Understanding the UK Economy

589 Pages·1997·77.774 MB·English

by  Peter Curwen (eds.)

UNDERSTANDING THE UK ECONOMY
MACMILLAN TEXTS IN ECONOMICS
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Understanding the UK Economy (4th edition): edited by Peter Curwen
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UNDERSTANDING
THE UK ECONOMY
Fourth Edition
Edited by
Peter Curwen
Contributors
Keith Hartley and Nick Hooper
Paul Marshall
~
MACMILIAN
Selection, editorial matter and Introduction © Peter Curwen 1990, 1992, 1994, 1997
Individual chapters © Peter Curwen (chs 1-14,20), Peter Curwen and Keith Hartley (eh. 18),
Keith Hartley and Nick Hooper (chs 17 and 19), Paul Marshall (chs 15-16) 1997
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claims for damages.
First edition 1990
Reprinted 1990
Second edition 19.92
Third edition 1994
Fourth edition 1997
Published by
MACMILLAN PRESS LT D
Houndmills, Basingstoke, Hampshire RG21 6XS
and London
Companies and representatives
throughout the world
ISBN 978-0-333-68525-9 ISBN 978-1-349-14376-4 (eBook)
DOI 10.1007/978-1-349-14376-4
A catalogue record for this book is available
from the British Library.
This book is printed on paper suitable for recycling and
made from fully managed and sustained forest sourees.
10 9 8 7 6 5 432 1
06 05 04 03 02 01 00 99 98 97
Copy-edited and typeset by Povey-Edmondson
Tavistock and Rochdale, England
Dedicated to the memory of
Thelma Curwen
1920-96
Contents
List of Figures x
List of T ables Xlll
List of Abbreviations XVI
Preface to the First Edition xx
Preface to the Second Edition XXll
Preface to the Third Edition XXlll
Preface to the Fourth Edition XXIV
Acknowledgements XXVI
Chapter 1: History and Politics 1 Chapter 3: Income and Wealth 45
Peter Curwen Peter Curwen
1.1 Introduction 1 3.1 Income and Wealth 45
1.2 The Neo-dassical World 2 3.2 Personal Income, Consumption and
1.3 The Keynesian Revolution 4 Saving 47
1.4 Efficiency versus Equity 6 3.3 The Housing Market 57
1.5 Employment, Trade and Inflation 8 3.4 Investment 67
1.6 The Brief Reign of Monetarism 11 3.5 Stocks 72
1.7 The Thatcher Years, 1979-90 12 3.6 Capacity Utilisation 74
1.8 Enter (and Depart?) Mr Major 14 3.7 Company Profitability 75
1.9 The Political Context 15
Chapter 4: Growth, Productivity and
Inflation 79
Chapter 2: Introduction to the Peter Curwen
Macroeconomy 18 4.1 Growth 79
Peter Curwen 4.2 Productivity 82
2.1 Introduction 18 4.3 Is There a Business Cyde? 90
2.2 The Internal Sector 18 4.4 Inflation 91
2.3 Money Supply and the Supply Side 21
2.4 The External Sector 24 Chapter 5: The Banking System 110
2.5 The Multiplier 26 Peter Curwen
2.6 Crunchy Numbers 27 5.1 Introduction 110
2.7 Introduction to National Income 5.2 Financial Intermediation 110
Accounting 27 5.3 Classifying Financial Intermediaries 112
2.8 The National Accounts 28 5.4 The Bank of England 112
2.9 Sectoral Surpluses and Deficits 36 5.5 Banks in the UK 117
Vll
Contents
Vlll
Chapter 6: The Financial System 133 9.8 Area Composition oE UK Visible
Peter Curwen Trade 238
6.1 Introduction 133 9.9 Commodity Composition oE UK
6.2 Non-bank Financial Intermediaries 133 Visible Trade 241
6.3 Money Markets 144
6.4 Capital Markets 149
Chapter 10: External Transactions 246
6.5 Investor Protection 155
Peter Curwen
6.6 Financial Intermediation in the
10.1 Exchange Rates 246
Future 158
10.2 Exchange Rate Issues 257
6.7 Conclusion 164
10.3 The International Monetary System 258
10.4 The International Debt Crisis 260
Chapter 7: Taxation 166
Peter Curwen Chapter 11: The European Union 265
7.1 Introduction 166 Peter Curwen
7.2 The Overall Tax Burden 166 11.1 Introduction 265
7.3 Fiscal Drag 168 11.2 The Single European Market 265
7.4 International Comparisons 168 11.3 The European Union 272
7.5 The Tax System 170 11.4 The European Monetary System 278
11.5 EMU and EPU 284
Chapter 8: Spending, Borrowing and Debt 186
Peter Curwen Chapter 12: Trading Relations 298
8.1 Introduction 186 Peter Curwen
8.2 Public Expenditure Growth 186 12.1 The Demise oE Free Trade? 298
8.3 Public Expenditure Breakdown 188 12.2 Protection 300
8.4 Local Government Financing 189 12.3 1992 and EU Trade 302
8.5 Public Expenditure Trends 190 12.4 Subsidies 302
8.6 Public Expenditure Targets 192 12.5 The General Agreement on Tariffs
8.7 Functional Analysis oE Expenditure 194 and Trade (GATT) 302
8.8 The Spending Conundrum 197 12.6 Agriculture 309
8.9 The Budget 198 12.7 Negotiations at the GATT 320
8.10 The Public Sector Borrowing
