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The Economic Recession in Northeast England and Scotland - Research Paper Example

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The paper "The Economic Recession in Northeast England and Scotland" states that Michael Porter's theory of clusters says that the economic map of the world today is dominated by clusters: critical masses-in one place- of unusual competitive success in particular fields…
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The Economic Recession in Northeast England and Scotland
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?The Economic Recession: UK responses and theory analysis Introduction Analysts say that the 2008-2009 economic recession, was one of the worst in history. According to the New York Times, “The 2008 financial crisis was an avoidable disaster caused by the widespread failures in government regulation, corporate mismanagement and headless risk-taking by Wall Street, according to the conclusions of the federal inquiry” (Chan, 2011). The same paper continues to say that it would be the greatest tragedy if people continue to say that they did not see it coming because it will happen again. The recession did not hit the U.S. alone but the whole world. Its effects were felt even in the small cities across the globe. People lost jobs, companies closed down, the rate of unemployment shot up, the rate of basic income for people fell continuously from 2008 up until early 2010, property sales declined, immigration declined, crime rates increased among other issues. The world is slowly recovering from this tragedy with many countries and cities establishing mechanisms in which they can avoid the emergence of another financial crisis (Verick & Islam, 2010, pp. 10-15). Economic Recession in the Northeast England and Scotland 1. Economic Recession 1.1. Northeast England According to the BBC the economy of the governments in the Northeast England were the highest hit with a total of 188 businesses failing during the last quarter of the year 2008 (BBC, 2009). Financial data firm by the name Experian, Revealed that in the year 2008 the number of companies that went into liquidation grew up 61% as compared to the year 2007. The North East Chamber of Commerce expressed their concerns of the need for the government to make sure businesses could access vital finance. The figures collected by the firm indicated that the value of losses suffered in the region was double that of the UK average. One member of the North East Chamber of Commerce said that the times were worrying and that those figures were highly alarming. According to the Financial Times, “ Inevitably, the current recession has bitten-most painfully with the 12,00 jobs being shed at Nissan’s Sunderland plant, a highly-influential beacon of manufacturing excellence” (Tighe, 2009). This just shows how much companies were affected in the Northeast with large companies like Nissan laying-off so many workers. Between early 2008 and through most of 2009 the unemployment rate rose sharply in all the English regions. The rate of employment fell sharply during this same period. Analysts say that the effects of the recession are still being felt even in 2012. The Guardian reports that “Unfortunately there will therefore be no early end to the financial pressures on households across the country, while our regional growth estimates suggests some further widening of the North-South divide in 2012” (Allen, 2011). At the moment the governments are still on the path of recovery, businesses are beginning to do well. Most governments have removed trade barriers with the banks; they have also brought forward construction projects which have created job opportunities for many. Though the North east was the highest hit by the recession, analysts say that the north of England holds the key to Britain’s recovery from the recession. This is because the region has many entrepreneurs who have prospered in the region; however the productivity gulf that exists between regions in the UK still cost the country Billions of pounds (Boffey, 2012). Generally governments in the northeast England have concentrated on investments and strengthening of education and skills in order to recover from the effects of the biting recession. 1.2. Scotland At the beginning of the recession many analysts said that Scotland would be worst hit by the recession. This did not happen as predicted and Scotland is already on the path to recover from the effects of the recession better than any other region in England. Scotland was also hit by the recession just like any part of the world. Its effects could be seen from the BBC report in 2009 that revealed unemployment had risen more than two thirds in only 12 months (BBC, 2011). Figures at that time showed that a total of 179,000 people were on the streets looking for jobs. It was predicted that things could be worse because Scotland’s rate of unemployment is lower than that of the UK and far much below any other European country such as Spain. There was no shortage of companies struggling but signs of