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Lecture 4. British economy






Plan

 

1. Free trade.

2. Natural resources.

3. Manufacturing and services.

4. A fading economy?

5. Risks and opportunities.

6. Women in the workforce.

7. A different perspective.

 

1. For a very long time Britain has been a trading nation - importing, exporting, investing abroad and receiving foreign investment. The Scottish philosopher, Adam Smith, argued in The Wealth of Nations (1776) that protectionism, putting up trade barriers between countries, was bad for everyone in the end. His ideas became the accepted orthodoxy, and during the following 100 years Britain got rid of its protective tariffs, and embraced free trade. The national economy is still mainly based on free markets.

One change in recent times is the list of Britain’s trading partners. Joining the EU has meant a major move away from old markets and suppliers in the Commonwealth (members of Britain’s ex-empire), and towards new markets closer at hand, though the USA is just as important as ever. Britain imports most goods from Germany and the USA (12-14 per cent each of the total), then France (10 per cent) and the Netherlands (7-8 per cent). The top four export destinations are the same countries in the same order. About half of Britain’s visible trade is now with the EU.

There have been other changes in every sector of the British economy: in primary, secondary and tertiary industries.

2. Primary industries are those that exploit raw materials: agriculture, fishing, mining, oil extraction and so on. Agriculture is a small part of the economy, employing less than 2 per cent of the workforce, and producing less than 2 per cent of the Gross Domestic Product (GDP). The low level of employment in agriculture is explained by a high level of efficiency: British farms are big (though not by the standards of those in the USA or Australia) and highly mechanised. This efficiency has a downside. Parts of East Anglia have been turned into vast, featureless food-producing units, with an enormous reduction in wildlife populations.

Fishing has always been a natural activity for an island population. But this sector, too, employs only a fraction of the number of people it used to, due to increased mechanisation and bigger boats with smaller crews. However, there are other limiting factors which mean that the British fishing fleet only catches two-thirds of the fish eaten by the nation. Membership of the EU has obliged Britain to allow European partners to fish closer to British coasts and share the fish in nearby waters. Iceland has prevented foreign boats from fishing in its waters, which were important for the British. In addition to this, stocks have been depleted by pollution and over-fishing: there simply are not enough fish to meet the demand. Workers in the industry complain bitterly about quotas (official limits on the numbers which can be fished within a certain period), but if the industry is not carefully controlled, there will be no future for the workers and no fish left.

Cheap, available energy was a major contributor to the industrial revolution 200 years ago, and it is just as important today. Britain has more energy resources than any other EU country. Previously, that energy came from coal: at its peak in 1913, more than one million miners were employed in the coal industry.

Most of the mines have now been shut down: today about 18, 000 miners are employed. However, since the 1970s huge quantities of gas and oil have been extracted from fields in the North Sea. The discovery of these fields was a stroke of luck for Britain, whose economy was, in other respects, doing rather poorly. Britain is now the world’s sixth largest producer of oil, with an average output of over two million barrels per day, some of it exported. (Most of the oil comes from Scottish waters, and this has been a factor in Scotland’s calls for independence.)

3. The term secondary refers to manufacturing and construction, and tertiary to service industries. It is in the balance between these two industries that one of the most striking changes has occurred in the British economy. At one time one of the world’s greatest manufacturing centres, Britain has largely given up producing goods in favour of other kinds of economic activity. In 1983, the country imported more manufactured goods than it produced for the first time since the industrial revolution. As manufacturing declined, so the service industries expanded. Many people have been worried by this change: how can it be economically viable to stop building ships and open restaurants instead? But tourism, transport and telecommunications are all important growth areas: in 1997, 25.5 million overseas visitors came to Britain.

Financial services such as accountancy, insurance and banking are very big business too. Britain is now the world’s second largest service exporter at 6 per cent of the total - ahead of both France and Germany, and just behind the USA. The contribution of service industries and their invisible exports means that the balance of trade (between imports and exports) is just about even, and the country is not heading for economic disaster - at least not in the short term.

The loss of factory-based jobs has increased the old north-south divide - the disparity in wealth between the rich south of England and the less prosperous north of England and Scotland. The heart of the prosperous zone is London itself, and in the heart of London is the headquarters of the successful financial services sector - the City. This financial centre has expanded east into the developing docklands area of Canary Wharf, where 25, 000 people now work. Today, the City is one of the world’s biggest financial centres, and handles 59 per cent of international equity (share) trading. Another huge change took place in the 1980s, under Margaret Thatcher’s Conservative government: the privatisation of certain state-owned companies. Previous Labour governments had been keen to nationalise parts of the economy - in some cases (as with the car industry), simply to save them from disappearing. This sort of interventionism was anathema to Margaret Thatcher and her free market philosophy. So she sold off car makers such as Jaguar, the steel and shipbuilding industries, the defence specialists British Aerospace, and the state-owned bus companies, including long-distance coach lines and local city buses. The Conservative Government also denationalised enterprises which were state owned in most countries (other than the USA): the telephones, railways and the national airlines, including British Airways. Finally, there was the unpopular sale of the public utilities: the gas, electricity and water suppliers became private companies, with their prices controlled by government regulators.

