Economic history of the United Kingdom
Encyclopedia
The economic history of the United Kingdom deals with the history of the economy
of the United Kingdom
from the creation of the Kingdom of Great Britain
on May 1st, 1707, with the political union
of the Kingdom of England
and the Kingdom of Scotland
. This Union, as well as being political, was designed to be a full economic union, with most of the twenty-five Articles of the Treaty of Union
dealing with economic arrangements for the new state. In 1801, Great Britain united with Ireland
to form the United Kingdom of Great Britain and Ireland
.
The United Kingdom developed as one of the world's leading economies. Between 1870 and the end of the 20th century, economic output per head of population in Britain rose by 500 per cent, generating a significant rise in living standards. However, from the late 19th century onwards Britain experienced a relative economic decline when compared to the world's other leading economies. In 1870, Britain's output per head was the second highest in the world after Australia. By 1914, it was fourth highest, having been overtaken. In 1950, British output per head was still 30 per cent ahead of the six founder members of the EEC
, but within 50 years it had been overtaken by many European and several Asian countries.
, an economic theory that stressed maximizing the trade inside the empire, and trying to weaken rival empires. The modern British Empire was based upon the preceding English Empire which first took shape in the early 17th century, with the English settlement of the eastern colonies of North America
, which later became the United States
, as well as Canada
's Maritime provinces, and the colonizations of the smaller islands of the Caribbean
such as Trinidad and Tobago
, the Bahamas, the Leeward Islands
, Barbados
, Jamaica
and Bermuda
. These sugar
plantation islands, where slavery
became the basis of the economy, were part of Britain's most important and successful colonies. The American colonies also utilized slave labor in the farming of tobacco
, cotton
, and rice
in the south. Britain's American empire was slowly expanded by war and colonization. Victory over the French during the Seven Years' War
gave Britain control over almost all of North America
but had only a small economic role.
Mercantilism was the basic policy imposed by Britain on its colonies. Mercantilism meant that the government and the merchants became partners with the goal of increasing political power and private wealth, to the exclusion of other empires. The government protected its merchants--and kept others out--by trade barriers, regulations, and subsidies to domestic industries in order to maximize exports from and minimize imports to the realm. The government had to fight smuggling--which became a favorite American technique in the 18th century to circumvent the restrictions on trading with the French, Spanish or Dutch. The goal of mercantilism was to run trade surpluses, so that gold and silver would pour into London. The government took its share through duties and taxes, with the remainder going to merchants in Britain. The government spent much of its revenue on a superb Royal Navy, which not only protected the British colonies but threatened the colonies of the other empires, and sometimes seized them. Thus the British Navy captured New Amsterdam
(New York) in 1664. The colonies were captive markets for British industry, and the goal was to enrich the mother country.
.
It has been argued by historians such as Christopher Hill, Eric Hobsbawm, and E.P. Thompson that the foundations of this process of change can be traced back to the Puritan Revolution in the Seventeenth Century. This produced landed and merchant elites alive to the benefits of economic change, and a system of agriculture able to produce increasingly cheap food supplies. To this must be added the influence of religious nonconformity, which increased literacy and inculcated a 'Protestant work ethic
' amongst skilled artisans.
A long run of good harvests, starting in the first half of the 18th century, resulted in an increase in disposable income and a consequent rising demand for manufactured goods, particularly textiles. The invention of the flying shuttle
by John Kay
enabled wider cloth to be woven faster, but also created a demand for yarn that could not be fulfilled. Thus, the major technological advances associated with the industrial revolution were concerned with spinning. James Hargreaves
created the Spinning Jenny
, a device that could perform the work of a number of spinning wheels. However while this invention could be operated by hand, the water frame
, invented by Richard Arkwright
, could be powered by a water wheel
. Indeed, Arkwright is credited with the widespread introduction of the factory system
in Britain, and is the first example of the successful mill owner and industrialist in British history. The water frame was, however, soon supplanted by the spinning mule
(a cross between a water frame and a jenny) invented by Samuel Crompton
. Mules were later constructed in iron by Messrs. Horrocks of Stockport.
As they were water powered, the first mills were constructed in rural locations by streams or rivers. Workers villages were created around them. Styal Mill (owned by the National Trust
) is a surviving example of this kind of enterprise, as are New Lanark
Mills in Scotland. These spinning mills resulted in the decline of the domestic system, in which spinning was undertaken in rural cottages.
However, the textile trade was transformed, as was much else, by the development of the steam engine
. The first practicable steam engine was invented by Thomas Newcomen
, and was used for pumping water out of mines. It was perfected by James Watt
, being transformed into a reciprocating engine
capable of powering machinery. The first steam-driven textile mills began to appear in the last quarter of the 18th century, and this transformed the industrial revolution into an urban phenomenon, greatly contributing to the appearance and rapid growth of industrial towns.
The progress of the textile trade soon outstripped the original supplies of raw materials. By the turn of the 19th century, imported American cotton
had replaced wool
in the North West of England, though the latter remained the chief textile in Yorkshire
. Textiles have been identified as the catalyst in technological change in this period. The application of steam power stimulated the growth of the coal
industry, the construction of mills and the demand for machinery and engines impacted upon the iron industry, and the demand for imported raw materials (and later improved means of export and distribution) led to the growth of the canal
system, and later the invention and spread of the railway.
Such an unprecedented degree of economic growth could not be sustained by domestic demand. The application of technology and the factory system created such levels of mass production
and cost efficiency that enabled Britain to undercut foreign competitors. The political dominance created by the growth of an overseas empire and the strategic control of the world's seas by the Royal Navy
, enabled British manufacturers to export their goods to Europe, Africa, Asia, and Latin America. Indeed, the demands of the war economy created by the French and Napoleonic Wars
added to these opportunities.
Walt Rostow
has posited the 1790s as the take-off period for the industrial revolution. This means that a process previously responding to domestic and other external stimuli began to feed upon itself, and became an unstoppable and irreversible process of sustained industrial and technological expansion.
In the late 18th century and early 19th century a series of technological advances led to the Industrial Revolution
. Britain's position as the world's pre-eminent trader helped fund research and experimentation. The nation was also gifted by some of the world's greatest reserves of coal
, the main fuel of the new revolution.
It was also fuelled by a rejection of mercantilism in favour of the predominance of Adam Smith
's capitalism
. The fight against Mercantilism was led by a number of liberal
thinkers, such as Richard Cobden
, Joseph Hume
, Francis Place
and John Roebuck
.
Some have stressed the importance of natural or financial resources that Britain received from its many overseas colonies or that profits from the British slave trade between Africa and the Caribbean helped fuel industrial investment. It has been pointed out, however, that slave trade and the West Indian plantations provided less than 5% of the British national income during the years of the Industrial Revolution.
The Industrial Revolution saw a rapid transformation in the British economy and society. Previously large industries had to be near forests or rivers for power. The use of coal-fuelled engines allowed them to be placed in large urban centres. These new factories proved far more efficient at producing goods than the cottage industry of a previous era. These manufactured goods were sold around the world, and raw materials and luxury goods were imported to Britain.
During the Industrial Revolution the empire became less important and less well-regarded. The British defeat in the American War of Independence (1775–1783) deprived it of one of its most populous colonies. This loss of the southern American colonies was coupled with a realisation that colonies were not particularly economically beneficial. It was realised that the costs of occupation of colonies often exceeded the financial return to the taxpayer. In other words, formal empire afforded no great economic benefit when trade would continue whether the overseas political entities were nominally sovereign or not. The American Revolution helped demonstrate this by showing that Britain could still control trade with the colonies without having to pay for their defence and governance. Capitalism encouraged the British to grant their colonies self-government. The end of the old colonial system was most evident in the repeal of the Corn Laws
, the agricultural subsidies on colonial grain. The end of these laws opened the British market to unfettered competition, grain prices fell, and food became more plentiful. The repeal greatly injured Canada
, however, whose grain exports lost a great deal of their profitability.
Some argue that this push for free trade was merely because of Britain economic position and was unconnected with any true philosophic dedication to free trade. Roughly between the Congress of Vienna
and the Franco-Prussian War
, Britain reaped the benefits of being the world's sole modern, industrialised nation. Following the defeat of Napoleon, Britain was the 'workshop of the world', meaning that its finished goods were produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market. If political conditions in particular overseas markets were stable enough, Britain could dominate its economy through free trade alone without having to resort to formal rule or mercantilism. Britain was even supplying half the needs in manufactured goods of such nations as Germany
, France
, Belgium
, and the United States
.
Britain, in this sense, continued to adhere to the Cobdenite notion that informal colonialism was preferable — the established consensus among industrial capitalists during the age of Pax Britannica
between the downfall of Napoleon and the Franco-Prussian War.
Sovereign areas already hospitable to informal empire largely avoided formal rule, even often during the shift to New Imperialism. China
, for instance, was not a backward country unable to secure the prerequisite stability and security for western-style commerce, but an empire unwilling to admit western commerce, which may explain the West's contentment with informal 'Spheres of Influence'. China, unlike tropical Africa
, was a securable market without formal control.
The victory of the forces of the East India Company
at the Battle of Plassey
(1757) opened the great Indian province of Bengal
to British rule, although the famine of 1770
, exacerbated by massive expropriation of provincial government revenues, aroused controversy at home. The 19th century saw Company rule extended across India after expelling the Dutch, French and Portuguese. Following the Indian Rebellion of 1857
British India came under the direct rule of the British government. The territory continued to expand as Ceylon (now Sri Lanka
) and Burma (now Myanmar
) were added to Britain's Asian territories, which extended further east to Malaya
and (1841) to Hong Kong
following a successful war in defence of the Company's opium
exports to China
.
During the First Industrial Revolution, the industrialist replaced the merchant
as the dominant figure in the capitalist
system. In the latter decades of the 19th century, when the ultimate control and direction of large industry came into the hands of financier
s, industrial capitalism gave way to financial capitalism and the corporation
. The establishment of behemoth industrial empires, whose assets were controlled and managed by men divorced from production, was a dominant feature of this third phase.
New products and services were also introduced which greatly increased international trade. Improvements in steam engine
design and the wide availability of cheap steel
meant that slow, sailing ships could be replaced with steamships, such as Brunel's
SS Great Western
. Electricity
and chemical
industries also moved to the forefront. In many of these sectors Britain had far less of an edge than other powers such as Germany
and the United States
, who both rose to equal and even surpass Britain in economic heft.
Amalgamation of industrial cartel
s into larger corporations, mergers and alliances of separate firms, and technological advancement (particularly the increased use of electric power and internal combustion engine
s fuelled by coal
and petroleum
) were mixed blessings for British business during the late Victorian era
. The ensuing development of more intricate and efficient machines along with monopolistic
mass production
techniques greatly expanded output and lowered production costs. As a result, production often exceeded domestic demand. Among the new conditions, more markedly evident in Britain, the forerunner of Europe's industrial states, were the long-term effects of the severe Long Depression
of 1873-1896, which had followed fifteen years of great economic instability. Businesses in practically every industry suffered from lengthy periods of low — and falling — profit rates and price deflation after 1873.
Long-term economic trends led Britain, and to a lesser extent, other industrialising nations such as the United States
and Germany
, to be more receptive to the desires of prospective overseas investment. Through their investments in industry, bank
s were able to exert a great deal of control over the British economy
and politics
. Cut-throat competition in the mid-19th century caused the creation of super corporations and conglomerates
. Many companies borrowed
heavily to achieve the vast sums of money required to take over
their rivals, resulting in a new capitalist
stage of development.
By the 1870s, financial houses in London
had achieved an unprecedented level of control over industry. This contributed to increasing concerns among policymakers over the protection of British investments overseas — particularly those in the securities of foreign governments and in foreign-government-backed development activities, such as railways. Although it had been official British policy to support such investments, with the large expansion of these investments in the 1860s, and the economic and political instability of many areas of investment (such as Egypt
), calls upon the government for methodical protection became increasingly pronounced in the years leading up to the Crystal Palace Speech. At the end of the Victorian era, the service sector (banking, insurance and shipping, for example) began to gain prominence at the expense of manufacturing.
As foreign trade increased, so in proportion did the amount of it going outside the Continent. In 1840, £7.7 million of its export and £9.2 million of its import trade was done outside Europe; in 1880 the figures were £38.4 million and £73 million. Europe's economic contacts with the wider world were multiplying, much as Britain's had been doing for years. In many cases, colonial control followed private investment, particularly in raw materials and agriculture. Intercontinental trade between North and South constituted a higher proportion of global trade in this era than in the late 20th century period of globalisation.
and World War, Europe added almost 9 million square miles (23,000,000 km²) — one-fifth of the land area of the globe — to its overseas colonial possessions. Ushering out the cavalier colonialism of the mid-Victorian era, the age of Pax Britannica, the late 19th century Romantic Age was an era of "empire for empire's sake". But scholars debate the causes and ramifications of this period of colonialism, dubbed "The New Imperialism" to distinguish it from earlier eras of overseas expansion, such as the mercantilism of the 16th to 18th centuries or the liberal age of 'free trade' colonialism of the mid-19th century.
Continental political developments in the late 19th century, relating to the overall breakdown of the Concert of Europe
, also rendered this imperial competition feasible, in spite of Britain
's centuries of long-established naval and maritime superiority. As unification of Germany
by the Prussia
n 'Garrison State' went forward, contending capitalist powers were thus ready to compete with Britain over stakes in overseas markets. The aggressive nationalism of Napoleon III
and the relative political stability of France
under the liberal Third Republic also rendered France more capable of challenging Britain's global preeminence. Germany, Italy
, and France were simply no longer as embroiled in continental concerns and domestic disputes as they were before the Franco-Prussian War
.
Contemporary world-systems theorist Immanuel Wallerstein
perhaps better addresses the counter-arguments to Hobson without degrading his underlying inferences. Wallerstein's conception of imperialism as a part of a general, gradual extension of capital investment from the "center" of the industrial countries to an overseas "periphery" thus coincides with Hobson's. According to Wallerstein, "Mercantilism... became the major tool of [newly industrialising, increasingly competitive] semi-peripheral countries [Germany, France, Italy, Belgium, etc.] seeking to become core countries." Wallerstein hence perceives formal empire as performing a function "analogous to that of the mercantilist drives of the late seventeenth and eighteenth centuries in England and France."
The expansion of the Industrial Revolution hence contributed to the emergence of an era of aggressive national rivalry, leading to the late 19th century 'scramble for Africa' and formal empire. Hobson's theory is thus useful in explaining the role of over-accumulation in overseas economic and colonial expansionism while Wallerstein perhaps better explains the dynamic of inter-capitalist geopolitical competition.
Recent developments made it easier and more appealing for "semi-peripheral" newly industrialised states to challenge Pax Britannica overseas. With the expansion of the Industrial Revolution, Britain could no longer reap the benefits of being the sole modern, industrial nation. Britain by the outbreak of the Franco-Prussian War was no longer the 'workshop of the world', meaning that its finished goods were no longer produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market.
As these other newly industrial powers, the United States, and Japan
after the Meiji Restoration
began industrialising at a rapid rate, Britain's comparative advantage in trade of any finished good began diminishing. Just as the power of German and North American capitalisms increased, the relative decline of the British capitalist economy began in the last third of the 19th century, contributing to a breakdown of Britain's natural superiority in industry and commerce. Britain's share of world trade fell from one-fourth in 1880, one-sixth in 1913, and one-eighth in 1948. Britain was no longer supplying half the needs in manufactured goods of such nations as Germany, France, Belgium
, and the United States. Britain was even growing incapable of dominating the markets of India — a crown colony by 1858 that Disraeli
would later deem "the brightest jewel of the crown" —, Manchu China
, the coasts of Africa, and Latin America.
To make matters worse, British manufactures in the staple industries of the Industrial Revolution
were beginning to experience real competition abroad. The German textiles and metal industries, for example, had by the beginning of the Franco-Prussian War surpassed those of Britain in organisation and technical efficiency and usurped British manufacturers in the domestic market. By the turn of the 20th century, the German metals and engineering industries would be producing heavily for the free trade market of what was once "workshop of the world" as well. In midst of Britain's relative industrial decline, the fact that invisible financial exports actually kept Britain "out of the red" is somewhat indicative of both Britain's pressure to secure overseas markets in both nominally independent states and colonies and its newly precarious hegemony over overseas markets.
