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The death of UK manufacturing has been much exaggerated This is a tremendous rebuttal of the claim that British manufacturing is in decline. Of course, there is nothing specifically wonderful in having a large or small manufacturing sector, but for those who care about such things, this article nails a lot of cliches about how Britain is supposedly losing the art of making stuff well. In fact, a lot of the manufacturing that goes on in the UK is first class. Take the aero-engine business, for example.
Well, it is nice to grasp at positive news that is going.
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I’ve been re-reading (first-edition-based) Human Action, which is especially relevant to today’s fiscal insanity. I recently got past where Mises explained that the reason that the underconsumption theory (as in typical Keynesianism) is balderdash is that it has things backwards, that the first stages of the accumulation of capital and wealth bring about an increase in the complementary factors of production, including wages, and that consuming capital per such a backward theory tended to have the reverse effect.
But nowadays, with so much manufacturing of first-order, i.e. consumer, goods going on in communist China and other third-world countries, the implications seem worse than those to which we’ve become historically accustomed (at least, those of us who’ve been paying attention). The transfer in wealth due to forced consumption would tend to benefit the manufacturers of first-order goods overseas, leading perhaps to a boomlet most dramatically weakening, in the not-very-long run, the manufacturers of higher-order goods.
In other words, the perhaps-not-unwitting aim of the “porkulus” package and similar lunacy is (1) to impoverish the countries implementing them; (2) transfer wealth to communist China and other benighted places; and (3) undermine manufacturing capacity, to the extent that arbitrary regulation based on failed and unworkable economic theories has not already done so, in first-world countries.
I noticed quite a bit of disbelief on the comment thread. We have two cars with a French name but built in coventry, although I believe that the factory has now closed. I also Have a Triumph motorcycle. A guy also said that I wouldn’t find anything on my desk with “Made in England” written on it, wrong, my stapler.
From the article: “manufacturing output accounts for a larger share of GDP in the UK (13 per cent) than it does in France (12 per cent) or the United States (12 per cent).”
13%? Wouldn’t call this a “tremendous rebuttal of the claim that British manufacturing is in decline”. Sounds more like the standard teenage excuse that everyone else is doing it.
The good news is that productivity in agriculture, manufacturing, mining & transportation has increased so much over the last two centuries that it takes only a small part of the population doing real work to keep everyone else in clover. The bad news is that, instead of doing something worthwhile with the available surplus labor, we turn them into BBC newsreaders, university lecturers, and affirmative action outreach coordinators. That is the real problem.
Well, I wrote something long and erased it. Aero engines are very nice, but the fact is that if your everyday necessities are made abroad your country is decadent: It’s no longer a going concern, it’s one that survives by other people’s industry. And I say that knowing it’s as true for America as for Britain.
They will be Peugeot 206’s I presume. Yes, they were made at Ryton in Coventry, but no longer, the plant has closed. I used to have dealings with them, as the firm I was associated with then provided Peugeot with HR consultancy. Thus we were a service industry, but we relied on a manufacturer for much of our business. The end of Peugeot played a large part in the demise of our firm. We really cannot survive by services alone!
So, how much in terms of percentages do we actually consume from each sector? I mean, it’s all very well saying we’re only producing 12% of our production as “manufactured goods”, but then, speaking personally, not much of my money is spent on manufactured goods either. Most of it goes on food, energy bills, and services like internets, movies, music and porn I guess. It’s fucking ages since I bought a jet engine. And as pointed out in the article, who’s in the manufacturing sector? If a cleaner or maintenance engineer used to be employed by a factory but is now a contractor, are they still in manufacturing or are they now in the service sector?
And when you bear in mind that much of the “money” in financial services isn’t real money at all, but simply various receipts for money which, if one attempts to spend any significant amount of it, reverts from its superposition of states into its real value of non-existence (a “crash” as we call it), thus rendering the apparent percentages of other sectors as being artificially low, maybe 12% is about right. I’d imagine any reasonably advanced economy would spend more money on bread, beer and dancing girls than on lawnmowers ploughs and rocket ships.
“maybe 12% is about right”
13%, not 12%. Are you saying that the Brits are no better than the French? 🙂
If Brits (and more generally the West) were using the labor surplus for “bread, beer and dancing girls”, everything would be fine. But the Brits, like the rest of the West, are not. They are using the labor surplus to hire uncountable numbers of bureaucrats who make life difficult for everyone who want to make bread or beer, let alone earn a decent living as a dancing girl.
Those self-satisfied liberals are wasting a unique historical moment.
I can’t agree with John K’s conclusion. He thinks “we were a service industry, but we relied on a manufacturer for much of our business.” In reality, he was (indirectly) employed by several manufacturers who had simply outsourced some of their non-core functions (in his case, certain HR matters). He was in the “manufacturing business”, it’s just that his paycheck happened to come from a separate legal entity. This is called “division of labor.” Adam Smith described it within a company (with his classic description of pin manufacture); what we are now able to do is divide it among companies. Thus we see contract employees, consultants (such as John K), “virtual” companies, etc. It’s a part of the continuous evolution of improved effeciency. John K would have been just as unemployed if he had been an actual employee of the Ryton plant when it closed. The fact that it was a different legal entity which paid his salary is immaterial.
