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Comparing U.S. & Great Britain Economic Policy

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  • 0:01 A Tale of Two Businesses
  • 0:33 Regulation
  • 1:27 Marketplaces
  • 2:37 Indirect Expenses and Taxes
  • 3:37 Monetary and Fiscal Policy
  • 5:04 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

The United States and the United Kingdom are two of the world's great economic powerhouses. This lesson focuses on how the governments of each encourage businesses and other enterprises to thrive.

A Tale of Two Businesses

Let's say that you and your British cousin both had the same idea for a business producing widgets. You both come from a long line of successful widget manufacturers, so there is no concern about the ability to make money from the sale of said widgets. However, you each face unique markets, with your business being based in the United States and hers being based in the United Kingdom. Within those markets, you also face the different ways that the United States and the United Kingdom encourage businesses to set up and thrive.

Regulation

Like any business, manufacturing widgets comes with a considerable amount of regulation. Regulation is the term given to rules that businesses must follow. In both the United States and the United Kingdom, there are plenty of safety and environmental regulations that require attention. These vary somewhat in severity, but as a rule, the regulations in the United States tend to be looser than those in the United Kingdom. This is because the United Kingdom is also subject to the rules of the European Union, a collection of European countries that have given up some sovereignty to gain access to larger markets, among other things.

Meanwhile, in the United States, regulation is largely set at a state and federal level. Some states definitely have stricter regulations on widget manufacturing, but you can always relocate your business to a more widget-friendly state. Meanwhile, your cousin is stuck in the European Union.

Marketplaces

Still, being stuck in the European Union isn't such a bad thing. More than 500 million people call the European Union home, which means that your cousin has instant access to a massive marketplace, or places to sell your goods. Given the fact that all of these people live in developed countries with large middle-class segments, it could be the perfect market for widgets. With few exceptions, it is easy to move widgets across borders within the European Union, and with its resulting free trade agreement, agreements between countries that limit barriers to trade, with places like Switzerland and Turkey, even larger markets are next door.

Meanwhile, the United States is a pretty sizeable market itself. With a population of approximately 330 million people, it is still nothing to sneeze at. Also, unlike your cousin, you can choose to market your goods only in English. Meanwhile, she has to pay a translator to include documentation in many of the European Union's 28 languages. Additionally, the United States also has its own share of free trade agreements with places like Canada and South Korea, meaning that there are other markets for your widgets, too.

Indirect Expenses and Taxes

A few weeks into the manufacturing process, you each get your tax bills. Being in the United States, your rate is substantially lower than your cousin's tax bill. In the United States, corporate taxes are actually pretty low, especially when compared to the United Kingdom. That said, there are certainly places in the European Union with lower corporate taxes than the United States, but your cousin's factory is based in the United Kingdom, now isn't it?

Gloating about your lower bill while on the phone with your cousin, you get a second bill, the cost for your employees' health insurance benefits. You think your cousin is being cruel when you explain the cost of having to comply with federal requirements to offer healthcare when she says that she has no such bills. The reason is pretty simple - in the United Kingdom, as well as much of the European Union, healthcare is largely covered by national services financed through taxes. As a result, employers face one less cost in hiring employees, meaning that they are more likely to hire more people.

Monetary and Fiscal Policy

That talk of the role of government in business has led you and your cousin on a tangent. It seems that there are concerns of a worldwide recession, which could slow the demand for widgets until each nation's economy recovers. You talk about the steps that each government is able to take with regards to fiscal and monetary policy.

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