UK Industrial and Manufacturing Decline Flashcards
Week 1
1
Q
What has happened to the makeup of the UK economy by GDP figures?
A
- 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?
2
Q
What has happened to the makeup of the UK economy by the Employment figures?
A
- 1960: Primary (17%), Secondary (36%) and Tertiary (46%)
- 1980: Primary (7%), Secondary (34%) and Tertiary (59%)
- 2008: Primary (2%), Secondary (24%), Tertiary (74%)
3
Q
What is the Goods sector?
A
- The Primary and Secondary Sector combined
4
Q
What is the Production Industries
A
- The Secondary sector excluding construction, but including coal, coke, mineral oil and natural gas
5
Q
How can you measure structural changes?
A
- 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)
6
Q
What happened to services and agriculture as a share of GDPfrom 1801-2011?
A
- Services went from 38% to 78%
- Agriculture on the other hand went from 37% to 1%
7
Q
What are some reasons why demand patterns have been changing?
A
- 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
- 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
8
Q
What are some reasons why supply patterns have been changing?
A
- Fewer Youths in the Labour Market
- In the 1990s, Youths were more expensive relative to other workers, hence there were changes in employment patterns
- Changes in resources available
- Example; Oil Price shocks (1973-89), OPEC restricted world output that increased price and demand for substitutes increased
- International Competitiveness
- Changes in consumer taste, new products, different comparative costs-> redistribution of economic activity
9
Q
How has globalisation hampered the UK manufacturing?
A
- 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
10
Q
How have technological improvements hampered UK manufacturing?
A
- 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
11
Q
How has global deindustrialisation hampered UK manufacturing?
A
- General decline in UK and OECD average
- Movement to services sector causes de-industrialisation
- Industrial production has fallen by 2.4% in the UK
12
Q
What are some of the reasons for structural changes and manufacturing decline?
A
- Stages of economic maturity
- Low wage competition
- North Sea Oil
- Crowding Out
- Effect of Sterling Exchange Rate
- Labour Productivity and UK competitiveness (RULCs)
13
Q
What is economic maturity? Why has it reduced the UK manufacturing sector?
A
- 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
14
Q
How has the UK’s manufacturing reluctance led to a smaller manufacturing sector?
A
- 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
15
Q
How have lower wages in developing countries harmed UK manufacturing?
A
- 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
16
Q
How have events in the North Sea with oil harmed UK manufacturing?
A
- 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
17
Q
How did weak trade policy harm UK manufacturing?
A
- 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
18
Q
How have Crowding Out effects harmed UK manufacturing? What did Bacon and Eltis say about Crowding Out?
A
- 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
19
Q
What is the counter-argument to Bacon/Eltis argument?
A
- Industrial decline eroded tax base and the burden was increased
- The public sector also aids private sector production
20
Q
How has poor productivity harmed UK manufacturing?
A
- Poor productivity may have caused lower manufacturing competitiveness, leading to a decline
- This can be with paired with a lack of investment in manufacturing
21
Q
What are some of the reasons for low productivity?
A
- 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
22
Q
What do Kitson and Michie (2014) say about the decline of the manufacturing sector?
A
- 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)
