Duncan’s Economic Blog

UK Manufacturing is Booming, or is it?

Posted in Uncategorized by duncanseconomicblog on January 6, 2011

Yesterday saw the release of some good news for the UK economy with the manufacturing sector ending the year on a high.

The snow may have knocked high-street sales last month, but on Britain’s industrial estates the recovery continued unabated. That’s the conclusion research firm Markit has drawn in its latest monthly survey of purchasing managers. Markit’s headline UK manufacturing index – closely watched by economists as a leading indicator of industrial growth – hit a 16-year high in December.

Whilst is undoubtedly good news, if the Coalition is hoping that a manufacturing renaissance will see Britain through the cuts  they may be disappointed.

Whilst the sector may be enjoying the strongest growth since the mid 1990s there is a big difference between then and now. Back then the sector employed around 4.3m people, whilst in September 2010 manufacturing employment dropped below 2.5m for the first time on record (table 6 of December’s Labour Market Stats).  

Manufacturing employment is down 3.7% on the previous year and since the coalition took power, with its stated aim of rebalancing UK growth, 20,000 manufacturing jobs have gone.

Reversing this trend could take some time:

15 Responses

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  1. Tim Worstall said, on January 6, 2011 at 3:35 pm

    Err, yes, it’s called increasing productivity. Manufacturing employment has been going down since 1950 or thereabouts, when half the population made whippet flanges.

    Come on, you’re an economist for goodness sake. Rising productivity of labour is a “good thing”! we can now make more with lower inputs, we’re richer!

    • duncanseconomicblog said, on January 6, 2011 at 4:11 pm

      Tim,

      (As I’m sure you can work out) The broader point is that it will be very hard for a manufacturing recovery to offset job losses elsewhere.

      • Tim Worstall said, on January 6, 2011 at 4:15 pm

        So why not say that instead of sounding like some SWPer declaiming that only making “things” is real proletarian work?

        • duncanseconomicblog said, on January 6, 2011 at 4:20 pm

          Well if you point me to the bits that sound like an SWPer or the bit where I claim that only making things is real work, we can debate that.

          Now actually I would lke to see manufacturing grow it’s share of GDP and employment – but not because it’s proletarian!

          Ha-Joon Chang’s chapter on manufacturing in “23 things” might interest you.

          • Tim Worstall said, on January 6, 2011 at 4:30 pm

            I’m getting to that chapter soon. The book is infuriating though. There’s some obviously true bits (washing machines (ie, all domestic technologies) have changed the world more than the internet. Sure, brought about the equality of women essentially.

            Then there’s blathering rubbish in there as well…..

            • Left Outside said, on January 8, 2011 at 4:57 pm

              I saw Chang give a talk on the book. Some of it was very annoying, some of it quiet enlightening.

              For example, the bit on entrepreneurship was interesting. Essentially there are relatively more self-employed people in stuffy France than in up-and-at-them America. However, he didn’t explain why self-employment was the best proxy for entrepreneurship or whether other incentives in taxes or regulations led to more people in France being registered as self-employed when they’re really not. Little things like that.

              I like Chang, and Tim, he has a point on infant industry protection, there’s a vast literature you’re writing off ideologically, not empirically, but he does put a little too much emphasis on being counter-intuitive for the sake, too much focus on correlation and not causation of it and not enough on detailed quantitative empirical research.

              Is 23 things worth getting if I’m already reasonably well read on Chang in particular and capitalism in general?

              ___

              Anyway, manufacturing, I’m 23, the idea of making stuff is very odd to me, the closest I’ve come in my jobs is working in a warehouse refitting digiboxes badly made in China, so I’ve no fetish for it as some, probably particularly the SWP, do.

              I don’t think manufacturing is a good sector to rely on if those on the left are interested in employment. Its very cyclical, as destocking your warehouse translates slumps in demand into slumps in employment quite well. You can’t really warehouse a service. Likewise, it is easier to deskill and mechanise manufacturing than services, which weakens the bargaining power of labour. Its good for output, but bad for distribution, if you care about equality.

