Home and Away: Understanding and Capturing Industrial Value within the Modern Economy

Abstract

Recent pressure to use public procurement more proactively to support the capability and health of domestic industry has been met with scepticism by proponents of least cost competitive tendering. In this thesis, I present a novel framework to assist reconciliation of these views of public procurement through monetising the significant and often overlooked value of domestic investment within advanced manufacturing clusters that results from the public procurement process. By estimating the financial value generated by various forms of onshore manufacturing in the passenger rail rolling stock sector, my findings demonstrate that onshore design and manufacture of rolling stock can deliver substantial financial value and the best overall outcome in circumstances where domestic resources are not being gainfully utilised elsewhere. This result strengthens with the increased sophistication of onshore production and can enable government to support domestic industry within the neo-classical paradigm of competitive markets. My thesis finds that public procurement officials have largely failed to account for significant sources of financial value. This has resulted in important value-added activities being overlooked and the formulation of politically, rather than financially, driven local content provisions. I find that five fundamental tents of public procurement embedded within economic, management and contractual theory are damaging the health and competitiveness of onshore industry in cases where government is a major, or the only, buyer of specialised equipment. My research also highlights how movement of intellectual property through multinational companies has the potential to undermine comparative advantage theory for small knowledge intensive economies. I postulate a conceptual refinement to comparative advantage and suggest a renewed focus regarding onshore commercialisation alongside greater support to grow local businesses into competitive global companies.