1980s UK Recession and Its Impact on the Manufacturing Sector - Literature review Example

1980s UK Recession and its Impact on the Manufacturing Sector In the 1980s, the UK manufacturing sector was faced by economic hardships occasioned bythe recession that threatened UK economy. Businesses were exposed to rising exchange rates that threatened their operations, prompting the government to use monetary interventions to raise the confidence of manufacturers. The UK treasury had to allow interest rates to go down in order to shield businesses, particularly the manufacturing sector from the economic damage they were facing. Volatility According to Sentance (2008, p8), the UK economy was the most volatile of all the major world industrial economies at the helm of the recession in 1980s to 1990s. There were large swings in the recession cycles of the UK economy which made it more exposed and vulnerable to negative impact of recession than other major economies. Following the government short term monetary interventions to salvage the depressed economy in the early 1980s, there were positive records of some relieve to the manufacturing sector. Manufacturing companies began to post profitable figures while their labour growth and productivity shot up between 1983 and 1987. Comparative Analysis There were three peak to peak periods between 1964 and 1989, where major industrial countries posted growth, amid recession factors but the UK performed poorly (Currie and Sentence, 1994, p22). During the same period that the UK experienced the above mentioned recession and economic changes, some of the industrial leaders Germany, Japan and USA were posting better peak results than the UK from their industrial sectors. For instance according to Michie, (1997, p58), in terms of the manufacturing outputs posted by these countries, the growth percentage figures were as follows in the order of merit; Japan had 7, USA had 3.9 while Germany had 2.6. The disparity was in the percentage growth recorded by the UK, which was only 1.5. The balance of payments for any country cannot be solved by the exclusive specialisation into one sector economy, especially for a case like that of the UK. With this perspective, it was recorded that the recession impact introduced some level of unemployment to the world economies, which again showed some differential drop in employment. Among the same industrial countries used above, manufacturing sector employment levels fell in the1976-86 decade as follows in order of merit in percentages; European Union’s from 29 down to about 24.4, USA’s from 22.8 down to around 19.1 ( negative 3.7) while Japan’s was from 25.5 down to about 24.7. The difference was worst on the same list for the UK whose manufacturing sector employment fell to 16 per cent. Different production methods are employed by the various industrial economies, to strengthen their market positioning policies. Haslam and Neale (1989, p70) compared UK some manufacturing firms form the UK and Germany. Labour productivity was found to be better established in the German firms, recording percentage figures of between 10 and 130. Machine breakdowns were much prevalent in UK firms than in the German firms. The manufacturing sector was continuously suffering for lack of technical assistance and training, largely due to unfavourable shift from manufacturing approach. The national education system was particularly worse for a drop in the training of employees into manufacturing sector from 0.45 million to 0.18 million trainees only, between 1967 and 1982. The level of management training for manufacturing and industrial sector still remained low in the UK. Reasons for Relative Rapid Deindustrialisation Shifting to Service Based Economy (Deindustrialisation) The economic intervention was not only approached on the short term front but on the long term front too. Structural changes were introduced to the manufacturing sector in the UK, due to the effects of inflation. The rebirth of the economy was to be facilitated by the foundation laid on the service industries. The UK’s economy was to be shifted form the much consumer led manufacturing base to the investment and exports perspective. Control of inflation fluxes in the new system was guaranteed, unlike in the former economy where inflation uncertainties and shocks exposed the economy to a huge risk of crumbling (Currie and Sentance, 1994, p20). Deindustrialization in UK was as a result of continued falling investment in the manufacturing sector. Besides, there was a general lack of competent industrial policies from the stakeholders, leaving the government to employ unpopular protectionist policies such as monetary policies (Driver and Temple, 1999, p75). Instead of contributions reviving the manufacturing based economy, the service sector has continued to establish itself as the favoured investment destination in the UK. Macroeconomic and Industrial Policies As recorded in Michie (1997, p62), Macroeconomic policy in the UK has experienced repeated changes that cause an overhaul of the exchange rate system. There have been intermittent changes also in the interest rates which also leave manufacturing sector exposed to unfriendly outcomes. For instance, the overhaul of the Sterling in the 1979 to 1980 monetary policies