Manufacturing: Who really needs it?

Is manufacturing more valid than the service industry?

by Evan Davis BBC economics editor

Part of a series of special reports on the state of British manufacturing

Britain long seems to have been polarised into two different camps on the subject of manufacturing.

One says the only real jobs are factory jobs, that anybody who doesn't make something is some kind of parasite, and that the UK is shedding its manufacturing at an alarming rate.

Perhaps the best response to the debate over manufacturing is to terminate it

The other camp says services are the future, that factories should be converted into industrial heritage leisure centres and cafes, and that the decline of manufacturing is inevitable.

Neither side is quite right.

Extra important

The friends of manufacturing are wrong to imply - as they sometimes do - that Britain should go to any amount of trouble to hang on to manufacturing jobs, as though they are somehow more valuable than equivalent service jobs.

Approximately speaking, in a market economy, £10,000 worth of output is worth £10,000 - and we shouldn't worry whether it is a farm product, a factory good or a new-economy service.

They all have the same value.

And fortunately, there is little reason in a well run market economy, for high value factories to just disappear, as though the "invisible market hand" is biased in favour of services over factories.

Valuable output

The usual tendency is for economies to gravitate towards the most valuable activities they can achieve.

The friends of services are wrong to imply that Britain can live without manufacturing

If you see an apparently high value factory close down, it is usually because too few people want to buy its output, or because someone else can produce the apparently "high value" output at a low price.

That implies the output was never as highly valuable as one might have thought.

So much for dogmatic defenders of manufacturing.

Can't live without it

But at the same time, the friends of services are wrong to imply - as they sometimes do - that Britain can live without manufacturing.

We can't, or at least we can't for the time being.

Our ability to import things that we can't produce ourselves, requires us to export some things we can produce.

And factories generate a disproportionate share of our exports.

Disappearing trick?

Fortunately, notwithstanding the attempts of some to talk manufacturing down, there is little danger in a well run market economy, that manufacturing will disappear.

If it is important to our trade, the invisible hand will recognise that by making it profitable and encouraging it to occur.

Or to put it more technically, as more and more factories disappear and the trade balance worsens, the exchange rate will fall and the more profitable the remaining factories will become.

A decline in manufacturing in the UK there may be, but it has natural limits.

Blurred boundaries

In summary, there's no point in saving manufacturing as some kind of special contributor to our economy.

Nor is there any need to protect manufacturing - it will look after itself.

What Britain needs is a variety of different industries and an economy that adjusts to changing conditions

But if it is wrong to either talk manufacturing up or down, both sides in this polarised debate might be wrong to talk about manufacturing as though it is a precise concept at all.

ICI, for example, might be a manufacturing company - but not all its workers work in a factory.

Some do research, some work at the HQ, some clean the factory floor, and some provide coffee and buns for the others.

Are they manufacturing workers or service workers?

If ICI put its cleaning out to a separate company, would its cleaners now be service workers rather than manufacturers?

Termination time

In short, perhaps the best response to the debate over manufacturing is to terminate it.

What Britain needs is a variety of different industries, plenty of high value jobs, and an economy that adjusts to changing conditions.

The debate over manufacturing will provide none of these.