To what extent does the British experience differ when compared against the major competitors - Essay Example

? DURING THE 1980S AND EARLY 1990S RECESSIONS, BRITISH MANUFACTURING MANAGEMENT RESTORED PROFITABILITY, SACKED EMPLOYEES, AND TRANSFORMED PRODUCTIVITY. TO WHAT EXTENT DOES THE BRITISH EXPERIENCE DIFFER WHEN COMPARED AGAINST THE MAJOR COMPETITORS? by Author’s Name Name of the Class Name of the Professor Name of the School City, State 8 January, 2013 Recession in Britain Over the last three major recessions, British economy suffered from sensitive losses in output, which extended over several quarters to cause negative growths before its recovery. The job loss in the recessions caused massive unemployment, which could have been estimated to be restored in a period of approximately five years. The impact of unemployment was much felt by the unskilled and those living in the deprived regions of UK, indicating highest rates of joblessness. This happened during the late 1980s and early 1990s recession, which resulted in manufacturing industries laying off a huge number of the workforce to retain the skilled ones, cutting back on the cost of wages to increase profits for the industry. Comparing the last three recessions of Britain’s economy, the biggest drop in its national output for a 12 month period was 4.1%, which occurred in the last quarter of 1980, followed by 1991 downturn in the 2nd quarter that recorded 2.2 %, and come 2009, 3 months to June, the British economy was estimated to be 5.5 % below its peak in March 2008 (Vaitilingam, n.d, p. 10) Figure 1: NIESR results on British national output downturns in the last major recessions (Vaitilingam, n.d.) There has been a declining factor of manufacturing share of employment since the 1980s recession, where the financial and service industries now offer more employment, although the nation has moved from high reliance on the manufacturing industry to knowledge work. Compared with the 2009 recession, the great number of women who had been absorbed in job markets after 1980s and 1990s recession seems to have been greatly affected in the latest recession. According to Bell and Blanchflower, 78 % and 81% of the job loss in 1980s and 1990s respectively were incurred by men (n.d, p. 2). In comparison with other manufacturing elsewhere in the industrialized world, UK manufacturing has grown very little unlike its comparable competitors, who continue to experience moderate steadily growth in output. Differences in Unemployment The cause of the increase in unemployment is still associated with various issues that citizens claim to have resulted from poor decision making in the UK. They include agreement to join the ERM, international economics, and the Lawson boom. However, the consequences were severely bitter in intensity of unemployment, let alone deterioration in public finances. According to Mullard, “between 1990 and 1992 UK unemployment increased from 1.8 million to nearly 3 million, while public finances moved from a positive balance in 1990 to a public sector deficit of ?50 billion in 1993 – an equivalent of 8 per cent of GDP” (1995, p. 113). The situation occurred when most of the workforce in Britain was concentrated in manufacturing industries, especially in the northern cities where steel, coal, and engineering industries were common. Although the OECD countries accounted for almost 35 million job loss between 1970 and 2000, the UK experience which fluctuated between 2 and 3 million job loss exceeded Germany and France who accounted for 1.1 and 1.4 millions respectively; with Yorkshire, East Lancashire, and South Yorkshire holding 10 percent each, of the unemployment rate in 1980s in UK (Mullard, 2011, p. 38). It is evident that the employers in UK shed more labour to minimize losses that when the calm from recession was returning, the existing labour force was insufficient to run effectively. The average rate of unemployment between 1981 and 85 was 10.5, 5.6, 6.2, 9.0 and 8.3 in UK, Italy, Germany, France and USA respectively (Irvin, 2011, p. 5).The unemployment duration seemed to contribute significantly to the increase in unemployment in the UK, while in the USA, a result of more balance in growth for both duration and inflow in the period of recessions. Differences in Investment in Manufacturing The UK investment in manufacturing has been overtaken by other sectors, meaning that productivity in manufacturing slowed down, as population changed into other forms of industries. Manufacturing contributes considerable weight to any economy and its reduced productivity affects the entire economic growth. In terms of investment, the British manufacturing industry has been operating with much lower capital stock, in comparison to its competitors; “Two thirds of the UK manufacturing productivity gap with France and nearly one third of the gap with Germany can be accounted for by higher levels of physical capital in these countries” (Brooks and Robinson, 2003, p. 9). The rate of investment back to manufacturing