Manufacturing in the UK: The Long Way Back?

Article excerpt

The conquering of inflation in many Western countries and the UK in particular has paved the way for the development of the next major target of economic policy, that is, economic growth. By pursuing policies aimed at improving the growth rate of the economy we can reinstate our belief in a more equitable distribution of income and the process of growth will tackle the problem of unemployment. Low growth rates have been seen to be a reflection of a poorly motivated workforce, one which is poorly trained, and exhibits low productivity. If we couple this with the low level of Research and Development (R&D) and investment in the UK we have all the ingredients in place to show why other countries have bad higher growth rates than the UK and why the Uk's percentage of world manufactures has declined over this century.

Manufacturing is seen as the key to the well being of the UK economy. A strong manufacturing base is seen as one which provides employment, stimulates growth and enables a country like the UK which exports a greater part of its Gross Domestic Product (GDP) than any other country to achieve equilibrium in its trade account. Without a strong manufacturing base, it is argued, we shall run into balance of payments difficulties, structural unemployment will rise and there will be the ensuing regional problems. Other major developed economies like Germany and Japan are seen to have a higher percentage of manufacturing in GDP and one view is that if we wish to emulate them then the UK needs to look at the decline in manufacturing. Like many other developed economies over the last thirty years the UK's industrial structure has altered from a predominantly manufacturing economy towards one more devoted to serviccs. Unlike some other developed nations, however, which possessed a relatively large agricultural sector the UK compensated for the growth in the service sector by a reduction in manufacturing employment.

It is not the first time that the UK has experienced structural change in its economy since it was the first country to industrialise. Nonetheless, it is too simplistic an argument to suggest that because the UK was the first to industrialise it will, therefore, be the first country into the post-industrial sector. Moreover, this maturing economy hypothesis cannot explain why it is the UK rather than Germany or Japan which has experienced a declining share in world manufactures. We would expect the structure of the UK economy like any other developed economy to cbange slowly over time as the pattern of demand changes resulting from increases in income, cbanges in tastes, and alterations in the demographic make-up of tbe population. These changes would therefore have a knock-on effect onto employment and output. Moreover, the impact of technology will also alter the pattern of goods and services that can be provided from the market as technical progress reduces the cost of production, changes the comparative advantages in production and affects the level of competition and this will be reflected subsequently in a change in the composition of output. But are there any singularly British factors which are behind the gradual decline in the UK's manufacturing sector?

Like many other countries the UK was a net importer of oil in the early 1970s but with the development of its North Sea oil reserves the position was reversed by the early 1980s. The production of North Sea oil has raised a number of questions as to its overall impact on the UK economy and the subsequent structural changes. Forsyth and Kay (1980)(1). suggested that the development of North Sea oil caused an appreciation in the value of the pound and the reduced competitiveness of UK exports led to a decline in UK manufacturing. Although there might be some truth in this argument, others have pointed out that the decline in UK manufacturing was well under way before the development of North Sea oil. To separate out the effects of North Sea oil on the UK economy is most difficult since the period 1979-1981, when North Sea oil came on stream in sufficient quantity, coincided with contractory fiscal and monetary policies and with a world recession. …