The British and Global Economy - Essay Example

? Globalization and British Economy Britain and global economy In the 1920s, the world economy particularly of US was severely destabilized by the Great Depression. This resulted in the rise of Fascism and the Second World War. The Great Britain, the United States, Russia and France were among forty countries that met at Bretton Woods in July 1944 over the issue. The objective of the meeting was to lay the strategy for the international financial order at the end of the World War II. The new order was geared towards preventing another economic catastrophe in the world. It is at this conference the International Monetary Fund (IMF) and the World Bank was created to prevent global economic depression. Britain and International Financial Institutions Britain, Japan, China, Saudi Arabia, Germany, Russia, France and the United States hold permanent positions on the executive board of the IMF. The remaining sixteen directors are elected from other groups of countries. Even with equal representation on IMF board, Britain exercises global economic influence via its membership with the IMF, the World Bank, Commonwealth of Nations, the World Trade Organization, the United Nations, the G20, the G8, the G7, the OECD, and the European Union. The IMF and the World Bank, collectively referred to as International Financial Institutions (IFIs), play a major role in globalization. The IFIs are designed to help control the global financial system and have enhanced economic integration of all countries in the world. These institutions provide financial and advisory assistance to countries in need of the support in their policymaking and economic development. Nonetheless, the IFIs have been attacked by critics over four interrelated aspects of the implementation of the IFIs’ strategy. These aspects include compromise of political and economic sovereignty of countries; lack of understanding of the situations of the receiving countries; imposition of policies on a country at once instead of an appropriate sequence; and the IMF was not open to public oversight when formulating policies. United Kingdom After WWII The United Kingdom was no longer the economic superpower by 1945. The United States had become the world’s only superpower. The financial crisis hit the old industries until the United Kingdom suspended the gold standard permanently and facilitated the conditions necessary for economic recovery. The global pre-war balance of power collapsed and the world war ensued. Britain and France were forced into action in 1941. The costs of Britain’s military action weakened further and lost its position to the United States as the global economic superpower. Nevertheless, Britain still plays a crucial role in the world economy. After the World War II, the British economy flourished for about twenty eight years (1945-1973) without a major recession. The economy also enjoyed a tremendous growth in prosperity especially in the late 1950s and early 1960s. This encompassed low rates of unemployment; less than 500, 000 unemployed until the late 1960s. According to the Organization for Economic Co-Operation and Development (OECD), the British economic growth rate averaged 2.9 per cent during 1960-1973. The other European nations: Italy, France, and West Germany, had a far much higher growth rate. Nevertheless, the British economy was hit again by the 1973 financial recession and the stock market crash. Britain experienced escalating unemployment rates. Moreover, the economy was blighted by over 20 per cent inflation after 1973. The British economic crisis persisted even after the global economy recession had ended. The inflation rate never went lower than 10 per cent. Being a permanent member of the IMF, Britain was forced to acquire a loan of 2.3 billion. The IMF achieves its goals through three main activities which are surveillance, financial and technical assistance. Financial assistance is the central activity undertaken by the IMF. Member states experiencing balance of payments problems can obtain loans and credits to offset their obligations. According to the IMF and World Bank, the member country in need of this assistance must agree to adopt and implement changes in its economic policies that IMF specialists propose. Britain was required to implement some reforms in its economic policies and cut down public spending in order to secure financial assistance. The loan helped improve the British economy for a while. The technical assistance on tax policy, monetary and fiscal policy, collection of data and regulatory procedures are also provided by the IMF (Rogers, 2012). Such programs aim at equipping developing nations with capacities to transform and manage their macroeconomic policies appropriately. Britain was devastated by several public sector unrests and this led to the onset of non-liberal economics in 1979. The new government passed union reforms, privatized public enterprises, cut taxes and deregulated markets in the 1980s. These economic reforms were aimed at modernizing the British economy. This resulted in the rising of the Gross Domestic Product (GDP) to 5 per cent in 1988 (Dunning & Lundan, 2008). This was one of the highest rates in the European community. Britain in EU Britain joined the European community (EC) in 1973 and its trade magnificently balanced in the global economies. In the year 2011, Britain exports to the European Union (EU) comprised of 53.8 per cent of the total exports and the EU imports to the Britain accounted for 50.4 per cent of total imports (Gaskarth, 2013). This is a clear indication that Britain’s relation with its neighbours has great economic importance despite globalization. Britain is highly connected with the world economy and has a long time as a trading nation. Britain’s reliance on the world trade in order to maintain its economic position and prosperity is based on its ideology of free trade, early