The Twentieth-Century British

Economy
The Twentieth-Century British
Economy
Three inter-related issues
• What people thought was
happening to the underlying
economy

• What was actually happening to

the economy

• How policy makers responded to

their perceptions, and what
impact they had
 Britain tries to Pound devalued. UK
The story of the century: UK unemployment trends
rebuild the
international value of
protects industries.
Growth of domestic
Wall St crash, falling Rearmament
Pound after World prices, collapse of demand. Growth of (good for basic
War One – interest international demand, new industries (cars, industries)
rates up sharply. protectionism hits electrical, advertising
UK staple exports. agencies, consumer
goods) War

War

UK “de-
industrialization”

“Golden Age”

Source: Underlying graph - Alan Booth. The British Economy in the Twentieth Century, Basingstoke, 2001. Figure 5.2 p129
Source: Bank of England, author’s calculations to generate approximate annual average rates, author’s graphics

Growing instability in nominal interest rates in Twentieth

European Monetary System

Century

Pound forced out of

Great Crash
South Sea Bubble

Revolutionary Wars with France

W1
W

W2
W
Why?
1700 1800 1900 2000
 Complete breakdown of fixed exchange rates from early 1970s

PACIFIC Exchange Rate Service http://fx.sauder.ubc.ca: Author’s calculations

Economy also has to deal with major external shocks: two sharp
post-war spikes in the price of oil, each followed by a major
crisis in the UK economy (though correlation does not prove
causation)

http://inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp
Faced with such instability and frequent change, how can we
(as historians) know what was actually going on?

• Look at the long term, first.

• Be aware of random fluctuations.

• Numbers are not special. Don’t get hypnotized by them.

• Don’t trust decimal places. Underlying data is often poor.

• Beware of generalizations – “British productivity”, “British exports”. Different

firms compete in very different markets, with different inputs and different sources
of competitive advantage. Huge variety of firm performance even within particular
market sectors.

• Some things do depend on national characteristics – but competitive success (in

selling soap, or writing software) is not usually one of them. Why should it be? Be
sceptical about broad causal claims. Look under the bonnet of the car, to check that
there is an engine. Don’t get fooled by fancy body-work.

• Don’t panic!
Why the UK’s post-1945 Opinion Formers Did Panic

Source: Booth (2001) Table 1.1 p4, author’s calculations

Starting from 1950, UK income per head grew much
less fast than that of its European neighbours

Change in real GDP per capita, selected European countries, 1950-1973

(Index: 1950=100)
400

350
Austria
Belgium
300 Denmark
France
Germany
Italy
250 Netherlands
Spain
UK
200

150

100
1950 1973

Source: Booth (2001) Table 1.1 p4, author’s calculations

The number of workers affected by UK industrial disputes grew
significantly after the end of the Second World War

Source: Booth (2001) Figure 5.5 (adapted, events added, ‘perception’ arrow added)
 Call in The Army
• UK becoming “ungovernable”
• Loss of Empire, Status
• No longer the world’s leading exporter
• Constant struggles to defend the Pound
• Overtaken by neighbours
• The blame game: left and right seek different scapegoats
– “Decline of the Industrial Spirit” – effete generalists from public schools.
– “Idle workers” – “I’m All Right, Jack”. Fears of Communist influence.
• So – dark plots. 1960s, “Daily Mirror” boss Cecil King, Lord Mountbatten – 1980s,
“A Very British Coup.”
Almost certainly, these fears were based on a false historical
understanding . People assumed that the years from 1950 to 1973 in
Europe (with high growth rates) were typical of the future, while in
fact they were very unusual.
They also mistook the one-off structural change which took place in
the UK in the 1970s, for economic collapse.
Why they (probably) did not need to panic after all:

Source: Booth (2001) Table 1.2 p5, author’s calculation

 Much of the ‘post-war miracle’ in France and Germany (& Japan) had come from shifting
resources out of agriculture. Britain could not do this. But by 2000, other major developed-
country economies looked very like the UK.