encouragement could be seen everywhere (The Daily Record, 2009). Currently, the country is on its way to full recovery since the government introduced the economic recovery plan. This was because of the falls in output and the increasing pressure on employment. At the moment the rate of decline in output has eased and growth is being witnessed in many areas of the economy. The economic recovery plan was developed in collaboration with Scotland’s businesses, the community groups and academic institutions. The plan also partnered with local governments and the third sector. The plan is aimed at stimulating lasting improvements in Scotland’s future economic performance basing on the government’s economic strategy. The plan is structured following three broad themes: investing in innovation and industries of the future; strengthening education and skills and supporting jobs and communities (Scottish Gov., 2010). 2. Economic Theories and Perspectives 2.1. Adam Smith and The Wealth of Nations Smith was opposed to the idea of importation of foreign goods from abroad if such goods can be produced at home. He saw the government as supposed to protect the people from foreign goods so as to help secure the domestic market. He says that “ by restraining, either by high duties, or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them” (Smith, 2009, p. 361). He also says that the people who benefit a lot from the market exchanges of the monopoly market are the merchants and the manufacturers. He does not encourage cross border business as he sees the manufacturers and businessmen as liable to sufferings and some of them may end up closing their businesses and the employees may be forced to look for other sources of employment. Smith says “ if the free importation of foreign manufactures were permitted, several of the home manufactures would probably suffer, and some of them perhaps go to ruin altogether, and a considerable part of the stock and industry at present employed in them, would be forced to find out some other employment” (Smith, 2009,p. 366). Still smith puts it forward that when the local manufacturers and merchants are benefiting from the monopoly in the local market due to the absence of foreign goods, the farmers and common men are unaffected by these changes. He cites the reason for this as these people cannot congregate together like the merchants and manufacturers as they stay far apart and are located in various towns. He says “countrymen and farmers are to their honour, of all people, the least subject to the wretched spirit of monopoly” (Smith, 2009, p.368). Although he was against this trade smith argues that the importation of foreign goods to the domestic market is only advantageous in two occasions: when the some goods are necessary for the defence of the country and when some tax is imposed at home upon some produce. He looks at this as able to balance the operations of the domestic market. He talks harshly of the taxes saying that, “Taxes imposed with a view to prevent, or even to diminish importation, are evidently as destructive of the revenue of the customs as of the freedom of trade” (Smith, 2009, P.377). 2.2. Michael Porters theory His theory of clusters says that the economic map of the world today is dominated by clusters: critical masses-in one place- of unusual competitive success in particular fields. That clusters are a unique feature of every economy be it national, regional or state. He goes ahead to say that competition in today’s economy is far more dynamic. Companies can mitigate input-cost disadvantages through global sourcing. That competitive advantage rests on making productive use of inputs, which requires that there exit continuous innovation (Martin, Cooke, & Asheim, 2006, pp. 1-5). What happens in every company internal is very important but the clusters show that the immediate business environment outside companies also plays an important role. Clusters in most cases extend downstream channels and customers and manufacturers of complementary products. Clusters are very important because they reduce costs, increase the rate of innovation, pursue collective solutions to common problems and they build a common labour pool, technology and infrastructure. Clusters promote are seen to promote both competition and cooperation. He says that “competition can coexist with cooperation because they occur on different dimensions and among different players” (Porters 1998, p. 79). Rival companies or organizations compete fiercely to win and even retain customers. He says that “ clusters affect competition in three broad ways: first, by increasing the productivity of companies based in the area, second by driving the direction and pace of innovation, which underpins future productivity growth and third by stimulating the formation of new businesses, which expand and strengthens the cluster itself.” (p. 80). Clusters will not exist without competition. Clusters improve productivity and stimulate new business formation. 