In the last year of Queen Victoria reign in 1901, Britain exported one-third of the world's production of manufactured goods, one third more than Germany, and three times that of the United States. Britain's management and land owning classes, were the wealthiest in Europe, spending one third of their disposable income on food. Her empire covered more than twenty five per cent of the world land surface.Because of her vast industrial strength and the strength of sterling, Britain played the pivotal roll in the economy of the world, by underpinning the gold standard as the international currency for settling debt between countries. She had also built a stable International Trading System based on free trade, which had become the lynchpin of British policy since the repeal of the Corn Laws in 1846.
For more than one hundred years up to the First World War, most of the world's international trading settlements were transacted through the City of London. And Income from those services had been in surplus since the end of the Napoleonic wars.
But the main source of Britain's wealth came from her empire; The British Navy, and her merchant marine with the great clipper ships, had been expanding trade around the world for nigh on two hundred years, especially cotton fabric, of which we were the worlds largest producer, and myriads of other manufactured goods.
These ships also carried countless numbers of expatriates leaving or returning to post, and supplies for the empire. Britain owned 50% of the worlds shipping tonnage, flying the British Standard making the world a busy place. So by 1870 she was enjoying a growing surplus from trade with India, Australia, Canada, and West and South Africa. But especially India, which was proving to be the brightest jewel in Britain's Imperial Crown.
As industrialization increased amongst other western countries, there demand for raw materials from the British Empire also increased. These countries of Continental Europe, and America also sold some manufactured goods to the empire, but not in sufficient quantities to stop their balance of trade going into deficit especially with Australia and India.
However these trading deficits incurred by America, and Europe were paid for by their exports to Britain, especially America from which we imported Raw cotton, which we re-exported in the form of fabric. imports from that country continued to grow as we can testify today.
As the new Edwardian Century dawned in 1901 it proved to be a golden age for the British middle and upper classes. Expanding industry, and growing foreign investments through the City of London, were paying handsome dividends. bringing enormous wealth to those in position to invest.
Britain's capital lending to the newly industrializing countries, far exceeded the foreign lending of all other industrial nations, resulting in Britain Acquiring 44% of all overseas assets up to the First World War. Her foreign holdings were in excess those held by America, Germany, and France combined.
However these huge exports of British capital by the City of London did not starve our own industry of capital. On the contrary most of our wealthy investors were investing in company stocks, on both sides of the Atlantic.
Moreover London, and the provincial stock exchanges started to play an increasingly roll in British industry, by trading shares that had already been issued, thus ensuring liquidity for manufacturers. In 1882 one hundred and forty two electrical and supply and equipment companies, were established with a paid up capital estimated at £23 million. In comparison, the America Company Henry Ford only raised £2.7 million in the USA by public flotation in 1905.
But as satisfactory as all these details sound for the turn nineteenth century, productivity in Britain had been gradually declining since 1870s. Her vast Industry was failing to achieve the same percentage return on investments when compared to the emerging industrial countries of America, Germany, France, Japan or Italy.
Of course these countries had been the beneficiaries of British technology emanating from her Industrial Revolution, which had already started to light the torch for industrial change around the world.
Germany and America had digested the text books which had taken the British one hundred years to write, and were now moving on into the newer technologies of electronics' and automobiles. Whilst Britain's staple exports continued to be coal, steel, cotton goods, shipbuilding, and heavy engineering.
Of course the British Industrialist in the early part of the twentieth century did not have the bird's eye view of the world economy which we have today. Or possibly it was because the City of London tended to encourage trade with the empire, where her staple goods were needed.
Whatever the truth, that time was certainly a water shed for Britain in the history of industrial nations. And today we must be forgiven for thinking that Britain should have been further ahead in the race for new technology at that time, considering her early and amazing start at least a century before.
What was clear was the torch for industrial change had been lit in America by many of Britain's bright young men who were joining the long line of migrants. Many were trained engineers becoming the first of the British brain drain. America's need for manufactured goods of every description was becoming unquenchable, and it was the "New Americans" themselves who would eventually satisfy that thirst.
Even as early as 1828 Horatio Allen the chief engineer for the new Delaware and Hudson Railway, had travelled to England to buy a steam locomotive called the Stourbridge Lion, which was shipped to America and driven by Allen himself on wooden rails. It was not a success.
