Are we heading towards a third world Britain ?

eh

I work for a UK international company which has been around for over 200 years is engineering based and we've never made a thing. You don't have to make things to be successful. Other good exmaples in different industries are ARM and ARUP.

However, it is rubbish we don't manufacture anything, we are still in the top 10 manufacturing countries in the world. Think big pharma, defence, oil&gas and cars.

proto

bails87 wrote:

So we pay China to make clothes. China pays us to design things (that may be ultimately made in China.)

I don't understand why you're finding it hard to grasp. Is it because you can picture a pair of trainers physically leaving China and arriving in the UK, but you can't do the same for creative or financial services going the other way? Because an investment portfoli doesn't physically need to be 'made' by a worker? It doesn't really matter if nothing's going out, at the end of the day the money for those intangible goods is still coming into the economy.

If i've missed something then what is it?

All perfectly reasonable. The only thing you've missed is that the inflow to UK Ltd is smaller than our outgoings. Balance of Trade is fundamental. Some economists think this doesn't matter, but evidence suggests they are wrong.

rake

eh wrote:

I work for a UK international company which has been around for over 200 years is engineering based and we've never made a thing. You don't have to make things to be successful. Other good exmaples in different industries are ARM and ARUP.

However, it is rubbish we don't manufacture anything, we are still in the top 10 manufacturing countries in the world. Think big pharma, defence, oil&gas and cars.

i know some companys can not manufacture things and get on fine. however all these things dont balance up in terms of scale of numbers. you can't say it doesnt matter because of a specific company going ok. look at the vast majority of what people spend their money on , food ,power, transport, clothing,food etc. how does an investment porfolio cover this.
why doesnt china see the light keep their hands clean and have an investment portfolio then? how well does this kind of income get circulated in the economy?

nolf

rake wrote:

eh wrote:

I work for a UK international company which has been around for over 200 years is engineering based and we've never made a thing. You don't have to make things to be successful. Other good exmaples in different industries are ARM and ARUP.

However, it is rubbish we don't manufacture anything, we are still in the top 10 manufacturing countries in the world. Think big pharma, defence, oil&gas and cars.

i know some companys can not manufacture things and get on fine. however all these things dont balance up in terms of scale of numbers. you can't say it doesnt matter because of a specific company going ok. look at the vast majority of what people spend their money on , food ,power, transport, clothing,food etc. how does an investment porfolio cover this.
why doesnt china see the light keep their hands clean and have an investment portfolio then? how well does this kind of income get circulated in the economy?

Well China does have a sovereign wealth fund valued at approx $297.5bn, which they use to invest. This is largely invested in western investment companies such as the Backstone private equity group and others.
The reason china doesn't provide these services is because we'e better at it!
We have a highly skilled and competitive workforce, capable of doing the top end work that others can't do.

You are right in that you can't have an economy based solely on this, and diversity is important, but as also mentioned, we do do a lot of other stuff...

nolf

proto wrote:

bails87 wrote:

So we pay China to make clothes. China pays us to design things (that may be ultimately made in China.)

I don't understand why you're finding it hard to grasp. Is it because you can picture a pair of trainers physically leaving China and arriving in the UK, but you can't do the same for creative or financial services going the other way? Because an investment portfoli doesn't physically need to be 'made' by a worker? It doesn't really matter if nothing's going out, at the end of the day the money for those intangible goods is still coming into the economy.

If i've missed something then what is it?

All perfectly reasonable. The only thing you've missed is that the inflow to UK Ltd is smaller than our outgoings. Balance of Trade is fundamental. Some economists think this doesn't matter, but evidence suggests they are wrong.

A) What evidence? Please give a reference.

When getting into a debate about the outflow of cash (not necessarily wealth) one has to consider the mechanics of what happens in trade. (SHOULD EMPHASISE THIS IS HOW I UNDERSTAND IT, have not properly studies trade at degree level, however I believe this is the essence of the mechanics of trade).

SUMMARY- long explanation, summary is that the value of currency is the key to balance of payments.

To import foreign goods you have to purchase Euro's with UK £'s. These euros are then used to purchase goods from abroad, e.g a pair of trainers from eastern europe somewhere.

(simplified version!!!)
What you lose in this trade is £'s sterling. As you sell your pound and need to buy Euro's from the market. This £ is then put on the market for sale by the market you sold it to (currency is a tradeable good just like any other item). If someone wants to buy something in the UK they will purchase this pound from the market. This buying and selling of the £, is even and therefore has no impact on the value of the pound in relation to the Euro, as 1 pound has been sold by you in exchange for Euro's and he in exchange has swapped some of his Euro's for the pound again.

