The British economy is the fifth largest economy in the world and the second largest economy in Europe after Germany. For the last fifteen years, since the 1992-recession that hit the UK under John Major, the economy has seen the longest period of sustained economic growth and stability for more than 150 years. These results are even more favourable considering that inflation, interest rates and unemployment have remained significantly low.
Economic policy is one of the most important issues that determine the fate of governments. The Treasury minister’s aim, also know as the Chancellor of the Exchequer, is to achieve low inflation, high and constant rates of economic growth and low unemployment (either through interventionist or non-interventionist economic policies). The degree of government interventionism toward the market is determined by political and ideological assumptions. Some of the instruments that governments may use in order to settle economic policies are: interest rates, control of money supply, taxation, direct public investment and other public expenditures.
After the 1979 ‘Winter of Discontent’ the British economy experienced a deep change under conservative governments. The ‘rolling back of the state’ policy that introduces Margaret Thatcher, and later continued John Major, saw the post-war welfare state, that has been developed in most western European countries, as impeding the operation and development of free enterprise and market economy. The Conservatives blamed the Keynesian ideas of mixed economy and the post-war ‘Butskelist’ consensus to be the causes of the British inflation, unemployment and lack of steady growth. As a result, Mrs. Thatcher privatised most of the state enterprises ‘what certainly reduced the decision-making load of ministers in the area of economic policy.’[1]
In 1997, after eighteen years of a ‘laissez-faire’ economy, Labour came back to 10 Downing Street but without changing much of Major’s economic agenda. As a matter of fact, the Party’s manifesto, which had been changed a few years before, now partly accepted free market as a mean of income distribution. New Labour saw in globalisation not a threat or a constrain, but an opportunity and a chance to create qualified employment. Tony Blair and Gordon Brown saw globalisation as inevitable, and they understood that the role of the Labour government was to adapt itself to it.
But, to what extent does globalisation influence UK economy? Are British politicians ruling over the markets or are markets and multinational companies defining the fate of the economy? Do politicians control macroeconomics or they just content themselves to give competitiveness to microeconomics?
Wyn Grant explains that there are three perspectives of approaching globalisation: hyperglobalisation; national political economy; and Europeanization of economic policy. The first approach, hyperglobalisation, is shared by politicians that believe that changes introduced by globalisation are too profound to be changed and that any government attempting to pursue its own distinctive policy is liable to be punished by financial markets. Supporters of the second perspective, the national political economy approach, say that although some erosion in the economic policy-making capacity of countries can be observed, nation-states have not declined in power. The last approach, the Europeanization of the economy, develops the idea that globalisation in Britain has not increased as compared to pre-WWI figures. This third perspective describes that the UK has actually regionalised its economy when becoming a part of the European Union common market in 1973.
In order to shed light on these perspectives, we shall in a first step analyse the constrains that British politicians encounter when they determine economic policies. We shall later treat the role and powers of Westminster which allow politicians to determine economic policy-making in the UK. And we shall finally tell whether British politicians keep shaping the economy on the whole to their will, or not.
When treating the difficulties British politicians face in the developing of economic policies one quickly realises that this task has to be completed within multilevel governance. Since the end of the 1980s we talk of governance as government has to operate in a diverse and decentralize environment. The boundaries between the public and the private spheres are nowadays less precise than they were during the Keynesian times. Government now needs to regulate the market without upsetting it. Co-operation and co-ordination have become crucial to the positive development of the economy in an increasing complex policy process.
Governance is a consequence of globalisation, Europeanization, agencification, devolution and the increase involvement of voluntary bodies alongside the private and public sectors. British politicians not only need to deal with globalisation and regionalisation (Europeanization) to determine economic policies but they are also framed by the institutions the UK is part of, such as: the OECD, the WTO, the World Bank, the IMF and the G8 and G20.
Goldsmith stresses that governance ‘places and emphasis on vertical co-operation between the institutions and tiers or levels of government, and on horizontal co-operation between public, private and voluntary sectors of the local level.’[2]
As a consequence of this economic context, Blair and his ‘Iron chancellor’ of the Treasury, Gordon Brown, have advocated private-public partnerships and business deregulation.
Aiming to show economic and fiscal credibility to financial markets, the Chancellor of the Exchequer decided from the very first week in government to change the monetary policy giving the powers of interest rates settlement to an independent Bank of England. Moreover, Brown’s ’golden rule’ was to borrow to invest but not to fund current spending, and to continue with the debt reduction engaged by the conservatives. Labour had to deal with a highly integrated financial market system in which one episode abroad could affect and have uncontrollable consequences in London or Edinburgh. It is what Strange calls ‘casino capitalism’ (1986) and he goes further by arguing that markets come to be seen as ‘more powerful than the states to whom ultimate political authority over society and is supposed to belong (1996, p.4).’ Others, less critics of the system, claim that ‘it is now the case that due to the expansion of capital and technological changes, savings, investments and currencies are now interconnected world-wide (Castells, 1996:93).’
In such a context Labour saw the necessity of adapting the state to more flexibility in the labour market (microeconomics), by developing a more competitive taxation system and by stabilizing low inflation (macroeconomics) which could seduce capital markets. Moran explains that it was ’a powerful trend shifting the bias of taxation from the progressive to the regressive in recent years’[3], that is to say increasing indirect taxes like the V.A.T. which put the burden of taxation in middle and lower classes and not in companies. Political scientist that agree with Labour economic measures underline that there was not other but the ‘third way’ of maintaining a welfare state in a twenty-first-century economy.
When dealing with the national political economy approach, which argues that the economic policy-making capacity of countries to determine their economic fate has not declined in power, we notice that argumentation is well founded.