But in 1831 the American Camden and Amboy Railroad Company imported one hundred steam locomotives called "John Bull" from England. These steam engines were shipped in their component parts, for re-assembly in America by an engineer called Isaac Dripps. It is interesting to note that during this re-assembly work, Isaac Dripps saved the British future embarrassment by re-designing the smoke funnel into a "spark arresting smoke stack", to avoid setting the prairies on fire.
Matthias Baldwin from Philadelphia took a great interest in these new imports, and with engineer Rufus Tyler designed a new locomotive which they called Old Ironsides. This engine and many others about the same time, were the start of the new "American Locomotive Industry". Which started to absorb British investment on a huge scale, but no longer British manufacturing know-how.
Back in Britain the steel works, factories, shipyards, coalmines, and cotton mills, subject to market forces! Continued to work at full capacity. But the working conditions were harsh, inhuman, and injurious to health. Various government acts had been forced on the owners, and conditions had slowly started to improve. Some owners had made great strides themselves to build new housing, and improve general working conditions of the workers, such as Salt, and Lister.
But the chance to work for a weekly wage, had tempted millions living in the countryside to exchange the healthier life of rural living, for the polluted deprivation of the industrial cities where illness, and long working hours stultified the brain. It was indeed fortunate for the continuance of British Industry, that the workers fear of hell in the next life as preached by the Church Gospel, was greater than the living hell they had to endure in their daily lives.
It was possible that the suffering they endured was worthwhile to achieve a better future for their children. Possibly locally, and over generations, that was realized. But nationally and more immediately it was not.
In sharp contrast, the quality of life for the third generation of factory owners, had improved out of all recognition. Working out factory problems through the night on the kitchen table, as practiced by their grandfather was long since gone. Business planning was now carried on in walnut panelled boardrooms, and the new owners started to copy the land owning classes in their leisure pursuits, possibly to the detriment of their industrial competence.
They're displayed symptoms of wearisome achievement, had been noticed even as early as the Paris Universal Exhibition in 1867; during which the United Kingdom had glowed with pride when she was called "The undisputed Workshop of the World". But even in those days the foreign chatter was declaring that the British were starting to lag behind in the introduction of new techniques, and new equipment.
Charles Sieman declared that the "New Wealthy British Employer's took less interest in the technical part of his work, and was more prejudiced against innovation than there foreign counterparts". No doubt these comments filtered back to the boardrooms of Britain, But too often the reply was heard to be "Nay-lad, we're thinking machinery will serve us well for many a year yet". An attitude long on greed, and short on foresight; But why did British Industry start to decline, to establish that we have to understand how it all started.
At the beginning of the eighteenth century, the needs of a growing population, her Army, Navy, and the British Empire were rapidly expanding. Placing an alarming demand for clothing, and manufactured goods of every description upon her small-scattered rural workshops. This inspired the inventors, and the enthusiastic amateurs, to work out ways and the means to increase the speed of manufacture.
Men such as Richard Arkwright 1732 to 1792 invented the cotton spinning frame, driven by a horse, which proved most successful. He then built his own water-powered Spinning mill, which vastly increased the production of his cotton yarn. By working twelve-hour shifts, he continued to expand his business with a growing band of loyal operatives, promoting the best of those to become his foreman.
Arkwright is now acknowledged to be the creator of the factory system, living in an exciting time growing their businesses organically, whilst inventing new processes, and diversifying into new products as they worked.
One hundred years and three generations later, those businesses had evolved into large factories, steelworks, mines and shipyards employing thousands of workers, and it was the turn of the grandchildren to inherit ownership, and the reins of power.
Thanks to their grandfather, they were the first generation of industrialists to be well educated in the academic subjects at good schools and university, but not as well blessed in the rudimentary knowledge of production, and good management.
So they promoted there foremen into an ever-thickening band of senior management, paid not to innovate, but expand production. Britain had more mills, factories, mines, steelworks, and shipyards per square mile than any other country in the world.
But the excitement had gone, there was little enthusiasm to benifit from the new and amazing technology emanating from British workshops and laboratories which could have been used to develop new industries in chemicals, pharmaceuticals, electronics, ready-made clothing, aircraft, and motorcars.
This third generation of industrialist lacked the vision of their grandfathers and the excitement to grasp at the future.
It was a difficult decision to make, up to the first world war business was good. It would have meant completely re-tooling, re-training, and building new purpose built factories. The money was there! but it was easier to invest their surplus cash in new American Industries such as Henry Ford Motors. than build them themselves. From 1880 more British capital was invested abroad than was being used at home, mostly going to America.
