Contemporary Issues in Economics

Final Portfolio Deadline: 13th December 2012 Word count limit: 1100 x 4 +/- 10% = 1210 Chinas Economy (1205) Migration (1209) Industrial Policy (1209) Evidence-Based Policy (1202)

1. 2. 3. 4.

Contents
Topic 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

Topic 2: Chinas Economy

Discuss 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 exporter largely 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 China as 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.

Chinas growth models over-dependency particularly on western exports, allow political 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 codependency. 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

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) suggests the 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

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 collaborative 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 highvalue production particularly within IT and Communications.

Bibliography
Accenture (2012) Wage Increases in China: Should Multinationals Rethink their Manufacuturing and Sourcing Strategies? [Online] Available at: http://www.accenture.com/us-en/Pages/insight-wages-increases-china.aspx. [Accessed: 01, December, 2012] Business Today (2012) iPhone reflects Chinas relationship with US. BBC Radio 4. 10 December, 2012. Available at: http://news.bbc.co.uk/today/hi/today/newsid_9776000/9776792.stm. [Accessed: 10 December, 2012] Anbarasan, E. (2012) Chinese factories turn to Bangladesh as labour costs rise. [Online] Available at: http://www.bbc.co.uk/news/business-19394405. [Accessed: 01 December, 2012] Asia Society (2012) Assessing the Impact of U.S. Debt to China. [Online] Available at: http://asiasociety.org/new-york/events/assessing-impact-us-debt-china-0. [Accessed: 01 December, 2012] BBC News (2012a) China's economy slows but data hints at rebound. Available at: http://www.bbc.co.uk/news/business-19975112. [Accessed 06 November, 2012]. BBC News (2012b) Asia 'to eclipse' US and Europe by 2030 - US report. 10 December. Available at: http://www.bbc.co.uk/news/world-us-canada-20671917. [Accessed: 11 December, 2012] Capaccio, T. & Kruger, D. (2012a) Chinas U.S. Debt Holdings Arent Threat, Pentagon Says. September 2011. Bloomberg. [Online] Available at: http://www.bloomberg.com/news/2012-09-11/china-s-u-s-debt-holdings-aren-t-threatpentagon-says.html. [Accessed: 01 December, 2012] Capaccio, T. & Kruger, D. (2012b) China Reduces Holdings of U.S. Treasuries to Lowest Level Since June 2010. Bloomberg. [Online] Available at: http://www.bloomberg.com/news/2012-02-15/china-trims-holdings-of-treasuries-tolowest-level-since-2010.html. [Accessed: 01 December, 2012] Casarini, N. (2012) Chinas Approach to US Debt and the Eurozone crisis. [Online] Available at: http://www2.lse.ac.uk/IDEAS/publications/reports/pdf/SR012/casarini.pdf. [Accessed: 01 December, 2012] Evans-Pritchard, A. (2012) China launches 94bn infrastructure stimulus package. 7 September. Telegraph. [Online] Available at: http://www.telegraph.co.uk/finance/chinabusiness/9529252/China-launches-94bn-infrastructure-stimulus-package.html. [Accessed: 01 December, 2012] Hardy & Budd (2012) China after the Crisis. Hertfordshire University. Ho-Fung, H (2009) Americas Head Servant? The PRCs Dilemma in the Global Crises. New Left Review 60: pp5-27. [Online] Available at: http://newleftreview.org/II/60/ho-funghung-america-s-head-servant. [Accessed: 03 December, 2012] Jacobs, A. (2012) China Politics Stall Overhaul for Economy. 26 September. New York Times. [Online] Available at: http://www.nytimes.com/2012/09/27/world/asia/chinas-

politics-hinder-effort-to-shore-up-economy.html?pagewanted=all. [Accessed: 03 December, 2012] Knight, L. (2012) Will China fall flat on its face just like Japan? [Online] Available at: http://www.bbc.co.uk/news/business-19948730. [Accessed 6 November, 2012] Lynch, R. (2012) Slowing growth suggests China soft landing. 19 October. The Independent. Available at: http://www.independent.co.uk/news/business/news/slowinggrowth-suggests-china-soft-landing-8217285.html. [Accessed: 26 November, 2012] Moore, M. (2012) 'Mass suicide' protest at Apple manufacturer Foxconn factory. 11 January. Telegraph. Available at: http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-atApple-manufacturer-Foxconn-factory.html. [Accessed: 14 November, 2012] 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] Riley, C. (2012) China's factories show growth. [Online] Available at: http://money.cnn.com/2012/10/31/news/economy/china-pmi-manufacturing/index.html. [Accessed: 26 November, 2012] Trading Economics (2012) China Exports. [Online] Available at: http://www.tradingeconomics.com/china/exports. [Accessed: 26 November, 2012] Tsui, E. (2012) China pushes minimum wage rises. 4 January. Financial Times. [Online] Available at: http://www.ft.com/cms/s/0/847b0990-36a2-11e1-9ca300144feabdc0.html#axzz2Dp11bzdK. [Accessed: 01, December, 2012] Wilson, G. (2012) US debt tops $16 trillion: So who do we owe most of that money to? Fox News. [Online] Available at: http://www.foxnews.com/politics/2012/09/04/who-doowe-most-that-16-trillion-to-hint-it-isnt-china/. [Accessed: 01 December, 2012] Zhang, L. (2010) What Do Chinas Workers Want?, Were Not Machines. 13 June. NY Times. Available at: http://roomfordebate.blogs.nytimes.com/2010/06/13/what-do-chinasworkers-want/. [Accessed: 15 November, 2012]

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]

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]

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]

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]

Topic 4: Migration
To 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

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 nontaxable gifts such as flowers, and fruits, whilst still claiming benefits. The public appear to generalise this activity upon the legal migrants, creating social conflicts.

