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BRITISH ECONOMIC HISTORY LATE NINETEENTH CENTURY GLOBALISATION
What forces determined Britain's position in the world economy in the period 18701913?
Britain's 'position' in the world economy can be measured by traditional metrics such as GNP or GDP per capita, or with reference to its industries, investment patterns, or prospects for the future; this essay will examine all of the above, and the factors which drove changes over the period of our examination. The UK economy did not 'fail' in the late-Victorian period; real GDP per capita rose from $3191 in 1870 to $4921 in 1913. However, the benefits that had been reaped from being the first industrialised nation were waning rapidly, and Britain's position as the world's leading economy was no longer unassailable. This can be explained by convergence theory, driven by migration, the dissemination of technology, and the equalisation of labour and other input costs. The forces which drove convergence may have been accelerated by free-trade policies, fashionable once again in the late-19th century. British industry concentrated resources within several sectors where the greatest competitive advantage had historically been enjoyed, but as globalisation denuded such advantages the nation struggled to nurture emerging commercial opportunities. Not entirely unconnected to this is an unsettled argument over the appetites of British investors, principally whether they illogically preferred overseas investments, and inadvertently starved British companies of an important source of capital. A great many forces acted upon Britain, as they did every other developed and developing nation, and our purpose is not simply to assess their relevance, but also the extent to which they weighed upon the nation's economic performance. A
The Cambridge Economic History of Modern Britain, 18601939: Floud, Johnson et al
Chapter 1 - Longrun growth
Did the UK 'fail' in the lateVictorian period? Did it 'recover' during the interwar years?
Measuring relative decline:
Between 1870 and 1913 real UK GDP per capita (1990$) rose from $3191 to $4921. At the beginning of the period Britain's GDP per capita was the world's highest, and 10% ahead of her closest rival. By 1913 Britain was in second place, c8% behind the US, but she retained a not insignificant lead over European competitors.
Real UK GDP per capita growth 18701913 averaged 1%, compared to 0.7% during the years 19131939. Many other nations were exhibiting faster growth rates than Britain during these periods, but as the GDP figures above demonstrate, they were coming from a lower starting position.
Real GDP growth was 2.1% from 18731899, falling to 1.4% from 18991913.
Britain's freetrade policies allowed it to more resources away from the agricultural sector. Germany on the other hand, pursued agricultural protectionism, and the relative inefficiency of this sector dragged down her GDP per capita figures.
Aspects of Britain's relative decline fit within the neoclassical economic growth model. Whilst the nation had accumulated significant capital, this was subject to diminishing returns. Additionally technological advances made with Britain were ultimately disseminated among her competitors. Relatively poorer countries at the start of the period experience higher average growth rates than Britain.
There is a recognition that 'catchup' is not automatic, and that institutions and policy have a significant impact on outcomes.
Restraints of lateVictorian growth in Britain: entrepreneurial failure, capital market preference for foreign investment, weak technical education, overreliance on 'selfregulation'.
The US at the turn of the 20th century enjoyed numerous advantages over Britain. These included a much larger domestic market which allowed R&D and fixed costs to be borne over greater sales
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