hi there this is an introductory topic video on supply side policies keep in mind of course the key macro policy objectives of government keeping inflation under control achieving steady sustainable growth of GDP getting more people back into work and lifting average living standards governments often have an objective of improving trade performance on the balance of payments and perhaps achieving a more equitable distribution of income and wealth we can add to these objectives by focusing on fiscal objectives balancing the budget reducing the size of the government national debt another objective could be to improve the overall welfare and well-being of the population and also ACH to achieve greater Regional balance and stability in the economy there's increased emphasis on improving access to and the quality of key public services such as education and health and in The Wider pict picture maintaining and improving competitiveness in a fast changing World economy the environment of course is both a threat and an opportunity government's increasingly concerned about that now the key Point here is that supply side policies affect nearly all of these key macro objectives so countries that get the supply side right nearly always see that overall macro macroeconomic performance improve so what are supply side policies I think generally supply side policies or ssps for short aim to increase the productivity and the overall quality of factors of production and hence increase the productive capacity and capability of an economy the key point is that supply side policies focus on getting the structural long-term performance of an economy moving in the right direction there are different approaches to supply side reforms and we'll cover these in this topic video video some economists favor Market Le policies to give the private sector more freedom or more autonomy in the allocation of resources other economists favor a more interventionist approach in particular to overcome what can be persistent and important market failures again some economists favor a mix of free market and interventionist approach our focus is normally on Long learn aggregate supply so that tells us that the Tim LAX involved in introducing supply side side reforms can often be long and uncertain here's just a few examples of supply side policies in action I'm sure you'll cover many more in your own teaching and learning the Royal Mail For example has been fully privatized in recent years and the government's introduced a patent box tax initiative which cuts the rate of corporation tax on the profits of patented products it's also introduced tax incentives to encourage exploration of Shell gas and in recent budgets the main rate of corporation tax has been cut currently 19% the aim is to get it to 177% by 2020 other supply side policies include expansion of investment in modern apprenticeships including the youth contract targeting education and human capital for 16 to 18 year olds there have also been some quite significant welfare reforms in including the introduction of a controversial welfare Camp the government has recently launched a national infrastructure plan which involves a significant number of projects around the country focusing on transport in particular and also the launch of the green Investment Bank designed to encourage investment into renewable energy so here are some good examples of supply side policies in action and we'll mention a few more in this short topic video competitiveness lies at at the heart of understanding what supply side economics is about the world economic Forum publishes an annual survey of competitiveness and in 20156 the UK came 10th so what are some of the objectives of supply side policies well I've put together here a list of 10 key supply side as and if you need to jop down some notes just press the pause button and we'll wait for you I think the key when you're discovering supply side policies is to focus on important supply side words incentives Enterprise Technologies including Innovations Mobility flexibility and economic efficiency so supply side policies essentially try to improve incentives for people to look for work and also invest in people's skills in a constantly changing world of work supply side policy polies aim over time to increase the quality of factors of production and thereby improve labor productivity and it's important in the modern labor market for workers to be both occupationally and geographically mobile to help reduce structur unemployment many supply side policies aim to increase the rate of capital investment in factories new technologies and what have you and also to lift the level of research and development spending some supply side polic is focus on product markets designed to make them more competitive more contestable and therefore in time stimulate a faster pace of invention and Innovation both considered important to improve competitiveness if one gets the supply side right the platform is built for sustained growth of GDP without necessarily causing inflation economists call this non-inflationary growth many supply side policies have an Enterprise agenda at their heart they want to encourage the startup and expansion of lots of new businesses particularly businesses that could scale up pretty quickly and become major exporters in the future overall supply side policies try to lift a country's Trend rate of growth of real GDP and they do that by increasing the productive potential of the economy as shown by an outward shift of the ppf overall again supply side policies aim to improve competitiveness and with it improved trade performance and in a world of increasing volatility and vulnerability to climate change and in a world of increasing macroeconomic uncertainty if you have a flexible resilient and diverse supply side countries are better able to meet the challenges of climate change and macro shocks so I think this slide hopefully provides with you for you some key aims some key OB objectives of supply side policies here's one of the aims this shows the rate of unemployment in the UK since 1971 there have been several peaks in unemployment over this time mainly associ associated with recession but notice that each of the peaks in the last three occasions have seen a lower total rate of unemployment the last Peak just over 8% and this could be taken as evidence that the labor market is performing more efficiently so perhaps some supply side reforms in the jobs Market are starting to bear fruit so what about PR market supply side policies these are policies which essentially try to reduce the size of government and expand the the importance and influence of Market forces in allocating scarce resources so people who favor prom market supply side policies tend to favor Cuts in government spending including welfare camps they want taxes on business and taxes on employment to be reduced to stimulate investment and to improve work incentives they favor stripping away some of the red tape the costs of doing business including environmental and health regulations they try to make the labor market as flexible as possible for example encouraging part-time work and flexible hiring and firing they're quite tough on competition policy in particular cartel behavior and PR Market policies tend to favor the transfer of assets held by the state privatized so they're run by the private sector PR market supply side economists also tend to favor opening up an economy to trade and investment for example through cutting tariffs and also many do favor opening up the economy to the inward flow of skilled workers here's an example of the growth of the flexible labor market in the UK which itself is quite controversial we see the rise of zero hours contracts in the labor market now a zero hours contract is where somebody is not guaranteed a minimum number of hours working each week in contrast interventionist or state government-driven supply side policies believe in the important role of the government in improving productive potential and capabilities so these people favor these economists favor increase investment in core Public Services State education the National Health Service and state run mass transport often times they're committed to interventions in the labor market for example a higher minimum wage or a full scale living wage to improve the incentive to work interventionist economists May argue that Progressive taxes on income and wealth are useful not just to reduce inequality to generate the revenue to fund public and Merit Goods interven mention this approach Al also favors a very active Regional policy particularly to drive investment into areas of economic and social deprivation where per capita incomes are much lower some interventionist economists favor selective use of import controls to protect domestic Industries and indeed they may go further and think about management of the exchange rate to improve competitiveness and some interventionist economists believe that nationalization is the appropriate supply side policy or if that's not the case tougher regulation of utilities key Industries here's an example of an intervention in the labor market which we cover in a separate topic video the economics of the minimum wage and the newly formed National living wage if supply side policies work then it's much easier for governments to achieve over time their key macroeconomic policy objectives they can for example improve the tradeoff between inflation and unemployment see our separate topic video on the Philips curve uh Stronger supply side performance makes the economy more resilient to external shocks such as changes in the world price of of oil and other Commodities if supply side policies work per capita income should increase in real terms and the economy can sustain a faster Trend rate of growth and if labor market policies work we can get unemployment down by reducing the level of frictional and structural uny employment finally improved supply side performance should also help a country to achieve a stronger balance of trade in goods and services so there's a lot resting on supply side policies the key is to get the combination of policies right to achieve the desired aims potential GDP in the economy is essentially driven by aggregate supply factors the growth of population how how many people are participating in the labor market the unemployment rate the the hours they work and crucially as you can see here hourly productivity so I go back to what I said at the start that supply side policies fundamentally are all about increasing the productivity of factors of production and increasing the productive capacity of the economy productivity is key when you're discussing supply side policies and one way of showing how an increase in productivity can show through is by an outward shift in long run aggregate supply short run Supply also increases because of lower costs the key point is that if the economy can increase its productive potential then it could operate with a higher level of aggregate demand as shown here by a shift from ad1 to ad2 so this has been an introduction to supply side policies in developed countries with particular reference to the UK economy