That is why I have such a problem with all this angst about the US or the UK “transferring itself into a service economy.” It takes all sorts of “services” to keep a manufacturing company running, and there is nothing wrong (in fact, it generally results in greater effeciency) with having people who have developed expertise in one of those functions divide their time among several companies (which is all that a consultant, an out-sourced payroll vendor, a private accounting or law firm, a cleaning service, etc., really is). This is true even for financial services, which usually seems to bear the brunt of criticism for being non-productive sponges on the economy. All companies need banking services (deposit accounts, payment processing, cash management, short- and long-term loans, etc.), and large ones need investment banks as well (with expertise in capital-raising and bond issuance). It would make no sense at all to maintain expertise in such areas in-house, except possibly for the very largest firms. The service sector doesn’t exist in a vacuum; it is merely an adjunct to the manufacturing sector. Part of the reason that manufacturing’s effeciency has increased exponentially in the last few decades is that companies have learned to outsource non-core functions like these and focus on what they do best.
Of course, this is not to dispute Alice’s point that too much of our available labor pool consists of “BBV newsreaders, university lecturers, and affirmative action outreach coordinators.” Much of that truly is wasted effort. But that’s a fairly small portion of the much-maligned service sector.
“Most of it goes on food, energy bills, and services like internets, movies, music and porn I guess. It’s fucking ages since I bought a jet engine.”
Haha! Laughed my bollocks off at that!
Sorry J.P. but British manufacturing is in decline.
Indeed it is in a state of collapse.
Yes, Mike, I also found myself sympathizing with Ian’s sentiments, except maybe for the porn part.
Laird: that was a very useful remark, thanks. These things need clarification for lay people like me, even if Paul is correct in his comment above.
Just to be “that way,” I might take the opposite of Laird’s analysis: when Ford’s River Rouge plants employed 5000 people just to sweep up the place, they really were in the cleaning business. We made the error, for generations, of not counting it that way. The difference is, if cars drop off, can you put your sweepers to work elsewhere. Many companies made transitions like this: a company I was fond of made wheelbarrows and buggy whips, before they made missile components and jet engines. Same sweepers.
When I worked for the Post Office, I did a lot of technical work to establish addressing and help develop high-volume sortation and delivery plans for new auto plants. It was a satisfying service to perform, but I was never invited to think of myself as a car-builder because of it. On the other hand, I’m pretty sure the cook in Jeep’s cafeteria carries a UAW card.
Obviously the concept of division of labour is not one that you are familiar with, “PersonFromPorlock”.
SQOTD!
Incidentally, isn’t services/manufacturing a distinction without a difference? I mean, factories just pay people to dig stuff up, move it around and operate the machinery.
I envisage a world where manufacturing is literally cost free. I don’t see the world grinding to a halt.
Well put, Rob. I think that addresses the point made by comatus, who seems to think[1] that all companies are merely corps of professional sweepers which do other odd jobs (like manufacturing jet engines) on the side. I suppose that’s one way of looking at things, but I think that any manufacturing company which thought that sweeping was its core function would soon be out of business. Contrariwise, delivering mail is the Post Office’s core function (indeed, its constitutional duty), so it is not an out-sourced operation for the car companies to which it delivers. Apples and oranges.
[1] Or, for the purpose of being argumentative, wants us to think that he thinks!
Laird:
The point I was making was that ultimately even so-called service industries ultimately often rely on actual manufacturing industry. There has to be someone who buys the services provided after all.
I like to have manufacturing around, because I think making stuff is good for you, and because machinists and designers used to have interesting hobbies, like building their own cars and boats and airplanes. I’m not as excited by programmers making their own video games, but I guess that is a generational thing.
A factory owner’s job is (used to be) finding profitable stuff for his factory to make. A factory investor’s job is to bail before the stock tanks. And sell the real estate.
A sweeper pretty much sweeps up, if you don’t count promotions and side jobs (a lot of sweepers start their own janitorial businesses, so you don’t want to just ignore them). If you consider the Rouge now, the upper waters are a park, where quite a few sweepers sweep. The rest of Detroit just doesn’t get swept that much. Those unutilized sweepers are on the rolls as “unemployed auto workers,” not “former employees of an auto company”; there’s got to be a misleading distinction in that somewhere.
Rob, it would be interesting to speculate on what other aspects of life you would like to see “cost-free.” Frankly it sounds rather bloodless.
comatus: I don’t know why it sounds “bloodless”. Perhaps I read too much science fiction, but I’m thinking about molecular manufacturing as described by Drexler or in, for example, Neal Stephenson’s Diamond Age, where atoms are collected from the air and the soil and assembled one by one into manufactured goods.
