1. Britain’s economic decline 1945-1979

2. 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 was the ‘sick man of Europe’.

3. What is economic decline?
Absolute Vs relative decline
GDP growth
UK US France Germany Italy Japan

4. GDP per head and purchasing power parity UK US
Germany
France n.a. n.a
Italy
Japan n.a. n.a
Source: Liesner, Economic Statistics , and NatWest Bank

5. 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'.

6. 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

7. 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).

8. 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.

9. 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.

10. 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.

11. Britain and world trade in manufactures, 1899 - 1937
British exports: to World exports: to British
industrial all industrial all imports
countries markets countries markets
Source: Maizels, 1955

12. 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
Jap
Ger
USA BR

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

14. Data links:

15. 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.

16. 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…

17. 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

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

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

20. Consumerism
Result was inflation and balance of payments crisis.

21. United Kingdom Balance of Trade, 1948-2009

22. 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."

23. 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

24. 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.

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

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

27. Thatcher’s economy and the end of the decline?
Industrial relations improved dramatically. The number of days lost to strikes per 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.

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

29. 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