The Manufacturing Sector of the UK - Essay Example

According to a book by Minford and other the output associated with the manufacturing sector of the UK in proportion to Gross Domestic Product (GD.P) declined by 9 percent, ( that’s 26%-17%)from 1980 to 2005. over the same period that of USA fell from 21%-14% and that of Germany from 31%-22%. In EU the biggest decrease was reported in the petroleum, steel as well as the sector of fibres. (Winford, et al 2005 p 90) This is a study set out to make a vivid description of the UK sector of manufacturing decline. To this, it is going to answer the question, “What has been the cause of the decline in the manufacturing sector of UK over the last three decades and how can this be explained?” In the entire EU the industries that are marketing or technology-driven had grown at the quickest rate. The media, printing, publishing and the sports commodities industries also made a considerable growth. Since 1995, the UK’s electrical, chemical as well as the optical sector (and also going tandem was the IT and communications sector) had a faster growth rate surpassing that of the whole economy. It’s believed that the shipbuilding, steel, clothing and textile industries were slowly moving to the poor nations due to the stiff competition by the aforementioned growing industries. As a result the capacity of manufacturing and the labour force dedicated to the manufacturing sector experienced a fall. ( Winford, et al 2005 pp 90-91) A while ago UK was called the ‘workshop of the world’. In UK is the origin of the industrial revolution as per the belief of many. The sector of manufacturing held the highest number of workers in the labour force of UK and the output used to be very high. However, the manufacturing sector of UK started to experience several over takings; first by the nation of Germany and later on by the US. This has gone on relentlessly and China as well as Japan have followed suit. Factually, the employment in the manufacturing sector of UK did not start in the last three decades, but since the 1950s. Towards the late 1970s the labour force proportion working in the UK manufacturing sector was about 7 million but in 2005 the number of employees was at 3.5 million. As an activity, manufacturing has been said to decline and it’s a verdict by many commentators. Most of the decrease has been linked to the fall in the workforce. Particularly, the fall in this sector in the context of UK has been witnessed from the 1850s due to the rise in the rate of industrialization of other nations. Also the manufacturing sector as a proportion of GDP has significantly declined due to the WWII. Despite this, the output from the manufacturing sector of UK achieved an all time high in 2000. It stood at 120 points having 1978 as the base of 100. This, as explained by Lipsey and Chrystal, can be argued from the point of view that the manufacturing industry of the UK has continued to grow but with fewer and fewer workers. (Lipsey and Chrystal, 2007 p 225) The manufacturing sector’s fall in the UK serves as evidence that UK is facing an era of negative deindustrialisation in the last 30 years. The output of UK as per the statistics of the year 2000 had not changed a bit compared to the previous 25 years. Although, 1979 recorded a rise in the manufactured output in contrast to 1978, 1980s set in with a recession. A weak recovery was not recorded until 1989, but yet another recession hit the UK in the early 1990s. In the year 1999, the UK economy was said to be overheating and output from its manufacturing sector was no different from that in the early 1990s. The sector of manufacturing in the UK was also said to be negatively affected by the predicaments emanating from an overvalued currency to an interest rate policy courtesy of the then independent bank of England. Between the years 1979-1989, output from the manufacturing sector grew by an average of 1.4% and from 1989-1998 the rate stood at 0.4%, thus, registering a fall in the growth rate. The same was the UK’s manufacturing sector employment levels. While compared to several other first world states like France, Germany and Japan the levels of employment in the manufacturing sector of UK fell between 1979-1989 and from 1989-1998 declined the most. (Kitson and Michie, 2000 pp 111-113) After the year 1981, employment in the manufacturing sector fell and 18 years later the number of employees in the manufacturing sector was 4,289,000. Causes of the decline are described to be complex. Some of the reasons are tertiarisation, reindustrialisation, and deindustrialisation according to some arguments brought forward. The terms of deindustrialisation, the manufacturing sector can be said to fall due to the fact that fewer products are being disposed abroad from this sector to pay for its requirements of imports. Some of the characteristics of deindustrialisation are presented by Towsed (1997: 80-81) (Hardill, et al p 20). Firstly, the contribution by the manufacturing sector in all large economies’ GDP with UK in inclusion, have registered a fall. This has been made faster by the world competition and foreign direct investment by companies. Secondly, there was the slowness in all manufacturing firms in the UK due to the 1979- 1982 period of economic recession. This hurt a lot the industrial towns of the UK resulting to the elimination of obsolete commodities as well as over manning. Thirdly, there was the 1982-1990 recovery of the economy and this saw to a very small growth in the manufacturing employment numbers. Fourth, there is the structural interdependence seen in the national markets