Why manufacturing just isn\’t the solution to unemployment

It\’s simply sweet fuck all to do with China, globalisation, whatever the mantra du jour is.

It\’s that labour productivity in manufacturing is now very high. Thus there just aren\’t that many jobs, whatever the size of the manufacturing industry.

The Sunderland plant is eye-opening for a columnist who has never seen a 500-tonne press stamp out car doors faster than a cook can cut pastry. It makes a car every 30 seconds at full tilt, sending most of them abroad. These undistinguished low-slung white sheds account for 1.4% of Britain\’s manufactured exports; 4,900 people work in the factory, which, says Nissan, supports 13,500 more jobs across the country.

Multiply those numbers up. That\’s 350,000 (at these rates of labour productivity) directly employed in Britain\’s manufacturing exports. Or directly and indirectly, 1.3 million (and note that many of those are SFA to do with manufacturing, they\’re to do with people having a job at all).

So, let\’s try the herculean task (in fact, impossible) of doubling manufacturing exports. We end up with another 350,000 people employed in manufacturing: that\’s about 5% of the economically inactive working age population.

It just doesn\’t work does it? Manufacturing, because labour productivity is high, just isn\’t a good source of jobs.

18 comments on “Why manufacturing just isn\’t the solution to unemployment

  1. Tim

    But labour productivity is high where we do make stuff because we’ve upped the capital intensity because labour is expensive (minimum wage COST of > £7 per hour) due to the fact people:

    * take holidays
    * go sick
    * want maternity/paternity leave
    * sue you if they have an accident which is their fault
    * want you to contribute to their pension
    * want family friendly hours

    machines (and Chinese workers) don’t need any of the above.

    And as you’ve pointed out elsewhere the market for unskilled people won’t clear when they cost >£7 per hour and out of work benefits are higher still.

  2. But it *is* a good way of earning enough money to pay for the food we have to import as we have many more mouths than our farmers can feed

  3. Shiney beat me to it, I was going to make the same point. There is manufacturing that requires lots of people, but you won’t find it in a high wage economy.

    Which rather leaves the question, what is the solution to unemployment?

  4. @John77: erm, no the UK is entirely physically capable of producing enough food for everyone. Our climate and soil is very productive. It would be a more basic diet of meat, potatoes and veg with plenty of milk and dairy produce, and a basic range of fruit, but we wouldn’t starve.

    The main reason we do not produce all our food at home is due to it being cheaper to buy a lot of it from abroad. If you stopped the cheap imports everyone would have to pay more for their food, plus not get lots of things we can’t produce here. So we would be worse off, even if we still sold all our manufactures abroad, as our home production would cost more than the imports.

    Its called comparative advantage.

  5. @ Jim
    Since when has the UK been able to produce enough food? I haven’t heard of the UK being self-sufficient in food since the early-/mid-Victorian era. Farm productivity has progressively increased over the last century but not to the extent that we can feed over 60 million people. By the end of WWII with maximum effort put into growing food our self-sufficiency ratio was around two-thirds and the population has increased by one-third since then, so you are postulating a *doubling* of the productivity of the soil since then if we are able to be self-sufficient on a war-time ration standard. Actually more than doubling because the west coast and Scottish fishing fleets provided a greater share of the national diet than all our fishermen do now.
    If the government reintroduced the hill farm subsidy and more people grew vegetables on their allotments then UK food production would increase but not by the 70% required to bring us up to self-sufficiency.
    It is a regrettable fact that not all land is equally productive so the theoretical calculations by the likes of Mellanby and Fairlie are just that – theoretical. If 3m hectares of arable land can produce enough food for all of us why are we only 60% self-sufficient while using 5m hectares for crops and 7m hectares for grass and grazing?
    I wholly agree with your second and third paragraphs

    Tim adds: Crop productivity has been going up by about 1% pa since the early 1950s. Apply compund interest to that and we get over 100%. We *have* doubled the productivity of the soil since WWII.

  6. @John77: I’m a farmer so I do know a bit about this. The UK currently produces a surplus of grains, we export a fair chunk of production. Milk production could easily be wholly UK sourced, we have ideal conditions for grass growing (and thus milk production), its just that paying less than the cost of production has decimated the industry. The potential is there. Meat could easily be ramped up – the surplus grains could be fed to animals instead of exported, and all the environmental schemes that currently take 5-10% of land out of production could be abolished. Producing more pork and chicken needs little extra land, as they are can be intensively reared. Beef and lamb are ideally suited to the upland areas of the UK.

