Home > Growth > UK needs to address declining manufacturing sector

UK needs to address declining manufacturing sector

The UK economy is paying the price for the severe imbalance in its economy with the over-emphasis on the financial sector at the expense of the manufacturing. The UK hasn’t recovered from the 2008 Global Financial Crisis with real income per person only increasing 0.2% since its peak in 2007 – this is less than the per person increase in Japan during its lost decades of 1990’s and 2000’s.

What is alarming is that since the GFC the Pound has depreciated by around 30% make UK exports more competitive and imports more expensive. Within most countries a depreciation of this magnitude would give a huge boost to manufacturing sector but in the UK the impact was minimal which is indicative of the state of the sector itself. It is the poor performance of manufacturing that has seen UK’s deficit grow to 5.2% of GDP in 2015.

Global Manufacturing output

Although the UK is the 8th largest producer by output value but if you look at the per head output and % of national output it is much further down the pecking order – see table. Also of note is that the UK’s manufacturing output as a % of national output has dropped from 27% in 1970 to 10% in 2013. Although some have tried to play down the role manufacturing sector there has been a fundamental misunderstanding of the role of manufacturing in economic prosperity.

1. Manufacturing is the main source of productivity growth and economic prosperity – machines and chemical processes raise productivity. Also most  R&D is carried out in this sector so recent increases in the service sector came about by using more advanced units in the manufacturing sector. This includes fibre-optic cables, routers, more fuel efficient cars, GPS recorders etc.

2. Many knowledge based industries have been around for a number of years – they include research, engineering etc. The vast majority of them used to be conducted by manufacturing firms and have become more visible as they have been ‘spun off’ or ‘outsourced’. Changes in a firm’s organization should not be confused with changes in the nature of economic activities.

It is important to note that the majority of this knowledge-intensive services sell to manufacturing firms, therefore  their success is dependent on the state manufacturing sector.

Reversing three and a half decades of neglect will not be easy but, unless the country provides its industrial sector with more capital, stronger public support for R&D and better-trained workers, it will not be able to build the balanced and sustainable economy that it so desperately needs.

Source: The Guardian

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