UK Economics : Is the march of the makers, a case of lions led by donkeys?

"Lions led by donkeys" is a phrase used to describe the British Infantry of the First World War and to condemn the generals who commanded them. The contention is that brave soldiers (lions) were sent to their deaths by incompetent and indifferent leaders (donkeys).

"The English Generals are wanting in strategy. We should have no chance if they possessed as much science as their officers and men had of courage and bravery. They are lions led by donkeys." According to the German Command Headquarters.

Strategy in business and in war is key. Which battles at which time, with what resource. SWOT profiling, constant benchmarking is key to success. Understanding this makes it more difficult to understand the present coalition strategy in expecting so much of the manufacturing sector and denying the contribution of the business, financial and professional services sector, especially banking,  to the British Economy

The march of the makers, rebuilding the workshop of the world to finance the big society is  a battlefield folly. The march is faltering, the trade deficit continues to expand. The analysis of forty years of UK trade amply demonstrates the UK needs a strong service sector to finance the trade in goods deficit.

According to a recent paper by Yiping Huang and Bijun Wang, 2011 China’s manufacturing sector accounts for 41% of output compared to just 12% in the UK. With a world average of 13% China’s relative share is 3.2 compared to the UK’s 0.9. That’s tough competition.

China’s revealed comparative advantage for manufactures is 1.13 compared to the UK’s 0.79. A larger competitor, tough competition, with a significantly higher competitive advantage will provide a difficult challenge.

In financial services, the reverse is true, China’s revealed competitive advantage is 0.03, compared to the UK’s 3.01. The world average is just 0.5. The UK is the strongest player in the world of exports in financial services with the highest revealed comparative advantage. So why not promote and support the sector instead of suggesting an evil imbalance exists within the economy?

Why place so much hope in an ill equipped manufacturing sector in trend decline long before Gandhi promoted homespun? The renaissance just will not happen. Play to your strengths may sound facile in terms of strategy but it should be something even donkeys can grasp.

Notes
The revealed comparative advantage was first proposed by Balassa (1965).The comparative advantage of a country's industry could be revealed by the ratio of the share of an export sector's exports in total exports to that share  for the world. Balasa, Bela 1965 Trade Liberalisation and revealed comparative advantage" Manchester School of Economic and Social Studies Bulletin Vol 33 No 2 pp 99 - 117

Yiping Huang, Bijun Wang Chinese Outward Investment: Is there a China Model. China & World Economy Volume 19 No 4 Jul - Aug 2011

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.