Monetary policy sounds bland but it kills vegan shoe factories


Monetary Policy

From 1979 until about 2008, all UK political parties supported a thing with an innocuous, technical-sounding name which was Monetary Policy, as a tool to avoid inflation. It sounds like adjusting a thermostat somewhere on the wall at the Bank of England. When it came-in in 1979 it was raw, extreme, and experimental, run by ministers rather than the Bank of England, A fifth of manufacturing closed within five years. A quarter of the workforce was un incapacity benefit, income support, or one of the vast schemes like Youth Opportunities or the Community Programme. Others did pointless college courses on student grants, just to stay off the dole. I did economics, which should have been a good course for finding explanations and diagrams but no: diagrams like this only emerged much later. This one is from the Bank of England's report to MPs on a select committee, about the time that the policy went out of fashion.

Interest Rate

Official Rate sounds techncial, but the important point is how much government pays to borrow the national debt, which was rising fast at the time. Governments would usually pay the minimum they can, but if one pays a fraction more, it will attract investers from all over the world looking for somewhere to lend money. They convert their money into pounds, causing the bottom left arrow. It's also very expensive to taxpayers, but the point of it is to cause the bottom left arrow so that's what's on the diagram.

Exchange Rate

Exchange Rate is what you'd expect. The pound gets more expensive if so many people convert their own currencies to pounds. This takes us round the bottom row of arrows to import prices. If you work in a factory that does a lot of exports, that stops even more suddenly. MG cars had to close very soon after 1979, while cars made in the UK to sell in the UK stayed in production a few years longer. The same went for Tredair, Solovair, Hawkins boots and the like, although some of them were sold in the UK and a bit of production continued, mainly for the best known brand. 

Meanwhile there is a recession at home. So many factory workers loose their jobs; confidence in the future is low, money is expensive to borrow. Government started the problem by offering more for the money it borrows, and if the national debt is about half of national income, that's a lot of extra money to spend on debt interest. There are government spending cuts to make-up.

You might think that this is a kind of saboutage that no sane government would get elected to do, but the economists and the pundits don't have miuch to do with factories; they work in services where the effects are not so important. If they live in a service area like London, they find loads of people move-in to get the remaining jobs, house prices rise, and it feels as though the recession is over. What these people are interested in is the next box.


Inflation was a problem in the 70s because of an oil crisis caused by Saudi Arabia pushing-up the cost of petrol. It was widely blamed on under-invested factories and strike-prone unions, and the theory was that a knock to the system would stop the habit of inflationary wage rises, maybe close the odd lame-duck factory, and allow the economy to christalise again according to the rules in economic theory books which would create loads of new jobls. Some of this, slowly, eventually, happened. Some of bad bits would have happened anyway because North Sea oil pushed the exchange rate up without providing jobs, while the new containerised docks like Felixtowe would have allowed more cheap imports in anyway. The difference is that they happened far worse and far quicker than they needed to

Shoe styles and choices

History effects our taste in shoes, wholesale or retail. Some styles of boot and shoe were popular in the 1980s because they brought people together; they were among the things that policeman and coal miners, musicians and audience, one political party or another had in common. Whether this is relevant a few decades on, I don't know, but it's part f the history of what people liked to wear.

A similar fashion worked the other way in the 1930s recession.  A government was convinced that the Stirling Area - mainly the UK - should stay on the Gold Standard rather than float at the going rate. So the currency was too high, while another government department failed to introduce national insurance or a welfare state in the colonies, causing a lot of unfair imports and rapid closures of the textile industry. Bangladesh finally got a workers compensation scheme for workplace accidents in 1939, 32 years after the UK, and never got national insurance even after independence.

In the UK, there was so much unemployment that the new national insurance system couldn't cope and workhouses remained open. On going to these council institutions as an unemployed person, you were often issued with a pair of clogs. People often wore clogs for the Jarrow march on London, arranged to try to explain to policitians how important factories and benefits are. This might have brought clogs into fashion, but it had the opposite effect, and now they're very seldom seen outside of clog-dancing clubs.