% of Output from Agriculture

40

35
% Output from Services 1900-1996
30
80
25

20
%

70
15

10 60

5
50 UK
0
France
60
% Output from "Industry” Germany
40 USA

%
50 30

40
20

30
%

10

20
0
1900-1904 1935-1939 1950-1954 1979 1996
10

0
1900-1904 1935-1939 1950-1954 1979 1996
Source: Alan Booth. The British Economy in the Twentieth Century,
Basingstoke, 2001. Table 4.1 p90, author’s calculations.
 US and UK (already developed economies by 1945)
had a near-identical growth path after 1950
Index of real GDP per capita, 1950-
1994, USA and UK (1950 in each
country =100)
250

200 UK
•  As the next slide will
USA
show, European growth
also tailed off: after the
150
1970s, Britain was
simply one of the pack.

100
1950 1973 1994

Source: Booth (2001) Table 1.2 p5, author’s calculation

After 1973, UK growth was very like that in other European
countries: by the 1990s it was sometimes faster than them
 Our Current
panic: Debt.
A real problem, but
not an existential
crisis?
 Overall, Britain became increasingly like other European
countries – and traded with them more and more

Source: Alan Booth. The British Economy in the Twentieth Century, Basingstoke, 2001. Table 3.3 p79, author’s calculations.
 The UK remained as much an exporting nation at the end of the
century as it had at the start – though it had lost market share

The UK started and ended the century

as a major exporter. In 1997, it still
exported physical goods worth about
one-fifth of its national income, every
year.

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
…but that was not how things felt, after 1945
 In the 1950s, 1960s and 1970s politicians worried about the trade
balance: they had wartime memories of near-starvation, and
dependence on American loans to import essential items.
But throughout the century, Britain’s
physical (= “Visible”) exports were never
large enough to pay for the physical
goods the country imported

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
 Sale of services abroad (=
“Invisible Exports”) helped fund
this difference – especially after
World War II

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
 But the UK almost always bought enough
services from abroad to overtake its
earnings from “visible” and “invisible” trade
alone –so it still needed to plug the gap

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
 It could do this because both before 1914, and after 1980, a large
proportion of UK overseas earnings came from interest payments and
dividends received from overseas. This partly reflected pure ‘investment’
income, but also reflected the large number of UK companies with world-
wide operations (like B.P., Shell, Unilever, Hanson, Glaxo, British
Aerospace, Pearson, ICI….).

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
 But the late twentieth century was not a reversion to the
Edwardian mould – by the 1990s, there were large dividend
and interest flows out of the UK, as well as in to it. This partly
reflected the UK’s role as a major home for direct investors
from outside the EU (such as Nissan), and partly reflected the
huge flows both into and out of the UK generated by financial
institutions in the City of London.

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
 Inward investment (and loans from overseas) made
up the (small) difference in cash flows: no major
structural problem, except during World War Two.

Source: Alan Booth. The British Economy in the Twentieth Century, Figure 3.4 & 3.5 ; images scanned, traced, and overlaid: may contain errors of detail
What happened within manufacturing over
the course of the century?
 UK manufacturing productivity made adequate
progress, except in the 1970s & in metal manufacture

Source: Alan Booth. The British Economy in the Twentieth Century, Basingstoke, 2001. Table 4.3 p98
 4.0
But the picture in terms of jobs was much less good
3.5
Approximate number of of Jobs in Different Sectors
of UK Manufacturing,
Selected Years, 1899-1997
3.0

2.5
1899
1924
Millions of jobs

1937 2.0

1951
1973 1.5
1979
1997
1.0

0.5

0.0
Textiles leather Other Chemicals and Metal Engineering and Food drink &
and clothing Manufacturing allied manufacture allied Tobacco

Source: as previous, with accuracy warning.

