Sample Essay Economics

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First year undergraduate study

This example is from a first year undergraduate course in social studies. The course is designed to introduce students to selected topics in economics, government, and social policy. Students taking the course might be from other disciplines, and tutors are expected to take this into account.


Question

Assess the claim that market forces, if left to themselves, will reduce regional inequalities over time.

Answer

In assessing the effects of undisturbed market forces on regional inequalities is necessary to outline the models of the market – namely Schumpeter’s model of creative destruction, and the neoclassical model of perfect competition. It is also relevant to address the meaning of regional inequality and the divisions that are created. There are three main causes of these equalities: the liberal idea of supply and demand; and cumulative causation. Marxists suggest the capitalist society causes an uneven distribution of wealth throughout the United Kingdom. The strengths, weaknesses and coherence of these theories will be discussed and a conclusion of their relevance in today’s society sought.

When writing Capitalism Socialism and Democracy (1943) J.A.Schumpeter outlined a model of creative destruction which “conceptualises competition as a dynamic forward-looking quest for innovation in products and processes that will put the corporation ahead of its rivals in the race for market leadership” (Module 3, page 85). The firms involved are competing against each other for business and so they are keen to seek new ideas for the latest innovations in production. Constant change occurs in a market in which articles and superseded constantly and made obsolete by innovation. Improvements in processing goods (for example in machinery) enables the supplier to manufacture economically. Economies of scale make fixed financial outgoings (such as maintenance to buildings) spread out over larger output. Increased profit ensures success for the best companies.

‘Perfect competition’ is the neo-classical idea of a balancing mechanism controlling the market. The supply side is affected by the availability of labour, raw materials, machinery, power and technology. On the demand side, individuals income, lifestyle, age, social conventions and expectations affect the balance. Firms have little say in setting the price of their goods because if the supply exceeds the demand the
price will decrease. Conversely if the demand for an article increases, but it cannot be supplied readily enough, then the price will increase. This theory is a classic example of liberal ideology because the starting point is the individual.

Similarly, as with their choice in purchase, the individual and employer are in a position to make rational choices about where they, respectively, choose to work and where they choose to invest. Due to them wanting the best for themselves, they will move to suit their needs. An employee may move area to receive higher pay, or company establish in an area where rent is lower. This theory suggests moving in such a way will equalise any disparities over time.

This was the thinking of the newly-elected conservative government in 1979 under the leadership of Margaret Thatcher. Liberal economic policies were introduced at this time. Competitive markets leading to efficiency, freedom of choice from more traders, and less burden on the countries economy. Deregulation (for instance transport) and privatisation (for example gas) would boost competition. A market led system in which “the free and undisturbed play of market forces could normally act as the invisible hand, efficiently and effectively co-ordinating the activities of the individual in ways which advance the interests of all” (Society and Social Science – A Reader Anderson + Ricci, page 262).

Prior to this, in the post-war period (1945-1970) state involvement in market activity meant high taxes and high public expenditure support of regionally based and nationalised industries. Then globalisation meant the United Kingdom faced competition not only from within but now from the rest of the world, thus affecting the demand side of the balancing mechanism. If a natural resource is present, such as oil three pre-conditions apply “that the technology exists to extract and use the oil, that there is sufficient demand for the oil (at the right price) and that the power to exploit and use the oil is present” (Module 20, page 69)

The cumulative causation theory opposes ‘supply and demand’ because “regional advantages are seen to accumulate rather than even out, once ahead a prosperous region will stay ahead” (module 20, page 87). Myrdal (1957) suggested the idea of vicious and virtuous circles. Areas would either spiral up or down in their fortunes. This is known as a ‘regional multiplier effect’. Growth generates growth. Development of a region occurs when more investment in that region means more direct employment (real jobs with security, good working conditions, improved employment structure, better pay structure, and good working conditions). Also related employment is created in connection with services for the new earning workforce with their enhanced spending in services such as entertainment. New communities become established with better housing, transport, shops, schools, and a greater share of the public spending budget going towards improved health and education. Dependent employment, this would include manufacturers of the machinery in the factory, workers who depend on the initial investment indirectly.

Development in a region may occur when industry is established bringing little employment, with less control at work, less income generated for the region, and perhaps negative attributes such as pollution and environmental risks (chemical industry, nuclear station or screwdriver plant).

The cumulative causation theory sees the core regions developing at the expense of the peripheral areas. The skilled workers will be drawn to the core to fill the best employment possibilities. These so-called ‘backwash effects’ are counteracted by ‘spread effects’ as economic growth continues the virtuous circle spreads out. The periphery benefits from the cores achievement. This is especially significant today in the ‘shrinking world’. The United Kingdom is the locality (local) within Europe (global).

Marxist ideology is based on a capitalist society with production for profit. Unevenness of wealth within Britain is due to the dominance of one area over another, and is socially constructed. The main example of this being the north-south divide.

