The UK Manufacturing Industry - Term Paper Example

The British Economy Table of Contents Introduction 3 An Overview of the UK Manufacturing Industry 4 The Reasons for Decline in the UK Manufacturing Industry 10 Conclusion 13 Reference 14 Introduction The economic growth of a country is primarily dependent on the performance of its manufacturing industry. This phenomenon is all the more palpable in the economies of the first world countries. The manufacturing industries are engaged in industrial production of finished goods with the help of machinery, tools, labours, raw materials etc. These industries account for a substantial share in the GDP, import and export, industrial growth for an economy. Apart from its contribution to GDP, it has also been instrumental in reducing unemployment as it requires huge labour force. These industries include many industrial sectors depending on the types of products manufactured by that sector. Automobile industry, chemical industry, textile industry, food and beverages industry, electronic industry, are some of the examples of manufacturing industries. The finished products produced by the manufacturing industries are used by other industries and also by the consumers. United Kingdom is one of the most developed countries in Europe. It enjoys a healthy economic condition with high GDP rate and purchasing power parity. Among the Western counties, Britain was the first to experience the industrial revolution during the 18th and 19th century which changed the face of the world and set the stage for further developments. “For the British, industrial revolution was a spontaneous industrial revolution, not a forced industrialization as some of its successor has been” (Deane. 1979. p.98). The pioneer in industrial revolution is now experiencing a downturn in its manufacturing industry since the last 40 years. Its growth has remained low as compared to the other first world countries of the world. This paper attempts to analyse and discuss the reasons that led to the industrial decline in UK. An Overview of the UK Manufacturing Industry The industrial revolution was a remarkable period in the history of UK. This period experienced stupendous economic and industrial growth. The labour based industry of UK was transformed into machine based industry. This was an important transition which led to industrialisation, mass-production, and growth of factories. However, the manufacturing industry of UK has declined significantly over the last forty years. During 1975, Anthony Wedgwood observed that “the process of de-industrialization has been echoed by both academic and government economists” and he commented that “if this trend is allowed to continue, we will have closed down 15% of our entire manufacturing capacity and nearly 2 million industrial workers will have been made redundant between 1970 and 1980” (Singh. 1977). It was precisely at this point of time when the UK government and economist realised the slump that had set in manufacturing industry. Table 1, shows the movement of the historical trade balance and the value added by the electrical engineering manufacturing industry. From this table it is evident that during 1970-1978, there was a decline in many electrical engineering products and the total trade balance was negative. Table 1: Trade balance and the value-added in electrical engineering (Source: Shepherd, Silberston, and Strange. 1985 p.67) During 2002, the manufacturing industry had reported a steep decline. According to BBC news, “factory production fell by 4% in 2002, the largest annual slump since 1991” (BBC News. 2003). Figure 1, represents the graphical analysis of manufacturing output performance of UK. Figure 1: Manufacturing output of UK (Source: BBC News. 2003) The primary reasons for the manufacturing decline during 2002 can be attributed to the increase in insolvencies and the corresponding decrease in the global demand. George Buckley (Economist, Deustsche Bank) opined that "It just confirms that the manufacturing sector is suffering, not only from a long-term structural decline, but also from the cyclical weakness theres been in global demand recently" as “the figures confirm the scale of the slowdown, with 4,323 companies going bust in the fourth quarter of 2002, an increase of 11% on the previous quarter” (BBC News. 2003). This steep decline resulted in many job-cuts in the manufacturing industry. This declining trend continued even in the recent past years. Figure 2, depicts the productivity growth rate of UK for the last eight years. Since 2000, the percentage change per annum in productivity output per worker and per hour worked has diminished. Figure 2: UK productivity growth rates (Source: UK National Statistics. n.d.) The above figure displays the overall productivity measure of UK including the service sector. However, figure 3 gives a clearer picture of the production generated by the manufacturing industries as compared to the service sector and the entire economy. Figure 3: UK Productivity growth by Service and Manufacturing Sector (Source: UK National Statistics. n.d) From the above table it is evident that the productivity in the manufacturing industry has declined drastically over the last eight years as compared to the productivity of the service industry. Figure 4, depicts the manufacturing output of UK. It showed very little growth till 1995 and with the advent of recession, it hit the rock bottom. Figure 4: UK Manufacturing Output. (Source: University of Cambridge. 