as a result of MNCs and internationalisation in the UK making it more exposed to fluctuations in demand internationally. Further, there have been other reasons which have been seen to account for the factor of deindustrialisation. Some of these other reasons are the poor standards of the British management, external economic pressure like the loss in grip of competitive edge, and the labour relations that are intractable. The end to this is the plummeting blue collar jobs in primary and manufacturing industries. The blame game has also extended to the state policies and the governance and the regulation of industries. The death in the primary and the manufacturing industries has also been attached to the political attitudes and, therefore, adding to the number of culprits is the political system. Subsequent to this, the two industries have been frequently referred to as the ‘sunset industries’. Deindustrialisation, has as an overall result led to the high rate of job loss in the main industry of the UK economy especially the west Midlands as well as Coal fields. (Hardill, 2001 p 20) New demand in UK is likely to be met through the escalating level of imports. The early 1980s’ fall in the manufacturing sector is the one to blame for this. Martin Phillips argues in his book that the 1980s’ government led by Thatcher was viewed to have a hands off approach towards helping the manufacturing sector of the UK recover and thus it’s also blamed for the continued drop. A big number of companies portrayed short-term predicaments but with time they were eaten up by these problems leading to their closure. Together with the net impact of government’s policies the monetarist policies which resulted into an upward value of the pound had a great role to play in the manufacturing sector’s decline in UK. In the year 1980 the production from the manufacturing sector declined by 14% and the following year had the profits of the sector fall by a third. Between 1979- 1983 alone about 2 million workers lost their jobs in the manufacturing sector. As per 2005, therefore, the manufacturing sector’s capacity could not satisfy the national demand increases. The sector emaciated to stand the whole UK economy’s demand. This sector is thus faced with a strategic dilemma so as to solve the issue once and for all. (Phillips, 2005 pp 210,211) Even though it had been argued that the UK’s manufacturing sector was deprived of labour leading to its decline, little evidence exists to justify the same. Statistics have shown an increasing rate of employment resulting to a situation of labour surplus rather than the perceived deficit. This is per the authored work of Smith. He continues to say that instead the slowed rate of demand with regards to the UK manufactured commodities is solely to blame. The slow demand has been witnessed both at home and by foreign consumers. The reduced employment levels according to him are related to male full-time workers in 1980s- 1990s. Females have instead increased in number in the context of UK manufacturing sector’s labour force where these females are part time workers. Further more, he writes that the slowed manufacturing sector’s growth is highly originating from trade specialisation and deindustrialisation. During the period of 1980s the output coming from the UK’s manufacturing sector hit a serious slump. It, as a matter of fact, fell by about 19.6% from 1979-1981. Later, it grew by 27.7% between the periods 1982-1988 the employment levels were an exception to this. They didn’t rise along with the output increase. The table that follows shows the balance of payments of UK as a percentage of manufactured products to the GDP (current prices are applied) Table 1 Year(s) % manufactured products to national GDP (UK) 1981-1982 1.60 1983 -0.90 1984 -1.40 1985 -1.10 1986 -1.60 1987 -2.00 1988 -3.30 1989 -3.40 1990 -2.10 1991 -0.60 1992 -1.20 1993 -1.20 1994 -1.10 1995 -1.10 1996 -1.10 1997 -0.90 1998 -1.70 1999 -2.30 2000 -2.70 Source; the National Accounts of UK (Smith, 2005 p 394) Note that in the table the positive percentage represents a surplus while negative percentages are deficits. Thus, from 1980s through 1990s the value of imported manufactured commodities was higher in value in comparison to exported products. The rapid fall in the UK’s manufacturing sector is largely associated with the negative balance of payments. This, according to Smith, is said to be because of the shift of employees’ activities from the manufacturing oriented sector. The services sector has a very little amount of exportable products and thus a fall in the balance of payments to the negatives. (Smith, 2003 pp 390,394) The exchange rates have also been seen to cause the decline in the UK’s manufacturing sector. A book by OECD says that effective exchange rate’s appreciation by about 25% from 1996 to 1998 can be attributed to the stagnation noted in the manufacturing sector. This is after compounding the fall in the long-term relative to the nations’ GDP and which is very common to the first world countries. Also, the appreciation in the effective exchange rate has resulted to rapid share losses in the market. (OECD, 2004 p25) The direct causes of the fall in the manufacturing sector of UK constituted to the monetary policy of the government- through the bank of England- which led to the rise in the rates of interest. This was aimed at keeping in control the borrowing requirement of the public sector and the high rates of inflation, and the laid back financial controls. The relaxation of financial controls resulted in capital flight out of the UK. These two were coupled