Made in China - but not quite so cheaply…...
How long can China keep its comparative advantage of cheap production for manufacturing goods? We are aware of rising inflation in China which is eroding their advantage, and here is an article about a UK firm which manufactures cushions, some from a factory in Kirkby on Merseyside and some from his factory in the Zhejiang province in China. The story comes from a programme ‘The Town taking on China’ to be shown on BBC2 at 8pm tonight - and subsequently on i-player.
read more...»Unit 3 Micro: The Third Industrial Revolution
This is well worth watching! It is an 8 minute discussion from the Economist which examines what is being called “The Third Industrial Revolution” - based around the digitisation of manufacturing processes. Concepts such as 3d printing and advanced robotics are discussed, as are concepts such as competitiveness, productivity and product personalisation. One possible consequence of these changes might be that high quality manufacturing may begin to move back from lower-wage economies such as China and back to economies like the USA.
read more...»Unit 2 Macro: Skills Shortages Hold Back Recovery
Here is a superb news report from Channel 4 news about the shortage of skilled workers in the North East of England (an area of high unemployment). Nissan this week announced a big new investment in car making at their ultra-high productivity plant in Washington, Tyne and Wear. But many of the manufacturers along Nissan’s supply chain are finding it tough to get enough skilled people coming througth to make realistic bid for the orders that will come from Nissa. Some businesses are having to turn down contracts because they dont have the extra workforce to cope with the higher volumes of businesses.
Skills shortages are restricting the growth of many small and medium sized businesses especially in manufacturing. Little wonder that Nissan is working very closely with Gateshead College to run an apprenticeship scheme - an example of external economies of scale in action.
read more...»Unit 4 Macro: Productivity Improvements in China
Productivity is a measure of the efficiency with which a country combines capital and labour to produce more with the same level of factor inputs. We commonly focus on labour productivity measured by output per person employed or output per person hour.
A better measure of underlying productivity growth is total factor productivity which takes into account changes in the amount of capital available for each worker to use and also changes in the size of the labour force.
To give a simple numerical example, if the size of the capital stock grows by 3% and the employed workforce expands by 2% and output (GDP) increases by 8%, then total factor productivity has increased by 3%.
China has achieved impressive gains in productivity in recent years. Some of this is undoubtedly the huge spending on capital investment which has grown to nearly 50% of China’s GDP. The labour force has also grown although this is scheduled to level off and then decline in the years ahead.
What has driven improvements in Chinese total factor productivity?
read more...»Unit 2 Macro: Focus on UK Manufacturing
There have been lots of stories in recent days about the future for UK industry / manufacturing - here is a selection of audio and video links:
read more...»Unit 2 Macro: Can China Stay Competitive
This new five minute video report from the Financial Times is excellent on the competitive pressures facing many manufacturing businesses located in southern China. Wages are rising quickly and some manufacturing businesses have already moved either to lower-cost locations within the Chinese economy or to other countries such as Bangladesh and Indonesia.
But there are alternative approaches and this video emphasises the decision that some manufacturers have made to stay put but instead to move up the value chain and produce higher-end, higher-priced products for advanced western markets. Businesses are reluctant to move factories and sacrifice the human capital that has been accumulated over in some cases over thirty years.
read more...»Unit 3 Micro: 3D Printing and a Manufacturing Revolution
Additive manufacturing or 3D printing is an emerging technology that takes product design data which provides a geometric representation of a product such as a pen and that data is then sent over to a machine that allows products to be manufactured ‘on the spot’ typically using additive materials in liquid or powder format.
This TED talk from Lisa Harouni (co-founder of Digital Forming) looks at examples of intricately designed products made using this new and increasingly affordable manufacturing technology. 3D machines can build structures, build replacement parts and parts within parts - the detailed resolution possible is incredible.
read more...»Unit 2 Macro: Exporting to the Booming Chinese Economy
Before you read this blog please have a look at another blog written by our good friend Mark Johnston from New Zealand. Students of China and the US economy will find it fascinating!
