What has happened to manufacturing?

April 27, 2010 6:01 PM

During the Daily Politics debate between the parties' business spokesmen (available online soon apparently), there was some discussion about what has happened to British manufacturers in recent years.  I thought it might help to lay out some of the facts so that you can get an idea of the pattern over time.  To do that I've used UN data for the breakdown of GDP at current prices in US dollars to produce a series for British manufacturing production as a share of world manufacturing production.


Manufacturing, % of world production, UK, France and Germany



Manufacturingproduction


In 2008 we produced just over 3.1 per cent of the world's manufactures.  That isn't bad.  More than France, though less than Germany and a lot less than bigger countries like the United States (17.7%).  There has certainly been a fall both in the long term and since 1997, but with the rise of China as a huge manufacturing competitor that is to be expected.


If we look at difference between our share of world production and that in France, that is a little more revealing:


Manufacturing, % of world production, UK - France



Ukvfrancemanufacturing


What it shows is that Britain's position fell back significantly during the 1970s, recovered strongly in the 1980s, fell back somewhat during the early 1990s recession and then recovered in the mid-nineties before falling back again after 1997.  There are two things to bear in mind about this graph. 


First, the pattern could be explained by changes in French economic performance as much as ours.  This probably isn't too big a problem though, as a similar graph for Germany shows a similar pattern, just with a bigger fall in the early nineties.


Second, it will partly reflect exchange rate movements.  Our manufacturing exports became worth a lot less in the early nineties and the seventies when the pound plunged.  That would certainly explain why the decline relative to Germany was so big in the early nineties.


But there is quite strong evidence there to suggest that manufacturing has had quite a hard time since 1997.  Not a collapse, but certainly a decline in our position relative to European peers.  If the parties are worried about that, and all those in the debate claimed to be on the side of British manufacturers, they could start by getting rid of climate change regulations that are pushing energy costs up sharply.  As we set out in the report Ending the Green Rip-Off and in a recent blog, high energy costs hurt manufacturing businesses and cost jobs.

If we reform climate change policy we can enjoy lower bills at home and avoid unnecessarily handicapping British industry.  Unfortunately, in the Daily Politics debate at the end of last week between the energy and climate change spokesmen none of them questioned the big, inefficient policies that are pushing up energy prices.  One concrete way of helping British manufacturers, which wouldn't cost the Treasury and exacerbate the fiscal crisis, is apparently off the table.

During the Daily Politics debate between the parties' business spokesmen (available online soon apparently), there was some discussion about what has happened to British manufacturers in recent years.  I thought it might help to lay out some of the facts so that you can get an idea of the pattern over time.  To do that I've used UN data for the breakdown of GDP at current prices in US dollars to produce a series for British manufacturing production as a share of world manufacturing production.


Manufacturing, % of world production, UK, France and Germany



Manufacturingproduction


In 2008 we produced just over 3.1 per cent of the world's manufactures.  That isn't bad.  More than France, though less than Germany and a lot less than bigger countries like the United States (17.7%).  There has certainly been a fall both in the long term and since 1997, but with the rise of China as a huge manufacturing competitor that is to be expected.


If we look at difference between our share of world production and that in France, that is a little more revealing:


Manufacturing, % of world production, UK - France



Ukvfrancemanufacturing


What it shows is that Britain's position fell back significantly during the 1970s, recovered strongly in the 1980s, fell back somewhat during the early 1990s recession and then recovered in the mid-nineties before falling back again after 1997.  There are two things to bear in mind about this graph. 


First, the pattern could be explained by changes in French economic performance as much as ours.  This probably isn't too big a problem though, as a similar graph for Germany shows a similar pattern, just with a bigger fall in the early nineties.


Second, it will partly reflect exchange rate movements.  Our manufacturing exports became worth a lot less in the early nineties and the seventies when the pound plunged.  That would certainly explain why the decline relative to Germany was so big in the early nineties.


But there is quite strong evidence there to suggest that manufacturing has had quite a hard time since 1997.  Not a collapse, but certainly a decline in our position relative to European peers.  If the parties are worried about that, and all those in the debate claimed to be on the side of British manufacturers, they could start by getting rid of climate change regulations that are pushing energy costs up sharply.  As we set out in the report Ending the Green Rip-Off and in a recent blog, high energy costs hurt manufacturing businesses and cost jobs.

If we reform climate change policy we can enjoy lower bills at home and avoid unnecessarily handicapping British industry.  Unfortunately, in the Daily Politics debate at the end of last week between the energy and climate change spokesmen none of them questioned the big, inefficient policies that are pushing up energy prices.  One concrete way of helping British manufacturers, which wouldn't cost the Treasury and exacerbate the fiscal crisis, is apparently off the table.

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