Friday 29 January 2016

How and why manufacturing UK got a wipe-out in 1980. Clue: NOT the unions

I asked 'What became of 'the balance of payments crisis' we always used to hear so much about?'

This answer on Facebook came back from John Geoffrey Walker:

"The problem was that Britain was not exporting enough manufactured goods to pay for the manufactured goods it was importing. Margaret Thatcher solved this problem by floating the pound (i.e. it is no longer exchanged for other currencies at a fixed rate). The result of this was that, in the winter of 1980-81 one third of Britain's manufacturing industry went bankrupt. Problem solved.

Part of the problem / solution (depending on your point of view) was the success of finance. Because the financial sector had become so profitable the pound rose in value. This made British manufactured goods more expensive, and therefore less competitive on the world market.

Michael and others of us old enough to recall the period may remember the calls to devalue the pound. This might have saved British manufacturing, but it would have cut profits in the finance sector, so that was a non-no as far as the Tories were concerned.

The other effect was that the assets owned by British manufacturing firms became more valuable than the firms themselves. The firms were bankrupt but they owned useable machinery, land, etc. So we saw the rise of the asset stripper, who bought up firms in order to close them down and sell off their assets. If the whole is worth less than the sum of the parts then buy the whole and sell the parts. A bonanza for the get-rush-quick crowd."