Manufacturing v. Services

It is of course possible that Brexit will turn out to be a disaster for Britain, and it could be if we don’t take suitable action – though we believe that Britain will cope, in part because of our history and experience and in part because the EU is itself failing, perhaps terminally.

However, some doubters make the point that nobody wants to buy anything from us, which perhaps refers to our declining manufacturing sector. This is actually a myth, which we’ll explain in a moment. Meanwhile remember that the relative decline of manufacturing’s importance has occurred whilst the UK been a EU member, so Brexit is not the problem. Also manufacturing has grown in Britain, just not as quickly as services with the result that it is a much smaller proportion of GDP than it was in the 70s.

dyson

‘Manufacturing’ means the production of hard goods but as an economy develops and becomes richer people buy proportionately more soft goods, by value. This includes digital ‘services’, a hugely important part of any modern economy, but also things that are vital to a successful manufacturing sector – such as finance, logistics, communications and law – most of which are not free within the Single Market. Britain has a strategic advantage in services and successfully exports them to the rest of the world (RoW), but not to the EU, which discriminates against them and so badly disadvantages us. The UK has a £30 billion trade surplus with the RoW (including services) and a £60 billion trade deficit with the EU (mostly in goods, especially German). By the way, the RoW is easily our biggest trading partner now and growing relative to the EU; the USA is our biggest trading partner country, 50% bigger than Germany – again, we have a surplus with the former and a massive deficit with the latter. China is our third biggest export market.

old-bailey

Britain’s strategic advantage for services is due to our language, our legal system and our historic reputation but protectionist barriers in the EU prevent us exploiting it.

The Single Market is heavily biased in favour of hard goods and agricultural products, the Euro further intensifies Germany’s advantage in the former and is draining life from its partners – in defiance of clear treaty agreement (the Macroeconomic Imbalance Procedure).

A TV today costs far less in real terms than it did in 1973 (when Britain joined the Common Market). Yet today’s TVs do so much more, with a far-bigger screen, many times more channels and on-demand viewing. The toughest benefits officer would not deny someone the right to own a TV. Households typically own several TVs; more TVs are manufactured at a lower cost. Compare that to cup of coffee at Starbucks, which counts as a service so is not covered. Manufacturers have to work hard to increase their market by value; innovation is one answer. Dyson charges a premium for its efficient vacuum cleaners.

When we escape the playground bullies of the EU, who want to punish us, we still face dangers in the adult world. America uses the outrageous privilege of its currency’s domination of world trade to fine banks what it thinks they can afford, not in proportion to their misdemeanours. And not just banks, it has fined BP for killing 11 people and demanded ‘compensation’ for businesses entirely unaffected by the Gulf oil spill, whilst letting off BP’s American subcontractors with small penalties. Compare the dollars-per-death with Union Carbide’s killing of thousands at Bhopal, the world’s worst industrial disaster. The US, like the EU, is a monster we have to treat with care and respect. Brexit will not be easy but we can do it and we can be more successful than by staying in a fractious, declining union which refuses to change direction.

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