For the most part, formal empire has its roots in the breakdown of Pax Britannica. With the rise of industrial capitalism in Germany, North America, and Japan, its finished goods no longer had a comparative or absolute advantage in any other market. Industrialisation progressed dynamically in Germany and the United States especially, allowing them to clearly prevail over the "old" French and English capitalisms. The "neo-mercantilist" practices of newly industrialising states such as Germany, the United States, and Japan cut Britain off from outlets and even created competition for Britain in sales to these 'peripheral' areas.
With contending, emerging 'semi-peripheral' capitalist powers once dependent on British industry ready to vie for competing stakes in overseas markets, inter-capitalist competition also took form of protectionism through higher tariffs, further aggravating the push toward overseas markets: in Germany in 1879, and again following 1902: in the United States in 1890; in France in 1892, 1907, and 1910. The only country to escape this trend was Britain, whose essential strength lay precisely in its preeminence on the world market. German, American, and French imperialists, as mentioned, argued that Britain's world power position gave the British unfair advantages on international markets, thus limiting their economic growth.
This affected Britain in two ways. First, of course, new interest of the emergent industrial powers in colonial expansion brought them into direct competition with Britain. The expansion of the Second Industrial Revolution and the rise of similar economic practices (such as amalgamation of industry) in Germany and the United States intensified the competition for overseas markets and hence formal colonialism.
New Imperialism, as one means of facilitating the inexorable movement of capital from domestic markets to overseas areas, was thus enabled by recent changes in the North Atlantic balance of power, such as the unification of Germany under Prussia and relative political stability under France's Third Republic, but driven by changing economic realities and the spread of industrial capitalism beyond Britain.
By the time Benjamin Disraeli
ushered in the age of New Imperialism with his watershed Crystal Palace Speech, which was delivered by no mere coincidence after the Franco-Prussian War and during the Long Depression, Britain was no longer the world's sole modern, industrial nation. Pessimists thus inferred that unless Britain acquired secure colonial markets for its industrial products and secure sources of raw materials, the other industrial states would seize them themselves and would precipitate a more rapid decline of British business, power, and standards of living. The prospect of having to compete to remain the forerunner of the world's economies and empires due to recent changes in the global economy and continental balance of power thus left it ripe for Disraeli's Conservative rule in the 1870s, which would usher in an era of extreme national rivalry that would one day culminate in the Great War.
In this sense, historian Bernard Porter argues that formal imperialism for Britain was a symptom and an effect of its relative decline in the world, and not of strength. Symbolic overtures, in fact, such as Queen Victoria
's grandiose title of "Empress of India", celebrated during Disraeli's second premiership in the 1870s, helped to obscure this fact. Joseph Chamberlain thus argued that formal imperialism was necessary for Britain because of the relative decline of the British share of the world's export trade and the rise of German, American, and French economic competition.
As mentioned, the 'Scramble for Africa', rationalised by Rudyard Kipling
-style racism and Social Darwinism
in predominantly Protestant
empires and the paternalistic ,but republican, French-style "mission of civilisation", was attractive to many European statesmen and industrialists who wanted to accelerate the process of securing colonies upon anticipating the prospective need to do so. Their reasoning was that markets might soon become glutted, and that a nation's economic survival depends on its being able to offload its surplus products elsewhere.
At a time when the abandonment of free trade limited the European market, some business and government leaders, such as Leopold II and Jules Ferry, concluded that sheltered overseas markets would solve the problems of low prices and over-accumulation of surplus capital caused by shrinking continental markets. Among the new conditions were the short-term effects of the severe economic depression of 1873, which had followed fifteen years of great economic instability. Business after 1873 in practically every industry suffered from lengthy periods of low profit rates and deflation; profits were falling because too much capital were chasing too few markets, especially after the rise of newly industrialising states in export trade with its traditional markets in continental Europe, China, and Latin America.
In addition, such surplus capital was often more profitably invested overseas, where cheap labour, limited competition, and abundant raw materials made a greater premium possible. Another inducement to imperialism, of course, arose from the demand for raw materials unavailable in Europe, especially copper, cotton, rubber, tea, and tin, to which European consumers had grown accustomed and European industry had grown dependent.
Following the lead of Britain under Disraeli, even the once hesitantly imperialistic Bismarck was eventually brought to realise the value of colonies for securing (in his words) "new markets for German industry, the expansion of trade, and a new field for German, activity, civilisation, and capital". Examples of strategic competition following the passing of the scene of Bismarck, the era's premier diplomat, that would intensify the drive to consolidate existing spheres of influence and grab new colonies, include the Moroccan Crisis of 1905, the Tangier Crisis resulting from Kaiser Wilhelm's recognition of Moroccan
independence, and the second Moroccan Crisis, in which Germany sent its navy to Morocco, thereby testing the precarious Anglo-French Entente. The Entente Cordiale
, in fact, was a gentlemen's agreement
between Britain and France to curtail further German expansion. The Entente Cordiale and the Franco-Russian alliances were also made because of a common interest.
The absolutist Central Powers, led by a newly unified, dynamically industrialising Germany, with its expanding navy — doubling in size between the Franco-Prussian War and the Great War — were a strategic threat to the markets of these relatively declining empires that would one day consist of the Great War Allies. British policymakers feared the prospect of another German military victory over France, which could have reasonably resulted in a German take-over of France's formal colonies, a sort of reversal of the actual outcome of the Great War, after which Britain occupied the vast majority of German and Ottoman colonies as "protectorates". This prospect was especially frightening considering that French colonies tended to be closely situated to Britain's; Nigeria, for instance, was surrounded by French territory, India was near French Indochina, and so forth.
by the belligerent Kaiser Wilhelm II, the expropriation of vast, unexplored areas of Asia and Africa by emerging imperial powers such as Italy and Germany and more-established empires such as Britain and France was relatively orderly. The 1885 Congress of Berlin
, initiated by Bismarck to establish international guidelines for the acquisition of African territory, formalised this new phase in the history of Western imperialism
. Between the 1870 Franco-Prussian War
and World War I
(the age of New Imperialism
), Europe added almost 9 million square miles (23,000,000 km²) — one-fifth of the land area of the globe — to its overseas colonial possessions.
Since the "Scramble for Africa
" was the predominant feature of New Imperialism and formal empire, opponents of Hobson
's accumulation theory often point to frequent cases when military and bureaucratic costs of occupation exceeded financial returns. In Africa (exclusive of South Africa
) the amount of capital investment by Europeans was relatively small before and after the 1885 Congress of Berlin, and the companies involved in tropical African commerce were small and politically insignificant, exerting only a tiny influence on domestic politics. First, this observation might detract from the pro-imperialist arguments of Leopold II of Belgium
, Italian premier Francesco Crispi
, and French Republican Jules Ferry
, but Hobson argued against imperialism from a slightly different standpoint. He concluded that finance was manipulating events to its own profit, but often against broader national interests.
Second, any such statistics only obscure the fact that African formal control of tropical Africa had strategic implications in an era of feasible inter-capitalist competition, particularly for Britain, which was under intense economic and thus political pressure to secure lucrative markets such as India, China, and Latin America. In Britain's case this process of capitalist diffusion had in many regions led it to acquire colonies in the interests of commercial security; France and Germany would later follow suit. For example, although the then inconspicuously moribund Czarist Empire proved to be little threat to Great Britain following its stunning defeat in the 1905 Russo-Japanese War
, British Conservatives in particular feared that Russia would continue to usurp Ottoman territory and acquire a port on the Mediterranean or even Constantinople
— a long touted goal of orthodox Russia.
These fears became especially pronounced following the 1869 completion of the near-by Suez Canal
, prompting the official rationale behind British premier Disraeli's purchase of the waterway. The close proximity of the Czar's (territorially) expanding empire in Central Asia to India also terrified Lord Curzon, thus triggering the Afghan Wars
. Cecil John Rhodes
and Milner
also advocated the prospect of a "Cape to Cairo" empire
, which would link by rail the extrinsically important canal to the intrinsically mineral and diamond
rich South, from a strategic standpoint. Though hampered by German conquest of Tanganyika
until the end of the Great War, Rhodes successfully lobbied on behalf of such a sprawling East African empire.
Formal colonies were often, in hindsight, strategic outposts to protect large zones of 'investment', such as India, Latin America, and China. Britain, in as sense, continued to adhere to the Cobdenite
notion that informal colonialism was preferable — the established consensus among industrial capitalists during the age of Pax Britannica between the downfall of Napoleon and the Franco-Prussian War. What changed since the Disraeli's Crystal Palace Speech was not necessarily a preference for colonialism
over informal empire, but the attitude toward formal rule in largely tropical areas once considered too 'backward' for trade. Sovereign areas already hospitable to informal empire largely avoided formal rule during the shift to New Imperialism. China, for instance, was not a backward country unable to secure the prerequisite stability and security for western-style commerce, but a highly advanced empire unwilling to admit western (often drug-pushing
) commerce, which may explain the West's contentment with informal 'Spheres of Influences'. China, unlike tropical Africa, was a securable market without formal control.
Following the First Opium War
(1839–1842), British commerce, and later capital invested by other newly industrialising powers, was securable with a smaller degree of formal control than in Southeast Asia, West Africa, and the Pacific. But in many respects, China was a colony and a large-scale receptacle of Western capital investments. Western powers did intervene military there to quell domestic chaos, such as the horrific Taiping Rebellion
(1851–1864) and the anti-imperialist Boxer Rebellion
(1901). For example, General Gordon, later the imperialist 'martyr' in the Sudan
, is often accredited as having saved the Manchu Dynasty from the Taiping insurrection, after having defeated the Manchu in the Second Opium War
(1856–60).
Colonialism in India, however, should dissuade sweeping generalisations and over-simplifications regarding the roles of inter-capitalist competition and accumulated surplus in precipitating the era of New Imperialism. Formal empire in India
, beginning with the Government of India Act of 1858, was a means of consolidation, reacting to the abortive Sepoy Rebellion in 1857, which was in itself a conservative reaction among Indian traditionalists to the Dalhousie era of liberalisation and consolidation of the subcontinent. Local concerns in particular zones of investment, hence, should be of concern as well.
Formal empire in Sub-Saharan Africa, the last vast region of the world largely untouched by "informal imperialism" and "civilisation", was also attractive to Europe's ruling elites for other potential reasons. First, insofar as the "Dark Continent" was agricultural or extractive, and no longer "stagnant" since its integration with the world's interdependent capitalist economy, it required more capital for development that it could provide itself. Second, during a time when in nearly every year since the 1813 liberalisation of trade onward Britain's balance of trade
showed a deficit, and a time of shrinking and increasingly protectionist continental markets, Africa offered Britain an open market that would garner it a trade surplus — a market that bought more from the metropole than it sold overall. Britain, like most other industrial countries, had long since begun to run an unfavourable balance of trade (which was increasingly offset, however, by the income from overseas investments). As perhaps the world's first post-industrial nation, financial services became an increasingly more important sector of its economy. Invisible financial exports, as mentioned, kept Britain out of the red, especially capital investments outside Europe, particularly to the developing and open markets in Africa, predominantly white 'settler
colonies', the Middle East, the Indian Subcontinent, Southeast Asia, and the South Pacific.
Each of Britain's major elites also found some advantages in formal, overseas expansion: mammoth monopolies wanted imperial support to secure overseas investments against competition and domestic political tensions abroad; bureaucrats wanted more occupations, military officers desired promotion, and the traditional but waning landed gentry wanted formal titles. Observing the rise of trade unionism, socialism, and other protest movements during an era of mass society in both Europe and later North America, the elite in particular was able to utilise imperial "jingoism
" to co-opt the support of the impoverished industrial working class. Riding the sentiments of the late 19th century Romantic Age, imperialism inculcated the masses with 'glorious' neo-aristocratic virtues and helped instil broad, nationalist
sentiments.
and Germany
, had developed their own industries; the United Kingdom
's comparative economic advantage had lessened, and the ambitions of its rivals had grown. The losses and destruction of World War I
, the depression in its aftermath
during the 1930s, and decades of relatively slow growth eroded the United Kingdom's pre-eminent international position of the previous century.
By 1921, more than 2,000,000 Britons were unemployed as a result of the postwar economic downturn. By 1926, the economy was still struggling, the general strike
of that year doing it no favours. Industrial relations briefly improved, but then came the Wall Street stock market crash
in the USA, which sparked a Great Depression
. See also the Great Depression in the United Kingdom
.Unemployment had stood at less than 1,800,000 at the end of 1930, but by the end of 1931 it had risen sharply to more than 2,600,000.By January 1933, however, more than 3,000,000 Britons were unemployed, accounting for more than 20% of the workforce. Although this record for unemployment would be exceeded numbers-wise 50 years later, it has still yet to be exceeded as a percentage almost 80 years on.
The rest of the 1930s saw a decent economic recovery and fall in unemployment, and by 1938 the unemployment rate had fallen to around 10%.
In World War II
, which started in September 1939, there was again a great deal of destruction to British infrastructure, and the years after the war also saw Britain lose almost all of its remaining colonies as the empire dissolved. In the 1945 general election
, just after the war's end, the Labour Party
was elected, introducing sweeping reforms of the British economy. Taxes increased, industries were nationalised, and a welfare state
with national health, pensions, and social security was created.
The next years saw some of the most rapid growth Britain had ever experienced, recovering from the devastation of the Second World War and then expanding rapidly past the previous size of the economy. By 1959, tax cuts had helped boost living standards and allow for a strong economyand low unemployment.
By the end of the 1960s, this growth began to slow and unemployment was rising again.
During the 1970s Britain suffered a long running period of relative economic malaise, dogged by severe inflation, strikes and union power as well as inflation, with neither the Conservative
government of 1970
-1974
(led by Edward Heath
) nor the Labour
government which succeeded it (led by Harold Wilson
and from 1976 James Callaghan
) being able to halt the country's economic decline.
Unemployment exceeded 1,000,000 by 1972 and had risen even higher by the time the end of the decade was in sight.
This led to the election of Margaret Thatcher
, who cut back on the government's role in the economy and weakened the power of the trade union
s. The latter decades of the 20th century have seen an increase in service-providers and a drop in industry, combined with privatisation of some sections of the economy. This change has led some to describe this as a 'Third Industrial Revolution', though this term is not widely used.
and the United States were becoming the biggest threats in terms of domestic economic production, having vastly superior natural resources compared to Britain. Furthermore, Germany had developed its own policy of imperialism
which led to friction with other imperial powers in Europe up to the First World War
.
Even with the decline, in 1914 London was still the center of international payments, and a large creditor nation, owed money by others. The First World War
(1914–1918) saw absolute losses for Britain’s economy. It is estimated that she lost a quarter of her total wealth in fighting the war. Failure to appreciate the damage done to the British economy led to the pursuit of traditional liberal economic policies which plunged the country further into economic dislocation with high unemployment (reaching 2,000,000 in 1921)and sluggish growth.
By 1926, a General Strike
was called by trade unions but it failed, and many of those who had gone on strike were blacklisted, and thus were prevented from working for many years later.
affected Britain resulting in leaving the Gold Standard
. Whereas Britain had championed the concept of the free market when it was ascendant in the world economy, it gradually withdrew to adopting Tariff Reform as a measure of protectionism. By the early 1930s, the depression again signaled the economic problems the British economy faced. Unemployment soared during this period; from just over 10% in 1929 to more than 20% by early 1933. However, it had fallen to 13.9% by the start of 1936.
When the Labour Government collapsed in 1931, it was replaced by a National Government representing all the troubles that had beset the country. Britain was not alone, with equal economic troubles affecting most European countries, most powerfully Germany.
In political terms, the economic problems found expression in the rise of radical movements who promised solutions which conventional political parties were no longer able to provide. In Britain this was seen with the rise of the Communist Party of Great Britain
(CPGB) and the Fascists under Oswald Mosley
. However, their political strength was limited and they never posed any real threat to the conventional political parties in the UK.