    With modern varieties of crop, modern techniques and a government that incentivised farmers to grow food, not p1ss around with wildlife habitats and renewable energy nonsense, this country could easily be totally self sufficient in food.

    It might be more expensive than cheaper imports, less varied than what we get from abroad now, but in a WW2 style situation the population could be handsomely fed.

  7. Was there rationing because the land could not feed everyone, or was there rationing because there was only a minimal number of people working the land and in distribution?

  8. @MR Potarto: John77 is correct, back in the day (ie WW2) we were reliant on imported food to survive. Thats why governments of both colours spent the post war decades subsidising agriculture (firstly by themselves, then as part of the EEC), to ensure the nation didn’t suffer rationing again. Production went through massive step changes in the 30 years post war, due to mechanisation, rationalisation of small farms into bigger units, and new technology such as pesticides, artificial fertilisers and genetic breeding of higher yielding crops and animals. This was all so successful that as we all know by the 1980s there were surpluses of grain, meat and dairy products.

    Since then the emphasis has changed to promote less production and more environmental concerns, with the last few years renewable energy being the next Big Idea.

    I suspect the State is, as usual, well behind the 8 ball – the next big thing will be how to increase food production again, not curb it via environmental restrictions and using land to grow energy crops.

  9. @ Jim
    I am perfectly willing to concede that you know much more about agriculture than I, but I just find the idea that British farmers who are (except when blocked by the CAP and other controls slaving to produce enough to pay their bills) can increase production by 70% incredible.
    I don’t need to be an expert to recognise that opting out of the CAP would enable us to be self-sufficient in dairy products, eggs, chickens (and geese etc), pork, venison and either beef or mutton (dairy herds, beef herds and sheep have to share the grass supply), so I *can* believe in reaching 100% self-sufficiency in “indigenous food”, which could be “easily” achieved by quitting CAP, abolishing milk quotas, planting more orchards, cultivating allotments, reintroducing the hill-farm subsidy to bring more land into pasture and cultivation (mostly pasture but there’s quite a lot that could be cultivated), and as you, say 5-10% of land (excluding hills) is currently unused.
    “easily” is not the right word – it would involve a lot of hard work, so please don’t take offence – but it is the adverb in normal usage and I can’t just now think of an appropriate one.
    Reaching 100% self-sufficiency in indigenous food would require a one-third in production, 100% self-sufficiency for food overall would require a 70% increase. I can accept that the former is feasible but goggle at the latter. I wonder if we are using different definitions?

  10. @ Tim
    By taking marginal land out of the equation since we entered the EEC and abolished the hill farm subsidy, the average production per acre has been increased. That is *not* the same as increasing productivity, so the 1% pa is overstated.
    If we had doubled crop productivity overall since 1945, we should be more than 100% self-sufficient in “indigenous foods”. Jim can correct me but I expect that it is true for potatoes and bread-making wheat thanks to the introduction of new varieties and, in the latter case, increased use of fertiliser but not generally.

  11. John77

    The point is that if British farmers were not competing with foreign ones (with comparative advantages, especially for some grains) the demand for their goods would increase as would the prices they could extract for them and thereby their incentives to grow more stuff.

    The consumer would of course be worse off as he would have to pay more for his food, and it would be less varied. Plus, we would be back in the middle ages with most of the population working the fields (well not really but we would move in that direction) rather than designing computer chips and working in posh city offices.

    (Also, please leave us out of Malthusian claims)

  12. “If we had doubled crop productivity overall since 1945, we should be more than 100% self-sufficient in “indigenous foods”. Jim can correct me but I expect that it is true for potatoes and bread-making wheat thanks to the introduction of new varieties and, in the latter case, increased use of fertiliser but not generally.”

    1) potatoes and bread-making wheat are sort of the very examples of indigenous british food…

    2) yes introduction of new varities and fertiliser are integral to modern farming, so what?

  13. @ Emil
    If we trebled the production of raspberries, would that be a trebling of overall fruit production?
    If I offered you a million dollars to run faster than Usain Bolt, would you be able to do so?
    “yes introduction of new varities (sic) and fertiliser are integral to modern farming, so what?” So they are a significant factor in the increase in food production. Do you think that farmers in WWII spent their time drinking cider and sleeping it off? However, there is such a thing as the “law of decreasing returns” – doubling or trebling fertiliser use on a given area of land will not double or treble output. Rain, sunlight etc are exogenous variables.
    The increase in agricultural production is not uniform – the introduction of battery hens vastly increased the quantity of eggs produced while reducing the quality – so the percentage increase in total food production is less than that in the segments that increase fastest. This is algebra for nine-year-olds (well, it was when I was nine). Are you older than nine?
    Where have I ever quoted Malthus without a refutation (or at least a qualification in that direction?)

