Manufacturing in the UK

LUBS 1610: Research Skills For Economists Brandon Lamam 200636808 bn11b4l@leeds.ac.uk

Table of Contents
Introduction 1

The fall of manufacturing

1-2

How the collapse of industries impacted the economy

2-3

Should we revive the manufacturing sector?

3-4

Implications

4-5

Conclusion

5-6

Bibliography

Introduction

Change is inevitable and manufacturing certainly hasnt escaped it. The UK suffered from the greatest deindustrialization with manufacturing shrinking by 2 thirds in the past 3 decades (Chakrabortty, 2011). With the economy at its current state, some believe a revival of manufacturing is fundamental to a better economy. This essay will assess the impact behind the fall of manufacturing, if it is truly defunct and the implications it holds for the future in the UK economy. Although the statistics show a rapid decline in manufacturing, has or should manufacturing be written off? During Thatchers control, manufacturing contributed to around 30% of national income compared to the 11% after the end of Gordon Brown (Chakrabortty, 2011) showing the weakening of the sector. However, with this fall comes a big boost in the service sector which is now the main power behind the UK economy. This has essentially split Britain into two: those who still believe in the importance of manufacturing and those who see the service sector as the future. PwC (2009), the worlds largest professional services firm, published a report which displays their belief that manufacturing can and must do better and many also support this such as Chakrabortty (2011), who believes current economic problems could be eased through manufacturing. Although all this has been said, with the likes of Peter Mandelson and recently Vince Cable all in support, why has no action been taken? The fact is the current governments priority is elsewhere, namely reducing public debt, and with the economy reliant on debt, inflated house prices and a swollen financial sector makes the task extremely difficult (Temple, 2010).

The fall of manufacturing

Steve Bagley, in a media by Al Jazeera (2010), stated that in the 1950s, 40% of the working population worked in car factories or in associated industries. Back in the 20th century, Britain thrived on industry as a huge contributor to GDP and growth, but now since 1978 proportion of manufacturing within the total economy dropped from 26.2% to 11.6% in 2008 with a fall of employment of 6.34 million in 1980, to 2.515 million in 2010 (Jones, 2011). With every failure, many factors are identified to be the problem. The different points made of the fall in manufacturing were: the post-war government, manufacturing productivity and the inevitability of it.

Laurence Lee reports that the collapse of the car industry coincided with the rise of Margaret Thatcher and the conservative government (Al Jazeera, 2010) and with no surprise as the conservatives encouraged laying off industry workers in a bid to increase growth (Chakrabortty, 2011). Although the policies introduced by Margaret Thatcher were one as a solution to the crisis the economy were facing at the time, Tony Blair had envisioned a knowledge economy with the idea of laying the future to ideas, software and brands (Chakrabortty, 2011). In an article by Fleming (2009), it had been revealed that the decline in manufacturing during Thatcher was comparatively 1

small suggesting that majority of the blame should be placed on New Labour who left the manufacturing sector in 2007 accounting to 12.4% of the economy as opposed to the fall of 25.8% to 22.5% fall during the Conservatives.

Ramaswamy and Rowthorn (1997) believe that deindustrialization is actually a feature of successful economic development and is principally a result of higher productivity. The shrinkage of employment in the sector leads to popular misconceptions that manufacturing is already dead or soon will be but in actual fact it is down to the result of significant and essential productivity improvements in the sector (PwC, 2009). PwC (2009) also reports that manufacturings share of the total economy is declining is due to services growing more quickly in recent years. Ramaswamy and Rowthorn (1997) have compared the fall in agriculture due to the rise of industries with the decline of manufacturing due to the rise in services and it is inevitable with the use of Engels law. Worstall (2010) reiterates this saying absolute growth and relative decline in economic sectors seen before; he stated agriculture was once 80% of the economy and declined to 2% due to manufacturing outgrowing agriculture, but now services is outgrowing manufacturing. Although, Chakrabortty (2011) sees truth to productivity but feels that the numbers are too big and clearly show a collapse of the sector with employment falling from 6.8 million to 2.5 million.

How the collapse of industries impacted the economy

The UK had suffered the biggest deindustrialization but also losing most of its big manufacturing brands in comparison to competitors Germany and France and left with an abundance of smaller suppliers which evidently is bad economically, terribly socially and culturally (Chakrabortty, 2011). Furthermore, Chakrabortty (2011) states that nothing has replaced manufacturing jobs. He reported that after MG closed down in 2005, out of 300 people who lost their job, 90% of them were retrained and moved into the service sector but are earning 5,640 less and a quarter of them admitted to living off savings or have financial troubles.

