In response to a request from a participant in the forum discussion below When the smart money got into/out of manufacturing I have tried to answer the questions: "Why the British had to get out of fabs and end up just with design/IP a la ARM ?" and "Why fabs still survive (if not exactly thrive) in the UK's traditional rival France?"
The detailed reasons are complex, generalizations are usually faulty but I will have a go at putting down my perspective as an observer of the electronics industry from the U.K. since 1984.
A primary reason that fabs failed to thrive in the U.K. is that while the Second World War helped create the U.S. as a global economic superpower it more or less bankrupted the U.K. with implications that were heavy in the 1950s and early 1960s and that continue to this day. A second reason is a long-established arts and humanities versus science division in U.K. society.
I think it is still the case that science and technology are not sufficiently well represented amongst the political and wealthy establishment in the U.K. But maybe that is just the science graduate in me talking.
In the distant past the owners and managers of UK companies usually had a non-scientific background. The likes of ARM, Wolfson, CSR, Vodafone and several others are now glorious but relatively recent exceptions.
Back in 1960s U.K. technology-based company management treated engineers as willing serfs who did not need and should not be given too much money. It was a "make do and mend" mentality left over from the Second World War, and many electronics companies continued to be closely aligned to military interests and defense was the early application for electronics.
These companies often could not comprehend or cope with:
1) international competition
2) the continuous exponential increase in the cost of participation in electronics
I do think chipmunk has a good point, as you do as well. As a philo-Brit of non-British European origin, I do have to say it seems to me the British culture doesn't have the same respect for the crafts as the (for example) German culture does. None of the British car manufacturers survived. Yes, their designs were great, but the implementation sucked (or leaked -- oil). An unnamed company had two service centers: one in Germany and one in England. The one in Germany had a test station that was always shiny clean and well-maintained, with technicians on top of things. A pass was a pass, and a fail was a fail. The one in England was dusty and poorly maintained. The technicians didn't trust it to give good results. Well, if you don't put your soul and effort into it that's what you get. How about some attention to detail and pride in your work? Is this characteristic of the British culture? I don't know. But if extrapolated it surely could explain some failures to stay in manufacturing. On the other hand I'd rather be in the IP business than plain manufacturing. But can the British firms be the kings of IP without manufacturing? Can you make a good living as a country without actually producing anything (as asked here before)?
Right on !
Finally, an almost German ( Scandinavian, assuming thats who Karl Fridrik is ) has the guts to call the shots on Anglo - Zionist financial scams that are at the root of most of our troubles including Outsourcing & Wall St meltdown.
These people could pull it off because since WW II both of these groups have had ever - increasing political power to operate above the law, starting with the REAL Axis of Evil ( the trans - Atlantic City of London - NYC ) thanks to their control of the NE corridor ( Boston - DC ) and then expanding out after the fall of the USSR.
BTW, Berne Madoff made off with a lot more of his investors money ( $ 50 billion in 2008 dollars ) than Ponzi ever dared in 1920s and in Bernie's honor I propose that from now on all Ponzi schemes be renamed MADOFF schemes.
The other reason is the incredible profitability of unregulated ponzi finance starting in the 70ies. The UK is the dragons head in all of europe for this. Capitalists will invest where there is high profitability and easy money to be made. Ponzi finance is very highly profitable until it completely crashes and the business is much much easier to compete in than building high tech companies.
To build up the knowledge for serious fabrication expertise, design and everything take years, armies of phd:s and often government support to create proper foundations for serious investments (multi billion). Government support was scrapped in the eighties in the UK and british capitalists went for easy money in ponzi finance instead for investing in true knowledge industries or even regular manufacturing companies. So having the city of London is as I see it a double edged sword for the UK that sucks both talent and capital away from industries grounded in the physical real world to build empires of financial debt instead. In other european countries, ponzi finance doesn't exist in the same way and the way to earn money is much more based on creating stuff.
This is at least my perspective.
There are more industries than semiconductor fabrication that has closed down in the UK. The same story is repeated in everything from steel, motorcycles, cars etc. In all of these industries, the per capita output is much lower than in comparable countries. In steel the UK produces 9 metric tons per year. This is 1/2 french output and a 1/5 of the german output. Car fabrication is mostly today japanese producers assembling cars with imported parts (I read in FT that the imported component share is 90%).Pharmaceutical industry seems to prosper together war industries like BAe Systems, though.
So the reasons why the UK left semiconductor fabrication is probably the same reasons that they left all the other industries.
I think there are two reasons for this. The first is that the UK actually, as one of few european countries, payed back all the money used to fight the second world war. This drained resources from investments in infrastructures and modern factories into interest and debt repayments instead. Countries like Germany instead just closed down the financial system that existed and started from scratch again after WW2. This gave them productive assets while the war debt magically disappeared and new debt for productive investments could be created instead.
I'll agree that "IT IS NO SURPRISE THAT THE BRITISH COULD NOT ( or, is it rather that they chose not to ) KEEP UP IN THE WAFER FAB BUSINESS", but it was not for any of the reasons you stated. Our capital is provided and manipulated by a set of people who have never had anything to do with engineering and grubby manufacturing and simply do not know or understand it. So they prefer to invest in other things. And engineers here (unlike in Victorian times) are a pretty lowly bunch. Unlike in America, they have not been able often to attract the investment to start companies - to do that they had to talk to the aforementioned set, who are not excited by technical ideas and think and speak an entirely different language. Thankfully, this has been changing, but the buzz is all in biochem and engineering for medicine, not consumer electronics or even electronics for anything else. Meet these folks and tell them your idea and why you want the money, and their reaction is "and why would I want the thing you're proposing? I can see no reason why anyone would". Why does anyone want a personal computer? or an iPad? The engineer says "because it's fantastic, just look at the kinds of things it enables you to do, and I'm sure we'll think of lots of things to do with it later that we can't even conceive of now". Insufficient reason if the guy on the other side of the desk is not of a similar mindset.
I took 'harder' to mean 'harder'. My Dad worked harder than I ever will or ever could - he started down the pit at age 13, and had to shovel 12-14 tons of coal into 'hutches' each day. Brits work longer, more hours per day, and more per year, I'll give you that. But they waste a lot of time, and the data says they do not produce as much (cars, food, widgets, economic output) PER MAN-HOUR as do the French or the Germans, and produce considerably less than the Americans. Couple of years or so ago, the French came second to the Americans. Big surprise for many, was that.
So, by 'productivity', I mean the commonly-accepted idea of output per unit of effort input. The 35hr week is one reason why the French produce less total output than we do per head, but are nevertheless _more_ productive.