Chapter 6The UK Economy.docx

1、Chapter 6The UK EconomyChapter 6: The UK EconomyThis unit is about the economy in the UK, including a brief history of its economic development and its present situation. Focal Points Absolute decline and relative decline of British economy The privatisation in the 1980s The main sectors of the UK e

2、conomy Primary industries Secondary industries Tertiary industries/service industries Agriculture Energy production The offshore oil industry The manufacturing industry The City of London The London Stock Exchange The aerospace industry Frank Whittle ConcordeTextAbsolute Decline and Relative Decline

3、By the 1880s the British economy was dominant in the world, producing one third of the worlds manufactured goods, half its coal and iron, half its cotton. The amount of British shipping was greater than that in the rest of the world put together. But even by 1900 this was no longer the case, the UK

4、having been overtaken by both the United States and Germany; and certainly from 1945 until the present, the story of the UK economy is usually thought of as one of decline. This is understandable but rather misleading, as it has in fact been a period of steady economic growth and rapidly increasing

5、living standards. Britain remains one of the Group of Seven large industrial economies. But there are reasons for describing this period as one of decline. Britain entered the post-war world as one of the successful allies of the Second World War, with some of its chief competitor nations such as Ge

6、rmany and Japan, economically destroyed. Also Britain was the centre of a still vast empire. According to the figures, the UK was second only to the United States in the international economy. Thus Britain was then in an apparently strong economic position, a position it clearly no longer occupies,

7、which indicates some sort of decline.But the basic positive-seeming facts describing the size of the economy, the high proportion of world trade that was British, and so on, in 1945, did not reveal important negative facts about the UKs position even then. Firstly the country had gone heavily into d

8、ebt in order to finance the war, selling many of its accumulated overseas assets, and borrowing large amounts from the United States and Canada. These debts meant that the UK entered the post-war era with a major economic problem.A Map of IndiaSecondly, the era of empire was over. India, popularly k

9、nown as The Jewel in the Crown of the British Empire, gained its independence in 1947, only 2 years after the end of the war. This was the largest element in the empire, providing raw materials and a big market for British goods. This relationship with India was no longer available, and the rest of

10、the empire quickly followed India to independence, leaving Britain as just a medium-size European country, with a population only one fifth the size of the U.S. UN Security CouncilThirdly, despite the relatively rapid and trouble-free process of decolonisation, Britain was still forced to maintain a

11、 substantial and expensive military presence in many overseas locations until the process was completed (mostly by the end of the 1960s). Also its position as one of the shapers of the post-war world required substantial military contributionsboth as one of NATOs major partners, and as a member of t

12、he UN Security Council. All this had the result that Britain spent a higher proportion of its national wealth (and especially of its research and development budget) on the military than most of its competitors. Military expenditure tends not to generate an economic return in quite the same way as o

13、ther industrial investment.Fourthly, although Britain was quite badly damaged by German bombing during the war, its industry survived comparatively unaffected. This contrasted greatly with some of its competitorsespecially the main losers in the conflict, Germany and Japan, who almost had to start a

14、gain from nothing. This apparent disadvantage for them may have worked in their favour in that as they had to invest, they could invest in the most modern equipment and new products. British industry however could continue with its older factories and pre-war products, and given its other economic p

15、roblems, did soa problem in the long-term. It also meant that output was initially very low in these two potentially large economies: so while Britain looked securely wealthier than them in 1945, a catching-up with the UK was inevitable as they recovered.This failure to invest sufficiently in indust

16、ry also reflects a long-standing and continuing problem in the UK economy. Even without the particular circumstances of the post-war world, relatively low rates of investment (the amount of money businesses put aside from profits to reinvest in the business in new products and production methods) we

17、re characteristic of the British economy in relation to other developed economies. Economists have pointed to the lack of a close relationship between industry and banks in the UKagain a contrast, particularly with the two most successful post-war economies, Japan and Germany, where banks and indust

18、rial firms have very close links. Economic historians have suggested that this may be due to the fact that the UK was the first economy Industrialisationto industrialise, and industrial firms, without foreign competition, grew used to financing their own development, without need to borrow from bank

19、s. Banks therefore, not able to find good investment opportunities in the UK, looked overseas for investment opportunities. A low rate of domestic industrial investment coupled with a very high rate of overseas investment is still a characteristic of the UK economy. So, amongst European nations, Bri

20、tain is the largest investor in China, but sells fewer of its own manufactured goods here than do Germany or France.The point to note is that the comparatively strong economic position Britain found itself in 1945 was in many ways deceptive. So the decline from Britains apparently good fortunes at t

21、hat point until now is thus not as extraordinary as it might seem, being the result of already existing basic problems. And it should also be remembered that this was not an absolute decline: Britain is not poorer, or producing less than it was in 1945, in fact (like most countries) it is a lot weal

22、thier and more productive than it was then. The problem is that though it has improved, other countries have improved more rapidly, hence the slide from being the 2nd largest economy (after the United States) to being the sixth, as it is at present. And even many smaller economies have overtaken the

23、 UK in terms of output per head of population. So the UK has experienced economic decline, but this decline is relative to some other economies rather than absolute. Nevertheless, this relative failure is a serious cause of concern to the UK governments.Recent HistoryOPEC MeetingThe British economy

24、went through a particularly bad period in the 1970s. The oil price rises at that time led to very high rates of inflation (up to 25%). This caused many workers to strike for more pay. The fall in the value of the UK currency (The Pound) even forced the Labour (socialist) government to borrow from th

25、e International Monetary Fund. British industry, notably the car industry, appeared to be doing badly, with increasing imports relative to exports. All these negative economic facts led to a change of government at the next general election, in 1979, when the British people voted in the Conservative

26、 party under Margaret Thatcher, with the promise of a radical programme of reform. Bureaucracy was reduced (foreign exchange controls were lifted, rules governing banks loosened, for example). And throughout the 1980s an extensive programme of privatisation was carried out, with many state-owned bus

27、inesses (such as steel, telecom, gas, aerospace) joining the private sector. It seemed in some ways to be successful in that inflation came under control, and businesses, especially the newly privatised businesses, made profits. The negative aspect was a rapid increase in unemployment, rising to alm

28、ost 12% at its worst. So while companies were more efficient, producing the same amount with less workers, and therefore being able to pay higher wages and make higher profits, the cost was paid by the unemployed who had to live on low incomes from state support. The national economy as a whole cont

29、inued to grow at lower rates than its competitors. In the recession 19901992, the economy even shrunk by 2.3%. Since then however, the picture has been brighter, with four years of steady growth, at rates higher than that in the rest of the European Union. Unemployment has now fallen to 7.7%, which

30、is among the lowest in the European Union. Inflation has remained under control at very low levels. Investment has increased, encouraged by low interest rates. Britains membership of the EU has also made it an attractive location for inward investment by companies from outside the EU (especially the

31、 U.S. and Japan), of which it has received a larger share than any other EU country. Overall it is second only to the U.S. as a destination for international direct investment. It is also itself a major source of international investmentin fact it is the second biggest international investor in the

32、world (1995).The Current UK EconomyNational economies can be broken down into three main areas: primary industries, such as agriculture, fishing, and mining; secondary industries, which manufacture complex goods from those primary products; and tertiary industries, often described as services, such as banking, insurance, tourism, and the selling of goods.Britains agricultural sector is small (producing 1.4% of the national wealth) but efficient, producing 58% of the UKs food needs with only 2% of its workforce. Three