Introduction

Both United Kingdom (UK) and United States (US) have several similarities in terms of culture, economy and lifestyle. In this article, the extent to which the US and UK economies have become more similar over the past thirty years are discussed. The article is arranged as follow. Firstly, the concepts of market economy are discussed. Then how both UK and US are having similar Anglo-Saxon economy model is discussed as well. Then, how both the countries’ economies are becoming more similar in the past 30 years is also discussed.

Liberal Market Economy vs. Coordinated Market Economy

To understand the similarities or differences between the UK and US economies, it is important to review the various form of capitalism system available in the world. According to researchers such as Peter A. Hall and David Soskice, there are variety forms of capitalism. One of the most successful forms of capitalism is indeed the liberal market economy, while the other form of capitalism includes the coordinated market economy. According to Hall and Soskice the liberal market economy can be represented by the economy of the United States, while the coordinated market economy is mainly represented by the Germany (Amberg, 2008). The two forms of market economy have several differences in the context on how they solve problems of ‘coordination’ between a company and its creditors, workers, suppliers, or the customers. In liberal market economies, coordination happens mainly through market mechanisms, whilst in coordinated market economies; various formal institutions or regulatory bodies have a much more central impact in affecting the economy and governing a particular company relation with other stakeholders. One often quoted example is that, in the liberal market economy, the wages are determined primarily by market forces, while in the coordinated market economy, the wages are decided through an industry-level collective bargaining between employers’ associations and trade unions (Akkermans et. al., 2009).

In this context, the main example of a liberal market economy is the United States. However, the United States is not the only single country adopting the concept of liberal market economy. Other countries with liberal market economy include: Australia, Britain, Canada, Ireland and New Zealand. As we have discussed above, the problem of coordination between companies and their creditors, workers, suppliers, and customers is solved through market mechanisms under the liberal market economy system. Thus, very often, the liberal market economy is also called the free market economies. Under such an economy system, the industrial relations are relatively decentralized, whereby the collective bargaining is happening at the company as well as the workforce level. Under such an economy system, the market forces will have a determining effect on the various issues on business landscape. Thus, under a liberal market economy, there tend to has relatively short term and negative relations between different market actors (Amberg, 2008).

In the context of human resources management, liberal market economies tend to exhibit several characteristics such as follow. Firstly, the firms tend to have a poorer employee training and development record, and they tend to have limited systems in place in encouraging employee involvement and participation in determining the various issues a business is facing. Under such a circumstance, even when the trade unions are present, they are often kept at arm’s length and the relationship between trade unions and businesses are adversarial (Harvey, 2009). Nonetheless, there are several strong points and benefits of having a liberal market economy. Specifically, it is mentioned that such an economy system has a high capacity for innovation and thus, often build up comparative advantage over the firms in other forms of economy system through creativity and innovation. For the case of UK and US specifically, such benefits can be observed with the development of new products and new industries (particularly science-based industries such as biotechnology and computers).

Both US and UK Having the Anglo-Saxon Economic Model

Both the US and UK economies shared the same economic model, in which it is often called the “Anglo-Saxon economic model”. Such a term is often cited as to distinguish the differences between the liberal and more open form of capitalism practiced in UK and US as compared to the more regulated form of capitalism practiced in continental Europe (Akkermans et. al., 2009). Such as differences can be seen from various perspectives, among them are: laws, practices, and attitudes that reflect acceptance of a business culture, encouraging risk taking, and system that facilitate entrepreneurial activities which does not avoid potential failure, focusing on individual’s wealth accumulation, encourage competition, and promote various flexibility in the usage of labor and other inputs (Amberg, 2008). There are many similarities as well as differences between the US and UK economies and both the economies are becoming more similar in the past 30 years.

However, similarities between both the nation’s economies are not something surprising. In fact, in the past few decades, both the economies have various similar and common elements. Among the common elements include: (a) the relatively lesser governmental and regulatory participation in shaping the direction of the economies, (b) the important roles played by both stock market as well as bond market in raising or funding of investment capital (whereas in many of the other European countries, the banking system is playing the key role in provision or funding of investment capital), (c) having similar accounting and financial reporting system, (d) the economy vibrancy is highly reliant on the strength of the financial services sector (what actually consists of many market participants such as financial intermediaries, accountants and all types of investment fund), and lastly, (e) both the economies are operating in a transparent manner.