industrial development and a population outstripping the agricultural capacity of its territory. Furthermore, Britain has been able to continue influencing the terms of international trade agreements through a closer integration with the European economy and its membership with the European Union. However, this achievement has come at the expense of its capacity to pursue an independent economic policy and has rendered Britain complicit in protectionist arrangements (Gaskarth, 2013). According to the IMF, the mean annual growth rate was 2.95 percent between 1997 and 2007; the financial sector contributed for a larger part. The other European countries had lower rates; Germany 1.69 per cent and France 2.3 per cent (Gaskarth, 2013). The Britain enjoyed a steady period of growth until the second quarter of 2008 when recession struck. This economic recession resulted from the global financial crisis which begun with the collapse of Northern Rock. Consequently, unemployment rates increased; 1.6 million unemployed in the first quarter 2008 to about 2.5 million by fourth quarter 2009. The Britain unemployment reached 7.9 per cent in March 2010. Nevertheless, these unemployment rates were relatively meek compared with other countries experienced recession. Before recession, the British economy had the lowest inflation, unemployment rates and interest rates. Through its surveillance and analysis of the economic situation during the recession, the IMF warned Britain. The IMF experts identified the escalating commodity prices and financial disorder as the factors weakening the British economy. These two factors affect the Britain more than numerous developing states. Britain gets income from exporting monetary services; hence, its financial turmoil weakens the economy (Meredith & Dyster, 2012.). For example, British creditors gave loans to the public and private sectors in Australia. The British economy was the chief supplier of goods and services to Australia (Meredith & Dyster, 2012.)Moreover, the inadequate finished products and food worsen the economic situation of Britain. The IMF advised the British government to reform its fiscal policy by widening its scope to uphold peripheral balance. Through broadening and rebalancing the economy in favour of manufacturing and greater exports, Britain may make further economic prosperity. However, attaining a wide scope of exports to the emerging markets of Russia, Brazil, India and China has been greatly hampered by several trade barriers. Barriers such as cultural differences, politics and language have persisted despite the efforts of globalization. Moreover, the emerging markets are rivals; hence, expansion of Britain’s manufacturing exports will encounter stiff competition from strong economies. The low growth rates after the recession indicate that recovery of the economy will be slow and eventually the British economy fall behind the emerging markets. The emerging economies may affect the future status of Britain in the global economic policymaking conferences. They may also impact the resources obtainable for military and economic interventions out of the country. Nevertheless, the Britain plays a substantial leadership role in the world economy especially after the acceptance of the other influential countries in G8 and G20 forums. The April 2009 London summit of the G20 held in the Britain was very important for the global economy. The most powerful international economic players were to discuss an economic plan generated by the British policymakers. The British government strongly advocated for the strengthening of the IMF reserves (Thomas Weiss, 2013). Moreover, Britain aimed at reducing the dishonour of borrowing from the financial institution. At this summit Britain also proposed to rebalance the international economy by eradicating trade barriers; facilitate exports to the emerging economies; get support on further economic stimulus efforts and reform the system of international finance and intensify regulation. The British policymakers lay the foundation for the discussions through bilateral talks with other powerful economic countries. The Chinese economy was the third largest globally by the time of the summit. Therefore, the British economy is at the centre of the global economic policymaking in the early 21st century. Despite the downturns of the British economy, the United Kingdom (UK) holds an imperial power in the global economy for centuries. The UK continues to influence the major forums in global economy policies. Moreover, Britain demonstrated significant leadership role in the G20 London summit in April 2009. The world economy is expanding moderately and an increased rate of growth is expected in 2014. However, the anticipated growth rates have been lowered significantly in 2013 and 2014. This is due to the weakening projections in numerous emerging economies. Nevertheless, for the Britain, the forecasts are more optimistic; the OECD projects the Britain economy will grow at a rate of 2.4 per cent in 2014 (Allen, 2013). The IMF forecasts a more than 1.9 per cent growth rate in 2014 while the Office for Budget Responsibility predicted a 1.8 per cent growth rate (Allen, 2013). References Allen, K. 2013, Global economy still vulnerable but UK improving, OECD warns. theguardian. available at www.theguardian.com IMF and World Bank. n.d, International Monetary Fund and World Bank. Globalization101. Dunning, J. H., & Lundan, S. M. 2008, Multinational enterprises and the global economy. Cheltenham, UK : Edward Elgar. Gaskarth, J. 2013, British foreign policy. Cambridge: Polity. Meredith, D., & Dyster, B. 2012, Australia in the global economy : continuity and change. New York: Cambridge University Press. Rogers, C. 2012, The IMF and European economies : crisis and conditionality. Basingstoke: Palgrave Macmillan. Thomas Weiss, R. W. 2013, International Organization and Global Governance. New York: Routledge. Read More