UK: Hard blow of recession in manufacturing hits the soft South. (1 of 2)

UK: Hard blow of recession in manufacturing hits the soft South. (1 of 2) - John Major may be forced to take manufacturing's plight more seriously than his predecessor. Those affected are pillars of the Tory Party, says David Lipsey.

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Last Updated: 31 Aug 2010

John Major may be forced to take manufacturing's plight more seriously than his predecessor. Those affected are pillars of the Tory Party, says David Lipsey.

John Major comes from a background in services: father, entertainment (trapeze artist); self, finance (banker). But he could hardly be less concerned about manufacturing industry than was his predecessor (industrial chemist). During Mrs Thatcher's early years in Downing Street a passionate debate on British manufacturing ebbed and flowed. In 1980 two economists, John Kay and Michael Forsyth, wrote an influential article in Fiscal Studies. They argued that as oil rose in economic importance, manufacturing would decline. High oil output would lead to a strong pound which would price manufacturing out of international markets.

The Kay-Forsyth predictions appeared to be borne out by the facts: manufacturing output fell by 17% between the second quarter of 1979 and the second quarter of 1981. Britain was, in the catchphrase of the day, deindustrialising. This was welcome to a lunatic fringe of ecologists, hankering after a future of arcadian bliss. It was, however, anathema to a much wider and more influential group, who regarded the decline of manufacturing as synonymous with national decline and impoverishment. This view was summed up in the widely noted report of a select committee of peers, under Lord Aldington, produced in 1985. It called on the Government to save manufacturing.

The Government paid no heed. It took the view that the decline of manufacturing industry simply did not matter. The analogy was with agriculture: dominant in the national economy until the Industrial Revolution, but thereafter diminishing more or less steadily in importance. The precise size of the manufacturing sector would be settled by market forces.

The debate was not a productive one. In the end it simply faded away. The reason, though little remarked, was extraordinarily simple. British manufacturing stopped declining. Between the second quarter of 1981 and 1989 manufacturing output rose by 33%, within a whisker the same as that in services (32%). All of the dire consequences of industrial decline - rising unemployment, a widening trade imbalance, a great dependence on other countries and so on and so forth - simply failed to materialise.

Is that the end of the matter? Almost certainly not. In February the Labour Party chose to devote half a day of Commons debate to the plight of manufacturing; and the Major Government, though it has made no significant change in its industrial policies, is temperamentally less comfortable with dismissing the pleas than was the Thatcher Government.

The reason for the revival of the debate is the recession. Manufacturing industry is peculiarly vulnerable to recession: products can be stored, in the form of stocks, while most services cannot. So when recession strikes, manufacturing output is cut by more than sales, as stocks are run down. The impact is immediate.

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