The decline and rise of UK plc

Forrest Capie reviews an upbeat history of Britain's economy.

"The decline of the British economy" is a phrase that was until very recently in such common and widespread use that the idea it summarised was beyond questioning. There was almost universal acceptance that the British economy had been in terminal decline for some long time and that the recession of the early 1990s was both further proof of this, at the same time accelerating the final stages of decline.

This view of British economic decline goes back a long way. There were those who found the signs of it before the end of the 19th century. Even in relatively recent times there have been those who have argued that Victorian Britain failed. The stories have continued and the explanations for the perceived decline have ranged across the economic and social spectrum: the education system, the banking system, the class system and so on have all been found guilty.

It is true that Britain stood more or less supreme in 1870, the leading economy in the world with a huge share of total output and of total trade. Not surprisingly, these shares have shrunk. It is also true that it has lost international influence and even slipped down the international income-per head league tables. But while it has slipped in the income leagues, most of the slippage should surely have been expected. Other countries came to industrialise with a powerful desire to do well, with comparative advantages, and a leader to follow. But in any case the differences among the half-dozen front-runners in 1870 and those at the beginning of the third millennium are not great. That does not of course alter the fact that the British economy might have done better, might at some points have pursued more sensible policies.

It is important to stress that the subtitle of this book is "The decline and revival of British industry since the second world war". That is a considerable shift of emphasis. Manufacturing industry is now a small part of the whole economy. At the same time most of the arguments on failure are the same or very similar, and to a certain extent the experience of industry and that of the whole economy have been parallel.

Geoffrey Owen first runs through some of the historical background, mostly from the 19th century, considering a number of hypotheses that have been advanced to explain decline. This is brief but thoroughly informed. It covers such subjects as the extent to which it mattered for subsequent development that Britain was first to industrialise and what the appropriate response should have been to the growing competition from the United States and Germany at the end of the 19th century. Owen rather deftly and authoritatively corrects some misapprehensions along the way. He points out that British industrial performance was creditable in the interwar years, but accepts that a damaging consequence of interwar conditions was the abandonment of economic liberalism and the spread of price-fixing arrangements and other anti-competitive measures.

Furthermore, in the years after the second world war some countries had certain advantages and could have been expected to have made a more rapid recovery and more rapid economic progress generally, coming as they did from a low base. Also, in continental Europe many "industrial" countries had large agricultural sectors, which allowed the rapid growth to continue as labour moved from low-productivity agriculture to high-productivity industry - something Britain had done a century or so previously. Perhaps most important of all but less easy to measure was that in continental Europe there was a different attitude at the end of the war. Given the upheaval, devastation and allied occupation, there was a determination simply to get on with the business of rebuilding, whereas in Britain there was an understandable feeling of relief and self-congratulation that led inevitably to a certain amount of damaging complacency.

To repeat, the book is not about the whole economy, but rather is concerned with a much smaller part - the manufacturing sector. And the core of the book lies in the detailed investigation of manufacturing by means of a number of focused studies of individual industries. There are chapters on each of the following: textiles, shipbuilding, steel, paper, engineering, cars, electronics, aerospace, chemicals and pharmaceuticals. Then there is a third part of the book that examines some of the supposed principal overall culprits for decline: the financial system, training and education, trade unions, and government.

Each of these industry chapters begins with some historical background specific to the industry, sometimes going back as far as the 18th century but more commonly picking up the story from the late 19th century (where even electronics has its origins), and of course in some cases, such as aerospace, the history is limited to the decade before the second world war.

What is clear is that British manufacturing (and to some extent the whole economy) did not perform particularly well when compared with its main competitors in the years between the end of the war and the 1970s. The question is why? Were there conditions that applied across the whole economy and were in large part peculiar to Britain? Was the overall economic and political climate in some way debilitating? It is true that since the 1930s, with the rise of the managed economy, there had developed a certain acceptance of an increased role for the state and along with that went a lack of incentives to perform. So was government and a compliant corporate sector responsible? Owen does find government guilty of some misconceived attraction towards industrial size and of excessive intervention to promote these beliefs. But what has to be kept in mind is that similar views were often prevalent elsewhere. The classic case of failure is found in the car industry, where there is a catalogue of mistakes - both governmental and non-governmental. The experience of Rover brings out the kind of errors that were made. Where it might have stuck to a relatively narrow niche, Rover's ambitions to grow and diversify hardly knew any bounds; it continually found new parties to merge with, while continually introducing new product ranges.

Failures in some other industries had causes that lay much further afield. For example, electronics and shipbuilding fared no better in continental Europe than they did in Britain: foreign competition was simply too tough. Comparative advantage had moved on.

Some other candidates for blame of a more general and even all-encompassing kind are the short-sightedness of the City and poor labour relations. Owen pretty well dismisses the first and does not wholly accept the second. There were some industries that clearly suffered from poor labour relations (notably the car industry), but there were others where they were quite good. Owen is inclined to see the failure to commit to Europe in the 1950s and 1960s as a fault of government and as a handicap. Easy access to that rapidly growing market would have helped.

With the moderate and considered tone one would expect from a distinguished former editor of the Financial Times , the author examines the experience of this array of industries and finds quite lot of variation in their behaviour and performance. However, the decline was not inexorable. There was a substantial shock that they all experienced after 1979 - the actual or implied threat of the Thatcher handbag. There was a clear switch in policy regime and after that there was an improvement in performance more or less across the board. The environment changed: which rather suggests that governments should accept more of the blame than Owen is prepared to place on them.

There is no mention in this book of the Robert Bacon and Walter Eltis thesis, expressed in the 1970s, plum in the middle of the years of this book's focus, of an imbalance between the market and the non-market sectors: "too few producers", as that thesis came to be characterised. It offered an explanation for Britain's modest growth rate. The absence of mention is not a criticism; it simply serves to emphasise that this book is not about the whole economy. It is explicitly about one sector, a sector whose size was diminishing, as indeed it had been as a proportion of total economic activity for a long time in most industrial economies. Perhaps, as Britain led the way into industrialisation in the 18th century, it will come to be seen that it led the way into services in the late 20th century - or at least it would have led the way (in fact the US did), had there not been such misguided concern in Britain over the importance of manufacturing that too much was done to try to preserve it beyond its useful life.

Owen takes heart from the improved manufacturing performance of the 1990s. Many industries have been turned around and the British economy as a whole has been performing better than it did and better than most other economies. He has provided a comprehensive account of industrial experience since the war and added considerably to our understanding of the process of economic change. And, as might be expected from such an author, his book is very readable.

Forrest Capie is professor of economic history, City University.