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Paul Sparks - Online English Lesson Plans, Lesson Material and Ideas for "Culture of English Speaking Countries Lessons", Xiangtan Normal University...




The British Economy

History of the British Economy: The British economy used to rule the world. In the late 1800's it produced one third of the worlds manufacturing goods, half the worlds coal and iron as well as half its cotton. The amount of British shipping was greater than the rest of the world put together. By 1900 it was overtaken by America and Germany. The UK economy has continued to grow, but at a more steady rate than some other counties. The second world war cost the country a lot of money - the country was in debt in order to finance the war, and sold many of its overseas assets. Also India gained its independence in 1947. India had previously provided raw materials, as well as a big market for British goods. After the rest of the British Empire left to form independent countries Britain was left as a small European country.

Britain spent a long time rebuilding its economy after the war. Then in the 1970's because of the rise in the price of oil, the rate of inflation increase, at one point up to 25%. This resulted in many workers going on strikes for higher pay. The economic problems led to a change of government in 1979 when the British people voted in the conservative party, with Margaret Thatcher as the leader.

Through the 1980's many economic changes took place. Firstly foreign exchange controls were lifted and rules governing banks were loosened. Many state owned businesses were sold to the private sector. These services include Steel, Gas, Electric, Telephone, Aerospace, Rail etc. this resulted in inflation coming under control, and businesses made bigger profits. But the negative impact was high unemployment (12%). Companies were running efficiently, therefore needing less workers.

The 1990's had steady growth, with a better economy than the rest of Europe. Unemployment was reasonably low, inflation is low, investment grew due to low interest rates. Britain's membership of the European Union (EU) makes it attractive for foreign investment. By 1995 Britain was the second largest international investor in the world, investing in many other countries.

Economic Systems: China has a "planned economy", whilst the countries in the Western world have a "market orientated economy" - Britain's economy changes according to the business environment and current conditions which may change very quickly. Economic activity takes place in a society such as Britain in order to satisfy the needs of the society. wealth is created and distributed, so that the members of the society can share the wealth.

There are three main types of economic system:

  • Free Market (Capitalist) - No government interference in the workings of the economy. The price of goods and services is decided by the demands of the consumers, different levels of demand and supply exist at different price levels. If demand rises, the price will also rise. Advantages of the free market system are that people are encouraged to work harder, because they have the chance to gain personal wealth. People can spend their money how they want. Also because of increased competition, less efficient producers are priced out of the market. Disadvantages include uneven distribution of wealth, the rich become richer, but the poor stay poor. Public services can suffer, such as education and health.

  • Planned (Command) - A planned economy is controlled fully by the government. The government decide what is made and how it is made. price levels are not directly decided by supply and demand - the government fixes the prices. Advantages of this system include large scale production and good public services. The main disadvantages are lack of incentive to work, less international trade and inefficiency.

  • Mixed - most economies are not entirely mixed or planned, they contain elements of both systems. The UK has become increasingly free market based, due to the privatisation of state owned services, such as gas, electric, telephone, transport etc.

Private / Public Sector  Organisations: The UK economy is a mix of private and public sector organisations. Private sector firms are owned by individuals, not by the state. These firms can be large or small, owned by one person or by thousands. By producing goods or services they intent to make a profit for their owners. Public sector organisations are run by the government for the benefit of the general public.

Production: A country needs to produce goods and services which the consumers demand. The wants of the consumer are unlimited, however the resources in production are limited, as follows.

  • Capital - Money available for investment in new machines, building etc.

  • Enterprise - Refers to the people who take the risk of setting up in business and making business decisions

  • Land - Used for agriculture, housing developments, leisure etc.

  • Labour - the number of men and women available for work, and wanting to work.

In advanced economies such as the UK, production tends to be indirect rather than direct. This means that people do not produce only for themselves but instead work with others in order to produce goods and services which are then sold to all. They specialise in what they do best, which leads to greater efficiency and higher economic output.

Firms take advantage of this specialisation and a "division of labour takes place." Employees gain skills and allows firms to divide their business into different functions, such as personnel, sales, purchasing etc.

Types of Production:

  • Primary - This type of production involves some form of extraction - Mining, Fishing, Farming, Forestry etc.

  • Secondary - Firms taking part in secondary production are either involved in Manufacturing or in  Construction. They manufacture the finished article, or parts for further assembly and manufacture. They construct buildings such as houses and shops as well as building roads etc.

  • Tertiary - These involve things such as transport, banking, advertising, export etc. - Tertiary industries involve passing the goods from the producer to the consumer.

