Britain’s economic decline 1945-1979

Key Questions Assess Britain’s economic performance between 1945 and 1990. Was Britain in economic decline after 1945? Examine the contention that Britain in the period 1951-1979 was the ‘sick man of Europe’.

What is economic decline? Absolute Vs relative decline GDP growth UK US France Germany Italy Japan 1900-13 1.5 4.0 2.6 2.9 2.6 - 1920-29 1.7 3.8 5.9 4.1 2.6 - 1929-38 1.9 0.1 -1.9 2.7 1.1 6.2 1950-60 2.7 3.3 4.6 8.0 5.5 8.8 1960-73 2.3 4.2 5.6 4.4 5.3 10.4 1973-79 1.6 2.7 3.1 2.4 2.6 3.7 1980-90 2.1 2.3 2.3 2.0 2.4 4.2

GDP per head and purchasing power parity 1900 1920 1950 1970 1990 UK 1249 1267 1888 3003 5150 US 1463 2006 3383 5100 7255 Germany 940 1086 1355 3601 5335 France n.a. n.a. 1515 3354 5294 Italy 690 810 1067 2836 5008 Japan n.a. n.a. 533 2925 5722 Source: Liesner, Economic Statistics 1900-1983, and NatWest Bank

British economy 1945-1979 In the late 19th century, Britain had been the ‘Workshop of the world’. At its peak Britain was manufacturing 54% of the finished products in world trade. By the 1960’s, virtually all European countries, except for Britain, had so-called 'economic miracles'. Britain was often described as the 'sick man of Europe'.

The reasons for the decline can be classified into the following categories: 1) Sectoral Shift, Globalisation and Natural processes 2) Impact of the two world wars and the Great Depression 3) Defence expenditure and world power aspirations 4) Trade Unions 5) Consumerism 6) Oil crisis ’73 7) Other

1) Sectoral Shift Britain was going through a period of sectoral shift for most of the century. Br. Moved from being an industrial economy to a post-industrial, service based one. The transition was not smooth, and created social disruption. Central gov. (despite keynesianism) had only a marginal role in controlling events (responsive rather than directive).

1) Globalisation The rise of competition in NIC’s (cheaper labour, lower taxes) eroded Britain’s share of global markets. For example, Japan in the 50’s and 60’s and the four Asian Tigers by the late 1960’s. However, how far this process cost the British government is unclear.

1) Natural processes “Any technological or organisational lead will eventually be eroded, as other countries learn from the pioneers; and this will be reflected in the newly industrialising economies exhibiting a more rapid growth rate than the more mature economies. It is unreasonable to expect that a country as small as the UK could remain the largest economy in the world, as it was in 1850; or that it could continue to account for 40% of world manufactured exports, as it did in the second half of the nineteenth century.” -David Kern, Chief economist at the British Chamber of Commerce.

2) Impact of the two world wars and the Great Depression Loss of markets (especially to the US and Japan) after WW1 and WW2. Focus of industry towards war production. Investment in war industries. Lack of resources for industrial development.

Britain and world trade in manufactures, 1899 - 1937 British exports: to World exports: to British industrial all industrial all imports countries markets countries markets 1899 479 1327 1923 3677 545 1913 624 1960 3248 6497 763 1919 537 1821 4212 8936 810 1929 1547 5176 11272 23841 2115 1937 1056 4034 8031 19895 1692 Source: Maizels, 1955

3) Defence expenditure and world power aspirations Britain spent too much on defence and not enough on investment. % of R and D budget spent on defence 1963-1965 1976-1979 Jap. 0.9 0.6 Ger. 10.8 6.2 USA 40.6 25.4 BR. 34.5 29.3

Britain’s defence expenditure in 1946 was 69% of all government spending! It was 29% of all government spending in 1952.

Data links: http://www.guardian.co.uk/politics/interactive/2010/oct/15/comprehensive-spending-review-2010-public-spending http://www.ukpublicspending.co.uk/year_spending_1952UKmt_12mc1n_30#ukgs302

3) Defence expenditure and world power aspirations Dean Acheson ‘Britain had lost an Empire, but had yet to find a role .» Part of that was Britain’s desire (whether Labour or Tory) to attempt to keep herself as a global power, but no longer being able to.

4) Were the Trade Unions a barrier to growth? Worker-management relations were poor in the ‘60’s and ‘70’s. Stoppages, strikes, go-slows, etc…were a serious hinderance to the economy. Unions used their power as a political tool rather than using it for the interests of their members. However…

Were the Trade Unions a barrier to growth? Union strength shouldn’t be overstated Unions didn’t create the economic circumstances, they reacted to them. Unions cannot be powerful in a weak economy Sectoral shift meant that the Unions were always fighting a losing battle to keep jobs, wages. Most negotiations were peaceful

5) Consumerism The post war period saw a continuous rise in living standards. MacMillan in ‘57 « You’ve never had it so good »

Consumerism Wages and purchases were increasing as the economy was declining Purchases were mainly imports so hurt the economy

Consumerism Result was inflation and balance of payments crisis.

United Kingdom Balance of Trade, 1948-2009

Consumerism One campaign to steer consumers towards British-made goods was launched in 1968 by former Prime Minister Harold Wilson under the slogan "I'm Backing Britain."

6) Oil crisis ‘73 Between 1972 and 1980, oil prices rose from 2 dollars a barrel to 35 dollars. Created a severe recession in Britain Balance of payments deficit rose to 1 billion pounds Inflation rose to 16% Unemployment doubled

7) Other Inadequate training and poor management have been blamed. The UK’s distinction in not being invaded and occupied in war and thus the continuance of entrenched interests and ways of doing things. There has been criticism of the ‘short-termism’ of powerful investment institutions, that have been said to have been more interested in short-term financial return than in long-term industrial success.

7) Other Lack of investment in industry and infrastructure on the part of successive governments. Correlli Barnett (a historian) blames the Labour government of 1945-51 in particular for this (see handout).

Thatcher’s economy and the end of the decline? GDP growth 1980-1989 % change p.a. UK 2.4 US 2.5 EU 2.2 OECD 2.7

Thatcher’s economy and the end of the decline? Industrial relations improved dramatically. The number of days lost to strikes per 1 000 employees in the UK in 1992 was 20, compared with an OECD average of 110. The 1980s also saw a burst in entrepreneurship, with greater rates of new business creation than ever before.

Thatcher’s economy and the end of the decline? - Turn to the handout by Larry Elliott, The Guardian economics editor. 2013.

Summary Chief reasons for British economic decline: Sectoral Shift Defence commitments and world power aspirations Legacy of Two World Wars Welfare State Poor industrial relations Costs of joining EEC in 1973 Oil crisis 1973 Lack of industrial development