Stage of maturity

As the world’s oldest industrial nation the UK might reasonably lay claim to being its most developed or ‘mature’ economy. Several variants of the maturity argument provide explanations of industrial decline which appear rather reassuring.

A first variant suggests that the changing pattern of UK employment since 1964 may be seen as ana­logous to the transfer of workers from agriculture to industry during the nineteenth century, a transfer necessary to create the new industrial workforce. In a similar way, the argument here is that those previ­ously employed in industrial activities were required for the expansion of the service sector in the 1960s and 1970s. However, this line of argument looks rather weak from the mid- to late 1970s onwards,

Table 1.6 Changes in industrial employment (%).

Sources: Calculated from data in OECD (2010f) OECD Statistical Programme of Work Labour Statistics; OECD (2010e) Stat.

with rising unemployment surely providing the opportunity for service sector expansion without any marked decline in industrial sector employment.

The hypothesis that economic maturity is always associated with falling industrial employment may be crudely tested by reference to Table 1.6. In the period 1964-79 the experience of the UK, Austria, Belgium, West Germany, Sweden and Switzerland lends sup­port to the hypothesis, whilst the experience of Canada, the USA, France and Norway contradicts it. Italy and Japan also experienced rising industrial employment, but it might be contentious to call these economies ‘mature’ in this period. Between 1964 and 1979, the evidence does therefore suggest that decline in industrial employment in the UK was not neces­sarily an inevitable result of economic development. The data between 1979 and 1983 are more difficult to interpret as they cover a period of recession, but only Japan and Austria experienced a rise in indus­trial employment in these years. However, data for the years 1983-2010 seem to show that most, but not all, countries experienced a fall in industrial employment, Canada and Germany being the excep­tions. In the UK the decline in industrial employment accelerated during the early 1990s, resulting in an overall fall of over 29% for the 1983-2010 period as a whole.

A second variant of the ‘maturity’ argument is that our changing economic structure simply reflects the changing pattern of demand that follows from economic development. It has been argued that con­sumer demand in a mature economy shifts away from goods and towards services (higher income elasticities) and that this, together with increased government provision of public sector services, adds impetus to the growth of the tertiary sector. This may be a sound explanation for some of the UK’s structural change, but not all. The pattern of UK demand simply does not fit such a stylized picture; for instance, UK trade data clearly show UK demand for manufac­tured imports growing faster than UK manufactured exports.

In a third variant of the ‘maturity’ argument, Rowthorn and Wells (1987) have pointed out that the demand for manufactured goods is at least as income elastic as the demand for services, when valued at constant prices, that is, in terms of volume. A successful industrial sector would therefore achieve increases in the volume of output at least matching the growth of GDP. Faster growth of productivity in the industrial sector could then cause prices to fall relative to those in the service sector, thereby reduc­ing the industrial sector’s share of both output at current prices and employment. The ‘maturity’ argu­ment should, in the view of Rowthorn and Wells, be based on productivity changes and not on demand changes. In the case of the UK, the relatively slow growth in the volume of industrial output hardly supports this variant of the ‘maturity’ argument.

A fourth variant of the argument is that the UK has always been a reluctant manufacturing nation, and that we are now specializing in services, a sector in which we enjoy a comparative advantage and a protected domestic market. However, since the mid- 1970s, any need to exploit comparative advantages in services could again have been met from unused resources rather than by reducing industrial output and employment.