The state of manufacturing in the UK

Further to my recent article on the state of manufacturing, Tim Leung's "Economy class" column in Prospect makes a similar point. First off the crude facts:

The number of manufacturing workers has fallen from 6.5m to 2.5m over this period [1980-2010]

But hang on a minute...

overall manufacturing output is around 70 per cent higher than it was in 1980

What explains this? Well, economic growth and productivity. Leung points out that we reach satiation for manufactured goods quicker than for services (e.g. as we get wealthier having another washing machine is less important than having another holiday). He claims that:

Just as agriculture falls as a share of the economy when nations progress from being underdeveloped to developed, so manufacturing's share of the eocnomy falls as a nation moves from being developed to being affluent

Ignoring the methodologial individualism concerns, it's a point well made. He points out that Britain is the sixth larget global manufacturer, with around the same level as France or the US (relative to GDP). But he goes on to suggest the downside risks of being dependent on manufacturing:

1. The rise of China as a serious competitor
2. The fact that most value is passed on as consumer, not producer surplus
3. The fact that it's more volatile than service output in the wake of recessions

Well worth a read.

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