Collapse of Mining - >1m jobs in 1900
Employment in Coal Mining in the UK, 1801-2000
1200

1000

800

Mitchell:Census
Thousands of Jobs

Mitchell: Official Stats.

600 Mitchell:NCB records
Annual abstract of
statistics1983,1994,2001

400

200

0
0 1 11 21 31 41 51 61 7 1 81 9 1 01 11 21 31 41 51 61 71 80 80 8 1 91 0 0
18 1 8 1 8 1 8 18 1 8 18 18 1 8 18 1 9 1 9 1 9 19 1 9 19 19 19 19 19 19 1 9 20
In 1901, UK non-agricultural production was still
dominated by a few traditional industries in which it
had long led the world Mining etc:
12%

Metal, trains &

shipbuilding:19
Food,
%
drink,
tobacco:
11%

8.1
million
jobs

Clothing &
Textiles:
32%

B.R.Mitchell,British Historical Statistics, Cambridge, 1988, p104.

By 2000, many of the old industries had died or had shrunk dramatically: new one had emerged

Mining etc:
Electrical & 6%
electronics:
12% Metal, cars,
engineering,
etc: 31%
Food,
drink,
tobacco:
11% 4.1
million
jobs

Clothing &
Textiles: 7%
Publishing – print & Chemicals,
recorded media medicines, artificial
Source: Annual Abstract of Statistics 2001, Table 7.5, categories combined for comparison with Mitchell, references as per previous page fibres, plastics: 12%
 What
remained of
UK
Manufacturin
g in 2000 was
highly diverse:
no single-
industry 4.1
dependence, million
jobs
and little
dependence on
products with
low added
value.

Source: Annual Abstract of Statistics 2001, Table 7.5, categories simplified: graphic by author.
 1.5m manufacturing jobs lost 1998-2009: 1.5m new jobs are
created in public administration, education and health: 1m new
jobs in financial and business services.

Percentage Change in Employment by Sector Under New Labour 1998-2009

All jobs
Other services
Public administration, education & health
Finance and Business Services
Distribution, hotels & restaurants
Transport & communications
Construction
Manufacturing
Energy and Water
Agriculture and Fishing
-40% -30% -20% -10% 0% 10% 20% 30%
Source: Calculated from Social Trends 40 (2010) Table 4.8 p.49
 Residential care and social Other service activities Activities of households as Agriculture M
Public admin, defence, work activities 1% employers, undiff. goods 1%
compulsory social security 2% 1%
However, 5%
Human health activities
All Manufacturing and Utlities
13%
value- 6%

added in
the UK Education
7%

economy Accommodation and food Knowledge Intensive Services

remains service activities
3%
15%

very Administrative and support

service activities
5%
diversified Finance and Real Estate
18%

Shops, Wholesale,
Transportation, Storage
15%

Construction
7%
Even between the wars, strong regional impact
from industrial change
• 1929-32 depression, marked regional disparities
– >35% unemployment in Wales
– 28% in Scotland and northern Britain
– 20% in Midlands
– 14% in London and South East

• “regional differentials ... widened during the recovery - when rates dropped sharply in the South East but
remained high in outer Britain.” …While the high pound/dear money strategy of the 1920s had hit the
staple industries and outer-Britain…the low pound/cheap money strategy of the 1930s … offered the
greatest boost to the South. By this time, Britain's staple industries had already lost many of their overseas
markets…An intensification of international protectionism also limited the scope for regaining lost
overseas markets. Conversely the south's manufacturing base of light, domestically-oriented, 'new'
industries gained substantial benefit from British tariffs, while cheap money both boosted domestic
consumer demand and made expansion finance both cheaper and more freely available”(74)
– By 1935, Greater London's contribution to UK net output had risen by 38.5% (relative to its 1924 level)
– Gains for Warwickshire (centre of motor industry) and 'rest of England'
– Of the staple industry areas, the West Riding (centre of woollen textiles) fared best - less export-oriented.
– Northern Ireland and West Central Scotland declined by just over 10%, Lancashire by 13.4%, 'rest of Scotland',
South Wales, Northumberland & Durham by even more.

