This article reviews Adam Smith’s clearly articulated views about the desirability of free trade and his equally strong view on the necessity of sound institutions and ‘the tolerable administration of justice’ as key ingredients of successful economic management. It starts with Smith’s views on free trade and shows how pertinent they are to today’s high-level trade policy challenges. It then considers a more detailed day-to-day instrument of policy—the Trade Remedies Authority (TRA). Following Brexit, the TRA was created as an arms-length body for investigating cases for granting temporary import restrictions to specific products according to a reasonably well-defined objective process. The article demonstrates how, over the first 2 years of its life, the TRA has been reduced from a useful administrative instrument to a fig leaf for a political process for granting protection to petitioners. Unfortunately, this tendency to displace analytical approaches to policy by purely political ones can now be observed in many activities of UK governance.

The decline in trade union influence over the past two decades raises the question of whether pay levels in lower-skilled jobs now lie outside the unions' sphere of influence, as tacitly acknowledged by their acceptance and later endorsement of the principle of the statutory minimum wage. This article examines pay levels among lower-skilled jobs in the private sector in Britain using the Workplace Employee Relations Survey of 1998. It shows that trade unions still had a positive impact upon pay levels in lower-skilled jobs and identifies those forms of unionism associated with the largest premiums. However, the article also shows that the activities of trade unions did little to counteract the forces generating the lowest levels of pay.

The Asian crisis has had a marked effect on the world economy over the past fifteen months. Private sector demand has collapsed in the affected economies and reinforced the effects arising from the deflationary forces in the Japanese economy at present. Up until this summer it did not appear likely that the world economy as a whole would slide into a full scale recession, although it was clear that growth had begun to slow in the industrialised economies. There were also important downside risks in our forecasts at that time; in particular the danger that a policy of monetisation in Japan would further weaken the yen and set in motion renewed disruption by enforcing a devaluation of the Chinese yuan against the dollar. It was also clear that profit margins were coming under pressure in the US economy, raising the possibility that future dividends would be somewhat weaker than implied by the exceptionally rapid growth in real equity prices since 1994. Neither a Chinese devaluation nor an equity price collapse were however part of our central forecasts.

This note examines labour market performance across countries through the lens of Okun's Law. We find that after the 1970s but prior to the global financial crisis of the 2000s, the Okun's Law relationship between output and unemployment became more homogenous across countries. These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labour market policies in response to the global demand shock.

A recent issue of the National Institute Economic Review contained an article in which errors in the National Institute's forecasts of the national income accounts were analysed. One of those who reviewed the article criticised it on the grounds that the author ‘does not make an assessment of the balance of payments forecasts, which really is like putting on Lear without the King’. On the strength of his own ‘fairly crude’ comparison between these forecasts of the balance of payments and the official estimates of what actually happened, he went on to suggest that the errors in the former in the ‘crucial’ years of 1960, 1967, and 1968 were ‘large enough to … make one doubt whether balance of payments forecasting, whether short- or medium-term, is really a possible or worthwhile exercise’. The present article, already planned when the earlier one appeared, is an attempt to fill the gap on the stage. It aims to provide a rather more refined basis for judging the worth of such forecasts, and perhaps at the same time to improve the prospect that some of the grosser errors of the past may be avoided in the future.

As the global recovery strengthens, attention has to focus once again on the price of oil. The sharp increase seen in the last quarter of 2010 has raised serious concerns for the economic outlook. Oil prices have risen significantly since the beginning of 2009, and the rate of increase suddenly accelerated in the last months of 2010. Between September and December 2010 alone, oil prices rose by about $20, to reach $95 per barrel. Figure 1 compares the expected path of the oil price used in our forecast in October 2010 to that in January 2011, based on information from forward markets as well as an evaluation of supply conditions.

According to the trade returns, the advanced industrial economy of the United Kingdom is regularly supplied by the developing countries with aero-engines, scientific instruments, radar installations, and other technologically advanced products, plus a considerable range of more traditional but still sophisticated machinery and equipment. The explanation is that the compilers of our trade statistics have until recently failed to distinguish between goods genuinely imported from abroad and goods in British ownership re-imported after a period of use abroad. It has only been possible to guess at the magnitude of the trade involved.

Although it has long been recognised that inflation may have important consequences for the level and distribution of the burden of a progressive personal income tax, it is only with the recent sustained acceleration in the rate of increase of the general price level that these relationships have become matters of serious concern. A number of Western economies, including Iceland (in 1965), the Netherlands (1972) and, most recently, Canada (1974), have introduced schemes for linking the main parameters of the income tax to an index of consumer prices, and considerable interest has been shown in the possibility of a similar reform in this country.

Energy is a world issue and since future developments, particulary of oil, are of paramount importance to the UK economy, we have to take a world view. We start by discussing the prospects of the supply and price of oil; the outlook for other types of primary energy as well will be considered briefly.

