UK: Hard blow of recession in manufacturing hits the soft South. (2 of 2)

UK: Hard blow of recession in manufacturing hits the soft South. (2 of 2) - In 1991, as in 1981, there is a further factor. Manufacturers tend to trade a high proportion of their output in international markets. They are therefore particularly affected b

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Last Updated: 31 Aug 2010

In 1991, as in 1981, there is a further factor. Manufacturers tend to trade a high proportion of their output in international markets. They are therefore particularly affected by adverse exchange rates. In 1991, as in 1981, the pound is high, relative to other currencies. The Government decided in the autumn to enter the exchange rate mechanism of the European Monetary System, at a time when the pound was strong. For manufacturing industry there could be few worse combinations.

This time round is different, it is true, in that heavy industry has already shed labour and capacity on an enormous scale. The main victims of the current recession are the small manufacturers, often in high tech. These firms, typically, have fixed or all but fixed overheads. When sales fall, these are loaded onto smaller volumes, putting acute pressure on margins.

This changed pattern of recession also affects the political debate. Last time round the Conservative Government proved largely immune to the decline of manufacturing, which did not prevent its winning the 1983 and 1987 elections. The reason is crude and simple: industry was heavily concentrated in Labour constituencies. The North-east might scream, and South Wales mutter, but hardly one Tory seat was thereby imperilled. This time round, however, the manufacturers that are being hit by the recession are different, typically down south, scattered in industrial estates through Tory seats, affecting the small businessmen who are the pillars of the Conservative Party.

A survey for The Times in February showed that since December 1990 unemployment has grown five times as fast in Tory-held seats as it has in Labour constituencies. It is not economic arguments that will move John Major to take the threat to manufacturing seriously - it is the electoral imperative.

(David Lipsey is associate editor of The Times.)

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