economy.docx

economy.docx

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economy

TheUKEconomy

TheLabourGovernment1945-1951

TheLabourgovernmentinheritedthesevereeconomicproblemsofthepre-warperiodwiththeaddedburdenoftheeconomicdestabilisationofwar.Britishexportsin1945stoodatathirdoftheiralreadylow1939level.Aflurryoflegislationcoveredthreemainareas-nationalisationandeconomicplanning,socialwelfareandtradeunionlaw.

NationalisationandPlanning

Labour'sprogrammeofnationalisationwasextensiveandbold.Thecoal,gasandelectricityindustriesweretakenintostatecontrolin1947.Thetransportinfrastructure-railways,mostwharvesanddocks,London'sbusesandtubes,andlaterroadhaulage,werenationalised.Themajor,butailingironandsteelindustrywasnationalisedin1950aswastheBankofEnglandin1946.Severalsmallerindustriesandserviceslikecablesandtelecommunicationsandpartsofthehotelandcateringtradewerealsoinstatehandsby1951.Bythenroughly20%ofthenationaleconomywascontrolledbythestateemployingaworkforceofovertwomillionpeople.However,onlyunprofitablesectorsweretakenintostatecontrolinorderto'makepossibletheorganisationofamoreefficientindustry'intheinterestsofthenationasawhole.Bigcompensationpaymentsgiventotheformerownershelpsexplainwhytherewassolittleoppositiontonationalisation（exceptinthecaseofironandsteel）.

TheaimwastocreateastrongereconomybutthewayLabourwantedtodothis-using4governmentdepartments（manpower,materials,balanceofpaymentsandcapitalinvestment）didnotworkaswellastheyhopedbecauseprivatecompaniesonlywantedbiggerprofits–theydidnotcareaboutlookingafterthepeopleofBritain.

Thepeople,theConservativePartyandtheUS（whohadtolendBritainmoney）demandedthatcontrolbegivenbacktothecompanies.InreturnforhelpingBritain,theUSAdemandedthatBritainspendlessonwelfareandde-controltheeconomytomaketheEuropeanmarketbetterforAmericans.

TheWelfareState

Fromthe1930'sonwards,Labourwastheonlypartywhichmadetheextensionofsocialbenefitsforallfrom'thecradletothegrave'atopcampaigningpriority.Labourcreated:

1.theNationalInsuranceAct,whichprovidedforsicknessandunemploymentbenefitforallwhohadpaidtherequirednationalinsurancecontributions

2.theNationalHealthServicetolookafterthepeopleofBritainforfree

Labourresolutelyopposedameanstestbecauseittooktheviewthatthewelfarestatewouldbeanon-starterunlessitsbenefitsweregenuinelyopentoall.ThisprincipleofuniversalityremainedthecornerstoneofLabourandtheTUC'ssocialpolicyforthenextfivedecades.

1947:

TheTurningPoint

1947sawaveryharshwinter,afuelshortageandafinancialcrisis-thegravestsince1931soLabourembarkeduponaseriesof'austerity'measureslike:

a）cuttingdownonimports

b）cuttingspendingonsocialservices

c）freezingwages

Britain'sDeclineinEconomicGrowth

OneofthemostdisappointingfeaturesoftheBritisheconomysincetheSecondWorldWarhasbeenitsfailuretomatchthegrowthperformanceoftheotheradvancedindustrialisedcountries.ThisrelativedeclinestartedinthelatenineteenthcenturywhenanumberofEuropeancountriesbegantooutstripBritain.

Butfromtheearly1950sonwardsBritain'sgrowthagaintendedtolagbehindtheotherindustrialisedcountries.

Reasons:

1.Lowsocialcapability-theabilityofacountrytoexploitexistingscientificandtechnologicalknowledge.

2.Britainindustrialisedmuchearlierthanothercountries.

3.Poorqualityofmanagement.

4.Underskilledworkforce–universitydegreesnotdirectlylinkedtoajob.

5.Bankshavefailedtoinvestmoneyintoareaswiththebestgrowthprospects.

WhydidtheConservativePartywinin1979?

1.Declininglivingstandardsandhighinflation（9.3%）

2.The“WinterofDiscontent”wherepowerfultradeunionsdemandedlargepayincreases（22%）andwentonstrikealot.StrikesbylorrydriversandthreatsfromoiltankerdriversthreatenedBritainwithawinteroffuelandfoodshortages.TherefusecollectionservicesinLiverpoolwentonstrike,causingrubbishtopileupinthestreets,andmostdepressingofall,thegrave-diggerswentonstrikesodeadbodiescouldnotbeburied.