3. What the theorist would advice The recent efforts in both Northeast England and in Scotland are aimed at recovering from the economic recession. Their efforts widely range from supporting investments in the country and building on education and skills in order to recover from the financial crisis. In if Adam smith was present in the current economic status of the world I think he would tell the parliaments of these countries to stop their control on the domestic economy. He would advocate for the invisible hand that operated in the economy and everything will find its equilibrium and balance. He would advocate for governments to stop the control they have on monetary issues through the policies they create to ensure monetary and financial stability. He would advise them to stop this as it creates cycles of booms and busts that in turn affect the country. He would support the idea of investing in education and skills to build a pool of labour that is necessary for production and formation of capital. He would go for the laissez-faire approach and tell the government to let things flow but avoid international trade that was detrimental to the growth of a national economy unless in times when measures in the country are unfavourable for trade. Porters on the other hand would support the idea of cooperation among states or countries to end the economic recession. Cooperation would occur at various levels and make it easier for capital and labour to flow easily. In short costs will be reduced and companies will increase their competitive advantage as it would help them grow. When they grow the economy of the nation will also grow significantly as people will be able to get jobs, the rate of unemployment will reduce and the country will be stable. His idea of clusters would real help the governments as it shows that each group needs the other. When the recession hits it should get each cluster such as the northeast England cooperating as one, doing their things together and this means they will be economically stable and able to deal with the recession. He would advise them to increase investments just as they are doing to strengthen regions and business so as to avoid the financial crisis. Conclusion The recession was a big blow to the global economy. Very many countries were affected Northeast England and Scotland were not left behind. They are trying to recover from the problem with many of them preferring direct investments in the country and building on education and improving skills. This is seen to work but the progress is quite low. Adam smith look on the economy at present would have been different as he would have accused the government of tight measures that result in the recession. He would advocate for a freer society where people are free to go about with their tasks to avoid the recession. Porters on the other hand would advocate for cooperation in regions to achieved economic stability. List of References Allen, K. (2011, November 10). Recession puts the north-south divide back on the misery map. Retrieved April 19, 2012, from The Guardian: http://www.guardian.co.uk/business/2011/nov/10/north-south-divide-widens-pwc-study BBC. (2009, February 10). Recession hits North East hardest. Retrieved April 19, 2012, from The BBC: http://news.bbc.co.uk/2/hi/uk_news/england/7882190.stm BBC. (2011, November 8). Growing risk of recession in Scotland. Retrieved April 20, 2012, from BBC: http://www.bbc.co.uk/news/uk-scotland-scotland-business-15637958 Boffey, D. (2012, April 15). North of England holds the key to Britain's economic recovery. Retrieved April 19, 2012, from The Guardian: http://www.guardian.co.uk/politics/2012/apr/15/north-holds-key-to-recovery Chan, S. (2011, January 25). Financial Crisis was Avoidable, Inquiry Finds. Retrieved April 19, 2012, from New York Times: http://www.nytimes.com/2011/01/26/business/economy/26inquiry.html Martin, R., Cooke, P., & Asheim, B. (Eds.). (2006). Clusters and Regional Development: Critical reflections and Explorations. New York: Routledge Publishers. Porters, M. (1998). Clusters and the New Economics of Competition. Harvard Business review, 77-90. Scottish Gov. (2010, March 03). The Scottish Economic Recovery Plan: Accelerating Recovery. Retrieved April 19, 2012, from The Scottish Government: http://www.scotland.gov.uk/Publications/2010/03/03084300/2 Smith, A. (2009). An Inquiry into the Nature and Causes of The Wealth of Nations. New York: Digireads Publishers. The Daily Record. (2009, April 29). Recession in Scotland will last well into next year, experts Predict. Retrieved April 29, 2012, from The Daily Record: http://www.dailyrecord.co.uk/news/business-news/2009/04/29/recession-in-scotland-will-last-well-into-next-year-expert-predicts-86908-21318460/ Tighe, C. (2009, February 26). Doing Business in North-East England. Retrieved April 19, 2012, from Financial Times: http://www.ft.com/intl/cms/s/0/2dd71066-02d4-11de-b58b-000077b07658.html#axzz1sUWRdAwl Verick, S., & Islam, I. (2010, May). The Great Recession of 2008-2009: Causes, consequences and policy responses. Retrieved April 20, 2012, from Institute of the Study of Labour (IZA): http://ftp.iza.org/dp4934.pdf Read More
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