The Relationship between Economic Theory and the British Economic - Assignment Example

Which economic theory has shaped the British Economy more: Keynesianism or Neoliberalism? of essay British Influence Director PeterWilding said “far from leaving Europe, Britain should be leading Europe” (Euronews, 2014). Only person who is sure in economical stability and high prospect of progress in his country can provide such deep-mouthed and perspective words. So it is absolutely confident that United Kingdom is country with high economic level and wide range of opportunities in the field of economic development. It is interesting to know the historical background and theoretical schools which influenced modern Britain economically. Keynesianism and Neoliberalism are two the most discernible spheres of economic theory. Browsing and analyzing literature from history of British economy we can suggest that Neoliberal school sets bigger influence in modern Britain economical situation. Keynesianism named after its inventor John Maynard Keynes, he “gave his name to a revolution in economic through, associated with his seminal work, The general theory of employment, interest and money. He also helped to bring about a revolution in economic policy as a critic of government between the wars and as an advisor to the Chancellor of the Exchequer from 1940 to 1946” (Peden, 2004). Keynes provided his theory in 1936. “Most treatises of the theory of value and production are primarily concerned with distribution of given volume of employed resources between different users and with the conditions which, assuming the employment of this quality of resources, determine their relative rewards and the relative values of their products” (Keynes, 2008). This was the main basis and rule of his theory. The basic Keynes model was static; he treated all economic processes within a short period. His basic model parameters were not changed in time, the size of production was foremost. This approach was due to the specific peculiarities of depressive economic of 30s. The problem of long-term economic growth and economic dynamics was not on the first place that time. Keynes wanted to find the answer to more pressing points. The question of mass unemployment, overproduction of goods and under load capacity was essential for him. He thought of how to provide people with full-time jobs and stable salary. Keynes provided a ‘revolution’ structure of monetary economics, in his General Theory of Employment, Interest and Money. It refused three main fundamental truths of classical economics (Davidson, 2007).  Keynes stumbled doubted that these offers were appropriate to an economy in which most industries were privately managed businesses (Davidson; 2007). Keynes’ dissent was based on his conceptions of people’s attitude towards both the future and money itself. “Neoliberalism in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade ” (Harvey, 2005). The role of the state was reduced as a result there was suggested course on privatization. The state has to ensure the quality and integrity of money, to establish military, police and legal structures, to safeguard private property rights and to guarantee the proper functioning of markets (Harvey, 2005). The basis of neoliberelism constitutes the doctrine of competition structure and the concept of social market economy. Development of this doctrine belongs to Walter Eucken and his main works of 1950s. Also Ludwig Erhard, the German politician and economist, supports neoliberal direction, with his participation Germany in the late 40s was derived from the crisis. Carefully planned reforms were held simultaneously and the previous system was destroyed immediately. “The process of neoliberalization has, however, entailed much ‘creative destruction’ not only of prior institutional frameworks and powers (even challenging traditional forms of state sovereignty) but also of divisions of labour, social relations welfare provisions, technological mixes, ways of life and thought, reproductive activities, attachments to the land and habits if the hart” (Harvey, 2005). It leads that all social commodity will be minimize with the help of maximizing the reach periodicity of market proceedings, and is aspire to bring all human action into the market area (Harvey, 2005). British post-war policy characterized as one which was suffering from redundant concern with employment levels. This country was fully and totally open to international economic relations. Keynesianism destroyed the rules and new regime of regulating capitalism began to appear. It constituted an ideology an intellectual critique at first which protected the precedents of free markets and the freedom of the individual in maximizing of efficiency, economic growth, optimal appropriation of goods in the honest division of income and wealth (Daniels and Mcllroy, 2009). The state intervention of Keynesian era fueled inflation and depressed profits. British policy should find some solutions and provide some ways out. Neoliberalism turned from ideology to practical politics in that time. It created nice tandem together with fundamental changes in the world economy later grouped together under the label ‘globalization’. “The specific relationship between global change in 1970s and 1980s end the revolution of neoliberalism requires further investigation” argued Daniels and Mcllroy (2009). The great deal of controversy about neoliberalism was existed. Harvey (2005) conceives neoliberalism as a new turn to primitive agglomeration and outspread of the market through globalization and pillage of state declares. “In 1979 Margaret Thatcher was elected in Britain with a strong mandate to reform the economy. She accepted that Keynesianism had to be abandoned and that monetarist supply-side solutions were essential to cure the stagflation that had characterized the British economy during 1970s” (Harvey, 2005). They seemed Keynesian monetarism not fully effective and turned to neoliberalism thus dependent not only on adopting monetarism but on the unfolding the government polices in many other arenas (Harvey, 2005). In 1980 Volcker was supported in and allocated repeatedly to his position as chair of Federal Reserve. The administration tried to provide the requisite political backing through further deregulations, tax cuts, and budget tax and attracts to trade union and professional power (Harvey, 2005). The political administration of neoliberal ideas was greased by the strategic thinking about the confrontations required for radical alternate, and about precisely how to plunder trade unionism that the Conservatives commence in opposition (Daniels and Mcllroy, 2009). Freidman (1968) successfully foreseen that both inflation and unemployment would gradually rise and nourish a basis for discern that only a mitigate rate of inflation would keep unemployment low (Krugman, 1994).  