The British Economy - Essay Example

The British Economy The British Economy Introduction Notwithstanding that Great Britain has its own economic, scientific and technical potential, which supports traditional leading industrial branches, since 1970th there has been a constant decline in British manufacturing sector. Disintegration of the British Empire weakened national economy, which depended on raw materials and cheap labor force of its colonies for centuries. After the Second World War Great Britain gradually lost its hegemonistic position in political and economic spheres. “Small” colonial wars in Malaya, Nigeria, Kenya, Uganda were useless and demanded enormous budget expenditures. Within 1940th – 1970th absolute majority of former British colonies became independent; thus, economic influence of the British Isles within the Commonwealth decreased. Owing to inconsequent regulation in the previous years in 1968 Wilson’s government had to transfer national budget in the economy regime. Besides, in 1967 unprofitable steel industry was nationalized for stabilization of the whole industrial sector. Economic and industrial spheres required urgent restructure. The main features of decline Decline in UK manufacturing sector is characterized with the following features: restructure of the above sector; liquidation of coal industry; restriction of rights of trade unions; privatization as a new tool of economic regulation; development of innovative industries (sub-sectors) in the manufacturing sector; rapid growth of service sector; alternating dynamics in leading industries of the sector. British economy in 1970th The period of 1970th was marked with high level of socio-economic instability. Pressure of national trade unions increased as a result of limitations of their rights and growing unemployment. Numerous strikes of workers caused million losses. In 1969 trade unions rejected limitation of right for strikes. There was a large disproportion between number of trade unions and employed workers. The majority of labor force in the manufacturing sector was employed at the big plants and enterprises. “Thus in 1973 establishments with 1000 or more employees employed 42 per cent of the manufacturing labour force and even in 1984, after a wave of closures of large plants, still employed 32 per cent.” (Oulton 1990, 72) Economic recession covered the whole manufacturing sphere, including employment rate, workers’ socio-economic welfare, basic economic indices (GDP, IRR). British citizens regarded a long-term crisis as consequence of entry into EU (1973 – 1975), political instability, inappropriate financing of industrial sector. The economy of 1980th Despite of economic growth of 1980th, share of manufacturing sector in GDP had decreased from 25% up to 14% in 2004. Decrease of manufacturing sector happened mainly due to the reorganization of national economy and growth of service sector. Since early 1980th its output has increased by circa 30%. The same tendency is marked in other countries Such tendency is conditioned with a large-scale closing of large plants and companies dependent from governmental financing. In 1970th oil pipelines from the North Sea were opened; thus, national industry started redirecting for usage of oil. As a result, in 1980th national coal industry proved to be unprofitable, that’s why Margaret Thatcher promoted subsequent reduction of budget financing and privatization of mines. The Miner’s Strike of 1984 did not save the situation, because non-remunerative industry undermined efficiency of the whole manufacturing sector. “In 1973, the number of wage earners in Britain’s coal mines exceeded 1/4 million. The productivity of labor rose significantly in the fifteen years to 1988. Production increased by 140 per cent per man shift in production and its rise overall was 73 per cent.” (Ray 1989, 77) After 1986 coal labor market shortened to 100,000 employees, because many old mines and pits were closed all over the country. It resulted into a sharp unemployment increase by 30% in South Wales, Yorkshire, Midlands, where the largest British mining companies were situated. The remaining mines were reequipped and successively closed within two following decades. Unprofitable industries and sectors were closed and shortened, but there was a general tendency towards broadening. In Great Britain scientific and technical progress promoted development of innovative industries such as pharmaceutics and aerospace. Rapid growth of pharmaceutical industry is related to introduction of biotechnologies and breakthrough in microbial biochemistry and enzymology. Biotech companies and pharmaceutical corporations such as GlaxoSmithKline or Recombivax HB adopted narrow strategies, large R&D costs and attractive incentive systems for their employees. “The biotech contracts may have been merely a phenomenon of the transition, a fleeting accommodation to particular circumstances in the 1970s and 1980s, owing more to the structure of capital markets than to a fundamental change in the nature and sources of innovation.” (Galambos and Sturchio 1998, 251) According to them, employment in this sphere almost doubled. Wages of laboratory assistants, pharmacologists of different specialties, biochemists and other specialists were by 10% - 20% higher than wages of their colleagues, working in other industries. 