Why there aren't more UK Shoe factories

The quickest effects of monetary policy  on shoe factories were after 1979, when most mainstream footwear production moved to Europe and Asia, leaving pockets of production and niche markets. There used to be a shop in Clapham, London, with a shoe lasting machine in it for making dance shoes. WJ Brooks Devine company, known as the Kinky Boot Factory in a documentary and a musical, closed but continued for years with boots made in smaller workshops. They had a page about it on their web site - the one in Holloway Road, London, that closed for example. That was mentioned on a similar page on one of my rivals' web sites about their constant search for small footwear workshops in the UK that tended to close soon after being found. There was a Shoe Trades Directory with a lot of them in it. There was one in a basement opposite Tesco Dalston, makeing girls school shoes. There was another in a basement in Shoreditch making welted boots for Shellys, who mainly used a factory on the North Circular, and those are just the factories in London; Northampton and Leicestter had loads more. There was even one on the Isle of Mann making Blizzard Boots for M&S, who still bought British products until they lost interest in the idea in 2005.

After the 2008 recession, monetary policy never quite came back into fashion; inflation wasn't a problem. Meanwhile the cost of shipping goods from Asia rose, as did prices in China. The list of big companies closing became lists of retailers who had imported stuff from China and made enough margin run clearance sales for any surplus stock and still stay in business. This hasn't been true for them recently, and every winter we hear of another retailer going bust again as people buy more in the internet anyway. Maybe customers will buy straignt from UK factories sooner or later and cut-out internet retailers like


I don't know what to conclude, but people search for this stuff on the web site and it's good to write it.

previous draft found on another page and pasted here

[ technical bit: it's called Monetary Policy. Strictly speaking, they subsidise overseas lenders by paying a tiny fraction more than necessary to sell government debt. This pulls-in overseas lenders and the slosh of money helps raise the value of the currency, making imports cheaper and exports more expensive to sell. The UK government was an early adopter of this system in 1979, and for years later there was a special slot on the TV news for factory closures. Some huge proportion of manufacturing capacity was lost in the first 5 years, but, surprisingly, the other political parties thought this was quite a good thing and adopted the same idea, contracting it out to a body called the Monetary Policy Committee of the Bank of England. The idea caught in in Germany too, where the Euro is still controlled to reduce inflation at the expense of South Europe where shoe factories are closing, there are riots, and there is a lot of unemployment. The effect on exchange rates makes all imports from other currency zones easier - whether or not from countries without useful courts votes or a welfare state. Longer-term, the effect of monetary policy is to make manufacturing extinct, because it takes decades & generations to build-up, but only a few years to close] tends to buy from UK factories, but other vegan shoe shops have often bought from South Europe where shoe factory closures are a problem. A shop can get in touch to make a repeat order and find that the factory is no longer there. You will have seen on the news what this kind of monetary policy has done to the economies of South Europe, where there used to be more fashionable womens vegan boots made a year or two ago. Now there is 25% youth unemployment in Spain.

If this sounds odd, there is a flow diagram from the Bank of England showing the two transmission mechanisms by which their subsidised rates of interest to lenders can reduce inflation. The first and familiar one is that mortgages and other borrowing become more expensive, forcing people to divert money that way from other spending and so reducing other consumption and increasing competition.

The second transmission mechanism is that subsidised lenders come-in from other parts of the world, increase the value of the currency, and cheapen imports. It's the bottom line of arrows in this Bank of England diagram.

Their explanation of how a government can pay a fraction more than necessary to sell government debt - the official rate - effecting the exchange rate and import prices. Export prices, and so external demand are effected too, reducing any opportunity for people to make things in the UK in ethically reasonable conditions.

"The exchange rate is the relative price of domestic and foreign money, so it depends on both domestic and foreign monetary conditions. The precise impact on exchange rates of an official rate change is uncertain, as it will depend on expectations about domestic and foreign interest rates and inflation, which may themselves be affected by a policy change. However, other things being equal, an unexpected...

...rise in the official rate will probably lead to an immediate appreciation of the domestic currency in foreign exchange markets," closing down 25% of UK manufacturing in 1979-1984 "and vice versa for a similar rate fall."

"The exchange rate appreciation follows from the fact that higher domestic interest rates, relative to interest rates on equivalent foreign-currency assets, make sterling assets more attractive to international investors. The exchange rate should move to a level where investors expect a future depreciation just large enough to make them indifferent between holding sterling and foreign-currency assets"

Economists have a history of saying un-true things, which is how so much manufacturing got closed-down in the UK. There is a long page on another web site about studying economics in the UK in the 1980s.