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V THE ECONOMY A Overview In the 19th century, Britain had the world s leading economy: Its overseas trade thrived, its standard of living rose steadily, and its citizens pioneered industrial innovations. With the growth of the economies of other nations in the 20th century, the British economy remained relatively strong. It has continued to grow, and Britain remains a major producer of industrial goods and provider of services, as well as a center of world trade and finance. In the 20th century, Britons saw their per capita disposable income triple, an accomplishment all the more remarkable considering Britain s size and limited natural resources. The skills and ingenuity of Britain s highly trained workers, managers, and entrepreneurs have enabled the British economy to function well and provide for its large population.
Although Britain s economy was strong in the 20th century, it faced a number of persistent problems. The balance of trade was one. Britain has had to import more than a tenth of its food and much of its raw materials, as well as many manufactured goods, and it has to export sufficient products and services to balance the cost of its imports. Another problem has been industrial inefficiency, which was particularly evident in older industries such as coal mining, shipbuilding, and textiles, which produced more products than they could sell. Some industries that had been nationalized (taken over by the state) after 1945, such as British Oil Corporation, British Airways, and British Telecommunications, were unprofitable and operated at a considerable cost to taxpayers. In addition, trade unions sometimes required companies to hire more workers than were needed, and time was lost due to strikes as workers pressed for higher wages. These trade union problems increased the cost of goods, which helped cause inflation. Inflation occurs when the demand for products is higher than the supply, which leads to an increase in the value and price of products. At the same time, unemployment remained high 11 percent of the workforce in the early 1980s and efforts to lower it were not successful. These problems were particularly evident during the 1970s, when high oil prices triggered a worldwide recession.
Since the mid-1970s, Britain has benefited from a worldwide economic upswing as well as internal improvements. The government has taken a number of steps to encourage economic growth. It curtailed the power of unions and sold some nationalized industries, including British Airways and British Telecommunications, to private companies (called privatization). The government sought to encourage business and private investment by lowering taxes and easing restrictions, such as deregulating the stock exchange and lifting restrictions on certain business agreements. Simultaneously, it sought to curb its spending and services. Newer, more profitable high-tech industries absorbed more workers and managers, while many older, less-efficient firms folded. Britain s economy received a boost with the discovery and exploitation of abundant oil reserves in the North Sea. Because of this oil, Britain no longer depends on imports of foreign petroleum products and also profits from exports of petroleum products. In 1997 Britain s economy grew at a rate of 2.5 percent, one of the highest rates among members of the European Union.
B The Government’s Role in the Economy
Like many modern developed countries, the United Kingdom has a mixed economy. This means that some sectors of the economy are operated by the government and some are operated by private businesses. Since World War II (1939-1945), Britain has worked to balance the mix of private and public enterprises in order to maximize the country s economy and ensure the economic well-being of its citizens. Historically, Britain s Conservative Party has sought a stronger private component in the mix while the Labour Party has sought to strengthen the public component. Both parties are committed to a healthy mix of both elements, however.
The public component consists of the welfare system, which includes socialized medicine, known as the National Health Service, plus government controls over business, banking, and the money supply. The welfare system provides support from before birth to the grave. The government is a major employer: Public officials, the judiciary, the military, police departments, fire departments, educators, and health professionals are, for the most part, employed by the state. The government is also a major purchaser of goods, particularly military equipment.
After World War II the government nationalized, or took over, a number of large and troubled industries. These included coal, electricity, transport, gas, oil, steel, certain car and truck manufacturing, shipbuilding, and aircraft building. Since the 1950s, the government has privatized a number of these industries, selling them to private firms. The first sales were the steel and road transportation industries. The Conservative governments between 1979 and 1996 denationalized oil companies, telecommunications, car and truck production, gas, airlines and aircraft building, electricity, water, railways, and nuclear power. By privatizing these industries, the government hoped they would become more efficient, due to pressure by stockholders demanding profits. Nevertheless, the government continues to regulate these newly privatized industries by controlling prices and monitoring performance. The government also seeks to encourage competition in the economy and increase productivity by sponsoring and subsidizing training and educational programs.
