From the TUC

Is the decline of manufacturing really ‘natural evolution’?

30 Sep 2016, by in Economics

According to conventional wisdom, industrial trends follow a natural evolution from agriculture to manufacturing and finally to services.

Fascinating long-run data from the ONS (based on employment information from census records since the mid-C19) suggests that the demise of manufacturing might not so conveniently be explained.

Rather than looking at all sectors together, the chart below simply extracts the share of jobs in the manufacturing industry.

man_share_1

(see end for actual ONS chart; the full ONS report, which is really about the service sector – ‘five facts about … the UK service sector’, is here)

On this basis manufacturing share is pretty stable until 1961. Rather peculiarly the ONS data excludes 1971; they offer “information for 1971 is not included due to inconsistent industrial classification” – whatever that means. So from somewhere between 1961 and 1981 the manufacturing sector went into precipitous decline.

Strikingly the previous beginnings of a decline came through the 1920s/1930s. At that point the same ‘natural tendencies’ argument was brought into play. (Again no figure for 1941, but this is more understandable.) But post-war trends put paid to that particular natural tendency.

In my own work for the ONS many years ago (‘Improvements to timely measures of service sector output’), I derived real growth figures for the manufacturing and services industries by half-decades. (I can no longer find the data needed to reproduce the early years of this comparison. )

Average annual real growth by industry, per cent

man_share_2

These show manufacturing outstripping service output throughout the 50s and 60s. It was set back a little in the first half of the 1970s, but then went into decline over the second half of the 70s and very steep decline over the first half of the 80s. Again the revival over the Lawson boom is at odds with ‘natural decline’. Since then manufacturing industry has barely moved forward at all, expect with a relatively feeble spurt over the dot.com boom of the late 1990s.

For me the decline of manufacturing comes as the financial sector began to flex its muscles, most obviously from the liberalisation of domestic credit markets under ‘competition and credit control’ in 1971 (dubbed: ‘all competition and no control’). But this is a much bigger and longer story. Either way, ‘natural evolution’ seems far too convenient let alone inadequate to the complexities of behaviour even on these two simple charts. And if it isn’t straightforwardly about natural evolution, we should be thinking about how to get it back.

 

Annex: ONS version of labour share by industry

man_share_3