with an economic recession that hit the UK in the 1980s Following the explained causes of manufacturing decline, there was the first-ever reported negative balance of payment in the UK in year 1983. Real value of outputs remained at a low level from 1979 up to the late 1980s. Severe contractions were reported in the given sectors attached to the manufacturing industry, especially those that were state owned like steel and coal. There were vast downturns both regionally as well as sub-regionally particularly the earliest initiated industrial regions. These were Central Scotland, South Wales and North-East England. The entire economy of UK was viewed to be undergoing a period of transformation with rapidly changing profiles and also prospects. Debates came up to determine the origin of the dismal performance of the UK’s manufacturing industry as compared to other nations. Significant explanations were presented concerning the bridge connecting the manufacturing industry and other sectors of the economy. Some suggested the undue domineering nature of the sector of finance and more so the relationship between manufacturing and capital. Other arguments put forward cited the linkage between the manufacturing sector and the poor management intertwined with the labour productivity. Further, there were also explanations touching on the role played by Research & Development (R&D) and innovation. Lastly, the involved said that there was an under-representation when it came to the small firms in the international economy. By the close of the 9th decade of the 20th century the manufacturing sector was displaying some signs of the fighting off the previous severe negative impacts. In spite of this was a short lived relief, yet another economic slump attempted at strangling the industry again. New buds started to sprout in the mid 1900s. Nevertheless, the whole picture depicting a boom, a recession, a recovery and so on served as a major setback overwhelming the reported growth to a long-term decline. This brought down the whole manufacturing sector of the UK setting in the 1980s. (Gardener, et al 2000 p 130) Judging from the point of view of many authors deindustrialisation has had a major effect on the manufacturing industry of UK. Before making a conclusion another view by other scholars is of ample importance to the study. For instance; Moynihan and others have written that the gigantic growth rates in output and employment witnessed in the eighteenth as well as the nineteenth century with regard to the sector in context. However, in the period setting in from mid 1970s to 1999 an estimated 4 million jobs were lost in the manufacturing sector of UK. The proportion of the UK’s total output has also declined from 41% in 1971 to a meager 20% in 1999. in addition the UK’s contribution to the world exports through the manufacturing sector has also plummeted. For example; UK had never recorded a negative balance of payments until 1983. According to these authors, numerous reasons have been said to be the cause of the decline. Among them are these reasons:- A big fall in the old industries like iron, textile as well as steel production, shipbuilding and also locomotives for railway; replacing them with technology-oriented commodities. A rise in competition globally by overseas corporations of newly industrialised nations like China and Japan. Since wages in the newly industrialised nations are relatively lower, a number of firms based in the UK have terminated business in the UK in favour of the upcoming industrialised countries. Also, since people have grown richer most of the expenditure has become service interested like banking. Lastly, the UK pound has been seen to rise in value outdoing other global currences. The cloud of general decline should not block our sight, though. There are some well doing manufacturing sectors in the industry. Examples may include chemicals, hi-tech electronic equipment, aerospace and petroleum products. More specifically, jobs, outputs and exports have been on the rise in these industrial sectors. (Moynihan, et al 2001 p157) The conclusion to the study, thus, is that deindustrialisation has been the main factor causing the fall in the UK’s manufacturing sector. There are others as well, as seen in the findings of the study but which impact a small proportion of the industry. This is in pursuit of answering the question, “What has been the cause of the decline in the manufacturing sector of UK over the last three decades and how can this be explained?” Reference list: Gardiner, V. (2007). The changing geography of the United Kingdom. Routledge. Edition: 3, illustrated. p 130. Hardill, I. et al. (2001). Human Geography of the UK: An Introduction. Routledge. Edition: illustrated. p 20. Kitson, M. and Michie, J. (2000). The Political Economy of Competitiveness: Essays on Employment, Public Policy and Corporate Performance. Routledge. pp 111-113. Lipsey, R.G. and Chrystal, K.A. (2007). Economics. Oxford University Press. Edition: 11, illustrated. p 225. Minford, P. et al. (2005). Should Britain Leave the EU?: An Economic Analysis of a Troubled Relationship. Edward Elgar Publishing. Edition: illustrated. pp 90-91. Moynihan, D and Titley, B. (2001). Vocational A-Level Advanced Business. Oxford University Press. Edition: 2, illustrated. p 157. OECD. (2004). OECD Economic Surveys: United Kingdom. OECD Publishing. p 25. Phillips, M. (2005). Contested Worlds: An Introduction to Human Geography. Ashgate Publishing, Ltd. Edition: illustrated. pp 210, 211. Smith, S.W. (2003). Labour Economics. Routledge. Edition: 2, illustrated. pp 390-394. Read More