Should we be making more things? Part 1

18 03 2009

Should we in the UK be making more things? Is this the way out of the recession for us? The business secretary Peter Mandelson seems to think so . He has called for less financial engineering and more real engineering. Over the next week I will be asking that if it is true as  Jim Rogers   has said that  the UK has nothing to sell, whether reindustrialisation is the answer.

There is an interesting debate opening up about how the recession will impact on different sectors of the economy in the UK and what the regional impact will be. Some people are expressing surprise that manufacturing in the UK has been hit as hard,if not harder,than services,including financial services. Some commentators, such as Simon Tilford are now arguing that this proves that the UK does not need to reindustrialise, even if that were possible, because we would still have been affected by the recession.

Tilford is tilting at those who assumed when the recession began,that the countries whose economies are based on making things and exporting them,such as China,Japan and Germany ,would fare better than the UK and the US. Leaving  aside the fact that the US is still the biggest maker of things in the world, this approach betrays a lack of grasp of what happens in the kind of world recession we are experiencing. It also confuses cause with effect.

This recession was triggered by a crisis in the financial sector,but underlying it is a massive imbalance between China and other productive economies on the one side and the US, the UK and other countries on the other. This imbalance took the form of the export of products from the former countries to the latter, and the building up of debt in the latter countries to pay for them. This much is now undisputed.

 The reason why the UK and the US were able to get so deep in debt was because the exporting countries are creating far more than they need of the products we all consume.  The need for these products has not gone away but our ability to pay for them has.. What has happened is that the ability of the UK and the US to export services and products to the same value as its imports has gone away. This imbalance was concealed for some time because China and others lent us their money to buy their goods. It cannot be sustainable however that the same countries that make products give us the money to buy them.

Not surprisingly, ,as sources of credit dried up, demand for the exported manufactures of China and others also dried up. These countries have suffered a huge fall in demand as a result. Japan’s exports fell a massive  45% in January year on year.The key questions for the future for China and other exporting countries are  whether thay can create sufficient internal demand for their goods. This may take time, as Stuart Simpson has argued. The key questions for the UK and the US are different.

It is a fatuous argument to say that the UK does not need to reindustrialise because the recession has caused a drop in demand. When the recession is over the factories of China will be back at full tilt. But neither does it mean that reindustrialisation is necessarily the answer for us.The problem for the UK is that we have to create something that we can sell on the world market. But does it have to be through manfacturing? Next time I will look at this question. 



6 responses

18 03 2009
Vivienne E Heatley

Of course we should, we need to encourage our youngsters to discover what type of skill would best suit them, then to build on it, Decent Technical Colleges with set entry requirements, maths (always necessary) then aptitude tests. Also, take a look at the production line at Cowley (the Mini line is an eye opener). There is too much emphasis on computer skills at the user end, and too much reliance on ‘Wikipedia etc for homework, more hands on experience is invaluable for self esteem and contented and proud young people. Just my opinion and feeling as a grandmother!

19 03 2009
Nico Macdonald

The story of the decline of British manufacturing also needs to be more nuanced. See ‘It’s a fabrication that Britain doesn’t make things any more’ Philip Whyte, The Times, March 13, 2009 [shared boomkark]:

The UK, the story goes, has irresponsibly let its manufacturing sector go to rack and ruin… Until the global collapse in output triggered by the financial crisis in late 2008, manufacturing output in the UK was higher than it had ever been.

Though Whyte confuses absolute with relative growth. He also notes that “a larger manufacturing sector would not have reduced Britain’s exposure to the current global economic downturn”. And his conclusion that we need to “raise productivity in relatively inefficient sectors” is correct.

27 03 2009
James Heartfield

Should Britain make more things?

Yes, I think so. Though you could finesse the point a little differently. Britain ought to produce as much as, or more than, it consumes. Its weakness in the preceding period was that it consumed more than it produced, and offset that problem by an artificial expansion of wealth through asset inflation. We were rich on paper, but poor in material goods (a fact disguised by importing maunfactured goods from elsewhere). Of course we don’t need to make every kind of thing in the UK, there should be a division of labour internationally. But we have to make sure that what we specialise in is something people want, not artificially inflated titles of ownership.

3 12 2009
We need real growth not sustainable growth « UK After The Recession

[…] from standard recessions.     There are key debates to be had still about to what extent the UK needs to restore manufacturing as opposed to services, and also whether cuts in public spending are necessary and in what areas. […]

12 04 2010
Ten questions to ask your candidates about the UK economy « UK After The Recession

[…] Is it necessary or indeed possible for the UK to revive its manufacturing industries, or should we focus on growing our services business, which already makes up 75% of the […]

7 02 2011
Our aim should be a growth economy not a balanced one « UK After The Recession

[…] financial crisis has been interpreted by some as a sign that we should look for a different way of organising the UK economy, hence today’s debate. There has been a growing distaste for the […]

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