There are good grounds for no longer calling China an emerging economy - it has arrived! The multiple significance of the rapidly-growing Chinese economy is plain for all to see but for Britain, only a small percentage of our exports of goods and services go there and this must change if Britain is to fully engage with and benefit from the rising might of the Chinese consumer. This article from the Daily Mirror provides a non-technical but clear explanation of the growing purchasing power of newly wealth Chinese, thousands of whom are flocking to western shopping malls to buy premium brands. Chinese foreign exchange reserves are also being used to buy up real assets - last week we heard that a Chinese sovereign wealth fund is set to buy nearly 9% of Thames Water.
read more...»Newsnight on rebalancing the UK economy
Last night’s edition of Newsnight should be required viewing for all AS and A level economists - and it is a huge shame that it is only available on i-player for another 7 days. Introduced on the shock news that even Tesco is vulnerable to the downturn, it included reports from Andrew Verity looking at whether the British economy will ever wean itself off shopping and the City, and an excellent (and all-female!) discussion including Deborah Meaden and the FT’s Gillian Tett. Try challenging your students to watch and listen to this while noting down every aspect of the syllabus which is mentioned or referred to - that will keep them busy!
There was also a debate between Employment Minister Chris Grayling and disability campaigner Sue Marsh about the government’s welfare reforms, defeated in the House of Lords the night before, and finally Tokyo correspondent Roland Buerk looking at Japanese economic stagnation of the late 1980s and 90s, to consider whether it was a “lost decade” and what could be learnt from it.
Unit 4 Macro: Does Manufacturing Matter?
Vicky Pryce FRSA has a new article on the economic significance of manufacturing industry for UK economic renewal. It is available here from the January 2012 edition of the RSA Journal. In a related article Sir Christopher Frayling FRSA discusses the rise of the Maker Movement.
Back in November 2011 Channel 4 news ran a special on the future for UK manufacturing here is a link to a related video
Unit 3 Micro: Hope Bikes - A Commitment to Excellence
Are you into your cycling? The huge expansion of interest in cycling in the UK from road racing through to BMX and mountain-biking has gone hand in hand with the fantastic success of British cyclists on the international stage. 2012 promises to be another strong year for the industry despite difficult economic conditions.
read more...»Unit 4 Macro: Does UK Manufacturing have a Future?
Here are links to two superb short reports on prospects for UK manufacturing as the British economy struggles to escape from recession and sluggish growth forecasts in 2011 and 2012. Both are from Channel 4 News that produced a special on the health of the manufacturing sector - excellent for evaluation and for some applied examples to build into essays. The links appear below
read more...»AS Macro: The State of British Business
How well is British business coping in the aftermath of recession and during a sluggish recovery? Are there signs of improvement or are there warning signs that the UK business sector is fragile and vulnerable as we head into 2012? Four AS macro students - James Richardson, Ludo Higgin, Joe Landman and Nick Russell collaborated on this excellent piece and searched for some revealing clues about the resilience of British businesses at this crucial stage of the economic cycle.
read more...»Unit 4 Macro: Richard Florida on the Great Reset
What changes are produced by great economic upheavals? The financial and economic crisis prompts a rethinking of the assumptions about how businesses succeed and how economies operate. In a recent edition of the Global Business programme on BBC radio 4, Peter Day met Richard Florida, a renowned economic geographer who has written a new book The Great Reset. Here are some of the notes I jotted down from the programme:
read more...»Unit 1 Micro: Is the Sun Dipping on Solar Subsidies?
To promote the expansion of renewable energy sources, many governments have introduced subsidies for consumers who install solar panels.
In April 2010, the Labour government introduced generous feed-in tariffs to encourage households to install solar photovoltaic systems. Anyone spending £13,000 up front to fit a system to their home was paid 41.3p per kilowatt hour (kWh) generated – enough to earn them a typical annual income of £900 a year in payments, on top of a £140-a-year saving in reduced electricity bills. The big six energy companies are required by law to pay householders who generate their own energy.