British people can intimate this popularization of inflation detestation into an institutionalization of inflation targeting which can be legal. Britain received the policy of adumbrating German rates interests during the period 1990-1992. Kathleen McNamara argues in her work on European Monetary Union, that within this period, the German norm, which was successful in accomplishing of low inflation together with high employment, was prescribed to the policies of the Bundesbank (McNamara, 1998). 1997 was the year when the institutionalization was complete. The Bank of England was bestowed formal freedom from the UK treasury. (Hay, 2005).  This institutionalization was recapitulated by the new agreement that the governor of the Bank of England was confined to illustrate in writing an explosion to restrain inflation to within one point of the government’s inflation indicate. A Labour government was elected to the office in Britain in 1997. This policy set their course to the neoliberal work politics. There was a pressing consistency with the mental models that denounced the policies chased by the Thatcher’s government (Roy, Denzau and Willett 2007). Nowadays the Unlighted Kingdom is recognized as a leader in the field of advanced technology, design and creative approach to business. This position is also supported by government policy, which seeks to achieve superiority in the research field. Due to this the UK economy become the most attractive property in Europe for innovative companies from around the world , particularly for companies with high added value , working in the field of medicine and biology , information and telecommunication technologies , innovative engineering, as well as in the research field . London concerns as the largest international banking business center. There era the world’s largest number of foreign banks. A variety of assessments and ratings consistently confirm the position of London as the most attractive places for activities leading companies. Today, business activity in London is experiencing the peak of its development. Almost all major fields of modern industry are represented In Britain. Important contribution to the UK economy is also making services, which includes activities such as insurance and banking. Since, as in May 2004 when Eastern Europe joined the European Economic Area, which brings together the EU and the member countries of the European Free Trade Association, the UK has received direct access to the markets of 28 countries in the world. This is about 450 million customers. According to the current UK government, investment decisions should be made at a reasonable market intervention by the state. The importance of having current business economy is recognized by all major political parties in the country. Today in the UK state ownership mainly limited to the services of the national postal service. Government sector enterprises are dominated in the field of education, health and local government, but many activities which is related to the field of these spheres transferred to private sector enterprises subcontracted ( Abdelal, Blyth, Parsons, 2010). In other areas of the UK economy the direct involvement of the state is mainly realized through measures to stimulate investment, but the law also largely regulates such areas as working conditions, health and safety, consumer rights and environmental protection. Today, the UK is the center of intensive foreign investment. It attracts companies from different countries of the world by a combination of conditions such as skilled labor, the effective labor laws, low labor costs, English and EU membership. State Government encourages foreign investment not only in the service sector, but also in areas such as industrial production and research activities. The sphere of new technologies is of particular importance. Foreign companies offered benefits to the same extent as the British companies. There are no any specific requirements with participation of British government or citizens in private enterprises. The only exception is some nationalized industries. Special support is provided in the areas of investment of regional development. The issues of trade and investment with the United Kingdom in its economy are predominantly run by the Ministry of Trade and Industry. Ministry of Trade and Industry Agency is created to support and stimulate investment, which helps foreign companies to open their business in the UK. The agency and its affiliates can also get free advice on applying for investment incentives. All in all the Unlighted Kingdom of Great Britain is highly developed country. They really work and search the solutions for better progress in economy and higher quality of people’s life. This country goes through a hard way to achieve such glorious results. During the last century British government appealed to Keynesian and Neoliberal economic theories for their policy. And I consider that only the combination of different methods provided by these theories helps Britain to create successful economy. Still I suppose that a huge part of economical policy in Britain belongs to Neoliberal theory as there are a big number of private businesses in the field of British economy. Sector which is fully controlled by government provides its management to not so wide field of economy. Reference list: Abdelal, R, Blyth, M and Parsons, C., (2010). ‘Constructing the International Economy.’ ,Ithaca; Cornell University Press. Blyth, M.,(1997). ‘Any more Bright Ideas? The Ideational Turn of Comparative Political Economy’, Comparative Politics, 29 (2) January (1997). Booth, A., (1995) ‘British Economic Development since 1945’, UK: Manchester University Press. Daniels, G., Mcllroy, J., (2009). ‘Trade Unions in Neoliberal World. British Trade Unions under New Labour’, New York: Routledge. Davidson, P., (2007). ‘John Maynard Keynes.’ Basingstoke: Palgrave Macmillan. Euronews, (2014). ‘Better off in a Better Europe’ – British Influence launches manifesto’. Available at: http://www.euronews.com/2013/07/16/better-off-in-a-better-europe-british-influence-launches-manifesto/ Floud, R., and Jonson, P., (2004). ‘The Cambridge Economic History of Modern Britain. Volume III. Structural Change and Growth, 1939-2000’, UK: Cambridge University Press. Friedman, M., (1968). ‘The Role of Monetary Policy’. The American Economic Review. Vol 58. No.1(March 1968;pp1-17). Harvey, D., (2005). ‘A Brief History of Neoliberalism’, UK: Oxford University Press. Hay, C., (2005). ‘The Political Economy of New Labour;  A Preliminary Assessment’. Paper presented at the conference on Cool Britannia: Britain after Eight Years of Labour Government Université de Montréal, May 4-6, 2005. Keynes, J. (2008). ‘The General Theory of Employment, Interest and Money’, India: Nice Printing Press. Krugman, P., (1994). ‘Peddling Prosperity; Economic Sense and Nonsense in the Age of Diminished Responsibility’, London; W.W.Norton & Company. Peden, G., (2004). ‘Keynes and his Crisis’, USA: Oxford University Press Inc. Roy, R., Denzau, A., and Willet, Th., (2007) ‘Neoliberalism. National and regional experiments with global ideas’, New York: Routledge. Swank, D., (2002). ‘Global Capital, Political Institutions, and Policy change in Developed Welfare States’, Cambridge: Cambridge University Press. Read More