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The Economy of Great Britain
Little more than a century ago, Britain was 'the workshop of
the world'. It had as many merchant ships as the rest of the world
put together and it led the world in most manufacturing
industries. This did not last long. By 1885 one analysis
reported, "We have come to occupy a position In which we are no
longer progressing, but even falling bock.... We find other
nations able to compete with us to such an extent as we have never
before experienced." Early in the twentieth century Britain was
overtaken economically by the United States and Germany. After two
world. wars and the rapid loss of its empire, Britain found it
increasingly difficult to maintain its position even in Europe.
Britain struggled to find a balance between government
intervention in the economy and an almost completely free-market
economy such as existed in the United States. Neither system
seemed to fit Britain's needs. The former seemed compromised
between two different objectives: planned economic prosperity and
the means of ensuring full employment, while the latter promised
greater economic prosperity at the cost of poverty and
unemployment for the less able in society. Neither Labour nor the
Conservatives doubted the need to find a system that suited
Britain's needs, but neither seemed able to break from the
consensus based on Keynesian economics .
People seemed complacent about Britain's decline, reluctant
to make the painful adjustments that might be necessary to reverse
it. Prosperity Increased during the late 1950s and in the 1960s,
diverting attention from Britain's decline relative to its main
competitors. In 1973" the Conservative Prime Minister Edward Heath
warned, "The alternative to expansion is not, as some occasionally
seem to suppose, an England of quiet market towns linked only by
steam trains puffing slowly and peacefully through green meadows.
The alternative is slums, dangerous roads, old factories, cramped
schools, stunted lives." But in the years of world-wide recession,
1974-79, Britain seemed unable to improve its performance.
By the mid 1970s both Labour and Conservative economists
were beginning to recognise the need to move away from Keynesian
economics, based upon stimulating demand by Injecting money into
the economy. But, as described in the Introduction, it was the
Conservatives who decided to break with the old economic formula
completely. Returning to power in 1979, they were determined to
lower taxes as an incentive to individuals and businesses to
Increase productivity; to leave the labour force to regulate
itself either by pricing itself out of employment or by working
within the amount of money employers could afford; and, finally,
to limit government spending levels and use money supply (the
amount of money in circulation at any one time) as a way of
controlling inflation. As Prime Minister Margaret Thatcher argued
in the Commons, "If our objective is to have a prosperous and
expanding economy, we must recognise that high public spending, as
a proportion of GNP gross national product;, very quickly kills
growth.... We have to remember that governments have no money at
all. Every penny they take is from the productive sector of the
economy in order to transfer it to the unproductive part of it."
She had a point: between 1961 and 1975 employment outside Industry
increased by over 40 per cent relative to employment in industry.
During the 1980s the Conservatives put their new
ideas into practice, income tax was reduced from a basic rate of
33 pet cent to 25 per cent. (For higher income groups the
reduction was greater, at the top rate from S3 per cent to 40 per
cent.) This did not lead to any loss in revenue, since at the
lower rates fewer people tried to avoid tax. At the same time,
however, the government doubled Value Added Tax (VAT) on goods and
services to 15 per cent.
The most notable success of 'Thatcherism' was the
privatisation of previously wholly or partly government-owned
enterprises. Indeed, other countries, for example Canada, France,
Italy, Japan, Malaysia and West Germany, followed the British
example. The government believed that privatisation would increase
efficiency, reduce government borrowing, increase economic
freedom, and encourage wide share ownership. By 1990 20 per cent
of the adult population were share owners, a higher proportion
than in any other Western industrialised country. There was no
question of taking these enterprises back into public ownership,
even by a Labour government.
Despite such changes, however, by 1990 Britain's economic
problems seemed as difficult as ever. The government found that
reducing public expenditure was far harder than expected and that
by 1990 it still consumed about the same proportion of the GNP as
it had ten years earlier. Inflation, temporarily controlled, rose
to over 10 per cent and was only checked from rising further by
high interest rotes which also had the side effect of discouraging
economic growth. In spite of reducing the power or the trade
unions, wage demands (most notably senior management salaries)
rose faster than prices, indicating that a free labour market did
not necessarily solve the wages problem. By 1990 the manufacturing
Industry had barely recovered from the major shrinkage in the
early 1980s. It was more efficient. but in the meantime Britain's
share of world trade In manufactured goods had shrunk from 8 per
cent in 1979 to 6.5 per cent ten years later. Britain's balance of
payments was unhealthy too. In 1985 it had enjoyed a small surplus
of Ј3.5 billion, but in 1990 this had changed to a deficit of
Ј20.4 billion.
Many small businesses fail to survive, mainly as a result
of poor management, but also because, compared with almost every
other European Community member, Britain offers the least
encouraging conditions. But such small businesses are important
not only because large businesses grow from small ones, hut also
because over half the new jobs in Britain are created by firms
employing fewer than 100 staff.
It is not as if Britain is without industrial strength. It
is one of the world leaders in the production of microprocessors.
Without greater investment and government encouragement it is
doubtful whether Britain will hold on to its lead in this area.
However, it has already led to the creation of 'hi-tech'
industries in three main areas, west of London along the M4
motorway or 'Golden Corridor', the lowlands between Edinburgh and
Dundee, nicknamed 'Silicon Glen', and the area between London and
Cambridge. In the mid 1980s Silicon Glen was producing 70 per cent
of British silicon wafers containing the microchips essential for
the new information technology- The Cambridge Science Park,
symbolised by its Modernist Schlumberger Building, is the flagship
of hi-tech Britain. Beginning in 1969, by 1986 the Park contained
322 hi-tech companies. In the words of a consultant, "The
Cambridge phenomenon... represents one of the very few spontaneous
growth centres in a national economy that has been depressed for
all of a decade."
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