What happens though when you have a balance of payment deficit is that you have more sellers of pounds than buyers. Now in a free market what should happen is the value of the pound will drop as theres a lack of demand and loads of sellers, until an equilibrium is reached. A weaker pound encourages exports and makes imports more expensive. This should then balance the market and prevent any imbalance in payments [However only in the long run dependant on the elasticity of demand for exports and imports being greater than 1 (see marshall-lerner condition)].

However generally govt's play around with the currency to keep it strong, using their own foreign exchange reserves to keep the value of a currency high (interest rates also help- high rates = increased currency value generally). This can only be done finitely however until the govt. runs out of foreign exchange reserves. But means that the currency cannot automatically reach equilibrium allowing balance of payments to reach a balanced level!

The other failing in that model is if foreign countries buy up currency as a reserve currecy, one reason for the curent value of the dollar is Chinas insistence as using it as their reserve currency and the currency the RMB is pegged on. They have been systematically buying up $'s (currently posess around $1.3 trillion), keeping the value higher, encouraging a massive imbalance of payments. This "pegging" to the $US, artifically devalues their own currency so as to keep the cost of their exports low.

(If the Chinese RMB was allowed to froat freely we would probably see decreased outflows of capital there as their currency appreciated.)

The point of that fairly long guide to basic trade is that if currencies are allowed to trade freely then the govt. has no need to interfere as the free market should balance trade, ending huge imbalances, China is set to allow their currency to appreciate slightly in 2010, so perhaps we will naturally see a decrease in imports from there as they become more expensive.

Oh also, as mentioned earlier, having this outflow of cash (decrease in money supply) is a useful escape valve for inflation, as the cash going abroad decreases the quantity of cash circulating the economy, devaluing it internally, supressing inflation!

bikey2009

I work for an American company that used to manufacture its products in all the continents of the world. Over the last 10 years the demand for the product has changed and they have reduced the manufacturing plants from 7 to 2. One of the plants is a factory that they sold to an outsourced firm, the plant I work at remains within the companies portfolio and is based in London.

We have managed to keep the work at our location by the use of lots of "lean manufacturing" methods, but bloody hell, it's been hard work!

We have lost people through redundancies, but to be honest, it suited them ,in many ways, to take the money and go.

One of the results of this is that we export 60% of our product to other "finishing" plants around the world. The surprising thing is that 40% of all our production goes on a 5 week cruise to China!

We make it. Other plants, (including English finishing plants), turn it into end user size
saleable product for consumers in their part of the world.

We do have the skills and know how to manufacture products on a large scale.

ps. as I said in the first paragraph, it is a declining market. PM me if you are interested in my CV.

nolf

bikey2009 wrote:

ps. as I said in the first paragraph, it is a declining market. PM me if you are interested in my CV.

Oooh +1!!!!!!

I'm looking for some summer work experience in the financial sector/businessy in general work experience.

Sent off loads of applications, but if anyone has an opening over the summer with an eye to post grad opportunities, I've got a CV and will happily send you a full written application!!!!!!

bikey2009

bikey2009 wrote:

I work for an American company that used to manufacture its products in all the continents of the world. Over the last 10 years the demand for the product has changed and they have reduced the manufacturing plants from 7 to 2. One of the plants is a factory that they sold to an outsourced firm, the plant I work at remains within the companies portfolio and is based in London.

We have managed to keep the work at our location by the use of lots of "lean manufacturing" methods, but bloody hell, it's been hard work!

We have lost people through redundancies, but to be honest, it suited them ,in many ways, to take the money and go.

One of the results of this is that we export 60% of our product to other "finishing" plants around the world. The surprising thing is that 40% of all our production goes on a 5 week cruise to China!

We make it. Other plants, (including English finishing plants), turn it into end user size
saleable product for consumers in their part of the world.

We do have the skills and know how to manufacture products on a large scale.

ps. as I said in the first paragraph, it is a declining market. PM me if you are interested in my CV.

Sorry, I was planning to preface this post with some comments about how I have been watching and been intrigued by this post for the last few days, but I obviously got over excited about blowing my own trumpet :oops:

bikey2009

nolf wrote:

bikey2009 wrote:

ps. as I said in the first paragraph, it is a declining market. PM me if you are interested in my CV.

Oooh +1!!!!!!

I'm looking for some summer work experience in the financial sector/businessy in general work experience.

Sent off loads of applications, but if anyone has an opening over the summer with an eye to post grad opportunities, I've got a CV and will happily send you a full written application!!!!!!

Good luck