in the UK. Continental governments have acted on this already, and it is disappointing that we have not seen similar action in the UK.

Even the Financial Times, hardly a bastion of Socialist thinking, recently noted in its Lombard column that "if certain industries at the top of their game - productive by international standards - get kneecapped by a cyclical demand shock, it makes sense to try to protect the human capital they have painstakingly built up". However, that has to be time-limited support.

I'd disagree, though, with the FT's view that it's not clear that wage subsidies are a better use of taxpayers' money than high-quality training for people taken out of the workforce by the current crisis.

Our work on the impact of the MG Rover closure at Longbridge showed how much the loss of quality jobs impacts on people. Our study showed that whilst 90% of ex- MG Rover workers were back in work by March last year, they were earning substantially (£5600) less in real terms than when they were at MG Rover. In today's climate it is much harder for workers to find any work, let alone quality jobs.

The MG Rover story also showed what happens when a car firm falls behind in R&D terms: the result for MG Rover was a downward spiral of older models, falling sales, reduced margins and brand damage.

JLR and the Auto Sector

This brings me on to Jaguar Land Rover, which has done brilliantly well on the R&D front and which has a dramatic product pipeline (including a stunning new XJ later this year) and new green technologies. All the firm is asking for are loans or loan guarantees at commercial rates to see it through the next two years.

Readers may not be aware that it is the seventh biggest corporate spender in the UK at £400 million a year, much of it in key new green technologies. Indeed, it is in the top 150 R&D spenders worldwide. The deal between the management and workers set a benchmark for how to deal with a recession, with workers in effect voting for a real pay cut in return for no compulsory redundancies for the next two years.

Talks are ongoing between JLR and the government. Both sides need the space to get this in place. However, the clock is ticking and without support JLR's long-term prospects could be harmed.

The government has a duty here to step in to provide support at commercial rates given the huge market failure that has occured in the financial sector. The European Investment Bank has already offered long-term R&D funding to JLR. The government now needs to properly back that up with loan guarantees and the short-term working capital that the firm needs.

JLR - and indeed the auto industry generally - is a great export success story. Around 80% of cars produced in the UK are exported and the UK is the second largest producer of luxury cars in the world.

What will drive our Growth in the Future?

All of this relevant because, looking forward, we need to ask the question: where will the growth come from? Well, government expenditure after 2011 will be exceedingly tight, so that won't provide much of a driver for growth. Consumer expenditure may well recover but probably won't grow faster than the economy more generally. Property and construction will take time to recover after the bursting of the bubble.

One bright spot on the horizon comes from the fact that sterling has seen a significant depreciation (down over 25% in trade weighted terms since its peak). That will provide a competitive boost for UK manufacturing and offers the possibility of the traded sectors being a key growth driver for the economy.

And yet. The forecasts are that manufacturing output will shrink by as much as 9% this year as the twin effects of recession and credit crunch bite. In other words, we're in danger of wiping out just under 10% of the capacity that we know will drive growth even before we get going. That simply doesn't make economic sense and will damage our long-term growth prospects.

Temporary wage subsidies and export credit guarantees are just two ways that this sector can be helped in the short-term so that longer-term the economy can perform better.

I'll be marching tomorrow. If you want to join us, details can be found here.

Professor David Bailey works at Coventry University Business School and is Chair of the Regional Studies Association.