Thursday, 27 March 2008

Local Global Interplay

RTS has featured several times on this blog. They are located on the Northbank Industrial Estate and basically make robots! I guess this would be kind of cool if the robots they made would be of the sort used by mad scientists bent on world domination, and not of the type that assist food to packaged more efficiently. However, the company is suffering at the moment, partly because of the way the global economy operates. Cheap dollars are great if you are a tourist visiting the USA, but not so great if you are trying to sell products there and exchange the dollars for Sterling. A weak dollar means you get fewer pounds back. However, the reverse is true for your American competitors, who are now able to compete more effectively through price cos they can get more dollars for selling the same products in the same way.

A key problem in the UK is that nationally controlled fiscal policy has traditionally affected manufacturing industries in a negative way. Interest rates in this country are kept artificially high, in order to satisfy the requirements of the powerful financial services industry, but this doesn't help exporters, home-owners or anyone with or seeking credit. The US Federal Reserve Interest rate, for example, is currently 2.25% and in Japan the central rate is being held at just 0.5%. Compare this to UK where the bank rate is currently 5.25%. OK, these figures are not necessarily entirely comparable due to structural differences in the way the fiscal systems of each country operates, but the central message is clear - lending money in the UK is twice as expensive as it is in the USA and over ten times more expensive than it is in Japan. Yet the Bank of England cannot bring itself to consider even a 0.5% cut because of fears over the banking system caused by the shenanigans at Northern Rock. This affects new firm formation, innovation, exports, house prices, tourism and the cost of living etc in a very pernicious way. Another factor is that high interest rate also produce uneven geographical impacts, because of spatial variation in the production of manufacturing exports.

Source: RTS losses up - Business - News - Manchester Evening News

1 comment:

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