Was Britain's relative economic decline before 1914 an inevitable consequence of foreign industrialisation or a manifestation of serious failings within the domestic economy?

Contents

1. Introduction

2. Problems of definition

3. The effects of the spread of industrialization

4. Failings within the domestic industry
4.1. The lack of innovation
4.2. The size and structure of British companies
4.3. Free Trade

5. Conclusion

Bibliography

1. Introduction

At the end of the 19th century Great Britain experienced an economic decline, the reasons for which are still controversially discussed among historians. While some stress the changes in the world economy due to the spread of industrialization in the 19th century, others hold the view that serious failings within the domestic economy are the major causes for Britain’s downfall. After a short description of the degree of Britain’s decline before 1914, some of the major reasons for Britain’s relative economic decline will be analyzed and compared. The aim of this paper will be to evaluate the severity of external changes that the British had no control of as well as internal failings within the British economy that contributed to Britain’s relative economic decline.

2. Problems of definition

Writing about Britain’s economic decline at the end of the 19th Century, it is first of all necessary to define in how far one can speak of a ‘decline’. Most historians point out that Britain’s economic decline is only a relative one. They argue that in comparison to Britain’s earlier growth or in relation to the growth of other advanced countries, like e.g. the USA or Germany, one can realize a decline in the economic performance of Great Britain but that in general there was no decline in the last third of the 19th century. Alford renders it more precisely by saying that: “British enterprise, it will be argued, did not decline during this period: it remained remarkably constant and inflexible.”^[1] In fact Britain’s GDP was still rising between 1870 and 1890 but, like mentioned before; the annual rate of growth was much slower. According to Crouzet Britain achieved a growth rate of 3.1 per cent from 1811 to 1877, while it fell to only 1.6 per cent between 1877 and 1913.^[2]

That causes historians to differ in terms of the beginning of the decline. Most historians refer to the year 1873 when they talk about the beginning of Britain’s decline while others argue that Britain achieved its most rapid growth in industrial production in the 1820s and 1830s and that the time of Victoria’s accession could therefore be regarded as the true beginning of the relative economic decline.^[3]

Nevertheless, in this paper the time around 1870 will be regarded as the beginning of Britain’s economic decline since it was between 1870 and 1913 that Britain’s share of the total world industrial production fell from 31.8 per cent to 14 per cent.^[4]

The worst example of decline can be found in the iron and steel industry, where Britain not only lost its leadership but had become the leading importer of steel by 1913.^[5] According to Johnson Britain’s share of the world production of steel fell from 43 per cent in 1870 to 10 per cent in 1913.^[6] Nevertheless, the decline did not affect all major industries of the British economy. While some experienced a much slower growth rate than before 1873, like e.g. the railway and coal industry, others, like e.g. shipbuilding and metal-manufacturing and engineering industries were not affected by a slow-down in the growth rate.^[7]

Having examined the key signs of Britain’s relative economic decline it will now be of interest to have a closer look at possible reasons for this development. Thus, in the next chapters external as well as internal circumstances and conditions of Britain’s decline will be surveyed.

3. The effects of the spread of industrialization

To be able to analyze the reasons for British decline it will now be necessary to have a closer look at the changing circumstances in the world market caused by the spread of industrialization. Great Britain was the first country to achieve its industrialization in the 18th century. The technical innovations achieved by the industrial revolution resulted in the reduction of costs of production, since less or cheaper material could be used, which caused a higher productivity. As Crouzet points out this led to the “[…] spread of technology by encouraging the discovery and adoption of improvements that would again reduce costs […]”.^[8] In the 19th century the industrialization reached other countries of which the most important, in terms of competition with Great Britain, were Germany, France and the USA.

With the spread of industrialization and the spread of new technology it was very likely that Britain would be overtaken by other advanced countries that profited from certain comparative advantages. Furthermore, what is crucial about the so called ‘second industrial revolution’ is that there was an emphasis on science-based and capital-intensive industries.^[9] This development did not only lead to the growing importance of new sectors, like chemicals and electricity but also generated “new science-based technology” for the staple industries of iron and steel.^[10]

To be able to compete in this new environment of other industrialized and fast growing countries, Britain needed to meet the new challenges of new industries and new technology. Regarding the unbalanced structure of Britain’s industry at that time, which was dominated by a few large staple industries, it becomes obvious that a change was not only inevitable but also very problematic. Britain not only needed to make the necessary innovations but also to widen its hitherto narrow range of goods. As Crouzet points out: “It was a question of creating new industries, new products, and new skills to replace those which were suffering from new competition, of redeploying resources and innovating”.^[11] However, Britain failed to successfully face up to the challenges of the new industrialization for several reasons that will be examined more closely in the next chapters. As a result, relying on its traditional technologies Britain’s productivity started to decline in comparison with that of the new industrialized countries that benefited from their new technologies and new methods of mass production. Furthermore, instead of compensating its deficits by establishing itself in the new industries Britain did only badly in the field of chemicals, electricity, machine tools and car-manufacturing. Consequently, Britain lost not only its competitiveness and was thus overtaken by the United States and Germany at the turn of the century but it also lost part of their foreign market to the new industrialized nations.

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^[1] B.W.E. Alford, Britain in the World Economy since 1880, ( Longman, London and New York, 1996), p.32.

^[2] F. Crouzet, The Victorian Economy, (London: Methuen, 1982), p.373.

^[3] Crouzet, Victorian Economy, p.373.

^[4] Ibid., p.378.

^[5] Ibid., p. 242.

^[6] P. Johnson (ed), 20th Century Britain; Economic Social and Cultural Change, (Longman, London,

1994), p. 41.

^[7] Crouzet, Victorian Economy, p.372.

^[8] Ibid., p.102.

^[9] Alford, Britain in the World Economy, p.30.

^[10] Ibid., p.30.

^[11] Crouzet, Victorian Economy, p. 380.