Letter: Between services and manufacturing

Sir: Although the logic of Richard Brown and DeAnne Julius that manufacturing and services are equally valid as economic processes is correct (Letters, 26 November), this is not enough to justify indifference to the balance between the two.

First, because manufactured goods are easily tradeable across borders, manufacturing is more exposed to international competition than services. There is, though, no reason to suppose that once service trade broadens, the competitive threat from developing countries in many services - for example health, computer programming, financial transaction processing or aircraft maintenance - will not be at least as serious as it is in manufacture.

Manufacturing and services do not compete on a level playing field. Tax breaks on house purchase, pension contributions and VAT exemption create a privileged environment for services. And because of its international exposure, manufacturing carries most of the costs of economic policies such as high interest and exchange rates intended to benefit the economy as a whole. An advertising agency can switch from Rover to BMW but Rover's machines and workers cannot.

But the most important difference is that manufacturing offers the only known way to transform pension payments into assets that can increase the supply of goods and services in the future. A business making wind-powered generators looks a lot better destination for pension monies than a video game company, and failing to perceive this has Maxwellian implications for our future personal and national prosperity.

Yours sincerely,

DOUGLAS WOOD

Professor of Banking and Finance

Manchester Business School

Manchester University