• “During 1932-1938 the South East - which had accounted for only 21.3 per cent of British manufacturing
employment in 1911 - received 47.9 per cent of new manufacturing plants, while Scotland, Wales, and
England's northern region received only 3.9, 1.6 and 2.8 per cent respectively.” (95)

P. Scott, Triumph of the South: A Regional Economic History of Early Twentieth Century Britain (Aldershot, 2007).
 Regional Impact of De-industrialisation:

In the post-1945 era, most male jobs in northern towns and cities were held by
manual workers.
 Many of these jobs were well-paid and highly skilled: but the
skills were learned on the job, and very specific. Nowhere to go,
when industrial employment collapsed.
 The consequence of this, by
the 1990s, was the emergence
of government as by far the
largest actor in many local
economies

Example: Sheffield in 1988

• Over 70% of the jobs in large

workplaces are public sector jobs

• City Council employs >25,000 people

• Health authority employs 15,000

people

• University employs c.4,000 people

•  Single largest “industrial” employer

makes Jelly Babies, not steel.

• NOT like the 1930s: gone for ever.

By 2006, Public Spending accounted for over 60% of local output in the
North East, and about 50% in the rest of the North, & in Yorkshire….
(and more in Scotland, Wales & Northern Ireland)

Gajasinghe, Said and Pragnell, cebr 29 May 2006: data from UK National Statistics

…but under one-third of output in London and the South East. This
represented a very substantial transfer of resources from South to North.
 Over 70% of all output in Northern Ireland, and over 60% in
Wales, came from Public Expenditure. In England, the overall
figure was just over 40%.

Thushani Gajasinghe, Jonathan Said and Mark Pragnell, cebr Forecasting Eye Special - 29 May 2006: data from UK National Statistics
So, what happened outside manufacturing and other UK
‘production industries’ over the course of the century?
Reminder: UK was a non-manufacturing -based
economy very early

% Output from Services 1900-1996

80

70

60

50 UK
France
Germany
40
USA
%

30

20

10

0
1900-1904 1935-1939 1950-1954 1979 1996
 The mix of non-manufacturing activity was very different at the
beginning & end of the century

8.2m non-manufacturing jobs, 1901, by broad category 22m non-manufacturing jobs, 2000, very roughly redistributed
to 1901 categories

Government & defence

5%
Government & defence, sanitation Agriculture etc Construction
8% 2% 6%
Agriculture etc Transport, post, telecoms, autos
18% 10%
Personal & Domestic Services
29%
Personal & Domestic Services (including retailing [not cars], hospitality, culture)
24%
Construction
15%

Transport
18%

Professional and Commercial Services

16% Professional and Commercial Services (including teaching and Health)
50%

1901 2000
Don’t take these numbers seriously at detailed level – it very hard to combine occupational categories into 1901 classifications. But the big story is hard to ignore.
Sources: Mitchell ’Statistics’ and Annual Abstract of Statistics 2001 (cited above); author’s foolishly risky assumptions
 By 2010, the UK’s knowledge-intensive services made a much bigger contribution
to gross value-added than its manufacturing industries. Including financial services
and real estate services, they were twice as large as manufacturing.

Source: National Accounts 2010, Table 19.4 (ONS)

 None the less, the largest service sector areas between 1978 and 2008 were
still shops, wholesaling and public service (by 2009, NHS 1.6 million jobs,
education 1.4 million, public administration 1.2 million).

National Statistics: Labour Market Statistics - Integrated FR Current Table : Workforce jobs by industry: classified according to Standard Industrial Classification (1992)
 Productivity in services grew much less than
productivity in other parts of the UK economy.

