Chapter 6The UK Economy.docx

Chapter 6The UK Economy.docx

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Chapter6TheUKEconomy

Chapter6:

TheUKEconomy

ThisunitisabouttheeconomyintheUK,includingabriefhistoryofitseconomicdevelopmentanditspresentsituation.

FocalPoints

　●AbsolutedeclineandrelativedeclineofBritisheconomy

　●Theprivatisationinthe1980s

　●ThemainsectorsoftheUKeconomy

　●Primaryindustries

　●Secondaryindustries

　●Tertiaryindustries/serviceindustries

　●Agriculture

　●Energyproduction

　●Theoffshoreoilindustry

　●Themanufacturingindustry

　●TheCityofLondon

　●TheLondonStockExchange

　●Theaerospaceindustry

　●FrankWhittle

　●Concorde

Text

AbsoluteDeclineandRelativeDecline

Bythe1880stheBritisheconomywasdominantintheworld,producingonethirdoftheworld'smanufacturedgoods,halfitscoalandiron,halfitscotton.TheamountofBritishshippingwasgreaterthanthatintherestoftheworldputtogether.Butevenby1900thiswasnolongerthecase,theUKhavingbeenovertakenbyboththeUnitedStatesandGermany;andcertainlyfrom1945untilthepresent,thestoryoftheUKeconomyisusuallythoughtofasoneofdecline.Thisisunderstandablebutrathermisleading,asithasinfactbeenaperiodofsteadyeconomicgrowthandrapidlyincreasinglivingstandards.BritainremainsoneoftheGroupofSevenlargeindustrialeconomies.Buttherearereasonsfordescribingthisperiodasoneofdecline.Britainenteredthepost-warworldasoneofthesuccessfulalliesoftheSecondWorldWar,withsomeofitschiefcompetitornationssuchasGermanyandJapan,economicallydestroyed.AlsoBritainwasthecentreofastillvastempire.Accordingtothefigures,theUKwassecondonlytotheUnitedStatesintheinternationaleconomy.ThusBritainwastheninanapparentlystrongeconomicposition,apositionitclearlynolongeroccupies,whichindicatessomesortofdecline.

Butthebasicpositive-seemingfactsdescribingthesizeoftheeconomy,thehighproportionofworldtradethatwasBritish,andsoon,in1945,didnotrevealimportantnegativefactsabouttheUK'spositioneventhen.Firstlythecountryhadgoneheavilyintodebtinordertofinancethewar,sellingmanyofitsaccumulatedoverseasassets,andborrowinglargeamountsfromtheUnitedStatesandCanada.ThesedebtsmeantthattheUKenteredthepost-warerawithamajoreconomicproblem.

AMapofIndia

Secondly,theeraofempirewasover.India,popularlyknownas"TheJewelintheCrown"oftheBritishEmpire,gaineditsindependencein1947,only2yearsaftertheendofthewar.Thiswasthelargestelementintheempire,providingrawmaterialsandabigmarketforBritishgoods.ThisrelationshipwithIndiawasnolongeravailable,andtherestoftheempirequicklyfollowedIndiatoindependence,leavingBritainasjustamedium-sizeEuropeancountry,withapopulationonlyonefifththesizeoftheU.S.

UNSecurityCouncil

Thirdly,despitetherelativelyrapidandtrouble-freeprocessofdecolonisation,Britainwasstillforcedtomaintainasubstantialandexpensivemilitarypresenceinmanyoverseaslocationsuntiltheprocesswascompleted（mostlybytheendofthe1960s）.Alsoitspositionasoneoftheshapersofthepost-warworldrequiredsubstantialmilitarycontributions—bothasoneofNATO'smajorpartners,andasamemberoftheUNSecurityCouncil.AllthishadtheresultthatBritainspentahigherproportionofitsnationalwealth（andespeciallyofitsresearchanddevelopmentbudget）onthemilitarythanmostofitscompetitors.Militaryexpendituretendsnottogenerateaneconomicreturninquitethesamewayasotherindustrialinvestment.

Fourthly,althoughBritainwasquitebadlydamagedbyGermanbombingduringthewar,itsindustrysurvivedcomparativelyunaffected.Thiscontrastedgreatlywithsomeofitscompetitors—especiallythemainlosersintheconflict,GermanyandJapan,whoalmosthadtostartagainfromnothing.Thisapparentdisadvantageforthemmayhaveworkedintheirfavourinthatastheyhadtoinvest,theycouldinvestinthemostmodernequipmentandnewproducts.Britishindustryhowevercouldcontinuewithitsolderfactoriesandpre-warproducts,andgivenitsothereconomicproblems,didso—aprobleminthelong-term.Italsomeantthatoutputwasinitiallyverylowinthesetwopotentiallylargeeconomies:

sowhileBritainlookedsecurelywealthierthanthemin1945,acatching-upwiththeUKwasinevitableastheyrecovered.