As in many modern states, the British government seeks to fine-tune the economy in order to keep economic booms from becoming too inflationary and recessions from becoming too deep. In carrying out fine-tuning, the government uses a combination of monetary policies and fiscal policies. Monetary policies involve the attempt to control the supply and demand for money through the Treasury and the central bank, the Bank of England. Fiscal policy is concerned with the level and distribution of government spending and taxation. The government often opts to manage demand, intervening when demand for goods and services is high enough to threaten inflation. In such cases the government tries to reduce demand by raising interest rates and taxes. In economic emergencies the government can control prices and incomes to a considerable extent, but this is only be done in extreme circumstances, such as in times of war or runaway inflation.
Government revenue in 1997 and 1998 came from many sources. The primary sources were income tax, which provided 23 percent, social security contributions, and value-added tax (VAT, a national sales tax), which each contributed 16 percent. Excise duties contributed 11 percent of government revenue, corporation tax 9 percent, business and council rates (property taxes) 8 percent, other taxes 8 percent, borrowing 6 percent, and other financing 4 percent.
Government expenditures for 1997 and 1998 included social security (the welfare system), which made up 32 percent of expenditures, and health and personal social services, which made up 17 percent. Other government monies went to education, 12 percent; interest on the debt, 8 percent; defense, 7 percent; law, order, and protective services, 5 percent; housing, heritage, and environment, 5 percent; industry, agriculture, and employment, 4 percent; transport, 3 percent; and other expenditures, 7 percent.
The total British labor force in 1997 was more than 28 million people, of which more than 26 million were employed. The structure of employment has undergone significant changes in the past 40 years. There has been a significant increase in self-employment: More than 3 million people, or close to 12 percent of the workforce, were self-employed in 1997, and there has been a corresponding growth in the number of small businesses. Almost three-quarters of employees in the 1990s worked in the services sector, compared with about one-third in 1955. Manufacturing was once the largest employer. It employed 42 percent of workers in 1955, but now accounts for only about 20 percent of employees. This change is due in part to a shift from manual to nonmanual occupations. The number of women working outside the home has increased since the 1950s, and in 1997 women accounted for about 47 percent of the full-time workforce and about 80 percent of the part-time workforce. Nearly two-thirds of women between the ages of 15 and 65 are employed, giving the United Kingdom the third highest employment rate for women in Europe. Other recent trends include an expansion of part-time employment and a rise in the number of employees working on short-term contracts instead of on permanent jobs.
Unemployment averaged 9.1 percent for the years 1991 through 1995, an improvement compared to the 12.4 percent average for the years 1981 through 1985. In 1997 unemployment stood at about 7.5 percent of the workforce. Rates vary from region to region, with eastern England having the lowest rate and Northern Ireland the highest.
The trade union movement has a long and important history in Britain, but since 1980 the influence of trade unions has declined dramatically. Trade union membership has fallen because of changes in the structure of employment, including privatization, the shift away from manufacturing, the rise in smaller firms, the increase in part-time employment, and the contracting out of work. Membership decreased from a total of 12.2 million in 1975 to 7.2 million in 1996, or about a third of the workforce. The Conservative government restricted unions ability to launch strikes and made unions legally responsible for the actions of strikers; this has considerably reduced union power and substantially decreased the number of strikes, called stoppages. In 1986 there were more than a thousand work stoppages; in 1996 there were less than 250. Still, the Trades Union Congress (TUC), an independent association of trade unions, had an affiliated membership of 74 trade unions in 1997, representing about 6.8 million trade union members in Britain.
D Agriculture Britain s land surface is minimal compared to many other nations, but British agriculture is very intensive and highly productive. In recent decades output has risen steadily, and agricultural labor has become more productive, due to innovations in farm machinery, biological engineering of seeds and plants, and the increased use of fertilizers, pesticides, and herbicides. Consequently, imports of food, feed, and beverages dropped from 36 percent of total imports in 1955 to 11 percent in 1985, and to 10 percent by 1994. Compared to other nations in the European Union, Britain s agricultural sector is much smaller in terms of employment and contribution to the GDP. In 1996 agriculture employed approximately 2 percent of the workforce and contributed 1.4 percent of the GDP.
About 74 percent of Britain s land area is devoted to some type of agricultural use. Large parts of Britain, notably Scotland and Wales, are suitable only for grazing. In the mid-1990s, about 72 percent of Britain s agricultural land was used for grazing or grassland, or lay fallow, and about 28 percent was used to grow crops. There were about 234,300 farms, two-thirds of them owner-occupied. The average size of a farm in 1996 was 73 hectares (180 acres).
