United Kingdom

A

Overview

In the 19th century, Britain had the world’s leading economy: Its overseas trade thrived, its standard of living rose steadily, and its citizens pioneered industrial innovations. With the growth of the economies of other nations in the 20th century, the British economy remained relatively strong. It has continued to grow, and Britain remains a major producer of industrial goods and provider of services, as well as a center of world trade and finance. During the 20th century, Britons saw their per capita disposable income triple, an accomplishment all the more remarkable considering Britain’s size and limited natural resources. The skills and ingenuity of Britain’s highly trained workers, managers, and entrepreneurs have enabled the British economy to function well and provide for its large population.

Although Britain’s economy was strong in the 20th century, it faced a number of persistent problems. The balance of trade was one. Britain has had to import more than a tenth of its food and much of its raw materials, as well as many manufactured goods, and it has to export sufficient products and services to balance the cost of its imports. Another problem has been industrial inefficiency, which was particularly evident in older industries such as coal mining, shipbuilding, and textiles, which produced more products than they could sell. Some industries that had been nationalized (taken over by the state) after 1945, such as British Oil Corporation, British Airways, and British Telecommunications, were unprofitable and operated at a considerable cost to taxpayers. In addition, trade unions sometimes required companies to hire more workers than were needed, and time was lost due to strikes as workers pressed for higher wages. These trade union problems increased the cost of goods, which helped cause inflation. Inflation occurs when the demand for products is higher than the supply, which leads to an increase in the value and price of products. At the same time, unemployment remained high—11 percent of the workforce in the early 1980s—and efforts to lower it were not successful. These problems were particularly evident during the 1970s, when high oil prices triggered a worldwide recession.

Since the mid-1970s, Britain has benefited from a worldwide economic upswing as well as internal improvements. The government has taken a number of steps to encourage economic growth. It curtailed the power of unions and sold some nationalized industries, including British Airways and British Telecommunications, to private companies (called privatization). The government sought to encourage business and private investment by lowering taxes and easing restrictions, such as deregulating the stock exchange and lifting restrictions on certain business agreements. Simultaneously, it sought to curb its spending and services. Newer, more profitable high-tech industries absorbed more workers and managers, while many older, less-efficient firms folded. Britain’s economy received a boost with the discovery and exploitation of abundant oil reserves in the North Sea. Because of this oil, Britain no longer depended on imports of foreign petroleum products and also profited from exports of petroleum products. During the 1990s and early 2000s, Britain’s economy grew at an average annual rate of 2.2 percent.

B

The Government’s Role in the Economy

Like many modern developed countries, the United Kingdom has a mixed economy. This means that some sectors of the economy are operated by the government and some are operated by private businesses. Since World War II (1939-1945), Britain has worked to balance the mix of private and public enterprises in order to maximize the country’s economy and ensure the economic well-being of its citizens. Historically, Britain’s Conservative Party has sought a stronger private component in the mix while the Labour Party has sought to strengthen the public component. Both parties are committed to a healthy mix of both elements, however.

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The public component consists of the welfare system, which includes socialized medicine, known as the National Health Service, plus government controls over business, banking, and the money supply. The welfare system provides support from before birth to the grave. The government is a major employer: Public officials, the judiciary, the military, police departments, fire departments, educators, and health professionals are, for the most part, employed by the state. The government is also a major purchaser of goods, particularly military equipment.

After World War II the government nationalized, or took over, a number of large and troubled industries. These included coal, electricity, transport, gas, oil, steel, certain car and truck manufacturing, shipbuilding, and aircraft building. Since the 1950s, the government has privatized a number of these industries, selling them to private firms. The first sales were the steel and road transportation industries. The Conservative governments between 1979 and 1996 denationalized oil companies, telecommunications, car and truck production, gas, airlines and aircraft building, electricity, water, railways, and nuclear power. By privatizing these industries, the government hoped they would become more efficient, due to pressure by stockholders demanding profits. Nevertheless, the government continues to regulate these newly privatized industries by controlling prices and monitoring performance. The government also seeks to encourage competition in the economy and increase productivity by sponsoring and subsidizing training and educational programs.

