Economic Contribution of UKs Manufacturing Sector - Essay Example

?ECONOMIC and policy (British economy) Table of Contents ECONOMIC and policy (British economy Introduction 3 Economic Contribution of UK’s Manufacturing Sector 3 Possible Reasons behind the Decline of UK Manufacturing Sector 7 Was the Decline Inevitable? 8 Government Policies in support of UK Manufacturing Sector 8 Conclusion 9 References 9 Introduction The British had always relied upon its manufacturing or industrial segment as a pillaring sector of their economy. The sector had historically been responsible for contributing the largest fragment to the nation’s GDP, while latest records for 2009 finds its importance being reduced to that of the third largest one ranked only after the service sector and retail segment of the economy. Globally, the manufacturing sector of UK is the sixth largest in the one and is one of the largest exporters of heavy industrial products1. The table underneath hints towards the growth of UK manufacturing and service sectors, between 1970 and 1994 compared to other nations. The base year being considered in this case is 1970 and the growth rate is found to be rather low over the years in relation to those for other nations. The progress of the sector is found to be quite low in contrast to the domestic service sector2. The present paper addresses the progress of the manufacturing sector over the years between 1970 and 2010 through illustrating its economic and social contribution to the economy of UK. It makes use of secondary quantitative data to draw a comparison over time and analyses on the basis of the same. Economic Contribution of UK’s Manufacturing Sector The following figures help in evaluation of the degree to which the manufacturing sector of UK has evolved over the years since 1970 till 2010. Information on some of the elements could not be obtained from 1970 though the earliest possible data have been employed for evaluation.Share of value added by the manufacturing sector in UK over five-year interval between 1970 and 2010 have been presented in the graph alongside. It depicts a fast diminishing share of manufacturing over the years. The fact could also be evinced through examining the proportion of contribution of manufacturing sector to the national GDP over the years. Between 1970 and 2008, the percentage of contribution of industry behind national production has receded fast. The downfall had been the highest towards the end of 1970s as could be noted from the large difference in the statistic between 1970 and 1975 continuing to that in 1980. The diminishing contribution however, is not much reflected if gross fixed capital formation as percentage of GDP is considered. As the corresponding graph shows, the rate of capital formation had remained more or less stable over the years. Since capital formation is held identically equal to investment in capital, it could be implied that UK manufacturing sector did not contribute proportionally to the amount being invested in it. In other words, manufacturing sector suffered from a diminished productivity over time. Inward investment in UK manufacturing sector of UK is found to be fluctuating over time, as it falls down to a lower value from 1986 to 1991 and then improved to a positive value from 1991 to 1996 and to a further higher value in 2001. However, the downfall had been stark between 2001 and 2006 when growth rate of inward investment had been approximately equal to 60 percent. This only implies the erratic behaviour of the manufacturing sector of UK which over the years has lost its previous glory on account of a number of unavoidable reasons. Growth in industrial production too had been quite low over the years. To be precise, as the diagram below shows, UK manufacturing sector did not come across a consistent period of positive growth since 1970. Post 1970, the sector saw an entire decade of negative industrial growth. However, it gained momentum as growth rate surged up from 1980 to 1985 by 5.14 percentage points. But the following period of 15 years saw modest growth rates. The year 2005 once again saw a negative growth rate of the sector. Thus, it might be concluded that the sector barely receives investment from international sources now-a-days and most of the investment flow in from domestic arenas. But it hasn’t led to any adjustments in the degree of fixed capital formation, although, the productivity of the sector has sharply depreciated over the years as is relevant from its ordinary growth rate. The diminishing importance of the sector is also obvious from its share in total employment being created in the economy over the years. As the adjoining graph shows, the share of employment contributed by the sector had been more than 27 percent in 1975, but following a path of consistent downfall, it has, come down to less than 10 percent as the latest records for 2008 displays. Much of this lost glory could be attributed to the downfall of Blaenavon Big Pit which had been one of the biggest contributors to the gross industrial production of UK. The big pit comprised of a number of coal mines which started suffering from lost demand for Welsh coal post 1930s. The number of shut downs had been the highest between 1970 and 1980 which remarkably affected the industrial production of UK, as is also evident from the diagram. The impact of this downfall had been quite heavy upon the economy as well as could be evinced from the difference in real median income of total population as well as that of the working age population between 1975 and 2005. It shows the disparity to have been the highest during 1985, between the unemployed and employed population of UK. This difference is the highest for the period during the middle of 1980s though it is not much significant from those of other years. Such a feature is primarily due to the fact that the data includes even those people who had been