D1 Livestock Farming
More than half of the full-time farms are devoted to livestock farming raising cattle for dairy products or beef, or raising sheep for wool and meat. These animals contribute about 37 percent of the total value of agricultural output. The treatment of farm animals is a growing concern in Britain. Factory farming of chickens has produced protests in Britain, as has the practice of raising calves in confined spaces. These protests have been particularly strong at ports from which calves are exported to Europe. Concerns over animal welfare have led some British citizens to become vegetarians.
Grave concern arose in the 1980s and 1990s over cattle infected with bovine spongiform encephalopathy (BSE), popularly known as mad cow disease. Human beings who eat infected beef may develop Creutzfeldt-Jakob disease (CJD). BSE was first discovered in Britain in 1986, and the British government took steps to eradicate the disease and compensate farmers for lost cattle. Consumer confidence in British beef declined, temporarily plummeting in 1996 after the European Union banned Britain from exporting any beef or beef byproducts. In 1997 British farmers protested the importation of beef from other European countries, which the government was subsidizing.
D2 Arable Farming Arable farming refers to farming in which land is plowed and planted for crops. Most farming in Britain takes place in eastern and south central England and in eastern Scotland. Of the land used to grow crops in 1996, 42 percent was devoted to wheat, 27 percent to barley, and 7.5 percent to rapeseed. Other crops include sugar beets, peas, and beans. The extensive use of machines, fertilizers, pesticides, fungicides, and biologically engineered seeds and plants has increased productivity dramatically. However, these modern farming techniques have drawn criticism from people concerned about the use of chemicals and their effect on the environment. Some farmers have curtailed the use of chemical agents, and a small number have turned to organic farming, with support from the government.
D3 Agricultural Policy The British government began subsidizing the prices paid for agricultural products after World War II as a way to make farming profitable. In 1973 Britain joined the European Economic Community (EEC, now the European Union), and since then agricultural policy has been determined primarily by the EU s Common Agricultural Policy (CAP). This policy seeks to keep the agricultural market stable, ensure that farmers earn a fair living, and provide consumers with affordable food supplies. As a result of EU policies, products coming into Britain from non-EU countries are taxed, surplus products are bought and stored for later sale, and the cost of exports is subsidized if prices are low.
The British have criticized the CAP, primarily because the British farming sector is smaller than the farming sectors of most EU nations. British farmers receive less monetary support from the EU than British taxpayers and consumers pay into the CAP, and some British taxpayers and consumers feel they are supporting inefficient European farmers.
Criticism has increased as greater agricultural yields around the world have led to more CAP subsidies for European agriculture. CAP implemented various reforms in 1992 to reduce costs, subsidies, and stockpiles of foodstuffs, such as the surpluses of butter and wine in the 1970s and 1980s. Farmers have been encouraged to take land out of production, to adopt environmentally sound farming methods even though this may decrease production, and to place production quotas on certain products in an effort to reduce the amount of subsidy money they receive. Even so, CAP policies designed to protect small farms, particularly in France and Germany, continue to anger British taxpayers.
E Forestry Britain was once covered with thick forests, but over the centuries the expanding human population steadily deforested nearly the entire country, felling trees for fuel and building materials. Despite the fact that trees grow quickly in the cool, moist climate of the United Kingdom, only remnants of the great oak forests remained at the end of the 20th century.
In 1919 only 5 percent of the United Kingdom was forested; as of 1995 this had increased to 10 percent. In comparison, 25 percent of Europe was forested. Yet even this is more than the 5 percent of Britain that was forested in 1919. Only 8 percent of England is covered by forest, 15 percent of Scotland, 12 percent of Wales, and 6 percent of Northern Ireland. Most of the forested area consists of commercially planted, fast-growing coniferous trees in Wales and northeastern Scotland. Britain has made efforts to increase the managed forest areas. Imports of wood and wood products are substantial because Britain produces only 15 percent of the wood it needs. The number of people employed in the timber industry is about 32,000, considerably less than 1 percent of the workforce.
