Much has been made of the importance of the UK services sector. The financial crisis has shown however that over-dependence on one sector, such has financial services, is bad for British business. We look at the importance of manufacturing to the UK economy.
The rise of the service sector
From the 1980s, successive British governments concentrated on the UK’s services sector. Led by the financial services industry in the City of London, the ‘tertiary’ services sector was seen as the economic way forward. The primary economic sector of agriculture, fishing and mining, along with the secondary sector of manufacturing were commonly regarded as yesterday’s industries. It is perhaps easy to see why. Common wisdom has it that manufacturing depends heavily on a large workforce and those workers are cheaper elsewhere in the world. The UK cannot compete with such low wages and therefore our products are more expensive. The services sector on the other hand does not require a huge and cheap labour force. It is knowledge based and cannot be replicated easily by cheap overseas imports.
Examples of manufacturing
The economic crisis has taught us, however, that it is not as simple as that. The rampant economy of China is based almost entirely on manufacturing and exports. The UK cannot compete with the cheap labour available in China, but closer to home the German economy is booming, almost matching China for exports. The German economy is largely dependent on manufacturing and not services like here in the UK. The UK is still the 9th largest manufacturer in the world and our car industry is evidence that we can make and sell quality products. Industries like car manufacturing also create an economic ecosystem of related businesses with component manufacturers and rubber suppliers all contributing to the manufacture of cars. Those indirect employers like rubber suppliers also contribute a substantial number of jobs and help the wider UK economy.
Rebalancing the economy
If Britain is to succeed in the modern international marketplace it needs to rebalance its economy to provide a greater focus on manufacturing. This has been recognised by Prime minister, David Cameron, who has stated that: “What we need to do in this country is a massive rebalancing of our economy. We have got to be more reliant on manufacturing and investment.” There are some encouraging signs. The UK manufacturing industry already employs 2.5 million people and jobs in the sector have higher average wages than the economy as a whole. There is a strong tradition of research and development in the UK and a good partnership between our universities and industry. The manufacturing sector accounts for 72% of all research and development in the UK. There are exciting new developments in renewable energies and the discovery and development of new materials like graphene prove that the UK still has what it takes in manufacturing. The government recognises the importance of backing these new industries and has already invested 50 million in graphene research. Similar backing is needed throughout the industry.