Britain's Industrial Decline, 1870-1939

“The thesis of Britain’s industrial decline has been much exaggerated. Between 1870 and 1939 the British economy merely went through a necessary transition towards a more services and consumer goods-oriented economy.”


Wherever the truth may lie, the these is Britain’s industrial decline has been greatly debated, some arguing on the one hand that indeed Britain did suffer a very definite decline in its industrial production and output, and others that this decline was only relative in the context of growing worldwide economies and Britain’s changing role. Decline has come to be interpreted in terms of the structure of the economy and in particular of the balance between manufacturing and services and of the presumed costs of such a transition. Such a structural change was taken to mean both the dilution of quality of industry and also a clear reduction in Britain’s international power. Both of these need to be analysed separately to fully gauge the extent, or not, of the exaggeration relating to the thesis of industrial decline. Yet, it must be noted, that “declinist” historians have, perhaps wrongly, assumed that the only direction in which structural change could proceed was ‘down’ - whereas, in reality, the change we see in expanding economies is very much upwards. Between 1870 and 1939 Britain did undergo a transition towards a more sophisticated, technological economy with higher value-added service and consumer goods sectors. This fact therefore implies that Britain’s industrial decline was in no way due to a failure of entrepreneurs or business methods, but part of a wider and longer term transition to modernity.

It is perhaps fitting to start with the most vehement critics of Britain’s industrial performance in the period, the Elbaum-Lazonick thesis. This argument clearly states that since the final quarter of the 19th century, Britain has lagged behind other advanced nations in productivity growth and has consequently suffered continuing decline in industrial competitiveness. They attribute the decline of the British economy to rigidities in the key economic and social institutions that developed during the 19th century, calling it a “matrix of rigid institutional structures” that reinforced conservative values and obstructed individual and collective efforts at renovating the economy. That these entrenched institutional structures, such as finance, industrial relations (most significantly the advanced state of British trade unionism) and international trade constrained the productivity of Britain’s economic system. Elbaum and Lazonick argue that the most significant factor in Britain’s industrial malaise was the inability to adopt modern managerial techniques. They advocate the success of American-styled corporate capitalism characterised by hierarchical managerial bureaucracy and systematic research and development which had by the late 19th century emerged so successfully in other major national economies such as Japan and Germany. Britain supposedly lacked managerial control over job content and production standards which would facilitate the introduction of new, high through-put technology. To meet this international challenge, British industries needed transformation of their structures of industrial organisation and enterprise management. However, so the argument goes, vested interests in the existing structures proved formidable obstacles to such a transition. Lacking corporate management skills, British industrialists clung to family control of their firms and thus lost the competitive edge in the world market. Elbaum and Lazonick argue that at the peak of British economic dominance, these arrangements proved most advantageous. Britain’s international marketing structure meant that British firms could get enough orders of similar specifications to reap the benefits of long production runs. But - the tables were turned by the spread of foreign tariff barriers and indigenous industrialisation leading to worldwide development of competing economies. Foreign rivals, with more modern and capital-intensive technology attained, therefore, higher levels of productivity.

However, there is considerable evidence which directly refutes the thesis proposed by Elbaum and Lazonick : that Britain’s decline was more relative than direct, and that in some instances, the British staple industries were faring just as well (if not better) than their competitors. Revealing study by Leunig revealed that productivity in the Lancashire cotton spinning industry was significantly higher than that in American New England. If we were to wholeheartedly believe the thesis of British decline, then the cotton industries were supposedly guilty of many of the mistakes that British industry as a whole was in decline for, a lack of innovation and refusal to accept technologically advanced techniques. Elbaum and Lazonick label the British cotton industry machinery as “antiquated” compared to foreign models - the fact that they were much slower to adopt advanced weaving technology speaking volumes for the general decline in British industrial output. The American New England cotton companies used in Leunig’s study adopted these modern automatic loom and ring machines - whilst the Lancashire factories continued to use older methods such as mule spinning. Yet, crucially, contrary to the stress from writers such as Elbaum and Lazonick (and the Chandler model of corporate capitalism), Leunig found that the Lancashire industry, “generally had higher rates of capital productivity than did New England.” Therefore, does innovation always go hand in hand with high productivity? Leunig’s key investigation suggests not, which has direct implications for the argument which proposes that the thesis of Britain’s industrial decline has been much exaggerated. The coal industry provides further evidence here : that in the period up to the First World War exports boomed and brought excellent returns. One might counter-argue this however, and claim this was only a comparative advantage based on a heavily localised, labour-intensive industry with an unimpressive productivity record and limited future prospects. Furthermore, the example of steel creates a further ambiguity in the claim that Britain’s industrial decline has been exaggerated. The facts do, to a considerable extent, speak for themselves : in 1870 Britain’s share of world tonnage output was 50% for pig iron, 37% for wrought iron and 43% for steel. By 1913 the US now produced 40% of both pig iron and steel compared to 10% in Britain. Decline was perhaps inevitable as a result of the limits placed on demand by domestic market maturity and the growth of foreign industries behind tariff barriers. Britain’s adherence to free trade up to the reintroduction of tariffs in 1932 left the steel industry exposed to adverse competitive dynamics.