Thisfailuretoinvestsufficientlyinindustryalsoreflectsalong-standingandcontinuingproblemintheUKeconomy.Evenwithouttheparticularcircumstancesofthepost-warworld,relativelylowratesofinvestment（theamountofmoneybusinessesputasidefromprofitstoreinvestinthebusinessinnewproductsandproductionmethods）werecharacteristicoftheBritisheconomyinrelationtootherdevelopedeconomies.EconomistshavepointedtothelackofacloserelationshipbetweenindustryandbanksintheUK—againacontrast,particularlywiththetwomostsuccessfulpost-wareconomies,JapanandGermany,wherebanksandindustrialfirmshaveverycloselinks.EconomichistorianshavesuggestedthatthismaybeduetothefactthattheUKwasthefirsteconomy

Industrialisation

toindustrialise,andindustrialfirms,withoutforeigncompetition,grewusedtofinancingtheirowndevelopment,withoutneedtoborrowfrombanks.Bankstherefore,notabletofindgoodinvestmentopportunitiesintheUK,lookedoverseasforinvestmentopportunities.AlowrateofdomesticindustrialinvestmentcoupledwithaveryhighrateofoverseasinvestmentisstillacharacteristicoftheUKeconomy.So,amongstEuropeannations,BritainisthelargestinvestorinChina,butsellsfewerofitsownmanufacturedgoodsherethandoGermanyorFrance.

ThepointtonoteisthatthecomparativelystrongeconomicpositionBritainfounditselfin1945wasinmanywaysdeceptive.SothedeclinefromBritain'sapparentlygoodfortunesatthatpointuntilnowisthusnotasextraordinaryasitmightseem,beingtheresultofalreadyexistingbasicproblems.Anditshouldalsoberememberedthatthiswasnotanabsolutedecline:

Britainisnotpoorer,orproducinglessthanitwasin1945,infact（likemostcountries）itisalotwealthierandmoreproductivethanitwasthen.Theproblemisthatthoughithasimproved,othercountrieshaveimprovedmorerapidly,hencetheslidefrombeingthe2ndlargesteconomy（aftertheUnitedStates）tobeingthesixth,asitisatpresent.AndevenmanysmallereconomieshaveovertakentheUKintermsofoutputperheadofpopulation.SotheUKhasexperiencedeconomicdecline,butthisdeclineisrelativetosomeothereconomiesratherthanabsolute.Nevertheless,thisrelativefailureisaseriouscauseofconcerntotheUKgovernments.

RecentHistory

OPECMeeting

TheBritisheconomywentthroughaparticularlybadperiodinthe1970s.Theoilpricerisesatthattimeledtoveryhighratesofinflation（upto25%）.Thiscausedmanyworkerstostrikeformorepay.ThefallinthevalueoftheUKcurrency（ThePound）evenforcedtheLabour（socialist）governmenttoborrowfromtheInternationalMonetaryFund.

Britishindustry,notablythecarindustry,appearedtobedoingbadly,withincreasingimportsrelativetoexports.Allthesenegativeeconomicfactsledtoachangeofgovernmentatthenextgeneralelection,in1979,whentheBritishpeoplevotedintheConservativepartyunderMargaretThatcher,withthepromiseofaradicalprogrammeofreform.Bureaucracywasreduced（foreignexchangecontrolswerelifted,rulesgoverningbanksloosened,forexample）.Andthroughoutthe1980sanextensiveprogrammeofprivatisationwascarriedout,withmanystate-ownedbusinesses（suchassteel,telecom,gas,aerospace）joiningtheprivatesector.Itseemedinsomewaystobesuccessfulinthatinflationcameundercontrol,andbusinesses,especiallythenewlyprivatisedbusinesses,madeprofits.Thenegativeaspectwasarapidincreaseinunemployment,risingtoalmost12%atitsworst.Sowhilecompaniesweremoreefficient,producingthesameamountwithlessworkers,andthereforebeingabletopayhigherwagesandmakehigherprofits,thecostwaspaidbytheunemployedwhohadtoliveonlowincomesfromstatesupport.Thenationaleconomyasawholecontinuedtogrowatlowerratesthanitscompetitors.Intherecession1990—1992,theeconomyevenshrunkby2.3%.

Sincethenhowever,thepicturehasbeenbrighter,withfouryearsofsteadygrowth,atrateshigherthanthatintherestoftheEuropeanUnion.Unemploymenthasnowfallento7.7%,whichisamongthelowestintheEuropeanUnion.Inflationhasremainedundercontrolatverylowlevels.Investmenthasincreased,encouragedbylowinterestrates.Britain'smembershipoftheEUhasalsomadeitanattractivelocationforinwardinvestmentbycompaniesfromoutsidetheEU（especiallytheU.S.andJapan）,ofwhichithasreceivedalargersharethananyotherEUcountry.OverallitissecondonlytotheU.S.asadestinationforinternationaldirectinvestment.Itisalsoitselfamajorsourceofinternationalinvestment—infactitisthesecondbiggestinternationalinvestorintheworld（1995）.

TheCurrentUKEconomy

Nationaleconomiescanbebrokendownintothreemainareas:

"primary"industries,suchasagriculture,fishing,andmining;"secondary"industries,whichmanufacturecomplexgoodsfromthoseprimaryproducts;andtertiaryindustries,oftendescribedasservices,suchasbanking,insurance,tourism,andthesellingofgoods.

Britain'sagriculturalsectorissmall（producing1.4%ofthenationalwealth）butefficient,producing58%oftheUK'sfoodneedswithonly2%ofitsworkforce.Three