chapter 12 domestic economy
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Chapter 12 Domestic Economy. Focal 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) - PowerPoint PPT PresentationTRANSCRIPT
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Chapter 12 Domestic Economy
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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)
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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
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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
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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
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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”
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Nationalisation & privatisation Nationalisation & privatisation Why privatise? EfficiencyProfit-orientedDecreasing government involvementThe free market: consumers, goods, servic
es, prices, manufacturers, providers of services
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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
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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
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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
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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?
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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
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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
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A 3 FinanceA 3 FinanceThe financial institutionsBanksBuilding societyInsurance companiesStock exchange
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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
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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
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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
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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
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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
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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
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Regional Household Income Comparison 2006
Regional Household Income Comparison 2006
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Beneficial ownership of UK shares: end 2006Beneficial ownership of UK shares: end 2006
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Private EnterprisePrivate EnterpriseThe single proprietorshipEasy to set upOwner: full controllimited amount of capital -- small businesses All the legal and financial responsibilities
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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
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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
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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 )
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Limited LiabilityLimited LiabilityLimited LiabilityAn investor’s liability to debt is limited to the extent of their shareholding
100 £1 shares: bankruptcy—greatest loss, £100
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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
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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
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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.
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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
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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
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Real GDP quarterly growth Real GDP quarterly growth
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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/