3. What measures should the U.K. government take in response to the rising inequality? Is inequality a weakness? Why, or why not? The case “The United Kingdom and the Means to Prosperity” by Laura Alfaro, Lakshmi Iyer, and Hillary White discusses the recent fiscal policy of the United Kingdom. One area mentioned as a concern was the rising inequality of wealth. As this wealth disparity can create a weakness for the country, the government should evaluate policies that would help narrow this income gap. As stated within the case, income inequality in the UK has grown faster than any other OECD nation since 1975. By 2012, the top 20% earned an average of 15 times that of the bottom 20%. Evaluating total wealth, the top 10% held roughly 1050x as the bottom 10%. Evaluating the top decile’s income proportion to the total over a historical time period shows that income inequality was trending downwards from the early 1930’s before leveling out in the 1950’s and then rising steadily since the early 1970’s. Rising inequality is a weakness for the U.K. economy. Internal consumption within the economy drives growth. The top decile income earners do not consume the same proportion of their income as those in the lower deciles and the middle and lower classes encompass the vast majority of the populace and the spending. If lower and middle income earners do not have enough income available to grow consumption, it hurts the U.K economy. In addition, decreasing disposable income limits the ability to invest in education, which locks people into their class or the class of their parents. Finally, stagnant and shrinking wealth for the middle and lower classes means the government is receiving less taxes. The problem really lies not in the fact that the upper deciles are gaining wealth, but in the fact that the remaining deciles are not growing at the same rate. By evaluating the factors that lead to this inequality, the U.K. government can best draft measures to address it. One factor that contributes to this wealth gap is the unemployment rate which was under 2% from 1946 but started rising in the late 60’s to 8% in 2012. In addition, real wage increases have been small or negative with the total real wage increase between 1990 and 2014 being 1.4%(summing and subtracting the growth for that period). While wages have been stagnant and unemployment high, there has been growth in the financial services sector that has exceeded GDP from 1970 through 2008. Many top income earners participate in this sector. To summarize, increased unemployment plus stagnant real wage increases for the majority of the population coupled with the increasing income of the financial sector has exacerbated income inequality. To combat the problem of growing income inequality, the U.K government needs to create policies that are designed to address unemployment and support real .

1. 3. What measures should the U.K. government take in response
to the rising inequality?
Is inequality a weakness? Why, or why not?
The case “The United Kingdom and the Means to
Prosperity” by Laura Alfaro, Lakshmi
Iyer, and Hillary White discusses the recent fiscal policy of the
United Kingdom. One area
mentioned as a concern was the rising inequality of wealth. As
this wealth disparity can create
a weakness for the country, the government should evaluate
policies that would help narrow this
income gap.
As stated within the case, income inequality in the UK has
grown faster than any other
OECD nation since 1975. By 2012, the top 20% earned an
average of 15 times that of the
bottom 20%. Evaluating total wealth, the top 10% held roughly
1050x as the bottom 10%.
Evaluating the top decile’s income proportion to the total over a
historical time period shows that
income inequality was trending downwards from the early
1930’s before leveling out in the
1950’s and then rising steadily since the early 1970’s.
Rising inequality is a weakness for the U.K. economy.
Internal consumption within the
economy drives growth. The top decile income earners do not
consume the same proportion of

2. their income as those in the lower deciles and the middle and
lower classes encompass the vast
majority of the populace and the spending. If lower and middle
income earners do not have
enough income available to grow consumption, it hurts the U.K
economy. In addition,
decreasing disposable income limits the ability to invest in
education, which locks people into
their class or the class of their parents. Finally, stagnant and
shrinking wealth for the middle
and lower classes means the government is receiving less taxes.
The problem really lies not in
the fact that the upper deciles are gaining wealth, but in the fact
that the remaining deciles are
not growing at the same rate.
By evaluating the factors that lead to this inequality, the
U.K. government can best draft
measures to address it. One factor that contributes to this
wealth gap is the unemployment rate
which was under 2% from 1946 but started rising in the late
60’s to 8% in 2012. In addition, real
wage increases have been small or negative with the total real
wage increase between 1990
and 2014 being 1.4%(summing and subtracting the growth for
that period). While wages have
been stagnant and unemployment high, there has been growth in
the financial services sector
that has exceeded GDP from 1970 through 2008. Many top
income earners participate in this
sector. To summarize, increased unemployment plus stagnant
real wage increases for the
majority of the population coupled with the increasing income
of the financial sector has
exacerbated income inequality.

