6. British Economy from 1900 to 1945

By 1900 the United States and Germany, had developed large-scale industries; Britain’s comparative economic advantage had lessened. London did remain the financial and entrepreneurial capital of the world, until challenged by New York after 1918. The war saw an expansion of economic production, but also forced Britain to use up its financial reserves and borrow large sums from the U.S.

By the turn of the 20th century, Britain’s economic fortunes were in relative decline. Germany and the United States were growing faster and became the biggest competitors in terms of world markets.

Even with the decline, in 1914 London was still the center of international payments, and a large creditor nation, owed money by others. In industrial cities a boom was created by the First World War. In Scotland, for example, the shipbuilding industry expanded by a third.

Politics became a central issue for the coal miners, whose organization was facilitated bytheir location in remote one-industry villages. The Miners’ Federation of Great Britain formed in 1888, and counted 600 000 members in 1908. Much of the “old left” of British politics can trace its origins to coal-mining areas. The General Strike of 1926 was led by and for the benefit of coal miners, but it failed. The Labor government in 1947 nationalized coal into the National Coal Board, giving miners access to control of the mines via their control of the Labor party and the government. By then, however, the best seams had played out and coal mining was headed downward. Coal production was 50 million metric tons in 1850, 149 million in 1880, 269 million in 1910, 228 million in 1940, and 153 million in 1970. The peak year was 1913, with an output of 292 million tons. Mining employed 383 000 men in 1851, 604 000 in 1881, and 1 202 000 in 1911.

6.1　Postwar Stagnation

The human and material losses of the war were enormous. They included 745 000 servicemen killed and 24 000 civilians, with 1.7 million wounded. The total of lost shipping came to 7.9 million tons （much of it replaced by new construction）, and £7 500 million in financial costs to the Empire. Germany owed billions in reparations, but Britain in turn owed the U.S. billion in loan repayments.

With the end of war orders a serious depression hit the economy by 1921-22. Indeed the whole decade was one of stagnation. The most skilled craftsmen were especially hard hit, because there were few alternative uses for their specialized skills. In depressed areas the main social indicators such as poor health, bad housing, and long-term mass unemployment, pointed to terminal social and economic stagnation at best, or even a downward spiral. The heavy dependence on obsolescent heavy industry and mining was a central problem, and no one offered workable solutions. The despair reflected what Finlay （1994） describes as a widespread sense of hopelessness that prepared local business and political leaders to accept a new orthodoxy of centralized government economic planning when it arrived during the Second World War.

In 1919 Britain reduced the working hours in major industries to a 48-hour week for industrial workers. Historians have debated whether this move depressed labor productivity and contributed to the slump. Scott and Spadavecchia argue that productivity was in some ways enhanced, especially through higher hourly productivity, and that Britain did not suffer in its exports because most other nations also reduced working hours. Looking at coal, cotton, and iron and steel, they find that Britain did not suffer any significant relative productivity lossin these industries.

By 1921, more than 2 000 000 Britons were unemployed as a result of the postwar economic downturn. By 1926, the economy was still struggling, the general strike of that year doing it no favors. Industrial relations briefly improved, but then came the Wall Street stock market crash in October 1929, which sparked the worldwide Great Depression. Unemployment had stood at less than 1 800 000 at the end of 1930, but by the end of 1931，it had risen sharply to more than 2 600 000. By January 1933, more than 3 000 000 Britons were unemployed, accounting for more than 20% of the workforce. The rest of the 1930s saw a moderate economic recovery stimulated by private housing. Unemployment fell to 10% in 1938.

Chancellor of the Exchequer Winston Churchill returned Britain to the gold standard in 1925, which some economic historians blame for the mediocre performance of the economy. Other point to a variety of factors, including the inflationary effects of the World War and supply-side shocks caused by reduced working hours after the war. Baldwin resolved the General Strike of 1.5 million workers 1926 without violence after nine days.

6.2　The Great Depression

In 1929, the Wall St. Crash affected Britain resulting in leaving the Gold Standard. Whereas Britain had championed the concept of the free market when it was ascendant in the world economy, it gradually withdrew to adopting Tariff Reform as a measure of protectionism. By the early 1930s, the depression again signaled the economic problems the British economy faced. Unemployment soared during this period; from just over 10% in 1929 to more than 20% by early 1933. However, it had fallen to 13.9% by the start of 1936.

In political terms, the economic problems found expression in the rise of radical movements who promised solutions which conventional political parties were no longer able to provide. In Britain this was seen with the rise of the Communist Party of Great Britain（CPGB） and the Fascists under Oswald Mosley. However, their political strength was limited and they never posed any real threat to the conventional political parties in the U.K..

Tourism grew rapidly in the interwar years because of the rapidly rising number of motorized middle-class and lower-middle-class vacationers. However, those tourist sites that catered to the very wealthy or to American tourists, or were located in depressed areas, all experienced a decline in profits, especially during the Great Depression.

6.3　Second World War

In the Second World War, 1939-45, Britain had a highly successful record of mobilizing the home front for the war effort, in terms of mobilizing the greatest proportion of potential workers, maximizing output, assigning the right skills to the right task, and maintaining the morale and spirit of the people. Much of this success was due to the systematic planned mobilization of women, as workers, soldiers, and housewives, enforced after December 1941 by conscription. The women supported the war effort, and made the rationing of consumer goods a success.

Industrial production was reoriented toward munitions, and output soared. In steel, for example, the Materials Committee of the government tried to balance the needs of civilian departments and the War Department, but strategic considerations received precedence over any other need. Highest priority went to aircraft production as the RAF （Royal Air Force） was under continuous heavy German pressure. The government decided to concentrate on only five types of aircraft in order to optimize output. They received extraordinary priority. Covering the supply of materials and equipment and even made it possible to divert from other types the necessary parts, equipments, materials and manufacturing resources. Labor was moved from other aircraft work to factories engaged on the specified types. Cost was not an object. The delivery of new fighters rose from 256 in April to 467 in September—more than enough to cover the losses—and Fighter Command emerged triumphantly from the Battle of Britain in October with more aircraft than it had possessed at the beginning. Starting in 1941 the U.S. provided munitions through Lend Lease that totaled $15.5 billion.

After war broke out between Britain and Germany in September, Britain imposed exchange controls. The British Government also decided to sell its gold reserves and dollar reserves to pay for munitions, raw materials and industrial equipment from American factories. By the third quarter of 1940 the volume of British exports was down 37% compared to 1935. Although the British Government had committed itself to nearly $10 000 million of orders from America, Britain’s gold and dollar reserves were near exhaustion. The American Government decided to prop up Britain as it neared bankruptcy, so on 10 January 1941, they produced a bill entitled “An Act to Promote the Defense of the United States” （its number, H.R. 1776, was the year of American independence） which was put before the United States Congress and which was enacted on 11 March 1941. This Act became known as Lend-Lease, whereby America would give Britain cash totaling $31.4 billion which never had to be repaid.One month later British gold and dollar reserves had dwindled to their lowest ever point, $12 million. Under this new agreement with the American Government, Britain agreed not to export any articles which contained Lend-Lease material or to export any goods—even if British-made—which were similar to Lend-Lease goods. The American Government sent officials to Britain to police these requirements. By 1944 British exports had gone down to 31% from 1938. Lend-Lease created problems in reviving Britain’s exports after the war.