Britain's agricultural sector is small, but efficient. The agricultural industry has been damaged in recent years with various problems, such as BSE (Mad cow disease) and Foot and Mouth disease. Energy production is a large part of the UK economy. Oil and gas were discovered under the North Sea in the 1970's. since then some of the worlds largest companies have been established, such as British Petroleum (BP).

In the secondary sector of the economy, manufacturing has reduced by a large amount in recent years, however one area which is particularly strong is the pharmaceutical and chemical industries - Glaxo Wellcome and Smithkline Beecham are the worlds largest drug companies, as well as ICI which produces paint.

There is a huge car industry in Britain, Ford, Nissan, Toyota etc., with many of these being foreign owned businesses. Former state owned businesses which were privatised include British Steel.

Like most developed economies the secondary sector becomes reduced, whilst service industries grow at a large rate. The service industry includes things such as tourism, finance etc.

The economy of the UK is split differently in various regions in the UK. The North-East of England was traditionally a coal mining and ship building area. With the decline of these industries many new companies have moved in. Scotland benefits from the oil industry.

The Financial Sector: The financial sector is an important part of the UK economy. London is one of the top three financial centres in the world. It has a large number of foreign banks and foreign exchanges. Insurance is also big business in the UK. "The city" is the name used to refer to the area in the centre of London where the London Stock Exchange is situated. This is one of the largest share dealing centres in the world.

The European Union (EU): In 1973 Britain joined the European Economic Community (EEC, now the European Union), which was established in 1957, the European Union was set up to promote trade between its member countries. The EU also makes rules and regulations to govern business in Europe. EU regulations or laws are normally called "Directives" - they are normally to control things such as pollution, levels of production, etc. Due to the increasing role of the EU many people in the UK do not want the British government to get any further involved in Europe. - Britain is not going to adopt the European currency.

The British government began subsidizing the prices paid for agricultural products after World War II as a way to make farming profitable. Since then agricultural policy has been determined primarily by the EU's Common Agricultural Policy (CAP). This policy seeks to keep the agricultural market stable, ensure that farmers earn a fair living, and provide consumers with affordable food supplies. As a result of EU policies, products coming into Britain from non-EU countries are taxed, surplus products are bought and stored for later sale, and the cost of exports is subsidized if prices are low. The British have criticized CAP, primarily because the British farming sector is smaller than the farming sectors of most EU nations. British farmers receive less monetary support from the EU than British taxpayers and consumers pay into CAP, and some British taxpayers and consumers feel they are supporting inefficient European farmers.

Multinationals: A multinational company is one which produces in more than one country. There are many benefits to the UK in allowing multinationals to set up business in the UK. Reduced unemployment, the introduction of new technologies, training and up to date skills etc.

The British Workforce: The total British labour force in 1997 was 29,527,500.0 million people. The structure of employment has undergone significant changes in the past 40 years. There has been a significant increase in self-employment: More than 3 million people, or close to 12 percent of the workforce, were self-employed in 1997, and there has been a corresponding growth in the number of small businesses. Almost three-quarters of employees in the 1990s worked in the services sector, compared with about one-third in 1955. 

Manufacturing was once the largest employer. It employed 42 percent of workers in 1955, but now accounts for only about 20 percent of employees. This change is due in part to a shift from manual to non-manual occupations. The number of women working outside the home has increased since the 1950s, and in 1997 women accounted for about 47 percent of the full-time workforce and about 80 percent of the part-time workforce. Nearly two-thirds of women between the ages of 15 and 65 are employed, giving the United Kingdom the third highest employment rate for women in Europe. Other recent trends include an expansion of part-time employment and a rise in the number of employees working on short-term contracts instead of on permanent jobs. Unemployment rates vary from region to region, with eastern England having the lowest rate and Northern Ireland the highest.

The trade union movement has a long and important history in Britain, but since 1980 the influence of trade unions has declined dramatically. Trade union membership has fallen because of changes in the structure of employment, including privatisation, the shift away from manufacturing, the rise in smaller firms, the increase in part-time employment, and the contracting out of work. Membership decreased from a total of 12.2 million in 1975 to 7.2 million in 1996, or about a third of the workforce. The Conservative government restricted unions' ability to launch strikes and made unions legally responsible for the actions of strikers; this has considerably reduced union power and substantially decreased the number of strikes, called stoppages. In 1986 there were more than a thousand work stoppages; in 1996 there were less than 250. Still, the Trades Union Congress (TUC), an independent association of trade unions, had an affiliated membership of 74 trade unions in 1997, representing about 6.8 million trade union members in Britain.