Similarities between UK and US in the Past 30 Years

In the past 30 years, the UK and US economies are becoming more similar. The various similarities will be discussed in the following paragraphs. Among the similarities include: (a) The rise of consumerism; (b) Heavy burden on social security and medical benefits for the public; (c) The use of debt to drive the economy out of recessions; (d) The impacts due to credit bubble are hurting both the countries in a similar manner; (e) Similar actions taken by the respective national central banks in tackling recessions; (f) The call for various policies changes in financial services industry; (g) Openness for business; (h) The growing importance of capital market; and (i) The decreasing bargaining power of the union.

The rise of consumerism. In the past decades, the UK and US economies are heavily dependent on the high level of consumer spending. The consumer’s debt is increasing significantly and it serves as the main economic growth driver. However, such a situation is not sustainable. As the various businesses push too hard to entice consumers to engage in excessive spending, many issues subsequently happen. One great example is what happens in the housing sector in the countries in 2007 (Thompson, 2007).

Heavy burden on social security and medical benefits for the public. Besides, both the countries are also over-promising various social benefits to the citizens. In fact, there are many concerns on whether the government able to fulfill their promises on social security and medical benefits for the retirees and citizens (Business Wire, 2010).

The use of debt to drive the economy out of recessions. In the past few years, it is observed that the government and central bank of both US and UK are adopting Keynesian philosophy in driving the economy out of short recession. This means that the central banks are pumping liquidity or to increase money supply in the economy. Such a scenario is causing both the national debt to increase. Particularly in the times of crises, the government or central bank tends to acquire the bad assets from banking or financial institutions. This has also causing the public debt to increase significantly in the recent years (Business Wire, 2010).

The impacts due to credit bubble are hurting both the countries in a similar manner. In the past 3 years, it is observed that the burst of credit bubble is creating tremendous pressure towards the economy system of UK and US. Specifically, the credit bubble that has formed in the UK and US economies over recent years is unsustainable and has ‘badly corrupted’ the economies of the two countries, with a serious destabilizing results. One of the critical impacts due to the burst of credit bubble is that the nation debts of both the countries are built up significantly. In fact, the burst of the housing and credit bubble in 2007 is so serious that many observers asserted that it is comparable to several episodes from history, including the Great Depression of the 1930s and recent experience in Japan and Korea. Even until today, the housing markets still look particularly vulnerable in both countries (Business Wire, 2010).

Similar actions taken by the respective national central banks in tackling recessions. Prior to 2007, similar to Federal Reserve, the Bank of England had the view that the recent debt-fuelled rise in house prices are a benign and sustainable event. However, both of the central banks are subsequently proven wrong (Thompson, 2007).

The call for various policies changes in financial services industry. With the collapse of the financial system worldwide in the year 2008 and the corresponding heavy recession of 2009, there has been an increased public attention on executive pay (particularly in the banking and financial industry) in the UK and the US. In fact, both of the countries are copying or referring to each other in governing the excessive pay package for those executives in the banking and financial sectors. US lawmakers often hold up the UK as a sample in how to effectively control or to regulate executive pay. For example, in the UK, Prime Minister Gordon Brown and members of the Labor Party have demanded executives to exhibit restraint and to pay more attention on long-term company performance as opposed to short-term rewards (Griffin, 2009).

Openness for business. Both UK and US are countries that are famous for their openness for businesses and entrepreneurship activities. Both countries are trying hard to provide the best facilities, infrastructure and environment to attract companies and to help those companies to expand. It is the belief of both the UK and US government that such a private-sector led economic growth will lead to a more stable and vibrant economy (Batt et. al., 2010).

The growing importance of capital market. There are many obvious similarities between US and UK economic institutions. As we have discussed before, in both of these countries, the capital markets play an increasingly important and powerful role.

The decreasing bargaining power of the union. In both of the countries, it is also observed that the union influence is decreasing; whereby currently, the workforce pay and conditions are determined at a local or company level, and not by nation-wide collective bargaining. Not only that, as both of the countries are also actively engaging in outsourcing activities, the worker union has swiftly lose their bargaining power (Harvey, 2009).

Conclusion

Both the UK and the US economies have many similarities. This is because both of the countries are adopting the liberal market economy approach in regulating and governing the business environment in the respective countries. In this article, we have also discussed how the UK and US economies are becoming more similar in the past 30 years. To reiterate, among the factors we have discussed include: (a) The rise of consumerism; (b) Heavy burden on social security and medical benefits for the public; (c) The use of debt to drive the economy out of recessions; (d) The impacts due to credit bubble are hurting both the countries in a similar manner; (e) Similar actions taken by the respective national central banks in tackling recessions; (f) The call for various policies changes in financial services industry; (g) Openness for business; (h) The growing importance of capital market; and (i) The decreasing bargaining power of the union.

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