employed in sectors other than manufacturing in UK. The crucial phase that the UK economy saw during mid-1980s is prominent from the percentage of GDP that went out as social benefits. During this period almost 20 percent of GDP went out as social benefits, a large chunk of which could be attributed to the closure of Blaenavon Big Pit subsequently leading to a mass lay-off of coal mine workers. This is evident from the downfall in social benefits figures during the consecutive period. Recently however, the figures have aggravated and the global financial crisis could be regarded as a possible reason behind the same. Possible Reasons behind the Decline of UK Manufacturing Sector Some of the reasons why the decline of UK manufacturing sector could not be averted could be briefed down as follows – The oil crisis of 1974 had an adverse impact over the current account of UK leading to hikes in import expenditure over export revenues. Records find that the decade post the oil crisis was characterised by such stagnation that gross manufacturing output depreciated to a meagre one-sixth of what the nation had produced during the decade preceding the crisis. The situation worsened to such an extent that exactly a decade after the oil crisis hit the world, the nation turned out to be a net importer of heavy industries3. A second reason had been the downfall of Blaenavon Big Pit that was the heart of the nation’s coal industry. Between 1960s and 2000, the manufacturing sector of UK had lost almost 5 million jobs and 0.7 million alone in the domestic coal industry that had been the second largest employer in the nation during the peak years. Post the downfall of the manufacturing sector, UK deflected its attention towards the appraisal of the service sector that permanently crippled its manufacturing front4. Was the Decline Inevitable? The decline of the manufacturing sector of UK might not be considered as being inevitable given the bright examples set forth by the French and German economies during the same period. Both the nations had faced the brunt of the crisis post the oil shock of 1973. Although they were not countered by the downfall of one of their most important industries, the method which they followed to revive over the loss is worth mentioning. France, for example, chose to enhance its respective factor productivities through technological transfer rather than diversifying to the service sector as had been the case with UK. Moreover, it concentrated on broadening the gap between export revenues and import expenditure in the manufacturing sector so as to take care of its current account5. Similar had been the case for the German manufacturing sector that was found to have depended solely upon improving its current account position over the years in order to bail out its manufacturing sector6. However, the economy of UK when confronted by a negative shock in its manufacturing sector chose to diversify into services rather than innovating methods of reviving the same. Government Policies in support of UK Manufacturing Sector In order to bring improvements in its manufacturing segment, the government of UK have come up with some strategies such as, Setting up as many as 150 projects aimed at improving labour productivity, with special emphasis being provided to a handful of industries forming the core of the manufacturing sector of the nation. Provide consultation to manufacturers aiming 15,000 of them each year. These consultations will be in line with suggestions from RDAs. In addition, the government also aims at setting up websites which would be providing consultation to the manufacturers as per their requirements7. Lastly, the national government also has been found to be highly supportive of its small and medium sized enterprises provided that it has opened its consulting services with a focus on these firms. Conclusion The present paper explored the trends of UK manufacturing sector since 1970 till 2010. The industry which had been at its peak at one point of time saw a phase of deterioration post 1930s that accelerated in pace after 1970s, following the downfall of its coal industry that had been one of the major contributors to the sector. The depreciation was aggravated further by the oil price shock that affected almost all economy around the world in an equivalent manner. Simultaneously it chose to diversify to other sectors such as service unlike its peer nations such as France and Germany. France and Germany however, chose to pin upon their respective current account positions in order to strengthen their manufacturing sector in future. UK now has chosen to follow suit with the national government framing policies in support of the dwindling domestic manufacturing sector. References Coates, D. (2000). Models of capitalism: growth and stagnation in the modern era (1st ed.). Cambridge, UK: Wiley-Blackwell. Corker, R. (1995). United Germany, the first five years: performance and policy issues. Geneva, Switzerland: IMF Publications. Department of Business, Innovation & Skills. (2010, December). Manufacturing in the UK: Supplementary Analysis. Retrieved July 19, 2011, from http://www.bis.gov.uk/assets/biscore/business-sectors/docs/m/10-1334-manufacturing-in-the-uk-supplementary-analysis.pdf Government of UK. (2002). “The Government’s Manufacturing Strategy”. Retrieved July 19, 2011, from http://www.bis.gov.uk/files/file25266.pdf Haslam, C., Neale, A., & Johal, S. (2000). Economics in a Business Context. New York, USA: Cengage Learning. Hardill, I. G., & Kofman, E. (2007). Human geography of the UK: an introduction. London, UK: Routledge. Khan, T. S. (2006). Productivity growth, technological convergence, R&D, trade, and labor markets: Evidence from the French manufacturing sector, Issues 2006-2230. Geneva, Switzerland: IMF Publications. OECD. (2011). ‘OECD.StatExtracts’ [Online Database]. 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