In the same way the E.U. council of economic and finance ministers can affect British trade, industry and other economic branches; Britain can also persuade other countries, and thus expands its ideology of free market economy, to liberalize their economies in order to create a favourable atmosphere for the development of business. It must not be undermined Blair’s critics toward the common European Agricultural policy during UK last E.U. presidency, which even though did not persuade France’s president Jack Chirac, influenced other countries viewpoints and gave Britain a ‘pace-setter‘ capacity.
The Labour government introduced a new conception of welfare where work plays a significant role. Political scientists who sustain that Britain is in full control of its economic polices claim that the UK has adapt itself to the market without betraying Labour’s deepest assumptions. ‘Gordon Brown used each of its budgets to gently soften the unequal distribution of income inherited from the Conservative years.’[4]
Advocators of the persistent power of the ’regulatory state’ argue that the so-called Blairite ‘Third Way’ has been all about growth, monetary credibility and low inflation during the first term in order to create a fiscal room which would allow an increasing expenditure in the NHS and education in the second term. Furthermore, they argue that the 1% tax hike of 2002 and the implementation of a national minimum wage in 1999, which ensured faster growth in public spending for the following years and better distribution of the wealth, demonstrate that Labour determine, develop and control the fate of what Jane Lewis called an ‘adult worker model’ welfare state ( Lewis, 2002).
Gordon Brown set out an agenda for increasing productivity based on higher levels of education, research and investment spending, to provide better jobs while emphasising the importance of skills and training in the global economic competition (what is called the new endogenous growth theory). Ed Balls, Brown’s former chief economic advisor ‘has tended to refer to their thinking as new Keynesian.’[5]
The sceptics of globalisation argue that the economy in Britain has not globalised as much as it has regionalised. Furthermore, they estate that globalisation has been used by politicians as a rhetoric weapon in the last decades in order to implement the economic policies they wished to develop. They point out to figures that show that British ratio of merchandise trade was higher in 1913 and that ‘the share of British export trade destined to E.U. markets has tripled since 1955.’[6] Some supporters of this perspective claim that Britain is constrained by the E.U. economic decisions; others view this regionalisation as a chance that allows British economic policy-making capacity giving more power to Westminster.
Analysing government economic policies’ independence is not an easy task as it is difficult to ascertain which measures have been taken by ideology, which by pragmatism and which by constrain. The Blairite approach to globalisation was to see it as an inevitable and desirable chance to create a competitive economy. Government regulates the market trying not to interfere with business more than necessary. Wyn Grant claims that ‘the emergence of a regulatory state does not mean that its power necessarily diminishes, but that its form changes.’[7]
There is no doubt that the determinants of British economic policies are not the same they were in the post-war Butskelist consensus. Those determinants are nowadays significantly reduced. Today, the economy is highly privatised, finance plays a significant role and Britain must deal with the trade agreements signed by the E.U. which affect its economy. Moreover, the semi-independent Bank of England focus more in the strength and the dynamism of the market economy and less in the unemployment rates (in comparison to 1946). It must also be remembered the role the sterling plays as an international currency in the world and the historic openness of the British economy and trade.
It can not be said that Britain must follow this neo-liberal ideologies in order to subsist but it can be said that British politicians see more possibilities, chances and opportunities in globalisation than other European political powers. Although macroeconomics is difficult to control if Britain want to be part of the globalisation of financial markets, the British politicians still entirely count with microeconomics to shape the state according to their political ideologies.
BIBLIOGRAPHY
MORAN, Michael: Politics and Governance in the UK, Palgrave, 2005. Chapter 21: Raising and Allocating Resources.
DUNLEAVY, Patrick, el al.: Developments in British Politics 8, Palgrave, 2006. Chapter 14. Colin Hay: Managing economic Interdependence: The Political Economy of New Labour.
FISHER, Justin; DENVER, David and BENYON, John: Central Debates in British Politics, Longman, 2003.
LUDMAN, Steve and SMITH, M.J.: Governing as New Labour. Policy and Politics under Blair, Palgrave, 2004. Chapter 9.
COATES, David: Prolonged Labour. The slow birth of New Labour Britain, Palgrave, 2005. Chapter 4.
DOREY, Peter: Policy Making in Britain. An introduction, Sage 2005. Chapter 8: from Government to Governance.
GRANT, Wyn: Economic Policy in Britain, Palgrave, 2002. Chapter 2: Globalisation and Europeanization.
HICKSON, Kevin (ed.): The Political Thought of the Conservative Party since 1945, Palgrave, 2005. Chapter 7, Andrew Taylor: Economic Statecraft.
SELDON, Anthony and KAVANAGH? Dennis (eds): The Blair Effect 2001-5
[1] GRANT, Wyn: Economic Policy in Britain, Palgrave, 2002. P. 225.
[2] DOREY, Peter: Policy Making in Britain. An introduction, Sage 2005. P.219.
[3] MORAN, Michael: Politics and Governance in the UK, Palgrave, 2005. P.463.
[4] COATES, David: Prolonged Labour. The slow birth of New Labour Britain, Palgrave, 2005. P.78.
[5] DUNLEAVY, Patrick, el al.: Developments in British Politics 8, Palgrave, 2006. Chapter 14. Colin Hay: Managing economic Interdependence: The Political Economy of New Labour. P. 257.
[6] # DUNLEAVY, Patrick, el al.: Developments in British Politics 8, Palgrave, 2006. Chapter 14. Colin Hay: Managing economic Interdependence: The Political Economy of New Labour. P. 266.
[7] GRANT, Wyn: Economic Policy in Britain, Palgrave, 2002. P. 226.
[1] GRANT, Wyn: Economic Policy in Britain, Palgrave, 2002. P. 226.
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