MN101_Lecture_2_handout - MN101 Business Analysis and...

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MN101: Business Analysis and Decision Making Lecture 2 handout: How can a Value Added Framework explain the reduction in the UK Manufacturing Sector? 1. Aims: To introduce the use of the value added framework. To understand the process of wealth creation. Appreciate the importance of sales and value added. Present a basis for discussion in the workshops. 2. Context/scope: Lecture presents a method of analysis which all will become familiar by the end of the course. Understand and appreciate the foundations of economic growth and decline. International comparisons (mainly UK centred). Set the corporate performance within a macro context. 3. Lecture structure- fairly straightforward: First, we consider the economic background till 1980 and detail some of the economic failures/concerns. Secondly we discuss the features of the two dominant explanations of economic decline (I) the “crowding-out” theory, (ii) trading failure. Thirdly, we discuss the merits of the explanations using a range of statistical data. Fourthly we discuss the implications on industry of the post 1979 change in economic policy. Use a Value Added Framework to explain economic decline. The Concerns 1. Declining share of international trade. 2. Declining share of world manufacturing output. 3. Reduction in manufacturing share of GDP. 4. Weak Balance of Payments profile. = UK’s declining international role. The Explanations Two competing explanations of economic decline: 1. The “crowding-out” explanation by Bacon & Eltis in the book Britain’s Economic Problem: too few producers. The central explanation was expansion of the government and service sectors which had drawn resources away from manufacturing. 2. The failure in International trade explanation by Ajit Singh’s in his article UK Industry and the World Economy: a case of de-industrialisation. The central explanation was the UK’s relatively weak international trading position. 1
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The Evidence Government’s role had expanded with government’s share of GDP (inc transfer payments) at 42%. Government expanded into health, a social welfare provision traditionally within
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MN101_Lecture_2_handout - MN101 Business Analysis and...

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