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 multiculturally 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, highquality human capital; important for a country undergoing post-communist transition.

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.

Bibliography
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Eurostat (2012). At risk of poverty or social exclusion in the EU27 In 2011, 24% of the population were at risk of poverty or social exclusion Corresponding to around 120 million persons. [Online] Available at: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-03122012-AP/EN/303122012-AP-EN.PDF. [Accessed: 08 December, 2012] Hardy, J. et al. (2012) OPPORTUNITIES AND CHALLENGES RELATED TO CROSS BORDER MOBILITY AND RECRUITMENT OF THE HEALTH SECTOR WORKFORCE. [Online] University of Hertfordshire. Kothari, U. (2012) Causes and forms of social exclusion: spatial factors and migration. GSDRC [Online] Available at: http://www.gsdrc.org/go/topic-guides/socialexclusion/causes-and-forms-of-social-exclusion-spatial-factors-andmigration#migration. [Accessed: 08 December, 2012] Hardy, J., Clark, N. (2011). The Impact of Labour Migration to the United Kingdom from New Member States Post-2004. University of Hertfordshire. London Metropolitan. Hardy, J. (2012). A political economy of the dynamics of labour mobility in an enlarged Europe: the case Polish migration to the UK post-2004. Microsoft Word hand-out [6BUS1097]. Hertfordshire Business School. 1 November, 2012. Lowles, N. (2011) What Britons really think about immigration. New study shows that economic pessimism has led many to feel negative about immigrants but findings are not all bad news. The Guardian. 26 February. [Online] Available at: http://www.guardian.co.uk/uk/2011/feb/26/britons-immigration-multiculturalism-study. [Accessed: 07 December, 2012] LSC (2006) Employer Perceptions of Migrant Workers Research Report. [Online] Available at: http://readingroom.lsc.gov.uk/lsc/national/natemployersperceptionsofmigrantworkers.pdf. [Accessed: 07 December, 2012] Lucchino, P. et al. (2012). Examining the relationship between immigration and unemployment using national insurance number registration data. NIESR. Discussion paper No. 386. [Online] Available at: http://www.niesr.ac.uk/pdf/090112_163827.pdf. [Accessed: 07 December, 2012] 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-statisticsquarterly-report/august-2011/polish-people-in-the-uk.html. [Accessed: 07 December, 2012] ONS (2012) Migration Statistics Quarterly Report. 29 November. [Online] Available at: http://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterlyreport/november-2012/index.html. [Accessed: 06 December, 2012]

Packer, C. et al. Globalization and the Cross-Border Flow of Health Workers. (9) [Online] Available at: http://www.globalhealthequity.ca/electronic%20library/Globalization%20and%20the% 20Cross-Border%20Flow%20of%20Health%20Workers.pdf. [Accessed: 08 December, 2012] Perdersen, P, J. and Pytlikova, M. (2008) Migration flows from Central and Eastern Europe into the Nordic countries exploiting a natural experiment. Department of Economics. Working Paper. [Online] Available at: https://pure.au.dk/portal/files/3859/wp_08-29. [Accessed: 06 December, 2012] Schofield, K. (2012) Migrant a minute. The Sun. 21 February. [Online] Available at: http://www.thesun.co.uk/sol/homepage/news/3425461/Four-million-migrants-allowedto-settle-in-Britain-under-Labour.html. [Accessed: 07 December, 2012] Watt, N. 2011. David Cameron says that immigrants should learn English. The Guardian. [Online] Available at: http://www.guardian.co.uk/politics/2011/apr/14/davidcameron-immigrants-learn-english. [Accessed: 08 December, 2012] Zaiceva, A. (2004) Implications of EU Accession for International Migration: An Assessment of Potential Migration Pressure. CESifo Working Paper Series No. 1184. [Online] Available at: http://ssrn.com/abstract=546044. [Accessed: 06 December, 2012]

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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-quarterlyreport/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]

Figure 3 Unemployment claimant count, January 2008, January 2010, January 2012
The ONS also publishes the claimant count which shows the number of people receiving Jobseeker's Allowance (JSA) in a particular month. That figure comes from information supplied by the Department for 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: 07 December, 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]

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]

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]

Topic 5: Industrial Policy

Evaluate 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

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 overdependence 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,

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.

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.

