Country Studies / Free trade

Free trade

For a very long time Britain has been a trading nation — importing, exporting, investing abroad and receiving foreign investment. The Scottish philosopher, Adam Smith, argued in The Wealth of Nations (1776) that protectionism, putting up trade barriers between countries, was bad for everyone in the end. His ideas became the accepted orthodoxy, and during the following 100 years Britain got rid of its protective tariffs, and embraced free trade. The national economy is still mainly based on free markets.

One change in recent times is the list of Britain's trading partners. Joining the EU has meant a major move away from old markets and suppliers in the Commonwealth (members of Britain's ex-empire), and towards new markets closer at hand, though the USA is just as important as ever. Britain imports most goods from Germany and the USA (12-14 per cent each of the total), then France (10 per cent) and the Netherlands (7-8 per cent). The top four export destinations are the same countries in the same order. About half of Britain's visible trade is now with the EU.

There have been other changes in every sector of the British economy: in primary, secondary and tertiary industries.

Natural resources

Primary industries are those that exploit raw materials: agriculture, fishing, mining, oil extraction and so on. Agriculture is a small part of the economy, employing less than 2 per cent of the workforce, and producing less than 2 per cent of the Gross Domestic Product (GDP). The low level of employment in agriculture is explained by a high level of efficiency: British farms are big (though not by the standards of those in the USA or Australia) and highly mechanised. This efficiency has a downside. Parts of East Anglia have been turned into vast, featureless food-producing units, with an enormous reduction in wildlife populations.

Fishing has always been a natural activity for an island population. But this sector, too, employs only a fraction of the number of people it used to, due to increased mechanisation and bigger boats with smaller crews. However, there are other limiting factors which mean that the British fishing fleet only catches two-thirds of the fish eaten by the nation. Membership of the EU has obliged Britain to allow European partners to fish closer to British coasts and share the fish in nearby waters. Iceland has prevented foreign boats from fishing in its waters, which were important for the British. In addition to this, stocks have been depleted by pollution and over-fishing: there simply are not enough fish to meet the demand. Workers in the industry complain bitterly about quotas (official limits on the numbers which can be fished within a certain period), but if the industry is not carefully controlled, there will be no future for the workers and no fish left.

Cheap, available energy was a major contributor to the industrial revolution 200 years ago, and it is just as important today. Britain has more energy resources than any other EU country. Previously, that energy came from coal: at its peak in 1913, more than one million miners were employed in the coal industry.

Most of the mines have now been shut down: today about 18,000 miners are employed. However, since the 1970s huge quantities of gas and oil have been extracted from fields in the North Sea. The discovery of these fields was a stroke of luck for Britain, whose economy was, in other respects, doing rather poorly. Britain is now the world's sixth largest producer of oil, with an average output of over two million barrels per day, some of it exported. (Most of the oil comes from Scottish waters, and this has been a factor in Scotland's calls for independence.;)

Manufacturing and services

The term secondary refers to manufacturing and construction, and tertiary to service industries. It is in the balance between these two industries that one of the most striking changes has occurred in the British economy. At one time one of the world's greatest manufacturing centres, Britain has largely given up producing goods in favour of other kinds of economic activity. In 1983, the country imported more manufactured goods than it produced for the first time since the industrial revolution. As manufacturing declined, so the service industries expanded. Many people have been worried by this change: how can it be economically viable to stop building ships and open restaurants instead? But tourism, transport and telecommunications are all important growth areas: in 1997, 25.5 million overseas visitors came to Britain.

Financial services such as accountancy, insurance and banking are very big business too. Britain is now the world's second largest service exporter at 6 per cent of the total - ahead of both France and Germany, and just behind the USA. The contribution of service industries and their invisible exports means that the balance of trade (between imports and exports) is just about even, and the country is not heading for economic disaster — at least not in the short term.

The loss of factory-based jobs has increased the old north-south divide - the disparity in wealth between the rich south of England and the less prosperous north of England and Scotland. The heart of the prosperous zone is London itself, and in the heart of London is the headquarters of the successful financial services sector - the City. This is a confusing term: the whole of London is a city, but the City, originally surrounded by Roman walls and spelt with a capital C, refers to the approximate square mile of offices and banks around the Bank of England. This financial centre has expanded east into the developing docklands area of Canary Wharf, where 25,000 people now work. The City became globally important when Lloyds Register of Shipping started in 1760. Today, the City is one of the world's biggest financial centres, and handles 59 per cent of international equity (share) trading. In 1999, Peter Levene the lord mayor of London, said:

"The number of people involved in the financial services industry in London is greater than the whole population of Frankfurt."

Another huge change took place in the 1980s, under Margaret Thatcher's Conservative government: the privatisation of certain state-owned companies Previous Labour governments had been keen to nationalise parts of the economy - in some cases (as with the car industry), simply to save them from disappearing. This sort of interventionism was anathema to Margaret Thatcher and her free market philosophy. So she sold off car makers such as Jaguar, the steel and shipbuilding industries, the defence specialists British Aerospace, and the .state-owned bus companies, including long-distance coach lines and local city buses. The Conservative Government also denationalised enterprises which were state owned in most countries (other than the USA): the telephones, railways and the national airlines, including British Airways. Finally, there was the unpopular sale of the public utilities: the gas, electricity and water suppliers became private companies, with their prices controlled by government regulators.