Britain needs to produce a far greater range of goods
Among the many economics pundits offering advice and predictions for 2015, several opine that the UK’s huge current account deficit (£60 billion in 2014), of which around £110 billion is the goods deficit, is due to the £’s exchange rate being too high.
Thus Roger Bootle of Capital Economics (in Daily Telegraph’s “Viewpoint” of 29th December), believes that the trading deficit indicates that the pound is “heavily over-valued”. This is the standard macro-economists’ view which ignores the crucial fact of goods “range”. There is no serious evidence that the goods we make are overpriced in those export markets we tackle, but there is vast evidence that:
(a) the UK doesn’t manufacture a sufficient range of goods;
(b) the UK doesn’t properly address a sufficient range of markets – especially those in which English is not the language of business.
Evidence of (a)
The UK makes for overseas sale virtually no:
- Commercial ships
- Civil aircraft
- Steam turbines for power stations
- Medical scanning equipment
- Optical equipment
- Electronic control systems
These are all things which are needed all over the world. Nor does Britain make significant amounts of machinery such as machine tools and plastics moulding equipment to manufacture these things. Above all, Britain makes few products for sale abroad or even at home as is obvious from their absence in British shops[1].
Consumer products we don’t export include white goods of all types, consumer electronics, carpets, textiles, clothing, except a few low volume up-market specials such as Barbour jackets and Burberry scarves. Alcohols, notably gin and whisky, are still substantial earners, but don’t have much scope for innovation either in production or product.
All of the items above, which we don’t export, are happily exported by our Continental competitors – Germany, France, Italy, Belgium, the Netherlands – to us and most other countries of the world. A devalued pound sterling simply means we receive less money to pay for our imports which will go up in £ terms – a totally futile self-injuring thing to do.
Britain does make/design important components like wings for the Airbuses and universal joints for mechanical drives, military radars, and visible products like vacuum cleaners and JCB diggers, but in general foreign TV screens are devoid of advertising for British products.
Evidence of (b)
This can be summarised by the following Table from reference [2] which covers 71% of world imports by groups of countries:
Table 2.2.3: UK Existing and Target Shares in Key Goods Markets (2013-14)
| Area | Market $bn p.a. | UK Share % | Target Share % | Value of Increase $ bn p.a. |
|---|---|---|---|---|
| EU 26 minus ROI | 5550 | 3.7* | 4.5 | 33 |
| AICANZ | 2340 | 4.4 | 5.5 | 26 |
| EFTA | 305 | 4.6 | 6.0 | 4.0 |
| BRIC | 2770 | 1.3 | 2.6 | 36 |
| GHSS | 956 | 3.7 | 5.0 | 13 |
| TIM | 779 | 0.8 | 3.0 | 17 |
| Totals | 12700 | 3.7 | 4.7 | $129 = £82 bn |
* Allowing for the “Rotterdam Effect” (NSO 2015 Q1)
Key:
| EU 26 – ROI | This is the EU goods market with the non-EU world after the UK has left, minus the Republic of Ireland |
| AICANZ | Indigenous English-speaking countries: US of America, Ireland, Canada, Australia, New Zealand |
| EFTA | Norway, Switzerland, Iceland, Lichtenstein |
| BRIC | Brazil, Russia, India, China |
| GHSS | Gulf states, Hong Kong, Singapore, South Africa (business mainly English-speaking) |
| TIM | Turkey, Indonesia, Mexico (respectively the largest Moslem countries with whom the EU operates a customs union, the largest Moslem state in the world, the largest Spanish-speaking country in the world) |
With their huge populations and import markets the UK export performances into BRIC and TIM are simply pathetic.
The target shares for the six market groups in the Table are this writer’s (see [2]).
Achieving these modest targets would halve our import goods deficit and eliminate our overall trade deficit.
Almost none of these markets will be price sensitive. Quality, reliability, delivery, follow-up service in their own languages, are far more important.
End notes/References
[1] Even where we appear to be doing well, things are not as rosy as they should be. Britain has only recently exported more cars (by value) than it has imported (about £25 billion). Germany exports about £196 billion in vehicles and parts and imports about £88 billion. Britain’s home produced food has fallen from around 72% of demand in 1992 to about 61% in 2012.
[2] Stephen Bush, “A Brexit Blueprint: Britain revitalised and independence regained”, published by the Institute of Economic Affairs, 2014, and also on this website ( BushBrexit4 ). The table is in Appendix 2.2.
