Chapter 12 Domestic Economy
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Transcript of Chapter 12 Domestic Economy
Chapter 12 Domestic Economy
Focal questionsFocal questions What are Britain’s principal natural resources? (P204) Why is the City of London known as the world’s leading
international financial centre?(P204, Slides14-21) Why do you think there have been different attitudes tow
ards nationalisation and privatisation in Britain’s economy since the end of the Second World War? (PP206-7)
How do you understand the relationship between the British Government and Britain’s economy? (PP207-8)
How are consumers protected in the United Kingdom? (P210)
A1 IntroductionA1 Introduction‘mixed economy’ Privately owned (most) and state owned (m
ajor services such as health) enterprisesGovernment involvement: social welfare po
licies; laws to regulate industrial relationsNationalisation & privatisation
A 4 The Mixed Economy cont
A 4 The Mixed Economy cont
Nationalizationthe acquisition of private companies by the publi
c sector
Privatizationthe return of state enterprises to private ownershi
p and control
Nationalisation & privatisation (P206)
Nationalisation & privatisation (P206)
Why nationalise? The public interestNot profit-orientedGovernment-appointed directors & govern
ment involvement in long-term policyAutonomous management of daily affairs
By the end of the 1970s
Margaret Thatcher Primary objective: to
beat inflation
“ In politics if you want anything said, ask a man. If you want anything done, ask a woman”
Nationalisation & privatisation Nationalisation & privatisation Why privatise? EfficiencyProfit-orientedDecreasing government involvementThe free market: consumers, goods, servic
es, prices, manufacturers, providers of services
Inefficiency of nationalised industries
Inefficiency of nationalised industries
“Proxy-owners” in state-owned industries: politicians; affecting commercial decisions
Nationalized industries: no need to succeed; dependence on government, not market: no incentive
Inefficiency of nationalised industries
Inefficiency of nationalised industries
Failure to harness self-interestIncurment of losses on a grand scale—ta
x raise: 83% top rate on earned income, 93%, savings income
Privatisation—advantages Privatisation—advantages
Efficiency: lower prices, better servicesParticipation of ordinary peopleAccess to private capital marketsLess government intervention, less political pr
essureMore sources of capitalCompetition: incentive for better performance
of state-owned industries
Privatisation—disadvantages
Privatisation—disadvantages
Good management of nationalised industries: no need of privatisation (theoretically?)
Labor relations: interest of workersCo-ownership: worker-shareholders—ho
w much do they weigh?
Economic sectorsEconomic sectorsThe Service industries (health care, hospitality, real estate
and food chains)Financial services (banking and insurance): big revenue ear
ner; London: overseas branches of financial organizations Industries: a steady decline since the 1960s; 20%Agriculture: 60% of the total food demands of the nation The Oil, coal and natural gas reserves: considerably high;
10% of the national GDP
A 2 Natural Resources & Infrastructures (P204)
A 2 Natural Resources & Infrastructures (P204)
Highly developed & efficient main road and rail network and airports-- excellent infrastructure pp 203-204
Natural resourcesPrincipal resources at present -- oil and gas in the Nort
h Sea, on the coast of ScotlandLarge amount of coal, but has been kept for future useManufacturing: still importantServices, industries such as chemicals, electronics, etc: i
mportant & successful
A 3 FinanceA 3 FinanceThe financial institutionsBanksBuilding societyInsurance companiesStock exchange
The Bank of EnglandThe Bank of EnglandNationalised; operated on behalf of the governmentControls the currency; sets interest rate; acts as ban
ker both to the government and to the commercial banks
Monetary policy and financial policyIntegrity and value of the currency, stability of the fin
ancial system; the effectiveness of the financial services sector
A 3 FinanceA 3 Finance
London: March 2002296 branches and subsidiari
es of foreign banks 1/3: from the Euro areaForeign banks: 50%+ of UK
banking sector assets, £3,500+bn
The UK banking sector: cross border bank lending - 19% of the world total