Manufacturing: The history of manufacturing in Britain is unique because of Britain's role as the birthplace of the Industrial Revolution. During the Middle Ages the production of woolen textiles was a key industry in Britain. In the 16th and 17th centuries, new industries developed. These included silk weaving, garment making, and the manufacturing of hats, pottery, and cutlery. All of these operations were generally conducted in small craft shops and were labor-intensive.

In the 18th century a number of changes in British society prepared the way for the Industrial Revolution. Colonial and commercial expansion created markets in North America, Africa, and parts of Asia. Coal and iron mining developed as Britain's dwindling forests created the need for another energy source, and new smelting techniques made iron implements cheaper to produce. An agricultural revolution in the 18th century introduced new crops and crop rotation techniques, better breeding methods, and mechanical devices for cultivation. This coincided with a rapid increase in population, in part due to better hygiene and diets, providing both consumers and workers for the new manufacturing operations.

During the Industrial Revolution new methods of manufacturing products were developed. Instead of being made by hand, many products were made by machine. Production moved from small craft shops to factories, and population shifted to urban areas where these factories were located. Cotton textile factories using newly developed steam-powered machines produced more goods at a lower cost per item. Textiles, shipbuilding, iron, and steel emerged as important industries, and coal remained the most important industrial fuel. The Industrial Revolution dramatically raised the overall standard of living. The structure of industry changed substantially in the last half of the 20th century. The coal mining and cotton textile industries declined. As coal production declined, oil production replaced it as a major industry. 

Motor-vehicle production became a significant part of the industrial base but was subject to severe foreign competition. As incomes increased, consumer demand rose for durable goods such as cars and kitchen appliances. British industrial production also expanded into communications equipment, including fiber optics, computers, computer-controlled machine tools, and robots. Britain now manufactures approximately 40 percent of Europe's desktop computers.

Scotland is also a major producer of computers. The so-called Silicon Glen between Glasgow and Edinburgh employs about 40,000 people in the electronics industry and is the site of many overseas computer firms. Scotland and Northern Ireland are still noted for their production of whiskey and textiles, especially linen from Northern Ireland and tweed from Scotland.

Britain remains an important manufacturing country, although it imports large quantities of manufactured goods from overseas, particularly vehicles and electronic equipment. About 4 million workers, about 20 percent of the workforce, were engaged in manufacturing in 1997. In 1996 manufacturing accounted for about 21 percent of the gross domestic product (GDP). The leading traditional manufacturing regions of England are Greater London and the cities and regions around Manchester, Birmingham, Leeds, and Newcastle upon Tyne.

Tourism: Britain is one of the world's most popular travel destinations, and tourism is an essential part of Britain's economy. It employed 1.8 million British people and contributed more than 5 percent to the GDP in 1996. The British Tourist Authority, which is supported by the government, promotes tourism in Britain and maintains more than 800 Tourist Information Centres to assist visitors. England, Scotland, Wales, and Northern Ireland have their own government-supported tourist boards as well.

Visitors to Britain come from all over the world, attracted by Britain's heritage and arts, historic buildings, monuments, museums, and galleries. In 1998, 25.8 million overseas visitors traveled to Britain. An estimated 67 percent were from Europe and 15 percent from North America, with more visitors from the United States than any other single nation.

Among the sites regularly visited by millions are the Tower of London, the Houses of Parliament, the exterior of Buckingham Palace, and Westminster Abbey. At night visitors enjoy the hundreds of theaters and pubs in London. Northwest Wales has many excellent castles, among them Conwy, Caernarfon, and Harlech. In Scotland, historic Edinburgh Castle looms over the capital. Great cathedrals from the Middle Ages still dominate the skylines of many English cities, including Salisbury, Durham, and Canterbury. In Wales the remains of Tintern Abbey and the small but beautiful Saint David's Cathedral are outstanding. Stately homes are abundant throughout Britain. Among the more famous is Blenheim Palace, the home of the Churchill family. Hampton Court Palace, just outside of London, was one of the homes of Henry VIII. The Palace of the Holyrood House in Scotland was once the home of Mary, Queen of Scots. Among other worthwhile places to visit are Oxford and Cambridge, both university towns with many ancient buildings, and the Tudor home in which William Shakespeare was born in the town of Stratford-upon-Avon.

Summary: New markets have been established in the telecommunications industry and in Technology sectors. Internet companies have grown very quickly, with huge share values. Because of the change from manufacturing to service industries many skilled workers are unemployed. To overcome this there are many training schemes and government incentives.

The UK is one of the world's great trading powers and financial centers, and its essentially capitalistic economy ranks among the four largest in Western Europe. Over the past two decades the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with only 1% of the labour force. The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. The government has put off the question of participation in the euro system but still says that it is committed to preparing the British economy for eventual membership. 

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