3 Deindustrialisation II

Question 1

UK-specific causes of deindustrialisation? (3)

Answer 1

Poor investment record in manufacturing (capital and labour)

Influence of finance on manufacturing

Adverse impacts of policy

Question 2

Poor investment

Answer 2

Capital available (plants, machinery or equipment) per hour worked remains lower in UK manufacturing than in comparable economies

e.g. USA, Germany, France

Skill weaknesses, compared to similar economies - twice as many workers in Germany have completed apprenticeships than in UK

Management weaknesses - number of production managers who are graduate engineers
(just 3% in UK)

Question 3

Finance-industry nexus

Answer 3

UK economy has become more reliant on finance and finance has grown at the expense of industry

Finance has focused more on speculation than on funding real investment, which has created a ‘short-termist’ culture that has inhibited industrial regeneration and growth

Question 4

Adverse impacts of policy

Answer 4

In the 1980s, emphasis of macroeconomic policy shifted towards inflation control (=>tight monetary policy)

• high interest rates (more expensive to borrow to invest)
• high exchange rate (harder to export)

Led to more rapid shrinkage in manufacturing.

Lack of any coordinated strategy or vision for the progress of UK manufacturing.

Industrial policy displaced by competition policy - neglect of manufacturing

Question 5

Does manufacturing matter? No:

Answer 5

Deindustrialisation is part of a transition to a ‘post-industrial’ society, natural evolution.

UK can prosper on the basis of a service economy

Consequently, Governments should not intervene directly to assist and revive industry but should prepare people for new forms of work in the ‘knowledge economy’ e.g. by improving skills provision

Future prosperity of UK economy will be built on knowledge or creative industries (e.g. in the media and design) and financial services

Question 6

Does manufacturing matter? Yes:

Answer 6

Deindustrialization creates an ‘unbalanced’ economy that is more prone to balance of payment crisis:

Deindustrialisation increases the need to import manufactured goods. Hence, the country needs to export more goods to pay for those imports.

Evidence suggests that a fall in 1% of manufacturing exports requires a rise of 2.5% exports in services. Increasingly more difficult as competition increases.

If all UK domestically produced manufactures (including exports) were consumed in the UK, production would meet only 81% of total domestic demand.

These unbalances make the economy more vulnerable to external conditions such as the evolution of currency markets and global demand.

Regional unemployment and uneven internal growth rates

In the UK, the ‘north-south’ divide and pockets of high unemployment in regions formally dependent on manufacturing