Britain’s economic problems are cited as a reason for appeasement
. Delaying a commitment to war was a means of buying time to divert scarce economic resources into the production of military hardware and armaments.
reserves to pay for munitions, raw materials and industrial equipment from American factories. By the third quarter of 1940 the volume of British exports was down 37% compared to 1935. Although the British Government had committed itself to nearly $10,000 million of orders from America, Britain's gold and dollar reserves were near exhaustion. The American Government decided to prop up Britain as it neared bankruptcy, so on 10 January 1941 they produced a Bill entitled an "Act to promote the defence of the United States" (its number, H.R. 1776, was the year of American independence) which was put before the United States Congress
and which was enacted on 11 March 1941. This Act became known as Lend-Lease
, whereby America would give Britain cash totaling $31.4 billion which never had to be repaid. One month later British gold and dollar reserves had dwindled to their lowest ever point, $12 million. Under this new agreement with the American Government, Britain agreed not to export any articles which contained Lend-Lease material or to export any goods—even if British-made—which were similar to Lend-Lease goods. The American Government sent officials to Britain to police these requirements. By 1944 British exports had gone down to 31% from 1938. Lend-Lease created problems in reviving Britain's exports after the war.
had negotiated throughout the war to liberalise post-war trade and the international flow of capital in order to break into markets which had previously been closed to it, including the British Empire's Pound Sterling
bloc. This was to be realised through the Atlantic Charter
of 1941, through the establishment of the Bretton Woods system
in 1944, and through the new economic power that the US was able to exert due to the weakened British economy.
Immediately after the war had ended, the USA halted Lend-Lease
. This had been fundamental to the sustainability of the British economy during the war and it was expected by the British that it would continue during the period of transition. Instead, the Labour Government under Clement Attlee
sent John Maynard Keynes
to negotiate a loan, known as the Washington Loan Agreement in December 1945 (see Anglo-American loan
). The terms of this were not as favourable as the British had hoped for and included crucially a convertibility clause, in line with the US policy of liberalisation. In this, the USA expected that within two years, the British currency would become fully convertible. This, combined with the fact that the loan wasn't for as much as Keynes had hoped and the 2% interest rate imposed by the Americans, meant that Britain faced an uphill struggle to revive the economy.
The winter of 1946–1947 proved to be very harsh curtailing production and leading to shortages of coal which again affected the economy so that by August 1947 when convertibility was due to begin, the economy was not as strong as it needed to be. When the Labour Government enacted convertibility, there was a run on Sterling, meaning that Sterling was being traded in for dollars, seen as the new, more powerful and stable currency in the world. This damaged the British economy and within weeks it was stopped. By 1949, the British pound was over valued and had to be devalued though this is often considered a measure of last resort for Governments.
The Labour Governments of 1945–1951 enacted a political programme rooted in collectivism
including the nationalisation of industries and state direction of the economy. Both wars had demonstrated the possible benefits of greater state involvement. This underlined the future direction of the post-war economy, and was supported in the main by the Conservatives. However, the initial hopes for nationalisation were not fulfilled and more nuanced understandings of economic management emerged, such as state direction, rather than state ownership. Throughout though, the basis remained the same: applying the economic theories of Keynes and continued state involvement.
Two world wars had taken their toll on the Empire. Decolonisation began with Indian independence in 1947. For many countries formerly part of the Empire, they argued that, in effect, they had won their independence by fighting for Britain during the two wars. However, British power was already shown to be weakened as it became impossible to resist the tide of self determination which ensued. What began under the Labour Government of 1945–1951 was continued under the Conservatives from 1951–1964 with the exception of the Suez Crisis
of 1956. After Suez, the Conservatives made it a central feature of their foreign policy rhetoric with Harold Macmillan
's Wind of Change
speech.
During 1955, unemployment reached a postwar low of just over 215,000 - barely 1% of the workforce.
The loss of the Empire and the material losses incurred through two world wars had affected the basis of Britain’s economy. First, its traditional markets were changing as Commonwealth countries made bilateral trade arrangements with local or regional powers. Second, the initial gains Britain made in the world economy were in relative decline as those countries whose infrastructure was seriously damaged by war repaired these and reclaimed a stake in world markets. Third, the British economy changed structure shifting towards a service sector economy from its manufacturing and industrial origins leaving some regions economically depressed. Finally, part of consensus politics meant support of the Welfare State
and of a world role for Britain; both of these needed funding through taxes and needed a buoyant economy in order to provide the taxes.
Harold Macmillan
"(most of) our people have never had it so good" seemed increasingly hollow. The Conservative Government presided over a ‘stop-go’ economy as it tried to prevent inflation spiralling out of control without snuffing out economic growth. Growth continued to struggle, at about only half the rate of that of Germany or France
at the same time. However, industry had remained strong in nearly 20 years following the end of the war, and extensive housebuilding and construction of new commercial developments and public buildings also helped unemployment stay low throughout this time.
The Labour Party
under Harold Wilson
from 1964–1970 was unable to provide a solution either, and eventually was forced to devalue the Pound
again in 1967. Economist Nicholas Crafts
attributes Britain's relatively low growth in this period to a combination of a lack of competition
in some sectors of the economy, especially in the nationalised industries; poor industrial relations and insufficient vocational training. He writes that this was a period of government failure
caused by poor understanding of economic theory, short-termism and a failure to confront interest groups.
Both political parties had come to the conclusion that Britain needed to enter the European Economic Community
(EEC) in order to revive its economy. This decision came after establishing a European Free Trade Association
(EFTA) with other, non EEC countries since this provided little economic stimulus to Britain’s economy. Levels of trade with the Commonwealth halved in the period 1945–1965 to around 25% while trade with the EEC had doubled during the same period. Charles de Gaulle
vetoed a British attempt at membership in 1963 and again in 1967.
In 1973 the Conservative Prime Minister, Edward Heath
, led Britain into the EEC. As late as this stage, Britain still effectively had full employment, at a rate of 3% unemployed.
However, with the decline of Britain’s economy during the 1960s, the trade unions began to strike leading to a complete breakdown with both the Labour Government of Harold Wilson and later with the Conservative Government of Edward Heath (1970–1974). In the early 1970s, the British economy suffered more as strike action by trade unions, plus the effects of the 1973 oil crisis
, led to a three day week
in 1973-74. In all, over nine million days were lost to strike action under Heath’s Government alone. However, despite a brief period of calm negotiated by the recently re-elected Labour Government of 1974 known as the Social Contract
, a break down with the unions occurred again in 1978, leading to the Winter of Discontent
, and eventually leading to the end of the Labour Government, then being led by James Callaghan
, who had succeeded Wilson in 1976. The extreme industrial strife along with rising inflation and unemployment led Britain to be nicknamed as the "sick man of Europe
."
Unemployment had also risen during this difficult period for the British economy; some 1,500,000 people were now unemployed by 1978, nearly treble the figure at the start of the decade, at a national rate of well over 5%. It had exceeded 1,000,000 since 1975.
Also in the 1970s, oil was found in the North Sea
, off the coast of Scotland.
in 1979 marked the end of the post-war consensus
and a new approach to economic policy, including privatisation and deregulation
,
reform of industrial relations, and tax changes. Competition policy was emphasised instead of industrial policy
; consequent deindustrialisation was more or less accepted. Thatcher's battles with the unions culminated in the Miners' Strike of 1984.
The Government applied monetarist policies to reduce inflation, and reduced public spending. Deflationary measures were implemented against the backdrop of the early 1980s recession
. As a result, unemployment began to rise sharply from early 1980, breaking the 2,000,000 barrier by the end of the year and reaching 2,500,000 during 1981. By January 1982, 3,000,000 were unemployed in Britain for the first time in 50 years, though this time the figure accounted for a lesser percentage of the early 1930s figures, now standing at around 12.5% rather than in excess of 20%. In areas hit particularly hard by the loss of industry, the unemployment rate was much higher; coming to close to 20% in Northern Ireland
and exceeding 15% in many parts of Wales
, Scotland
and northern England.The peak of unemployment actually came some two years after the recession ended and growth had been re-established, when in April 1984 unemployment rose to nearly 3,300,000.
Major state-controlled firms were privatised, including British Aerospace
(1981), British Telecom (1984), British Leyland (1984), Rolls-Royce
(1987), and British Steel
(1988). The electricity, gas and English water industries were split up and sold off. Exchange controls, in operation since the war, were abolished in 1979. British net assets abroad rose approximately ninefold from £12 billion at the end of 1979 to nearly £110 billion at the end of 1986, a record post-war level and second only to Japan. Privatisation of nationalised industries increased share ownership in Britain: the proportion of the adult population owning shares went up from 7% in 1979 to 25% in 1989. The Single European Act
(SEA), signed by Margaret Thatcher, allowed for the free movement of goods within the European Union area. The ostensible benefit of this was to give the spur of competition to the British economy, and increase its ultimate efficiency.
The early 1980s recession saw unemployment rise above three million, but the subsequent recovery, which saw growth of over 4 per cent in the late 1980s, led to contemporary claims of a British 'economic miracle'. It is not clear whether Thatcherism was the only reason for the boom in Britain in the 1980s. However many of the economic policies put in place by the Thatcher governments have been kept since, and even the Labour Party which had once been so opposed to the policies had by the late 1990s, on its return to government after nearly 20 years in opposition, dropped all opposition to them.
By the end of 1986, Britain was enjoying an economic boom, which saw unemployment go into freefall and drop to 1,600,000 by December 1989.
was elected her successor.
Despite several major economies showing quarterly detraction during 1989, the British economy continued to grow well into 1990, with the first quarterly detraction taking place in the third quarter of the year, by which time unemployment was starting to creep upwards again after four years of falling.
Economic growth was not re-established until early 1993, but the Conservative government which had been in power continuously since 1979 managed to achieve re-election in April 1992, fending off a strong challenge from Neil Kinnock and Labour.
The early 1990s recession was officially the longest in Britain since the Great Depression some 60 years earlier, though the fall in output was not as sharp as that of the downturn of the Great Depression or even that of the early 1980s recession. It had started during 1990 and the end of the recession was not officially declared until April 1993, by which time nearly 3,000,000 were unemployed.
The British pound was tied to EU exchange rates, using the Deutsche Mark as a basis, as part of the Exchange Rate Mechanism (ERM); however, this resulted in disaster for Britain. The restrictions imposed by the ERM put pressure on the pound, leading to a run on the currency. Black Wednesday
in 1992 ended British membership of the ERM. It also damaged the credibility of the Conservatives' economic management, and contributed to the end of the 18 years of consecutive Conservative government in 1997.
Despite the downfall of the Conservative government, it had seen a strong economic recovery in which unemployment had fallen by more than 1,000,000 since the end of 1992 to 1,700,000 by the time of their election defeat.
's Labour government stuck with the Conservative's spending plans. The Chancellor
, Gordon Brown
, gained a reputation by some as the "prudent Chancellor" and helped to inspire renewed confidence in Labour's ability to manage the economy. One of the first acts that the new Labour government embarked on was to give the power to set interest rates to the Bank of England
, effectively ending the use of interest rates as a political tool. Labour also introduced the minimum wage
to the United Kingdom
, which has been raised from time to time since its introduction. The Blair government also introduced a number of strategies to cut unemployment. Unemployment fell back to the level it was in the late 1970s, although it still remained significantly higher than it was during the post-war era and the 1960s.
, which they claimed was suffering from chronic under-funding. The economy shifted from manufacturing, which had been declining since the 1980s and grew on the back of the services and finance sectors. The country was also at war with first Afghanistan
, invading in 2001 and then Iraq
, in 2003. Spending on both reached several billion pounds a year.
Growth rates were consistently between 1.6% and 3% from 2000 to early 2008. Inflation though relativity steady at around 2%, did rise in the approach to the financial crash . The Bank of England's control of interest rates was a major factor in the stability of the British economy over that period. The pound
continued to fluctuate, however, reaching a low against the dollar in 2001 (to a rate of $1.37 per £1), but rising again to a rate of approximately $2 per £1 in 2007. Against the Euro, the pound was steady at a rate of approximately €1.45 per £1. Since then, the effects of the Credit crunch
have led to a slowdown of the economy. At the start of November 2008, for example, the pound was worth around €1.26; by the end of the year, it had almost approached parity, dropping at one point below €1.02 and ending the year at €1.04.
since World War 2 in 2008, as part of a global economic downturn. On 5 March 2009, the Bank of England
announced that they would pump £
200 billion of new capital
into the British economy
, through a process known as quantitative easing
. This is the first time in the United Kingdom's history that this measure has been used, although the Bank's Governor
Mervyn King
suggested it was not an experiment.
The process will see the BoE creating new money for itself, which it will then use to purchase assets such as government bonds, bank loans, or mortgages. Despite the misconception that quantitative easing involves printing money, the BoE are unlikely to do this and instead the money will be created electronically and thus not actually enter the cash circulation system. The initial amount to be created through this method will be £75 billion, although former Chancellor of the Exchequer
Alistair Darling
had given permission for up to £150 billion to be created if necessary. It is thought the process is likely to occur over a period of three months with results only likely in the long term.
The BoE has stated that the decision has been taken to prevent the rate of inflation
falling below the two percent target rate. Mervyn King, the Governor of the BoE, also suggested there were no other monetary options left as interest rates had already been cut to their lowest level ever of 0.5% and it was unlikely they would be cut further.
The economy began to climb its way back into growth in late 2009: by Q4 of 2009 with a weak 0.4%; followed by a 0.3% growth in Q1 of 2010, 1.2% in the Q2 then with a 0.7% in the Q3 and the a Contraction of 0.5% in the Q4 making Growth 1.7% in the whole of 2010. Then After growing 0.5% the first quarter regaining that was lost in the Q4 it had lost the chance of double dip recession but had slow growth of 0.3% in the Q2 of 2011.
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
of the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
from the creation of the Kingdom of Great Britain
Kingdom of Great Britain
The former Kingdom of Great Britain, sometimes described as the 'United Kingdom of Great Britain', That the Two Kingdoms of Scotland and England, shall upon the 1st May next ensuing the date hereof, and forever after, be United into One Kingdom by the Name of GREAT BRITAIN. was a sovereign...
on May 1st, 1707, with the political union
Political union
A political union is a type of state which is composed of or created out of smaller states. Unlike a personal union, the individual states share a common government and the union is recognized internationally as a single political entity...
of the Kingdom of England
Kingdom of England
The Kingdom of England was, from 927 to 1707, a sovereign state to the northwest of continental Europe. At its height, the Kingdom of England spanned the southern two-thirds of the island of Great Britain and several smaller outlying islands; what today comprises the legal jurisdiction of England...
and the Kingdom of Scotland
Kingdom of Scotland
The Kingdom of Scotland was a Sovereign state in North-West Europe that existed from 843 until 1707. It occupied the northern third of the island of Great Britain and shared a land border to the south with the Kingdom of England...
. This Union, as well as being political, was designed to be a full economic union, with most of the twenty-five Articles of the Treaty of Union
Treaty of Union
The Treaty of Union is the name given to the agreement that led to the creation of the united kingdom of Great Britain, the political union of the Kingdom of England and the Kingdom of Scotland, which took effect on 1 May 1707...
dealing with economic arrangements for the new state. In 1801, Great Britain united with Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
to form the United Kingdom of Great Britain and Ireland
United Kingdom of Great Britain and Ireland
The United Kingdom of Great Britain and Ireland was the formal name of the United Kingdom during the period when what is now the Republic of Ireland formed a part of it....
.
The United Kingdom developed as one of the world's leading economies. Between 1870 and the end of the 20th century, economic output per head of population in Britain rose by 500 per cent, generating a significant rise in living standards. However, from the late 19th century onwards Britain experienced a relative economic decline when compared to the world's other leading economies. In 1870, Britain's output per head was the second highest in the world after Australia. By 1914, it was fourth highest, having been overtaken. In 1950, British output per head was still 30 per cent ahead of the six founder members of the EEC
EEC
EEC is an abbreviation that usually refers to the European Economic Community, the forerunner to the European Union.It may also refer to;* The East Erie Commercial Railroad, a shortline in Pennsylvania...
, but within 50 years it had been overtaken by many European and several Asian countries.
The Age of Mercantilism
The basis of the British Empire was founded in the age of mercantilismMercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
, an economic theory that stressed maximizing the trade inside the empire, and trying to weaken rival empires. The modern British Empire was based upon the preceding English Empire which first took shape in the early 17th century, with the English settlement of the eastern colonies of North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
, which later became the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, as well as Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
's Maritime provinces, and the colonizations of the smaller islands of the Caribbean
Caribbean
The Caribbean is a crescent-shaped group of islands more than 2,000 miles long separating the Gulf of Mexico and the Caribbean Sea, to the west and south, from the Atlantic Ocean, to the east and north...
such as Trinidad and Tobago
Trinidad and Tobago
Trinidad and Tobago officially the Republic of Trinidad and Tobago is an archipelagic state in the southern Caribbean, lying just off the coast of northeastern Venezuela and south of Grenada in the Lesser Antilles...