Traditionally the south (particularly the south-east) has been wealthier than the north. “A line running across the country usually from the mouth of the river Severn to the Wash is said to divide the prosperous south from the ailing north” (Module 22, page 55). Employment and career prospects, average earnings and success companies is statistically better in the south. Marxist geographers blame the lack of investment and different types of work in the north for the divide.

This issue is raised in ‘Regions Apart’ where William Clance CBE, chairman of ANZ merchant bank is questioned about the reason for this. he talks of how historically the south in particular London has developed as an administrative capital because traders for instance those wanting to import/export goods and ship owners would meet at the Baltic exchange to strike a deal. This has continued to the present day. Businessmen still meet in the capital even though communication networks (faxes, Internet, etc) have transformed. Meeting face to
face is more satisfactory. Companies fund corporate lunches, in which firms attempt to clinch deals with clients. Similarly, because the government is based in London, it would be beneficial to be there. Many companies have a political connection (for example Satchi and Satchi) or lobbying of parliamentarians to persuade decision makers of political effects on their company.

Academically, the best teaching hospitals and top universities are in the south (Oxford and Cambridge) only the very brightest students attend, and the graduates are trained as leaders of men and eventually hold the highest positions in society. Most large companies have their headquarters in London (eg – Hambro Countrywide –
Britain’s largest estate agents) and the major professional institutions
(eg ACCA – Association of Certified Chartered Accountants and Royal College of Nursing). Due to all these factors the relative skill level in the south is better, so too are the average earnings, but there is hardship and affluence on both sides of the divide.

In Britain today many geographical areas are indistinguishable. Large inner cities, housing estates and out of town shopping centres. Despite this each region has its individuality. This can depend on its past character, for example a town previously devoted to cotton production may still have cotton mills on its landscape and perhaps a heritage centre. This can encapsulate also with a traditional labour force.

It can depend on local natural resources such as coal or waterways. Similarly much can depend on an areas links with the wider world, internationalisation has brought many cultures, religions and creeds together.

Many foreign owned and some British based firms brought about a city-country divide in the 1960s. Decentralisation involved their head offices dismantling large workplaces in the inner city and moving to branch plants or back offices in the country. The advantages included less congestion and closer proximity to the market and a new ‘green workforce. This comprised unradical women who were willing to accept lower pay and conditions, instead of militant men who demanded more of the company.

Either of the liberal methods of supply and demand or cumulative causation would in theory work if no intervention was applied, because of their very nature they would even out regional equalities over time. Exponents of each theory choose to quote a time in history that emphasises their model to suit themselves.

Note that nonetheless these have opposite views. Neo-classicism suggests that inequality will eventually disappear. Whereas, despite spread effects the cumulative causation theory postulates continued inequality (unless of course government actively takes measure to counteract it.)

There seems to me more weight behind the Marxist theory, because regional inequality exists everywhere. In all regions there are affluent areas and slums. Also this can be a matter of opinion “one man’s palace is another man’s prison” and each locality has interlocking activity space. In the world we live in today, it would be impossible to create a system without intervention even if it was government policy. The European government would want to intercept and help the poorest places in the United Kingdom as it does today.


Tutor comment

What you have written in conclusion is interesting and relevant to the general discussion of regional inequality, but re-read the question. It asks you to “assess the claim that market forces if left to themselves will reduce regional inequalities”. This is clearly the position of the Neo-classical school so your conclusion should specifically assess. That is, say what its strengths and weaknesses are in comparison to the other two theories. You have tended to conflate the Neo-classical and Cumulative Causation theories, though you imply an assessment by saying that there is more weight behind the Marxist analysis. However, you do not overtly assess the Neo-classical theory. Note that the essay question guidance notes suggest that you judge theories by their explanatory power, openness, and reach. Some use of these concepts would have enabled you better to assess the Neo-classical claim. Have another look at the course module.

However, this is an interesting and well-informed essay which indicates that you have a good knowledge of the course materials. Regrettably you did not read the student guidance notes or the question rubric carefully enough, and as a result your assessment of the Neo-classical perspective is implicit rather than overt. Paradoxically your writing is rather glib in some respects and yet rather prolix in others. For example you omit crucial aspects of the Marxist position and yet go into a lot of descriptive detail with respect to other examples.

Note that the Cumulative Causation theory does accept the notion of markets and supply and demand [see my note on your script] but suggests a different outcome than the Neo-classical School, namely that despite some spread effects, inequality persists over time. To improve your marks you need to make sure that you are saying precisely what you mean, and focus on what the question asks more directly. In this case assessing the Neo-classical claim [see my earlier note concerning the criteria of comparison – explanatory power, reach and openness.

On the whole though a rich and interesting essay.


Script monitor’s comments

Plenty here for the student to get her teeth into. Your comments are informative and should help her iron out her misunderstandings of and engage more meaningfully with the theories she has covered. Her failure to address the question is a common one I find at all level courses, and your comments will help put her back on track, while warning her of the penalties inherent in ignoring guidance given in the notes. On the other hand she will also be in no doubt about what she is doing right and should be encouraged by the positive tone of what you have to say.

© 2003


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