Requirement and Public Sector Debt Chapter 13: Employment and
Repayment 199 Unemployment 325
8.11 The National Debt 204 Peter Curwen
13.1 Introduction 325
13.2 Employment 326
Chapter 9: The Balance of Payments 208
13.3 Unemployment 340
Peter Curwen
9.1 Introduction 208
9.2 The System oE Balance oE Payments Chapter 14: The Labour Market 366
Accounts 209 Peter Curwen
9.3 The Structure oE the UK Visible 14.1 Introduction 366
Trade Accounts 211 14.2 Education and Training 366
9.4 The Accounts in Retrospect 213 14.3 Labour Market Measures 370
9.5 International Perspectives 227 14.4 Trade Unions 383
9.6 Direct Investment 229 14.5 Equal Pay and Pensions 396
9.7 Competitiveness 235 14.6 The European Dimension 397
Contents IX
Chapter 15: Welfare 1: Income and Wealth Chapter 18: Industry and Policy Il:
Inequality 401 Privatisation 477
Paul Marshall Peter Curwen and Keith Hartley
15.1 Introduetion 401 18.1 Introduetion: The Poliey Debate 477
15.2 The Distribution of Personal 18.2 The Nationalised Industries 477
Ineomes in the UK 405 18.3 Privatisation: A Classifieation
15.3 The Coneentration of Wealth 413 System 479
15.4 Inheritanee, Wealth Coneentration 18.4 Objeetives of Privatisation 479
and Taxation 418 18.5 The Privatisation Programme 482
18.6 Consequenees 489
18.7 Deregulation and Regulation 491
Chapter 16: Welfa re Il: Poverty and 18.8 Privatising Choice 495
Income Maintenance 421 18.9 Conclusion 501
Paul Marshall
16.1 Introduetion 421 Chapter 19: Industry and Policy III:
16.2 Soeio-eeonomie Changes and the Subsidies, Technology and Government
Ineidenee of Poverty 425 Purchasing 503
16.3 The Response From the System 428 Keith Hartley and Nick Hooper
16.4 A European Perspeetive 437 19.1 Introduetion 503
16.5 The Future of Social Seeurity 442 19.2 Subsidy Poliey 503
19.3 Publie Purehasing 514
Chapter 17: Industry and Policy 1: Theory Chapter 20: Macroeconomic Policy 522
and Competition Policy 446 Peter Curwen
Keith Hartley and Nick Hooper 20.1 Introduetion 522
17.1 Introduetion: The Poliey Issues 446 20.2 Crisis and Credibility 523
17.2 UK Manufaeturing: Does it Matter? 448 20.3 Monetarism 531
17.3 Theory and Industrial Poliey 450 20.4 The Medium Term Finaneial
17.4 The Eeonomies of Regulation and Strategy 533
Regulatory Poliey 459 20.5 Conclusions 542
17.5 Competition Poliey 462
17.6 Conclusions 475 Index 545
List of Figures
Figure 2.1 The Internal Sector: Demand 20 Figure 3.17 Business Investment-GDP
Figure 2.2 Money Supply and the Ratio 71
Supply Side 22 Figure 3.18 UK Stock-Output Ratio 73
Figure 2.3 The External Sector 25 Figure 3.19 Capacity Utilisation 74
Figure 2.4 The Multiplier 26 Figure 3.20 Companies' Real Rates of
Figure 2.5 Financial Surplus/Deficit, by Return on Capital, Pre-tax,
Sector 39 1973-96 75
Figure 2.6 Financial Crisis and Credit Figure 3.21 Cross-country Profitability 76
Crunch 42 Figure 4.1 GDP at Factor Cost 81
Figure 2.7 Company Insolvencies 43 Figure 4.2 Annual Growth for Six-year
Figure 3.1 Personal Income, 1981-95 48 Periods, 1949-54 to
Figure 3.2 Consumption as a Percentage 1983-87, % 82
ofGDP 49 Figure 4.3 Output and Productivity,
Figure 3.3 Consumers' Expenditure at UK, 1975-86 84
Constant Prices, UK, 1975-95 50 Figure 4.4 Output and Productivity,
Figure 3.4 The Personal Saving Ratio, UK, 1987-95 85
1958-95 53 Figure 4.5 Structure of the RPI 92
Figure 3.5 Net Consumer Credit 54 Figure 4.6 Retail Prices Index 94
Figure 3.6 Volume of Retail Sales 55 Figure 4.7 Housing, Selected
Figure 3.7 Personal Sector Debt Burden 56 Components of the Retail
Figure 3.8 Stock of Dwellings by Prices Index 95
Tenure, UK, 1971-94 58 Figure 4.8 Inflation During the 1990s 97
Figure 3.9 Total Cost of Mortgage Figure 4.9 Consumer Price Indices,
Interest Tax Relief, UK 60 Selected Countries, 1978-85 99
Figure 3.10 Personal Sector: Income and Figure 4.10 Change in Consumer Prices,
Capital Gearing 60 EU Comparison, 1981-91 99
Figure 3.11 House Transactions 61 Figure 4.11 The Phillips Curve 102
Figure 3.12 Real and Nominal House Figure 4.12 Earnings and Output per
Price Growth 61 Head, Manufacturing
Figure 3.13 House Price: Earnings Ratio 62 Industries 106
Figure 3.14 Percentage Deviation of Figure 4.13 Annual Increase in Average
Regional House Prices 63 Earnings Minus Annual
Figure 3.15 Investment as a Proportion of Increase in TPI 107
GDP 68 Figure 5.1 Central Bank Independence
Figure 3.16 Growth Rates and and Inflation/Unemployment 117
Investment Ratios, OECD, Figure 5.2 Provisions and Write-offs in
1979-90 70 Large British Banks 123
x