In the context of Brexit, the University of Cambridge authors say it is vital that UK negotiators seeking new trade agreements are equipped with a solid understanding of manufacturing’s importance to the economy.
The report, ‘Inside the Black Box of Manufacturing’ by Dr Jostein Hauge and Dr Eoin O’Sullivan from Cambridge’s Institute for Manufacturing, was carried out for the Department for Business, Energy and Industrial Strategy (BEIS). The authors say that the current value placed on manufacturing activity is based on outdated and inaccurate methods of counting and that the economic value of manufactured goods increasingly depends on activities that are officially categorised as belonging to other sectors of the economy.
“It is essential that policymakers have accurate information on the size of manufacturing sectors in order to develop internationally competitive industrial strategy,” said O’Sullivan. “In particular, policymakers need to be able to measure manufacturing in a way that better reflects how firms actually organise themselves into value networks.”
“An implication of our study is that if the way manufacturing-related activities are counted does not change, the UK could be missing significant opportunities to build world-leading industries,” said Hauge. “It is also critical that post-Brexit international trade negotiators are equipped with a more accurate understanding of the value of these industries and in particular the potential economic impact of companies moving manufacturing operations away from the UK.”
The report discusses how manufacturing is defined, and what activities are currently included or excluded from how it is counted in the economy, highlighting why its value is being underestimated.
The manufacturing sector plays a significant role in the UK economy. As measured in the national accounts, it provides over 2.7 million jobs, makes up 49% of UK exports, and contributes 66% of all UK R&D business expenditure. However, manufacturing’s contribution to the UK economy – about 9% of GDP – may seem dwarfed by services, which make up 70% of UK GDP.
But according to the report, this is misleading. Manufacturing may in fact be significantly higher in economic contribution and underestimating it could have serious implications for national decision-making.
Image: Close up of production facility
Credit: Photo by Louis Reed on Unsplash
Reproduced courtesy of the University of Cambridge