Northeast of England and Scotland economic situation and government measures - Essay Example

Introduction The recession of 2008 brought enormous impact on the UK economy that affected various macroeconomic variables, especially employment levels in the country. This has initiated intensive discussion about the policies and approaches that can be engaged to help in revitalizing the economy. Several policy makers and socialist have come up with measures like industrial policy, investment in the education, subsidizing particular industries, and among others. However, which of the proposed policies can help the UK to recover from the recession drawbacks. The problem led to rise of different ideas like that of Adam Smith, Michael porter and David Cameron. Thus, the paper will discuss each idea of the above individuals to ascertain their contribution on revitalizing of the economy. Meanwhile, the paper will focus on the state affairs on the ground, and the ways the government is using to restore the economy. Northeast of England and Scotland economic situation and government measures Northeast of England and Scotland are facing economic problems due to the recession of 2008 that affect societies and the labor market. Joanna (2011, P. 145) claims that the recession led to the reduction in the economic growth that decreased the GDP in these countries because they could not employ significant measures to curtail the impact. The industrial sectors in Scotland and Northeast England have suffered for lengthy periods due to the problems of unemployment and economic restructuring. Joanna (2011, P. 160) indicate that the deindustrialization had made the regional economic situation weak, and the effect was expected to strengthen as the government sought to cut public expenditure. This was to prevent the individual dependence of these regions on public service jobs. The immediate impact of recession in these countries is the labor market that caused unemployment. This was as a result of decline in aggregate demand that caused private sectors to pay their wages decreased wages in order to meet the economic situation in the labor market. The adequacy of demand and increased unemployment has caused crowding out of the private sectors. The reduction of wages in private sectors in these regions has limited the growth of demand and caused problems of relative demand shortage. The regional economies of Scotland are closer to full employment level and decreasing of the public sector wages against that of private sectors can enhance the competitive advantage in the private sector. The Scotland and Northeast England are the regions that suffered the most increases in household financial crisis due to the recession. According to Joanna (2011, P. 147), the comparatively rise in unemployment and economic immobility rates caused the decline in households prices that affected their lifestyle. The Scotland and northeast England have the lowest increases of unemployment because they participate in the traditional manufacturing and heavy industries that have suffered disproportionately before recession. The instant problem of the recession in the two regions was the fiscal damage because all powerful politicians agreed on the requirement for public expenditure cuts. This would undermine the use of state expenditure to support the former industrial in these regions and women’s employment. Meanwhile, the new labor increased expenses on health and education did operate due to the type of undisclosed regional policy implemented. The government helped to expand employment right across the national economy in Scotland and northeast England, but it was significant where private sector job creation was weak. The dispersed expenditure on education and health were equally vital in achieving a new necessity for gendered employment in the regions. Joanna (2011, P. 149) indicates that the payment out of the banks undermined the national business environment and challenged the account of national economic transportation. To change the state affairs in the two regions, their governments have tried to encourage a multiple of mergers and takeovers that radically has changed the structure of industries. According to Joanna (2011, P. 57), employment level in Scotland has declined by 54000 and unemployment rate has increased by 74% over the year 2009. The fall in GDP is now experienced in financial services that showed a decline of 4.5 percent in 2009; thus, the impact of recession on manufacturing has also declined significantly. The impact of recession was too much that mere statistics indicators cannot indicate the real impact on employment and growth. The unemployment was accompanied by the increase levels of economic inequality and insecurity in Scotland and northeast England. The real wage of employees continued to stagnate; thus, the Scotland government and England has agreed on the supply of finance that has reduced the wage decrease, but the cost has increased. Consequently, it has helped in the potential changes, in regulation of the private sectors to reduce the crowding out effect. Adam Smith’s and Michael Porter’s theories According to Salvatore (2002, P.34), Adam Smith was the first person to hypothesize absolute advantage that explains why countries engage freely in international trade. According to this theory, the countries