Since You Asked

Chinese takeaway leaves Britain hungry

The economy needs more than a pot noodle factory, writes Tim Harford

‘A British food producer is delivering arguably the ultimate blow to the one-time factory of the world – it is transplanting noodle-making from Guangzhou to Leeds.’
FT.com, March 12

Wow. Undercutting the Chinese on noodles – that’s like shipping coals to Newcastle and beating the Geordies on price.

Not really. Symington’s aren’t planning to sell pot noodle to the Chinese, I don’t think. They’re planning to sell them to hapless British students, the same as always.

But they are planning to make them on UK soil. This is an important trend, I think: British companies giving up on “offshoring” their manufacturing.

We should reserve judgment on that: it’s not clear that it’s a trend and neither is it clear that it’s important. Symington’s are going to create 50 jobs in the UK, about 0.0002 per cent of the UK workforce. Good for them, but let’s not get carried away.

You’re being deliberately dense. Leeds’s noodle boom is an instance of something bigger.

I am sure there are many other examples. There are also plenty of examples of British companies merrily continuing to close factories in this country and shift production overseas. And there are countless other influences on the UK trade balance and the health of British domestic production. On Tuesday, for instance, the latest trade figures came out: the trade deficit was £2.4bn in January, up from £2.1bn a year previously. That does not suggest any switch towards domestic production.

You’re such a pessimist.

Not really. In the long term, the picture is remarkably stable: the UK has had a trade deficit for decades as a result of a persistent trade surplus in services outweighed by a larger persistent trade deficit in goods. The British share of world trade has been shrinking, which is pretty much what you’d expect in a world where China and other emerging markets are growing so rapidly. But British trade has grown strongly over the years. We still don’t ship many coals to Newcastle, so to speak – in 2008, before the full crisis broke, we exported more to France than to Brazil, Russia, India and China combined. That is progress of a sort: in 1998 we exported vastly more to France than to Brazil, Russia, India and China combined.

It sounds as though we are getting left behind in the race to trade with the key emerging markets.

A little. For almost every emerging market, the share of imports which came from the UK fell between 2002 and 2007, according to a report from the Department for Business, Innovation and Skills, published in 2011. This is partly because many emerging markets have developed stronger regional trading partners, and partly because of their growing appetite for commodities, not something the UK specialises in exporting.

So you are not excited by this revival in British manufacturing?

I’ve nothing against it. It will be interesting to see whether it does continue. It seems, at least in part, to be a function of the weakening pound, which in turn surely reflects the enthusiasm with which the Bank of England has created new money. But it may also have something to do with the relative decline of two of the country’s successful yet most problematic industries: crude oil and financial services. Both have contributed a great deal to our trade balance; and both have helped to keep the pound strong, making life difficult for companies producing tradeable products in other sectors of the economy. They employ lots of capital and relatively small numbers of very highly paid workers, so neither industry is brilliant for generating large numbers of satisfying and well-paid jobs, even if they do generate a lot of tax revenue. But we all know how the City has fared in the past five years and the UK became a net importer of oil in 2005. This decline may help other sectors, including manufacturing. But don’t you feel we place too much emphasis on manufacturing?

Not at all. Manufacturing is a vital part of generating sophisticated economic activity. I know that we can in principle pay for everything we need just with oil or financial services. But in practice such monocrop economies are rarely resilient.

You may have a point: oil, banking and selling services to oilmen and bankers is not much of an economic strategy. Manufacturing will surely play a part in any revival. Alas it’s going to take more than a pot noodle factory to regenerate the British economy.

Also published at ft.com.

16th of March, 2013Since You Asked • Comments off