A Forestry Commission sets standards and provides advice on forestry matters. It manages 38 percent of the United Kingdom’s forests directly and offers various plans to expand woodlands. The commission also sells woodlands to the private sector. Local authorities have the power to protect trees and woodlands, and it is an offense to cut any tree down without permission. Protected trees that die must be replaced. The Forestry Commission has plans to plant a new national forest in the English Midlands and 12 community forests. It provides funds to encourage local communities to develop existing forests in England, Wales, and Scotland. The commission has its own research centers and provides aid for forestry research at universities.
F Fishing At one time the fishing industry not only provided a cheap source of protein for Britons, it was also the training ground for the Royal Navy. Today fishing is a less vital economic activity, although the industry provides about 54 percent of Britain s fish supplies and involves both deep-sea fishing and fish farming. Fish and fish products are both imported into and exported from Britain. Substantial amounts of fish oils and fish meals are imported, along with saltwater fish and shellfish. Exports are significantly less than imports.
In recent decades overfishing and conservation restrictions imposed by the European Union have caused a decline in the deep-sea industry. Fishing remains an important source of employment in many ports in Scotland and southwestern England. Even so, in the 1990s fishing accounted for less than 1 percent of the GDP and employed less than 1 percent of the workforce. Angling, or sport fishing, is one of the more popular hobbies in Britain.
As with agriculture, fisheries policy in Britain is largely determined by the EU through the Common Fisheries Policy (CFP). It aims to protect the remaining fish stocks in European waters so that they can recover from severe overfishing. There are strict quotas on the kinds and amounts of fish that may be caught, and regulations detail the appropriate equipment to use. The CFP has caused some hardship to the British fishing fleet, especially through restrictions on the number of days that ships are permitted to fish. The government and the EU have sponsored various schemes to assist economically pressed fishers, including buying and decommissioning fishing boats and offering financial incentives for fishers to leave the industry or go into fish farming. The government has also provided aid to improve equipment and port facilities.
At the start of 1996 traditional British and Irish fishing grounds, known as the Irish Box, were opened to Spanish ships on the basis of a 1994 agreement. The Irish Box is the area immediately north, west, and south of Ireland. An agreement was reached to limit Spanish access in this area to 40 vessels at any one time. Considerable friction between British and Spanish fishing vessels has occurred, leading to such incidents as net-cutting. In 1997 the British government imposed fines on the owners of Spanish fishing vessels for overfishing. Also, litigation between Spanish fishing vessel owners and British authorities over the legality of the 1988 Merchant Shipping Act was resolved in 1997 when the European Court of Justice ruled the Parliamentary act was illegal. The act stipulated that only vessels that were at least 75 percent British-owned could fish in British waters.
G Mining Mining has been enormously important in British economic history. Salt mining dates from prehistoric times, and in ancient times traders from the Mediterranean shipped tin from the mines of Cornwall. These tin mines are almost completely exhausted today, and the last tin mine in Britain closed in March 1998. Britain s abundant coal resources were critical during the Industrial Revolution, especially because the coal was sometimes conveniently located near iron and could be used in the iron and steel manufacturing processes. These mined resources were so important to the Industrial Revolution that entire populations moved to work at coal and iron sites in the north and Midlands of England. Today the iron is almost exhausted, and even though most good-quality coal seams are depleted, coal is still the third most mined mineral in Britain.
Besides coal, raw materials for construction form the bulk of mineral production, including limestone, dolomite, sand, gravel, sandstone, common clay, and shale. Some china clay and salt are also extracted. Small amounts of zinc, lead, tin, silver, and gold are mined. According to British law, the owners of land have title to the minerals below the surface. The only exceptions are gold, silver, oil, and natural gas, which the Crown owns and leases to producers. Mining and quarrying, including oil and gas extraction, accounted for 2.8 percent of the GDP in 1996 and employed 1 percent of the labor force.
The history of manufacturing in Britain is unique because of Britain s role as the birthplace of the Industrial Revolution. During the Middle Ages the production of woolen textiles was a key industry in Britain. In the 16th and 17th centuries, new industries developed. These included silk weaving, garment making, and the manufacturing of hats, pottery, and cutlery. All of these operations were generally conducted in small craft shops and were labor-intensive.
In the 18th century a number of changes in British society prepared the way for the Industrial Revoution. Colonial and commercial expansion created markets in North America, Africa, and parts of Asia. Coal and iron
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