The economy of the United Kingdom (UK)

I was asked to comment on the UK economy, so here goes!

The idea of sending manufacturing away to low-wage countries was dreamed up in the 1960s.

The process of sending manufacturing away has been going on for 50 years, not 30 years as some people say.

In the early 1960s, I had just graduated from university and I heard a news report that Singer Sewing Machine Company was going to send manufacturing away to low-wage countries.  I knew immediately that this idea would take hold and would lead to the disaster we see today.

In 1966 I moved to Canada and I found that Canadian business and government officials wanted to do the same thing as in the United States. i.e., send manufacturing away to low-wage countries.

Similar to going to the confessional, Canadian officials went to a think tank to get a dispensation in advance, that would allow them to do what they wanted to do.

The think tank provided the following:

+  Manufacturing is old-fashioned and can be done anywhere  

+  Instead of manufacturing, we can do high-tech work, knowledge-based work

The above statements coming from the think tank were and are completely fallacious and incorrect, and demonstrate no understanding of anything.

From the above, it is clear that "ideas" that dawned in the minds of UK officials and "thinkers" in the 1970s and  1980s were already old-hat.

Let's summarize the facts

To be prosperous, a nation must have an adequate level of manufacturing.  It can be paper clips, toys, garden tools, toilets, subway cars or jet engines, but a nation must do manufacturing.  It is vitally important to understand and accept this fact. 

Manufacturing creates wealth because it creates a needed item that was not there yesterday.  No other sector of the economy provides this wealth creation effect.  Send away the manufacturing and you send away the wealth creation effect, leaving the nation impoverished.  This result is clearly seen in the UK and in other western countries.

Knowledge-based work is very good but the physical items that are manufactured based on this work must be manufactured at home, not in the Far East.  Note also that "knowledge-based work" can also be sent away to foreign countries.

The connection between manufacturing and national wealth can be seen in the prosperity of China, Thailand, and Mexico, and in the absence of prosperity in the UK and other western countries because they have sent away their manufacturing.

Some people say that there is no point bothering to bring manufacturing back to western countries, because the manufacturing will be automated and will not create employment.  This viewpoint is one of many completely wrong viewpoints that are repeated over and over again.

The fact is that if you do the manufacturing in UK the UK economy will receive the wealth creation effect even if there is not a worker in sight in the factory.  But there will be tremendous further benefit to the UK economy if the automatic manufacturing equipment is designed and manufactured in the UK. And of course this work will create employment.

Dr. Jon Rynn, is a political science professor in the United States and is the originator of the idea that for full prosperity a nation has to make the machines that make the goods.   

China

The Chinese government in 2006 announced a long-term plan to become self-sufficient in manufactured goods.  So even China is concerned about too much importation of manufactured goods.

This move by China provides the perfect opportunity for western countries to stop worrying about WTO and other bureaucratic nonsense.  The western countries must stand up on their own two feet and take back control of their countries.  The idea of uncontrolled and unlimited free movement of goods has been totally discredited.

Included in the above, western nations must arrange with their suppliers to reduce importation of manufactured goods, down toward balance with the exports of the western countries. 

China and other supplying nations must be brought to understand that if they don't agree to the above arrangement they will kill the goose that lays the golden egg.  In other words, the western nations will be so completely wrecked that they will no longer be able to buy ANY imported goods.

As an example I analyzed the trade for Canada in 2013.  Canada trades with 220 countries.  In round numbers, 100 of those countries supply more goods to Canada than Canada exports to those countries.  As an example within an example, China provides five times more goods to Canada than Canada provides to China.

I calculated that if all the 100 countries reduced their supply to Canada by a reasonable 50 to 60%, Canada's severe and damaging trade imbalance would largely disappear.  Canada could get on to an upward economic path with increased manufacturing, increased employment, and increased wealth creation that would benefit all sectors of the economy.

A busy business of fantasies

In the USA, there are commentators who create fantasy explanations for why the economy is so bad with so many people unemployed.  These fantasies have been imported into Canada by the largest "news" magazine in Canada.  A UK cabinet minister apparently had time on his hands and created another fantasy explanation that can also be found in the same Canadian magazine.

One commentator puts forward the blame-the-victim theory, in which ordinary people, not powerful business and government officials, are responsible for the problem.

The FACT is that the present negative situation in the western countries has been created by sending manufacturing away.  This insane action is the ONE AND ONLY cause of the problem.

And the FACT is that the one and only way to SOLVE the problem is to reduce importation of manufactured goods to allow domestic manufacturing to recover and grow.

Canada

Canada has a strong censorship problem.  ALL the political parties of Canada are cooperating with each other to prevent any mention or discussion of the obvious idea of  reducing importation of manufactured goods.  The election campaigns consist of the softest of generalities rather than any hard facts or proposals related to improving the economy.

For example, I have proposed to the Ontario Minister of Finance (Ontario is one of the provinces of Canada) that the Ontario government would put in place the principle that all purchases by the government must be from Canadian sources.  This measure would cost the government nothing and would increase employment and improve the economy immediately.

There is surprisingly little information available from Statistics Canada regarding imports and exports of manufactured goods.  They claim there is no information prior to 1988.  When I asked for the information for 1988 and later, they said it is under review and not available for release. 

Industry Canada has released data showing that from 1992 to 2005 inclusive the balance of trade in manufactured goods bumped up and down between plus and minus $20 billion.  This amount is not of great concern.

But in 2006 the imbalance suddenly jumped to $27.9 billion, nearly double the highest previous values.  And from then on the imbalance increased significantly every year, up to an estimated amount of $121 billion for 2014.

These amounts refer to the net amount of money that Canada has to send out to foreign countries in each year, to pay for imported manufactured goods.  ("Net" refers to payment for imports over and above the imports balanced by exports.)

From 2005 to 2014 the net amount of money sent out increased by a factor of 7.6, or in other words a 660% (six hundred sixty percent) increase in only ten years. 

Canada is a small nation with a population under 36 million, suffering under total mismanagement by the political system.  No controls are placed on huge foreign companies coming in, at any time, as they please.  In addition, many Canadian companies have been allowed to be sold to foreign interests.  All of these companies send their profits back to their home countries. 

The total outflow (net purchases of foreign goods, plus profits of foreign-owned companies going out) was $199 billion in 2014, in round numbers $5,600 for each and every man, woman, and child in Canada.  The total for the ten years 2005 to 2014 inclusive for both outflows was $1.453 trillion.  Think how the Canadian economy and the Canadian people could have benefited if even half this amount had been retained in Canada, to work in the Canadian economy.

And the other question is how long can Canada survive these two growing outflows, real wealth hemorrhaging out of Canada, never to be seen again.