Understanding Business Environments

Michael Lucas

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134555901
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

What are the forces shaping today's business world? Understanding Business Environments provides key readings which introduce the student to the factors underlying the business environment. Including chapters by gurus such as Anthony Giddens, Stuart Hall and Will Hutton, the book covers:
* social forces including the social structure and long-term social change
* technological factors including Information Technology and new production technologies
* economic factors including the impact of macroeconomic policy and of the financial system
* political factors including the legal environment and government-business relations.

Section 1: The Economy

Introduction

The economy is arguably the dominant environment in terms of its influence on business behaviour. Businesses, particularly those in the private, profit-orientated sector, often pay more attention to the current state of the ‘economy’ and the direction of governments’ economic policies, than to any other external events. The fairly obvious reason for this is the strong influence changes in these factors can have on their financial resources. Predicting the impact of such changes has taxed economists for many decades and continues to do so. Academic economists work on producing complex and often mathematically-based models of the relationships between government policy, economic performance and business responses, particularly in the financial sector. Professional economists interpret and adapt these to generate future forecasts. In chapter 4, Wilks, while not offering a typical example of the work of ‘pure’ academic economists, which would be much more mathematical, does give us a flavour of their concerns in his appraisal of government policy between 1979 and 1997. Most crucially it focuses on one major tenet of policy which he regards as having contributed to the UK’s relative success in economic performance during that period – the deregulation of corporate decision-making. This has been a dominant theme – some would say the underlying orthodoxy – of much of the work of academic economists during the last three decades or more. Will Hutton in his roles as a leading economic journalist for the Guardian/Observer and popular writer, has been one of the most prominent critics of this orthodoxy. In chapter 5, his appraisal of the effects of deregulation of the financial sector, one of the major ‘policy successes’ of the period, is much more stark and pessimistic. Between them, Wilks and Hutton portray quite clearly the divide between liberal and social reformist perspectives on the economy.

Chapters 6 and 7, both by Coates, provide us with further insights into contemporary mainstream economics. Chapter 6 offers us an overview of the basic model of the economy, around which the vast majority of economic debate stems – the circular flow of income model. This is developed in diagrammatic form by Coates, who then goes on to describe the historical roots of UK economic policy making in the twentieth century. All of this provides some context to the earlier chapters by Wilks and Hutton respectively. Chapter 7, however, offers a very brief outline of a third approach to economic analysis, the marxist one. Here we see that not only are the fundamental values of marxist analysts different they also use different models of the economy, based on Marx’s own ideas.

A point we have not addressed up to now is the fact that we assumed the ‘economy’ to mean the domestic or more specifically the UK economy. There is an understandable, historically-based interest amongst many economists and observers of the economy with their own immediate region or country. Increasingly, however, businesses themselves operate in several economies simultaneously. Hence the interests of economists have also begun to focus on the phenomenon of globalisation. In chapter 8, Rastogi outlines what this means from the point of view of the financial sector, and given the strong influence of this sector on economic policy makers, the world economy as a whole. In chapter 9 Junne provides some evidence that the development of a single ‘global’ economy is by no means an inevitability and that national and regional economies are still evolving with the active participation of the governments who attempt to manage them.

4

Conservative Governments and the Economy, 1979–97†

Stephen Wilks*

Over the past eighteen years Conservative economic policy makers have taken the British economy on a remarkable roller coaster ride which has seen two deep recessions, a triumphant boom and a mature recovery. In the process they have created the electoral paradox of winning in a recession (1992 – and virtually 1983) and losing during a recovery (1997). The shape of macro-economic policy has been transformed by the ending of the British establishment’s love affair with Keynesianism¹ and by its flirtations with Europe, although there remains considerable institutional continuity. In contrast, in the realm of micro-economic policy, on the supply side of the economy, there have been a series of profound institutional changes. Privatization has eliminated the state-owned sector of industry; the labour market has been transformed by measures in industrial relations and education; and financial re-regulation has changed the face of the financial sector. Meanwhile supply side policy has gone through a cycle of disengagement, detachment and revival of interest in the idea of competitiveness.

