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Contemporary Issues in Economics
Final PortfolioDeadline: 13th December 2012
Word count limit: 1100 x 4 +/- 10% = 1210
1. Chinas Economy (1205)
2. Migration (1209)
3. Industrial Policy (1209)
4. Evidence-Based Policy (1202)
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ContentsTopic 2: Chinas Economy ....................................................................................................................... 3
Bibliography ............................................................................................................................................ 7
Appendix ................................................................................................................................................. 9
Figure 1 Soft-landing ........................................................................................................................ 9
Figure 2 World import/ export slows ............................................................................................... 9
Figure 3 China Exports ................................................................................................................... 10
Figure 4 US Debt clock ................................................................................................................... 10
Figure 5 Current Share of New Multinationals .............................................................................. 11
Figure 6 Sectorial Breakdown of New Chinese Multinationals ...................................................... 12
Topic 4: Migration ................................................................................................................................. 13
Bibliography .......................................................................................................................................... 17
Other Bibliography ................................................................................................................................ 19
Appendix ............................................................................................................................................... 20
Figure 1 Rise of Polish population in UK ........................................................................................ 20
Figure 2 Employment uncertainty ................................................................................................. 20
Figure 3 Unemployment claimant count, January 2008, January 2010, January 2012 ................. 21
Figure 4 Population age within UK ................................................................................................. 21
Figure 5 Net migration UK annual population change: 1991-2010 ............................................ 22
Figure 6 Returning Polish ............................................................................................................... 22
Figure 7 Inflow and Outflow of Indian and Polish immigrants in the UK ....................................... 23
Topic 5: Industrial Policy ....................................................................................................................... 24
Bibliography ...................................................................................................................................... 28
Topic 8: Evidence Based Policy ............................................................................................................. 30
Bibliography .......................................................................................................................................... 35
Appendix ............................................................................................................................................... 37
Figure 1 Qualitative and Quantitative Methodology ..................................................................... 37
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Topic 2: Chinas EconomyDiscuss the problems that China faces in rebalancing its economy in the
aftermath of the economic crisis? Assess the view that Chinas economy will
overtake that of the US?
The United States (US) has been the global super power since the end of World War II in
1945, thus the credibility of the recent forecast of Chinas apparent catalyst for a shift of this
centre of global capitalism is paramount to understanding the future of the world economy.
During the prospects of heightened international trade since 1950s, China experienced
annual Gross Domestic Product (GDP) growth averaging 10% for three decades, allowing
the country to become the worlds second largest economy (Riley, C. 2012). This prosperity
was fuelled by the economys role as a powerhouse exporterlargely due to its renowned
status as the sweatshop of the world(Zhang, L. 2012), leading the way for mass production.
Since the Global Financial Crisis of 2008, in Q3 2012, their annual GDP growth slowed to
7.4% (BBC News, 2012a). Despite, in comparison to the rest of the world, China
encountered a soft-landing (Lynch, R. 2012) (figure 1), brought about by a prior rise of
foreign direct investment (FDI), and continued export growth from the stagnating core
capitalist economies, experiencing the biggest recession since the 1930s.
Nevertheless, figure 2 illustrates how this crisis and other recent shocks including the
Eurozone crisis were detrimental to world trade, thus impacting Chinaas exports are their
major component supporting rapid growth. Chinas exports constitute 39.7% of its GDP, and
its largest markets are the European Union, the United States (US), Hong Kong, Japan and
South Korea (Trading Economics, 2012). Figure 3 demonstrates this impact, with rapid
growth prior to Q4 2008, leading to a sharp fall during the beginning of the economic crisis,
and then gaining slow but fluctuating growth thereafter.
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Chinas growth models over-dependency particularly on western exports, allowpolitical
economists including Ho-Fung (2009)to term the forecast highlighted in the introduction
myopic, questioning its sustainability. He highlights the dilemma of a reduction in export
demand leaving China, who owns US debt totalling 8% of US GDP (Knight, 2012), to decide
between ditching American assets triggering a dollar collapse, or buying more, preventing
an immediate crash but increasing their exposure to one in future. China remains the largest
creditor to the US due to their low-cost manufacturing, creating an existence of co-
dependency. This leverage is a sign of vulnerability, admitted by the US Republican party,
however as relieved by the Pentagon (2012), the effect of the threat is limited and identifies
the negative consequences to China as well as global trade (Capaccio, T. & Kruger, D.
2012a). Wilson, G (2012) acknowledges the US debt is largely shared amongst other
countries, defusing the security threat (figure 4).
The 8% debt ownership comparably amounts to 20% of the Chinese economy (Asia Society,
2012), and accounts to two-thirds of Chinas entire foreign exchange reserve, holding a
management risk for China in the event of any dollar depreciation (Casarini, N. 2012). In
recognition of this, seeking diversification, amid assisting the European crisis, China has
been strategising to reduce its US securities (Capaccio, T. & Kruger, D. 2012b), although
remains at $295bn compared to $83bn a decade ago (Business Today, 2012). This
approach is positive, tackling its peril tie with the debt-fuelled growth of the US, whose
Standard & Poors rating has recently been downgraded (Casarini, N. 2012).