, the Bahamas, the Leeward Islands
Leeward Islands
The Leeward Islands are a group of islands in the West Indies. They are the northern islands of the Lesser Antilles chain. As a group they start east of Puerto Rico and reach southward to Dominica. They are situated where the northeastern Caribbean Sea meets the western Atlantic Ocean...
, Barbados
Barbados
Barbados is an island country in the Lesser Antilles. It is in length and as much as in width, amounting to . It is situated in the western area of the North Atlantic and 100 kilometres east of the Windward Islands and the Caribbean Sea; therein, it is about east of the islands of Saint...
, Jamaica
Jamaica
Jamaica is an island nation of the Greater Antilles, in length, up to in width and 10,990 square kilometres in area. It is situated in the Caribbean Sea, about south of Cuba, and west of Hispaniola, the island harbouring the nation-states Haiti and the Dominican Republic...
and Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...
. These sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
plantation islands, where slavery
Slavery
Slavery is a system under which people are treated as property to be bought and sold, and are forced to work. Slaves can be held against their will from the time of their capture, purchase or birth, and deprived of the right to leave, to refuse to work, or to demand compensation...
became the basis of the economy, were part of Britain's most important and successful colonies. The American colonies also utilized slave labor in the farming of tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
, cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
, and rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
in the south. Britain's American empire was slowly expanded by war and colonization. Victory over the French during the Seven Years' War
Seven Years' War
The Seven Years' War was a global military war between 1756 and 1763, involving most of the great powers of the time and affecting Europe, North America, Central America, the West African coast, India, and the Philippines...
gave Britain control over almost all of North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
but had only a small economic role.
Mercantilism was the basic policy imposed by Britain on its colonies. Mercantilism meant that the government and the merchants became partners with the goal of increasing political power and private wealth, to the exclusion of other empires. The government protected its merchants--and kept others out--by trade barriers, regulations, and subsidies to domestic industries in order to maximize exports from and minimize imports to the realm. The government had to fight smuggling--which became a favorite American technique in the 18th century to circumvent the restrictions on trading with the French, Spanish or Dutch. The goal of mercantilism was to run trade surpluses, so that gold and silver would pour into London. The government took its share through duties and taxes, with the remainder going to merchants in Britain. The government spent much of its revenue on a superb Royal Navy, which not only protected the British colonies but threatened the colonies of the other empires, and sometimes seized them. Thus the British Navy captured New Amsterdam
New Amsterdam
New Amsterdam was a 17th-century Dutch colonial settlement that served as the capital of New Netherland. It later became New York City....
(New York) in 1664. The colonies were captive markets for British industry, and the goal was to enrich the mother country.
.
The Industrial Revolution
In a period loosely dated from the 1770s to the 1820s, Britain experienced an accelerated process of economic change that transformed a largely agrarian economy into the world's first industrial economy. This phenomenon is known as the "industrial revolution", since the changes were all embracing and permanent.It has been argued by historians such as Christopher Hill, Eric Hobsbawm, and E.P. Thompson that the foundations of this process of change can be traced back to the Puritan Revolution in the Seventeenth Century. This produced landed and merchant elites alive to the benefits of economic change, and a system of agriculture able to produce increasingly cheap food supplies. To this must be added the influence of religious nonconformity, which increased literacy and inculcated a 'Protestant work ethic
Protestant work ethic
The Protestant work ethic is a concept in sociology, economics and history, attributable to the work of Max Weber...
' amongst skilled artisans.
A long run of good harvests, starting in the first half of the 18th century, resulted in an increase in disposable income and a consequent rising demand for manufactured goods, particularly textiles. The invention of the flying shuttle
Flying shuttle
The flying shuttle was one of the key developments in weaving that helped fuel the Industrial Revolution. It was patented by John Kay in 1733. Only one weaver was needed to control its lever-driven motion. Before the shuttle, a single weaver could not weave a fabric wider than arms length. Beyond...
by John Kay
John Kay (flying shuttle)
John Kay was the inventor of the flying shuttle, which was a key contribution to the Industrial Revolution. He is often confused with his namesake: fellow Lancastrian textile machinery inventor, the unrelated John Kay who built the first "spinning frame".-Life in England:John Kay was born...
enabled wider cloth to be woven faster, but also created a demand for yarn that could not be fulfilled. Thus, the major technological advances associated with the industrial revolution were concerned with spinning. James Hargreaves
James Hargreaves
James Hargreaves was a weaver, carpenter and an inventor in Lancashire, England. He is credited with inventing the spinning Jenny in 1764....
created the Spinning Jenny
Spinning jenny
The spinning jenny is a multi-spool spinning frame. It was invented c. 1764 by James Hargreaves in Stanhill, Oswaldtwistle, Lancashire in England. The device reduced the amount of work needed to produce yarn, with a worker able to work eight or more spools at once. This grew to 120 as technology...
, a device that could perform the work of a number of spinning wheels. However while this invention could be operated by hand, the water frame
Water frame
The water frame is the name given to the spinning frame, when water power is used to drive it. Both are credited to Richard Arkwright who patented the technology in 1768. It was based on an invention by Thomas Highs and the patent was later overturned...
, invented by Richard Arkwright
Richard Arkwright
Sir Richard Arkwright , was an Englishman who, although the patents were eventually overturned, is often credited for inventing the spinning frame — later renamed the water frame following the transition to water power. He also patented a carding engine that could convert raw cotton into yarn...
, could be powered by a water wheel
Water wheel
A water wheel is a machine for converting the energy of free-flowing or falling water into useful forms of power. A water wheel consists of a large wooden or metal wheel, with a number of blades or buckets arranged on the outside rim forming the driving surface...
. Indeed, Arkwright is credited with the widespread introduction of the factory system
Factory system
The factory system was a method of manufacturing first adopted in England at the beginning of the Industrial Revolution in the 1750s and later spread abroad. Fundamentally, each worker created a separate part of the total assembly of a product, thus increasing the efficiency of factories. Workers,...
in Britain, and is the first example of the successful mill owner and industrialist in British history. The water frame was, however, soon supplanted by the spinning mule
Spinning mule
The spinning mule was a machine used to spin cotton and other fibres in the mills of Lancashire and elsewhere from the late eighteenth to the early twentieth century. Mules were worked in pairs by a minder, with the help of two boys: the little piecer and the big or side piecer...
(a cross between a water frame and a jenny) invented by Samuel Crompton
Samuel Crompton
Samuel Crompton was an English inventor and pioneer of the spinning industry.- Early life :Samuel Crompton was born at 10 Firwood Fold, Bolton, Lancashire to George and Betty Crompton . Samuel had two younger sisters...
. Mules were later constructed in iron by Messrs. Horrocks of Stockport.
As they were water powered, the first mills were constructed in rural locations by streams or rivers. Workers villages were created around them. Styal Mill (owned by the National Trust
National Trust for Places of Historic Interest or Natural Beauty
The National Trust for Places of Historic Interest or Natural Beauty, usually known as the National Trust, is a conservation organisation in England, Wales and Northern Ireland...
) is a surviving example of this kind of enterprise, as are New Lanark
New Lanark
New Lanark is a village on the River Clyde, approximately 1.4 miles from Lanark, in South Lanarkshire, Scotland. It was founded in 1786 by David Dale, who built cotton mills and housing for the mill workers. Dale built the mills there to take advantage of the water power provided by the river...
Mills in Scotland. These spinning mills resulted in the decline of the domestic system, in which spinning was undertaken in rural cottages.
However, the textile trade was transformed, as was much else, by the development of the steam engine
Steam engine
A steam engine is a heat engine that performs mechanical work using steam as its working fluid.Steam engines are external combustion engines, where the working fluid is separate from the combustion products. Non-combustion heat sources such as solar power, nuclear power or geothermal energy may be...
. The first practicable steam engine was invented by Thomas Newcomen
Thomas Newcomen
Thomas Newcomen was an ironmonger by trade and a Baptist lay preacher by calling. He was born in Dartmouth, Devon, England, near a part of the country noted for its tin mines. Flooding was a major problem, limiting the depth at which the mineral could be mined...
, and was used for pumping water out of mines. It was perfected by James Watt
James Watt
James Watt, FRS, FRSE was a Scottish inventor and mechanical engineer whose improvements to the Newcomen steam engine were fundamental to the changes brought by the Industrial Revolution in both his native Great Britain and the rest of the world.While working as an instrument maker at the...
, being transformed into a reciprocating engine
Reciprocating engine
A reciprocating engine, also often known as a piston engine, is a heat engine that uses one or more reciprocating pistons to convert pressure into a rotating motion. This article describes the common features of all types...
capable of powering machinery. The first steam-driven textile mills began to appear in the last quarter of the 18th century, and this transformed the industrial revolution into an urban phenomenon, greatly contributing to the appearance and rapid growth of industrial towns.
The progress of the textile trade soon outstripped the original supplies of raw materials. By the turn of the 19th century, imported American cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
had replaced wool
Wool
Wool is the textile fiber obtained from sheep and certain other animals, including cashmere from goats, mohair from goats, qiviut from muskoxen, vicuña, alpaca, camel from animals in the camel family, and angora from rabbits....
in the North West of England, though the latter remained the chief textile in Yorkshire
Yorkshire
Yorkshire is a historic county of northern England and the largest in the United Kingdom. Because of its great size in comparison to other English counties, functions have been increasingly undertaken over time by its subdivisions, which have also been subject to periodic reform...
. Textiles have been identified as the catalyst in technological change in this period. The application of steam power stimulated the growth of the coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
industry, the construction of mills and the demand for machinery and engines impacted upon the iron industry, and the demand for imported raw materials (and later improved means of export and distribution) led to the growth of the canal
Canal
Canals are man-made channels for water. There are two types of canal:#Waterways: navigable transportation canals used for carrying ships and boats shipping goods and conveying people, further subdivided into two kinds:...
system, and later the invention and spread of the railway.
Such an unprecedented degree of economic growth could not be sustained by domestic demand. The application of technology and the factory system created such levels of mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...
and cost efficiency that enabled Britain to undercut foreign competitors. The political dominance created by the growth of an overseas empire and the strategic control of the world's seas by the Royal Navy
Royal Navy
The Royal Navy is the naval warfare service branch of the British Armed Forces. Founded in the 16th century, it is the oldest service branch and is known as the Senior Service...
, enabled British manufacturers to export their goods to Europe, Africa, Asia, and Latin America. Indeed, the demands of the war economy created by the French and Napoleonic Wars
Napoleonic Wars
The Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...
added to these opportunities.
Walt Rostow
Walt Whitman Rostow
Walt Whitman Rostow was a United States economist and political theorist who served as Special Assistant for National Security Affairs to U.S. President Lyndon B...
has posited the 1790s as the take-off period for the industrial revolution. This means that a process previously responding to domestic and other external stimuli began to feed upon itself, and became an unstoppable and irreversible process of sustained industrial and technological expansion.
In the late 18th century and early 19th century a series of technological advances led to the Industrial Revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
. Britain's position as the world's pre-eminent trader helped fund research and experimentation. The nation was also gifted by some of the world's greatest reserves of coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
, the main fuel of the new revolution.
It was also fuelled by a rejection of mercantilism in favour of the predominance of Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
's capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
. The fight against Mercantilism was led by a number of liberal
Liberalism
Liberalism is the belief in the importance of liberty and equal rights. Liberals espouse a wide array of views depending on their understanding of these principles, but generally, liberals support ideas such as constitutionalism, liberal democracy, free and fair elections, human rights,...
thinkers, such as Richard Cobden
Richard Cobden
Richard Cobden was a British manufacturer and Radical and Liberal statesman, associated with John Bright in the formation of the Anti-Corn Law League as well as with the Cobden-Chevalier Treaty...
, Joseph Hume
Joseph Hume
Joseph Hume FRS was a Scottish doctor and Radical MP, born in Montrose, Angus.-Medical career:He studied medicine at the University of Edinburgh and moved to India in 1797...
, Francis Place
Francis Place
Francis Place was an English social reformer.-Early career and influence:Born in the debtor's prison which his father oversaw near Drury Lane, Place was schooled for ten years before being apprenticed to a leather-breeches maker. At eighteen he was an independent journeyman, and in 1790 was...
and John Roebuck
John Roebuck
This article is about the English inventor. For the 19th century British politician, see John Arthur Roebuck.John Roebuck FRS was an English inventor who played an important role in the Industrial Revolution and who is known for developing the industrial-scale manufacture of sulfuric acid.-Life...
.
Some have stressed the importance of natural or financial resources that Britain received from its many overseas colonies or that profits from the British slave trade between Africa and the Caribbean helped fuel industrial investment. It has been pointed out, however, that slave trade and the West Indian plantations provided less than 5% of the British national income during the years of the Industrial Revolution.
The Industrial Revolution saw a rapid transformation in the British economy and society. Previously large industries had to be near forests or rivers for power. The use of coal-fuelled engines allowed them to be placed in large urban centres. These new factories proved far more efficient at producing goods than the cottage industry of a previous era. These manufactured goods were sold around the world, and raw materials and luxury goods were imported to Britain.
During the Industrial Revolution the empire became less important and less well-regarded. The British defeat in the American War of Independence (1775–1783) deprived it of one of its most populous colonies. This loss of the southern American colonies was coupled with a realisation that colonies were not particularly economically beneficial. It was realised that the costs of occupation of colonies often exceeded the financial return to the taxpayer. In other words, formal empire afforded no great economic benefit when trade would continue whether the overseas political entities were nominally sovereign or not. The American Revolution helped demonstrate this by showing that Britain could still control trade with the colonies without having to pay for their defence and governance. Capitalism encouraged the British to grant their colonies self-government. The end of the old colonial system was most evident in the repeal of the Corn Laws
Corn Laws
The Corn Laws were trade barriers designed to protect cereal producers in the United Kingdom of Great Britain and Ireland against competition from less expensive foreign imports between 1815 and 1846. The barriers were introduced by the Importation Act 1815 and repealed by the Importation Act 1846...
, the agricultural subsidies on colonial grain. The end of these laws opened the British market to unfettered competition, grain prices fell, and food became more plentiful. The repeal greatly injured Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, however, whose grain exports lost a great deal of their profitability.
Some argue that this push for free trade was merely because of Britain economic position and was unconnected with any true philosophic dedication to free trade. Roughly between the Congress of Vienna
Congress of Vienna
The Congress of Vienna was a conference of ambassadors of European states chaired by Klemens Wenzel von Metternich, and held in Vienna from September, 1814 to June, 1815. The objective of the Congress was to settle the many issues arising from the French Revolutionary Wars, the Napoleonic Wars,...
and the Franco-Prussian War
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
, Britain reaped the benefits of being the world's sole modern, industrialised nation. Following the defeat of Napoleon, Britain was the 'workshop of the world', meaning that its finished goods were produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market. If political conditions in particular overseas markets were stable enough, Britain could dominate its economy through free trade alone without having to resort to formal rule or mercantilism. Britain was even supplying half the needs in manufactured goods of such nations as Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
, and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
Britain, in this sense, continued to adhere to the Cobdenite notion that informal colonialism was preferable — the established consensus among industrial capitalists during the age of Pax Britannica
Pax Britannica
Pax Britannica was the period of relative peace in Europe when the British Empire controlled most of the key maritime trade routes and enjoyed unchallenged sea power...
between the downfall of Napoleon and the Franco-Prussian War.
Sovereign areas already hospitable to informal empire largely avoided formal rule, even often during the shift to New Imperialism. China
Qing Dynasty
The Qing Dynasty was the last dynasty of China, ruling from 1644 to 1912 with a brief, abortive restoration in 1917. It was preceded by the Ming Dynasty and followed by the Republic of China....
, for instance, was not a backward country unable to secure the prerequisite stability and security for western-style commerce, but an empire unwilling to admit western commerce, which may explain the West's contentment with informal 'Spheres of Influence'. China, unlike tropical Africa
Africa
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
, was a securable market without formal control.
The victory of the forces of the East India Company
East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
at the Battle of Plassey
Battle of Plassey
The Battle of Plassey , 23 June 1757, was a decisive British East India Company victory over the Nawab of Bengal and his French allies, establishing Company rule in South Asia which expanded over much of the Indies for the next hundred years...
(1757) opened the great Indian province of Bengal
Bengal Presidency
The Bengal Presidency originally comprising east and west Bengal, was a colonial region of the British Empire in South-Asia and beyond it. It comprised areas which are now within Bangladesh, and the present day Indian States of West Bengal, Assam, Bihar, Meghalaya, Orissa and Tripura.Penang and...
to British rule, although the famine of 1770
Bengal famine of 1770
The Bengal famine of 1770 was a catastrophic famine between 1769 and 1773 that affected the lower Gangetic plain of India...