Therefore, even through using several examples from Britain’s “staple” industries - there is no clear-cut answer to the extent to which British industry declined. However, we must be careful not to generalise, as perhaps Elbaum and Lazonick did, in labelling the management of British industry as inefficient and directly linked to future decline. The presence of other, more external and worldwide, factors surely contributed greatly to this notion of British industrial decline. Herein lies a significant explanative factor in why the case for British industrial decline has been so exaggerated. Central to the concept of decline has been the belief that things are going from bad to worse, yet the evidence suggests that they were going from not so bad to significantly better. British GNP grew at about 2% annually between 1873 and 1913 and at a little over 2% between 1924 and 1939. The seeming paradox of a sense of economic failure thriving in an increasingly affluent society was an important theme discussed by Supple, whose argument strengthens the case that Britain’s decline was relative. An interesting point raised is that Britain’s decline of world power was central to the belief that its industrial decline was acute and real. How might a positive rate of growth be transmuted into actual collapse? Simply, perhaps, because it is lower than the growth rate of other nations. The bedrock of the debate has been the relative ‘failure’ of the British economy and its associated demotion from the leading rank of worldwide industrial powers. Historically, there can be no doubt about Britain’s relative decline - its share of world manufacturing output has fallen from 25-4 % in the last century. And yet in spite of this, as Supple notes with aplomb, “the British are the beneficiaries of developments which in every generation leave them richer than their predecessors.” Historical experience does point far more firmly to a trend of growth, through transition to modernity, rather than to any apocalyptic collapse. Experience has been one of prolonged growth in incomes and living standards, and decline therefore has most often been identified with the loss of relative power and international standing as a leading industrial nation.

The anxiety about Britain’s economy, as early as the 19th century, proved premature as Britain entered and successfully fought the First World War as a major power. What fails to be realised by “declinists” is that a country wish such a small proportion of the world’s resources and population cannot indefinitely deal on equal terms with newly developed countries bigger by anything between 50-400%. ‘Decline’ cannot be taken to mean that if Britain was no longer top, it had failed. Hence, perhaps it helps to explain the thesis of industrial decline that the British do feel keenly the existence of an extent of decline from a remembered position of economic pre-eminence compared to the growth of powers previously considered inferior. Yet there has been a further, over-arching, factor why pessimists appear concerned about such a decline. This has been the long lasting fear of ‘de-industrialisation’ - of the absolute shrinking of the manufacturing sector as a whole. The expansion of services and investment must be considered a vital factor in such a ‘decline’ - we can see it as more of a transition however. Every advanced economy passes through a trajectory of structural change and people have to leave industries where there is insufficient work. Maybe this decline was due to the low level of investment in manufacturing activity - acutely due to the relative and growing attractiveness of the services and consumer-goods sector which did not fail to recruit many new entrepreneurs. The expansion of the services sector during the late Victorian period and into the interwar years possessed highly beneficial consequences for economic growth - much of this expansion was neither directly nor in spatial terms immediately entirely dependent upon manufacturing. Thus, the movement into services provides positive evidence of entrepreneurial activity and vigour in the closing decades of the 19th century and beyond. Using the context of this explanation of entrepreneurship and British economic decline, the movement into the services and consumer-goods sector is of the utmost importance. If the British entrepreneur is to be criticised for failing to confront the organisational constraints, aforementioned, restricting him in the staple labour-intensive industries, and if he is to be further criticised for failing more vigorously to enter new manufacturing industries, then surely the same entrepreneur deserves distinct praise for moving into the service sector, whose comparatively rapid rate of output growth and high productivity, especially between 1870 and 1913, was so much superior to that of the old industries. Therefore this ‘necessary’ transition that the original statements belies is entirely true - to speak of ruinous ‘decline’ of industry would be to grossly exaggerate the reality that the British economy underwent a distinct transition towards the services sector in the period 1870-1913.

Therefore we can acutely criticise those that claim that Britain underwent a distinct industrial decline. Even within the sectors chosen for study by the ‘declinist’ historians, performance at the level of the individual firm was not one of total gloom. The examples of coal and the Lancashire Cotton Corporation detract from such a damning view of British industry in the period. As a generalised hypothesis however, the notion that there are direct links between past economic success and subsequent growth problems is terribly vulnerable. The alleged burden of over commitment in world trade sits uneasily beside Britain’s pursuit of comparative advantage in the staple export trades, certainly not despair and doom. Therefore the past warns against a gloomy conclusion of Britain’s economic future - the transition towards a more services and consumer goods orientated economy has brought with it ever increasing material and social welfare to its participants. ‘Declinist’ historians may be distinguished by the fact that they conflate relative decline with doing badly or failure. The relative decline was the product not only of British failings but of other economies improving their importance. This last statement cannot be emphasised enough : it is crucial towards the understanding that the thesis of Britain’s industrial decline has been somewhat over exaggerated. Once we recognise that the relative decline of Britain is not to be equated with doing badly, we begin to see that the larger picture was really not all that bad. Britain, indeed, was the second richest large industrial economy in the world until the comparatively recent 1960’s.

To conclude, therefore, would be to propose that the arguments for British industrial decline has been somewhat exaggerated by historians. There was something of a relative decline, especially when compared to Britain’s former Imperial dominance - but when we accept that, in the context of growing modernity coupled with worldwide growth of newly developed countries, Britain was never going to stay ‘top’. The transition to consumer goods and the services sector is most evident, by 1913 Britain had 21.3% of expanding industry, whereas only 17% in 1899. Most importantly, however, case studies do show that Britain’s ‘decline’ has often been misjudged and exaggerated by those wishing to proclaim the advantages of different corporate systems.

Bibliography

B. Alford, Britain in the World Economy Since 1880
T. Leunig, “A British Industrial Success : Productivity in the Lancashire and New England Cotton Spinning Industries a Century ago.” Economic History Review 2003
B. Supple, “Fear of Failing” Economic History Review 1994
D. Edgerton, Science, Technology and British Industrial Decline
B. Elbaum and W. Lazonick, The Decline of the British Economy
M. Kirby, “Institutional Rigidities and Economic Decline : Reflection on the British Experience” Economic History Review 1992
M. Daunton, “Britain’s Imperial Economy”, Journal of Economic History 2001
B. Collins and K. Robbins (eds.), British Culture and Economic Decline