1990s Economic Recession - Essay Example

?1990s ECONOMIC RECESSION Economic recession is a contraction in a business cycle, a slowdown in economic activities. Its indications are evident in the countries employment rate, the rate of investment spending, the household income, business profit making, and decrease in inflation, the increase in the unemployment rate and capacity utilization. Recession mostly occurs when there is a wide spread decrease in spending and this can be caused by various activities such as external trade shock, an adverse supply shock, and financial crisis. Economic recession is mostly responded by the government adopting and implementing certain economic policies such increasing the amount of money in circulation, decreasing taxation in order to create an atmosphere that can allow an increase in public spending (Haslam, Neale & Sukhdev, 2000). Britain, United States, and China are the most competing nations that have experienced economic recessions since the 1980s. The cause of the 1980 recession in Britain is believed to have been due to the government monetarist policies to reduce inflation; this led to an increase in unemployment rate from 5.3% to 124% of the working population in 1979 to11.9% in 1984. It took 18 quarters for the GDP to recover to the start of the recession. The early 1990s recession is attributed to the US savings and loan crisis, which led to a decrease of company earnings from 25%and 55% increase in unemployment rate from 6.9% of the working population in 1990 to 10.7% in 1993, which took 13 quarters for the GDP to recover to that at the start of the economic recession. The unemployment rate between the 1980s and 1990s shot up to a level not seen since the great depression this in turn affected Britain’s economy badly to the point that even after the recession, many Britons were still unemployed. This led to the stagnation of the industrial sector leading to increase in losses and low profit making affecting Britain’s economy. Likewise the GDP remained low even after the recession only increasing by a couple of percentage. Economic recession in Britain happened during the reign of Margret Thatcher. During this time, United Kingdom was a small nation in terms of population, which was only 56.2 million people compared to 2010 when the population shifted to 62.3 million. Very few people came to live in Britain during the reign of Thatcher. Acceptances for settlement went down from 69,670 in 1979 up to 53,200 people in 1990 the time Thatcher resigned as the prime minister. During this time of economic recession, there were many people leaving Britain than coming to Britain. This trend led to a decrease in the population of Britain. During the economic recession, there was an increase in divorce rate with many babies being born outside marriage. The rate of people getting married also decreased. In the 1980s, many businesses faced the challenge of restoring the spirit of competitiveness with the problems they experienced in the 1970s where British industrial sector was struggling with industrial relations, poor productivity, and low profitability (Haslam, Neale & Sukhdev, 2000). Under the reign of Thatcher, manufacturing decreased. During the 1970s, manufacturing accounted for 20.57% of the UK GDP. This dropped to 17.62% of GDP in 1979 and again dropped to 15.18 % with the exit of Thatcher. There was a pay gap during her reign with men receiving more pay than women. On house rent, there was an increase of house rent across Britain especially with the privatization of counsel houses. This led to distress across Britain with many people being unemployed, retrenched, and underpaid. With low income, it forced some of the people to move out of Britain and reduced the number of those people who were coming to Britain. Interest rates also sky rocketed to 17% these affected investments in Britain discouraging investors from expanding their investments. Property repossession also increased. For instance, in 1991, 75,500 properties were repossessed and over 186,649 cases reached the court. Membership in unions went down during the economic recession in Britain from 13.2 million people in 1970 to 9.8million people in 1990. In the 1970s out of four, one was a member of the union but it dropped to one out of eight people (Haslam, Neale & Sukhdev, 2000). Poverty level went up during the economic recession, it is argued that in 1980, 13.4% of the population lived below 60% of the median incomes, this increased in the mid 1980s, and by 1990, it had clocked 22.2%. Workers staged strikes across Britain advocating for better payment and improvement in the living standards. Margret Thatcher came up and implemented monetary policies to cut down on inflation. She also changed the trade union laws as an attempt to reduce the strikes that had been witnessed for a long time. Margret Thatcher fought for a decrease in inflation rate, which led to the closure of inefficient factories like the shipyard, and coal pits. In addition, Britain experienced a decrease in the strikes, though by the mid 1980s, inflation reduced by 4% but it also triggered an increase in unemployment rate. With the closure of many industries in Britain under Thatcher, Britain witnessed an increase in importation of goods. Initially, Britain used to be known as “the workshop of the world” unfortunately due to the breakdown in the manufacturing sector, it ended up importing from other nations. In 1985, Britain witnessed another wave of riots that mostly affected London. This was triggered by discontentment with the government and the increase in unemployment rate. The lowering of both the interest rates together with deficit spending enhanced economic growth though the conservatives were arguing that this was achieved due to the lowering of taxes. The introduction of enterprises zones also led to an improvement in the Britain’s economy. However, the manufacturing management teams applied some crude methods in attempt to rescue their companies. They used methods like retrenchment of employees in order to increase their profit making. Such manufacturers were able to survive the economic recession registering low profits but were able to survive this period. Deindustrialization also played a significant role to the recovery of the British economy. The small and traditional industries were upgraded and modernized. This was enhanced with tax breaks and exemption of taxes for a given period allowing the manufacturers to import equipments and investing in new technology, hence upgrading the traditional industries to become new industries hence commercial developments. With tax breaks as an incentive, there was an improvement in the paper, rubber, and auto industries, which were highly hit by the economic recession. The major competitors of Britain like US also experienced economic recession though they differed in the measures taken to avert the situation. For instance, US experienced economic recession for only two years between 1881 and 1882 the causes being contractionary monetary policy to reduce on inflation and energy crisis. US also experienced an increase in unemployment rate but it was lower compared with Britain, which was abnormal. US also experienced inflation but it was lower than that in Britain. The institutions that were highly affected in the United States were financial institutions such as the banking sector and savings and credit societies compared to Britain which experienced not only high interest rates up to 17% but also the collapse of industries like the coal pits and shipyard. China, which was a competitive economic giant also experienced economic recession, though at a very low point compared with Britain. It experienced an increase in unemployment rate in the 1980s and 1990s; it also experienced an increase in government expenditure, increase in imports and a decrease in exports. In conclusion, the economic recession that Britain experienced between the 1980s and early 1990s was worse compared to its competitors like China and US. References Haslam, C., Neale, A & and Sukhdev, J 2000, Economics in a business context (third edition), New York: Cengage Learning. Read More