To tackle this interdependency, China should ease availability of lending to SMEs,
encouraging private enterprises over state-owned enterprises, leading to personal wealth,
innovation, and boosted employment. In addition to the 2008 stimulus package estimating
$586bn from the Peoples Bank of China (PBOC), over the past two years Chinas minimum
wages have incrementally raised 22% nationwide, with Shenzhens hourly rate reduced from
twelve to four times less than in the US (Tsui, E. 2012). This is the government; keen to
boost domestic consumption and to narrow a widening poverty gap (Tsui, E. 2012), building
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on their comparably low gross domestic product (GDP) per capita, confronting increasing
political unrest, as expressed in the riots of Foxconns factory (Moore, 2012). However, only
20% of the stimulus was used in social spending, widening class polarisation, and the lack of
welfare maintains difficulty in translating high personal savings into consumption. Growth
has largely been due to the significantly higher investment to gross national product (GNP)
ratio, enabled by the savings of the low-paid workers, which are recycled by state-run banks
providing loans. In 2012, the PBOC launched a further $150bn infrastructure injection
(Evans-Pritchard, A. 2012), released by the newly liberalised bank loan policies. Yet, lagging
consumer spending and overzealous government investment may lead to serious
imbalances (Jacobs, A. 2012). In 2010, Chinas trade union complained that wages as a
proportion of national income has fallen for 22 years (Hardy & Budd, 2012).
The wage increase creates a hike in overall production costs, leaving the country to lose its
competitive edge and as the tempo of competitive accumulation worldwide increases, future
FDI is lead to its neighbouring countries including Vietnam, and Thailand. A BBC article
reports a 15% rise of FDI from China to Bangladesh, an attempt to keep low cost labour
supply (Anbarasan, E. 2012). Regardless, analysis (Accenture, 2012) suggeststhe wage
increase will have minimal impact on margins for export goods, as hourly wage rates remain
lower than in developed countries. China can offset this impact by improving their
productivity, efficiency and supply chain processes. China continues to hold a competitive
advantage over its neighbouring countries due to its political stability and developed
infrastructure. Multinational companies (MNC) may tend to locate more production facilities
in the interior and western regions where wages are lower; another positive for developing
Chinas uneven economy.
Contemporary economics see a trending rise of emerging multinational markets with a PcW
(2010) projection estimating China and India to account for 42% of the total over the next 15
years (figure 5) focusing operations in the business services and high value manufacturing
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sectors (figure 6). The analysis showed China produced the most new MNC between 2005
and 2009, due to trade openness and country size; signalling appreciation of the countrys
currency, and the trend is intensified by the competitive accumulation of the uncoordinated
nature of what Huang describes as one country, thirty two economies (Hardy & Budd,
2012). However, it isn't necessarily the largest economic power that always is going to be
the superpower (BBC, 2012b).
Importantly, CEO of leading automotive manufacturer Chang-An believes it is impossible for
wages to match their counterparts in Detroit, and as scrutinised by Anderson, Chinas growth
model is not a new one, as tremendous growth is coupled with tremendous imbalances; the
scale of which determines the difficulty of the adjustment period (Business Today, 2012). He
continues by investigating what he terms the new industrial revolution, where collabo rative
computer driven design, allied with 3D printing will revolutionise medium-scale
manufacturing, challenging companies such as Ikea.
To sustain its lead, China must develop its domestic strength through re-balancing
investment to consumption, transferring offshored R&D and design learning, to
accommodate and train its own people and further building on its citizens welfare and trade
relationships with neighbouring Asian economies. Externally, China is right to diversify its
treasury holdings, whilst moving away from the collapsing US-debt. Finally, industrial policy
could steer its manufacturing towards its demand for and comparative advantage of high-
value production particularly within IT and Communications.
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Appendix
Figure 1 Soft-landing
Source: World Bank
World Bank (2012) GDP growth (annual %). [Online] Available at:
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display=graph.
[Accessed: 12 November, 2012]
Figure 2 World import/ export slows
Source: World Trade Organisation
WTO. (2012) Trade growth to slow in 2012 after strong deceleration in 2011. [Online]
Available at:http://www.wto.org/english/news_e/pres12_e/pr658_e.htm. [Accessed: 26
November, 2012]
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display=graphhttp://www.wto.org/english/news_e/pres12_e/pr658_e.htmhttp://www.wto.org/english/news_e/pres12_e/pr658_e.htmhttp://www.wto.org/english/news_e/pres12_e/pr658_e.htmhttp://www.wto.org/english/news_e/pres12_e/pr658_e.htmhttp://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display=graph -
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Figure 3 China Exports
Source: Trading Economics
Trading Economics (2012) China Exports. Available at:
http://www.tradingeconomics.com/china/exports. [Accessed: 26 November, 2012]
Figure 4 US Debt clock
Source: Dave Manual
Manual, D. (2012) U.S. National Debt Clock December 2012. [Online] Available at:
http://www.davemanuel.com/us-national-debt-clock.php. [Accessed: 01 December, 2012]
http://www.tradingeconomics.com/china/exportshttp://www.tradingeconomics.com/china/exportshttp://www.davemanuel.com/us-national-debt-clock.phphttp://www.davemanuel.com/us-national-debt-clock.phphttp://www.davemanuel.com/us-national-debt-clock.phphttp://www.tradingeconomics.com/china/exports -
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Figure 5 Current Share of New Multinationals
Source: PwC (2010) Emerging Multinationals, The rise of new multinational companies
from emerging economies. [Online] Available at:
http://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdf.
