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Wednesday, March 19, 2003

Policy of Industry

In today's Guardian, Larry Elliott worries about the fate of British industry:

[T]oday, the hollowing out of British industry continues almost without comment. We are, it seems, living in a post-industrial world where manufacturing has shrivelled in size and importance. The new Britain is based on knowledge-based services and the hi-tech end of manufacturing.

Elliott quotes Cambridge economics professor Bob Rowthorn, who says that "Too much manufacturing capacity has been shed, and the failure to develop a more dynamic manufacturing sector may eventually turn out to have serious consequences for the balance of payments and the overall prosperity of the country".The questions I ask are how much is too much capacity and what is the likelihood of Rowthorn's scenario?

This to me seems to be an example of anchoring--people becoming attached to what they know. The disappearance of manufacturing is assumed to be a problem, when it could merely be a response to changing economic conditions. Similar arguments have been made if several countries for "food security", while the expansion of trade and changing preferences may make the idea of domestic food self-sufficiency superfluous.

The issue of the decline of manufacturing is less about economics than about a particular perspective on economic change; what matters is the degree to which you're willing to accomodate yourself to such change. Elliott would rather not make the transition:

[Industry] wants help in the Budget to stimulate investment; it wants lower interest rates, it wants a cheaper pound to make it worthwhile doing business. It wants an industrial strategy and it wants it now.

Unless Her Majesty's Government is prepared to make some policy reversals (in particular the end of an independent Bank of England) this agenda is a non-starter. Britain has a proud industrial history, but it looks likely to continue to become mostly that--a history.