Why bother to reindustrialise the country?

Apparently Britain must reindustrialise:

Reindustrialisation

Burnham has signalled that a strengthened industrial strategy will form a central plank of his agenda to support economic growth outside London and south-east England. This includes a push to “safeguard sovereign manufacturing and production capability … in critical sectors like steel, defence, energy, food and farming”.

….

Britain’s industrial base has dwindled from about 30% of the economy in 1979 to about a tenth today,

This strikes us as deeply ignorant. But then what was it Hayek said about politics never actually understanding the economy in any detail?

The first thing is that manufacturing output is only a fraction off all time highs:

That’s an index so yes, it is already adjusted for inflation. So if output is up - and it’s hugely up from the 1970s, before Fatcher destroyed manufacturing - then how can we have lost our manufacturing base?

The answer is that we have become better at manufacturing. We have improved productivity in it. We require less human labour to make physical things these days. As we all know it is more difficult to increase productivity in services than manufacturing, Baumol’s Cost Disease is a real thing. Such a real thing that the NHS requires that 4% a year growth in real budget just to stand still. Those who insist on that real budget increase really should grasp the other side of this - as labour productivity rises then and therefore manufacturing will employ fewer workers. That’s just the way it works.

So much so that this fall in the relative size of the sector is a global issue:

As one of the richer countries we’re ahead of the global average in what happens as places get richer. Manufacturing shrinks as a portion of the economy. Even as manufacturing output continues to rise.

That is, we’ve not lost manufacturing at all. We’ve lost manufacturing jobs, yes, but then jobs are a cost not a benefit. So, increased labour productivity is known, in the Econ 1066 and all that style, as A Good Thing.

What is actually happening is exactly what did happen to farming. Which used to be 50% and more of our economy, 50% and more of the workforce, and is now perhaps 2% of each. Even while we have vastly more food around. We increased labour productivity and brought the price of food down. Manufacturing is following the same path, both domestically and globally, a century or two later. A Good Thing.

But we seem to now have this general consensus - a sufficient consensus that apparently it’s the first and most important task of the incoming Prime Minister - that we have to reverse the thing that didn’t happen, the decline of manufacturing.

We suppose there could be some element of eroticism to this. Manly men stripped and sweating buffly as they do manly things to whippet flanges. It could be that everyone’s just so ill-informed that they don’t know these simple facts. We never did de- industrialise so how can we re-? But we think it’s just a harking back to older times. After all, there’s absolutely nothing at all as conservative as a British lefty.

Pity about reality but that’s where we are.

Tim Worstall