This assay attempts to explain and analyze two different perspectives that drove from the UK economy experiences. The first perspective focused on the absence of government intervention, while the other one focus on customer spending. The goal of this assay is to articulate and introduce these perspectives taking in consideration the historically and iconological period that these perspectives have been developed. To achieve the purpose of this assay, first, it is paramount important to introduce different terms and concepts related to economy as these concepts will be the base and background of any further discuss or argument.
Economy defined as the study of how society decides what, how, and for whom to produce. Economists are typically characterise agents (e.g. individuals, households, firms and governments) as responding to incentives. These agents are constrained by a scarcity of economic resources. Their feasibilities, choices and preferences are the main driver of the market. It is important here to clarify two sub major themes under economy, Microeconomics and Macroeconomics. Microeconomics is study the behaviour of firms, consumers and the role of governments. Macroeconomics is the study of Economics as a whole; it looks at Inflation, industrial production and the role of the government.
Moreover, the Economic systems differentiate between two salutations, the Pure Free Market Economy and the Command Economy. In a Command Economy, the government planning office settles what will be produced, how it will be produced, and for whom it will be produced. While in a Pure Free-Market Economy (Laissez-Faire Economy), the private property and exchange determine what will be produce, how it will be produce, and for whom it will be produce. Nations histories reveals that economies in the real world have elements of both of the two 'extremes' and may be described as 'mixed economies'.
In the dim past history, The father of economy, Adam Smith- (1776), explained that the some of the total individual choices made by consumers in a free-market economy produced the best economic outcomes for the nation as a whole. In his book, Adam uttered that "consumers would determine by their choices and preferences what products, and what quantity and quality of products, would be produced". However, the ninety-century witness many changes such as firm mergers and business cartels and agreements and in the same time, has observed a monopolies. It also attempts to eradicate competition in order to increase market share and profits. Moreover, the era after Second World War has witness dramatically changes and trends with development of the industrialization that created the necessitate of large-scale investment and venture, causing to businesses of unequal size and an economic influences.
To resolve economic problems and ensure perfect competition and nation welfare, the UK conservatives proposed theories and tools to implement that focus on supply side of the economy, which consisted of a limited role for the state. Their policy ruled no dialogue with industry, not effective state planning, no controls and no intervention favouring industrial development. However, the new labour party adopted in 1997 some aspects of the supply side economy of Mrs. Margaret Thatcher, former Prime Minister. UK adapted four major policies; the privatization and deregulation of the utilities, for example, which increased workers productivity significantly, the Inward investment policy that succeeded in attracting the best companies in the world to the UK, and the policy of helping and encouraging small business to start, expands, and innovates.
The well know economist, Keynes contrary to Mrs. Thatcher however both emphases was on microeconomic policy in order to help companies to innovate and successfully compete in world markets. Microeconomics policy replaced macroeconomic policy in fighting inflation. Later authors and supports like Stephen Wilks (2007), uttered that the government interference and roles are not necessary to substation economic growth, firms and business should be free from government interferences to best produce and improve their performance. Government control and monitoring should be halted.
State intervention limited to regulation was considered by conservatives more appropriate that a direct participation in the market and in the economy. The state should set regulations on the economy with the intention of increasing companies' performance. Stephen Wilks and many other Proponents believe that government roles in enhancing business is unnecessary, however it is unavoidable.
According to Stephen Wilks and many others Proponents, a corporation, according to conservatism, should governed fundamentally by the interest of its shareholders hence leaving the social and labour issues completely in the hands of the state. This approach is contrary to the German and Japanese awareness of, and concern for the value of corporate social responsibility, which integrates stakeholders' rights and society's interest. Stephen Wilks (2007) explained that in a command economy a government planning office decides what and how and to whom it will be produced, which eventually cause economic problems. While the state under conservatism remains on the sidelines concerning social issues. It rather encourages profit maximization by institutions in order to attract "inward investment" to the UK.
The main themes of Keynesians followers is that government should depend on monetary policy to resolve employment inflation by using tools such as interest rate and exchange rate. Inflation explains the supply decrease and then demand increase. Using the monetary policy, to solve the inflation the central bank increase the interest rate which indicate all the individual save the money in the bank. The money in the market decrease and then purchasing power will and finally decrease demand equal Supply.
Back to UK economy experiences, it is clearly that government macroeconomic policy mainly used to eliminate the inflation rate after the Second World War. The battle against inflation has linked to money supply management in order to reduce the growth of credit. Later economists and authors have been critics this one-side policy as the UK experiences exposed a certain number of advantages associated with lower inflation. They argue that the genuine gains of low inflation bought at terrible cost.
Will Hutton (1996) and many other economies proponents believe that the UK experience reveals that government regulations and policies sometimes can be conflicting and globally inconsistent. They believes that The attempt to contain monetary and credit growth in a deregulated banking system without exchange controls led to a decade of high interest rates and a fluctuation of sterling in relation to other currencies. Will Hutton (1996) suggested that recessions could be avoided if global finance were harnessed and reformed and reduce government interferes. In his recent article, Hutton (2000) give explanations how governments would borrow in order to finance its deficit, and when borrowing is not enough, government's starts printing money causing to inflation.
Will Hutton (1996) maintain institutions autonomy, he support the removal of exchange controls, the reduction of heavy and constraining labour regulations and the introduction of advantageous tax laws stimulated competition in the markets and made corporations more efficient. Free Market has, as Hutton believe, three roots, monetary discipline to guarantee produce price stability, financial freedom to guarantee the productive use of savings and securing freedom from the unions to guarantee higher productivity. Hutton uttered, "The deregulation in the labour market brought little benefit and an awful lot of pain".
The main theme of Will Hutton is that "away from supply side, economic growth was driven by increases in consumer spending". To support his argument, Hutton explain that one example that revealed conflicting government policies and regulations is the exchange and banking controls eliminated in 1979 and 1980 with the consequence of a substantial increase in bank credit and individual debt. The deregulation of the financial institutions increased consumer spending significantly because of the exceptional growth of money supply and bank credit.
From my perspective, I believe that historical data and events that occur in market after the Second World War until these days is necessary to understand the base ground of these two perspectives. I believe there are no contradicting but different tools and means to solve economic salutation and maintain nation prosperity. Both of these two perspectives and theory has brought back from different experiences and the analogically result of implementation of these perspectives result in different outcomes however they share the aim, which is increase nation prosperity.
Furthermore, from my reading, I found that Stephen Wilks and his supporters did not provide rational justification as they maintain only inflation rate. Even his scholastic founder Keynes (1926), who uttered that "The economic problem may be solved within one hundred years", which means that Keynes are aware of their tools limitation and cotemporary attempt to recover UK economy. While, on the other hand Will Hutton focus on many issues that not only maintain inflation rate but lead to economic growth, Finally, one should say that, without Keynesian lesions Hutton could never reach to this conclusion.
The main purpose of this assay is to explore and investigate two different perspectives and provide different examples and justification of its implementation and explain the outcome and result of its adoption. The above digression has direct influenced UK institutions and corporations strategies and its conduction. I believe that the main lesson that can be take from UK experiences is that we have to take in consideration the changes and trends in market and in the external environment. Whether interfering business decisions or maintaining demand side, Institutions wherever they run their business have to understand the government role in sustaining its wealth and prosperity.