, exacerbated by massive expropriation of provincial government revenues, aroused controversy at home. The 19th century saw Company rule extended across India after expelling the Dutch, French and Portuguese. Following the Indian Rebellion of 1857
Indian Rebellion of 1857
The Indian Rebellion of 1857 began as a mutiny of sepoys of the British East India Company's army on 10 May 1857, in the town of Meerut, and soon escalated into other mutinies and civilian rebellions largely in the upper Gangetic plain and central India, with the major hostilities confined to...
British India came under the direct rule of the British government. The territory continued to expand as Ceylon (now Sri Lanka
Sri Lanka
Sri Lanka, officially the Democratic Socialist Republic of Sri Lanka is a country off the southern coast of the Indian subcontinent. Known until 1972 as Ceylon , Sri Lanka is an island surrounded by the Indian Ocean, the Gulf of Mannar and the Palk Strait, and lies in the vicinity of India and the...
) and Burma (now Myanmar
Myanmar
Burma , officially the Republic of the Union of Myanmar , is a country in Southeast Asia. Burma is bordered by China on the northeast, Laos on the east, Thailand on the southeast, Bangladesh on the west, India on the northwest, the Bay of Bengal to the southwest, and the Andaman Sea on the south....
) were added to Britain's Asian territories, which extended further east to Malaya
British Malaya
British Malaya loosely described a set of states on the Malay Peninsula and the Island of Singapore that were brought under British control between the 18th and the 20th centuries...
and (1841) to Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
following a successful war in defence of the Company's opium
Opium
Opium is the dried latex obtained from the opium poppy . Opium contains up to 12% morphine, an alkaloid, which is frequently processed chemically to produce heroin for the illegal drug trade. The latex also includes codeine and non-narcotic alkaloids such as papaverine, thebaine and noscapine...
exports to China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
.
Second Industrial Revolution
Merchant
A merchant is a businessperson who trades in commodities that were produced by others, in order to earn a profit.Merchants can be one of two types:# A wholesale merchant operates in the chain between producer and retail merchant...
as the dominant figure in the capitalist
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
system. In the latter decades of the 19th century, when the ultimate control and direction of large industry came into the hands of financier
Financier
Financier is a term for a person who handles typically large sums of money, usually involving money lending, financing projects, large-scale investing, or large-scale money management. The term is French, and derives from finance or payment...
s, industrial capitalism gave way to financial capitalism and the corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
. The establishment of behemoth industrial empires, whose assets were controlled and managed by men divorced from production, was a dominant feature of this third phase.
New products and services were also introduced which greatly increased international trade. Improvements in steam engine
Steam engine
A steam engine is a heat engine that performs mechanical work using steam as its working fluid.Steam engines are external combustion engines, where the working fluid is separate from the combustion products. Non-combustion heat sources such as solar power, nuclear power or geothermal energy may be...
design and the wide availability of cheap steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
meant that slow, sailing ships could be replaced with steamships, such as Brunel's
Isambard Kingdom Brunel
Isambard Kingdom Brunel, FRS , was a British civil engineer who built bridges and dockyards including the construction of the first major British railway, the Great Western Railway; a series of steamships, including the first propeller-driven transatlantic steamship; and numerous important bridges...
SS Great Western
SS Great Western
SS Great Western of 1838, was an oak-hulled paddle-wheel steamship; the first purpose-built for crossing the Atlantic and the initial unit of the Great Western Steamship Company. Designed by Isambard Kingdom Brunel, Great Western proved satisfactory in service and was the model for all successful...
. Electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
and chemical
History of chemical engineering
Chemical engineering as a discipline is a little over one hundred years old. It grew out of mechanical engineering in the last part of the 19th century, because of a need for chemical processors. Before the Industrial Revolution , industrial chemicals were mainly produced through batch processing. ...
industries also moved to the forefront. In many of these sectors Britain had far less of an edge than other powers such as Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, who both rose to equal and even surpass Britain in economic heft.
Amalgamation of industrial cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
s into larger corporations, mergers and alliances of separate firms, and technological advancement (particularly the increased use of electric power and internal combustion engine
Internal combustion engine
The internal combustion engine is an engine in which the combustion of a fuel occurs with an oxidizer in a combustion chamber. In an internal combustion engine, the expansion of the high-temperature and high -pressure gases produced by combustion apply direct force to some component of the engine...
s fuelled by coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
and petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
) were mixed blessings for British business during the late Victorian era
Victorian era
The Victorian era of British history was the period of Queen Victoria's reign from 20 June 1837 until her death on 22 January 1901. It was a long period of peace, prosperity, refined sensibilities and national self-confidence...
. The ensuing development of more intricate and efficient machines along with monopolistic
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...
techniques greatly expanded output and lowered production costs. As a result, production often exceeded domestic demand. Among the new conditions, more markedly evident in Britain, the forerunner of Europe's industrial states, were the long-term effects of the severe Long Depression
Long Depression
The Long Depression was a worldwide economic crisis, felt most heavily in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. At the time, the episode was labeled the Great...
of 1873-1896, which had followed fifteen years of great economic instability. Businesses in practically every industry suffered from lengthy periods of low — and falling — profit rates and price deflation after 1873.
Long-term economic trends led Britain, and to a lesser extent, other industrialising nations such as the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, to be more receptive to the desires of prospective overseas investment. Through their investments in industry, bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s were able to exert a great deal of control over the British economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
and politics
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
. Cut-throat competition in the mid-19th century caused the creation of super corporations and conglomerates
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...
. Many companies borrowed
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
heavily to achieve the vast sums of money required to take over
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
their rivals, resulting in a new capitalist
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
stage of development.
By the 1870s, financial houses in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
had achieved an unprecedented level of control over industry. This contributed to increasing concerns among policymakers over the protection of British investments overseas — particularly those in the securities of foreign governments and in foreign-government-backed development activities, such as railways. Although it had been official British policy to support such investments, with the large expansion of these investments in the 1860s, and the economic and political instability of many areas of investment (such as Egypt
Egypt
Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...
), calls upon the government for methodical protection became increasingly pronounced in the years leading up to the Crystal Palace Speech. At the end of the Victorian era, the service sector (banking, insurance and shipping, for example) began to gain prominence at the expense of manufacturing.
Foreign trade
Foreign trade thus tripled in volume between 1870 and 1914, although (again) most of the activity occurred among the industrialised countries, or between them and their suppliers of primary goods or their new markets. In 1913, only 11 percent of the world's trade took place between primary producers themselves. Britain ranked as the world's largest trading nation in 1860, but by 1913 it had lost ground to both the United States and Germany: British and German exports in that year each totalled $2.3 billion, and those of the United States exceeded $2.4 billion. More significant was the emigration of their goods and capital.As foreign trade increased, so in proportion did the amount of it going outside the Continent. In 1840, £7.7 million of its export and £9.2 million of its import trade was done outside Europe; in 1880 the figures were £38.4 million and £73 million. Europe's economic contacts with the wider world were multiplying, much as Britain's had been doing for years. In many cases, colonial control followed private investment, particularly in raw materials and agriculture. Intercontinental trade between North and South constituted a higher proportion of global trade in this era than in the late 20th century period of globalisation.
Breakdown of Pax Britannica and New Imperialism
In a scramble for overseas markets between the Franco-Prussian WarFranco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
and World War, Europe added almost 9 million square miles (23,000,000 km²) — one-fifth of the land area of the globe — to its overseas colonial possessions. Ushering out the cavalier colonialism of the mid-Victorian era, the age of Pax Britannica, the late 19th century Romantic Age was an era of "empire for empire's sake". But scholars debate the causes and ramifications of this period of colonialism, dubbed "The New Imperialism" to distinguish it from earlier eras of overseas expansion, such as the mercantilism of the 16th to 18th centuries or the liberal age of 'free trade' colonialism of the mid-19th century.
Continental political developments in the late 19th century, relating to the overall breakdown of the Concert of Europe
Concert of Europe
The Concert of Europe , also known as the Congress System after the Congress of Vienna, was the balance of power that existed in Europe from the end of the Napoleonic Wars to the outbreak of World War I , albeit with major alterations after the revolutions of 1848...
, also rendered this imperial competition feasible, in spite of Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's centuries of long-established naval and maritime superiority. As unification of Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
by the Prussia
Prussia
Prussia was a German kingdom and historic state originating out of the Duchy of Prussia and the Margraviate of Brandenburg. For centuries, the House of Hohenzollern ruled Prussia, successfully expanding its size by way of an unusually well-organized and effective army. Prussia shaped the history...
n 'Garrison State' went forward, contending capitalist powers were thus ready to compete with Britain over stakes in overseas markets. The aggressive nationalism of Napoleon III
Napoleon III of France
Louis-Napoléon Bonaparte was the President of the French Second Republic and as Napoleon III, the ruler of the Second French Empire. He was the nephew and heir of Napoleon I, christened as Charles Louis Napoléon Bonaparte...
and the relative political stability of France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
under the liberal Third Republic also rendered France more capable of challenging Britain's global preeminence. Germany, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, and France were simply no longer as embroiled in continental concerns and domestic disputes as they were before the Franco-Prussian War
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
.
Contemporary world-systems theorist Immanuel Wallerstein
Immanuel Wallerstein
Immanuel Maurice Wallerstein is a US sociologist, historical social scientist, and world-systems analyst...
perhaps better addresses the counter-arguments to Hobson without degrading his underlying inferences. Wallerstein's conception of imperialism as a part of a general, gradual extension of capital investment from the "center" of the industrial countries to an overseas "periphery" thus coincides with Hobson's. According to Wallerstein, "Mercantilism... became the major tool of [newly industrialising, increasingly competitive] semi-peripheral countries [Germany, France, Italy, Belgium, etc.] seeking to become core countries." Wallerstein hence perceives formal empire as performing a function "analogous to that of the mercantilist drives of the late seventeenth and eighteenth centuries in England and France."
The expansion of the Industrial Revolution hence contributed to the emergence of an era of aggressive national rivalry, leading to the late 19th century 'scramble for Africa' and formal empire. Hobson's theory is thus useful in explaining the role of over-accumulation in overseas economic and colonial expansionism while Wallerstein perhaps better explains the dynamic of inter-capitalist geopolitical competition.
Recent developments made it easier and more appealing for "semi-peripheral" newly industrialised states to challenge Pax Britannica overseas. With the expansion of the Industrial Revolution, Britain could no longer reap the benefits of being the sole modern, industrial nation. Britain by the outbreak of the Franco-Prussian War was no longer the 'workshop of the world', meaning that its finished goods were no longer produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market.
As these other newly industrial powers, the United States, and Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
after the Meiji Restoration
Meiji Restoration
The , also known as the Meiji Ishin, Revolution, Reform or Renewal, was a chain of events that restored imperial rule to Japan in 1868...
began industrialising at a rapid rate, Britain's comparative advantage in trade of any finished good began diminishing. Just as the power of German and North American capitalisms increased, the relative decline of the British capitalist economy began in the last third of the 19th century, contributing to a breakdown of Britain's natural superiority in industry and commerce. Britain's share of world trade fell from one-fourth in 1880, one-sixth in 1913, and one-eighth in 1948. Britain was no longer supplying half the needs in manufactured goods of such nations as Germany, France, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
, and the United States. Britain was even growing incapable of dominating the markets of India — a crown colony by 1858 that Disraeli
Benjamin Disraeli, 1st Earl of Beaconsfield
Benjamin Disraeli, 1st Earl of Beaconsfield, KG, PC, FRS, was a British Prime Minister, parliamentarian, Conservative statesman and literary figure. Starting from comparatively humble origins, he served in government for three decades, twice as Prime Minister of the United Kingdom...
would later deem "the brightest jewel of the crown" —, Manchu China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
, the coasts of Africa, and Latin America.
To make matters worse, British manufactures in the staple industries of the Industrial Revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
were beginning to experience real competition abroad. The German textiles and metal industries, for example, had by the beginning of the Franco-Prussian War surpassed those of Britain in organisation and technical efficiency and usurped British manufacturers in the domestic market. By the turn of the 20th century, the German metals and engineering industries would be producing heavily for the free trade market of what was once "workshop of the world" as well. In midst of Britain's relative industrial decline, the fact that invisible financial exports actually kept Britain "out of the red" is somewhat indicative of both Britain's pressure to secure overseas markets in both nominally independent states and colonies and its newly precarious hegemony over overseas markets.
For the most part, formal empire has its roots in the breakdown of Pax Britannica. With the rise of industrial capitalism in Germany, North America, and Japan, its finished goods no longer had a comparative or absolute advantage in any other market. Industrialisation progressed dynamically in Germany and the United States especially, allowing them to clearly prevail over the "old" French and English capitalisms. The "neo-mercantilist" practices of newly industrialising states such as Germany, the United States, and Japan cut Britain off from outlets and even created competition for Britain in sales to these 'peripheral' areas.
With contending, emerging 'semi-peripheral' capitalist powers once dependent on British industry ready to vie for competing stakes in overseas markets, inter-capitalist competition also took form of protectionism through higher tariffs, further aggravating the push toward overseas markets: in Germany in 1879, and again following 1902: in the United States in 1890; in France in 1892, 1907, and 1910. The only country to escape this trend was Britain, whose essential strength lay precisely in its preeminence on the world market. German, American, and French imperialists, as mentioned, argued that Britain's world power position gave the British unfair advantages on international markets, thus limiting their economic growth.
This affected Britain in two ways. First, of course, new interest of the emergent industrial powers in colonial expansion brought them into direct competition with Britain. The expansion of the Second Industrial Revolution and the rise of similar economic practices (such as amalgamation of industry) in Germany and the United States intensified the competition for overseas markets and hence formal colonialism.
New Imperialism, as one means of facilitating the inexorable movement of capital from domestic markets to overseas areas, was thus enabled by recent changes in the North Atlantic balance of power, such as the unification of Germany under Prussia and relative political stability under France's Third Republic, but driven by changing economic realities and the spread of industrial capitalism beyond Britain.
By the time Benjamin Disraeli
Benjamin Disraeli, 1st Earl of Beaconsfield
Benjamin Disraeli, 1st Earl of Beaconsfield, KG, PC, FRS, was a British Prime Minister, parliamentarian, Conservative statesman and literary figure. Starting from comparatively humble origins, he served in government for three decades, twice as Prime Minister of the United Kingdom...
ushered in the age of New Imperialism with his watershed Crystal Palace Speech, which was delivered by no mere coincidence after the Franco-Prussian War and during the Long Depression, Britain was no longer the world's sole modern, industrial nation. Pessimists thus inferred that unless Britain acquired secure colonial markets for its industrial products and secure sources of raw materials, the other industrial states would seize them themselves and would precipitate a more rapid decline of British business, power, and standards of living. The prospect of having to compete to remain the forerunner of the world's economies and empires due to recent changes in the global economy and continental balance of power thus left it ripe for Disraeli's Conservative rule in the 1870s, which would usher in an era of extreme national rivalry that would one day culminate in the Great War.
In this sense, historian Bernard Porter argues that formal imperialism for Britain was a symptom and an effect of its relative decline in the world, and not of strength. Symbolic overtures, in fact, such as Queen Victoria
Victoria of the United Kingdom
Victoria was the monarch of the United Kingdom of Great Britain and Ireland from 20 June 1837 until her death. From 1 May 1876, she used the additional title of Empress of India....
's grandiose title of "Empress of India", celebrated during Disraeli's second premiership in the 1870s, helped to obscure this fact. Joseph Chamberlain thus argued that formal imperialism was necessary for Britain because of the relative decline of the British share of the world's export trade and the rise of German, American, and French economic competition.
As mentioned, the 'Scramble for Africa', rationalised by Rudyard Kipling
Rudyard Kipling
Joseph Rudyard Kipling was an English poet, short-story writer, and novelist chiefly remembered for his celebration of British imperialism, tales and poems of British soldiers in India, and his tales for children. Kipling received the 1907 Nobel Prize for Literature...
