lecture 2- british economy after ww1
TRANSCRIPT
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The British Economy after WW I
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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
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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
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- 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’
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Consequence: US interest rates 0.5-1.5% lower
=> loss of earnings => increased strain on balance of
payments (Trade balance long since
negative)
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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Further export losses after re-introduction of Gold Standard in 1925
Colliers’ reaction: wage cuts => 1926General Strike
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Reasons for bad performance:Lower productivityLack of mechanisationStructural weakness of the sector
Caused by:Management unwillingness to moderniseLack of management trainingConfrontational style towards miners
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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
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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
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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
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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
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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
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10 min BREAK
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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)
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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
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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)
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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
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=> becoming major employerSetting higher standards for
working conditions & payIntervening directly into labour
disputesAbandons gold standard in 1914
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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
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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 £
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1931 GS abandoned and £ floated,
=> improving internat. competitiveness,
but by now impact of Wall Street crash
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Summary
1920s a decade exposing structural problems
Problems blamed on:Banks and managementExternal factorsTUsGovernment