1990th-present According to statistics of the Association of the British Pharmaceutical Industry (ABPI), in 2007 share of British pharmaceutical companies on the international market makes £14,567 million in export and £10,291 million in import. Annually UK citizen spends circa £200.00 for prescription and hospital medicines. This is 2.5 times less than average expenditures of US citizens and 1.8 times lass then French citizens. Governmental spending on medicines makes 0.85% from GDP. Taking into account average density population in the United Kingdom, this is a relatively large index. Leading pharmaceutical companies GlaxoSmithKline and AstraZeneca manufacture 19% of the world most popular medicines. “GlaxoSmithKline soared from No. 8 in 1999 to the No. 2 position in 2000, with 171,778,000 million Rxs, a gain of 8.7%. The biggest drugmakers-Pfizer and GlaxoSmithKline, are also the biggest spenders. No. 2 drugmaker GlaxoSmithKline was the No. 1 DTC advertiser, dropping $175 million on consumer ads during the first quarter of 2000 alone. ” (Gebhart 2001, 175) This statistics proves that there is a tendency to merging in British manufacturing sector. In the period from 1998 till 2007 Pharmaceutical Producer Price Index varies from 100 up to 103. In the last decade British pharmaceutical industry has broadened and flourished due to mass epidemics such as H1N1, avian influenza etc. They provoked mass panic among ordinary citizens, but brought million incomes for GlaxoSmithKline and AstraZeneca. Innovative pharmaceutical industry demonstrates a stable dynamics. On the one hand, development of UK manufacturing sector depends on the international trends. On the other hands, Great Britain has its own economic, scientific and technical potential, which supports traditional leading industrial branches. It allows strengthening and mitigating decline of the manufacturing sector. British government tries to balance the above sector, using such financial tools as privatization and nationalization. In the majority of cases, nationalization proved to be inefficient because of poor governmental funding. Private investments often work more efficiently. Conclusion Decrease of manufacturing sector was also caused by restructure of national economy and growth of service sector. Since early 1980th its output has increased by circa 30%. The same tendency is marked in other countries. Service sector broadened thanks to growing variety of rendered services. According to services sector statistics, in 1995 British market of services included government and other services (23%); business services (21%); transport, storage and communications (8%); distributions, hotels, catering and repairs (15%); construction (5%); production services (27%); agriculture, forestry and fishing (2%). The service branches develop quickly due to high technologies, growth of UK citizens’ welfare and decline of competitive branches in the manufacturing sector. They do not have stiff limits and successfully combine variety of industries. For instance, business services cover banking sphere, layer’s services, transportation, delivery services, post office, video/Internet conferences, financial consolations etc. On the contrary from the manufacturing sector, tendency to business cutting dominates in the service sector. “Most service sector businesses are small with 75 per cent with an annual turnover of less than £250,000.” (Office for National Statistics, 2000) Comparing to the manufacturing sector, the employment rate in this sector is much higher. “In the service sector, which provides over 76 percent of employee jobs, employment rose by 2.3 per cent in 1999 and 2 per cent in 1998.” Thus, sector service is competitive for the manufacturing sector on the national labor market. Bibliography 1. Association of the British Pharmaceutical Industry, “Statistics of Pharmaceutical Industry”, ABPI http://www.abpi.org.uk/(accessed July 25, 2010). 2. Gebhart , Fred. “Annual Rx Survey: behind the Numbers.” Drug Topics 145, no. 7, (April 2001): 48 – 52. 3. Galambos, Louis and Sturchio, Jeffrey L. “Pharmaceutical Firms and the Transition to Biotechnology: a Study in Strategic Innovation.” Business History Review 72, (February 1998): 250 - 256. 4. National Statists, “The UK Service Sector”, Office for National Statistics. http://www.statistics.gov.uk/downloads/theme_commerce/UK_Service_Sector.pdf (accessed July 25, 2010). 5. Oulton, Nicholas. “A Tale of Two Cycles: Closure, Downsizing and Productivity Growth in UK Manufacturing, 1973-89.” National Institute Economic Review 12 (2000): 66 – 73. 6. Oulton, Nicholas. “Labour Productivity in UK Manufacturing in the 1970s and in the 1980s.” National Institute Economic Review 132 (1990): 71 – 77. 7. Ray, George F. “British Coal.” National Institute Economic Review 130 (March 1989): 75 – 80. Read More