-style racism and Social Darwinism
Social Darwinism
Social Darwinism is a term commonly used for theories of society that emerged in England and the United States in the 1870s, seeking to apply the principles of Darwinian evolution to sociology and politics...
in predominantly Protestant
Protestantism
Protestantism is one of the three major groupings within Christianity. It is a movement that began in Germany in the early 16th century as a reaction against medieval Roman Catholic doctrines and practices, especially in regards to salvation, justification, and ecclesiology.The doctrines of the...
empires and the paternalistic ,but republican, French-style "mission of civilisation", was attractive to many European statesmen and industrialists who wanted to accelerate the process of securing colonies upon anticipating the prospective need to do so. Their reasoning was that markets might soon become glutted, and that a nation's economic survival depends on its being able to offload its surplus products elsewhere.
At a time when the abandonment of free trade limited the European market, some business and government leaders, such as Leopold II and Jules Ferry, concluded that sheltered overseas markets would solve the problems of low prices and over-accumulation of surplus capital caused by shrinking continental markets. Among the new conditions were the short-term effects of the severe economic depression of 1873, which had followed fifteen years of great economic instability. Business after 1873 in practically every industry suffered from lengthy periods of low profit rates and deflation; profits were falling because too much capital were chasing too few markets, especially after the rise of newly industrialising states in export trade with its traditional markets in continental Europe, China, and Latin America.
In addition, such surplus capital was often more profitably invested overseas, where cheap labour, limited competition, and abundant raw materials made a greater premium possible. Another inducement to imperialism, of course, arose from the demand for raw materials unavailable in Europe, especially copper, cotton, rubber, tea, and tin, to which European consumers had grown accustomed and European industry had grown dependent.
Following the lead of Britain under Disraeli, even the once hesitantly imperialistic Bismarck was eventually brought to realise the value of colonies for securing (in his words) "new markets for German industry, the expansion of trade, and a new field for German, activity, civilisation, and capital". Examples of strategic competition following the passing of the scene of Bismarck, the era's premier diplomat, that would intensify the drive to consolidate existing spheres of influence and grab new colonies, include the Moroccan Crisis of 1905, the Tangier Crisis resulting from Kaiser Wilhelm's recognition of Moroccan
Morocco
Morocco , officially the Kingdom of Morocco , is a country located in North Africa. It has a population of more than 32 million and an area of 710,850 km², and also primarily administers the disputed region of the Western Sahara...
independence, and the second Moroccan Crisis, in which Germany sent its navy to Morocco, thereby testing the precarious Anglo-French Entente. The Entente Cordiale
Entente Cordiale
The Entente Cordiale was a series of agreements signed on 8 April 1904 between the United Kingdom and the French Republic. Beyond the immediate concerns of colonial expansion addressed by the agreement, the signing of the Entente Cordiale marked the end of almost a millennium of intermittent...
, in fact, was a gentlemen's agreement
Gentlemen's agreement
A gentlemen's agreement is an informal agreement between two or more parties. It may be written, oral, or simply understood as part of an unspoken agreement by convention or through mutually beneficial etiquette. The essence of a gentlemen's agreement is that it relies upon the honor of the parties...
between Britain and France to curtail further German expansion. The Entente Cordiale and the Franco-Russian alliances were also made because of a common interest.
The absolutist Central Powers, led by a newly unified, dynamically industrialising Germany, with its expanding navy — doubling in size between the Franco-Prussian War and the Great War — were a strategic threat to the markets of these relatively declining empires that would one day consist of the Great War Allies. British policymakers feared the prospect of another German military victory over France, which could have reasonably resulted in a German take-over of France's formal colonies, a sort of reversal of the actual outcome of the Great War, after which Britain occupied the vast majority of German and Ottoman colonies as "protectorates". This prospect was especially frightening considering that French colonies tended to be closely situated to Britain's; Nigeria, for instance, was surrounded by French territory, India was near French Indochina, and so forth.
The UK and the colonisation of Africa, imperialism in Asia
Until the dismissal of the aging Chancellor BismarckOtto von Bismarck
Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg , simply known as Otto von Bismarck, was a Prussian-German statesman whose actions unified Germany, made it a major player in world affairs, and created a balance of power that kept Europe at peace after 1871.As Minister President of...
by the belligerent Kaiser Wilhelm II, the expropriation of vast, unexplored areas of Asia and Africa by emerging imperial powers such as Italy and Germany and more-established empires such as Britain and France was relatively orderly. The 1885 Congress of Berlin
Congress of Berlin
The Congress of Berlin was a meeting of the European Great Powers' and the Ottoman Empire's leading statesmen in Berlin in 1878. In the wake of the Russo-Turkish War of 1877–78, the meeting's aim was to reorganize the countries of the Balkans...
, initiated by Bismarck to establish international guidelines for the acquisition of African territory, formalised this new phase in the history of Western imperialism
Imperialism
Imperialism, as defined by Dictionary of Human Geography, is "the creation and/or maintenance of an unequal economic, cultural, and territorial relationships, usually between states and often in the form of an empire, based on domination and subordination." The imperialism of the last 500 years,...
. Between the 1870 Franco-Prussian War
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
and World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
(the age of New Imperialism
New Imperialism
New Imperialism refers to the colonial expansion adopted by Europe's powers and, later, Japan and the United States, during the 19th and early 20th centuries; expansion took place from the French conquest of Algeria until World War I: approximately 1830 to 1914...
), Europe added almost 9 million square miles (23,000,000 km²) — one-fifth of the land area of the globe — to its overseas colonial possessions.
Since the "Scramble for Africa
Scramble for Africa
The Scramble for Africa, also known as the Race for Africa or Partition of Africa was a process of invasion, occupation, colonization and annexation of African territory by European powers during the New Imperialism period, between 1881 and World War I in 1914...
" was the predominant feature of New Imperialism and formal empire, opponents of Hobson
John A. Hobson
John Atkinson Hobson , commonly known as John A. Hobson or J. A. Hobson, was an English economist and critic of imperialism, widely popular as a lecturer and writer.-Life:...
's accumulation theory often point to frequent cases when military and bureaucratic costs of occupation exceeded financial returns. In Africa (exclusive of South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
) the amount of capital investment by Europeans was relatively small before and after the 1885 Congress of Berlin, and the companies involved in tropical African commerce were small and politically insignificant, exerting only a tiny influence on domestic politics. First, this observation might detract from the pro-imperialist arguments of Leopold II of Belgium
Leopold II of Belgium
Leopold II was the second king of the Belgians. Born in Brussels the second son of Leopold I and Louise-Marie of Orléans, he succeeded his father to the throne on 17 December 1865 and remained king until his death.Leopold is chiefly remembered as the founder and sole owner of the Congo Free...
, Italian premier Francesco Crispi
Francesco Crispi
Francesco Crispi was a 19th-century Italian politician of Arbëreshë ancestry. He was instrumental in the unification of Italy and was its 17th and 20th Prime Minister from 1887 until 1891 and again from 1893 until 1896.-Sicily:Crispi’s paternal family came originally from the small agricultural...
, and French Republican Jules Ferry
Jules Ferry
Jules François Camille Ferry was a French statesman and republican. He was a promoter of laicism and colonial expansion.- Early life :Born in Saint-Dié, in the Vosges département, France, he studied law, and was called to the bar at Paris in 1854, but soon went into politics, contributing to...
, but Hobson argued against imperialism from a slightly different standpoint. He concluded that finance was manipulating events to its own profit, but often against broader national interests.
Second, any such statistics only obscure the fact that African formal control of tropical Africa had strategic implications in an era of feasible inter-capitalist competition, particularly for Britain, which was under intense economic and thus political pressure to secure lucrative markets such as India, China, and Latin America. In Britain's case this process of capitalist diffusion had in many regions led it to acquire colonies in the interests of commercial security; France and Germany would later follow suit. For example, although the then inconspicuously moribund Czarist Empire proved to be little threat to Great Britain following its stunning defeat in the 1905 Russo-Japanese War
Russo-Japanese War
The Russo-Japanese War was "the first great war of the 20th century." It grew out of rival imperial ambitions of the Russian Empire and Japanese Empire over Manchuria and Korea...
, British Conservatives in particular feared that Russia would continue to usurp Ottoman territory and acquire a port on the Mediterranean or even Constantinople
Constantinople
Constantinople was the capital of the Roman, Eastern Roman, Byzantine, Latin, and Ottoman Empires. Throughout most of the Middle Ages, Constantinople was Europe's largest and wealthiest city.-Names:...
— a long touted goal of orthodox Russia.
These fears became especially pronounced following the 1869 completion of the near-by Suez Canal
Suez Canal
The Suez Canal , also known by the nickname "The Highway to India", is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea and the Red Sea. Opened in November 1869 after 10 years of construction work, it allows water transportation between Europe and Asia without navigation...
, prompting the official rationale behind British premier Disraeli's purchase of the waterway. The close proximity of the Czar's (territorially) expanding empire in Central Asia to India also terrified Lord Curzon, thus triggering the Afghan Wars
European influence in Afghanistan
The European influence in Afghanistan refers to political, social, and sometimes imperialistic influence several European nations have had on this historical development of Afghanistan.-Rise of Dost Mohammad Khan:...
. Cecil John Rhodes
Cecil John Rhodes
Cecil John Rhodes PC, DCL was an English-born South African businessman, mining magnate, and politician. He was the founder of the diamond company De Beers, which today markets 40% of the world's rough diamonds and at one time marketed 90%...
and Milner
Milner
-People:* Alfred Milner, 1st Viscount Milner , British colonial administrator* Andy Milner , English footballer* Brenda Milner , English-Canadian neuropsychologist* Eric Milner-White , English cleric...
also advocated the prospect of a "Cape to Cairo" empire
Cape-Cairo railway
The Cape to Cairo Railway is an uncompleted project to cross Africa from south to north by rail. This plan was initiated at the end of the 18th century, during the time of colonial rule, largely under the vision of Cecil Rhodes, in the attempt to connect adjacent African possessions of the British...
, which would link by rail the extrinsically important canal to the intrinsically mineral and diamond
Diamond
In mineralogy, diamond is an allotrope of carbon, where the carbon atoms are arranged in a variation of the face-centered cubic crystal structure called a diamond lattice. Diamond is less stable than graphite, but the conversion rate from diamond to graphite is negligible at ambient conditions...
rich South, from a strategic standpoint. Though hampered by German conquest of Tanganyika
Tanganyika
Tanganyika , later formally the Republic of Tanganyika, was a sovereign state in East Africa from 1961 to 1964. It was situated between the Indian Ocean and the African Great Lakes of Lake Victoria, Lake Malawi and Lake Tanganyika...
until the end of the Great War, Rhodes successfully lobbied on behalf of such a sprawling East African empire.
Formal colonies were often, in hindsight, strategic outposts to protect large zones of 'investment', such as India, Latin America, and China. Britain, in as sense, continued to adhere to the Cobdenite
Richard Cobden
Richard Cobden was a British manufacturer and Radical and Liberal statesman, associated with John Bright in the formation of the Anti-Corn Law League as well as with the Cobden-Chevalier Treaty...
notion that informal colonialism was preferable — the established consensus among industrial capitalists during the age of Pax Britannica between the downfall of Napoleon and the Franco-Prussian War. What changed since the Disraeli's Crystal Palace Speech was not necessarily a preference for colonialism
Colonialism
Colonialism is the establishment, maintenance, acquisition and expansion of colonies in one territory by people from another territory. It is a process whereby the metropole claims sovereignty over the colony and the social structure, government, and economics of the colony are changed by...
over informal empire, but the attitude toward formal rule in largely tropical areas once considered too 'backward' for trade. Sovereign areas already hospitable to informal empire largely avoided formal rule during the shift to New Imperialism. China, for instance, was not a backward country unable to secure the prerequisite stability and security for western-style commerce, but a highly advanced empire unwilling to admit western (often drug-pushing
Illegal drug trade
The illegal drug trade is a global black market, dedicated to cultivation, manufacture, distribution and sale of those substances which are subject to drug prohibition laws. Most jurisdictions prohibit trade, except under license, of many types of drugs by drug prohibition laws.A UN report said the...
) commerce, which may explain the West's contentment with informal 'Spheres of Influences'. China, unlike tropical Africa, was a securable market without formal control.
Following the First Opium War
First Opium War
The First Anglo-Chinese War , known popularly as the First Opium War or simply the Opium War, was fought between the United Kingdom and the Qing Dynasty of China over their conflicting viewpoints on diplomatic relations, trade, and the administration of justice...
(1839–1842), British commerce, and later capital invested by other newly industrialising powers, was securable with a smaller degree of formal control than in Southeast Asia, West Africa, and the Pacific. But in many respects, China was a colony and a large-scale receptacle of Western capital investments. Western powers did intervene military there to quell domestic chaos, such as the horrific Taiping Rebellion
Taiping Rebellion
The Taiping Rebellion was a widespread civil war in southern China from 1850 to 1864, led by heterodox Christian convert Hong Xiuquan, who, having received visions, maintained that he was the younger brother of Jesus Christ, against the ruling Manchu-led Qing Dynasty...
(1851–1864) and the anti-imperialist Boxer Rebellion
Boxer Rebellion
The Boxer Rebellion, also called the Boxer Uprising by some historians or the Righteous Harmony Society Movement in northern China, was a proto-nationalist movement by the "Righteous Harmony Society" , or "Righteous Fists of Harmony" or "Society of Righteous and Harmonious Fists" , in China between...
(1901). For example, General Gordon, later the imperialist 'martyr' in the Sudan
Sudan
Sudan , officially the Republic of the Sudan , is a country in North Africa, sometimes considered part of the Middle East politically. It is bordered by Egypt to the north, the Red Sea to the northeast, Eritrea and Ethiopia to the east, South Sudan to the south, the Central African Republic to the...
, is often accredited as having saved the Manchu Dynasty from the Taiping insurrection, after having defeated the Manchu in the Second Opium War
Second Opium War
The Second Opium War, the Second Anglo-Chinese War, the Second China War, the Arrow War, or the Anglo-French expedition to China, was a war pitting the British Empire and the Second French Empire against the Qing Dynasty of China, lasting from 1856 to 1860...
(1856–60).
Colonialism in India, however, should dissuade sweeping generalisations and over-simplifications regarding the roles of inter-capitalist competition and accumulated surplus in precipitating the era of New Imperialism. Formal empire in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, beginning with the Government of India Act of 1858, was a means of consolidation, reacting to the abortive Sepoy Rebellion in 1857, which was in itself a conservative reaction among Indian traditionalists to the Dalhousie era of liberalisation and consolidation of the subcontinent. Local concerns in particular zones of investment, hence, should be of concern as well.
Formal empire in Sub-Saharan Africa, the last vast region of the world largely untouched by "informal imperialism" and "civilisation", was also attractive to Europe's ruling elites for other potential reasons. First, insofar as the "Dark Continent" was agricultural or extractive, and no longer "stagnant" since its integration with the world's interdependent capitalist economy, it required more capital for development that it could provide itself. Second, during a time when in nearly every year since the 1813 liberalisation of trade onward Britain's balance of trade
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
showed a deficit, and a time of shrinking and increasingly protectionist continental markets, Africa offered Britain an open market that would garner it a trade surplus — a market that bought more from the metropole than it sold overall. Britain, like most other industrial countries, had long since begun to run an unfavourable balance of trade (which was increasingly offset, however, by the income from overseas investments). As perhaps the world's first post-industrial nation, financial services became an increasingly more important sector of its economy. Invisible financial exports, as mentioned, kept Britain out of the red, especially capital investments outside Europe, particularly to the developing and open markets in Africa, predominantly white 'settler
Settler
A settler is a person who has migrated to an area and established permanent residence there, often to colonize the area. Settlers are generally people who take up residence on land and cultivate it, as opposed to nomads...
colonies', the Middle East, the Indian Subcontinent, Southeast Asia, and the South Pacific.
Each of Britain's major elites also found some advantages in formal, overseas expansion: mammoth monopolies wanted imperial support to secure overseas investments against competition and domestic political tensions abroad; bureaucrats wanted more occupations, military officers desired promotion, and the traditional but waning landed gentry wanted formal titles. Observing the rise of trade unionism, socialism, and other protest movements during an era of mass society in both Europe and later North America, the elite in particular was able to utilise imperial "jingoism
Jingoism
Jingoism is defined in the Oxford English Dictionary as extreme patriotism in the form of aggressive foreign policy. In practice, it is a country's advocation of the use of threats or actual force against other countries in order to safeguard what it perceives as its national interests...