Perhaps you download the design for what you want from the web and it gets made in a box in your kitchen. There’s no human labour in the manufacturing of it, so it is manufactured cost free.
People will do something else instead of manufacturing. Like designing new things or having interesting hobbies like building spaceships in their garden sheds.
Familiar enough. But your labor (and ours) isn’t being divided, it’s simply being done elsewhere. What’s left to us is a sort of Golgafrinchan economy.
“Golgafrinchan economy.”
Ouch, that’s harsh! You have a cruel streak.
“But your labor (and ours) isn’t being divided, it’s simply being done elsewhere. What’s left to us is a sort of Golgafrinchan economy,” writes PFP.
I still think you are making a basic error of economics here. If, for instance, Britain focuses on say, making aero engines, producing cancer-busting drugs or providing banking, instead of as you say, providing “everyday necessities” – whatever that is – how is this “decadent”, exactly? What is “decadent” – a word rather loaded with scorn – about a country specialising, under a global division of labour, in certain activities rather than doing the basics? Arguably, it is a sign of civilisation reaching a peak that people in certain parts of the world focus on doing certain things because they do them better than anywhere else. Hence my rather tart remark about your understanding of the division of labour. For that matter, are you familiar with the law of comparative advantage?
One might as well say that people who live in Hampshire are “decadent” because they prefer to import their milk from Devon rather than produce it at home. Or, it is like saying that Silicon Valley’s residents are decadent because they prefer to write software rather than produce “everyday necessities”, however defined.
The real decadence arises when people fail to grasp these rather basic points and reach out for the seductive, nationalist charms of protectionism instead. And you know what I think of that! Bollocks.
Jonathan:
I agree, if such division of labor took place in a truly free market. Meaning that those far away people who are making these things are really better at making them cheaper, not just because the whatever Western/Faraway government’s policies made it artificially cheaper for them to make.
I agree, if such division of labor took place in a truly free market
The trouble with that argument, I am afraid, is that if you say that protectionism is justified because “the other guys are all doing it and not playing fair” then that still does not work. For instance, if country X’s taxpayers want to subsidise production of steel for export, which makes it cheaper for us to buy it and therefore do something else, such as produce cheaper things out of that steel, etc, I still fail to see how this is a problem. Or anything to do with the importing country being “decadent”.
Jonathan, leave that strawman alone for a second there:-) I was not at all advocating protectionism, and neither was I concluding decadence from the decline of Western manufacturing (although I am sure there is at least some decadence, and not all of it is completely unrelated to this subject). I was just saying that if such decline is real, it seems to me that in large part the reasons are political, such as various labor laws etc. If the shoe manufacturing moved to China because the Chinese are doing it better (I am not so sure, Clark’s are not what they used to be) and cheaper, then it’s fine and as it should be. But if it happened because your politicians wanted to protect your workers from their evil employers, then it’s not so good.
Alisa, I made my comment because you wrote this:
The words after the comma suggest to me that you see in some cases that stuff is cheaper in countries because of the political interference in a market. This “artificial cheapness” can be done through things like fixed exchange rates, subsidies, grants, or whatnot. The point is that in reacting to it, the West would, for example, be making a mistake in supposing that because some countries aren’t playing fair, that we are therefore being vulnerable – decadent if you will – by not doing something to counteract it.
I am sure you are not a protectionist. I think I have been reading your comments for long enough not to suppose that, obviously. But you can see how these arguments can lead to directions one might not want them to head in, if you see what I mean.
But I did mention our governments as well as the, well, Chinese one. Of course, if a protectionist reads my comment, he would just ignore/delete that part, and we can all happily keep beating evil China over the head. Especially since we are pretty much done beating our evil manufacturers almost to death.
I do see what you mean, and I am probably not making the argument well, but it needs to be made, the gist of the argument being the last sentence of my previous comment.
Everyone likes to gripe about “cheap junk made in China”, some times they are correct, some times this could not be farther from truth (the junk, not the cheap part). The truth is probably that the Chinese are in fact better at making some things, while not as good at some others. The point is not that they are making everything better or worse, but that they are making everything cheaper, and I just cannot see how this could happen in a free market. Maybe the correct way to make the argument is to show that given truly free markets in the West, and at the same time given China unchanged as we have known it for the last decade or so, all of us would still be in a much better place than where we are headed now. And BTW, unemployment is rising in China, people who left their villages and moved to the cities during the boom, are now finding themselves on the streets with nothing to go back to. The system seems to have screwed the Chinese at least as much as it has screwed the rest of us. Sigh.
molecular manufacturing.
My God, I don’t see the wonder in them. Nothing glorified, nothing reaffirmed? No heroes, no cowards.
I’m glad I won’t live to see it.
Now that you have explained it, “bloodless” is exactly the word I was looking for. The Bokanovsky Process.