Managing Decline? 1870-1990

Article excerpt

Mid-victorian Britain is commonly described as having passed through the |First Industrial Revolution' to have become the |workshop of the world'. Late twentieth-century Britain, of course, has no such pretensions. In the intervening years Britain has experienced a long period of relative economic decline marked by slower economic growth than in other countries and culminating in recent decades in a marked de-industrialisation of the economy. Some comparative statistics to illustrate this transformation are provided in Table 1.

Table 1: Britain's Industrial Prowess: Then and Now
                                         1870    1950   1989
Share of World Manufactured Exports (%)    45      26      9
Industrial Employment as % of Total
 Employment                                42      46     29
Output/Worker in Manufacturing
% of US Level                              49      38     56
% of German level                         100     104     95
GDP/Head: Rank Position among 16
 Advanced Countries                         2       5     12

Explanations abound for this disappointing performance. It is convenient to distinguish these into three categories. First, we can look at proximate sources of slow growth and relative industrial decline, namely low investment both in machinery and training of workers together with weak productivity growth. Second, we can take into account underlying reasons for the proximate sources. These are commonly held to include inadequate management, unfortunate industrial relations and mistaken government policy. Third, we can consider the fundamental factors which sustained these failings in place. Here we need to examine the incentive structures facing decision-makers in both business and government and seek to understand how the economy was unable to escape from a low growth equilibrium.

It is understandable for historians to look for the roots of the present position far back in the past. Certainly, there may be links between Britain's history as the pioneer of industrialisation and subsequent slow growth. No one has yet produced a fully convincing version of the |early start hypothesis', but that should not stop further exploration of the idea. At the same time, the economy in recent times is very different from its Victorian predecessor and over-emphasising elements of continuity in British growth performance is a temptation to be resisted.

Britain was the pioneer in industrialisation and the world technological leader of the first half of the nineteenth century. British industrial achievements in this era were unprecedented and are deservedly famous, while the celebrated engineers and inventors (Cort, Crompton, Maudslay, Stephenson, Watt etc.) of the period of the industrial Revolution are household names. The economy very rapidly became much the most urbanised and least agricultural in the world and held a massive share of world trade in manufactures.

The subsequent British fall from grace is much easier to understand if we recognise that, despite the greatness of this early triumph, the economic environment was very different from that of the second half of the twentieth century and so were the basic ingredients for industrial success. Moreover, the dimensions of British economic performance look less impressive when judged by standards achieved later on. This is reflected in the following observations:

(i) At no time in the nineteenth century did the economy grow very fast - the maximum for output per person was about 1.2 per cent which is well below the 2.1 per cent the UK in the 1980s, let alone the levels reached by Japan in the 1960s or China in the last fifteen years. Moreover, even in 1870 our industrial productivity level was much lower than that of the US notwithstanding our early technological superiority.

(ii) The relatively slow productivity growth of, the nineteenth century economy was accompanied by what from today's perspective were very low rates of investment in accumulating machinery, acquiring knowledge and educating people. …