One of the many flaws behind the envisioned knowledge economy was that the benefits never manifested but instead left many industry workers out of work or working in very low skilled jobs consequently harming the economy instead. Comparing the economy to that of other advanced nations highlights key faults with the strategy used for the last three decades which leaves the UK to reflect upon its mistakes. For instance, the UK lags behind most other G7 countries when measuring investment on Research and Development (Jones, 2011) creating problems for innovation and essentially leaving the economy unable to compete in the global market.

With manufacturing gone, the prospects for the younger population narrowed. Deindustrialization consequently led to apprenticeships and the sort to vanish, and is signified by the amount of young people unable to find work till after 20s due to lack of industries (Chakrabortty, 2010). Opportunities have diminished and no doubt leaving spare capacity in the economy. Those leaving university are unable to find jobs, and those out of college have limited choices to further their skills so there is no surprise to see many young children out on the streets.

The loss of manufacturing not only affected employment but it also affected other crucial economic issues such as the Current Account. With the strategy Blair had directed, to buy manufactured goods cheaper elsewhere, had a big impact on the current account. The balance of payments had suffered due to profits made from the rise of service sectors had been used to finance manufacturers in other countries by importing consumer goods (Jones, 2011). Without big manufacturers and the economy encouraged to buy imports, the current account has been in continuous deficit for over a decade. In 2010, Britain had bought 97 billion more in goods than they did selling them (Chakrabortty, 2010). This signifies the weakness of the UK economy globally as it is not able to compete with countries such as Japan who have had large surpluses to their current account.

Should we revive the manufacturing sector?

Consideration of the revival manufacturing would require improvement on mistakes of old and recognizing current problems the sector faces. To rebuild the manufacturing base the government must meet an absolute must precondition: continuity of policies (Temple, 2010). The government, if it has decided to revive the sector, it must see it through otherwise it will be time and money wasted which makes the continuity of policies an absolute must.

Economic problems such as power of the banks, high income gaps, lack of job opportunities could all be eased by a revival of manufacturing. The revival of manufacturing would not only bring about steady growth but also creates growth and provides opportunities in the form of apprenticeships; it is labour intensive and every factory supports many jobs in the local community benefitting the economy (Jones, 2010). A mixed economy would help balance the economy from the pompous power of the banks and would also help close the income gap by offering decent paid jobs (Chakrabortty, 2010).

There has been rising support for industrial activism due to the current economic downturn but should manufacturing be made a priority? Tom Lawton, head of manufacturing at BDO, believes that after 3 decades, the majority would agree that a 3

strong and vibrant manufacturing sector is now fundamental to the UK economy (BDO, 2012). PwC (2009) supports a revival or at least acknowledges the importance of the manufacturing sector, stating that it supports so many businesses in the service sector and its disappearance could put the service sector at risk. Jordan (2012) reiterates this by stating that although 2/3 of most economies are composed of service industries, manufactured goods are required for their operation as well as their own technological progress.

Heavily relying on the service sector has its flaws as previously stated, without a strong manufacturing sector the UK economy is unable to compete globally and would struggle to ease the current account deficit. The current problems faced could be answered by reviving the manufacturing sector. The de-industrialists of Whitehall argue against the current account deficit stating Britain can borrow more whilst selling assets to foreigners, however there is high risk as reliance on foreigners could leave chances of them refusing to extend it to us with the prime example being Greece (Chakrabortty, 2010).

Due to the low wage economies around the globe, the UK stand no chance of being able to compete in basic manufacturing against countries such as China or Indonesia however with a revival of manufacturing the UK would be able to take advantage of emerging markets built due to pressure building on the global environment (Jones, 2010). BIS (2010) also states the future prospects of new markets which influence long term growth of UK manufacturing, with domestic and global demand for products expected to change the established industries of the UK could benefit reinforcing the revival of manufacturing.

Implications

Manufacturing will not show any real change unless the government is serious on any form of industrial renaissance or there is a drastic change in the global markets. Until manufacturing is celebrated rather than tolerated there will be no jobs or growth that the manufacturing market is expected to provide (Smith, 2011). The reliance on the sector to pull the economy out of recession by the government signifies that it is not defunct but rather still alive.

The idea of manufacturing doesnt circulate around young prospects as it would have in the 20th century so attracting skilled workers would be challenging. However BDO (2012) expects the government to continue focusing on rebuilding the sector but will require a medium to long term framework strategy in order for sustainable growth. An intelligent industrial strategy in time will lead to a boost in growth and exports easing both the current account deficit and helping the economy 4

move out of recession. The opening of industries could offer more apprenticeships allowing for more opportunities for younger people to work and gain experience boosting long term productivity.