This period of Conservative ascendancy has employed new ideas, new policies, and a new style of government to affirm an ancient doctrine: the doctrine of the market. It is hardly surprising that one of the main outcomes of eighteen years of a pro-capitalist government should be a reinforcement of capitalist property relations and the triumph of the master institution of contemporary capitalism – the business corporation. Labour is also now a party of the market. Clause IV has been rewritten, and terms such as co-operative capitalism and stakeholder capitalism have entered the New Labour discourse.² In the following discussion less attention is paid to macro-economic policy and the influence of the European Union. Important though these factors are, they have been generously discussed elsewhere. Instead more emphasis is given to the supply side, to institutions and to changes in the importance of business corporations.

The Policies, the Goals, and the Successes

The traditional goals of economic policy were fourfold: low inflation, high growth, low unemployment, and a trade balance. Since 1979 the single target of macro-economic policy has become the minimization – or elimination – of inflation. The other three goals have been regarded as residuals whose achievement is contingent on a favourable inflation outcome, although Major gave more emphasis to growth from 1993. The emphasis on inflation was central to the New Right, it was the key to the 1979 election victory and its pursuit shifted the balance of economic power away from labour (favoured by Keynesian full employment policies) towards the financial markets. Indeed, the control of inflation gives pre-eminence to abstract market forces and perpetuates the Keynesian tendency for economic policy makers to ignore specifics of industrial performance. Inflation came under fragile control but that in itself is an empty achievement. More important is whether indicators of real efficiency and wealth responded positively and here we can look to measures of GDP, productivity and purchasing power, all in comparative context.

On GDP measures the UK performance from 1979 to 1996 is respectable. Since 1979 we have seen two recessions of great severity and two recoveries. The 1979–83 recession was simply catastrophic as illustrated in Table 4.1. It saw the biggest slump in output and rise in unemployment since the 1930s. It was exacerbated by a series of doctrinaire policy stances and restrictive budgets, causing Peter Riddell to remark that ‘the Thatcher administration’s record in its first term was worse than that of any previous post-war government in Britain’.³ Yet five years later, in his 1988 budget speech, Nigel Lawson asserted that the ‘country is now experiencing an economic miracle comparable to that enjoyed by West Germany and still enjoyed by Japan’.⁴ Although such claims generated magisterial rebukes,⁵ for a short euphoric period the Lawson boom generated serious academic discussion of a breakthrough in British economic performance.⁶ Then came the 1990–94 recession with its bankruptcies and property slump, the misery of long term unemployment and the sense of betrayal across the small business sector. As Mrs Thatcher was ejected from office in November 1990 she was accompanied by an aura of economic failure. But by 1995 the triumphalist voices were again being raised. More cautiously, and with less impact, Britain’s performance in the mid-1990s was once again beginning to outstrip her European competitors, and particularly Germany. Growth in British GDP passed that of the united Germany in 1992 and is forecast to maintain that lead up to the end of the decade. Table 4.1 indicates that the UK growth rate for the 19 year period 1979–97 is reasonable, compared to the rest of the G7, and for the four most recent years is actually the best. Even on standardized, un-massaged, statistics British unemployment is on a par with Germany and has been better than France since 1988. This can be translated into standards by looking at GDP per head at purchasing power parities. In 1994 the UK’s output per head was the 16th highest in the OECD but no EU country exceeded the UK figures by more than 15 per cent,⁷ our European competitors are ‘within reach’ and the frustration of Conservative ministers in search of the‘feelgood factor’ as they entered the 1997 election was palpable.

Table 4.1 Average annual growth rates of GDP: G7 countries, 1979–97

Source: derived from OECD Economic Outlook: Annex Table 1, Real GDP, includes projections for 1997 at December 1996.

