BAE Systems and Welcome!

Welcome to Birmingham! Term has just started in earnest, and if you've just arrived to start your first year here, a particular welcome! Come second term, after Christmas, you'll have me lecturing you on macroeconomics for econ101b, while currently you have Martin Jensen for econ101a, Principles of Microeconomics.

Both terms we'll be teaching the basics of economics and attempting to apply them to events happening in the world around us. One such event that is happening today is that BAE Systems is announcing the shedding of a large number of jobs. This is being billed as very bad news for the economy, and undoubtedly it is not great news since it is people losing jobs, losing incomes, at a not particularly bright time economically.

However, such a superficial analysis is bad, and has potentially troubling implications. The analysis is very short term in nature, and implies that perhaps governments should be doing more about things like this. It's short term because BAE is acting now to keep itself in good business shape moving towards the future - it will be more profitable as a result, and will exist longer into the future, providing jobs throughout the UK for longer.

It's also a partial analysis in that it considers just one firm in just one industry - and also makes the suggestion that we should be protecting this particular industry since it is a UK based exporter. But should we? You will learn (or be reminded) about perfect competition this term, notably the idea that in an ideal situation, firms will expand until all profit opportunities are exhausted, and also will exit markets for which profit opportunities have turned into loss-making enterprises. Clearly, in its current shape, BAE is not profitable, and if it is to be supported in that shape, it will become bloated and uncompetitive on a global stage - exactly what we apparently most want in the UK economy.

Instead, these skilled workers should be allowed to move to other companies or industries, allowing them to grow where there are profitable opportunities - and such growing industries will almost certainly export, and even if not, they will be producing what people want (since they are profitable).

There is no reason for government to get in the way of this and thankfully the signs are good. By not getting in the way will the government achieve this aim of "rebalancing" the economy - they will allow, if red tape is cut, businesses to grow in areas where there is demand, as opposed to offering tax breaks to any particular industry - such favourable treatment for any industry will only result in more of the same.

So: I hope you're looking forward to studying here at Birmingham and challenging your perceptions about real world events using the tools of economists. See you next term!