[Accessed: 01 December, 2012]
http://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdfhttp://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdfhttp://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdf -
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Figure 6 Sectorial Breakdown of New Chinese Multinationals
Source: PwC (2010) Emerging Multinationals, The rise of new multinational companies
from emerging economies. [Online] Available at:
http://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdf.
[Accessed: 01 December, 2012]
http://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdfhttp://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdfhttp://www.pwc.co.uk/en_UK/uk/assets/pdf/emerging-multinationals-27-april-10.pdf -
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Topic 4: MigrationTo what extent would you agree that the problems caused by migration to the
UK from the New Member States of Europe after 2004 outweigh the benefits?
How far can the cross border mobility of health workers be understood as a
movement from low to high wage economies? What are the main barriers to
mobility?
The accessions enlarging the European Union (EU) to include the former communist
countries of Central and Eastern Europe (CEE) has sparked polarised debate regarding its
widespread impacts and benefits, across multiple channels, between both sender and
receiver countries.
The transition took place over two intervals; in May 2004 the A8 entered; and in January
2007 the remaining A2 entered; resulting with 10 countries gaining entry, known as the New
Member States (NMS), to the now EU27. The scale of migration was much higher than
expected, as some analysis suggests flows were going to be much smaller (Dustmann et al.
2003a, Zaiceva, A. 2004). Projections lacked historical data, resulting with the analysis from
emigration data of other countries, and associating it with the Southern enlargement in early
1990s which had no significant migration movements. The average annual Long-Term
International Migration inflow of EU citizens to the UK for 2004-2010 was 170,000, compared
to 67,000 during 1997-2003 (Dr Vargas-Silva, C. 2012). From the A8s, the largest group
were from Poland representing 66% of total migration (ONS, 2011); with over half a million in
the United Kingdom (UK) (figure 1).
The UK, Ireland, and Sweden immediately fully opened their labour markets to the NMS.
Fearing large migration flows, the majority of old member states imposed transitional rules;
largely regarding their access to employment and welfare. However, by 2006 Finland and
Iceland opened their labour markets (Perdersen, P, J. et al. 2008) and by 2008 other
-
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countries ended their restrictions to varying degrees (Hardy, J. 2012). Thus the introduction
of such transition periods represent coordination failure as those countries which planned to
immediately open their labour markets absorbed migration flows (Boeri, T. & Brcker, H.
2005).
Latest UK data (ONS, 2012) show a decreased migrant population, reaching its lowest inflow
since 2004, coupled with an increase in outflow, due to definite jobs abroad. This could be
observed as a response to the uncertainty of employment, due to the lagging indicator of
mass lay-offs, as firms try to cut back costs over the recession (figure 2). This also, to an
extent, deterred new entrants; as 2011 experienced 22% less emigrants for work-related
reasons (Rogers, S. 2012). Despite the depressed labour market, migration was still high;
the report stated a slightly lowered annual net migration at 215,000 compared to 252,000 in
2010. This was partially due to a 26% drop of migration for the purpose of studying in the
year up to September 2012, perhaps owing to the increase in tuition fees.
Despite this fall, figure 3 shows a claimant count increase focusing on the highly migrant
concentrated area of London. As admitted by the Daily Mail (2012), proportionately,
migrants are less likely to be claiming out-of-work benefits than people born in Britain.
Foreigners coming into the UK tend to be young and healthy (figure 4); the non-nationals
within the EU27 are a greater representation of adults aged between 20 and 47. In respect
of this, immigrants are less likely to make health claims. Overall, Britons are refusing to
agree for immigrants to receive taxpayer-funded support (Daily Mail, 2012). As reported in
the Independent (2009), most illegal immigrants work within the informal sectors of
construction, cleaning, catering, and hospitality services. They are also seen selling non-
taxable gifts such as flowers, and fruits, whilst still claiming benefits. The public appear to
generalise this activity upon the legal migrants, creating social conflicts.
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Lucchino, P. et al. (2012) highlights the link stressed by Ministers between immigration and
negative labour market impacts; Controlling immigration is critical or we will risk losing
another generation to dependency and hopelessness. This boldness supports restrictions
on immigration, and exacerbates the inaccurate interpretation of immigrants by the public; as
tabloid newspapers, such as The Suns (Schofield, K. 2012) Migrant a minute article,
repeatedly and indirectly emphasising the blame. The Guardian newspaper (Lowles, N.
2011) takes up an objective role; concluding a middle ground; occupying cultural
integrationists; and identity ambivalents; totalling 52% of the population. Recently,
demonstrations held banners saying No to being European slaves, yes to being British ,
representative of the preference for well qualified and educated immigrant workers or
students (BBC, 2012). In response to public demand, David Cameron blamed language
barriers causing disjointed integration (Guardian, 2011), and the Telegraph (Beckford, M.
