Essay Plans
Section 1:
British economy was weak in early 1960s due to stop-go
policies
Notes and Context
What are stop-go policies:
- Economic policies that alternate between period of expansionary policies
and restrictive policies.
- Expansion: increased government spending, reducting taxes to stim econ
growth and create jobs. This can lead to inflation.
- Gov then counteracts by reducing gov spending, raising interest rates to
slow down econ and lower inflation.
- Cycle repeats
- Can lead to economic unstability and uncertainity for businesses and
individuals
Pros Cons
1. Countercyclical management: Stop-
go policies can help to stabilize the 1. Uncertainty: Stop-go policies can
economy during periods of economic create uncertainty for businesses and
volatility, such as recession or inflation. individuals, as they may not know what
By using expansionary policies to policies the government will implement
stimulate the economy during downturns next. This uncertainty can make it difficult
and contractionary policies to slow down for businesses to plan and invest for the
the economy during booms, long term, which can hamper economic
policymakers can help smooth out the growth.
business cycle.
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, Pros Cons
2. Flexibility: Stop-go policies can give
2. Inefficiency: Stop-go policies can lead
policymakers the flexibility to respond
to inefficient allocation of resources, as
quickly to changing economic conditions.
businesses may not know what policies
For example, if there is a sudden
the government will implement next, and
downturn in the economy, policymakers
may be hesitant to invest in certain
can quickly implement expansionary
sectors of the economy. This can lead to
policies to stimulate demand and support
a misallocation of resources and slow
economic growth. (i.e. good short-term
down economic growth.
alternatives)
3. Policy mistakes: Stop-go policies can
3. Balancing competing goals: Stop-go
also be risky, as policymakers may make
policies can help policymakers balance
mistakes when implementing
competing goals, such as achieving full
expansionary or contractionary policies.
employment and controlling inflation. By
For example, policymakers may
alternating between expansionary and
implement expansionary policies for too
contractionary policies, policymakers can
long, leading to inflation, or they may
work to achieve both goals over time.
implement
4. Political pressures: Stop-go policies
can also be influenced by political
pressures, such as pressure to
implement expansionary policies in an
election year to boost economic growth,
even if such policies are not sustainable
in the long term.
Why was the economy weak?
1. Balance of Payments Crisis: The UK was running a large trade deficit,
which put pressure on the country's foreign exchange reserves and
contributed to a balance of payments crisis. The crisis was caused by a
combination of factors, including a decline in exports, rising imports, and
a loss of confidence in the pound sterling.
- 1960s, Deficit reached £620 million
- 1964, over £800 million
- Although adressed, import controls, export subsides and voluntary
export restraint program
- 1967 £ devalued by 14.3% to boost exports and reduce trade deficit
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, - Deval had some success, trade deficit narrowed £740 million 1967 to
£44 million 1971
2. Structural Issues: The UK was facing structural issues in its economy,
including a decline in traditional industries such as coal mining and
shipbuilding, and a lack of investment in modern industries like
electronics and telecommunications.
- Coal prod fell from peak 292 million tons 1913 to 135 million tons in
1960
- Service sector growing rapidly (finance, insurance, business services,
account 51% GDP
- UK lagged behind other countries in electronics and
telecommunications, 1960 2.4 mil telephones compared to 12.8 mil in US
and 9.2 mil in France
- Invest in research and dev low, spend R&D ccounting 1.3% GDP in
Britain, 2.2% in US and 2.8 in Germany
3. Inflationary Pressures: The UK was also facing inflationary pressures,
driven in part by rising wages and a loose monetary policy.
- Peak 7.2% inflation in 1961
- Earning increase 5% average annually 1960-1964
- ‘Pay Pause’ policy froze wages for 6 months to curb inflation
- Not successful prices rose and inflation reached double digits by late
1960s
4. Sterling Overvaluation: The pound sterling was overvalued, making UK
exports more expensive and less competitive on the global market.
- Overvalued as much as 20%-30% relative to other major currencies
- Exports more expensive and less competitive - contributed to balance
of payments crisis
- Devalued 14.3% in 1967
- After deval it remained relatively stable
Led to economy imbalance
Stagflation
It was actually the inability to see the benefits of joining the EEC at an
early stage
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, Moreover, Britain’s inability to recognise the benefits of the European
Economic Community in ‘58 further resulted into the economic weakness of
the country in comparison to international growth, as countries such as West
Germany and France experienced rapid economic progression after the war
that both
economically and physically diminished them. By 1959, West Germany had
double industrial production than the United Kingdom, and by 1962, West
Germany had 20% of world shares whereas Britain only had 15%. The
country believed the ‘special relationship’ with the United States would be
significantly damaged if Britain had entered the EEC. Although economic
output hadn’t decreased and Britain’s economy hadn’t entirely weakened as
a result, such economic growth by EEC members. Developments made in
foreign economies had resulted in the
exposure of weakness in the British economy. International competitors were
outperforming Britain on a large scale, Japans GDP of 8%, France’s GDP of
4% and West Germany’s GDP of 4.8%. The GDP of West Germany is a very
telling example
because it was left with the disadvantage of being dismantled and recovery
after the war yet still had a GDP of 4.9%. Britain was failing in comparison to
the rest of world. Other countries adapted to a modern economic policy of
planning ahead whereas we had been faced with the problem of ‘stop-go’
policies reactionary
policies for an extended period of time, preventing growth at a similar rate to
our competitors.
Later tried to fund the EFTA but failed
Stop-go was actually good:
However, the ‘stop-go’ policies can also be regarded as beneficial to the
economy. During the period of 1955-1964, Britain experienced such
economic growth that Conservative posters described the situation, as
‘Britain never had it so good’. Moreover, an increase in affluence and
consumerism in individuals, such as the 25% increase in car ownership
between 1957-59 and the fact that by 1959, over 50% of the country had
owned luxury items such as a TV - made cons known as the party of the
economy
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