" to co-opt the support of the impoverished industrial working class. Riding the sentiments of the late 19th century Romantic Age, imperialism inculcated the masses with 'glorious' neo-aristocratic virtues and helped instil broad, nationalist
Nationalism
Nationalism is a political ideology that involves a strong identification of a group of individuals with a political entity defined in national terms, i.e. a nation. In the 'modernist' image of the nation, it is nationalism that creates national identity. There are various definitions for what...
sentiments.
20th century
By the time of Queen Victoria's death in 1901, other nations, including the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, had developed their own industries; the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's comparative economic advantage had lessened, and the ambitions of its rivals had grown. The losses and destruction of World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, the depression in its aftermath
Aftermath of World War I
The fighting in World War I ended in western Europe when the Armistice took effect at 11:00 am GMT on November 11, 1918, and in eastern Europe by the early 1920s. During and in the aftermath of the war the political, cultural, and social order was drastically changed in Europe, Asia and Africa,...
during the 1930s, and decades of relatively slow growth eroded the United Kingdom's pre-eminent international position of the previous century.
By 1921, more than 2,000,000 Britons were unemployed as a result of the postwar economic downturn. By 1926, the economy was still struggling, the general strike
1926 United Kingdom general strike
The 1926 general strike in the United Kingdom was a general strike that lasted nine days, from 4 May 1926 to 13 May 1926. It was called by the general council of the Trades Union Congress in an unsuccessful attempt to force the British government to act to prevent wage reduction and worsening...
of that year doing it no favours. Industrial relations briefly improved, but then came the Wall Street stock market crash
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
in the USA, which sparked a Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. See also the Great Depression in the United Kingdom
Great Depression in the United Kingdom
The Great Depression in the United Kingdom, also known as the Great Slump, was a period of national economic downturn in the 1930s, which had its origins in the global Great Depression...
.Unemployment had stood at less than 1,800,000 at the end of 1930, but by the end of 1931 it had risen sharply to more than 2,600,000.By January 1933, however, more than 3,000,000 Britons were unemployed, accounting for more than 20% of the workforce. Although this record for unemployment would be exceeded numbers-wise 50 years later, it has still yet to be exceeded as a percentage almost 80 years on.
The rest of the 1930s saw a decent economic recovery and fall in unemployment, and by 1938 the unemployment rate had fallen to around 10%.
In World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, which started in September 1939, there was again a great deal of destruction to British infrastructure, and the years after the war also saw Britain lose almost all of its remaining colonies as the empire dissolved. In the 1945 general election
United Kingdom general election, 1945
The United Kingdom general election of 1945 was a general election held on 5 July 1945, with polls in some constituencies delayed until 12 July and in Nelson and Colne until 19 July, due to local wakes weeks. The results were counted and declared on 26 July, due in part to the time it took to...
, just after the war's end, the Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
was elected, introducing sweeping reforms of the British economy. Taxes increased, industries were nationalised, and a welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
with national health, pensions, and social security was created.
The next years saw some of the most rapid growth Britain had ever experienced, recovering from the devastation of the Second World War and then expanding rapidly past the previous size of the economy. By 1959, tax cuts had helped boost living standards and allow for a strong economyand low unemployment.
By the end of the 1960s, this growth began to slow and unemployment was rising again.
During the 1970s Britain suffered a long running period of relative economic malaise, dogged by severe inflation, strikes and union power as well as inflation, with neither the Conservative
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...
government of 1970
United Kingdom general election, 1970
The United Kingdom general election of 1970 was held on 18 June 1970, and resulted in a surprise victory for the Conservative Party under leader Edward Heath, who defeated the Labour Party under Harold Wilson. The election also saw the Liberal Party and its new leader Jeremy Thorpe lose half their...
-1974
United Kingdom general election, February 1974
The United Kingdom's general election of February 1974 was held on the 28th of that month. It was the first of two United Kingdom general elections held that year, and the first election since the Second World War not to produce an overall majority in the House of Commons for the winning party,...
(led by Edward Heath
Edward Heath
Sir Edward Richard George "Ted" Heath, KG, MBE, PC was a British Conservative politician who served as Prime Minister of the United Kingdom and as Leader of the Conservative Party ....
) nor the Labour
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
government which succeeded it (led by Harold Wilson
Harold Wilson
James Harold Wilson, Baron Wilson of Rievaulx, KG, OBE, FRS, FSS, PC was a British Labour Member of Parliament, Leader of the Labour Party. He was twice Prime Minister of the United Kingdom during the 1960s and 1970s, winning four general elections, including a minority government after the...
and from 1976 James Callaghan
James Callaghan
Leonard James Callaghan, Baron Callaghan of Cardiff, KG, PC , was a British Labour politician, who was Prime Minister of the United Kingdom from 1976 to 1979 and Leader of the Labour Party from 1976 to 1980...
) being able to halt the country's economic decline.
Unemployment exceeded 1,000,000 by 1972 and had risen even higher by the time the end of the decade was in sight.
This led to the election of Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
, who cut back on the government's role in the economy and weakened the power of the trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
s. The latter decades of the 20th century have seen an increase in service-providers and a drop in industry, combined with privatisation of some sections of the economy. This change has led some to describe this as a 'Third Industrial Revolution', though this term is not widely used.
1900–1928: the early 20th century
By the turn of the 20th century, Britain’s economic fortunes were in relative decline. GermanyGermany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and the United States were becoming the biggest threats in terms of domestic economic production, having vastly superior natural resources compared to Britain. Furthermore, Germany had developed its own policy of imperialism
Imperialism
Imperialism, as defined by Dictionary of Human Geography, is "the creation and/or maintenance of an unequal economic, cultural, and territorial relationships, usually between states and often in the form of an empire, based on domination and subordination." The imperialism of the last 500 years,...
which led to friction with other imperial powers in Europe up to the First World War
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
.
Even with the decline, in 1914 London was still the center of international payments, and a large creditor nation, owed money by others. The First World War
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
(1914–1918) saw absolute losses for Britain’s economy. It is estimated that she lost a quarter of her total wealth in fighting the war. Failure to appreciate the damage done to the British economy led to the pursuit of traditional liberal economic policies which plunged the country further into economic dislocation with high unemployment (reaching 2,000,000 in 1921)and sluggish growth.
By 1926, a General Strike
UK General Strike of 1926
The 1926 general strike in the United Kingdom was a general strike that lasted nine days, from 4 May 1926 to 13 May 1926. It was called by the general council of the Trades Union Congress in an unsuccessful attempt to force the British government to act to prevent wage reduction and worsening...
was called by trade unions but it failed, and many of those who had gone on strike were blacklisted, and thus were prevented from working for many years later.
1929–1939: the Great Depression and the 1930s
In 1929, the Wall St CrashWall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
affected Britain resulting in leaving the Gold Standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
. Whereas Britain had championed the concept of the free market when it was ascendant in the world economy, it gradually withdrew to adopting Tariff Reform as a measure of protectionism. By the early 1930s, the depression again signaled the economic problems the British economy faced. Unemployment soared during this period; from just over 10% in 1929 to more than 20% by early 1933. However, it had fallen to 13.9% by the start of 1936.
When the Labour Government collapsed in 1931, it was replaced by a National Government representing all the troubles that had beset the country. Britain was not alone, with equal economic troubles affecting most European countries, most powerfully Germany.
In political terms, the economic problems found expression in the rise of radical movements who promised solutions which conventional political parties were no longer able to provide. In Britain this was seen with the rise of the Communist Party of Great Britain
Communist Party of Great Britain
The Communist Party of Great Britain was the largest communist party in Great Britain, although it never became a mass party like those in France and Italy. It existed from 1920 to 1991.-Formation:...
(CPGB) and the Fascists under Oswald Mosley
Oswald Mosley
Sir Oswald Ernald Mosley, 6th Baronet, of Ancoats, was an English politician, known principally as the founder of the British Union of Fascists...
. However, their political strength was limited and they never posed any real threat to the conventional political parties in the UK.
Britain’s economic problems are cited as a reason for appeasement
Appeasement
The term appeasement is commonly understood to refer to a diplomatic policy aimed at avoiding war by making concessions to another power. Historian Paul Kennedy defines it as "the policy of settling international quarrels by admitting and satisfying grievances through rational negotiation and...
. Delaying a commitment to war was a means of buying time to divert scarce economic resources into the production of military hardware and armaments.
1939–1945: the Second World War
After war broke out between Britain and Germany in September, Britain imposed exchange controls. The British Government also decided to sell its gold reserves and dollarDollar
The dollar is the name of the official currency of many countries, including Australia, Belize, Canada, Ecuador, El Salvador, Hong Kong, New Zealand, Singapore, Taiwan, and the United States.-Etymology:...
reserves to pay for munitions, raw materials and industrial equipment from American factories. By the third quarter of 1940 the volume of British exports was down 37% compared to 1935. Although the British Government had committed itself to nearly $10,000 million of orders from America, Britain's gold and dollar reserves were near exhaustion. The American Government decided to prop up Britain as it neared bankruptcy, so on 10 January 1941 they produced a Bill entitled an "Act to promote the defence of the United States" (its number, H.R. 1776, was the year of American independence) which was put before the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
and which was enacted on 11 March 1941. This Act became known as Lend-Lease
Lend-Lease
Lend-Lease was the program under which the United States of America supplied the United Kingdom, the Soviet Union, China, Free France, and other Allied nations with materiel between 1941 and 1945. It was signed into law on March 11, 1941, a year and a half after the outbreak of war in Europe in...
, whereby America would give Britain cash totaling $31.4 billion which never had to be repaid. One month later British gold and dollar reserves had dwindled to their lowest ever point, $12 million. Under this new agreement with the American Government, Britain agreed not to export any articles which contained Lend-Lease material or to export any goods—even if British-made—which were similar to Lend-Lease goods. The American Government sent officials to Britain to police these requirements. By 1944 British exports had gone down to 31% from 1938. Lend-Lease created problems in reviving Britain's exports after the war.
1945–1959: the post-War era
After World War II, the British economy had again lost huge amounts of absolute wealth. Its economy was driven entirely for the needs of war and took some time to be reorganised for peaceful production. Anticipating the end of the conflict, the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
had negotiated throughout the war to liberalise post-war trade and the international flow of capital in order to break into markets which had previously been closed to it, including the British Empire's Pound Sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
bloc. This was to be realised through the Atlantic Charter
Atlantic Charter
The Atlantic Charter was a pivotal policy statement first issued in August 1941 that early in World War II defined the Allied goals for the post-war world. It was drafted by Britain and the United States, and later agreed to by all the Allies...
of 1941, through the establishment of the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
in 1944, and through the new economic power that the US was able to exert due to the weakened British economy.
Immediately after the war had ended, the USA halted Lend-Lease
Lend-Lease
Lend-Lease was the program under which the United States of America supplied the United Kingdom, the Soviet Union, China, Free France, and other Allied nations with materiel between 1941 and 1945. It was signed into law on March 11, 1941, a year and a half after the outbreak of war in Europe in...
. This had been fundamental to the sustainability of the British economy during the war and it was expected by the British that it would continue during the period of transition. Instead, the Labour Government under Clement Attlee
Clement Attlee
Clement Richard Attlee, 1st Earl Attlee, KG, OM, CH, PC, FRS was a British Labour politician who served as the Prime Minister of the United Kingdom from 1945 to 1951, and as the Leader of the Labour Party from 1935 to 1955...
sent John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
to negotiate a loan, known as the Washington Loan Agreement in December 1945 (see Anglo-American loan
Anglo-American loan
The Anglo-American Loan Agreement was a post World War II loan made to the United Kingdom by the United States on 15 July 1946, and paid off 29 December 2006...
). The terms of this were not as favourable as the British had hoped for and included crucially a convertibility clause, in line with the US policy of liberalisation. In this, the USA expected that within two years, the British currency would become fully convertible. This, combined with the fact that the loan wasn't for as much as Keynes had hoped and the 2% interest rate imposed by the Americans, meant that Britain faced an uphill struggle to revive the economy.
The winter of 1946–1947 proved to be very harsh curtailing production and leading to shortages of coal which again affected the economy so that by August 1947 when convertibility was due to begin, the economy was not as strong as it needed to be. When the Labour Government enacted convertibility, there was a run on Sterling, meaning that Sterling was being traded in for dollars, seen as the new, more powerful and stable currency in the world. This damaged the British economy and within weeks it was stopped. By 1949, the British pound was over valued and had to be devalued though this is often considered a measure of last resort for Governments.
The Labour Governments of 1945–1951 enacted a political programme rooted in collectivism
Collectivism
Collectivism is any philosophic, political, economic, mystical or social outlook that emphasizes the interdependence of every human in some collective group and the priority of group goals over individual goals. Collectivists usually focus on community, society, or nation...
including the nationalisation of industries and state direction of the economy. Both wars had demonstrated the possible benefits of greater state involvement. This underlined the future direction of the post-war economy, and was supported in the main by the Conservatives. However, the initial hopes for nationalisation were not fulfilled and more nuanced understandings of economic management emerged, such as state direction, rather than state ownership. Throughout though, the basis remained the same: applying the economic theories of Keynes and continued state involvement.
Two world wars had taken their toll on the Empire. Decolonisation began with Indian independence in 1947. For many countries formerly part of the Empire, they argued that, in effect, they had won their independence by fighting for Britain during the two wars. However, British power was already shown to be weakened as it became impossible to resist the tide of self determination which ensued. What began under the Labour Government of 1945–1951 was continued under the Conservatives from 1951–1964 with the exception of the Suez Crisis
Suez Crisis
The Suez Crisis, also referred to as the Tripartite Aggression, Suez War was an offensive war fought by France, the United Kingdom, and Israel against Egypt beginning on 29 October 1956. Less than a day after Israel invaded Egypt, Britain and France issued a joint ultimatum to Egypt and Israel,...
of 1956. After Suez, the Conservatives made it a central feature of their foreign policy rhetoric with Harold Macmillan
Harold Macmillan
Maurice Harold Macmillan, 1st Earl of Stockton, OM, PC was Conservative Prime Minister of the United Kingdom from 10 January 1957 to 18 October 1963....
's Wind of Change
Wind of Change (speech)
The Wind of Change speech was a historically important address made by British Prime Minister Harold Macmillan to the Parliament of South Africa, on 3 February 1960 in Cape Town. He had spent a month in Africa visiting a number of British colonies, as they were at the time...
speech.
During 1955, unemployment reached a postwar low of just over 215,000 - barely 1% of the workforce.
The loss of the Empire and the material losses incurred through two world wars had affected the basis of Britain’s economy. First, its traditional markets were changing as Commonwealth countries made bilateral trade arrangements with local or regional powers. Second, the initial gains Britain made in the world economy were in relative decline as those countries whose infrastructure was seriously damaged by war repaired these and reclaimed a stake in world markets. Third, the British economy changed structure shifting towards a service sector economy from its manufacturing and industrial origins leaving some regions economically depressed. Finally, part of consensus politics meant support of the Welfare State
Welfare State
The Welfare State is a commitment to health, education, employment and social security in the United Kingdom.-Background:The United Kingdom, as a welfare state, was prefigured in the William Beveridge Report in 1942, which identified five "Giant Evils" in society: squalor, ignorance, want, idleness...
and of a world role for Britain; both of these needed funding through taxes and needed a buoyant economy in order to provide the taxes.
1960–1979: the Sixties and Seventies
As these factors coalesced during the 1960s, the slogan used by Prime MinisterPrime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
Harold Macmillan
Harold Macmillan
Maurice Harold Macmillan, 1st Earl of Stockton, OM, PC was Conservative Prime Minister of the United Kingdom from 10 January 1957 to 18 October 1963....
"(most of) our people have never had it so good" seemed increasingly hollow. The Conservative Government presided over a ‘stop-go’ economy as it tried to prevent inflation spiralling out of control without snuffing out economic growth. Growth continued to struggle, at about only half the rate of that of Germany or France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
at the same time. However, industry had remained strong in nearly 20 years following the end of the war, and extensive housebuilding and construction of new commercial developments and public buildings also helped unemployment stay low throughout this time.
The Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
under Harold Wilson
Harold Wilson
James Harold Wilson, Baron Wilson of Rievaulx, KG, OBE, FRS, FSS, PC was a British Labour Member of Parliament, Leader of the Labour Party. He was twice Prime Minister of the United Kingdom during the 1960s and 1970s, winning four general elections, including a minority government after the...
from 1964–1970 was unable to provide a solution either, and eventually was forced to devalue the Pound
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
again in 1967. Economist Nicholas Crafts
Nicholas Crafts
Nicholas F. R. Crafts is Professor of Economics and Economic History at the University of Warwick, a post he has held since 2005. Previously he was a Professor of Economic History at London School of Economics and Political Science between 1995-2005...
attributes Britain's relatively low growth in this period to a combination of a lack of competition
Competition (economics)
Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services...
in some sectors of the economy, especially in the nationalised industries; poor industrial relations and insufficient vocational training. He writes that this was a period of government failure
Government failure
Government failure is the public sector analogy to market failure and occurs when a government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention...
caused by poor understanding of economic theory, short-termism and a failure to confront interest groups.
Both political parties had come to the conclusion that Britain needed to enter the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
(EEC) in order to revive its economy. This decision came after establishing a European Free Trade Association
European Free Trade Association
The European Free Trade Association or EFTA is a free trade organisation between four European countries that operates parallel to, and is linked to, the European Union . EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or chose not to,...
(EFTA) with other, non EEC countries since this provided little economic stimulus to Britain’s economy. Levels of trade with the Commonwealth halved in the period 1945–1965 to around 25% while trade with the EEC had doubled during the same period. Charles de Gaulle
Charles de Gaulle
Charles André Joseph Marie de Gaulle was a French general and statesman who led the Free French Forces during World War II. He later founded the French Fifth Republic in 1958 and served as its first President from 1959 to 1969....
vetoed a British attempt at membership in 1963 and again in 1967.
In 1973 the Conservative Prime Minister, Edward Heath
Edward Heath
Sir Edward Richard George "Ted" Heath, KG, MBE, PC was a British Conservative politician who served as Prime Minister of the United Kingdom and as Leader of the Conservative Party ....
, led Britain into the EEC. As late as this stage, Britain still effectively had full employment, at a rate of 3% unemployed.
However, with the decline of Britain’s economy during the 1960s, the trade unions began to strike leading to a complete breakdown with both the Labour Government of Harold Wilson and later with the Conservative Government of Edward Heath (1970–1974). In the early 1970s, the British economy suffered more as strike action by trade unions, plus the effects of the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
, led to a three day week
Three-Day Week
The Three-Day Week was one of several measures introduced in the United Kingdom by the Conservative Government 1970–1974 to conserve electricity, the production of which was severely limited due to industrial action by coal miners...
in 1973-74. In all, over nine million days were lost to strike action under Heath’s Government alone. However, despite a brief period of calm negotiated by the recently re-elected Labour Government of 1974 known as the Social Contract
Social Contract (Britain)
The Social Contract is a term used to describe policy by the Labour government of Harold Wilson in 1970s Britain.In return for the repeal of 1971 Industrial Relations Act, food subsides and a freeze on rent increase, the TUC would be able to persuade its members to cooperate in a programme of...
, a break down with the unions occurred again in 1978, leading to the Winter of Discontent
Winter of Discontent
The "Winter of Discontent" is an expression, popularised by the British media, referring to the winter of 1978–79 in the United Kingdom, during which there were widespread strikes by local authority trade unions demanding larger pay rises for their members, because the Labour government of...
, and eventually leading to the end of the Labour Government, then being led by James Callaghan
James Callaghan
Leonard James Callaghan, Baron Callaghan of Cardiff, KG, PC , was a British Labour politician, who was Prime Minister of the United Kingdom from 1976 to 1979 and Leader of the Labour Party from 1976 to 1980...
, who had succeeded Wilson in 1976. The extreme industrial strife along with rising inflation and unemployment led Britain to be nicknamed as the "sick man of Europe
Sick man of Europe
"Sick man of Europe" is a nickname that has been used to describe a European country experiencing a time of economic difficulty and/or impoverishment...
."
Unemployment had also risen during this difficult period for the British economy; some 1,500,000 people were now unemployed by 1978, nearly treble the figure at the start of the decade, at a national rate of well over 5%. It had exceeded 1,000,000 since 1975.
Also in the 1970s, oil was found in the North Sea
North Sea
In the southwest, beyond the Straits of Dover, the North Sea becomes the English Channel connecting to the Atlantic Ocean. In the east, it connects to the Baltic Sea via the Skagerrak and Kattegat, narrow straits that separate Denmark from Norway and Sweden respectively...
, off the coast of Scotland.
1979–1990: the Thatcher era
The election of Margaret ThatcherMargaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
in 1979 marked the end of the post-war consensus
Post-war consensus
The post-war consensus is a name given by historians to an era in British political history which lasted from the end of World War II in 1945 to the election of Margaret Thatcher as Prime Minister of the United Kingdom in 1979....
and a new approach to economic policy, including privatisation and deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
,
reform of industrial relations, and tax changes. Competition policy was emphasised instead of industrial policy
Industrial policy
The Industrial Policy plan of a nation, sometimes shortened IP, "denotes a nation's declared, official, total strategic effort to influence sectoral development and, thus, national industry portfolio." These interventionist measures comprise "policies that stimulate specific activities and promote...
; consequent deindustrialisation was more or less accepted. Thatcher's battles with the unions culminated in the Miners' Strike of 1984.
The Government applied monetarist policies to reduce inflation, and reduced public spending. Deflationary measures were implemented against the backdrop of the early 1980s recession
Early 1980s recession
The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited recession relatively early, but high unemployment would continue to affect other OECD nations through at least 1985...
. As a result, unemployment began to rise sharply from early 1980, breaking the 2,000,000 barrier by the end of the year and reaching 2,500,000 during 1981. By January 1982, 3,000,000 were unemployed in Britain for the first time in 50 years, though this time the figure accounted for a lesser percentage of the early 1930s figures, now standing at around 12.5% rather than in excess of 20%. In areas hit particularly hard by the loss of industry, the unemployment rate was much higher; coming to close to 20% in Northern Ireland
Northern Ireland
Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...
and exceeding 15% in many parts of Wales
Wales
Wales is a country that is part of the United Kingdom and the island of Great Britain, bordered by England to its east and the Atlantic Ocean and Irish Sea to its west. It has a population of three million, and a total area of 20,779 km²...
, Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
and northern England.The peak of unemployment actually came some two years after the recession ended and growth had been re-established, when in April 1984 unemployment rose to nearly 3,300,000.
Major state-controlled firms were privatised, including British Aerospace
British Aerospace
British Aerospace plc was a UK aircraft, munitions and defence-systems manufacturer. Its head office was in the Warwick House in the Farnborough Aerospace Centre in Farnborough, Hampshire...
(1981), British Telecom (1984), British Leyland (1984), Rolls-Royce
Rolls-Royce plc
Rolls-Royce Group plc is a global power systems company headquartered in the City of Westminster, London, United Kingdom. It is the world’s second-largest maker of aircraft engines , and also has major businesses in the marine propulsion and energy sectors. Through its defence-related activities...
(1987), and British Steel
British Steel
British Steel was a major British steel producer. It originated as a nationalised industry, the British Steel Corporation , formed in 1967. This was converted to a public limited company, British Steel PLC, and privatised in 1988. It was once a constituent of the FTSE 100 Index...
(1988). The electricity, gas and English water industries were split up and sold off. Exchange controls, in operation since the war, were abolished in 1979. British net assets abroad rose approximately ninefold from £12 billion at the end of 1979 to nearly £110 billion at the end of 1986, a record post-war level and second only to Japan. Privatisation of nationalised industries increased share ownership in Britain: the proportion of the adult population owning shares went up from 7% in 1979 to 25% in 1989. The Single European Act
Single European Act
The Single European Act was the first major revision of the 1957 Treaty of Rome. The Act set the European Community an objective of establishing a Single Market by 31 December 1992, and codified European Political Cooperation, the forerunner of the European Union's Common Foreign and Security Policy...
(SEA), signed by Margaret Thatcher, allowed for the free movement of goods within the European Union area. The ostensible benefit of this was to give the spur of competition to the British economy, and increase its ultimate efficiency.
The early 1980s recession saw unemployment rise above three million, but the subsequent recovery, which saw growth of over 4 per cent in the late 1980s, led to contemporary claims of a British 'economic miracle'. It is not clear whether Thatcherism was the only reason for the boom in Britain in the 1980s. However many of the economic policies put in place by the Thatcher governments have been kept since, and even the Labour Party which had once been so opposed to the policies had by the late 1990s, on its return to government after nearly 20 years in opposition, dropped all opposition to them.
By the end of 1986, Britain was enjoying an economic boom, which saw unemployment go into freefall and drop to 1,600,000 by December 1989.
1990–1997: the Major years
In November 1990 Margaret Thatcher stood down from the office of Prime Minister after losing first the confidence and then the support in Parliament of the Conservative Party's MPs, which she needed in order to continue. John MajorJohn Major
Sir John Major, is a British Conservative politician, who served as Prime Minister of the United Kingdom and Leader of the Conservative Party from 1990–1997...
was elected her successor.
Despite several major economies showing quarterly detraction during 1989, the British economy continued to grow well into 1990, with the first quarterly detraction taking place in the third quarter of the year, by which time unemployment was starting to creep upwards again after four years of falling.
Economic growth was not re-established until early 1993, but the Conservative government which had been in power continuously since 1979 managed to achieve re-election in April 1992, fending off a strong challenge from Neil Kinnock and Labour.
The early 1990s recession was officially the longest in Britain since the Great Depression some 60 years earlier, though the fall in output was not as sharp as that of the downturn of the Great Depression or even that of the early 1980s recession. It had started during 1990 and the end of the recession was not officially declared until April 1993, by which time nearly 3,000,000 were unemployed.
The British pound was tied to EU exchange rates, using the Deutsche Mark as a basis, as part of the Exchange Rate Mechanism (ERM); however, this resulted in disaster for Britain. The restrictions imposed by the ERM put pressure on the pound, leading to a run on the currency. Black Wednesday
Black Wednesday
In politics and economics, Black Wednesday refers to the events of 16 September 1992 when the British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism after they were unable to keep it above its agreed lower limit...
in 1992 ended British membership of the ERM. It also damaged the credibility of the Conservatives' economic management, and contributed to the end of the 18 years of consecutive Conservative government in 1997.
Despite the downfall of the Conservative government, it had seen a strong economic recovery in which unemployment had fallen by more than 1,000,000 since the end of 1992 to 1,700,000 by the time of their election defeat.
1997 to 2001: New Labour
In 1997, Tony BlairTony Blair
Anthony Charles Lynton Blair is a former British Labour Party politician who served as the Prime Minister of the United Kingdom from 2 May 1997 to 27 June 2007. He was the Member of Parliament for Sedgefield from 1983 to 2007 and Leader of the Labour Party from 1994 to 2007...
's Labour government stuck with the Conservative's spending plans. The Chancellor
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
, Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
, gained a reputation by some as the "prudent Chancellor" and helped to inspire renewed confidence in Labour's ability to manage the economy. One of the first acts that the new Labour government embarked on was to give the power to set interest rates to the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
, effectively ending the use of interest rates as a political tool. Labour also introduced the minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
to the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, which has been raised from time to time since its introduction. The Blair government also introduced a number of strategies to cut unemployment. Unemployment fell back to the level it was in the late 1970s, although it still remained significantly higher than it was during the post-war era and the 1960s.
21st century
In the Labour Party's second term in office, beginning in 2001, the party increased taxes and borrowing. The government wanted the money to increase spending on public services, notably the National Health ServiceNational Health Service
The National Health Service is the shared name of three of the four publicly funded healthcare systems in the United Kingdom. They provide a comprehensive range of health services, the vast majority of which are free at the point of use to residents of the United Kingdom...
, which they claimed was suffering from chronic under-funding. The economy shifted from manufacturing, which had been declining since the 1980s and grew on the back of the services and finance sectors. The country was also at war with first Afghanistan
Afghanistan
Afghanistan , officially the Islamic Republic of Afghanistan, is a landlocked country located in the centre of Asia, forming South Asia, Central Asia and the Middle East. With a population of about 29 million, it has an area of , making it the 42nd most populous and 41st largest nation in the world...
, invading in 2001 and then Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
, in 2003. Spending on both reached several billion pounds a year.
Growth rates were consistently between 1.6% and 3% from 2000 to early 2008. Inflation though relativity steady at around 2%, did rise in the approach to the financial crash . The Bank of England's control of interest rates was a major factor in the stability of the British economy over that period. The pound
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
continued to fluctuate, however, reaching a low against the dollar in 2001 (to a rate of $1.37 per £1), but rising again to a rate of approximately $2 per £1 in 2007. Against the Euro, the pound was steady at a rate of approximately €1.45 per £1. Since then, the effects of the Credit crunch
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...
have led to a slowdown of the economy. At the start of November 2008, for example, the pound was worth around €1.26; by the end of the year, it had almost approached parity, dropping at one point below €1.02 and ending the year at €1.04.
The 2008 recession and quantitative easing
The UK entered its worst recessionRecession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
since World War 2 in 2008, as part of a global economic downturn. On 5 March 2009, the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
announced that they would pump £
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
200 billion of new capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
into the British economy
Economy of the United Kingdom
The economy of the United Kingdom is the sixth-largest national economy in the world measured by nominal GDP and seventh-largest measured by purchasing power parity , and the third-largest in Europe measured by nominal GDP and second-largest measured by PPP...
, through a process known as quantitative easing
Quantitative easing
Quantitative easing is an unconventional monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank buys financial assets to inject a pre-determined quantity of money into the economy...
. This is the first time in the United Kingdom's history that this measure has been used, although the Bank's Governor
Governor of the Bank of England
The Governor of the Bank of England is the most senior position in the Bank of England. It is nominally a civil service post, but the appointment tends to be from within the Bank, with the incumbent grooming his or her successor...
Mervyn King
Mervyn King (economist)
An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of...
suggested it was not an experiment.
The process will see the BoE creating new money for itself, which it will then use to purchase assets such as government bonds, bank loans, or mortgages. Despite the misconception that quantitative easing involves printing money, the BoE are unlikely to do this and instead the money will be created electronically and thus not actually enter the cash circulation system. The initial amount to be created through this method will be £75 billion, although former Chancellor of the Exchequer
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
Alistair Darling
Alistair Darling
Alistair Maclean Darling is a Scottish Labour Party politician who has been a Member of Parliament since 1987, currently for Edinburgh South West. He served as the Chancellor of the Exchequer from 2007 to 2010...
had given permission for up to £150 billion to be created if necessary. It is thought the process is likely to occur over a period of three months with results only likely in the long term.
The BoE has stated that the decision has been taken to prevent the rate of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
falling below the two percent target rate. Mervyn King, the Governor of the BoE, also suggested there were no other monetary options left as interest rates had already been cut to their lowest level ever of 0.5% and it was unlikely they would be cut further.
The economy began to climb its way back into growth in late 2009: by Q4 of 2009 with a weak 0.4%; followed by a 0.3% growth in Q1 of 2010, 1.2% in the Q2 then with a 0.7% in the Q3 and the a Contraction of 0.5% in the Q4 making Growth 1.7% in the whole of 2010. Then After growing 0.5% the first quarter regaining that was lost in the Q4 it had lost the chance of double dip recession but had slow growth of 0.3% in the Q2 of 2011.
See also
- Economy of the United KingdomEconomy of the United KingdomThe economy of the United Kingdom is the sixth-largest national economy in the world measured by nominal GDP and seventh-largest measured by purchasing power parity , and the third-largest in Europe measured by nominal GDP and second-largest measured by PPP...
- History of the United KingdomHistory of the United KingdomThe history of the United Kingdom as a unified sovereign state began with the political union of the kingdoms of England, which included Wales, and Scotland on 1 May 1707 in accordance with the Treaty of Union, as ratified by the Acts of Union 1707...
- Economy of England in the Middle AgesEconomy of England in the Middle AgesThe economy of England in the Middle Ages, from the Norman invasion in 1066, to the death of Henry VII in 1509, was fundamentally agricultural, though even before the invasion the market economy was important to producers...
- Economic history of ScotlandEconomic history of ScotlandThe Economic history of Scotland charts economic development in the History of Scotland from earliest times, through seven centuries as an independent state and following Union with England, three centuries as a country of the United Kingdom. Before 1700 Scotland was a poor rural area, with few...
- Acts of Union 1707Acts of Union 1707The Acts of Union were two Parliamentary Acts - the Union with Scotland Act passed in 1706 by the Parliament of England, and the Union with England Act passed in 1707 by the Parliament of Scotland - which put into effect the terms of the Treaty of Union that had been agreed on 22 July 1706,...
- UK labour law history
- UK company law history