Age Of Affluence Notes

British Economic History

BRITAIN AFTER 1945

Why did Britain perform relatively poorly after 1945?

Lectures 15/16: J. Fenske

- Broadberry argues that British wage restraint in exchange for full employment during the 1950s served to entrench restrictive practices, labour market inflexibility, and constrained the modernisation of industry.

- Trade union density rose from 40% to 50% in the 30 years to 1975, and many non-unionised workers had their wages set by unions.

- Despite headwinds, firms could achieve high profits thanks to the existence of cartels, restrictive practices, and access to protected markets.

- Unemployment averaged 1.9% between 1950 and 1973 and per capita income grew at 2.25%; inflation was moderate at 4.4%; savings and investment were high at 18.4% of GDP, double the pre-war average.

- Stop/go demand management de-stabilised the economy, created uncertainty, and undermined investment.

- Why do poor nations converge? They can import technology without innovating. They can add to capital stock. They can rapidly improve education. They can move workers out of agriculture and unskilled trades. They have more scope to improve economies of scale.

The Golden Age of European Growth: P. Temin

- European average GDP growth between 1950 and 1973 was 4.6%, with real GDP per capita growing at 3.8%¹.

- The Bretton-Woods system allowed European nations to adjust exchange rates and avoid overvaluation.

- Role of the Marshall Plan.

- Golden Age halted by the 1973 oil crisis.

The Politics of Productivity in West Germany, Sweden, and the United Kingdom, 1945–1955: 2. Booth, Melling et al

- Symptoms of the ‘British disease’ included adversarial relations between employers and unions, with the latter opposing new technologies and rationalisation through defence of inflexible division of labour². The involvement of the TUC in national policy making amplified this trend.

Macroeconomic Performance in the Bretton Woods Era and After: Cameron & Wallace

- The demand-side thesis argues that mistakes in demand management led to the deflation of the 1970s; policy makers believed there was a permanent trade-off between unemployment and inflation, and pursued expansionary monetary policies³.

- The supply-side thesis has two facets. First, that convergence gains had been exhausted by the 1970s. The second, the developments of the 1970s were counter-productive: the oil price shock, the breakdown of Bretton Woods, uncompetitive practices, and the growth of union power and militancy⁴.

- Eichengreen sees the wage restraint/high investment environment of the 1950s as highly supportive of growth, and its breakdown by the 1970s as inimical to it.

British Economic Policy and Industrial Performance in the Early Post-war Period: Broadberry & Crafts

- Between 1950 and 1970 German labour productivity rose from c95% of British to c125%.

- During the 1960s Britain spent a higher proportion of industrial output on research than other European nations, although this was heavily weighted in aerospace and military technology.

- The 1951 Conservative government pursued a policy of appeasement vis-à-vis the unions, to short-term economic advantage but longer-term cost.

The Post-War Settlement - Not Such a Good Bargain After All: Broadberry Crafts

- In 1958, 50-60% of Britain’s manufacturing industry was covered by cartel organisation, and three-quarters of firms engaged in some degree of price-fixing. Broadberry found that cartelisation cost the UK c0.8% per year of labour productivity growth⁵.

UK Productivity Performance from 1950 to 1979: Broadberry & Crafts

- The UK had considerably less scope for catch-up than other European nations, and its economic performance should be viewed in this context. However, productivity and real GDP per head actually fell behind several European peers by the end of the 1970s. Pursuit of full employment prevented supply-side reforms, politically advantageous in the short-term but damaging over a longer horizon. Britain was bad at implementing mass-production methods and, along with most of Europe, continued to lag the US⁶.

- By 1979, physical capital per man-hour in manufacturing was 50% higher in Germany than the UK; output per hour worked was at least 30% higher in France, Germany, and Japan than in Britain⁷.

The Manufacturing Failure Hypothesis and the Performance of British Industry: A. Booth

- In 1950, 22.2% of West German workers were in agriculture;...

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