Approximate Annualised Growth in Labour Productivity by

Sector, for Selected Periods between 1899 and 1997
5

4
Average annual growth in output per worker

Agriculture
Manufacturing
2 Transport & Communications
Distribution & other services

-1
1899-1913

1924-1937

1937-1951

1951-1973

1973-1979

1979-1997

Source: Alan Booth. The British Economy in

the Twentieth Century, Basingstoke, 2001.
Table 4.2 p92, author’s calculations.
Services growth had a markedly gendered impact: males in financial & business
services, females in public service

FEMALES
FEMALES

MALES
MALES

FEMALES

MALES
 People-jobs, caring, sales Working with
things or data

In terms of the
roles people filled
at work (rather
than the industries
they were
employed by)
gender
differences were
even more
apparent

Bossing people about

Changing social structure: males

Almost 30% of males were ‘Professionals’ or ‘Employers and Mangers’ by 1998, and 33% to 2009.

Very few ‘unskilled’ males – and not many semi-skilled.

Largest single group were skilled manual workers and the self-employed (just over 30%).
Changing social structure: females

Only 12% of women were managers or professionals

Half of all women were doing ‘intermediate and junior’ non-manual jobs

30% of women were either semi-skilled or unskilled (as against only 20% of men)
 Occupational Roles, 2009
Occupation by Gender, all employees, UK 2009
Elementary
100%

Process, plant and machine

90%
operatives
80%
Skilled trades
70%
Sales and customer service
60%

Personal Service
50%

40% Administrative and secretarial

30% Associate professional and

technical
20%

Professional
10%

Managers and senior officials

0%
Males % Females %

Source: Social Trends 40 (2010) Table 4.7 p.48

 Rise of service industries changed the game for
social mobility
• English obsession with ‘social class’ – but most data relate to occupations, which don’t match
precisely onto status strata.
• Vast rise in the proportion of workers doing non-manual jobs (and change in gender of workforce)
• Did this constitute ‘social mobility’? – depends what you mean
– Self-assigned social class: how people feel
– Objective measures of income
– Measures of occupational status as seen by outsiders, general social rankings

• Continued importance of skilled manual work

• Great decrease in the work available to low skilled, poorly educated
• Profound change in the nature and skills of those making up the lowest-income groups; many non-
working, low cognitive ability, educational problems. Many fewer high-ability people ‘trapped’ in
poor circumstances by accident of birth.
• Bitter struggles over gateways to social mobility.
• Changes the nature of the task facing those who seek greater social equality?
1998-2008 – “Living on Thin Air”
• Knowledge Economy
• Software
• Marketing
• Branding
• Vapourware
• Credit – rational
expectations – risk
management
Critics “Just don’t get it”
Credit Crunch: Let’s hope he was right!
Two Puzzles
 Puzzle #1 – Given that the industrial and service mix of
economic activity in the UK was radically transformed from
1856 to 2000, why did rates of growth remain so remarkably
consistent?

Source: Alan Booth. The British Economy in

the Twentieth Century, Basingstoke, 2001.
Table 2.2 p22, author’s graphic
 Puzzle #2: Did politicians, and economic policies, have a
significant impact on the way things turned out? If so, what
was it? If not, why not?
• Long term trends: half-hearted but long lasting attempts to stop the outgoing tide
– Regional policies
– Restrictions on economic activity ‘Office Development Permits’
– Tax incentives ‘Capital Allowances’, ‘Selective Employment Tax’, etc)
• More significant: crisis (mis?)-management
– Currency crises
– Financial Market crises
– Oil shock(s)
– Inflation
– Unemployment
• Most Significant?
– Health, Education, Housing….
– Social security (Pensions, benefits)
– …Redistribution?
– (but this goes beyond the ‘Economic History’ brief)
To get a copy of this presentation please
email

• Harold.carter@history.ox.ac.uk
• haroldcarter@mac.com (more reliable)