Explain Why The Manufacturing Sector In The British Economy Has Declined Since 1979? What Steps Are Currently Being Taken By The Government To Arrest This Decline?

2186 words - 9 pages

Since the industrial revolution manufacturing has been a vital component of the British economy. In the nineteenth century the UK was the worlds largest manufacturer, however, in the last hundred years Britain's share of the worlds manufacturing output has declined, a decline which has perhaps been more apparent over the last thirty years than before.There are several theories as to why manufacturing in the UK has suffered so badly, one of which is the "Maturity Thesis". One aspect of this theory draws attention to the fact that Britain, as the worlds oldest industrial economy, is experiencing a fall in manufacturing so that capital and labour can be redirected to service industries which are demanded more today. This shift in the economy from secondary to tertiary draws parallels with the movement from primary to secondary industries experienced in the eighteenth and nineteenth centuries . It is argued that as society demands more from the service sector, for example; childcare and cleaning services, the manufacturing sector will decline.Table 1.0: Changes In Industrial EmploymentSource: Griffiths and Wall p 11Analysing the data in table 1.0 the evidence supporting the maturity thesis does not appear to be too strong. While some industrialised countries such as Austria, Belgium, France, Italy, Norway, Sweden, and Switzerland experienced falls in industrial employment similar to those experienced in the UK, other industrialised countries such as Canada, the USA, Japan, Germany, and the Netherlands have not followed the theory, and have actually experienced rises in the level of employment in industrial industries. Furthermore, it is the economically stronger countries like the USA, Germany and Japan that have experienced increases, this suggests that the decline in manufacturing in the UK is not due to an inevitable economic processes like economic maturity.Another popular theory accounting for Britain's decline in manufacturing is that of crowding out. It argues that the market in the UK has been crowded out by the public sector which has experienced a large increase since World War II. This crowding out is a problem for the whole economy because the public sector does not create market output that can be traded, furthermore the public sector has created an environment which is not favourable for manufacturers in the private sector. Raising the necessary revenue to fund the services has lead to higher taxes, higher interest rates, inflationary pressures and balance of payment problems, all of which have lead to low investment in the private sector. A good example of this is the recent rise in National Insurance tax in order to increase funding for the National Health Service. Rises in tax like the National Insurance one, takes revenue away from firms which they might otherwise spent on improving productivity through investment in research and development (R&D). However, while the 'crowding out' thesis provides a convenient answer to the...

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