Northeast England and Scotland Economies - Essay Example

?NORTHEAST ENGLAND AND SCOTLAND ECONOMIES Northeast England and Scotland Economies The unfolding economic crisis in the recent years has had adverse effects in many economies in the globe. The Northeast England and Scotland’s economies have not been an exception. Apparently, the two economies, in common with economies of other developed countries’ economies, have not been immune to the prevalent effects of the major economic recession in the recent years. This paper examines the Scottish and Northeast England’s economies with regards to the way the governments in the two nations have been responding to the current economic crisis veneering the two economies. Also, this paper analyses the relevance and application of Adam Smith and Michel Porter’s ideas in the two economies with regard to the role of state and international trade in national economic development. Background of Northeast England and Scotland’s economies The Scottish economy has the second largest GVA per capita of all the countries in the U.K after England. Even so, as prevalent with other industrialised economies, Scotland has recorded a decline in the importance of the manufacturing industries (Kirby, Barrell & Whitworth 2011 p.122). There has however been a rise in the service sector of the economy which has recorded significance growth rate in the past few years. Despite all these, the Scottish economy has been marred by adverse effects of the recent economic recession. As a fact, Scottish economy has veneered falls in output and increased pressures on employment. However, the economy has shown some signs of recovery in the recent years. This can be attributed to the Economic Recovery Plan that will be discussed at length in this paper. On the contrary, the Northeast England has the lowest GVA per capita in England and the second lowest in the whole UK. For instance, its GVA per capita is pegged at about 80% of the U.K average. The North East economy has for many years been contingent of two major industries, coal mining and ship building. This traditional industrial base of mining, ship building, heavy engineering, Iron, Steel and manufacturing have faced tremendous decline in the recent past (Kirby, Barrell & Whitworth 2011 p.128). Perhaps, this accounts for the low economic prospects in the Northeast England. The general productivity of those who work is below the national average. Likewise, the number of people of working age in employment is below the national average. The situation is worsened by the fact that only about twenty four percent of young people in the region access higher education, thus, significantly below the national target of fifty percent. Adam Smith and Michael Porter’s view on optimal development of national economies Adam Smith attacked the antiquated government restrictions. He argued that such government restrictions are responsible for hindering industrial revolution. He accused governments for allegedly interfering with the economic process through various restrictions including tariffs. According to him, this created inefficiency and resulted to high prices in the long run. The second chapter of the book is entitled “of restriction upon the importation from foreign countries of such goods as can be produced at home”. In this chapter, Smith avers that: “by preferring the support of domestic to that of foreign industry, he(an individual) intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention ... by pursuing his own interest, he frequently promotes that of the society more effectively than when he really intends to promote it” (Smith, 2011 p.212). By these words, Smith implies that human beings are naturally rational and often, they are driven by self-interest. In this regard, if left on their own, each individual will follow his and her own self interest. This in turn will promote the interest of the society. Thus, Smith suggested that governments should not interfere in this process. This implies that governments should embrace a policy of laissez faire (Smith, 2009 p.118). Perhaps this is what is to be adopted by both the Scottish and the Northeast England governments. On the other hand, in the article titled “Clusters and the New Economics of Competition”, Michael Porter explains how clusters promote high levels of productivity and innovations. This in turn lays out the base for competitive strategy and economic policy. Porter argues that economic geography should not be regarded as a source of competitive advantage. This is however untrue in the modern economy where locations have remained a crux for competition. According to him, today’s economy is made up of clusters .Porter defines clusters as “critical masses in one place of linked industries and institutions (from suppliers to universities to public universities), that enjoy unusual competitive success in a particular field” (Porter 1998 p.3). He asserted that clusters affect competition in three ways. According to Porter, clusters increase the productivity of companies based in an area. Secondly, clusters determine and drive the direction and pace of innovation and finally as Porter puts it “clusters stimulate formation of new businesses within the cluster”. According to Porter, virtually every economy today is characterized by clusters or geographical concentration of interconnected companies. He posits that competitive advantage lies increasingly in local things which the distant rivals cannot replicate. This includes knowledge, relationships and motivation. Perhaps, that is why the Northeast government, thorough the North East ERDF Competitiveness programme, aims at promoting local trade so as to enhance the ability to trade globally. Recent government’s efforts The Scottish government adopted a plan entitled “The Scottish Economic Recover Plan” which is aimed at accelerating economic recovery. The plan was developed by the government in conjunction with Scotland’s business persons, academics, community groups as well as individuals, to reflect more accurately on the long-term impacts of recession and establish a post-recession economy in Scotland. The plan is notably aligned with the Government Economic strategy within the three vital themes of strengthening education and skills, supporting jobs and communities and investing in innovation and industries. With the efforts of accelerating recovery, the government aims at increasing growth rate. Scotland has continued to develop and exploit its riche comparative advantages. It has further embarked further expanding its international trade, taking advantage of the newly competitive exchange rate to penetrate new markets. It has encouraged new foreign investments, expanded and ameliorated its tourism industry and improved the education and skills base so as to continue providing a platform for new employment. Also, the Economic Recovery Plan appreciates the role of the public sector in economic growth. The plan has also mobilized a variety of cross-public activities which are aimed at supporting the Scottish economy through the effects of the global recession. It has also supported employment through accelerated public spending and deliberate support for skills. Indeed, these measures among many others, have witnessed a tremendous growth in the Scottish economy. On the other hand, with the aim of escalating economic recovery in the Northeast England, the approval of the Northeast ERDF Competitiveness programme was inevitable. The programme is aimed at making the Northeast region a more cohesive, ambitious and attractive for investment and working based on the creation of a more modern, innovative and focused economy which is enhances the effective exploitation of economic and social opportunities associated. It is also aimed at strengthening the regions’ entrepreneurial culture and expanding the region’s business base thus consequently expanding the regional economy and developing a society that is self reliant and confident of its ability to compete in the global economy(Kirby, Barrell & Whitworth 2011 p.174). The programme has so far been lucrative to the Northeast economy as it has recorded tremendous growth. For instance, all sectors in the North East (expect the Mining sector) have been experiencing positive growth in the recent years. The manufacturing, Financial and Business Services, the Northeast region’s most important industries, have recorded commendable growths. Also, total employment has been growing at a faster rate in the North East in comparison with the UK as sustained by Jamie Jenkins remarks (Jenkins 2011 p. 23). In conclusion, despite the adverse effects of the recent economic depression on the economies of Scotland and Northeast England, it is palpable that the governments of these two countries have been in the frontline to enhance economic recovery. The ideas of both Adam Smith and Michael Porter have been applicable in each of these two economies with regards to recovery. References Jenkins, J. (23, November 2011). UK unemployment continues to edge up. The New York Times, p. 19. Kirby, S., Barrell, R., & Whitworth, R. (2011). Prospects for the UK economy: Statistical Data, (pp. 122--124). London: National Institute of Economic and Social Research Porter, M. (1998). Clusters and the new economics of competition. Harvard Business Review, 3-6 Smith, A. (2011). The wealth of nations: Books IV-V. (p. 56). London: Create Space Smith, A. (2009). The wealth of nations. (p. 354). London: Thrifty Books. Read More