The role of the UK government has changed since the conservative party dominated in the 1970s.. Before Margaret Thatcher came into power the United Kingdom was in a time of great recession due to the oil crisis, with many of its citizens being very dependent on the welfare system. Margaret Thatcher believed, like any other conservative, the best way for economic growth is to have a working population. If people work, they will have a higher disposable income and can spend their money on more products and services. She denationalized many government owned industries (for example water, gas and electricity) and stopped people from receiving the same level of social security benefits. This had a ripple effect on the economy. What this shows is that government intervention is a key element in maintaining the economy. Had she not intervened and made these amendments it’s possible that the economy would have gone into a depression.
The government today could take some her right wing policies and implement them in order to help ease us out of the recession. They could decide to ‘slash public spending and increase taxes, or may cut taxes, especially at the top end, as she did towards the end of the 1980s, while increasing indirect taxes like VAT (Bonsignore, 2005).The government has attempted to implement some of these policies. They cut taxes to encourage spending which is a form of regulating markets to better the United kingdom’s current economic situation. However, one of the major problems of the British economy, especially compared to any other European economy is that it is closely connected with America. Britain ‘exported US$53.4 billion worth of merchandise to the United States in 2006, up 4.7% from 2005 and up 31.2% in 4 years’ (workman, 2007), which is more than any other country in the Europe.
This could be seen as a modern day failure of government to regulate markets. If the United Kingdom became more self sufficient than it current it is (not depending on the US), and diversified its labor market then a recession may have been avoided. The British economy is very dependent on international trade and ‘75% of GDP comes from the service sector’. If the British economy had a more balanced labor market (e.g. tertiary sector, and secondary sector), when a recession was predicted, they government could changed the main source of income. This would have helped in maintaining economy stability. This would be effectively regulating a market. This shows our current crisis was a lack of government intervention. If the British government had thought about this, then its current economic situation would be very different.
Another step the government could have taken is tried to come up with a contingency plan with the rest of the world. The world now operates under a global economy with all economies having an effect on one another. The government did regulate the markets prior to the recession as they were encouraging international trade and the start up of businesses to help maintain the strength of the economy. The governments were also monitoring consumer spending habits but adjusting inflation and interests’ rates depending on consumer expenditure. However they failed to remember that economics booms are a cycle and with every economic boom comes an economic recession. Governing a country and regulating markets means more than thinking about today, it means meeting the needs of today as well as thinking about the future. The government should have saved money they were gathering from taxes during the time of an economic boom; in the event a recession happens. This illustrates the financial crisis was a consequences of government failure to regulate markets. If they had planned more carefully instead of thinking about present, then the United Kingdom may still be enjoying an economic boom.
Whether you believe the government has a huge role to play in the economy all depends on your sociological standpoint. Many Pluralists such as Robert dhal would argue that the current government has acted in a way that’s benefits the whole community. The government is working as a neutral body to make sure that both the needs of the extremely rich, very poor and middle class are being met. Marxists such as Althusser would argue that the government is not acting in the best interest of everyone. They are acting the interests of the elite. If government was really a neutral body, then they would not have allowed this financial crisis to happen in the first place, as they knew the result.
If the British government was a communist’s state then the way in which government views economic policy would be very different. Under a communist’s state everyone is entitled to some form of welfare. However even if this system of governance was implemented it does not automatically mean that a recession or financial crisis will never happen. As seen with USSR, a lot of the economic problems they suffered were because of lack of efficient governance and poor monetary policy. Even if the UK was being governed by a communist’s government it’s unlikely that a recession would have been avoided as the contemporary world now operates under a global economy. Regardless of their own policies, the policies of other countries would have had a serious effect on England leaving them no choice but to co-operate with other countries. This indicates that government has an effect on how successful an economy is. Even if the UK was a under a communist’s rule in a global society, the success of the economy would still be based on the policies the government has. This goes to show the governments are still the deciding factors of an economy. Despite external influences if the government plans correctly then they can minimize if not eradicate the effects of other economy turndowns in other countries. This just proves that the government did not do their job correctly. If we were under a communists rule, the government would still set interest rates and monitor inflation. The financial crisis was a result of government not monitoring monetary policy correctly. In the future they should spend more time correctly policies to ensure the economy remains stable for longer periods of time.