  14. John77,

    “If we trebled the production of raspberries, would that be a trebling of overall fruit production?”

    No, so what?

    “If I offered you a million dollars to run faster than Usain Bolt, would you be able to do so?”

    No, so what? (That is Usain Bolt having an absolute and not a comparative advantage over me)

    ” So they are a significant factor in the increase in food production. Do you think that farmers in WWII spent their time drinking cider and sleeping it off? ”

    No, so what? Manufacturing workers in the 1920s weren’t drinking cider and sleeping either, still manufacturing output was lower in those days than now

    “However, there is such a thing as the “law of decreasing returns” – doubling or trebling fertiliser use on a given area of land will not double or treble output. Rain, sunlight etc are exogenous variables.”

    Yes, but if used right it will increase it.

    “The increase in agricultural production is not uniform – the introduction of battery hens vastly increased the quantity of eggs produced while reducing the quality – so the percentage increase in total food production is less than that in the segments that increase fastest.”

    Yes, so what? I never said things would be fine and dandy without imports (actually I said quite the contrary), only that there would be enough food.

    “This is algebra for nine-year-olds (well, it was when I was nine). Are you older than nine?”

    Yes, so what?

    “Where have I ever quoted Malthus without a refutation (or at least a qualification in that direction?)”

    John77:

    “Since when has the UK been able to produce enough food? I haven’t heard of the UK being self-sufficient in food since the early-/mid-Victorian era. ”

    That is a malthusian statement

  15. @ Emil
    “That is a malthusian statement”
    Complete and utter rubbish! Read paragraphs 2 and 3 of Jim’s first post, with which I completely agreed. The USA and Australia export food to us and we export manufactures (and financial services to them). The whole system of Commonwealth preference was based on the concept that countries with relatively low populations relative to their food production capacity (e.g. Australia, Burma, Canada and New Zealand) would export food and import manufactures from countries with high populations relative to their agricultural potential. Malthus predicted that the increase in population would mean that we starved because we ran out of food. I said that we want to export manufactures in order to pay for the food that we import: in a Malthusian future there would not be any food surplus in overseas countries that we could import.
    Is it significant that you started posting at 9.02 pm since trolls turn to stone in sunlight?
    Hey! Usain Bolt has a comparative advantage in that he can run faster: if he has an absolute advantage over you that means he can do *everything* better than you. He hasn’t posted on this blog while I’ve been watching. Does that mean that your posts are worth less than zero?

  16. John77: you don’t understand comparative advantage. The thing you describe as ‘comparative advantage’ is actually absolute advantage, as Emil correctly says; there isn’t a word for the thing you describe as ‘absolute advantage’ because it’s a silly concept.

    The point of comparative advantage is that even if Bolt *can* do everything better than Emil, it still makes sense for Emil to specialise in whatever he can do least badly, and to sell his services to Bolt. It’s “comparative” to the other things that you could do, not comparative to other people.

  17. All I know is that around where I live (Southern England) there is a lot of land that is either not utilised for farming at all (in environmental schemes, used for non-agricultural uses such as horses, or just kept fallow as parkland). The last 20 years has seen the number of farms decline in Southern England, as houses have been sold off, with the buildings perhaps and a bit of land to the rich City types who want to live in the country and play the squire.

    There is a large amount of land that could be brought straight back into production immediately, probably 10% of the entire productive area.

    Then there is the large amount of land that is owned by farmers who are really retired. They do a bit, because its their life, but they aren’t that productive. If such farms were incorporated into larger businesses another large chunk of production could be found.

    Farming has been a declining industry since the mid 80s, when the push for increased production was halted. With a change of govt policy that could all change very quickly. Farmers cotton on fast to which way the wind is blowing – and they actually want to grow food, not act as park keepers. They would jump at the chance to go back to what they know best, increasing production. Indeed the current high prices of commodities has been a shot in the arm for farming, suddenly people can see some reward for their efforts and can see the point of trying to produce more. The price mechanism works wonders in farming.

  18. @ john b
    Sorry – you’re right of course. Midnight after a long day and fed up with someone imitating a troll, I just got het up and my brain switched the definitions.

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>