The Spanish economy has undergone a transformation in the last decade, in the course of which it has emerged significant industrial power. This process has been associated, in part with EC membership since 1986, a result of which has been a reorientation of trade away from traditional trading partners, such as Latin America and towards the EC. In 1991, 67.2 per cent of Spanish exports of manufactures went to other EC countries, compared with 51.2 per cent in 1980. Spain has, too, been a favoured destination for foreign direct investment in recent years, facilitating the development of new industries.

The start of hostilities in the Gulf in January appears to have removed some of the uncertainties surrounding the oil market, and oil prices have dropped to around 20 dollars per barrel. This development should help sustain growth and reduce inflation over the next two years. Box A sets out some calculations of the effects of the change in our oil price assumptions on our forecast. The appreciation of the D-Mark bloc and the emergence of a recession in the US driven by a wave of bank failures has persuaded us to be less optimistic then we were in our last forecast. Table 1 summarises the outlook. We are forecasting a slowdown in the rate of growth in the major economies in 1991, with some recovery in 1992 and thereafter. The slowdown has already taken place in the US, the UK and Canada, whereas in 1990 Japanese and German growth was at historically high levels. Chart 1 plots levels of capacity utilisation in the major economies. Only in the US has output clearly fallen below capacity, but record levels of utilisation in Japan, Germany and France inevitably imply some slowdown in growth from recent levels.

Competition in telecommunications is being promoted throughout the world with extensive liberalisation occurring in many countries. Past monopoly provision means that the new era of competition features large incumbent operators. The traditional lack of rivalry means that to accommodate competition liberalisation entails the entry of new operators. These conditions could prompt incumbents to abuse their dominant position when confronted with new entry. Foreclosure problems in telecommunications are potentially very acute because successful entry is dependent on the incumbent offering interconnection. The services provided through interconnection, such as call origination and call termination, and the charges levied for these services, access prices, lie at the heart of pro-competitive measures. The access prices set by incumbents will require scrutiny In practice regulatory authorities face difficulties in evaluating access prices that balance the competing claims of the incumbent and entrants, and ensure that reasonable prices are established which are compatible with the promotion of efficient competition. In this article I outline some theoretical contributions on access pricing which have helped regulators to design regulatory regimes to promote efficient competition.

The past decade has seen fundamental policy initiatives at a national level intended to improve vocational skills and to raise school-leaving standards — particularly in mathematics. These initiatives centred on:

1. (i) the formation of a National Council for Vocational Qualifications with the object of re-designing, and imposing fundamentally greater coherence into, our previous ‘jungle’ of vocational qualifications, thereby raising their level of recognition both by employers and by potential trainees, and consequently encouraging a greater volume and higher levels of training to accredited standards of qualification;

2. (ii) the specification of a National Curriculum for schools, stipulating the main subjects to be taught, the standards which teachers need to aim for in respect of the majority of each age-group, and associated nationwide attainment-tests to be taken by all pupils at several stages in their schooling. A detailed teaching scheme, the National Numeracy Strategy, was laid down nationally for teaching primary-school mathematics (based on the Improving Primary Mathematics scheme developed in Barking and Dagenham together with NIESR using a Continental model) together with a similarly detailed scheme for teaching basic literacy.

The relation between the government's need to borrow and the stock of money in the country is a complex one. It is affected by the nature of the expenditures and revenues which require the borrowing and by the way in which the borrowing is financed. From time to time it has been suggested that nevertheless the two magnitudes have moved together in a stable manner. In this article we demonstrate that no such convenient coincidental movement appears to have been recorded in the UK and hence that it is possible for the government to permit variations in the PSBR to try to offset the recession even while maintaining a medium-term regime of monetary targets.

Government fiscal positions in all the advanced economies suffered severe deteriorations during the financial crisis. Figure 1 illustrates the cumulative deterioration of the government budget ratio as a per cent of GDP between 2007 and 2009 in a selection of OECD economies. The sharpest declines materialised in Ireland, Spain and Finland, while public finances in Austria, Germany and Italy have held up better. Budget deficits have worsened in part because of the cyclical downturn, in part because of the policy response to the crisis, including both fiscal stimulus packages and certain fiscal costs related to government support of financial institutions, and in part because of a change in the relationship between revenue and production, which may prove longer-term.

This paper examines the implications for regional policy of new research on the role played by a failure in the ‘capacity to aspire’ [Appadurai, A. (2004), ‘The capacity to aspire’, in Rao, V. and Walton, M. (eds), Culture and Public Action, Washington, DC: World Bank.] in perpetuating disadvantage traps. After a brief review of the magnitude of the challenge that regional policy needs to confront, it provides a summary of the theoretical and empirical literature on poverty and aspirations failure (and the associated loss of agency, beliefs and self-efficacy). The key implication for the design of an inclusive regional policy is that it needs to address simultaneously the sources of external constraints (such as the availability of resources or adequate infrastructure) and mitigate the aspirations failure inherently linked to persistent disadvantage.