And this exciting news of the expansion of jobs, and new industries in the "new world" must have spread across Britain. Because the largest migration in history of British people going to America was recorded between 1880 and the first world war. Five million mostly the cream of our youth embarked for a new life, a crushing verdict on the faint hearts of the then British Industrialists.
But thank god there were at least two who stayed, amongst the many other millions that also did. They were Thomas Octavius Murdock Sopwith, and Harry Hawker who did much to save a nation when they started to a small assembly line building early bi-planes, within the Brooklands Racetrack just before the war. During the war they produced highly successful fighter planes, such as the Sopwith Camel.
But after the war they went bust! Because of lack of orders, but picked themselves up again, and went on to produce the Hawker Hurricane fighter plane for the Battle of Britain in the Second World War.
But back to the turn of the century. There were other distractions at the turn of the century; Britain was still empire building, fighting a war against a determined force of Dutch Farmers in the South African state of the Transvaal. In the beginning the farmers were winning, but as the British Army gained the upper hand, there developed a spectacular wave of patriotism, which swept through the country to celebrate the relief of Mafeking. British folk decided they and their vast Imperial Empire, would always rule the world.
So by 1913 Britain was still the largest trading nation in the world, but her growth of real GNP had fallen to much less than 1%. Germany was now clocking in at 3%, and American growth was 4% It was certainly a time of change in the world, and we will never know if Britain could have diversified into the newer industries sufficiently fast enough to remain the world's largest trading nation. We will never know, because Germany had different ideas.
In 1914 Germany declared war on France, and attacked France through Belgium. Britain stood shoulder to shoulder with her allies Belgium and France, and declared war on Germany.
On 21 August, 120 cavalrymen belonging to the 4th Dragoon Guards were sent forward to reconnoitre the roads ahead of the British Expeditionary Force. Villagers had heard that German Cavalry were advancing to attack Mons. Suddenly enemy cavalry were spotted, and shots were fired. The dragoons charged with pointing swords, three injured prisoners were taken, the first casualties in the war that would change the world forever.British strategy at the beginning of the war only envisaged a limited commitment on the continent. Her argument was that this really was a European problem, but Britain's treaty obligation ruled out staying neutral. Sizeable detachments of a British Expeditionary Force would be sent to Belgium, but she made it very clear to her allies, that the main British contribution would be to blockade the German Ports, and finance the allied war effort. British trade with the rest of the world must not be affected. It was to be business as usual.
However His Majesties Government did agree to the demands of Lord Kitchener the the new Secretary of State for War that a new volunteer army should be raised, half expecting the whole troublesome mess would be over, before the men were fully trained and ready to fight.
Such was the wave of patriotism ever present since the Boer War, that over one million men went forward to enlist before the year was out. Britain and her Empire were to need every single man, and five times as many, before the war was over.
Leaving aside the politics, which had prompted that pompous conflict. The combatants Germany, Austria, and France, Britain, and later America, were highly developed industrial nations. And the cutting edge of their industrial research had been finely sharpened over many years and ready then to invent for war.
The squadrons of front line cavalry, the first to draw blood, and used at the front of the battle since the mists of time, were now withdrawn and used for fast patrol duties, and traffic work. In there place came machine guns, artillery, fighter and bomber aircraft, tanks, and poisoned gas. Each nation bettering the next.
The loss of life was horrendous; a whole generation of young men in the flower of youth were being cut down in a quagmire of static slaughter.
Then in April 1917 the America entered the war on the side of the allies, and finally after four years of combat, Germany could fight no more, overwhelming odds and tremendous losses made further conflict for Germany futile. An Armistice was signed on November 11th 1918; as the bewildered combatants surveyed the ruins, and counted their dead.
Britain continued to blockade German ports until the Peace Treaty of Versailles was finally signed in June 1919. Germany agreed among other things to withdraw to the 1871 Franco German Border, and to the formation of an independent Polish State. Germany also agreed to pay reparations to the allies amounting to £1000 million.
Britain now started to implement the peace plans they had been working on since 1917. Essential war work was stopped immediatly, and government decontrolled the whole of industry. The five million service men and women were demobilized only slowly over eighteen months to allow industry to re-adapt, and it was also decided to support unemployed munitions workers, and ex-servicemen with state payments, similar to the wartime separation allowance. This was later extended to all workers laid off during the transition to peace time working. Unemployment reached a peak in April 1919 of 1.1 million.
In March 1919 the government decided to unpeg the sterling-dollar exchange rate, and accepted the possibility of inflation. She came off the gold standard; and let the pound float to to aid recovery of her industries stating that Britain would return to the Gold Standard whenever that was possible.
