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Brief Timeline: Economic history of modern Britain, 1870 -1914 GB fought WWI and WWII to stop Germany dominating Europe but eco ties were weakened. 1913 - International trade and payments = 30% of national income. 1914 - European trade is most important through the period especially coal exports - majority of trade is with other continents. GB interest in Europe mostly political - AIM to stop France/Germany dominating. 1914-50 - world economy faces period of destabilization. LONG TERM IMPACT OF WWI The war had demonstrated the much higher productivity rates of many US industries - the attempt to introduce American mass production techniques based on 'Simplification, Standardisation and Specialisation.' To GB industry 1950-70 was problematic.
* Caused industrial relations to deteriorate as unions tried to protect craft skills and their control of the shopfloor.
* Management couldn't come to terms with the new level of demand. GB productivity was about half that of USA since the mid-19th century, 2 facts suggest the war was an important catalyst for the 'Americanisation' of GB. WWI changed GB trading although it wasn't obvious till 1930s though the war did disrupt trade significantly. In the longer-term trade diverted European industrial capacity to military needs so those used to purchasing European manufactured goods went elsewhere. Alternatives came from non-European exporters and import-substituting domestic production
- US and Japanese firms permanently increased their exports. 1913-29 USA world exports 13 - 21%, japan 2.3-4%, GB 30 -23%. During WWI GB acquired and sold US assets to purchase war materials and other goods to aid the war effort. Large amounts were also borrowed from NY- GB traditionally continued providing financial aid to its continental allies - mainly Russia and France. War caused a destruction of international moentary equilibrium under the GS that had previously supported globalisation. When WWI started investors sold asssets and demanded foreign exchange or gold to move their funds from war zones. Gov responded by abandoning gold convertibility. Cost of war meant the monetary system had to be manipulated;
* Taxes were increased but were insufficient
* Gov borrowing provided insufficient funds for the war's requirements at interest rates that the state was prepared to pay. They increased the money supply of bank money by issuing gogernment currency and more ususally by selling short-term debt to the central bank and the banking system. Led to inflation inconsistent with the GS, prices rose much faster in GB. If the gold value of the PS
was to be restored after the war, GB firms would find their prices above those of US goods - domestically and abroad. Exports would fall and imports increase - maintaining the ER would threaten gold reserves.
1930s - collapse of Gold System and FT pushes GB closer to its empire. 1939-45 - GB empire and USA are GB's main trading partners.
1940s - GB still very protectionist but cant add any more restrictions because of American opposition and membership of unilateral bodies like GATT, EFTA and later EEC - belief freer trade was desirable in itself. Policymakers want to want to maintain a 'Sterling Area'. 1945-50 - recovery of Europe important too GB politically to prevent spread of communism, but key eco links were still to USA and Commonwealth. GB still a major power, W.Europe expected to stay poor and protectionist for a generation. 1949-52 - PS devalued to $2.80 but seen as one off-war adjustment, further devaluation hard as PS part of Bretton Woods system. 1945-57 - exchange controls hold things in check, these are lifted and there is danger sterling holders will sell risk of run on PS. Policy makers want to strengthen British reserves but need to run a large B of P surplus to earn gold and foreign exchange. 1950 - debts accumulated in WWII totalling 33.5 billion by this point (GB gold and foreign exchange reserves were 20% of this). 1950 - GB accounts for 25% of world trade manufactures - this reduced to 11% by 1970, B of P position perceived as weak. 1950 - 73 - GB growth of national income historically high. Averaging 2.8% - faster than during the industrial revolution.
* Slower than other advanced industrial economies - due to lower income/productivity levels. Cyclical fluctuations mild in comparison to pre-1939, post01973. Economy actually more unstable in interwar years. 1950-9 - UK investment 14.6%, USA 17.4%, Germany 20.7%. 1957 - European Economic Community created. GB initially reluctant to join due to common tariff policy being incompatible with Commonwealth preferences. So made EFTA. 1951-73 - visible trade constantly in deficit, invisible constantly in surplus. Overall balance was volatile position was weakened due to long term capital outflows > inflows, and legacy of sterling balances. 1960s - several other European countries catch-up/overtake GB income/productivity levels. Netherlands/Belgium higher standards of living. Foreign trade is 30% of GNP after increasing over 19th Century
- Planning based on French idea of indicative planning brought back to boost investment, Misdirected r&d effort. Inadequate rates of human capital formation.
* 1960s GB sent more on r&d than other western countries except USA. Poorly directed on defence, civil nuclear power, aerospace projects etc. Poor project development as money spent on electricals and machinery is low. Statistics show low patent applications from the GB to the USA.
- Gov worsened the position by spending money overseas through the private sector ran a consistent surplus through the 1960s on the current account but state spending outweighed this.
- PS no longer a major currency, decolonisation eroded the Commonwealth. Commonwealth and EFTA markets had slow growth. Trade with EEC countries drew quicker even though GB was not a member.
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