has been slowly diminishing, as businesses prefer to venture into different jobs in the macro economic environment. Other emerging economies began shifting from being mere low quality products producers, to challenge the UK in productivity. This resulted in change of investment patterns away from Britain to foreign economies like Eastern Europe, Asia, and South America. Despite reduction in manufacturing investment, the transition has crossed into technology and knowledge work investment. Just as it changed from agriculture, into industrialization, the economy had to find its new venture of economic opportunities, to reduce the strain of unemployment shock in the labor market. Massive investment has been drained in ICT, research, and development activities, while reductions occurred in steel and iron industries. With regard to Oulton research, the pre tax of return on investment in UK companies led to a mean of 8.7per annum, similarly to private rate of return on human capital in the course of 1988 and 1997; the pay off for investing in human or physical capital in UK was not in anyway appealing considering the cost of capital averaged between 5 and 7 per cent annually over the period (pearsoned.co.uk, n.d.). For the economic growth to be sustained, increase in the stock of capital in the industry has to be targeted at growth industries. Failure to which exportation could reverse into importation, just like it happened in the UK after 1980s recession and the rest of 1990s, where it imported lot of manufactured goods than it managed to export (Smith, 2003, p. 394). The same situation would occur if investment is channeled into non growth or long term gain domains that could take time for profits to be experienced. Deterioration in Living Standards The average living standard of the British society was affected differently, with the young aged workers and pensioners receiving the blow as unemployment increased. In the UK, trends in poverty and inequality increased, and especially with fluctuation of rates of income tax to the earning citizens. The high income earners had their living standards affected when cuts to top rate of income tax were implemented during the early 1980s recession. Generally, the household income fell in real terms, contributing to the decline of national income. The mean income with regard to age group classification during the recessions experienced intensive falls, especially for the young workgroup and the elderly above 55, but under state pension age in the early 1990s recession. The average income was also defined in terms of education level, which could explain the increased gap of income level among the population of UK, who had a distinguished level of education and skills (Muriel and Sibieta, 2009, pp. 17-22). The income inequality has remained high during and after the recessions, showing slight fluctuations with changes in tax rate policies introduced by Margaret Thatcher during the period, to prevent high inflation and borrowing conditions due to the weak economy. There was a profound effect on the average consumer in Britain, which left many consumers carrying negative equity on their mortgages, some of them having spent heavily on their credit cards for manufacturing products, especially in the textile industry (Bohdanowicz and Clamp, 1994, p. 161). Income inequality as well as its distribution in Britain was too high differing with other countries, with a considerable percentage of the population living on incomes (household) far below average. According to Shaw et al, on international comparison level, increase in income inequality level between 1967 and 1992 was more than 30 % in the UK, 16 to 29 % in Sweden and the United Staes, 10 to 15 % in Denmark and Australia, and generally less than 10% in most of its competitor countries in Europe (1999, p. 143). Awkwardly, while other countries experienced a reduction in child poverty, in Britain it was the opposite, increasing at a faster rate in the periods of recessions, due to families financial instabilities to meet children social welfare and needs. Profoundly, the rich continued to be richer in both Britain and the United States, but the poverty in UK grew further than in USA as a result of de-industrialization, increase in unemployment, and political assault on welfare and trade unions (Irvin, 2011, p. 13). The tough experience in economic performance saw Britain develop other industries away from manufacturing, to distribute wage and incomes in the population. New policies in public services have been altered to continuously improve living standards, and reduce income inequality. From the experience, although the manufacturing industry consists of sub sectors, it is no doubt that unemployment is linked to pay off settlement, with one problem leading to the other. 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Smith, S.W. 2003. Labour Economics. London: Routledge. Vaitilingam, R. n.d. Britain in Recession [online] Available at: [Accessed 7 December 2012] Read More