BANKING
A 3 FinanceA 3 Finance
Largest in EuropeThird largest in the worldNet premium income of £157b
nMain skill centre for world ins
urance businessGlobal market leader in aviati
on and marine insurance; combined market share: 23%
Insurance: 2001
A 3 FinanceA 3 Finance
FOREIGN EXCHANGE April 2001 Largest in the world Daily turnover: of $504b
n, 31% of global turnover> New York + Tokyo
A 3 FinanceA 3 Finance
UK: World's largest fund management centre
$2,460bn of institutional equity holdings in 1999
Assets managed on behalf of domestic and overseas clients : £2,800+bn in 2000
London: leader in the management of overseas clients non-domestic portfolios
FUND MANAGEMRNT
A 3 FinanceA 3 FinanceSECURITIES DEALING
Number of foreign companies listed on the London Stock Exchange: second (No.1: NY)
In the first eight months of 2002, turnover in these companies booked in London: 56% of all trading in foreign companies around the world
Turnover in Euro-area stocks: 2/3 of all foreign equity trades booked in London
London: major centre for the international bond market
Regional Household Income Comparison 2006
Regional Household Income Comparison 2006
Beneficial ownership of UK shares: end 2006Beneficial ownership of UK shares: end 2006
Private EnterprisePrivate EnterpriseThe single proprietorshipEasy to set upOwner: full controllimited amount of capital -- small businesses All the legal and financial responsibilities
Private EnterprisePrivate EnterprisePartnershipsLarger amount of capital; biggerEach partner: legally liable for all the debts of
the firm, even if incurred by the activity of another partner
Private EnterprisePrivate Enterprise
Co-operativesMainly in the retail tradeTheir customers who pay a minimum deposit
on a share in the businessVulnerable in the face of the intense competit
ion
Private EnterprisePrivate EnterpriseJoint stock companiesLarge amounts of capital Transfer of ownership: easy (shareholders selling sh
ares to anyone else)Risk: Some unscrupulous company promoters may
fraudulently try to raise funds for their own ends from the public. (Source: An Introduction to the UK Economy by Harbury and Lipsey )
Limited LiabilityLimited LiabilityLimited LiabilityAn investor’s liability to debt is limited to the extent of their shareholding
100 £1 shares: bankruptcy—greatest loss, £100
A 5 The Role of the Government
A 5 The Role of the Government
Growing government influence (P207)The two World Wars: the proportion of income from
economic activity devoted to government expenditure -- sudden increases
Dropping after each war: 46% in 1981 & 1982, 38% in 1983, a slight rise in the early 1990s (economic downturn), 39% in 1998
To reduce the share of public expenditure of GDP
Taxation & Government Expenditure
Taxation & Government Expenditure
Where does the government get its money from? Stock exchangeTaxation -- Direct and Indirect TaxesDirect taxes – national insurance contributions, in
come tax (a ‘progressive taxation system), corporation tax (paid by companies)
http://www.statistics.gov.uk/CCI/nscl.asp?ID=7363
Taxation & Government Expenditure
Taxation & Government Expenditure
Indirect taxes: (P208)VAT (VAT was introduced following Britain’
s membership of the EEC: a percentage of the money raised is contributed to the European Union budget.)
Duties on alcohol, tobacco, petrol, etc.
A 6 Consumer“Student’s expenditure”
(P 210)
A 6 Consumer“Student’s expenditure”
(P 210)Around half of the expenditure: “essential items”Eg. accommodation, food, bills and household go
ods and course expenditureA larger contribution to tuition: course expenditur
e -- a higher percentage (the government)Students who lived at home with their parents vs
students living independently: a quarter of the amount on housing
Outlook for the UK EconomyOutlook for the UK EconomyTreacherous times aheadProfit warnings remain high.Companies stop short.Household goods, home construction, gener
al retailers, personal goods, etc affectedThe credit crunch
Real GDP quarterly growth Real GDP quarterly growth
http://www.economywatch.com/world_economy/united-kingdom/http://www.statistics.gov.uk/cci/nugget.asp?id=1552 http://www.statistics.gov.uk/cci/nugget.asp?id=107http://www.statistics.gov.uk/CCI/nugget.asp?ID=192&Pos=6&ColR
ank=1&Rank=144http://economicsguide.blogspot.com/