Economics Conversations: Does Manufacturing Matter?


In today’s second conversations session of term we’re looking at UK manufacturing. Since 1970 it’s fallen from 27% of the UK economy to 10% in 2013. The snapshot of a table from a government report into manufacturing, shown above, shows that this decline in relative importance is not confined to the UK.

Nonetheless, many worry about this de-industrialisation trend, both here and in America. Why do folk worry? Arguments range from there being something intrinsically healthy in making things, through to the impact on the trade balance, and the provision of jobs in particular for those who would struggle to earn as well in non-manufacturing industries. In the case of the UK, it is argued the ever increasing levels of inequality and regional imbalances all draw from the decline in the importance of manufacturing.

Evidence of the latter appears quite clear from the decline in many former industrial areas of the UK, but need it be the case? Why haven’t firms moved into these areas given that there are large amounts of unemployed labour that could be employed relatively cheaply? Where generally there’s land to be used which again is relatively cheap compared to the South East? Why haven’t such workers been re-trained to be equipped to work in other lines of work?

An Economist article makes a number of points against the arguments emphasising the importance of manufacturing; while the balance in goods might look bad, the US and UK are more than ample enough exporters of services to make up for that imbalance, and if manufacturing was providing high paid work disproportionately given the relative levels of productivity¬†and hence value added (as suggested by the idea that it provided high wage jobs for those that wouldn’t get them elsewhere), then this might be symptomatic of why the industry has been in decline.

What are your thoughts? Come along at 1pm to the next Economics Conversations event!