2012) reported the Governments plan to cut net migration to the tens of thousands by
2015 (figure 5). This is known as social exclusion (Eurostat 2011) and it has led to a multi-
culturally diverse UK, creating social divisions and conflict due to religious, ethnic or cultural
otherness (GSDRC 2012). Policy whether direct or indirect against migrant and immigrant
populations becomes cyclical, with structural exclusion driving low educational attainment,
low employment, and vulnerability to crime and consequent community tensions, posing a
threat to stability (Kothari, U. 2012).
In defence, migrant workers voice that English people are not prepared to take hard work in
local factories (BBC, 2012). Furthermore, a study (LSC, 2006) found employers had
positively balanced views towards migrant workers, perceiving them to have a stronger and
more positive work attitude and ethic than UK-born workers. Also, the Polish are mobile and
active agents for utility of social and economic determinants (figure 6). Research (Anacka,
M. et al. 2012) show Poland experiencing cyclical flows of returning migrants (figure 7),
constituting an inflow of economically active people possessing Western-influenced, high-
quality human capital; important for a country undergoing post-communist transition.
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The concern of the reserve labour force is coherent; 55% of the record population rise of is
due to high immigration, placing England as the most crowded country in Europe (Doughty,
S. 2012). This has placed spatial pressure upon schools and housing, including social
housing. As health in the country improves, 33 times more people are reaching 90 years of
age than a century ago. The statistics suggest an ageing population, placing pressure upon
health workers, and a rising demand for them, particularly in coastal regions where people
aged over 65 are highly concentrated.
Due to austerity measures across the EU chiefly impacting the public sector, Packer, C. et
al. highlights the trend of health workers to emigrate from poorer countries with severe
shortages of health human resources (HHR) and higher burdens of disease, to richer
countries in search of a better life for their families. Their countries of origin tend to have
increasingly deteriorating economic, social and environmental conditions attributable to
liberalisation . Differential working conditions has led to an increase in the sectors mobility,
partially due to privatisation. Such factors serve as human capital flight, particularly in the
health sector. This is a problem for sender countries as they are unable to replace or attract
new workers. The UK and Germany are the most cited destinations, and there has been a
marked switch from non-EU to EU entrants. Evidence shows they move between countries
to take advantage of better conditions (Hardy, J. et al. 2012). As there is no uniform
acceptance of professional qualifications across the EU states, a common barrier is the lack
of recognition of their qualifications.
This essay concludes a positive outlook upon the EU Enlargement, as managed net
migration, and supervised productivity can lead to better distributed economic welfare,
featuring health workers jumping between countries taking advantage of better conditions,
provided the impact upon sender countries are monitored.
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http://www.globalhealthequity.ca/electronic%20library/Globalization%20and%20the%20Cross-Border%20Flow%20of%20Health%20Workers.pdfhttp://www.globalhealthequity.ca/electronic%20library/Globalization%20and%20the%20Cross-Border%20Flow%20of%20Health%20Workers.pdfhttp://www.globalhealthequity.ca/electronic%20library/Globalization%20and%20the%20Cross-Border%20Flow%20of%20Health%20Workers.pdfhttps://pure.au.dk/portal/files/3859/wp_08-29https://pure.au.dk/portal/files/3859/wp_08-29http://www.thesun.co.uk/sol/homepage/news/3425461/Four-million-migrants-allowed-to-settle-in-Britain-under-Labour.htmlhttp://www.thesun.co.uk/sol/homepage/news/3425461/Four-million-migrants-allowed-to-settle-in-Britain-under-Labour.htmlhttp://www.thesun.co.uk/sol/homepage/news/3425461/Four-million-migrants-allowed-to-settle-in-Britain-under-Labour.htmlhttp://www.guardian.co.uk/politics/2011/apr/14/david-cameron-immigrants-learn-englishhttp://www.guardian.co.uk/politics/2011/apr/14/david-cameron-immigrants-learn-englishhttp://www.guardian.co.uk/politics/2011/apr/14/david-cameron-immigrants-learn-englishhttp://www.guardian.co.uk/politics/2011/apr/14/david-cameron-immigrants-learn-englishhttp://ssrn.com/abstract=546044http://ssrn.com/abstract=546044http://ssrn.com/abstract=546044http://legacy.london.gov.uk/mayor/economic_unit/docs/irregular-migrants-report.pdfhttp://legacy.london.gov.uk/mayor/economic_unit/docs/irregular-migrants-report.pdfhttp://www.aeaweb.org/aer/top20/60.1.126-142.pdfhttp://www.aeaweb.org/aer/top20/60.1.126-142.pdfhttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-12-040/EN/KS-SF-12-040-EN.PDFhttp://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-12-040/EN/KS-SF-12-040-EN.PDFhttp://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-12-040/EN/KS-SF-12-040-EN.PDFhttp://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-12-040/EN/KS-SF-12-040-EN.PDFhttp://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-12-040/EN/KS-SF-12-040-EN.PDFhttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://www.aeaweb.org/aer/top20/60.1.126-142.pdfhttp://legacy.london.gov.uk/mayor/economic_unit/docs/irregular-migrants-report.pdfhttp://ssrn.com/abstract=546044http://www.guardian.co.uk/politics/2011/apr/14/david-cameron-immigrants-learn-englishhttp://www.guardian.co.uk/politics/2011/apr/14/david-cameron-immigrants-learn-englishhttp://www.thesun.co.uk/sol/homepage/news/3425461/Four-million-migrants-allowed-to-settle-in-Britain-under-Labour.htmlhttp://www.thesun.co.uk/sol/homepage/news/3425461/Four-million-migrants-allowed-to-settle-in-Britain-under-Labour.htmlhttps://pure.au.dk/portal/files/3859/wp_08-29http://www.globalhealthequity.ca/electronic%20library/Globalization%20and%20the%20Cross-Border%20Flow%20of%20Health%20Workers.pdfhttp://www.globalhealthequity.ca/electronic%20library/Globalization%20and%20the%20Cross-Border%20Flow%20of%20Health%20Workers.pdf -
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Appendix
Figure 1 Rise of Polish population in UK
Source: ONS
ONS (2011) Polish People in the UK Half a million Polish Residents. 25 August. [Online]
Available at:http://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-
report/august-2011/polish-people-in-the-uk.html. [Accessed: 07 December, 2012]
Figure 2 Employment uncertainty
Unemployment figures are based on a survey carried out by the Office for National Statistics.
