Modern Britain

An Economic and Social History

Sean Glynn, Alan Booth, Alan Booth

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000158762
• Edition: 1
• Topic: Economia
• Subtopic: Politiche commerciali

Modern Britain focuses on two major periods of British history; the interwar period, and postwar Britain. The authors compare and contrast developments in the two periods, dealing with the themes of:
* growth and welfare
* industry
* labour
* social policy
* the economy
Combining a narrative with a conceptual and analytic approach, Modern Britain provides an end-of-century review of progress and decline and an essential background to current polemics and major issues of concern. Clearly structured and written, this is an invaluable textbook for students of twentieth century British history.

Chapter 1

Introduction

On almost any reckoning, the 1914-18 war marks a major watershed between the comparatively stable nineteenth-century world system, focused on British hegemony, and the shifting fortunes of the twentieth century. For historians it may be said that the twentieth century commences in 1914. This book deals with British economic and social experience between the First World War and the present. It is essentially an introduction to modern British economic and social history designed principally for first year university and college students and those without a substantial background in the subject and will also be of use to students at Advanced Level GCE.

In a short work of this kind it is inevitable that coverage of detailed developments has had to be heavily circumscribed and we seek to focus on themes rather than giving a blow by blow account of eventualities. In terms of chronology we have taken the two world wars as historical dividing lines. Part I of the book considers developments up to the end of the Second World War and Part II deals with the period since. Within these broad sub-periods we examine the main features of economic and social development under a number of headings which are intended to inject a more orderly and analytical approach to the examination of change than a simple chronological catalogue might.

There is now a formidable body of literature on twentieth-century economic and social history which is still growing at a rapid rate. In the past two decades there has been a flood of a new writing on twentieth-century Britain. Much of the textbook literature, particularly on the period since 1945, is for advanced and specialist students and this book seeks to fill a gap in general literature. Any exercise in contemporary history gives hostages to fortune and runs the risk of soon being superseded while the pitfalls of writing recent history are well known and have been much discussed there is, nevertheless, an undoubted importance in seeking to understand the developments which have shaped our present and we hope that what follows will make some contribution to future interpretation as well as present understanding.

RELATIVE ECONOMIC DECLINE

By the end of the First World War, three great empires (Ottoman, Austrian, Russian) had collapsed, the map of Europe was being redrawn, and the United States had clearly superseded Britain as the world’s leading economic and financial power. Nevertheless, Britain’s relative decline was a protracted process which did not depend simply upon economic developments. It is inevitable that one of the themes of a book of this kind should be this question of decline which is an endless issue in modern British economic historiography. Ironically, Britain’s loss of position in the world order has taken place against a background of by far the most dramatic improvement in material standards in any comparable period of history. Our theme, therefore, is one of decline and progress. In the absence of relative decline Britain’s material and social progress since 1914 would surely be regarded as something truly remarkable. Unfortunately Britain’s phenomenal material and social progress in the twentieth century has been tarnished by better performance elsewhere. By the end of the twentieth century Britain had been overtaken in terms of real GDP per capita by most industrial nations and had fallen badly behind the leaders. In the dramatic words of Sidney Pollard (1982: 3): ‘Britain is no longer counted amongst the economically advanced nations of the world. A wide gap separates her from the rest of industrialised Europe. The difference as measured in national product per head between Britain and say, Germany, is now as wide as the difference between Britain and the Continent of Africa.’ In fact, Britain may not have slipped quite so badly as this well-known but controversial comparison suggests; but other measures, in terms of ‘purchasing power parities’ (see below pp. 189-90), tell an essentially similar if less dramatic story.

