The Political Economy
This paper seeks to discuss the political economy of Great Britain. Great Britain is made up of England, Wales, and Scotland. Great Britain is ranked number four in Europe in terms of population density. A majority of the inhabitants of Great Britain are English making up 80 per cent of the present population. The remaining percentage is made up of the Scottish, Welsh, and Irish people. Great Britain is part of the G8 meaning that it has a stable economy (Gorton and Schmid 4).
Great Britain has achieved economic prowess despite the fact that it has to import most of its raw materials. On top of that, Great Britain imports 40 percent of its food supply. The country’s economy relies heavily on the exportation of manufactured goods. The major exports include “machine tools, automobiles, aircraft, electronic and communications equipment, clothing and textiles, and chemicals” (Washington Post Press 1).
More than two thirds of the GDP are derived from the services industries which are made up of the banking sector, insurance sector and business services. These sectors have employed close to 70 per cent of all employees in Great Britain. In addition, “Great Britain is a constitutional monarchy” (Washington Post Press 1). The constitution of Great Britain is a collection of statutes, judicial decisions, usage, and tradition.
In Great Britain, sovereignty is vested in parliament. Parliament is made up of the House of Commons, the House of Lords, and the crown. Furthermore, the British system of corporate governance supports the principle of shareholder sovereignty (Anglo Saxon model of capitalism); the returns of the corporations’ stakeholders are given priority (Evans 23). The British company law contains mandatory rules on neither of these matters, though it prohibits neither feature and seems sufficiently flexible (Mallin 4).
In Great Britain, institutional investors are exceptionally powerful because of the level of their ownership. According to as report produced by the Office of National Statistics in 2005, institutional investors own the majority of the Great Britain equity, with insurance companies such as the Standard Life owning 17 percent of the Great Britain equity by the end of 2004 (Mallin 6).
Policy makers argue institutional investors are extremely important in ensuring that corporate governance best practices are followed. This has resulted into a sea of change in the Great Britain’s corporate ownerships.
These changes have led to a shift of share ownership from individual ownership to institutional ownership. Office of National Statistics has reported that in 1963, individual investors in the Great Britain owned 53 per cent of shares (Mallin 7). The percentage of individual share ownership has fallen steadily in the last forty years. In 1989, it had fallen to 21 percent. Amazingly, individual share ownership had fallen to 14 percent in 2004.
In contrast, institutional ownership has increased steadily over the past five decades (Mallin 8). Most of the institutions that own shares are large insurance companies and pension funds. The Office of National Statistics has indicated that the percentage of institutional ownership has grown from 10 percent in 1963 to 17 percent in 2004 (Edwards and Banks 67). On top of this, the corporate industry of the Great Britain has realized a dramatic increase in the number of foreign institutional investors (Rahman and Bullock 68).
Great Britain and the Economic Recession
Like other European nations, Great Britain was significantly affected by the global financial crisis. Great Britain started feeling the heat of global recession in January 2009. The Office of National Statistics announced that the GDP had fallen by 1.5 per cent during the final quarter of the financial year of 2008 (Brown 1).
In the first quarter of 2009, the GPD fell by 2.4 percent, and by June 2009, Great Britain’s economy was 5.5 per cent below its peak (Brown 1). The recession that occurred in Great Britain was as a result of the larger global financial crisis that began in August 2007. The most hit sector of the economy was the banking sector. Banks accumulated huge debts having invested earlier in assets that later turned out to be unsafe, illiquid and worthless (Vaitilingam 5). As a result, domestic and foreign investors withdraw their capital.
The housing sector was the other hardest hit sector of the economy. The economic crisis led to a significant drop in the prices of houses in Great Britain. As a result, potential sellers withdraw their houses from the market (Vaitilingam 5). In addition, the employment sector suffered a huge blow. By the end of 2009, 573,000 jobs had been lost representing the highest number of job losses since 1971(Brown 1).
Great Britain and the EU
The European Union is made up of 27 European nations, which share political and economic privileges. The EU has various supranational independent institutions, which form a link between the cooperating nations. These institutions offer a channel through which intergovernmental decisions are met.
The European Commission and the council of the European Union are the chief institutions of the EU. Others include the European central bank, the European council and the European parliament. In addition, the court of Justice of the European Union is a key legal institution of the EU. The Europe parliament is involved in the formation of laws which govern the EU’s member states.
The EU has established a single market by formulating well defined laws. Under this system, most of the barriers which hinder trade between member states have been abolished. As a result, there is free movement of goods and services between member states. The most significant legislations are related to immigration, foreign investment, and foreign exchange. The EU has established a single currency for all its member states.
As a member, of the European Union, Great Britain benefits in a number of ways. The concept of single market has made companies operating in EU member states to lower the prices of their products so as to become more competitive (DTI 3). This concept also makes its easier for companies from Great Britain to conduct business in other EU member states.
In addition, the concept of single market ensures that no customs duty is paid on goods being exchanged between EU member states. Great Britain also benefits from the policy of free movement of citizens between the EU member states. This policy allows Britons to live, study, work and travel to other EU member states. Statistics indicate since 1995 more than 100,000 students have studied in other EU member states (DTI 3).
These statistics further indicate that close to 3.5 million jobs in Great Britain is a result of Great Britain’s EU membership (DTI 3). The only disadvantage of joining the EU is that a country might lose its sovereignty (DTI 3). However, the pros for joining the EU are much greater than the cons.
Foreign Investment in Great Britain
Great Britain boasts of a number of features which attract investors (Trade and Investment 1). First, any business that operates in Great Britain is guaranteed of fast, easy access to the European market. Secondly, Great Britain has close to 28 million skilled workers. As such, any business that operates in Great Britain is likely to get the right people for the job. Third, Great Britain has low utility costs.
Fourth, Great Britain has established a regulatory environment that promotes growths and profits. Fifth, Great Britain has low corporate and personal taxation. Sixth, Great Britain is a center of world class research, design and development. On top of that, Great Britain has eliminated most barriers which hinder foreign investments.
Conclusion
In summary, Great Britain is made up of England, Wales, and Scotland. Great Britain is ranked number four in Europe in terms of population density. A majority of the inhabitants of Great Britain are English making up 80 per cent of the present population. Great Britain has achieved economic prowess despite the fact that it has to import most of its raw materials. On top of that, Great Britain imports 40 percent of its food supply.
The country’s economy relies heavily on the exportation of manufactured goods. Like other European nations, Great Britain was significantly affected by the global financial crisis. Great Britain started feeling the heat of global recession in January 2009. The Office of National Statistics announced that the GDP had fallen by 1.5 per cent during the final quarter of the financial year of 2008.
The hardest hit sectors include the banking, employment, and housing sectors. Great Britain boasts of a number of features which attract investors: a business that operates in Great Britain is guaranteed of fast, easy access to the European market, Great Britain has close to 28 million skilled workers, low utility costs, and low corporate and personal taxation. In addition, Great Britain has eliminated most barriers which hinder foreign investments.
Works Cited
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