The United Kingdom:
Declining Capitalism
I. Relative Economic Decline - U.K. was the
economic/military superpower of the nineteenth century. Now, 18 countries
have higher per capita GDP (at PPP), and 11 have higher HDIs.
UPDATE: However, the relative decline may have ended. British economic
growth during 1996-2004 was 2.8% per year, roughly equal to the OECD
average. See
IMF World Outlook
II. Possible Reasons for Relative Decline
A. Disadvantages of a head start -
After Industrial Revolution, Britain saddled with an outdated capital
stock.
B. Policy of
laissez faire - In 19th C., U.S. and others protected key
industries and pursued industrial policies.
C. Foreign policy - Domestic policy
goals sometimes sacrificed for foreign policy. Empire required heavy
military spending (habits die hard) and reduced competitive pressure. Loss
of empire had various effects.
D. Stop-go fiscal policy -
Alternating unemployment and balance of payments crises. Hansen found the
British government was the only one that destabilized the domestic
economy.
E. High marginal tax rates - Before
Thatcher (in 1976), had 41% avg. rate (32% in U.S. and 21% in Japan).
F. Sociological problems-
Entrepreneurial spirit dwindled with successive generations. Labor
productivity was stifled by the trade union establishment. The
educational system serves upper classes and deemphasizes natural science,
engineering, and business.
III. The Labor Market and Labor Relations -
A. Labor Unions
1. Cover about 27% of the labor force, down from 50% in 1980, but much
larger than the U.S. share.
2. Traditionally, strong political role through the Labor Party.
3. A strong democratic socialist tradition.
4. All major unions are members of the Trades Union Congress.
5. Antiquated union structure. Not organized by industry; labor
negotiations are complicated.
B. Labor Legislation and Union Growth
-
1. Before 19th century, Britain
maintained strict regulations against union activities.
2. After 1825, the unions were given
more rights and membership grew rapidly. The inflation rate, unemployment
rate, and growth of money wages influenced union growth.
3. Thatcher administration caused
reduction in union membership. Tight monetary policy decreased inflation
and increased unemployment; both discourage unionism. New legislation
required secret ballot elections to approve closed shops or to approve
union action, removal of legal immunities of union leaders, and reelection
of executive committees every five years.
4. Trade Union Reform and Employment Bill of
1993 gave workers more freedom of choice in membership,
tightened controls on elections before strikes, abolished wage councils
(institutions that administered the minimum wage), and gave women 14 weeks
maternity leave and protection from dismissal.
5. Tony Blair, who became PM in 1997, praised Thatcher “modernization,”
but supported return of the minimum wage:
UPDATE: In 1999, Labour restored minimum wage at £3.70 [$5.37]
for adults. This has been raised a few times, reaching £5.05 ($8.77) for
adults and £4.25 ($7.38) for ages 18-21 in 2005. In mid-2005, British unemployment was
4.6%, compared with 5% in the
U.S., 6.5% OECD average, and 8.5% in the Euro Zone.
IV. Financial Sector - London is world's most
important center for international lending, insurance, shipping contracts,
and trading of gold bullion, Eurocurrencies, and Eurobonds, and has the
third largest stock market. Euro entry later, Bank of England
independence was granted by Labour (opposed by Tories) in 1997.
UPDATE: Government review in June 2003 concluded it was not the proper
time to have a Euro referendum, but reaffirmed the plan to join in future.
According to International Herald Tribune, 3/9/06, "The British
pound is increasingly trading as though Britain has already joined the
euro, according to Morgan Stanley. Opinion polls show that Britons are
overwhelmingly opposed to signing up to the euro. But in the currency
markets, volatility in the pound's exchange rate was at the lowest level
since 2002, suggesting that the two are moving in lockstep. "Regardless of
the decision on the euro, the U.K. is becoming so well integrated into the
euro economy that investors are willing to invest in the pound as a
proxy,"
V. Governmental Sector
A. Before World War II, government played small economic role. During
the war, Beveridge Committee recommended welfare state. The Attlee
government established National Health Service and nationalized Bank of
England, steel, public utilities, and transport. Some programs terminated
by Thatcher, but some remain, such as the National Health Service and
allowances for children. John Major, who became PM at end of 1990, has
continued Thatcher monetarism with moderation, but reversed policy on
Europe.
B. The Nationalized Industries -
1. Reasons for nationalization: ideology,
national security, maintain employment, regulate natural monopolies,
provide for external benefits in industries such as health care
2. Problems - Many of the nationalized
industries fail to turn a profit and require subsidies. However, they
were often nationalized to pursue goals other than profit maximization.
3. Privatization - Beginning with Thatcher,
several industries sold to stockholders. Some have become profitable.
Raised revenue for budget and created new group of stockholders. Critics
say that the government sold the assets too cheaply, that profits are
excessive, and that firms should not be allowed to exercise monopoly
power.
C. Redistribution of Income and Wealth - The
British tax system is relatively progressive, and social welfare programs
have been accompanied by a decline in inequality of income and wealth
since World War II. Blair’s welfare-to-work reform—in April 1998,
recipients under 25 were given 4 months to do one of the following:
1. private sector work, with public subsidy of about $100/week.
2. volunteer work.
3. environmental task force.
4. enroll as full-time student.
D.
National Health Service
- Doctors paid on capitation basis. Patient and doctor choice. Recent
reforms are designed to separate public funding from public control; allow
doctors to handle own budgets and contract with hospitals.
Look here for a BBC comparison of welfare states.
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