3.TheLabourelectionmanifestoofferednomajornewideas.

4.TheConservativeParty:

a）PromisedachangefromKeynesianeconomicpolicyusedsince1945

b）Sawinflationasbeingmoreimportantthanemployment

c）Promisedtomaketradeunionslesspowerful

d）Promisedtoreducetaxation.

TheUKEconomyundertheConservativeGovernment

TheConservativegovernmentsetinflationastheir“overridingobjective”andaccordinglyraisedinterestratesinanattempttoreducethemoneysupply,unfortunately,thisoccurredduringatimeofrecessionandahighexchangerate.Thiscreatedconditionsthatplungedtheeconomyfurtherintorecessionthanwasexpected.Thegovernmenthadtowinstrikeswithoutlegislation.Theysoldcouncilhousesatadiscounttoencouragehomeownership.

ThesecondtermoftheThatcheradministrationsawanumberofprivatisationoffers,theeconomygrewatarateofabout4%ayearwhileinflationfellfrom11.9%in1981tobelow6%in1983to1987,withalowof3.4%in1986.

Theeconomywasboomingandthebalanceofpaymentsactuallywentintotheblack.Unemploymentremainedhighhoweverandreachedatoplevelof3.2millioninApril1985.

TheUKEconomyunderNewLabour

In1997,theConservativePartylostthegeneralelectionandNewLabourwon.

NewLabouracceptedtheeconomicefficiencyoffreemarketsandbelievedthattheycouldachievetheaimsofsocialism.Marketswerealsousefulforgivingpowertoconsumersandallowingcitizenstomaketheirowndecisionsandactresponsibly.NewLabourembracedmarketeconomicsbecausetheybelievedtheycouldbeusedfortheirsocialaims,aswellaseconomicefficiency.Thepartydidnotbelievethatpublicownershipwasefficientordesirable.Ingovernment,thepartyreliedonpublic-privatepartnershipsandprivatefinanceinitiativestoraisefundsandmitigatefearsofa'taxandspend'policyorexcessiveborrowing.

Indomesticgovernmentpolicy,TonyBlairsignificantlyincreasedpublicspendingonhealthandeducationwhilealsointroducingcontroversialmarket-basedreformsintheseareas.InadditionBlair'stenuresawtheintroductionofaminimumwage.TheBritisheconomyperformedwellandtherealincomesofBritonsgrew18percentduring1997-2006.BlairkepttoConservativecommitmentsnottoincreaseincometaxinthefirsttermalthoughratesofEmployee'sNationalInsurancewereincreased.Healsopresidedoverasignificantexpansionofthewelfarestateduringhistimeinoffice,whichledtoasignificantreductioninpoverty.

NewLabour’sEconomicDecisions

1.GivingtheBankofEnglandthepowertosettheUKbaserateofinterestautonomously.

2.DecidednottoadopttheEuro.

GordonBrownplayedonthemythofbeinganeconomicgenius,inactualfactallGordonBrowndidwastobankruptBritainasLabourwentonanoutofcontrolpublicspendingspreeastheysoughttorewardtraditionalLabourvoterswithcashthatcontinuedtoaccumulateevergreateramountsofdebtthatnowrisksbankruptingBritain.

TheEconomicPolicyoftheCoalitiongovernment

Inadesperateattempttotacklethedebt,theCoalitiongovernmenthasunveiledanausteritypackagetocutgovernmentspending.However,thishasresultedinfallingexportsandhigherunemployment.

Discussionquestions

1.Whoseeconomicpolicydoyouthinkisbest–Labour,ConservativeorNewLabour?

Why?

2.Doyouthinkitismoreimportanttohavelowinflationorlowunemployment?

Why?

3.NewLabourspentalotofmoneyandeveryonehadjobsbuttheynearlybankruptedBritain.TheConservativeswouldhavespentmuchlessbutthenunemploymentmighthavebeenalothigher.Doyouthinklowunemploymentisdesirableatanycost?

Orisitbettertosavemoneyeventhoughpeoplesufferintheprocess?

Isitmoreimportanttosavemoneyortomakesurethatyourpeoplearehappyandprosperous?

4.Doyouthinkausterityworks?

Isitpossibletogrowwhenyoudon’tinvest?

Howcantheeconomyboomagainifthegovernmentdoesnotstartspending?