It's an error to conflate the two: deindustrialisation began long before current globalisation, writes Jim Tomlinso

Tomlinson, Jim

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4/28/2017Brexit: blame it on the loss of industrial jobs, not onglobalisationblogs.lse.ac.uk /businessreview/2017/04/28/brexit-blame-it-on-the-loss-of-industrial-jobs-not-on-globalisation/‘Brexit is a rejection of globalisation’  (Larry Elliott, Guardian, 26th June 2016).Larry Elliott’s claim about the causes of Brexit is stark, but one echoed, if usually in slightly more qualified fashion,by many other commentators. For example, in her Sylvia Ostry lecture in September 2016, Christine Lagarde,Managing Director of the IMF, put forward similar ideas, with the theme of ‘Making Globalization Work for All’. In thisview, globalisation has brought economic advantage to many, but equally left behind many others. Leave voting isexplained as an expression of the anger of the ‘left behind’.One obvious qualification to such claims, linking economic disadvantage to Leave voting, is that the (small) Leavemajority was most strikingly characterised by its age and educational profile (the older and least educated beingstrongly pro-Leave), rather than directly by economic condition. (See here). Leave was a clear victory for traditionalConservative voters, many of whom live in the prosperous South of England, rather than in less well-off parts of thecountry. Overall, we can perhaps helpfully characterise the Leave vote as an alliance between those who favoured‘taking back control’, and those who saw the vote as a means of expressing opposition to their economic difficulties.But insofar as Brexit reflected underlying economic discontent, is it helpful to link this to the effects of globalisation?The answer given here is that in seeking to understand the economic basis of the Brexit vote, we shouldconcentrate not on globalisation but on the long-term impact of de-industrialisation.In August 2016 Diane Coyle wrote ‘The UK’s “Leave” vote could be seen as a vote against globalisation and itsuneven impact on different parts of the country, rather than a vote specifically against the EU. The proportions votingfor Leave were higher in the Midlands and North of England, where deindustrialisation struck hardest and whereaverage incomes have stagnated.’ (D. Coyle, Brexit and Globalisation). Such claims reflect a common error ofconflating globalisation and de-industrialisation, a confusion which ignores the clear historical evidence of the wayde-industrialisation began long before the current phase of globalisation.1/4Globalisation has contributed to de-industrialisation, but it is only one contributor, and historically not the mostimportant. De-industrialisation (a fall in the share of employment in the industrial sector) began in Britain in the1950s. It was driven by shifts in patterns of demand and technological change, most strikingly in increasing thegrowth of productivity (and lowering the relative price) of manufactured goods.Since 1948 the annual increase in labour productivity in services has been around 1.48 per cent, in manufacturing2.78 per cent (‘Industry’ is normally defined as manufacturing, plus mining plus construction. Mining has all butdisappeared, but construction has come to employ almost as many workers as manufacturing; productivity growth inconstruction is significantly slower than in manufacturing).Note that the focus here is on industrial employment, not industrial output. That output has not fallen, but grownslowly on trend, so it is now at an all-time high.Proportion of workers in industrial employment in the UK1957                48%1979                38%1998                27%2016                15%Peak employment in British industry came in the late 1950s, whilst peak employment in manufacturing alone camein the following decade. These broad trends have affected all industrial countries, so that industrial employment hasfallen substantially even in successful industrial countries with a manufacturing trade surplus, such as Germany.German industrial employment has fallen more slowly than in Britain, but as a share of the total has more thanhalved since its peak in 1970.The long-run nature of these trends is illustrated by the fact that many more coal-mining jobs were lost in Britainunder Harold Wilson’s government of the 1960s than under Margaret Thatcher’s government of the 1980s. Thesetrends reflected the collapse in industrial and domestic uses of coal, and latterly the shift away from coal in electricitygeneration.2/4It is true that with the decline of the British coal industry (deep-mining of coal ended in 2016), Britain has become acoal importer, with 25 million tons of imports in 2015. But if we ask how many jobs would be created if that coal wereproduced at home, the number would be perhaps 12,500. This is not a trivial number, but it would only takeemployment back to the level of the year 2000, and, of course, leave the numbers a tiny fraction of the industry’sprevious size.The history