They show the average number of people unemployed over a three-month period
Source: BBC News.
BBC News.(2012) Economy tracker: Unemployment. 14 November. [Online] Available at:
http://www.bbc.co.uk/news/10604117. [Accessed: 07 December, 2012]
http://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/august-2011/polish-people-in-the-uk.htmlhttp://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/august-2011/polish-people-in-the-uk.htmlhttp://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/august-2011/polish-people-in-the-uk.htmlhttp://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/august-2011/polish-people-in-the-uk.htmlhttp://www.bbc.co.uk/news/10604117http://www.bbc.co.uk/news/10604117http://www.bbc.co.uk/news/10604117http://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/august-2011/polish-people-in-the-uk.htmlhttp://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/august-2011/polish-people-in-the-uk.html -
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Figure 3 Unemployment claimant count, January 2008, January 2010, January
2012
The ONS also publishes the claimant count whichshows the number of people receiving Jobseeker'sAllowance (JSA) in a particular month. That figure
comes from information supplied by the Departmentfor Work and Pensions
Source: BBC News.
BB News. (2012) Economy tracker: Unemployment.
14 November. [Online] Available at:
http://www.bbc.co.uk/news/10604117. [Accessed: 07December, 2012]
Figure 4 Population age within UK
Source: Eurostat
Eurostat (2011). Migration and migrant population statistics. European Commission. [Online]
Available at:http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_pop
ulation_statistics. [Accessed: 07 December, 2012]
http://www.bbc.co.uk/news/10604117http://www.bbc.co.uk/news/10604117http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statisticshttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statisticshttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statisticshttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statisticshttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statisticshttp://www.bbc.co.uk/news/10604117 -
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Figure 5 Net migration UK annual population change: 1991-2010
Figure 6 Returning Polish
Source: Authors elaboration based on the LFS.
Anacka, M. and Fihel, A., (2012) Selectivity of the recent return migration to Poland. Centre
of Migration Research. University of Warsaw. [Online] Available at:http://epc2012.princeton.edu/papers/120722. [Accessed: 08 December, 2012]
http://epc2012.princeton.edu/papers/120722http://epc2012.princeton.edu/papers/120722http://epc2012.princeton.edu/papers/120722 -
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Figure 7 Inflow and Outflow of Indian and Polish immigrants in the UK
Source: International Passenger Survey.
Rogers, S. (2012) Immigration to the UK: the key facts Migration is at record levels - and
new asylum figures show a rise in applications from Libya and Syria. So, what are the facts?
The Guardian. [Online] Available at:
http://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statistics.
[Accessed: 07 December, 2012]
http://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statisticshttp://www.guardian.co.uk/news/datablog/2010/jun/26/non-eu-immigration-uk-statistics -
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Topic 5: Industrial PolicyEvaluate the arguments for and against a national industrial policy. Does the
potential for supporting new industries and new employment outweigh the risk
of deadweight or the displacement of private investment?
Due to the economic turmoil, the economic structure of the United Kingdom (UK) has been
scrutinised, calling for a review for the return of industrial policy. However, British attitudes
may hinder the process commonly advantageously encompassed within other leading
countries tactic.
Industrial policy is described as a governments strategic process to enhance selected
industries and firms, by intervening in resource allocation (Ito. et al. 1991) such as subsidies,
to either grow winners or save losers (Economist, 2010). The European Commission
(EUC) has adopted industrial policy as a flagship initiative to be integrated into the Europe
2020 strategy (EUC, 2012).
However, the British policy establishment has rejected industrial policy for the last three
decades on three grounds; Britain has entered the era of post-industrial knowledge economy
where industry is not important anymore; secondly, if required, industry should only be
promoted through the efficient mechanism of the market to decide what should succeed and
fail; and finally, it goes against the countrys cultural grain (Chang, H. 2012). In contrast,
there are three main arguments for industrial policy, the presence of; knowledge spill overs
and dynamic economies; coordination failures; and informational externalities (Pack, H. &
Saggi, K. 2001). Each argument will be discussed in chronological order.
