The British Economy after WW I

The British Economy after WW I Intro: Britain as Winner of WW I Economic Sectors & the Economic

CrisisBankingShippingCoal MiningTextiles Industry

Trade Unions in the 1920s, The General Strike

Government Action & Inaction Summary

Britain as ‘winner’ of WW ILargest expansion of the Empire due to gains

from German colonies & territories from the Ottoman Empire

Main competitor (Germany) off the market for some time

War-time controls abolished in 1919 Post- conflict economic boom 1919-21From 1921 onward: large & long-term

unemployment

- BankingInvestment/merchant banks most obvious

loser of the war: had facilitated government borrowing

(= debt) abroadHuge deficit first time since 1815=> City lost role as ‘banker of the world’

Consequence: US interest rates 0.5-1.5% lower

=> loss of earnings => increased strain on balance of

payments (Trade balance long since

negative)

Division of Banking sector:

’big 5’ commercial banks (Barclays, Lloyds, Midlands, National Provincial, Westminster) controlling 2/3 of the market, rest are local banks.

Providing short-term credit for industryMerchant/Investment banks: raising money

for government & foreign investors, little connection to domestic industry

Claim that German ‘universal banks’ better in supplying loans to industry

= ‘big 3’ (Deutsche, Dresdner, Commerz) dealing mainly with big business & sitting on supervisory boards of companies influencing decisions

British commercial banks with little influence over businesses to make them merge and ‘R’ationalise (J.Wilson)

Some limited success by Bank of England to facilitate mergers

BoE = private bank allowed to act (with others) as central bank (issuing bank notes)

BoE blunder: advised government to return to gold standard in 1925

Investment banking during 1920 only able to maintain foreign assets (after sell off of ¼ pre-war assets), no expansion => no longer fit for purpose

Impact on balance of paymentsOpinion now that banks NOT responsible for

poor industrial performanceServed economy (esp. new industries) at

least sufficiently

Shipping IndustryPre WW I: Britain has largest merchant fleet

& biggest production capacityTechnological advantages in iron steam ship

production2/3 of production at Tees, Tyne & Wear (coal

shipping) & ClydeLiverpool: liners; Belfast & Barrow i.F. navy

ships (Vickers-Armstrong)20% of launches for export

Sever war losses of shipping (U-boats) => expectation for new orders

1909-13 average annual launch of 1.5 mio tons, in 1913 record 1.9 mio tons

1920: just over 2 mio tons1923: > 650,000 tons1924: 1.4 mio tons1926: 640,000 tons1929: 1.5 mio tons

Reason for bad performance:No navy contracts after 1918 => navy

yards competing in civilian sectorExpanded launch capacity (world-wide

doubling between 1913-21 => overcapacity

Foreign competition in new sectors; decline of old sectors; inability to adapt to new trend & demands (diesel engine); foreign subsidies & overvalued pound

Modern ships are more efficient carriersDecline in world trade & shipping

By 1920 capacity for 4 mio tons merchant vessels => overcapacity => high unemployment rate

Contributing factors: TU rivalryYard owners slow to adapt to new technologiesOutdated & unsuitable yards; from late 1920s

onward slow reduction of capacity

Coal MiningKey sector for industrialisationHighest ever output in 1913: 287 mio tonsBy 1918 down to 231 mio tons

Reasons:Lack of manpowerCollapse of exports (1/3 of 1913 production: 98

m tons, down to less than 50 m tons)

Further export losses after re-introduction of Gold Standard in 1925

Colliers’ reaction: wage cuts => 1926General Strike

Reasons for bad performance:Lower productivityLack of mechanisationStructural weakness of the sector

Caused by:Management unwillingness to moderniseLack of management trainingConfrontational style towards miners

Textile IndustryCotton textiles to spark industrial revolutionBy 1880 80% of cotton textiles export from GBEconomic & psychological impactEffect on machine tool manufacturingPre WW I largest manufacturing sector with

620,000 employeesBy 1913 still 55% of world cotton textile export

in value termsBiggest market: India (taking 45% of exports)

=> overreliance & complacency

Traditional (full) functional division of sectorNo economy of scale: specialised, small batch

low quality production for (mainly) exports

By 1914 USA leading with ring spindle & automatic looms & vertically integrated production

Little war impact (except reduced cotton imports)

Post war boom: credit-financed expansion,but not modernisation => high debts when boom ended

Massive reduction of exports

Reasons for export decline:New cotton mills in IndiaFrom 1923 onward 11% Indian import tariff Japanese competition

=> By mid 1930s GB overtaken as biggest textile exporter

Response: Very slowMergers & rationalisation only from late

1920s onwardIntervention by BoE, fearing for loan

providing banks1929 biggest merger: 96 firms (109 mills)

forming Lancaster Cotton Co-operation

Counterclaim: British market not large enough to adopt US production methods

10 min BREAK

Trade UnionsOrigins: ‘old’ and ‘new’ UnionsMembership:

1900: 1.9 m1914: 4 m1918: 6 m1920: 8.3 m

After 1917/18 little radicalisation but move to the left (1918 Labour Party manifesto)

Strikes often directed against war-time profiteering or in self-defence against wage cuts

1921 Triple Alliance: Railway Union, Transport Union, Miners Union

1925 Miners threatened with wage cuts => 1926 TUC forced to call General Strike

Result: after of the General strike, near collapse of union militancy;

Shift in union power from miners union to TUC & TGWU (Bevin)

Tougher TU legislationFalling union membership:

1926: 5.2. m1932: 4.4 m (partly because prices falling

faster than wages)

Government1850-1900: laissez-faire governmentChanges with 1906 Liberal Government (D.

Lloyd-George, W. Churchill) in wake of Boer War

WW I seen huge government intervention to keep war effort goingTaking over running of coal mines & railwaysSetting up government (armaments) factories

=> becoming major employerSetting higher standards for

working conditions & payIntervening directly into labour

disputesAbandons gold standard in 1914

Politically unstable decade

Agreement by all 3 parties in power: return to Gold Standard necessary for

economic recovery => Deflationary policy

1925 Re-introduction of GS at pre-war parity 1£ = $ 4.86

2 Problem: GS not cause, but result, of pre WW I

economic stabilityPre-war exchange rate at least 10%

overvalued=> loss of export competitivenessLess revenue & rising unemploymentIncreased gvmt spendingIncreased deflationary policy to avoid

speculation against £

1931 GS abandoned and £ floated,

=> improving internat. competitiveness,

but by now impact of Wall Street crash

Summary

1920s a decade exposing structural problems

Problems blamed on:Banks and managementExternal factorsTUsGovernment