of the steel industry is also highly instructive. The chart below shows employment in this industry (thered bars, in 000s of workers) alongside output (the blue bars in millions of tons). Iron and Steel has lost 95 per centof its workforce since 1971, the great bulk of the fall coming in the 1980s (50 per cent of the fall in 1979-1981). Overthe same period output fell by 50 per cent. Two points about this history should be stressed. First, we still produce aconsiderable amount of steel, but huge increases in productivity (and changes in the composition of output) meanthis can be produced with far fewer workers. Second, the fall in output owes little to the Chinese competition whichhas been so much emphasised in recent discussions. There was no big surge of Chinese imports until the 2000s;indeed, China was steel importer well into the 1990s.Similar stories of long-run decline could be told of textiles and clothing and shipbuilding. But also important is thestory of more characteristically ‘modern’ industries like car manufacturing. Like iron and steel, output has diminishedsince the early 1970s peak, but has revived since the financial crisis to well over 90 per cent of that peak (though thecomposition of output has of course altered significantly). However, again because of productivity gains, far fewerworkers are needed to produce a car than was the case forty years ago. While today car manufacturing directlyemploys around 140,000 workers, in 1972 the figure was half a million.The loss of jobs through de-industrialisation matters because the service sector which has largely replaced industryoffers far more polarised types of employment. While historically industry provided many secure and relatively well-paid jobs for those with low educational qualifications (but often with very high levels of industry-specific skills), mostservice activities offer much less to those who lack a high level of such qualifications. The number of very good jobshas grown in parts of the service sector, but has been paralleled by the rapid growth in numbers of poorly paid, ofteninsecure jobs in such areas as care services and retailing.This deterioration in the labour market has been met by an enormous growth in in-work benefits, (alongside housingsubsidies), creating a wage-subsidy system costing around £30 billion per annum. This ‘New Speenhamland’system has brought a striking volte-face in Conservative politics, with the attempt to switch some of the cost ofraising sub poverty level wages on to employers by a statutory ‘Living Wage’. (The Conservatives were bitterlyopposed to a legal minimum wage when Labour proposed it in the 1990s – it was enacted in 1998). But this shift in3/4policy has only slightly dented the public expenditure cost.Shifts in demand and technology, more than globalisation, have led to de-industrialisation. Serious errors of policyhave undoubtedly accelerated this process, and compressed it into short time periods (most obviously, theextraordinary appreciation of the pound in 1979-81 as a result of the Thatcher government’s policies). But overallthe process has not mainly been policy-driven.In responding to the economic problems that underpinned the Brexit vote, it is important to be clear thatglobalisation is only one part of the story. To put it crudely, if globalisation were somehow reversed, it would notreturn Britain to having anything like the number of industrial jobs that existed in the 1950s (or 1980s). Someincrease in industrial jobs is of course possible, including by the expansion of such sectors as renewable energy.But the idea of a wholesale ‘re-industrialisation’ which would offset the effects of the profound changes in demandand productivity of recent decades is fantastical.While there are certainly powerful arguments for seeking to offset the impact that globalisation has had on particulargroups of workers, the biggest challenge is how to make a service-dominated economy deliver much betteroutcomes for those who currently occupy the many lousy jobs in the service sector.♣♣♣Notes:This blog post is based on the author’s presentation at the 2017 Conference of the Economic History Societyat Royal Holloway, University of London.The post gives the views of its author, not the position of LSE Business Review or the London School ofEconomics.Featured image credit: Mine mechanisation training, Sheffield, 1944, by Ministry of Information, IWM Non-commercial licence, via Wikimedia CommonsBefore commenting, please read our Comment Policy.Jim Tomlinson graduated from LSE with a BSc (Econ.) in 1973 and a PhD in economic history in1977. Since 20013 he has been a Professor of Economic and Social History at the University ofGlasgow. Oxford University Press will publish his latest book, Managing the Economy, Managingthe People: Narratives of Economic Life in Britain from Beveridge to Brexit, in late 2017.Copyright © 2015 London School of Economics4/4

Brexit: blame it on the loss of industrial jobs, not on globalisation

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