can promote the development if it opts to specialize in manufacturing products and services that it has an absolute advantage over other countries. Meanwhile, this country will be at position to import these commodities in which it has absolute cost disadvantage. This theory suggests that countries via import can enhance their economic situation by mutually benefiting from selling and purchasing in international markets. Adam Smith viewed trade as “a positive sum game,” where he believed that if countries need to promote their welfare by becoming rich and influential, they should aim at exporting more and control imports to the minimum (Barney 2002, P.34). Harrison (2005, p.80) suggests that the policy would enhance the inflow of essential commodities like gold that would promote the economic growth of the country because it advocated for government control and economic nationalism. However, the countries that would have an absolute advantage in all commodities would not benefit from the policy because it would produce them efficiently instead of importing. Adam smith theory, “some countries would be eliminated from importing and gains advantage” this led to specialization, but it would not bring benefit to the trade (Harrison 2005, p.87). Moreover, the Michael Porter introduced a theory to explain the national competitive advantage to explain why some countries perform better than others in trade. He identifies four categories of countries “National Diamond” that provide basic conditions for state competitive advantage of the nation (Dunning 2003, P. 7). He offers the company strategy, rivalry and demands conditions that affect the competitive advantage of these countries. Meanwhile, he suggested that government policy and chance will recommend and balance the system of national competitiveness, but they do not form permanent competitive advantages. According to Linda (2004, P. 145), the demand situation of a country are considered a source of competitive advantage for that country because countries with identical per capital income will have identical spending patterns. Thus, these relative demand situations will create a demand structure that promotes international industry trade. A porter focuses on the demand differences than the similarities to explain the international competitiveness of countries. According to Porter (2001, P. 67), “it is not only the amount of the household demand that count, but also the complexity of household country buyers.” Thus, the composition of home demand will pressure country firms to improve innovative ideas and upgrade their competitive positions to meet the change of the living standard. Davies and Ellis (2000, P. 1123) indicates that the porter’s demand conditions promote individual understanding of setting differences rather than cancel the trade theories. Meanwhile, the strategy and structure of the business will depend on the national environment and the differences in the business in various countries. Porter considers competition as the most significant drive of the competitive advantage of the country’s business, in that rivalry pressures business to have cost competitive in order to enhance improvement. Thus, country’s competitiveness will determine a business international competitive advantage that will lead to international trade engagement of countries with absolute advantage. However, in the trade theory of porter, trade is a positive sum gains despite the nature of the sources from which such benefit from trade is obtained. Dunning (2003, P. 7) indicate that the matters regarding the location as a source of competitive advantage deals with the way in which a modern world economy will be seen. Most people may view it has homogenization of economies and others as specialization of economies where in the homogenization of economies it is viewed that almost anything would be stimulated or sourced around the world. In the specialization economies, competitive advantage is as a result of powerful specialization and clustering of competitive advantage in various locations, in globe. Thus, specialization will lead to the static location advantage that will be the true sources of sustainable competitive of countries (Ketels 2006, P. 45). In this theory, external economies of identical and support industry group like networks of specialized input manufacturers and local competition that will lead to the true source of competitive advantage. The foreign assistance will always remain a significant international policy tool, even if it is not an essential development method for the developing countries of the world. Shifting patterns of assistance programs indicate that countries tend to contribute where they have the significant, immediate state policy aims. According to Budd and Hirmis (2004, p. 1017), the stability and prosperity of the powerful state and international trade are considered significant to the security and national economic development. Thus, the international trade theory is founded on neoclassical perfect and pure competition. The international mobility of factors will maintain the role of the state in the business world. According to Hill (2009, 45), the state’s foreign economic policy choices are viewed to play a significant role in shaping the nature of international trade and the national economic development. The gap