A note on the decline of British manufacturing

Manufacturing\’s share of GDP in the UK is also little different from the share in other advanced economies, with the notable exception of Germany, where it is about 24pc. But in France, manufacturing\’s share is about the same as in the UK, and in the US it is actually lower.

True, manufacturing used to account for a much larger share of the UK\’s GDP. In 1970 it was more than 30pc. But the subsequent sharp fall wasn\’t exceptional either. All advanced countries have experienced the same phenomenon. Nor is this all about losing manufacturing to emerging economies in Asia and elsewhere, where costs are lower. The simple fact is that as people get richer they tend to want to spend a higher proportion of their incomes on services rather than on goods.

This does not mean that the absolute amount of goods that people want to buy falls or, therefore, that the absolute amount of manufactured output in the UK must necessarily fall over time. Indeed, until recently anyway, it didn\’t. Despite the fall in the sector\’s share of overall output, in absolute terms, the amount produced by the manufacturing sector has increased decade by decade.

I\’ve mentioned this sort of stuff before. Peak manufacturing output in the UK was in 2005. Yes, manufacturing output was higher at the end of Maggie\’s reign than it was at the beginning, higher than it had ever been.

It\’s manufacturing employment which has taken the hit and that\’s a good thing, it reflects increasing productivity. AKA \”getting richer\”.

If there has been this \”collapse of manufacturing\”, this \”evisceration\”, then it\’s happened in these last 5 years. And we\’re still not sure how much of that is to do with the recession rather than structural change. For, yes, manufacturing output does vary more than the general output of the economy.

8 thoughts on “A note on the decline of British manufacturing”

  1. A commenter on that story suggests the government almost killed manufacturing by the 3g licenses. But whereas I can see Nokia are a manufacturing company (though I don’t know if everything they do is so counted) surely Vodafone and so on definitely aren’t?

    Tim adds: I don’t get what they mean either. The 3 G auctions were one of the great pieces of applied economics. Not just in the structuire of the auctions but also in the very idea of selling spectrum. This is very much an LVT, a tax on Ricardian Rents. Bloody good thing too. In theory it’s just like having oil royalties or metals royalties.

    Makes no difference to the final sales price of the good or service as any company will maximise that anyway. All we’re doing is carving up the revenue. Some to the State where the natural resource is found and some to those who bring it to market.

  2. One of my lecturers pointed out when I was study manufacturing, defining manufacturing employment is very difficult.

    A large factory employs 1000 people including 50 cleaners, and 25 security guards. It outsources the cleaning and security work, and manufacturing employment falls 7.5%. Yet there is still the same number of bodies working on the same site.

    He pointed out that a large amount of manufacturing employment was actually services, but was not counted as such until it was performed by a third party.

  3. Brian, follower of Deornoth

    Quite, Serf.

    I worked (up ’till last year) in the Steelworks at Redcar. I was a contractor, and therefore part of the ‘Service Sector’. The bloke at the next desk was a permanent employee, and therefore counted as ‘Manufacturing’.

  4. I don’t know how it works though – does ONS simply label companies as manufacturing/services, or divisions of companies etc? I mean (if it was British) what would Apple be?

    Tim, the ‘free market’ (so to speak) criticism of that auction would presumably be that the scarcity had been government created in the first place (I’m not saying I agree, but presumably there is something in that).

    Tim adds: That would be a pretty odd “free market” criticism. The scarcity is natural: there’s only so much spectrum to go around. The question is, how do we allocate it? Who gets the profits from that natural scarcity? Auctioning it off gets you economic efficiency (those who value it most will pay the most) plus Govt gets the scarcity parts of the revenues, not just those lucky enough to get allocated the scarce resource. That means taxes on good things (income, work, capital accumulation etcetcetc) can be reduced.

  5. ……That means taxes on good things (income, work, capital accumulation etcetcetc) can be reduced……..

    I must have missed that one.

  6. “The simple fact is that as people get richer they tend to want to spend a higher proportion of their incomes on services rather than on goods.”

    I would rephrase that as “as society gets richer goods tend to get much cheaper by comparison with man-hours whereas human sevices obviously cannot so to maintain the lifestyle they are used to people have to spend a higher proportion of income on services”.

  7. There is more to a decline than the share of GDP it sells. There is the number and type of jobs it provided. Steelworks, car plants, ship builders sustained entire towns with jobs that paid a living wage to young unskilled and semi skilled men. Manufacturing has changed. Vast carvplants employing 20,000 low skilled men have been closed, production moved elsewhere, like Dagenham’s have gone to Turkey, or the plants have been replaced by more modern, productive ones employing 5,000 men.
    Bicycle manufacture relocated from Nottingham to Taiwan, shipbuilding from Belfast to Korea.

    These changes have been tecnological and political. New industries have emerged, GDP has grown. But the young unskilled have no jobs to go to, certainly none that provide a living wage. This lost generation is a disaster, the decline in manufacturing is it’s cause, even if current manufactuhing holds up its share of GDP, it does not hold up its share of low skilled jobs.

  8. I sit at a desk all day. I type at a keyboard and click my mouse a lot. In this sense my job is completely indistinguishable from that of, say, an insurance broker.

    Many people sit at desks and type and click their mice. But when they’re me, or many millions of other employees, they are creating software – which has real, physical ramifications outside the pure abstract – or using CAD programs to generate real, physical objects which are then, no shit, manufactured. In which sector am I? I’m an engineer, and I have been for decades. I have never, in all that time, designed anything that would hurt if you dropped it on your foot. So what? The distinction is meaningless. Value added is value added.

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