Firstly, as the government expands a selected industry, knowledge spill overs and dynamic
economies are achieved from for example the effect of improved manufacturing processes
-
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of lateral products, as research and development (R&D) progresses. Another perspective of
this argument is the infant industry theory, whereby young industries require nurturing, and
will eventually grow to be strong and independent (Mercatus, 2012). This combined
approach was successfully adopted by Japan during their devastating post-war period;
ordering resources to its critical industries and restricted international trade (Okuno-Fujiwara,
M. 1991). Industries eventually revived and their continued varying level of protectionism
formed the foundation of Japans renowned nexus of private corporations. It is suggested
that this strategy is particularly strong for latecomers (Ohno, K. 2001), as can be portrayed
upon the UK.
The UK economy is dominated by the tertiary sector, leading in financial and technological
services and scientific research. However, its lack of domestic industrial diversity and over-
dependence upon the capitalist credit system and tourist demand is evident in the crisis of
2008. This is exacerbated by the uneven distribution of; economic wealth towards Southern
UK; the labour force where 80.4% is within services constituting 77.1% of the nations Gross
Domestic Product (GDP); and thus a general lack of interest among the younger generation
aspiring towards primary and secondary sectors (Economy Watch, 2010). However, the
production of automotive and aerospace equipment successfully contributes to UK
industries, by worldwide leading firms such as BAE Systems and Rolls-Royce. As its
comparative advantage, the UK could enhance its agricultural sector by knowledge spill
overs of its engineering competencies by supporting relevant innovative infancies, and the
engineering students which are in stark anticipated growing demand (Gibney, E. 2012).
Secondly, advocates of industrial policy argue that it corrects coordination failure, evident in
economic downturns. Howitt, P (2005), writes that depression is a state of coordination
failure; in which market forces have failed to coordinate the millions of transactors that
interact. This link undermines Smiths invisible hand (Smith, A. 1982), rejecting the second
argument against industrial policy. A statement from the Adam Smith Institutes blog (2012)
subjects his theory to genuinely open competition and no coercion, however for example,
-
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Reuters (Miles, T. 2012) reports a rise of stealth protectionism since the 2008 crisis, where
discriminative policies favoured domestic firms. This is an example of monopoly privileges
that stealth around even those with authority, and as cited by Schlefer (2012), even Smith
identifies these situations as where natural liberty does not work.
Smiths theory assumes everyone will make rational acts for self-interest, balanced with
universal sympathetic ethics, within a market with perfect conditions; a view today
considered rare. Supported by Schlefer (2012), his blog reiterates; they aggregate corn,
iPods, and haircuts into one uniform quantity of stuff that they call commodities and label
Y. And they lump all diverse individuals into one representative agent. Howitt, P. (2005)
raises concern for the focus of price-adjusting which is eventually destabilising, and calls for
an understanding of non-price variables such as rationale-expectations, self-fulfilling
prophecies, asymmetric-information, conflicting-agencies, as the economy steers towards a
decentralised free-market structure. He cites J. B. Say, who identifies the visible agents of
coordination as shops who by seeking profit they serve their individual markets and
combined guide the whole system to a coordinated state. Therefore, it appears due to what
some interpret as animal spirits, the market requires actual coordination in the actual
economy to account for these diversities.
Thirdly, informational externalities is defined as the process of individuals such as producers
or entrepreneurs, who wait for other individuals to take the first attempt at a new industry or
entrepreneurial idea, as they will bear the largest risk of potential failure. Those free-riders
waiting for the risk-taker, are advantaged by information discovered. Therefore, industrial
policy or other incentives such as subsidies can encourage and award risk-takers which
benefit the economy. However, this could create deadweight loss or displacement of
investment, as the finance could have been spent on something risk-free. Although
Singapore is a clear example of successful investment benefits outweighing risky-investment
losses; as they subsidise failed entrepreneurs since they speculate them to occur.
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Historically, countries including Singapore, who have a nexus between politics and business,
have the most effective industrial policies. The family chaebol in South Korea (Dong-A
University, 2010), and the keiretsu in Japan, are formed intricate structures of companies,
dominating their markets. This, combined with their common use of own subsidiaries, allows
better coordination of investment and thus market forces. However, as some accuse
industrial policy for rent-seeking, it appears proudly present with the structural vehicles of
chaebols and keiretsu (Cutts, R. 1992, Yoon, S. 2012). However, Britain does not hold a like
structure; the government, banks and firms work relatively independently of each other, and
firms tend to subcontract, thus conflicts may arise.
Adaptive industrial policy has proven successful for the Four Asian Tigers (Hill, J. 2012); the
approach of the East aims to absorb domestic consumption with domestic production, and
simultaneously seeking Western knowledge. Chang-Un, leading automotive manufacturer in
China, exhibits this view with its joint venture with Americas Ford Motor Company. Design is
made in Detroit, R&D of engines in Birmingham, the style of design in Italy, and the
manufacturing in China; pulling the best from around the world and then putting them all
together (Business Today, 2012). Chang-Un recognises this as a process of learning
benefited from gaining insights to advanced management, technology and design from the
worlds best.