    • Neil Wilson said, on January 7, 2011 at 9:29 am

      People need an income so that they can access the resources needed to live, and they need something to do so that their lives have meaning.

      Replacing people with machines is a good thing, but only if you also break the link between ‘something to do’ and ‘access to resources needed to live’.

      You can’t get rid of the people. By using machines you have created an externality by eliminating those people’s incomes. That is exactly the same as pouring waste untreated into rivers, or pumping CO2 into the atmosphere.

      That might be good for individual businesses, but it is bad government to allow it.

  2. Tim Worstall said, on January 6, 2011 at 4:33 pm

    “Now actually I would lke to see manufacturing grow it’s share of GDP and employment ”

    But manufacturing’s share of employment isn’t rising anywhere at all! It’s even falling in China!

    You’re like some Tory Squire in 1920 telling us all that what would really help matters if more people went back to the land as peasants. (Or Johnny Porrit today telling us that we should all be peasants again)

    Manufacturing output, sure, great, lovely. Manucfaturing employment? Why for the Lord’s sake? It’s over. Done and dusted as a part of economic development, just like having 50% of the population scraping fields with sticks is.

    • duncanseconomicblog said, on January 6, 2011 at 4:38 pm

      Glad you’re reading H-J C, I don’t agree with all of it – but a very interesting book.

      Why?

      Because we have 2.5m unemployed people and because we need a larger manufacturing sector here (mainly for balance of payments).

      And no, I don;t want to return to large smoke stack industries or 1950s mass production lines.

      (And yes Tim, in the ideal future computers and robots will do all manufacturing and much else and we’ll all live a life of leisure and be richer. We’re not there yet).

      • Neil Wilson said, on January 7, 2011 at 9:19 am

        We have five million out of work Duncan and over 2 million short of work, with 3 million working too much due to poor wages.

        Let’s use the real figures, not the propaganda. Then perhaps we can come to terms with the ridiculous blight we are imposing unnecessarily on real live human beings and come up with a system that serves their needs as well as ours.

  3. Tim Worstall said, on January 8, 2011 at 5:33 pm

    “Essentially there are relatively more self-employed people in stuffy France than in up-and-at-them America. However, he didn’t explain why self-employment was the best proxy for entrepreneurship or whether other incentives in taxes or regulations led to more people in France being registered as self-employed when they’re really not.”

    Dean Baker’s explanation for this (and the US is the outlier, not France) is that the US has employment related health care insurance. And there’s a tax deduction for it, a large one, if the employer buys it but not if you, self employed, buy it yourself on the market.

    Re services, I have my suspicions that the Great Moderation was really just services becoming more as a portion of the economy….

    As to infant industry, yes, it’s an ideological rejection. For even if it works it is still saying that you, you poor consumer you, must be prevented from buying those nice cheap things made by foreigners so that the local capitalist can get rich selling you his expensive shit.

    Just seems too illiberal really……

  4. Tim Worstall said, on January 9, 2011 at 11:06 am

    “Ah, but we don’t care about now do we, we care about total (discounted) lifetime consumption, ”

    No, we don’t. Oh, we might say we do, but we don’t. For if we did that would be the end of progressive taxation in order to redistribute current consumption, wouldn’t it?

    Knowing, as we do, that the levels of taxation necessary to provide a “fair” income to hte poor do indeed reduce future growth…..

    • Left Outside said, on January 9, 2011 at 12:16 pm

      That’s the discounted bit.

      Assuming that the OECD document to which you are referring is definitive then it seems high marginal taxes on capital and income are bad for future growth, however, they do offer ways of redistributing income, which is good for current income for most people. With the hyperbolic discounting humans are renowned for, I don’t think your evidence backs up your point.

      Korea was half as wealthy as Gambia in 1950, now it is 3716% richer per capita, if their interventionist industrial policy was responsible for even a small part of this, then it is very easy to argue the import restraint, financial repression and export promotion were all worth it.

  5. Alice Taylor said, on October 5, 2011 at 9:51 am

    I think the manufacturing industry has the potential to create new jobs, although admittedly it will take time for this to make a considerable difference to the economy.


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