Much of this relative decline has taken place since 1950 and it was only in the 1960s and later that the British people became painfully aware of the drift. However, the beginnings of comparative deficiencies in economic performance can be detected from the late nineteenth century and the causes have been traced to the nature of the Industrial Revolution in the late eighteenth and early nineteenth centuries (Crafts 1985). Throughout the first half of the twentieth century war and depression disguised and retarded the process of relative decline to some extent but in the long post-Second World War boom Britain lagged well behind other countries in the league tables of economic growth rates which began to attract so much attention. By the late 1960s it was no longer possible to explain these differences in terms of postwar recovery or catching up. It was concluded that Britain had a long-run tendency to grow less rapidly than virtually all other industrial nations. It is possible that during the 1980s Britain began to experience a process of relative acceleration against other industrial economies such as Germany but we cannot be sure of this without the benefits of perspective. In dealing with very recent history there are serious problems in distinguishing trend from cycle and these can only be definitively resolved in the longer run.

Was British relative decline inevitable? The answer must surely be in the affirmative up to a point. In retrospect much of the British hegemony was based upon what might be termed exceptional and essentially fortuitous short-run circumstances. Geographical position and short-run military (primarily naval) supremacy enabled Britain to capture the ‘lion’s share’ of imperial territory and influence. The world was finite and much of it was already British by the time other nations took up the challenge (Kennedy 1988). Similarly, a financial and commercial system with Britain as its hub was created during conditions of quasi-monopoly. The Industrial Revolution which had made this imperial, financial and commercial strength possible, was based upon exceptional and highly unusual circumstances. The industrial base was suprisingly narrow, depending heavily on a relatively small group of so-called ‘old staple’ industries of which cotton, wool, coal, iron and steel, shipbuilding, railways and engineering were the base. Prowess in these areas was established through the development of a craft-based production system with the majority of workers receiving no formal education beyond basic literacy and no technical education other than on-the-job experience (Sanderson 1988). The essential feature of the Industrial Revolution had involved the early creation of an industrial work-force, and a rapid running down of agriculture, at low levels of income and productivity (Crafts 1985). In the century before 1914 the British balance of payments became increasingly dependent upon invisible overseas earnings and visible exports covered visible imports in only four highly exceptional years in the century before 1939. Thus British supremacy owed much to highly exceptional, short-run circumstances, both at home and abroad. While industrial leadership played a critical role, the industrial system and base was far from being the whole explanation and was, in any event, both weak and, in the long-run was to prove inadequate (Kirby 1981).

In the late nineteenth century British hegemony was challenged. Meanwhile, on the domestic front moves towards democratisation created political, social and economic pressures for change. Industrialisation before 1914 had enabled Britain to support a much larger population without a fall in living standards but the standard of life for the majority failed to match aspirations, and by the late nineteenth-century problems of extensive poverty and unemployment and poor living conditions had begun to attract increasing attention (Harris 1972; Stedman Jones 1971). Any understanding of Britain’s relative decline must address the failure to meet these external and internal challenges. There were, of course, degrees of success and the essential questions are first, could Britain, having gained economic leadership have maintained it, or retained it longer? Second, could British living standards have remained in the vanguard of the industrial world? These are, of course, counterfactual questions which may never be answered in a totally satisfactory way. They are, nevertheless, essential reference points for modern economic history.

EXPLAINING RELATIVE ECONOMIC DECLINE

Unfortunately there has been both confusion and disagreement about the nature, extent and causes of Britain’s relative decline. Definitions and explanations have varied enormously, reflecting different interests and ideologies as well as current fashions in economic and social theory. As a result, generalisation is both difficult and hazardous. In what follows we do not attempt a full and systematic review of all the explanations offered since that would be impossible in the space available and, in any event, inconclusive since there is no consensus. Nor do we attempt the comparative international investigation which is arguably a necessary feature of a full explanation.

There is a measure of agreement that British decline is based on a comparative industrial failure, in terms of relative efficiency, but much disagreement and confusion on its origins and causes. Some commentators have stressed the supply side, giving particular attention to the quality and management of labour and the supply and deployment of capital inputs. But attention has also been given to the configuration and development of market demand and the influence of this on production systems and possibilities. Others have stressed the importance of influences from outside industry including, in particular, the role of institutions, government, economic policies and elite culture. Insofar as relative economic decline was not inevitable, it can be attributed to decisionmaking processes or to institutional failure. Either wrong decisions were made or industrial efficiency was not the first priority in resource allocation.

