World Economy – Britain since 1979 and explanations
REFORMS: THATCHER AND AFTER
Card (2004)
• 1980’s-1990’s UK govts enacted reforms to establish a more market-oriented economy.
• Goal of offsetting long-term economic decline. Began period as highly regulated economy
with large nationalised industries and extensive welfare state.
• By the end of the period, one of the least regulated OECD economies and welfare system
based on in-work benefits.
KEY CHANGES
• Privatisation of most nationalised industries and some government functions.
• In work benefits and reduction of incentives to be out of work.
• Tax incentives for employee share ownership
• Restructuring the NHS (more competition)
• Sale of council flats to residents
PERFORMANCE
• Increased inequality – rich getting richer
• Secular decline in UK productivity relative to other advanced economies ended.
• But this is circumstantial. NZ had similar reforms, but performance worsened.
UK was made more market friendly:
• On broad measures of economic freedom and labour market regulations
• Deregulated product markets and denationalised earlier than other EU states.
• Privatisation often accompanied by increased regulation.
Open capital market makes it easier for foreign firms to enter:
• More productive than UK firms due to greater investment and more skilled/ highly paid
workers
• Change in ownership doesn’t however create large changes in productivity.
Efforts to encourage individual share ownership:
• Firms that reward workers on company performance have more information sharing and
consultation with workers.
• There firms outperform others in productivity and financial outcomes – gives people more
incentive to care about company management.
Policies towards young and the u/e were designed to encourage work:
• E.g. New Deal for young People 1998 toughened work search requirements and subsidised
employers for hiring.
• Gave govt power to turn down benefits to those who turn down reasonable jobs.
Income inequality has risen:
• De-unionisation a major contributor
• Minimum wage reduced inequality among women.
In Great recession UK productivity better than rest of continental Europe.
WHERE DID THE GROWTH IN PRODUCTIVITY COME FROM?
• Labour productivity growth similar to pre-1997 but more dependent on human capital and
ICT
REFORMS: THATCHER AND AFTER
Card (2004)
• 1980’s-1990’s UK govts enacted reforms to establish a more market-oriented economy.
• Goal of offsetting long-term economic decline. Began period as highly regulated economy
with large nationalised industries and extensive welfare state.
• By the end of the period, one of the least regulated OECD economies and welfare system
based on in-work benefits.
KEY CHANGES
• Privatisation of most nationalised industries and some government functions.
• In work benefits and reduction of incentives to be out of work.
• Tax incentives for employee share ownership
• Restructuring the NHS (more competition)
• Sale of council flats to residents
PERFORMANCE
• Increased inequality – rich getting richer
• Secular decline in UK productivity relative to other advanced economies ended.
• But this is circumstantial. NZ had similar reforms, but performance worsened.
UK was made more market friendly:
• On broad measures of economic freedom and labour market regulations
• Deregulated product markets and denationalised earlier than other EU states.
• Privatisation often accompanied by increased regulation.
Open capital market makes it easier for foreign firms to enter:
• More productive than UK firms due to greater investment and more skilled/ highly paid
workers
• Change in ownership doesn’t however create large changes in productivity.
Efforts to encourage individual share ownership:
• Firms that reward workers on company performance have more information sharing and
consultation with workers.
• There firms outperform others in productivity and financial outcomes – gives people more
incentive to care about company management.
Policies towards young and the u/e were designed to encourage work:
• E.g. New Deal for young People 1998 toughened work search requirements and subsidised
employers for hiring.
• Gave govt power to turn down benefits to those who turn down reasonable jobs.
Income inequality has risen:
• De-unionisation a major contributor
• Minimum wage reduced inequality among women.
In Great recession UK productivity better than rest of continental Europe.
WHERE DID THE GROWTH IN PRODUCTIVITY COME FROM?
• Labour productivity growth similar to pre-1997 but more dependent on human capital and
ICT