The global market in future will trend towards the environment and will allow for the UK industries to take advantage of the emerging markets leading to economic growth. If government loses the perspective that sustainable competitive advantage is built over time, the country would not be able to compete in the long run however if focused and planned properly, UK manufacturing may thrive upon the niche markets (PwC, 2009).

Manufacturing sector is technologically progressive but with investment employment will rise due to multiplier effect of manufacturing jobs (Jordan, 2012) and would lead to rising economic growth. The investment would plunge the economy further into debt but with a growing economy getting out of recession would open up a window for fiscal policy. Implications for the future would be an improvement of the economy in the long term; manufacturing sector has been relied on to kick start growth but must be invested in to show more progress. Even with revival of manufacturing, service sector will grow due to its importance for the UKs economic future (PwC, 2009).

Conclusion

From this essay it has shown that inevitably the fall of manufacturing came down to the governing policy as well the inevitability of it happening. The statistics show that under Thatchers reign it simply was just a bad strategy but did not harm the manufacturing sector a great deal until the reign of Blair where the numbers seriously deteriorated. Although deindustrialization still would have happened without Blair, it is because of new labour that most of the economic problems are currently in place. The manufacturing sector is far from defunct, the government clearly is still relying on it as a source of growth even under the economic downturn and furthermore there is a growing number who consider it the right time for a revival of manufacturing. Manufacturing has severe implications towards the future based on what the government chooses to do now. It is clear that the current economic strategy isnt working and manufacturing has now become a fundamental requirement to escape the economic crisis. A good industrial strategy could make the manufacturing market sustainable and competitive which would ease the current account deficit pressure as well as positives towards employment and growth. To conclude, the UK had made a mistake on neglecting manufacturing a lot more than it should have but the government must now focus on reviving this sector as it has become a fundamental part to having a better economy. The loss of competitiveness globally needs to be eased with

investment going into the sector and to ensure manufacturing is able to contribute to economic growth as it is expected to a manufacturing renaissance is the next step.

Bibliography

Al Jazeera. (2010). Britains Manufacturing Decline. Retrieved May 1, 2012 from YouTube (AlJazeeraEnglish): http://www.youtube.com/watch?v=CIw4myDfUwQ BDO. (2012). UK manufacturing pins 2012 hopes on innovation, exports and a continuing automotive renaissance. Retrieved at May 1, 2012 from BDO: http://www.bdo.uk.com/press/uk-manufacturing-pins-2012-hopes-innovation-exportsand-continuing-automotive-renaissance BIS. (2010). Manufacturing in the UK: An economic analysis of the sector. Retrieved May 1, 2012 from BIS: http://www.bis.gov.uk/assets/biscore/businesssectors/docs/m/10-1333-manufacturing-in-the-uk-an-economic-analysis-of-thesector.pdf Chakrabortty, A. (2011) Why doesnt Britain make things anymore?. Retrieved May 1, 2012 from The Guardian: http://www.guardian.co.uk/business/2011/nov/16/why-britaindoesnt-make-things-manufacturing Fleming, S. (2009). Industry has declined more under Labour than Thatcher. Retrieved at May 1, 2012 from The Daily Mail: http://www.dailymail.co.uk/news/article1232897/Manufacturing-decline-Labour-greater-Margaret-Thatcher.html Jones, T. (2011) Reviving UK Manufacturing. Retrieved May 1, 2012 from Think-Left: http://think-left.org/2011/08/23/reviving-uk-manufacturing/ Jordan. (2012). Why is manufacturing important?. Retrieved at May 1, 2012 from Global Teach-In: http://www.globalteachin.com/articles/why-is-manufacturing-important Pricewaterhousecoopers. (2009). The future of UK manufacturing: Reports of its death are greatly exaggerated. Retrieved May 1, 2012 from PwC: http://www.pwc.co.uk/assets/pdf/ukmanufacturing-300309.pdf Ramaswamy, R. and Rowthorn, R. (1997). Deindustrialization Its causes and implications. Retrieved April 30, 2012 from International Monetary Fund: http://www.imf.org/external/pubs/ft/issues10/index.htm Smith, S. (2011) Made in Britain: The future of manufacturing. Retrieved May 1, 2012 from Channel 4 News: http://www.channel4.com/news/made-in-britain-the-future-ofmanufacturing Temple, S. (2010) Reviving the UK Manufacturing Base for Growth. Retrieved May 1, 2012 from Stephen Temple: http://www.stephentemple.co.uk/articles/reviving-the-ukmanufacturing-base-for-growth/ Worstall, Tim. (2010) The Myth of Britains manufacturing decline. Retrieved April 29, 2012 from The Register: http://www.theregister.co.uk/2010/02/22/manufacturing_figures/