It is increasingly asserted that Britain failed to make sufficient effort to improve labour quality and management skills through investment in human capital (Crafts and Thomas 1986; Gospel 1992; Sanderson 1988). Attention has also been given to the failure to increase and sustain investment in manufacturing industry (Pollard 1982). Neglect of the manufacturing base has been emphasised, both in terms of an antiindustrial elite culture (Wiener 1981), and the excessive burden of government spending (Bacon and Eltis 1976). It has been suggested that British industry may have become focused on areas with less potential, in particular, empire and Third World markets, rather than First World markets including Europe (Cain and Hopkins 1993a). The domestic market may have suffered from a highly uneven income distribution and consumer demand constraint, leading to a haemorrhage of capital into overseas investment (Hobson 1896; Glynn and Booth 1983a). Thus we already have a bewildering variety of possible lines of explanation involving alternative resource deployments. Others have suggested that there was both institutional and market failure (Elbaum and Lazonick 1986; Olson 1982). All of these, and other views, contain important insights and observations, but all have been questioned, and no particular view seems to have gained general acceptance (Coates 1994).

With foreign commentators, in particular, the British Empire has often been given a central role in Britain’s rise to prominence and loss of empire has been seen as the major influence in subsequent decline. While the formal colonial empire may have enriched and provided an outlet for British individuals, its social benefits appear to have been relatively minor and it played a relatively small part in the main process of British income generation (Cain and Hopkins 1993a). From the later decades of the nineteenth century British industry and finance appears to have become geared into relationships with third world and imperial markets rather than seeking to integrate into and compete with First World systems. In the twentieth century British political leaders continued to pursue great power status and this may have had damaging consequences for industry, particularly in the period after the Second World War. Heavy outlays on military and other government expenditure may have been a source of balance of payments weakness as well as a diversion of R & D effort from more orthodox channels. Also, the pursuit of imperialist or great power objectives appears to have been a major influence on Britain’s failure to play a leading part in European integration (Young 1993; Chalmers 1985).

Economists and economic historians have given a great deal of attention to differences in income levels between nations (Maddison 1987). The general conclusion is that development cannot commence until a backward country acquires certain minimal levels of economic organisation, educational attainment, and political and social stability. By the late nineteenth century several countries possessed this basis for development which combined with the ‘economic advantages of relative backwardness’. The latter included a greater awareness in more backward nations of the need for change on the part of both governments and individuals, the ability to borrow from leaders through transfers of capital, technology and methods of organisation and the opportunity of transferring labour from less efficient sectors, including agriculture, and thus improving productivity. In some cases these advantages were augmented by social upheavals resulting from disruptive events such as war or revolution which, subsequently, allowed more rapid change to take place (Gerschenkron 1962; Feinstein 1990b).

The logical outcome of theories of this kind should, of course, be longrun convergence. To what extent does this fit the British experience? Britain was unique in having the first ‘Industrial Revolution’ which occurred spontaneously as a result of fortuitous circumstances (Mokyr 1985; Crafts 1985). However, a group of other nations were never very far behind and it is surely inconceivable that a small offshore island with only 2 per cent of world land and population and a narrow resource base would continue to dominate economic and industrial development for very long. In particular, the transfer of organisation and technology between leader nations was a comparatively easy matter. From the late nineteenth century other nations began to exploit the economic advantages of backwardness, generating higher rates of economic growth than Britain. In Europe it had long been British policy to prevent the emergence of a dominant continental influence through balance of power diplomacy and limited indulgence in warfare. However, with the unification of Germany in the 1860s this strategy began to fail. Meanwhile, across the Atlantic another great continental power was emerging. The German challenge produced two world wars in which Britain was a major participant. These depleted British resources while serving only to delay rather than prevent the German advance. In the event, it was the United States which replaced Britain as world leader and this process was accelerated by two world wars focused on Europe (Kennedy 1988).