between what the state promise and what it is actually capable to deliver, create a situation of excessive pessimism with respect to state intervention in the economic development and international trade. Adam Smith’s and Michael Porter’s theories in Northeast England and in Scotland Barney (2002, P. 53–57) indicates that the economy should no longer be run on the basis that employment must be maintained at a minimal level. This should be done in order to limit the bargaining power of labor, as the case in Scotland and northeast England. The government of these regions should tackle any danger of excessive pay increases in cooperation with the union s and management. Thus, the government opted to ask for foreign financial assistance in order to improve the economic condition in these regions. Meanwhile, the governments have introduced devolution strategy, and decentralization will improve the economic situation in the regions because it will evaluate the cause of economic disparity. In order to involve the citizen into making local decision, the government has enhanced democracy by devolving more power directly to the people. Teece (2006, P. 193) says that the government increased the tariff on the export to discourage exportation and encourage local consumption in order to improve the living style of people in these regions. Meanwhile, this encourage importation ion of their goods and services to other countries, especially those offered financial assistance in order to promote the international trade. . The government helped to expand employment right across the national economy in Scotland and northeast England, but it was significant where private sector job creation was weak. Thomas and Clive (2008, P. 118) indicates that governments have implemented strategies that will promote intensive investment and promote infrastructural requirements that will help the company to reduce the foreign assistance. On the international trade, the governments have tried to impose high taxes on the industrial commodities that will reduce the duties that are involved in the international trade. Adam smith theory of the absolute competitive advantage can help Scotland and northeast England to enhance it economic development and international trade. Adam Smith would advice the government of these regions to focus on importation of goods and services instead of exporting. Paul (2011, p. 46) indicate that the strategy will enable all citizens to be active in producing goods and services to be imported. These countries will promote the development if it specializes in manufacturing products and services that it has an absolute advantage over other countries. The specialization in the product where the regions has an absolute advantage will enhance importation that will generate income. This will also help in creating the employment opportunities in the regions that will reduce the unemployment rate. Meanwhile, the strategy will promote the economic growth that will increase the GDP in these regions, and in turn the wage rate of workers will increases and improves the living standard of household. Porter’s ideas on the national competitive advantage would help the regions to perform better than others in trade. Porter (2000, P.180) indicate that the competitive strategy will help government contribute where they have the considerable, immediate state policy aims that will allow them to open new international market for their business. The composition of home demand will pressure country firms to improve innovative ideas and upgrade their competitive positions to meet the change of the living standard. This will improve the economic expansion of the two states that will increase the employment level of the citizens. Conclusion The economic situation in Scotland and northeast England after the recession of 2008 is similar with that of UK. Thus, the Adam Smith’s and Michael Porter’s theories will also apply to the economic situation of United Kingdom in order to help in improving the unemployment and labor market failures. Specializing in what they are best in will create new investment ventures that will promote the economic situation in the country. Meanwhile, specialization will lead to the static location advantage that will discover the sources of sustainable competitive of UK. Finally, the theories will be applicable if the regions evaluate their international business to ascertain if they will advocate the competitive advantage strategy or the absolute advantage. Bibliography Barney, B. 2002, ‘Strategic management: from informed conversation to academic discipline’, Academy of Management Executive, Vol. 16, no. 2, PP 53–57. Budd, L. and Hirmis, K. 2004, ‘Conceptual framework for regional competitiveness’, Regional Studies, Vol. 38, no.9, PP. 1015–1028. Davies, H and Ellis P. 2000. ‘Porter’s competitive advantage of nations: time for the final Judgment?’ Journal of Management Studies, Vol. 37, no.8, PP. 1189–1213. Dunning, JH. 2003. ‘Internationalizing Porter’s Diamond’, Management International Review, Special Issue, Vol. 33, no.2, PP. 7. Harrison, F. 2005. ‘On the competing notions of international competitiveness’, Advances in Competitiveness Research, Vol.13, no. 1, PP. 80. Hill, L. 2009, International Business: Competing in the Global Market Place. 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