UK manufacturing has been in relative decline since the 1960s. Manufacturing as a share of real GDP has fallen from 30% in 1970 to 12% in 2010. This essay answer looks at the reasons why, and how significant government policies are as a cause.
Manufacturing plays a crucial role in the competitiveness of the UK economy. Despite this, for far too long government policy has neglected manufacturing. During this period of neglect British manufacturing firms have repositioned themselves away from price-based competition more towards forms of non-price based competitiveness. The recent re-shoring of manufacturing to the UK is the start of a much needed trend. The University of Birmingham is funding a two year research project entitled ‘Regeneration Economies: Transforming People, Places and Production’. This project is exploring new policy solutions that will support British manufacturing. There is a need to develop a much better understanding of regional and national economies. High value manufacturing firms no longer sell products, but many solutions combine manufactured products with embedded services. Thus, a manufacturing policy must be simultaneously a service policy. There is a need to encourage universities and colleges to provide courses that blend technical training with an understanding of services, this is where the government comes in, by making these changes to education
The Regeneration Economies project is also exploring major developments in engineering that have the potential to transform the economics of regional economies. These new technologies have important implications for future skills and training needs. Government needs to support UK manufacturing by developing an integrated long-term approach that includes skills and training, but also ensures that UK firms are at the forefront of new developments in manufacturing as well as the production of hybrid products that blend manufacturing and services together to produce new commercial products.
Another way in which government is affecting manufacturing is catapult centres. The High Value Manufacturing Catapult is the catalyst for the future growth and success of manufacturing in the UK. Its long-term goal is to stimulate growth in the manufacturing sector and more than double the sector's contribution to UK GDP. It does this by helping businesses and research institutions accelerate new concepts to commercial reality. It will enable the UK to address market needs in key areas, making the country more competitive on the global stage. The High Value Manufacturing Catapult combines the strengths of seven existing centres across key manufacturing processes, with over £140 million of government investment planned over a six-year period, and investment matched by private industry.
An opposing view is the affect of globalisation on the UK economy. Globalisation involves the increased integration and interdependence of the global economy. It means there will be a rise in trade, and increase in movement of labour and capital.
Some of the effects of globalisation on the UK economy include comparative advantage, UK firms can benefit from specialising in goods where they have a comparative advantage. This will also lead to lower prices for consumers. Globalisation will also lead to a shift in the sectors of the economy. For example the UK no longer has a comparative advantage in many manufacturing industries, instead developing countries now have an advantage due to lower labour costs. This process can lead to temporary structural unemployment. But these effects can be offset by specialisation in other areas e.g. in financial and insurance services. There will be increased competition, globalisation means that domestic monopolies will now face more international competition. This will help reduce costs and prices for firms. Globalisation makes it easier for migrants to enter and work in the UK, This can help the UK fill job vacancies however, it can also place greater stress on UK housing and public services because of the net migration of people into the UK. The UK is more affected by the global economic cycle. For example, a deep recession in the EU will affect the UK, because we rely on EU to export many goods. The global credit crunch had a very damaging impact on UK economy because we are affected by financial crisis in other countries.
Manufacturing in the days of the industrial revolution was a huge part of Britain’s economy and the biggest employer, however in recent times this has further become a smaller contributor as the rise in the service sector has begun to dominate the economy. Government policy can affect the extent to which manufacturing can be profitable and factors such as the trading between other countries will have a impact on to what extent manufacturing contributes to the economy. Therefore government policy does have an impact, however I believe globalisation is a greater factor in manufacturing’s contribution to the economy, countries such as China have become dominant in the manufacturing sector in the world and it is becoming increasingly unviable for British manufacturing to be profitable, due to an ability to compete.