The USA had higher income levels than Britain even before industrialisation. This reflected superior natural endowments and abundant resources in relation to population. By 1900 the USA was beginning to challenge Britain as an industrial power. Productivity levels in the USA during the next 30 years raced ahead of Britain so that by the 1920s US industrial workers may have produced twice as much per head as British. It could be argued, therefore, that at an early stage in the present century Britain was beginning to acquire some of the economic advantages of backwardness. By the 1960s these began to be enhanced in relation to other nations, but Britain’s relative economic decline continued, particularly in terms of comparative industrial productivity, and this was reflected in declining relative income levels (Crafts 1988).

Thus it may be suggested that arguments in terms of the advantages of relative economic backwardness and consequent convergence appear to have some relevance, but even allowing for overshoot and short-run policy failure, they do not at present appear to provide a full and convincing explanation for Britain’s relative economic decline. Alternative explanations must rely either upon resource constraints or upon the development and deployment of resources being in some way inadequate. In turn the latter implies either institutional or market failure or failure on the part of government to remove barriers to modernisation and change.

It is agreed by most commentators that Britain’s balance of payments weakness and relatively slow growth emanates from an inadequate and comparatively inefficient industrial base. However, during the 1980s there was some support, particularly at government level, for the idea that Britain could succeed as a service economy and it became fashionable to deride concern about de-industrialisation (Conservative Party 1992). Wiener has interpreted industrial failure as being the consequence of an anti-industrial culture (Wiener 1981). Olson, on the other hand, has suggested that in more stable societies vested interests tend to accumulate with the effect of creating barriers to rapid economic change (Olson 1982). Societies which are disrupted by revolution or war, particularly where there is occupation and or defeat, have fewer disadvantages in generating rapid economic change.

Approaches of this kind may provide partial explanations of short-and medium-term relative decline, although it seems likely that, in the long-run, cultural and institutional barriers to change in advanced economies are likely to be overcome by the relative advantages and pressures for change which result from backwardness. There can be little doubt that such pressures now exist in British society and act as an influence on both government and other decision-making.

ECONOMIC CHANGE

In the chapters that follow, the process of economic change in Britain during this century is outlined and examined in some detail. Economic growth, as conventionally defined and measured in terms of the increase in real GDP per head, has been a major focus of attention since the emergence of national income accounting in the 1940s. Britain’s combination of historically fast but relatively slow growth since 1900 (an average long-run growth rate of about 2-2½ per cent per annum) has generally been seen as below what could have been achieved and thus major opportunities for enhanced production have been lost. Nevertheless, in the present century almost the entire population has come to expect to be fully satisfied in terms of the basic material needs such as food, clothing and shelter, and remaining deficiencies in these areas became qualitative rather than quantitative. While problems of supply were largely solved, those of distribution were not, and this was illustrated at the end of our period by the egregious example of people living in cardboard boxes in parts of central London.

By 1914 the proportion of employment in agriculture and manufacturing had reached peak levels and subsequent employment growth was in services. This configuration reflected income and productivity effects, but from the 1970s there was increasing concern about ‘deindustrialisation’ and, in the 1980s, Britain became a regular net importer of manufactured goods for the first time since the Middle Ages. In the seven years before 1914 Britain had a large current account surplus and more new capital was invested abroad than at home. The strength and reliability of sterling at this time went without question. From the end of the First World War there were persistent balance of payments weaknesses although these were partially concealed by heavy unemployment in the interwar years. The ‘financial Dunkirk’ which Keynes predicted after the Second World War was, in the event, less dire than expected but the ongoing weakness on external account was to prove not only an intractable problem but, in reality, the essential manifestation of modem economic failure. The persistent decline in the relative value of sterling matched the diminution in Britain’s influence and prestige.

Nevertheless, the economy continued to deliver and Britain retained its place as one of the world’s richer nations. Living standards remained at First World levels and there was a good deal of economic success blended with the indifference and failure. Britain continued to make a major contribution to international advances in technology and lifestyles and some leading British companies continued to play a significant and successful international role. On the conventional definition, living standards by the late 1930s were almost double the pre-First World War level. After the Second World War standards doubled again. In terms of distribution of income and wealth there was considerable change between 1914 and about 1950, largely as a result of fiscal and welfare inno...