As highlighted above in Chinas case, it would be inaccurate to underpin the success of Asia
to model industrial policy for differing countries like Britain, as the nature of both retailing and
production networks has changed (Pack, H. & Saggi, K. 2006). Hence industrial policy
should be thought of as a discovery processone where firms and the government learn
about underlying costs and opportunities and engage in strategic coordination (Rodrik, D.
2004). Overall, there is a clear need for industrial policy with regards to recessions, and also
as a learning process to adapt Britain to the changing economic climate.
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http://www.reuters.com/article/2012/10/22/us-trade-protectionism-idUSBRE89L1JQ20121022http://www.reuters.com/article/2012/10/22/us-trade-protectionism-idUSBRE89L1JQ20121022http://www.reuters.com/article/2012/10/22/us-trade-protectionism-idUSBRE89L1JQ20121022http://www.reuters.com/article/2012/10/22/us-trade-protectionism-idUSBRE89L1JQ20121022http://www.grips.ac.jp/vietnam/KOarchives/doc/EP03_VNinfant.pdfhttp://www.grips.ac.jp/vietnam/KOarchives/doc/EP03_VNinfant.pdfhttp://www.nber.org/chapters/c8667http://www.nber.org/chapters/c8667http://www.ycsg.yale.edu/focus/gta/case_for_industrial.pdfhttp://www.ycsg.yale.edu/focus/gta/case_for_industrial.pdfhttp://blogs.hbr.org/cs/2012/04/there_is_no_invisible_hand.htmlhttp://blogs.hbr.org/cs/2012/04/there_is_no_invisible_hand.htmlhttp://www.amazon.co.uk/The-Wealth-Nations-Books-I-III/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1http://www.amazon.co.uk/The-Wealth-Nations-Books-I-III/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1http://www.amazon.co.uk/The-Wealth-Nations-Books-I-III/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1http://www.amazon.co.uk/The-Wealth-Nations-Books-I-III/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1http://www.amazon.co.uk/Inquiry-Nature-Causes-Nations-ebook/dp/B00847CE6O/ref=sr_1_4?ie=UTF8&qid=1355093048&sr=8-4http://www.amazon.co.uk/Inquiry-Nature-Causes-Nations-ebook/dp/B00847CE6O/ref=sr_1_4?ie=UTF8&qid=1355093048&sr=8-4http://www.amazon.co.uk/Inquiry-Nature-Causes-Nations-ebook/dp/B00847CE6O/ref=sr_1_4?ie=UTF8&qid=1355093048&sr=8-4http://www.hks.harvard.edu/fs/drodrik/Research%20papers/UNIDOSep.pdfhttp://www.hks.harvard.edu/fs/drodrik/Research%20papers/UNIDOSep.pdfhttp://www.hks.harvard.edu/fs/drodrik/Research%20papers/UNIDOSep.pdfhttp://www.amazon.co.uk/Inquiry-Nature-Causes-Nations-ebook/dp/B00847CE6O/ref=sr_1_4?ie=UTF8&qid=1355093048&sr=8-4http://www.amazon.co.uk/Inquiry-Nature-Causes-Nations-ebook/dp/B00847CE6O/ref=sr_1_4?ie=UTF8&qid=1355093048&sr=8-4http://www.amazon.co.uk/The-Wealth-Nations-Books-I-III/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1http://www.amazon.co.uk/The-Wealth-Nations-Books-I-III/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1http://blogs.hbr.org/cs/2012/04/there_is_no_invisible_hand.htmlhttp://www.ycsg.yale.edu/focus/gta/case_for_industrial.pdfhttp://www.nber.org/chapters/c8667http://www.grips.ac.jp/vietnam/KOarchives/doc/EP03_VNinfant.pdfhttp://www.reuters.com/article/2012/10/22/us-trade-protectionism-idUSBRE89L1JQ20121022http://www.reuters.com/article/2012/10/22/us-trade-protectionism-idUSBRE89L1JQ20121022 -
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Topic 8: Evidence Based Policy
Evaluate the role of evidence-based research in formulating good public
policy.
Evidence-based policy (EBP), piloted since the turn of the 20th century, steered by Welfare
policy in Britain. Research evidence has continued to shape policy ever since although it
has seldom been the dominant influence, outweighed by ideology, political ambition and
expediency (Bulmer, 1987, cited in Walker, R. 2009). A striking change government in the
last decade was the significant number of organisations seeking explicitly to advise or
influence government actions (Davies, H, et al. 2009), by use of EBP from a range of policy
communities, whether government departments, research organisations or think-tanks
(Sutcliffe, S. et al. 2005); raising a need for credibility and standards.
Economics was first termed the dismal science in 1888 (Harcourt, T. 2012), and as
described by Hill, J. (2012) have long envied the scientific rigour of the natural sciences.
Alfred Marshall (1890) defines it a study of mankind in the ordinary business of life; hence
its centrality of the relationship between humans and materials represents this difficulty.
Sutcliffe, S. et al. (2005) promotes EBP as a discourse or set of methods which informs the
policy process advocating a more rational, rigorous and systematic approach, and
therefore assists precision. This conscious retreat from political ideology began in 1997
when Labour government was elected with what matters is what works (Davies, H, et al.