It looks like the days of generous subsidies for solar panels are coming to an end and there is a rush on to install them before the feed-in-tariff system is changed.
read more...»Can the “invisible hand” solve Africa’s poverty?
At last night’s Senior Economics Society at Oundle we had a riveting talk by Hywel Rees-Jones, Managing Director of CDC, which covered so many areas of the issues of development economics. The talk was entitled “Can the invisible hand solve poverty in Africa?” Whilst conceding that some of the statements were broad generalisations across a variegated continent, Hywel discussed some of the key issues facing Africa.
read more...»Unit 3 Micro: Science Cities and External Economies of Scale
This feature article from the BBC web site is essentially about the vital importance of high-knowledge industries in sustaining competitiveness and growth in a globalising world. Europe lags behind many emerging countries in terms of the resources devoted to science and technology, research and development and creative industries in particular.
But the article makes reference to the expansion of science cities - knowledge clusters that bring together higher education expertise and entrepreneurial zeal - their number continues to grow from California and Boston in the USA, Cambridge in the UK, Education City in Qatar, Science City in Zurich and Digital Media City in Seoul. All good examples to use of the commercial leverage from external economies of scale in high-tech industries.
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing
How does the world price of raw cotton affect the cost of buying new clothing on the high street and in the supermarkets? The answer is that the price of natural fibres is a key raw material into manufacturing garments and home furnishings. If prices rise, this increases the costs of production causing an inward shift of supply for clothing and furnishings at a given market price.
The world price of cotton has been rising steeply in recent times. As our chart below shows, raw cotton prices are well down from their peak in the spring of 2011, but the index is still more than twice the level of two years ago.
read more...»Unit 3 Micro: Motorsport Valley and External Economies of Scale
The occasion of the 2011 British Grand Prix at Silverstone in Northamptonshire is an opportunity to showcase the extraordinary growth and success of the motorsport industry in the UK. It is a classic example of the benefits that can flow from external economies of scale, and also of the way in which genuine competitive advantage in the global economy can be built and nurtured.
read more...»Evan Davis ‘Made in Britain’ - and a new trade data tool to play with
The first episode of a 3-part series, Made in Britain, was shown on BBC 2 last night, and was a really useful hour for economics (or business) students. It examined how and why Britain has lost thousands of manufacturing jobs over the last two or three decades in the low-value part of the sector, with some film of outsourcing shot in China as well as plenty of archive material from this country, but argued that the move to high-end, low scale manufacturing has become Britain’s area of comparative advantage in industrial manufacturing. This included Evan being taken for a test drive in the new McLaren sports car, which was clearly an amazing experience - watch the clip to see his reaction! And this surely emphasises the Economic Importance of Manufacturing to the UK economy - see below! Sadly this episode is not to be broadcast again, but is available on i-player for another 22 days and is thoroughly worth watching. I will certainly be setting the recording machine for the next two programmes, on Mondays at 9.00 on BBC2 - episode 2 is to focus on how innovation can help keep Britain ahead in the global economy.
read more...»The Economic Importance of Manufacturing
I think Alan Sugar is a clown, he is about as comfortable with true entrepreneurship as Ryan Giggs is at a family wedding. His somewhat crass remarks about having never come across an engineer who has succeeded in business has prompted a wave of responses from the business community. Here is a selection of articles: And I have included an article by Luke Johnson which takes the Apprentice to bits and castigates it as a show that demonstrates that the BBC is not serious about real business.
read more...»Do you agree that the government should provide support to the UK car industry?
