A critical Analysis of the Economic perspectives on manufacturing
One could say that a change in the exchange rates, i.e. changes in the value of the pound does have a direct effect on manufacturing. I.e. a rise in the value of the pound would lead to UK manufactured products or goods to be expensive and thereby curtail the demand for UK manufactured goods to other cheaper available sources.
This tallies with what has been stated in the literature review and the theoretical importance. Its contribution to economic growth, which has been stated to be of high importance with regard to per capita and total output of the UK, is declining and becoming of less significance to the living standards of the UK economy as a whole.
However, it plays a bigger role in corporation tax and foreign exchange earner which generates revenue for the government to embark on projects for the economy which increases economic growth. In terms of business cycles, it can be said that manufacturing generated more jobs than any other sector in the earlier part of the 20th century, however, its decline has lead to large redundancies, which in effect would lead to an economic slow down. Its contribution to jobs as stated is about 15% of the UK workforce at present. Thereby, to avoid recessions, the manufacturing sector needs to be revamped and taken seriously as it is still a major contributor to job creation. I.e. an increase in manufacturing leads to higher business growth than any other sector and vice versa.
Technological and organisational change with regard to the structure of most manufacturing firms might be said to be a contributor to the decline in manufacturing, whereby most firms have moved from traditional methods of production to automated systems. Technology destroys traditional jobs and creates skilled jobs, whereby it also increases the standard of living. This implies that although manufacturing from a traditional sense has declined with regard to job creation, its contribution to the increase in the standard of living in the UK is prevalent. The Monetary Policy Committee tends to look at the economy as a whole rather than identifying specific sectors that need attention. This can be said to have added to the woes of the manufacturing sector, especially since the inception of the MPC in 1997. This correlates with the theoretical suggestion of the role of the MPC to the UK economy. On the other hand the service sector seems to be more important to the MPC than the manufacturing sector. This is stated in the literature review, in which the service sector has become a much more power sector in its contribution to the UK economy than the latter mentioned. It is also very difficult to ascertain the value added as output by the manufacturing sector to the UK economy because of double counting, if this were made easily available one will be able to conclude its contribution to products, and goods from a wider scale. As stated the chemical industry contributes about 11% to the whole of the UK manufacturing sector.
Interest rates play an indirect role to attracting foreign direct investment, whereby as said, since the MPC have the task of choosing the right interest rate; it has become difficult for members of the committee to ascertain the right interest rate that is beneficial to all sectors. This has acted as a catalyst to the decline of manufacturing as a whole, as high interest rates lead to low demand for bank lending, which invertly leads to less investment in the manufacturing sector. There is also no justification to suggest that if the UK adopted the euro, it would do better for manufacturing or highlight its significance to the economy.
Although, one has used the theoretical perspectives so far published and analysed matches or mismatches with regard to manufacturing, there is no guarantee that in a few years time, the same situation with the sector would be the case. People change, technology moves very fast, and the UK economy is as dynamic as ever, in which it is unpredictable to adequately pinpoint that this is the reason why manufacturing is declining and its importance is becoming of less relevance to the UK economy.
Tags: business cycles, economic growth, manufacturing sector, recessions, uk economy