2009) The low profitability and high insolvency rate in the UK manufacturing industry have caused a significant decrease in the number of the manufacturing firms. As per the figure 5, in 2002, the number of the manufacturing firms had declined drastically. However, after that period there had been a nominal increase in the “net change in the number of the manufacturing firms” (University of Cambridge. 2009). Figure 5: Net change in the number of Manufacturing Firms. (Source: University of Cambridge. 2009) The Reasons for Decline in the UK Manufacturing Industry The manufacturing industry depends on certain factors that are necessary for its growth. The UK Government has failed to restructure and implement the policies according to the market requirements. The major reasons for the failure of the UK manufacturing industry have been discussed below. Technology is one of the most important factors that influence the manufacturing industry. Innovation through proper research and development is inevitable for the growth of this industry. The UK Government and the industrialists are unable to put sufficient money for research and development activities. Figure 6, depicts that UK has the lowest gross domestic expenditure as compared to the other countries and moreover, the rate of expenditure is also declining with time. Figure 6: Gross Domestic Expenditure on R&D (Source: Excellis Business Consulting. 2009) A manufacturing factory or unit requires huge capital investments. The UK government policy has failed to invest the necessary capital in this industry. There is hardly any significant increase in the overall investment made by the UK Government in the manufacturing industry. Table 2, shows the data of the investment made by the manufacturing industry during 1999 to 2002. The total manufacturing has declined by -18.3% over the four years. Table 2: Private sector manufacturing business investment (Source: Simpson. 2003) Poor skills and lack of technical education are other important factors that are responsible for the decline in the manufacturing industry of UK. Proper business operations demands efficient management skills. The UK manufacturing industry has been facing an acute shortage of proper management practices. Manufacturing workforce requires candidates from technical background. In UK there have sufficient numbers of technical institution but the course structures need to comply with the industry requirements. The unfavourable business environment and culture of UK has also adversely affected its manufacturing industry. The improper allocation of the resources has hindered the optimum utilization of production resources. The rate of the employee turnover is also higher which has led to inconsistency and interruptions in the manufacturing process. “If companies have to take their employees’ views seriously and are prevented from cutting jobs at the first sign of a downturn then they will be better placed to make decisions for the longer term” (Simpson. 2003). In order to improve the condition of the UK manufacturing industry, the policies influencing the industry should be restructured. Over the last forty years, the political support received by the manufacturing industry has not been favourable. The political policies influence economic stability, investments made for research and development, the degree of technical education that is prevalent. All these factors are important for the growth of the manufacturing industry. Unfortunately, the governmental policies concerning industrial growth are not aligned with the growth and demand patterns of the first world countries. Conclusion The government of UK has been following the ‘conservative policy’ to strengthen its economy. The manufacturing industry has not benefited much from its policies; rather it’s now in fear of being overshadowed by the service industry. For the last twenty years, the UK manufacturing industry has not been able to generate sufficient employment and the proportion of the manufacturing output is also declining as compared to the service industry. Despite such bleak statistics, one shouldn’t forget that the manufacturing industry still remains the backbone of any country. The government has to take extra effort to ensure proper investments are made in the research and development activities so as to encourage new ventures in the manufacturing industry. Reference BBC News. 2003. UK industry suffers sharp decline. [Online]. Available at: http://news.bbc.co.uk/2/hi/business/2735769.stm. [Accessed on July 15, 2010]. Deane. P. 1979. The first industrial revolution. 2nd Edition. Cambridge University Press. Excellis Business Consulting. March 2009. Analysis of the UK Manufacturing Engineering Sector. [Pdf]. Available at: http://www.excellis.biz/ebchome/docs/eu_uk_ME_sector.pdf. [Accessed on July 15, 2010]. Shepherd, D. Silberston, A. and Strange, R. 1985. British manufacturing investment overseas. Taylor & Francis. Singh, A. 1977. UK industry and the world economy: a case of de-industrialisation?. [Online]. Available at: http://cje.oxfordjournals.org/cgi/pdf_extract/1/2/113. [Accessed on July 15, 2010]. Simpson, D. September 2003. Rebuilding the UK Manufacturing. [Pdf]. Available at: http://www.amicustheunion.org/pdf/Rebuilding%20UK%20Manu%20Art.pdf. [Accessed on July 15, 2010]. UK National Statistics. No date. Productivity Measures. [Online]. Available at: http://www.statistics.gov.uk/hub/economy/prices-output-and-productivity/productivity-measures/index.html. [Accessed on July 15, 2010]. University of Cambridge. September 2009. Manufacturing Industry Statistics 2009. [Online]. Available at: http://www.ifm.eng.cam.ac.uk/cig/09stats/macroeconomic.html#12. [Accessed on July 15, 2010]. Read More