As in many modern states, the British government seeks to fine-tune the economy in order to keep economic booms from becoming too inflationary and recessions from becoming too deep. In carrying out fine-tuning, the government uses a combination of monetary policies and fiscal policies. Monetary policies involve the attempt to control the supply and demand for money through the Treasury and the central bank, the Bank of England. Fiscal policy is concerned with the level and distribution of government spending and taxation. The government often opts to manage demand, intervening when demand for goods and services is high enough to threaten inflation. In such cases the government tries to reduce demand by raising interest rates and taxes. In economic emergencies the government can control prices and incomes to a considerable extent, but this is only done in extreme circumstances, such as in times of war or runaway inflation. In the early 2000s Britain’s levels of inflation and unemployment remained among the lowest in the European Union.

C

Labor

The total British labor force in 2005 was 30,644,965 million people. The structure of employment has undergone significant changes in the past 50 years. There has been a significant increase in self-employment and a corresponding growth in the number of small businesses. More than three-quarters of employees in the early 2000s 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 accounted for only about 13 percent of employees in the early 2000s.

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 privatization, the shift away from manufacturing, the rise in smaller firms, the increase in part-time employment, and the contracting out of work. Membership decreased to slightly over a quarter of the workforce in the early 2000s. The Conservative government, in power from 1979 to 1997, restricted unions’ ability to launch strikes and made unions legally responsible for the actions of strikers; this 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 67 trade unions in the early 2000s, representing nearly 6.5 million trade union members in Britain.

D

Agriculture

Britain’s land surface is minimal compared to many other nations, but British agriculture is very intensive and highly productive. During the 20th century output rose steadily, although the increase slowed toward the end of the century, and agricultural labor became more productive. The improvement was due to innovations in farm machinery, biological engineering of seeds and plants, and the increased use of fertilizers, pesticides, and herbicides. Consequently, imports of food, feed, and beverages dropped from 36 percent of total imports in 1955 to 11 percent in 1985, and to 10 percent by 1994. Compared to other nations in the European Union, Britain’s agricultural sector is much smaller in terms of employment and contribution to the GDP. In the early 2000s agriculture employed approximately 1.4 percent of the workforce and contributed 1.0 percent of the GDP.

D

1

Livestock Farming

Many of Britain’s full-time farms are devoted to livestock farming—raising cattle for dairy products or beef, or raising sheep for wool and meat. The treatment of farm animals became a growing concern in Britain in the late 20th century. Factory farming of chickens produced protests, as did the practice of raising calves in confined spaces. Concerns over animal welfare have led some British citizens to become vegetarians.

Grave concern arose in the 1980s over cattle infected with bovine spongiform encephalopathy (BSE), popularly known as mad cow disease. Human beings who eat infected beef may develop Creutzfeldt-Jakob disease (CJD). BSE was first discovered in Britain in 1986, and the British government took steps to eradicate the disease and compensate farmers for lost cattle. Consumer confidence in British beef declined, and in 1996 the European Union banned Britain from exporting any beef or beef by-products. After considerable action by the government to halt the spread of the disease, the EU lifted the ban in 1999.

Livestock farmers in Britain faced another crisis in 2001, when several cases of foot-and-mouth disease were detected in a British slaughterhouse. The highly infectious viral disease, which rarely infects humans, can quickly cripple cattle, sheep, pigs, and other animals with cloven hooves. The dangers of foot-and-mouth disease are largely economic, since infected animals often lose weight or stop producing milk. As the outbreak spread across the British countryside, the British government ordered the slaughter of more than 1 million animals to contain the virus. Cases of the disease were also detected in Belgium, France, and Ireland, leading to the destruction of herds in those countries.

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