Very little of this periodic economic success appears to have been due to the operation of macro-economic policy. In the ludicrous monetarist experiments of the early 1980s, the arrogant boom of the late 1980s, and the grotesque rout from the ERM on Black Wednesday, 16 September 1992, British macroeconomic policy has deepened slumps, stoked up booms, and produced inept policy. Panic remarks that ‘the extraordinary tale of UK monetary policy from 1979 to 1992 is likely to be recounted in economic textbooks . . . as a classic example of how not to pursue such a policy’.⁸ Since 1992 macro-economic policy has been emptied of content. No targets, except the control of inflation; and no dominant theory of how the economy works; instead a rather welcome pragmatism that has aided British industry through a mild reflation and devaluation. In retrospect Black Wednesday appears rosy and the debate on EMU has taken centre stage.

In his spectacular assault on the Treasury, Sidney Pollard accused the economic policy establishment of a contempt for production manifested in a concentration on symbolic values (like prices and the balance of payments) to the exclusion of ‘real’ quantities (like goods and patents).⁹ This tendency was accentuated by the Conservatives’ obsession with sound money and by the discrediting and dismantling of the industrial policy machinery. In many respects, however, the great disjuncture in economic policy post-1979 is in micro-economic policy.

In the early days of the Conservative neo-liberal counter-revolution Sir Keith Joseph (as Secretary of State for Industry) engendered much amusement in his hand-wringing approval of vast tranches of aid for coal, steel and cars; in his patent unhappiness at the mere existence of the Department of Industry (merged into the DTI in 1983); and in his reading list which he solemnly circulated to senior officials.¹⁰ But Sir Keith’s preoccupations were neither transient nor unattainable and the second term of office allowed the Conservatives to impose a new supply side orthodoxy on the British economy which was as radical, and as ideologically deep-seated, as anything on the macro-economic side. Much of the Conservative supply side policy was constructed in opposition to the collectivist consensus that had dominated post-war politics. The New Right ideologues who captured the Party rejected an interventionist role for the state – so they rejected indicative planning, public ownership, incomes policy, controls, especially exchange controls, and sectoral intervention. In a slightly more puzzling vein, which owed more to Mrs Thatcher personally, they also rejected dialogue with industry, which was felt to be an expression of British-style corporatism. Now it is very doubtful that Britain was ever systematically ‘corporatist’ even at the high point of tripartism, and to refuse to talk to industrialists and the CBI leadership, as Mrs Thatcher did much of during the 1980s, was perverse and caused Hannah to label her (approvingly) as a ‘capital basher’.¹¹

The detailed implementation of the supply side policies was spasmodic, experimental, and dispersed among several government departments. This makes it difficult to regard them as coherent, or programmatic and, as many have observed, there was no Thatcherite blueprint for the reconstruction of the industrial economy. Implementation was, however, determined and consistent at least in the underlying ideas of individualism, self-interest, and market amorality, which contrasted starkly with the collectivist, public interest and consensus orientation of the preceeding decades. As Gamble emphasizes, the policies also rested on a commitment to the strong state which was necessary to create or impose market relations. But these principles were tempered by political calculation. The term ‘statecraft’ has been coined to describe the mix of political populism, opportunism, and astute manipulation of the machinery of policy making which allowed Mrs Thatcher to push through her policies in the face of official scepticism and the lack of a popular mandate.¹² The true measure of her success is seen in the policy platform of New Labour which has accepted the desirability of many of the supply side measures. To this extent the Conservative supply side policies constitute an hegemonic project. They have created a new conventional wisdom, a cultural transformation which could also be characterized as an institutional transformation. But what are these new policies? How new are they and how successful have they been?

The two most important have been privatization and labour market policy; also significant are policy towards small bu...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of figures and diagrams
• List of tables
• Acknowledgements
• Introduction: The Concept of the Business Environment
• Section 1: The Economy
• Section 2: Society
• Section 3: The State
• Section 4: The System? Technology, Ecology and Globalisation
• Index