UK Industrial and Manufacturing Decline

Question 1

What has happened to the makeup of the UK economy by GDP figures?

Answer 1

• 1800: Primary (75%), Secondary (15%) and Tertiary (10%)
• 1900: Primary (30%), Secondary (55%) and Tertiary (15%)
• 2006: Primary (2%), Secondary (15%), Tertiary (74%) and Quatertiary (9%)
• The real question is what caused this?

Question 2

What has happened to the makeup of the UK economy by the Employment figures?

Answer 2

• 1960: Primary (17%), Secondary (36%) and Tertiary (46%)
• 1980: Primary (7%), Secondary (34%) and Tertiary (59%)
• 2008: Primary (2%), Secondary (24%), Tertiary (74%)

Question 3

What is the Goods sector?

Answer 3

• The Primary and Secondary Sector combined

Question 4

What is the Production Industries

Answer 4

• The Secondary sector excluding construction, but including coal, coke, mineral oil and natural gas

Question 5

How can you measure structural changes?

Answer 5

• Most importantly, we should examine changes in relative sector size
• This can be done via output analysis (contribution to GDP)
• Or via input analysis (sectoral share of labour (preferred)/capital)

Question 6

What happened to services and agriculture as a share of GDPfrom 1801-2011?

Answer 6

• Services went from 38% to 78%
• Agriculture on the other hand went from 37% to 1%

Question 7

What are some reasons why demand patterns have been changing?

Answer 7

• 1. Changes in domestic demand
• Increases in disposable income leads to lower domestic consumption and greater demand for luxury goods and other imports
• This would typically lead to a more active service sector, such as banking and tourism
• 2. Changes in age structure of the population
• 1996: 1.68m fewer in 18-24 category than 1981
• LR: Increases in the 75+ category cause increases in demand for medical goods

Question 8

What are some reasons why supply patterns have been changing?

Answer 8

• 1. Fewer Youths in the Labour Market
• In the 1990s, Youths were more expensive relative to other workers, hence there were changes in employment patterns
• 2. Changes in resources available
• Example; Oil Price shocks (1973-89), OPEC restricted world output that increased price and demand for substitutes increased
• 3. International Competitiveness
• Changes in consumer taste, new products, different comparative costs-> redistribution of economic activity

Question 9

How has globalisation hampered the UK manufacturing?

Answer 9

• Removal of trade barriers and globalisation of companies intensified international competition
• This has hampered manufactured goods sectors, with much production moving overseas
• Globalisation increases momentum throughout the years as FDI provided by richer nations, has been used to expand to other parts of the globe

Question 10

How have technological improvements hampered UK manufacturing?

Answer 10

• Drives for greater efficiency and cost reduction causes the long-term decline in prices of manufactured goods
• This is because as tech improves, CoP falls and TFP rises, leading to lower unit costs and therefore prices
• There has been a general fall in the % of GDP for manufactured goods in developed countries

Question 11

How has global deindustrialisation hampered UK manufacturing?

Answer 11

• General decline in UK and OECD average
• Movement to services sector causes de-industrialisation
• Industrial production has fallen by 2.4% in the UK

Question 12

What are some of the reasons for structural changes and manufacturing decline?

Answer 12

• Stages of economic maturity
• Low wage competition
• North Sea Oil
• Crowding Out
• Effect of Sterling Exchange Rate
• Labour Productivity and UK competitiveness (RULCs)

Question 13

What is economic maturity? Why has it reduced the UK manufacturing sector?

Answer 13

• Maturity means that the economy becomes older so changes structurally,
• Changes in employment patterns since 1964 are similar to the movement from agriculture to 19thC
• Changes in economic structure reflect the pattern of demand after developments (Consumer demand grew for services and imports)
• Rowthorn & Wells (1987) showed that manufactured goods are as income elastic as manufactured services

Question 14

How has the UK’s manufacturing reluctance led to a smaller manufacturing sector?

Answer 14

• UK chose to specialise in services because of the comparative advantage
• However, this could have been as a result of idle resources (high unemployment) as opposed to reallocating from a particular sector

Question 15

How have lower wages in developing countries harmed UK manufacturing?

Answer 15

• LDCs and developing economies provide unfair wage competition
• However, this is usually paired with poor productivity and low skill
• By 2010, LDCs exports manufacturing was only 18%, which is not enough to change significantly
• Largely due to Tiger Economies

Question 16

How have events in the North Sea with oil harmed UK manufacturing?

Answer 16

• In the 1980s, the £ became the ‘petrol currency’ globally
• This increased capital flow, the demand for £ increases and the £ appreciates, meaning that the pound was sensitive
• SPICED: manufacturing declined as industrial product was about 2/3 of exports
• In 1986, Oil Prices halfed so the £ fell 9.2% on average, which stimulated UK industry in 1987
• In 1990, Oil Prices increased because of the Gulf Crisis- so the £ rose by 6%
• Oil became less important from 1985 to 1993
• To ease the impact of North Sea Oil, the government could have directed surplus forex to capital equipment imports, which would have eased £ pressure and increased competition

Question 17

How did weak trade policy harm UK manufacturing?

Answer 17

• Weak trade policy can also be blamed for poor performance
• As UK ran an aggressive budget deficit, the £ was allowed to remain overvalued for cheap imports
• This damaged British industry

Question 18

How have Crowding Out effects harmed UK manufacturing? What did Bacon and Eltis say about Crowding Out?

Answer 18

• Bacon & Eltis (1976) argued that British industry declined due to displacement from non-market public sector growth
• Steel marketed its output like the private sector, whereas NHS and schools are not marketed
• Non-marketed goods require investment, which could have been used or are provided by the market
• Taxes allow resources to be reallocated from the market sector to non-market activity
• Rapid public sector growth increases taxes, so discourages investment and GDP
• Increased tax demands, wage demands and inflation also rises

Question 19

What is the counter-argument to Bacon/Eltis argument?

Answer 19

• Industrial decline eroded tax base and the burden was increased
• The public sector also aids private sector production

Question 20

How has poor productivity harmed UK manufacturing?

Answer 20

• Poor productivity may have caused lower manufacturing competitiveness, leading to a decline
• This can be with paired with a lack of investment in manufacturing

Question 21

What are some of the reasons for low productivity?

Answer 21

• Capital Investment: Dougherty & Jorgensen (1997) argues the amount of capital input and quality of labour input is the main reason
• O’Mahoney and De Boer (2002) says 25%, 60% and 32% in US, Germany and France (ICT investment)
• Labour: Detriment to the quality of labour
• International Competitiveness: Change to RULC over time- high unit costs
• Vicious Cycle: Low productivity leads to low profits and low investment
• Other: Kitson & Mitchie (2014) argues long-term structural issues and short-termism with resources are the biggest reasons for falls in productivity

Question 22

What do Kitson and Michie (2014) say about the decline of the manufacturing sector?

Answer 22

• Argued that the decline in manufacturing was as a result of deep-rooted structural issues as opposed to economic maturity
• Failure of investment and prioritisation of the banking sector exacerbated this issue
• The over-reliance on the ‘City’ is detrimental to the whole UK and individuals, therefore rebalancing policies must be used
• Britain still has competitive manufacturing sectors (aerospace and pharmacy)