Traditional Manufacturing Industries in the UK - Term Paper Example

Topic: Identify and explain the possible reasons for the decline in the UK manufacturing sector over the last 40 years’ Introduction The past fortyyears have seen important critical changes in the structure of the UK economy, particularly in the declining of many traditional manufacturing industries and the evolution of many new growth industries, primarily in the service sector. The causes of these structural changes have been widely argued. Reasons given include the effects of changes in the overall demand due to rising consumer incomes, competition from low-wage developing economies and the crowding out of private sector activities as a result of the growth in the size of the non-market public sector and many others. This structural change had created disturbances in the labour market as jobs had to be redistributed from declining to growing sectors leading to significant shifts in the design of industrial specialisation at both the national and regional level (Robson 2006). Possible reasons of structural change and manufacturing decline are: Changing patterns of domestic demand—Pattern of domestic demand saw changes due to economic development. With the maturity of the economy the consumer demand changed from goods to services. Due to increased presence of public sector services, it led to growth of tertiary sector. The shift in UK demand for manufactured goods grew faster than expected, which was hardly relevant for a bigger changeover for the UK industries producing goods. As the pattern of demand is also impacted by changes in the age structure of population, it affected the demographic pattern by 1.68M less people in the age group of 16-24 in 1996 in comparison to 1981. Growth in education, recreation and entertainment sectors suffered due to lack of resources. Statistics show that between 1983-1993, the total actual consumer spending at 1990 prices increased by 33.5% but on recreation, entertainment and education it increased by 55% while on food items it went up only by 11.3% (Lam 2010). Changes in the availability of resources—the availability of resources, as it happened very unexpectedly with oil finding in 1973 and 1979 when OPEC decreased the production of oil, its prices shot upward. It directly affected the substitutes and compliments prices like coal, gas and cars. It affected the production and employment in energy-related industries such as steel industry (Griffith 2003). International competition and globalisation—has been a force affecting the economic structure of the UK. Due to changing consumer tastes, introduction of new products and reducing comparative costs, economic functions got reallocated globally. For example, the UK motor-cycle industry could not meet the standards, features and rates offered by Japanese as well as EU nations having reach o the UK market because of their membership with the EU necessitating restructuring of the UK economy. EU being a protected free zone, industrial production locations were shifted out of the UK by such companies like Ford and General Motors in 1970S and 1980s affecting production of cars in the UK from 1.3 million in 1977 to 1.1 million in 1987 although consumer spending got doubled on cars and vehicles during that time (Griffith 2003). Technology improvements—New products like word processors and video games and processes for production of goods and services due to progress on the technology front has enabled cost cutting by using robotics in manufacturing. In banking, all processes have got automated. Such usage of innovative processes increases productivity but unit costs decrease. Thus, supply side created new patterns of demand, impacting production and employment by raising the quality bar and reducing costs. It affected the traditional manufacturing ways (Griffith 2003). Stages of economic maturity—Economic maturity argument has many forms to provide authentic reasons for industrial decline. There are several variants of the maturity argument that provide explanations of industrial decline which appear reassuring. Since 1964, there has been a shift of workers from agriculture to industry. Those already employed in industrial functions were needed for the development of service sector. The experience of some countries supports the notion that economic maturity is related to decrease in industrial employment but it did not happen in all countries during 1964-79. Due to the impact of recession, data during 1979-83 could not be depended on and the data from 1983-1992 rejected the notion of any relation between economic maturity and industrial employment. Employment decreased speedier by 14% during 1983-92 (Lam 2010). The second variant, the pattern of demand has been discussed above in changing pattern of domestic demand. The third variant bases maturity on productivity rather than demand. The comparative inactivity on the industrial front negates this point. As the last variant, it is said that the UK has always been hesitant to be a manufacturing country; in services sector it has a comparatively protected domestic market (Lam 2010). Low wage competition—Manufacturing jobs have decreased in industrialised countries due to low wage exporting. As per the econometric analysis of manufacturing jobs, business with OECD countries has lessened the job share of the UK employees by 1.3 percent-points during1992-2002, which comes around ¼ of the total reduction in jobs. Taking this reduction for granted to be followed after 2002, it means that imports from low wage countries have erased about 300,000 jobs in manufacturing sector (Coutts 2007). North Sea Oil and its impact on Sterling exchange rate—The UK economy has been impacted by the North Sea oil through exchange rate of the pound, which acquired the status of ‘petro-currency’. The rate of sterling changed with the change in oil price. Between 1979 and 1983 it kept the pound rate higher making exports costly and imports less costly in early 1980s, affecting production and jobs in globally competitive sectors both in domestic and international markets. With the cut in oil prices and fall in sterling, situation changed for better during 1986 to a limited extent. A time came when during the Gulf war and subsequent Iraqi attack on Kuwait, the pound was more costly due to rise in oil prices by more than 6% during July and August 1990. The North Sea oil has been impacting trade balance up and down since 1985 when it rose in surplus by £8.1bn, to be followed by fall of £1.2bn in trade balance by 1991. Later in 2005 trade surplus became negative by £−492m for the first time due to the North Sea oil effect (Griffith 2003). Crowding out—it referred to displacement of the UK manufacturing industry resulting in its downfall due to the development of non-market public sector. Unlike steel industry, which behaved like private sector, health and education industries created services that were free and not marketed. These non-market industries in the public sector employ resources and generate income but their production is not market-oriented (Griffith et al. 2003). Bacon & Eltis find in this speedy growth of the non-market a cause of higher Tax & interest rate, lower investment, inflation & balance of payments problems, as they stated, it ‘crowded out’ the market sector, creating an environment not encouraging and promoting growth of manufacturing sector. The ‘crowding out’ argument ignored the significance of public sector services as stimulant to the private sector such as education improving the skills of the employees (Lam 2010). Manufacturing sector and labour productivity—during 1964-73, labour productivity in manufacturing sector increased by 18.1 pts at the yearly rate of 3.8% but reduced to 0.6% pa during 1973-79. The UK productivity growth was below other developed economies during 1964-79. Although base level of productivity is equally crucial like its growth yet in 1980, the UK workers’ average manufacturing was $6 800 Q in a year at constant 1973 prices, which was far behind the average of other countries ranging between $10 400-$16 800 a year. References: Coutts, Ken., Glyn, Andrew. Rowthorn, Bob. May 2007. Structural change under new labour. Available from: http://www.dspace.cam.ac.uk/bitstream/1810/194701/1/0721.pdf [Accessed 25 August 2010]. Griffith., 2006. Chapter 1: Changes in the UK Economic Structure. Available from: http://vig.pearsoned.co.uk/catalog/uploads/Griffiths_C01.pdf [Accessed 25 August 2010]. Lam, Patrick., 2010. Changes in the UK economics structure. Available from: www.pat-lam.com/.../Changes%20in%20the%20UK%20Economics%20Structure.doc [Accessed 25 August 2010]. Robson, M., 2006. Structural change, specialisation and regional labour market performance: evidence for the UK. Department of Economics and Finance. University of Durham. Available from: http://www.dur.ac.uk/m.t.robson/resources/Structural%20Change,%20Specialisation%20and%20Regional%20Labour%20Market%20Performance.pdf [Accessed 25 August 2010]. Read More