In April Britain started a post war boom, due to general restocking, and the decontrol of many personal items that now came on sale in the shops. The boom lasted for just over one year and then fell back.
The Interwar Years 1920-1939 (Back)
During the next two years Britain suffered the fastest economic collapse in her entire history. Her economy had been based for over a hundred years on the successful staple exports of cotton textiles, coal, iron & steel, heavy engineering, and shipbuilding, the sale of which now fell back by at least a third.Because of circumstances this was inevitable. The productivity British Industry inherited from the Edwardian period was still very low. Our customers France, Germany, other European states had been bled white by the war, other Europian and many world countries had been forced to cut back their imports. Advanced industrial states such as America and Japan had not been adversly affected by war and were already competing on a world scale with high technology products. We had arrived at the watershed, Britain would never again regain her prewar dominance of world trade.
By the 1920s America was producing half of the worlds industrial output, with a large surplus of exports over imports, mostly at prices which Britain could not match.
However keeping to her promise in 1919, Britain returned to the Gold Standard in 1925 at the prewar parity of $4.86 to the pound. Her reason given was that America, and many other countries would fix their exchange rates once Britain had taken the lead. It would also bring back stability to world currencies, and resurrect the international economy to help her exports, and finely it would create a framework for the growth of her staple industries.
It was argued at the time that the exchange rate was too high, but it was reasoned a lower rate would have destroyed Britains credibility as a first rate financial power. Britains traded share of GNP at that time was 25%, by 1929 it had fallen to 22%.
In 1929 partly because of those structural changes Britain achieved a GNP was 1.5% which by British standards was certainly much better than the 0.5% of the Edwardian period.
But suddenly world recovery was now rent-a-sunder by a massive collapse of shares on the New York Stock Exchange due to excessive speculation in the markets crying out for structural change. It was the start of the world's worst depression.
American agriculture was already depressed due to massive over production of foodstuffs. Modern farming methods such as the tractor were ploughing thousands of acres more than had previously been cultivated, quantities of grain and general farm produce were becoming so large world markets were overstocked, causing sharp falls of international food prices.
The massive American Industrial Companies built during the war, now producing cars, aeroplanes, pharmaceuticals were also running out of customers. Wages had not risen in line with productivity, and the car workers were unable to afford the cars which they were building.
But the final straw was a disastrous miscalculation made by the Federal Reserve Board, which in late 1931 raised interest rates instead of reducing them! Making money even scarcer and causing a financial collapse, and American Banks to go bankrupt. America which was becoming the power house of the world went into freefall, and had to bring in drastic new import duties such as the Hawley-Smoot tariff, dramatically reducing imports from other countries, causing a world recession.
In the summer of 1931 Britain left the Gold Standard, France did not. But Britain decided the cost of defending her currency would have resulted in a banking collapse. This final destruction of the Gold Standard for the UK was inevitable and desirable. Currencies had to be allowed to float on the quicksands of those precarious times.
Unemployment in Britain in 1929 was 1.5 million, rising to 3.3 million in 1932 at the bottom of the depression about 16% of the labour force. But now Britain became largest beneficiary of low world food prices which allowed real income of the British consumer to rise, allowing the purchase of more consumer goods for the home.
But it was Britain's exports industries which suffered, and accounted for most of her unemployment.Britain's economy recovered to its 1929 level of GNP by 1934, and slowly improved up to the 1938. But after such a devastating war and two depressions, the culture for exciting risk taking in British Industry had been put on hold. Car companies such as Austin, Morris, Rootes, Singer, Standard, and Vauxhall were growing. But the future car owning middle classes were only just starting to appear, and the demand for British cars was still too small to adopt mass production methods. A lesson we learnt well from the American failure to do so in 1929.
The average national wage in 1924 was £2.80 per week. This fell to £2.69 at the bottom of the depression, but rose to only £2.95 fourteen years later in 1938. However the stability of wages and low food prices helped the British population recover from the horrors of war, and world depression.
During those interwar years the growth of the leisure industries such as the cinema and football, were identified by contemporary commentators as one of the most profound social changes of the early 20th century. Left wing activists saw them as opiates promoting apathy. Perhaps it was, and perhaps it was just what was needed during those hard years between the wars.
It was worse for America and France, both experienced a second dip in their economies in 1936-1937, and their industries did not recover until they were both at war again. But that of course is another story.
GC
geoffreycullern@btinternet.com