On the other hand one could argue that it is not only the fault of the government but other intuitions such as the banks have added to the financial crisis. The problem with blaming solely the government is business such as banks have a huge influence government policy. Even if the government did intervene with economic policy, businesses such as banks do not necessarily have to listen as they have the economic power to override government. The FSA and The Bank of England did not do enough to regulate the banks. They should have regulated the bonus of workers. If they did this, then many workers would not have sold these ‘packaged mortgages’ just receive a bonus. They would have been far more careful in fear they could lose their jobs. If the bank ensured this then they may have avoided government assistance to bail them out and may have avoided being arguable one the main causes of the financial crisis. Although it is hard to prove the extent to which government are responsible for the financial crisis, they clearly had a role to play. The government allowed the banks to regulate themselves. This was failure of government. The government should have monitored the banks more close to make sure the banks were doing their jobs correctly. Due to this inefficiency in government regulation, the government acted as catalysts in the cause of the recession.
In addition to this the media also have a huge part to play in the speeding up or slowing down the effects of the recession. In America during the reign of Bill Clinton the economy was viewed through ‘rose-colored glasses’ (lott JR, 2008) as the US was in a time of great recession. At the moment consumer confidence in the economy has plunged to a ‘16 year low however during the reign of Clinton administration is was a lot higher’(lott JR 2008). The media is outlets were most people get all their sources of information. I believe that the recession is a social epidemic that is caused by the media giving the public information that they do not need to receive. In other words the British government should act like governments in countries such as china; it should have banned the media from telling people about the cause, the current state of the recession and government policies to end the recession. If this had happened then one could quite possibly argue that a recession would not have happen. Although the media may not be a huge market, they have an impact on people’s perception of the recession. The government should have made sure that they regulated them to make sure they did not put out damaging information about the financial crisis to the public. The United Kingdom is a democracy but the government still has the power to withhold information from reaching the public. If they had done this then they may have seen in a change in the correct economic satiation. The government failure to intervene on outlets as the media are part of the reason why the economic crisis is as bad it is right now
The question now, is what will lead us out of a recession? As we can see in (see Appendix A) GDP and employment have dropped considerably. This means that productivity in companies and consumers spending have fallen creating a spiral affect in the economy. There would be a general belief that the government needs to work hand in hand with other agencies to counter the effects of this recession. The government passes legislation (see appendix B) which affects all types of business. The governments have taken their first major step to counter the ‘recession by borrowing over 400 billion’ (periscope, 2010) to put back into the economy. In addition to this they have reduced VAT, and introduced quantize easing to temporary counter the effects on the recession. Only time will tell how effective they methods will be however my fear is that even with all this money being pumped into the economy, consumer confidence in the economy will still remain low. This is where the government needs to work with the media to raise the confidence of consumers. They need to get the media to create demand by not telling people how bad the recession is, but in fact telling consumers the recession is getting better. If this happens then business will start producing more and it will ultimately create new jobs. This will not fix the recession but it will be a good start to help ease the affects of the recession.
In conclusion the governments are the cause of the financial crisis. Their failure to regulate markets is what lead to the fall of the economic and put the United Kingdom in a financial crisis. Even though other factors have an effect on the government which government cannot control, what the government do have control over, they failed to regulate correctly. They failed to regulate the number of exports and imports coming into the country. They failed to regulate the banks and make sure they were doing an effective job. In addition to this the government financed the economy through borrowing a condition called ‘deficit financing’. This then lead to higher levels of borrowing and stifled entrepreneurs and other business which are vital for a strong economy. If the government had regulated the market then they would not have allowed all this happen. Now because of their actions many people have had to suffer. The government are imposing sanctions on institutions such as the bank, but how can the impose sanctions on something they are the main cause of. The government did not think about the future, they were only concerned with the present. As I mentioned before governing a country effective means meeting the needs of today and the future. The governments are ultimately the main cause for the financial recession. The banks and other intuitions operate to make a profit, whereas the government functions to look after the people and keep a stable economy. I believe that the governments are covering the fact they are main cause of the recession and it’s only a matter of time before the public finds out the extent to which the government are truly responsible for the recession.
Daniel Workman. (2007). Top UK Exports & Imports.Available: http://international-trade-leaders.suite101.com/article.cfm/top_uk_exports_imports.
James Kirkup and Edmund Conway. (2009). Bailing out the banks cost £5,500 per family. Available: .
Michael Hudson. (2008). The Fictitious Economy, Part 1, An Interview With Dr. Michael Hudson. Available:
Nouriel Roubini. (2009). A Global Breakdown Of The Recession In 2009. Available:
Periscope( 2010). UK debt rises as government borrowing hits record high. Available: http://www.periscopepost.com/2010/01/uk-debt-rises-as-government-borrowing-hits-record-high/
Thomas hobbes (1985). Leviathan. london: Penguin Books
Appendix a
The ONS figures also showed that GDP shrank by a record 4.9% in 2009.
They also show that the economy shrank by 6.2% during the recession from peak to trough.
The number of 18 to 24-year-olds out of work fell over the three-month period between November and January 2010 from 725,000 to 715,000.
APRIL 2009
Appendix b
Appendix b