3. To combat the problem of growing income inequality, the
U.K government needs to create
policies that are designed to address unemployment and support
real wage increases. While
recent government policies have focused on austerity and debt
reduction, a shift in strategy will
be necessary to foster growth in employment and wages.
Increases investment in factor
endowments, such as education and infrastructure would
provide more opportunity. It was
stated in the case that two-thirds of British companies felt that
infrastructure was going to
deteriorate over the next five years. Increased government
spending on public works and
infrastructure projects in addition to programs and policies that
make higher education more
accessible has the ability to lower unemployment. The
increased consumption and tax revenue
as a result of increased employment would help offset the
public debt required to fund these
programs. To address stagnant wages, wage increases can be
implemented for government
employees.
Some additional measures might also be taken. This
includes further increases of the
minimum wage as well as rolling back some legislation that
stripped some of the power from
labor unions. While these measures might lead to better real
wages for employees, they
introduce the possibility of inflation that has the potential to
negate any gains they might offer.
Careful consideration would be necessary to ensure these

4. changes have a net positive effect on
those it is trying to help.
To conclude, the United Kingdom’s increasing income
inequality problem creates weakness
within the economy as it limits growth, tax revenue and
opportunity. This inequality is widening
due to stagnant wages and continued high unemployment. This
problem will not fix itself, but
rather will require the U.K government enact policies that foster
employment and wage growth
while balancing the costs needed for these policies.
Q4 Would leaving the E.U. help or hurt the U.K.?
In the article, “The United Kingdom and the Means to
Prosperity” the main objective of the
article is to show how the United Kingdom has come to achieve
it’s financial success through
the rigors of the 2008-2009 financial crisis and even further
back from the Great Depression
triggered by World War II and the Stock Market Crash of 1929.
There are many opposing views
on whether the U.K. should be a part of the European Union or
not. Based on the article it is
important to be a part of the E.U. because “As a member of the
EU, the U.K. attracted many
financial firms to London due to its sizable market and the free
movement of labor and capital
with Europe.” The fact is that the E.U. validates the U.K. in the
eyes of financial giants, such as
China and the U.S. By showing that the U.K. can function as a
part of the financial system of the
entire E.U. and play as a “team player” that is a big asset to
many countries who want to work
with the U.K., and for it’s financial future is best if the U.K.

5. continues to function as the financial
center of the E.U.
In addition, the Prime Minister Cameron believed that “E.U.
membership entailed greater
political integration than just participating in a common market
as initially promised.” By
integrating more politically the fact is that U.K. will become a
better member of financial
negotiations because they have more leverage being a part of
the E.U. because of the access
to all of the resources of the European Union. Leaving the U.E.
would definitely hurt the U.K.
because the fact is that the being a part of the E.U. has helped
the United Kingdom to have a
strong economic recovery by 2014. In addition, the nation’s
GDP figures have also increased
further solidifying the importance of the E.U on the financial
success of the United Kingdom.
It is imperative to mention that leaving the E.U. could be good
for the U.K. because of a lack of
dependence on the services in the financial sector that the E.U.
provides for the country. When
tragedy or another financial crisis hits dependence on an entity
like the E.U. will not be
beneficial to the country as a whole. The U.K. has the
advantage of being a head of a colonial
empire and a true global financial center and in some regards
the failings of some of the other
countries in the E.U. can bring it down. The fact is that the
mistakes of a few can poison the
well. These concerns aside the benefits to staying in the E.U.
outweigh the negatives that are
pretty slim to really be deemed a significant threat to the
financial health of the country as a

6. whole as a part of the European Union. It is important to
acknowledge problems and challenges
that lie ahead for the United Kingdom, such as the rising
inequality not only in wages between
the “haves” and the “have-nots,” but also the rising xenophobia
within the country. The U.K.
functions under a very “old-school” way of doing business and
although this has worked for
them in the past, I do not see the longevity in such an approach
because countries have
evolved past a colonial mentality, but the U.K. continues to
operate in such a manner both
inside and outside the boardroom. In conclusion, staying in the
European Union will not only
hold the U.K. to some standard of business practices, but will
also make sure it’s financial health
is intact. Some people play better with others, and I think in this
case the U.K. needs to learn
how to play with the European Union if it wants to continue to
be a strong global financial center.