The misplaced view that our economic competitiveness is narrowly
built on banking, and that it should be based on manufacturing,
distracts from building on our advantages in a wider range of
industries – including the arts, biomedical sciences, and
intellectual property – and overcoming the inequality challenges
they can pose, according to new research published today
(Thursday) by the Resolution Foundation.
Enduring strengths – the 17th report for
The Economy 2030 Inquiry, a collaboration with the LSE,
funded by Nuffield Foundation – examines what the key strengths
of the UK economy are as well as the opportunities, and
challenges, they bring.
The UK stands out as a service-oriented economy, with services
comprising nearly half of UK exports in 2019 (47 per cent) –
roughly twice the OECD average of 25 per cent – making the UK the
second biggest exporter of services in the world.
But while the UK is well known for exporting financial and
business services (which account for 9 and 7 per cent of total
exports respectively), other services are also prominent – with
financial services actually falling as a share of exports from 12
per cent in 2009 to 9 per cent in 2019, despite services growing
from 44 to 47 per cent over the same period.
The report finds that the UK is highly specialised in personal,
cultural and recreational services and charging for the use of
intellectual property – specialisms which have seen average
annual growth of around 6 per cent over the past decade.
While the UK stands out for being a broad-based services
exporter, it also has notable advantages in several growing goods
categories, including pharmaceuticals, beverages, aircraft and
works of art. These four categories combined account for 8 per
cent of UK total exports, worth $65.5 billion in 2019.
The report notes that recent political and economic debate
focused on reorienting the UK economy awayfrom services
and towards more manufacturing ignore the reality that a
country’s export specialisations are very persistent. Seven of
the top 10 products in which the UK was most specialised in 1989
remained in the top 10 in 2019, with the top two then – financial
services and beverages – still the top two today.
This reorientation would also require huge additional investment
– of approximately 2 per cent of GDP for a decade – in order to
close the gap between the UK’s current position and the average
levels of physical and human capital in manufacturing-dominant
economies.
The report adds that just as policy makers should face up to the
reality that the UK will be a services-oriented economy in
future, they should confront the particular challenges that
brings with it for gaps between people and places.
Workers in tradable services – such as banking – are 60 per cent
more likely than the average worker to be in the top 5 per cent
of earners. In contrast, workers in the tradable goods sector are
more likely to be upper-middle earners.
The report adds that as tradable services tend to be concentrated
in more productive areas of the country – with London both the
most productive area and the largest exporter of services
relative to the size of its economy – a focus on boosting these
sectors reinforces spatial inequalities in the UK, unless action
is taken to broaden their economic footprint.
Krishan Shah, Economist at the Resolution Foundation,
said:
“The UK has a more diverse range of economic strengths than many
people think – from arts and aircraft, to biomedical sciences and
beverages.
“An economic strategy which builds on these specialisms and
innovates in areas close to the UK’s current mix of exports
offers substantial gains, while reorienting the economy towards
manufacturing – as some have encouraged – risks squandering the
UK’s significant long-term economic strengths.
“At the same time, policy makers need to recognise the UK’s
export specialisms seem to reinforce pay inequality and regional
gaps.”
Notes to Editors:
-
The Economy 2030 Inquiry is a collaboration between
the Resolution Foundation and the Centre for Economic
Performance at the LSE, funded by the Nuffield Foundation.
- The Nuffield Foundation is an independent charitable trust
with a mission to advance social well-being. It funds research
that informs social policy, primarily in Education, Welfare, and
Justice. It also funds student programmes that provide
opportunities for young people to develop skills in quantitative
and scientific methods. The Foundation has funded this project,
but the views expressed are those of the authors and not
necessarily the Foundation. Visit www.nuffieldfoundation.org