Bibliography
Adam Smiths Institute. (2012) Introduction. [Online] Available at: http://www.adamsmith.org/adam-smith. [Accessed: 09 December, 2012] Business Today (2012) iPhone reflects Chinas relationship with US. BBC Radio 4. 10 December, 2012. Available at: http://news.bbc.co.uk/today/hi/today/newsid_9776000/9776792.stm. [Accessed: 10 December, 2012] Chang, H. (2012) No industrial policy please, were British is out of date. The Guardian. 12 September. [Online] Available at: http://www.guardian.co.uk/commentisfree/2012/sep/12/british-industrial-policy-vincecable. [Accessed: 09 December, 2012] Dong-A University. (2010) Business Lecturer. Korean Economic and Business Lecture with Korean Summer School subsidised by University of Hertfordshire. July 2010. Economist (2010) Picking winners, saving losers. 05 August. [Online] Available at: http://www.economist.com/node/16741043. [Accessed: 09 December, 2012] Economy Watch (2010) UK Economic Structure. 30 June. [Online] Available at: http://www.economywatch.com/world_economy/united-kingdom/structure-ofeconomy.html. [Accessed: 09 December, 2012] EUC (2012) Industrial Competitiveness. [Online] Available at: http://ec.europa.eu/enterprise/policies/industrial-competitiveness/industrialpolicy/index_en.htm. [Accessed: 09 December, 2012] Gibney, E. (2012) Engineering graduate numbers need to double by 2020. Times Higher Education. 03 December. [Online] Available at: http://www.timeshighereducation.co.uk/story.asp?storyCode=422014&sectioncode=2 6. [Accessed: 09 December, 2012] Hill, J. (2012) Topic 5: Industrial Policy. Power Point slides. [6BUS1097] Hertfordshire Business School. 1 November, 2012. Howitt, P. (2001) Coordination Failures. Snowdon: Edward Elgar. [Online] Available at: http://www.econ.brown.edu/fac/Peter_Howitt/publication/Coordination.pdf. [Accessed: 09 December, 2012] Ito, M. (1991) Economic analysis of industrial policy. University of California: Academic Press. [Accessed: 09 December, 2012] Mercatus (2012) Industrial policy: theory. Mr University. YouTube. Available at: http://www.youtube.com/watch?v=cCA15aJMZ5c. [Accessed: 09 December, 2012]

Miles, T. (2012) Major trade powers using stealth protectionism: study. Reuters. [Online] Available at: http://www.reuters.com/article/2012/10/22/us-tradeprotectionism-idUSBRE89L1JQ20121022. [Accessed: 09 December, 2012] Ohno, K. (2001) Free Trade versus Infant Industry Promotion. Japan: National Graduate Institute for Policy Studies. [Online] Available at: http://www.grips.ac.jp/vietnam/KOarchives/doc/EP03_VNinfant.pdf. [Accessed: 09 December, 2012] Okuno-Fujiwara, M. (1991) Industrial Policy in Japan: A Political Economy View. US: University of Chicago Press. pp. 271 304. [Online] Available at: http://www.nber.org/chapters/c8667 [Accessed: 09 December, 2012] Pack, H. & Saggi, K. (2001) The case for industrial policy: a critical survey. US: Department for International Development. [Online] Available at: http://www.ycsg.yale.edu/focus/gta/case_for_industrial.pdf. [Accessed: 09 December, 2012] Schlefer, J. (2012) There Is No Invisible Hand. Harvard Business Review. 10 April. [Online] Available at: http://blogs.hbr.org/cs/2012/04/there_is_no_invisible_hand.html. [Accessed: 10 December, 2012] Smith, A. (1982) The Wealth of Nations: Books I-III. US: Penguin Classics. [Kindle ebook] Available at: http://www.amazon.co.uk/The-Wealth-Nations-Books-IIII/dp/0140432086/ref=sr_1_1?ie=UTF8&qid=1355093086&sr=8-1. [Accessed: 09 December, 2012] Smith, A. (2012) An Inquiry into the Nature and Causes of the Wealth of Nations. US: University of Chicago Press. [Kindle e-book] Available at: http://www.amazon.co.uk/Inquiry-Nature-Causes-Nationsebook/dp/B00847CE6O/ref=sr_1_4?ie=UTF8&qid=1355093048&sr=8-4. [Accessed: 09 December, 2012] Rodrik, D. (2004) Industrial Policy for the Twentieth Century. US: Harvard University. [Online] Available at: http://www.hks.harvard.edu/fs/drodrik/Research%20papers/UNIDOSep.pdf. [Accessed: 11 December, 2012]

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.

1968, cited in Walker, R. 2009). This represents societal benefits of emerged evidencebased 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

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 threequarters 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

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

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 systematic enquiry in the social sciences is important, and investment should be made to make structure and order from the vast data available to assist new studies, with assurance from a quality unbiased process to evaluate them.

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Appendix
Figure 1 Qualitative and Quantitative Methodology

Source: Department for Social Security, 2009 Walker, R. (2009) Welfare policy: tendering for evidence. UK: The Policy Press. Pp141-166. [Online] Available at: http://motahari.edu.umsu.ac.ir/ebmfile/What%20works%20Evidence%20based%20policy%20and%20practice%20n%20public%20services.pdf. [Accessed: 11 December, 2012]