Economic Consequences

British manufacturing has become weaker than it was ten years back. Although it contributes more then £150 billion to the GDP, manufacturing has been in relative decline for a long period of time. This fall in the size of the manufacturing industry is referred to as de-industrialization. The employment is low; the number of factories is reduced. Manufacturing output shows a declining trend in the total output of goods and services being produced. This causes an unfavorable effect on the balance of payment.

UK has gone through several recessions in the manufacturing industry which takes further years to recover. Britain long seems to have been polarized into two different camps on the subject of manufacturing. One says the only real jobs are factory jobs, that anybody who doesn’t make something is some kind of parasite, and that the UK is shedding its manufacturing at an alarming rate. The other camp says services are the future, that factories should be converted into industrial heritage leisure centers and cafes, and that the decline of manufacturing is inevitable. Neither side is quite right.

Some key background facts about British manufacturing industry

British manufacturing is mainly uncovered to the occupied gust energy winds of universal competition.

• Output: Manufacturing now accounts unswervingly for only 18% of GDP , but many service sector industries also depend indirectly on the amount produced that comes from the manufacturing subdivision
• Employment: There has been a long term decline in industrial employment due to fluctuations in the currency and economic recession, manufacturing now accounts for only 15% of total employment, although many of these jobs are among the best paid in the economy. Jobs that involve physical fitness are now less paid while the jobs that require qualifications are now in demand. . Most of the job losses have been in sub-divisions such as steel, vehicles, and other forms of heavy engineering. Manufacturing supports many overhaul sector jobs , for every factory producing machine tools there is a demand for designers, marketing and accountancy professionals, caterers, software designer’s e.t.c.
• Exports and trade: Around 60 per cent of manufacturing output is exported overseas. The exports include a huge amount of sophisticated goods and services that generate a huge foreign income for the UK. But the trade deficit in finished and semi-finished manufactured goods has grown steadily wider over recent years. However the UK still runs trade surpluses in areas such as petrochemicals, aerospace, alcoholic beverages, machine tools and pharmaceuticals. There are areas of manufacturing where UK manufacturing retains a comparative advantage in the global economy. The comparative advantage has been expanding since past 3 years.
• Productivity: Manufacturing has conventionally been the segment of the economy where the biggest improvements in productivity have been made which may be because of the introduction of the research and development wings in organization to improvise on the manufactured goods. And manufacturing accounts for nearly three quarters of total business sector research and development. If the research and developments would not have been there then it would be difficult for the UK to survive the recession.
• Regional economy: Manufacturing industry accounts for an anecdotal proportion of total income and output for apiece region of the UK. In the West Midlands the North East and Wales, engineering output is a much larger share of provincial GDP than in London and the South East , the health of the manufacturing sector is therefore important for regional economic weighing scale in the UK. The internal economy of the UK is said to be stable. If one state suffers with the recession then other states has the potential to contribute and help the sufferer survive.

Manufacturing employment

There has been a large form in the employment relating to the manufacturing field, this is because

• The slow growth in output, sometime stagnant and sometimes fluctuates vigorously
• Rising labor productivity as capital inputs have restored labor inputs
• Out-sourcing different tasks to countries having low labor cost and cheap resources
• Other forms of contracting out, this is said to be the root cause of decline in the UK’s manufacturing capacity
• Imports penetrating the market

Globalization and manufacturing:

British commerce faces severe competitive threats from going international.

Globalization and trade liberalization mean companies face fierce competition from goods and services produced in lower wage economies. The UK cannot compete on low wages this is because the UK is said to be the one of the highest paid countries, a British industrialist said last year, “We do not compete on low wages nor would we want to”. The future of UK manufacturing depends on raising investment, and applying science and novelty, best put into practice and abilities to create even improved goods.

1. Production is moving towards the East: Global manufacturing is toggling to the East, most obviously in labor concentrated manufacturing, this applies to budding economies in Asia and also those in Eastern Europe
2. Rising supply globally: International exposure has created a mammoth supply distress for manufacturing industries in the West, in many industries it has led to organizational glut competence, weight on prices to descend and a trend turn down in the pricing power of mechanized businesses. Profit limitations have come under pressure and this affects the rate of revisit on capital investment.

Meeting a challenge for the UK was a bit difficult because the economy was not equipped to a drastic change and critics said UK’s economy would only improve artificially and not naturally.

How did the UK meet Challenge?

• Toggle in output towards higher value-added manufacturing which is less price and cost susceptible
• Increased investment in employee skills and in research and investment and Research and Development spending as a share of GDP is too low, In the UK, just two companies, both pharmaceuticals, undertakes 25% of total Research and Development spend.
• Emphasis on raising productivity, according to a recent study by McKinsey manufacturing has £280 billion in capital invested; its challenge is to improve the return (profit) it gets on that investment.
• Greater focus on non-price competition, including importance of novelty and design.
• Increased speculation in budding manufacturing technologies, including biotechnology and nanotechnology

British manufacturing trade does have a outlook, but it will be thoroughly different from what we saw in our customary industrial heartlands of years ago. The fear that the British manufacturing sector has been allowed to decline too precipitously, and that, in the middling and long term, this will constrain our ability to export to the international souks, increase the wealth of the population, as fast as those countries which have retained a larger manufacturing pedestal or those countries experiencing rapid manufacturing growth and industrialization.

The prospect facing British industry is worsened by the economic slow down in the world’s principal capitalist powers, the USA, Japan and Germany. The path of their economies has shown once again that intermittent detonation and slump is a foreseeable feature of an economic system dominated by the hunt of private profit. It is not the fulfillment of human need that constrains the economy but the enthusiasm of profit. ‘Effective demand’ in the vocabulary of economists is the demand of people who have the money and the willingness to spend. All the huge unsatisfied basic wants of human race count for nothing unless they represent a ‘market force’ expressed by the tenure of an ample income.

It is not an answer to the decline of manufacturing to urge that Britain should join the Euro. This would reduce even more the possibility of remedial action. More and more decisions affecting British industry would be made progressively more remote from answerability to the British people.