This is a fairly classic A2 macroeconomics question, and one that the European Automobile Manufacturers Association has been considering at their meeting in London last week. Their conclusion? That non-European governments should scale back assistance for their own automotive industries, but at the same time governments in Europe should support the industry’s efforts to cut car emissions.
read more...»AS Macro Key Term: Spare Capacity
Spare capacity measures the extent to which an industry, or economy is operating below the maximum sustainable level of production - there are spare factor resources of land, labour and capital. There are many measures of capacity utilisation including surveys of business activity, the estimated output gap and the rate of unemployment in the labour market.
read more...»Accessible UK Budget resource
It’s not always easy to navigate your way through the budget, with its mass of technical detail and complexity. Not all of it is terribly interesting either (nor the manner of presentation).
read more...»Global supply chain threatened by Japanese disaster
One aspect of globalisation is that manufacturers source their supplies from around the world. This will depend on the comparative advantage those countries have developed in producing various types of components. Japan produces about 30% of the global output of ‘flash memory’ used in electronic cameras and smartphones, and about 15% of the DRAM memory used in PCs. If something happens to disrupt that supply chain, as is clearly the case after the horrific events in Japan, there will be global effects.
read more...»Patent Box or Innovation Box as Innovation Stimulant?
The UK coalition government does not yet have a growth strategy worth the name but they have invested plenty of capital in the idea of a Patent Box. This involves a lower corporation tax on profits drawn from patented products) and is a supply-side policy to make UK an attractive location for innovative industries. One proposal is that royalties and other profits from patented products and technologies would be taxed at just 10 per cent.
But many economists argue that this is at best an ineffective way of lifting the amount of research and development in the British economy. They look instead to the Netherlands where an Innovation Box has had a significant impact - it reflects the view that patents are only a small part of the innovation process - you dont necessarily have to patent an idea to make small scale innovations commercially viable.
Channel 4 news tonight visited Sandwich in Kent where the Pfizer research and development facility is set to close.
Never Mind Plan B - Plan V needed for the UK Economy!
George Osborne is convinced that the Coalition does not need a plan B. But for growth to be nurtured and sustained in the years ahead we need a Viagra-style boost to our competitiveness and capacity - Plan V. This was one of the main themes from a talk given by Professor John Van Reenen at a packed Hong Kong lecture theatre at the LSE (London) last night.
read more...»Economics solar power government subsidies
A timely and relevant video here on the economics of the government feed-in-tariffs (or subsidies) for companies and individuals putting up solar panels on their roofs. Solar power is an industry booming with over 10,000 installations in the first six months since housing associations were given subsidies to install solar panels in many of their properties. The video looks at the costs of installment of a system and the electricity it generates and how much extra electricity is generated into the national grid. How important will solar power be in promoting energy independence? Peak solar output from the UK does not correspond with peak demand for electricity (from 5pm to 7pm on a winter’s evening). How many of the solar panels are made in the UK? Who really benefits from feed-in-tariffs? Rather like the CAP are the major commercial benefits skewed to large businesses willing to put up big-scale solar installations in empty fields?
James Dyson on Innovation
This is a must read article for every student who wants to appreciate the impact of innovation on competitiveness and growth. Writing in the Business Guardian, James Dyson argues that “For me, the UK economy shouldn’t be built entirely on the City of London or the next digital fad. We need substance – patentable exports. They bring new money into our coffers. And what will generate economic growth is not just talk of spending cuts, but creating the right environment for research and invention.” Dyson is a strong supporter of tax credits and lower corporation tax for research and development projects and also for science and maths graduate teachers to be paid more.
More here: Innovation: Britain’s other deficit
Tories look to Dyson on hi-tech economy (BBC news video)
Economics Q&A: How might rising food prices affect food retailers and manufacturers in the UK?
Food retailers are service sector businesses selling food products to consumers. The leading retailers in the UK are Tesco, Sainsbury’s, Asda (Walmart) and the Co-Op/Somerfield. Although the food retail industry in the UK is dominated by a handful of national chains, there are many others including thousands of small-scale retailers. And discount retailers that have done well in recent years including Aldi and Lidl.
Food manufacturers process foodstuffs into new products and they rely on buying raw materials from wholesalers. Good examples to use might be Nestle, Heinz and Sara Lee.
The larger retailers manufacture some of their own-label foods although they may choose to out-source this to another manufacturer. And likewise, some food manufacturers have their own chain of retail stores or outlets - for example Gregg’s the Baker or Domino’s Pizza.
read more...»