destabilised the economy on which the manufacturing industry was founded. This was not the only overhaul impact made by the government since the Exchange Rate Mechanism that the UK opted to join and become a member was also to affect the exchange rates. Interest rates volatility in the UK has driven away investment incentives, causing a major imbalance of entry into and exit from the manufacturing sector. Deindustrialisation and Productivity of the UK Markets Despite the initial positive records of productivity in manufacturing sector in the early 1980s, it was later discovered that the reason for the productivity was attributable to job cuts. Labour cut concerns in the context of productivity in the manufacturing sector could only reduce the productivity to negligible or negative figures. Michie (1997, p61) reports that the growth that was reported had a lot of misgivings bearing in mind the conditions that the manufacturing companies had to factor in, to post positive growth. The service sector will have to be in a symbiotic balance with the manufacturing sector if the economy wants to return to normalcy. The implication that this makes to the market is that of drawing the attention of investment efforts if the economy is to remain sustainable. The effect of deindustrialisation would considerably reduce other sectors growth options in for instance training environment. The market will be faced by challenges of competitive training following the withdrawal of the training services particularly for the manufacturing sector (Gardiner and Matthews, 2000). It is also possible that the market would find it hard with an exclusively service based economy to respond to macroeconomic and currency pressures. Steel Industry: UK versus Japan Japan has ranked as world leader in the steel industry, for instance, it was ranked second after India n the year 2000. The comparison with The UK shows a huge disparity, with the UK posting mixed results over the peak years when other world industrial nations recorded growth in the steel industry. Growth differences for instance can be illustrated by the employment figures between the two countries in the period between 1960 and 1980. Japan’s steel industry recorded employment increases of over 30,000 while the UK’s steel industry employment dropped by over 200,000 in the same period (Hasegawa, 2003). The figure for Japanese employment growth in the industry could have been higher since sub-contracting firms which were growing fast at that time are not included. It is estimated that the Japanese employment figure could swell to over half a million, going up to the late 1980’s. Another difference zone in the steel industry between the two countries is recorded in their export figures where Japan reported a consistent rise in exports from the 1960’s to 1980’s while the UK’s were dropping figures. Exports in the Japanese economy rose consistently by over 14 per cent, while the UK’s exports decreased in the same period. These figures can be explained by the relative increase in exports to crude steel production ratios from 1960’s to 1980’s from 0.183 to 0.255. For the imports, Japanese market continued to post decreases in import to become a minor element while the UK’s figures increased. The UK’s steel imports form Japan rose form slightly over 30,000 tonnes to over one million tonnes in the said period, although foiled trade relations later made the figures to drop markedly. The steel manufacturing industry in Japan was boosted by the formation of mergers by the major players in the years before the period in contemplation, which better positioned Japanese steel manufacturers (Hasegawa, 2003). For instance, procurement of Ogura Seiko by Sumitomo, Amagasaki Seitetsu by Kobe, Tokai Seitetsu by Fuji, Yawata Kokan by Yawata, Nippon by Fuji Sanki Kokan and the merger of Fuji and Yawata changed the operation of the industry for better. In the UK, mergers or concentrations were not forthcoming but for the nationalization of fourteen steel companies and the market was eventually lost on competitive grounds to Japan. Benefits of mergers including increased efficiency and capacity was the secret behind Japan’s steel industry unmatched growth. References Currie, D and Sentance, A (1994), “An end to boom and bust – can the Chancellor deliver?” Economic Outlook, vol.18, no.9, pages 20-23. Driver, C., & Temple, P., (1999) Investment, growth and employment: perspectives for policy. London, UK: Routledge Publishers Ferguson J. G., & Ferguson P. R., (1998) Industrial economics: issues and perspectives. New York, NY: New York University Press Gardiner, V., & Matthews M. H., (2000) The changing geography of the United Kingdom. London, UK: Routledge Publishers Haslam, C. & Neale, A., (1989) Economics in a business context. London, UK: Taylor & Francis Michie, J. (1997) “An Experience of Deindustrialisation: Lessons from Britains Industrial Performance Since 1960.” Viewed on 27th October 2010 Punzo L. F., (2001) Cycles, growth and Structural change: theories and empirical evidence. London, UK: Routledge Publishers Sentance A., (2008) “How big is the Risk of Recession?” Viewed on 27th October 2010 Hasegawa, H., (2003) The steel industry in Japan: a comparison with Britain. Lonon, UK: Routledge Publishers Read More