Download Chapter 12 Domestic Economy

Chapter 12 Domestic Economy
Focal questions
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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
towards 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 Introduction
economy’
Privately owned (most) and state owned
(major services such as health) enterprises
Government involvement: social welfare
policies; laws to regulate industrial relations
Nationalisation & privatisation
‘mixed
A 4 The Mixed Economy cont
Nationalization
the
acquisition of private companies by the public
sector
Privatization
the
return of state enterprises to private
ownership and control
Nationalisation & privatisation
(P206)
Why
nationalise?
The public interest
Not profit-oriented
Government-appointed directors &
government involvement in long-term policy
Autonomous 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
Why
privatise?
Efficiency
Profit-oriented
Decreasing government involvement
The free market: consumers, goods,
services, prices, manufacturers, providers
of services
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
Failure
to harness self-interest
Incurment of losses on a grand scale—
tax raise: 83% top rate on earned income,
93%, savings income
Privatisation—advantages
Efficiency: lower prices, better services
Participation of
ordinary people
Access to private capital markets
Less government intervention, less political
pressure
More sources of capital
Competition: incentive for better performance
of state-owned industries
Privatisation—disadvantages
Good
management of nationalised
industries: no need of privatisation
(theoretically?)
Labor relations: interest of workers
Co-ownership: worker-shareholders—
how much do they weigh?
Economic sectors
 The
Service industries (health care, hospitality, real estate
and food chains)
 Financial services (banking and insurance): big revenue
earner; 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)
 Highly
developed & efficient main road and rail network
and airports-- excellent infrastructure pp 203-204
 Natural resources
 Principal resources at present -- oil and gas in the
North Sea, on the coast of Scotland
 Large amount of coal, but has been kept for future use
 Manufacturing: still important
 Services, industries such as chemicals, electronics, etc:
important & successful
A 3 Finance
The
financial institutions
Banks
Building society
Insurance companies
Stock exchange
The Bank of England
Nationalised; operated on
behalf of the government
Controls the currency; sets interest rate; acts as
banker both to the government and to the
commercial banks
Monetary policy and financial policy
Integrity and value of the currency, stability of the
financial system; the effectiveness of the financial
services sector
A 3 Finance
BANKING
 London:
March 2002
 296 branches and
subsidiaries of foreign
banks
 1/3: from the Euro area
 Foreign banks: 50%+ of UK
banking sector assets,
£3,500+bn
 The UK banking sector:
cross border bank lending 19% of the world total
A 3 Finance
Insurance:
2001
 Largest
in Europe
 Third largest in the world
 Net premium income of
£157bn
 Main skill centre for world
insurance business
 Global market leader in
aviation and marine insurance;
combined market share: 23%
A 3 Finance
FOREIGN
EXCHANGE
April
2001
Largest in the world
Daily turnover: of $504bn,
31% of global turnover
＞ New York + Tokyo
A 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 Finance
 SECURITIES
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
Beneficial ownership of UK shares: end 2006
Private Enterprise
The
Easy
single proprietorship
to set up
Owner: full control
limited amount of capital -- small businesses
All the legal and financial responsibilities
Private Enterprise
Partnerships
Larger
amount of capital; bigger
Each partner: legally liable for all the debts of
the firm, even if incurred by the activity of
another partner
Private Enterprise
Co-operatives
Mainly in the retail
trade
Their customers who pay a minimum deposit
on a share in the business
Vulnerable in the face of the intense
competition
Private Enterprise
Joint
stock companies
 Large
amounts of capital
 Transfer of ownership: easy (shareholders selling
shares 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 Liability
Limited
Liability
An 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
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
Where does the
government get its money from?
Stock exchange
Taxation --
Direct and Indirect Taxes
Direct taxes – national insurance contributions,
income tax (a ‘progressive taxation system),
corporation tax (paid by companies)
http://www.statistics.gov.uk/CCI/nscl.asp?ID=7363
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)
Around half of
the expenditure: “essential items”
Eg. accommodation, food, bills and household
goods and course expenditure
A larger contribution to tuition: course
expenditure -- 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 Economy
Treacherous times ahead
Profit warnings remain high.
Companies stop short.
Household goods, home construction,
general retailers, personal goods, etc affected
The credit crunch
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=107
 http://www.statistics.gov.uk/CCI/nugget.asp?ID=192&Pos=6&Col
Rank=1&Rank=144
 http://economicsguide.blogspot.com/