2009), or as David Blunkett boldly linked Social science research evidence is central to
development and evaluation of policy (Young et al. 2002).
Walker, R. (2009) tells the landmarks of social policy research; the influential study by
Rowntree investigating the poverty of the people of York in 1899. Analysis provided stimuli to
the introduction of 1908 retirement pensions and 1911 unemployment benefits (Bruce, M.
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1968, cited in Walker, R. 2009). This represents societal benefits of emerged evidence-
based research forming policy; however, Rowntrees (1941) subsequent study determining a
measure of National Assistance benefit levels was disregarded by political imperatives,
questioning the influence of EBP despite sound empirical data.
Davies, H. et al. (2009) identifies that at the start of the 20th century, the public held a
general assumption that doctors, police officers, teachers and other professionals were
experts, whose judgement was trusted and unchallenged, though by the end of the century
this culture had been severely diluted as an increasingly educated, informed and questioning
public sought reassurance that its taxes were being well spent.
A key cause of this change is the realisation of the evermore apparent trend of selective
reporting influencing public opinion; exemplifying government power; as policy-makers are
influenced by research contesting against politically driven questions. Studies are
commissioned by government departments to support government positions, and often the
same researchers and research organisations appear in different guises, such as think-tanks
who are becoming increasingly influential (Walker, R. 2009), causing publication biases.
Oakley, A. (1999) notes the tendency within Cochrane reviews to prioritise the views of
professionals such as doctors, rather than patients, like mothers.
Fitz-Gibbon, C. (2009) looks at international comparisons for education policies, and finds
references to these results are often along the lines of we are falling behind our international
competitors, contesting whether negative comments are chosen by politicians with an eye
on voter approval ratings.
In the 1980s recession, authorities commonly used Invalidity Benefits as a repository for the
unemployed to stop growing headline figures. The UK relied on disability benefits, where
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from 1979-1997 people on sickness and disability benefits grew from 700,000 to 2.5million
(Meager, N. 2011).
Positively, in 2011 David Cameron confirmed acceptance to advisors from the Committee on
Climate Change (CCC), perhaps as arguments his principle economic departments offered
against the CCC was risible (Spencer, M. 2011). Although politicians review policy
outcomes, they do not tend to gather feedback from the public regarding policies. Friends of
the Earth examined 77 green policies and found little or no progress in more than three-
quarters of them rising public alarm. This exhibits how evidence can enforce and enlighten
public pressure for the right policies.
EBP, formed by past data, thus based on a static view, means on-going evaluations of
effectiveness of each EBP are required, particularly throughout research technique
advancements. This flaw in the EBP model was apparent when Townsend shattered
Rowntrees apparent eradication of poverty as his study of pensioners in 1957 found
incomes below the minimum, and others not receiving their entitlement. This stimulated an
official enquiry revealing it was because they viewed the entitlement as a charity (MoP,
1966, cited in Walker, R. 2009), and in 1966 Supplementary Benefits replaced the policy.
This consequential impact hints at the influence of qualitative research. As shown in figure 1,
research commissioned in the 1990s was eclectic in terms of methodology (Walker, R.
2009), signifying growing confidence in qualitative research for what lie beyond the scope of
survey-based methodology (Walker, 1985, Lessof and Squires, 1997, cited in Walker, R.
2009).
There are practical limitations to qualitative research, such as the Hawthorne effect; which
show how variables can be unwittingly confounded in an experiment because of some
aspect of the experiment itself (Parsons, M. 1974); proven in a companys internal
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experiment to improve worker efficiency. Also, the Ashenfelters Dip, is the empirical
regularity that the mean earnings of participants in employment and training programs
generally decline during the period just prior to participation (Smith, J. 1996); found in the
US Job Training Partnership Act. Thus people adjust their behaviour or circumstances to
facilitate performance or eligibility, therefore the research essentially fabricated, questioning
plausibility of the value infused EBP.
There are limitations of the practicality of EBP research for economics other sciences do not
appear to bestow. Young, K. et al (2002) identifies publishing is considerably more
fragmented; besides peer reviewed journals it also includes practitioner journal literature,
books, grey literature from a range of public, private and voluntary sector bodies and official
publications, continuing with the spectre that developing new media and the rapid growth of
internet-based sources blur the distinction between credible researches. He points out
access to social science literature is traditionally given low priority, and the proliferation of
databases, including small-scale specialist services and expensive commercial services
mean their quality is highly variable. A technical limitation is how fluid the terminology is,
causing a potential for merging concepts. Economics is still in the process of establishing
standards other scientific disciplines ensure.
David Gough et al. (2012) identify how people rely on researchers to keep abreast and
review growing literature, and making it available in a digestible form. As information is
gathered from multiple channels, and then synthesized it differs between individuals. Such
heterogeneous variables need to be applied to policy decision making as if overlooked can
over-generalise, or even become ecology fallacy.
Therefore, there requires a standardised systematic review of credible evidence; however
within the social sciences, theoretical controversy is generally welcomed as an indication of
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intellectual health. Gough, D. et al (2012) highlights; systematic reviewing is still a young and
rapidly developing field of study.
There is clear need for transparent EBP to accommodate the evidence-informed society
developing. Research as a