Source: Paul Bairoch, ‘International Industrialisation Levels from 1750 to 1980’, Journal of European Economic History, vol. 11, no. 2, Fall 1982.
Britain’s early start in the industrial revolution had left some lasting legacies, some of which would prove troublesome after the Second World War. One was a large commitment to older industries, such as cotton textiles and shipbuilding, which had been built up during the nineteenth century. Another was a pattern of trade originating from the days when Britain exchanged the products of the first industrial revolution – textiles, coal, iron – for food and raw materials from the primary producing countries. The bias towards non-European markets was reinforced by the protectionism of the inter-war years. The newer industries, in particular, became increasingly dependent on the dominions and colonies; in 1938 three-quarters of Britain’s electrical machinery and car exports went to imperial markets. This was to a large extent the inevitable result of high tariffs in other European countries, but it encouraged the view that overseas trade should be based on complementarity rather than competition. Trade with developing countries, inside and outside the Empire, seemed more natural than trade between industrial countries which had similar industrial structures and produced similar goods.
Britain’s distinctive industrial history had left its mark on the three institutions which were referred to in the first chapter – the financial system, the education system and the labour relations system. But in all three fields a process of evolution had taken place before and after the First World War, and none of them can be seen as a fatal disability which condemned British industry to decline after 1945. The labour relations system, for example, had stabilised after the drama of the 1926 General Strike. If attitudes on the part of unions and employers were adversarial, there was a pragmatic recognition that a modus vivendi had to be worked out, and that orderly procedures for dealing with disputes were in everyone’s interests. It can hardly be said that this was a worse preparation for the post-war period than the bitterness which characterised German labour relations during the 1920s and early 1930s, leading to the extinction of the trade union movement under the Nazis.
A damaging consequence of the inter-war depression was the retreat from liberalism in British economic and industrial policy. The abandonment of free trade in 1932 was accompanied by the spread of price-fixing and market-sharing arrangements, condoned and even encouraged by the government in the hope that they would encourage rationalisation. The lack of internal competition, together with protection against imports, created an environment which was not conducive to industrial efficiency. But these policies were not confined to Britain; the cartel habit was even more deeply entrenched in Germany.
Britain was not the only country with awkward legacies from the past, and British industry was not obviously less well equipped than its European competitors to benefit from the more favourable international environment that prevailed after the Second World War. Explanations for what went wrong after 1945 have to be found in the post-war period itself.
Britain, Germany and France after the Second World War
Where did Britain go wrong after 1945? This question began to exercise the minds of politicians and economists at the end of the 1950s as they compared Britain’s relatively sluggish rate of growth with the spectacular performance of Germany, France and Italy. Many people felt that British industry, whether through its own mistakes or those of governments, had thrown away its opportunities at the end of the war. With their manufacturing capacity largely intact, British firms seemed to be in a strong position to make permanent gains in world markets at the expense of their pre-war competitors. Yet it was Germany, not Britain, which had an ‘economic miracle’, based on an extraordinarily rapid increase in exports. At the same time France and Italy, which had been laggards before the war, made a greap leap forward. By 1960 these three countries were threatening to overtake Britain and in some industries had already done so.
By historic standards the British economy performed well during this period. In common with the rest of Western Europe, Britain benefited from a world economic climate which was far more benign than in the 1920s and 1930s. Thanks to the leadership of the US, now converted to the virtues of free trade, the pre-war system of cartels and protection was dismantled, paving the way for a golden age of economic growth which helped all the European nations raise their productivity and their living standards closer to the US level. The British people, as the Prime Minister, Harold Macmillan, remarked in 1957, had ‘never had it so good’.1 Yet the Continental countries did even better, and it was this disparity which gave rise to a growing sense of national failure, reflected in books such as Michael Shanks’ The Stagnant Society. The backwardness of much of British industry, Shanks wrote in 1961, ‘is becoming almost a music-hall joke’.2
A large part of the divergence with the Continental countries – and this was often overlooked in the general gloom about Britain’s deficiencies – was due to two factors over which neither British governments nor British companies had any control.3 First, the Continental countries had suffered more extensive damage during the war, and so were starting from a lower base. It was inevitable that once the damage had been repaired and rational economic policies introduced, they would enjoy some years of exceptionally rapid recovery. Most of the destruction had been to transport and communications rather than to factories. This was particularly true of West Germany, where new investment in plant and machinery during the war had exceeded losses from bombing and demolition.4
Second, Germany and France had larger agricultural sectors than Britain. As economic growth gathered pace in the 1950s, they could transfer labour from low-productivity farming into high-productivity industry, a transition which Britain had gone through many years before.5 In 1950 only 6 per cent of the British labour force was engaged in agriculture, compared with 28 per cent in France and 24 per cent in Germany. Whereas Britain was faced with labour shortages in the first decade after the war, the two Continental countries had a pool of surplus labour on which to draw. In Germany the pool was enlarged by refugees from Soviet-controlled East Germany, many of whom had useful skills and were strongly motivated to contribute to the revival of the country.
TABLE 3.1 Shares of world exports of manufactures 1929–73
Yet these two factors on their own are not enough to explain how the Continental countries converted post-war reconstruction into a period of sustained economic growth which lasted until the early 1970s. By 1973, as TABLE 3.1 shows (previous page), Germany’s share of world exports of manufactures was more than twice as large as Britain’s. This was not a continuation of pre-war trends. Something had changed to give the Continental countries a lift which was missing in Britain. As a first step towards exploring what had changed, this chapter considers the differences between Britain, Germany and France in the aftermath of the war, and the policy choices which were made in the three countries