4. Privatisation has caught on around the world. Margaret Thatcher and British business people are often given the credit for starting the trend (although in reality they were only following the American model). But in other respects the British economy is seen as a story of long-term decline interrupted by occasional bursts of recovery.

Two hundred years ago the British economy seemed invincible. Great wealth had been established from a protectionist market within its Empire, from the slave trade and colonial resources, and from the exploitation of workers and children. Using the capital built up in this way, and the huge wealth of the land-owning aristocracy, Britain managed to have its industrial revolution before any other country. By the time of the Great Exhibition of 1851, after decades of staggering economic growth, Britain was way ahead of its international competitors. Britain’s railways, shipbuilding, and its coal, iron and textile production were all world leaders. But by the early 1870s, Germany and the USA were challenging this economic power, and Britain has never recovered its position. From having the world’s highest GDP per capita, it fell to third place by 1913 and today hovers around seventeenth place. In 1913, it still had a 32 per cent share of the world’s manufactured exports; today the figure is nearer to 5 per cent.

The reasons for economic decline have long been a favourite topic of debate in Britain. It is a complex subject and several factors are commonly blamed. Not enough investment: industries have slowly but surely fallen behind the competition as they failed to take on or develop new methods and machinery. Short-termism and speculation: the money men in the City who make the investment decisions have looked for immediate profits worldwide, not the long-term development of local industry. Labour problems: in the 1960s and 70s, management and workers were often in conflict, and Britain, together with France and Italy, became associated with strikes and other types of industrial action, although this is no longer the case today. Welfare and military spending: in the middle years of the 20th century Britain had a more expensive health and welfare system than its competitors and, though defence commitments have diminished since the end of the Empire, funding for the military has remained high. Education: schools and universities have not given technology the attention and status it needs.

All these factors have probably played a part in the country’s economic decline, but there is one other general point to remember: Britain started ahead of its rivals in the industrial race, and it was natural and inevitable that others would catch up and overtake.

5. For the British economy today the picture is a mixture of positive and negative. On the plus side, inflation seems to be under control at around 2.6 per cent, especially when compared to its high point in the 1970s of over 25 per cent per year. Productivity used to be rather low, but in recent years it has grown faster than in most countries. There is a great deal of inward investment: American, Japanese, Korean, French and German companies have bought British firms or set up their own factories. Some consider inward investment as a failure, with the issue of foreign control; but this must be weighed against outward investment. Britain is also a major investor overseas, and many British firms buy foreign companies.

The financial services are a strong point, as are creative industries such as publishing, TV and especially pop music: revenue from film and television exports has been increasing at around 7 per cent a year. On the minus side, manufacturing shows little sign of re-establishing itself as the powerhouse of the economy. In most areas the technology has fallen behind that of Britain’s main competitors.

Unemployment was, until recently, a major problem (as in most EU countries) with 10 per cent of the population remaining jobless for most of the past 15 years. Recent economic improvement, helped by a devaluation of the British pound in 1992, has reduced the unemployment rate to below 5 per cent for the first time in 20 years.

Among those with jobs, Britain has a relatively deregulated and flexible labour market, with trade unions weakened by tough laws introduced by the Conservatives, but left in place by the Labour government. However, whilst this flexibility may help to create employment, such jobs tend to be low paid and are often temporary contracts, leading to growing economic inequality and uncertainty for many working people. A minimum wage (£ 3.60 for those aged 22 or over) introduced in 1999 may help to prevent very low levels of pay.

6. For a long time the number of women in paid work has been high in Britain. Right through the 19th century women went out to jobs in factories and offices. But that did not mean that they worked on equal terms with men - far from it. Women finally got the vote in 1918 (subject to certain restrictions), after repeated campaigns by the suffragette movement in the 19th century. But it was not until 1975 that employers’ unfair treatment of women was outlawed by the Equal Pay Act and the Sex Discrimination Act. The latter also protected women in education, housing and other aspects of life. The legal changes have been reflected in social life, with women asserting themselves in all sorts of ways, and challenging traditional gender roles. Unemployment among women is now lower than among men.

However, there is still a very clear-cut division between the sexes in some areas. The sciences, for example, are male dominated: only 5 per cent of university physics teachers are women; and around 20 per cent of women hold positions in government and parliament - approximately half as many as in Scandinavian countries. In most areas of work, women are still not getting the best jobs.

There is often said to be a glass ceiling, an invisible barrier to promotion. This fact is reflected in average earnings: women only receive 73 per cent of the average man’s pay. Women also often have two full-time jobs: one at home with a family and house to look after, and one to bring in a second income.

7. In looking at economic statistics, it is easy to forget the wider picture. Growth is, of course, important to the economy: the twin aims are always higher efficiency and higher production. Efficiency is a good thing in itself, if it means that work is done as cost-effectively as possible. But what if improved efficiency is at the expense of jobs, so that some benefit from it at others’ expense?

The great American economist J.K.Galbraith has admired the British for choosing quality of life rather than maximum economic growth. The government has taken up this idea and started to publish annual quality of life indicators - these are similar to economic statistics but cover such things as education, health, housing quality, pollution and diversity of wildlife. In 1998, the best places to live in England, according to these indicators, were North Yorkshire and the north-east. The idea is to measure things other than GDP which positively contribute to people’s lives.

 

 


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