From Empire to Europe: The Decline and Revival of British Industry Since the Second World War

In 1902 employers on the Clyde proposed to their colleagues in the north-east a concerted attack on union-imposed restrictions. This would involve the freedom to deploy unskilled labour on new machinery, the detachment of foremen from union influence, and discretionary power to sub-divide the work process where this was felt to be desirable. But it proved impossible to maintain a united front among a notoriously individualistic group of employers. Some companies, especially in the north-east, had no stomach for an all-out fight. As G. B. Hunter of Swan Hunter, the largest shipyard on the Tyne, put it, ‘we in the north of England want to work by agreement with the trade unions. We think we can manage the men better by so doing’.

Although labour relations in shipbuilding were adversarial, workers and their unions recognised that changes in technology and organisation were essential if the industry was to retain its dominant position in the world market. Disputes over demarcation and other issues were seen as part of the give-and-take between the two sides which allowed the necessary adjustments to take place. The unions, moreover, performed a number of useful services; they administered the apprenticeship system and, through their welfare payments, helped to maintain the attachment of skilled workers to the industry during recessions.

There was another reason why employers needed the co-operation of their skilled workers. In the days of wooden shipbuilding the yard owner customarily sub-contracted part of the work to the shipwright, who hired, supervised and paid other, less skilled workers. Although sub-contracting began to die out after the transition to steam and iron, the industry continued to rely on self-supervising gangs or teams of workers, who were ‘given only the vaguest of instructions and then left to organise the work among themselves’.

The head of the team, a senior member of the relevant union, was given considerable responsibility. The foreman to whom he was nominally responsible belonged to the same union, and was no less concerned to protect the interests of the craft. There was no strong incentive to change these arrangements as long as the industry was doing well.

Productivity in shipbuilding was higher in Britain than in any other country before the First World War.

In Germany, Britain’s strongest competitor in other industries, shipbuilding had developed slowly up to the 1890s, partly because of inadequate supplies of high-quality steel. Support from the government, in the form of protection and subsidies, gave the industry the confidence to expand and modernise, and after the turn of the century German yards were turning out ships which matched the British in quality. But despite lower wages production costs were higher than in Britain. This was partly a matter of scale; German merchant ship launchings were about one-sixth of the British level before the First World War. But a more important reason was the scarcity of skilled labour, which forced German firms to spend more on machinery. This was an expensive overhead, which, because of fluctuations in demand, could not be kept in continuous operation.

Like cotton textiles, shipbuilding was an industry in which there was no sign of entrepreneurial failure in Britain before the First World War. The production methods which had been developed since the middle of the nineteenth century, together with the skills and experience of managers and men, suited the conditions in which the industry was operating at that time. These conditions changed radically in the inter-war years, and, like the textile manufacturers described in the last chapter, the shipbuilders had great difficulty in adjusting to the new environment.

The Inter-war Years

For the first two years after the First World War new orders flowed into British shipyards at a high level as tonnage which had been lost in the war was replaced. Most of these orders came from British owners, who assumed that the growth of international trade would quickly return to its pre-war path and that Britain would resume the dominant role in world shipping which it had had before the war. Both these assumptions turned out to be wrong. The volume of sea-borne trade remained below the pre-war level until 1924, and, after a brief upturn in the second half of the 1920s, fell back again under the impact of the world depression. Within this declining market British shipowners faced growing competition from foreign fleets, some of which were protected and subsidised by their governments. There were also changes in the composition of world trade which worked to Britain’s disadvantage. Coal exports, which had been the staple business for many British tramp operators, declined in importance as the volume of oil shipments increased.

Several firms had enlarged their yards after the war on the expectation of continuing growth in demand, and in 1920 the industry had the capacity to produce about 4m tons of merchant shipping a year. Output reached a peak of 2.1m tons in 1921, but for the rest of the decade it averaged little more than 1m tons a year, falling to below 700,000 tons between 1930 and 1939. To make matters worse, naval orders, which had accounted for about a quarter of the industry’s workload before the war, virtually dried up in the 1920s, and remained at a low level until the onset of rearmament in the mid-1930s. The warship specialists were forced to compete for merchant ship orders, adding to the problem of over-capacity and low prices.

What had been a source of strength for the shipbuilders – their close ties to British shipowners – now became a weakness, since all the growth in sea-borne trade in the inter-war years was secured by non-British owners. Between 1913 and 1939 British-registered merchant tonnage remained virtually unchanged at about 18m tons, while the world fleet expanded from 43m tons to 69m tons. Part of the decline in Britain’s share was due to subsidised competition, but there were also some missed opportunities. Before 1914 the few oil tankers in service were owned either by oil companies or by governments as part of their naval fleets. After the war the oil companies supplemented their own tonnage with vessels chartered from independent tanker owners. This business did not appeal to British tramp operators, partly because they had invested heavily in traditional cargo vessels after the war and lacked the resources to tackle a new market. One historian has suggested that British shipowners had a contemptuous attitude to oil tankers, ‘which they seem to have regarded as being hardly ships at all, much as the American sailing shipowners in the nineteenth century turned their backs on steamships, which they regarded as floating kettles not worthy of their consideration’.

British shipowners allowed a gap in the market to open up, which others were quick to fill. By the end of the 1930s Norwegian entrepreneurs had built up the largest independently owned tanker fleet.

British shipowners were also slow to take up the diesel engine. This form of propulsion, invented in Germany in the 1880s and adapted for marine purposes after the turn of the century, gained wider acceptance in the inter-war years. It was particularly attractive in countries which did not have an indigenous source of coal. By 1939 more than 60 per cent of the Norwegian fleet was equipped with diesel engines, compared with 26 per cent in Britain. Some of this lag reflected the composition of the British fleet. In passenger liners, for example, which were more important for British owners than for the Scandinavians, the steam turbine was more economic than the diesel. But the long attachment to coal and steam bred a cautious attitude towards the diesel engine which was not shared overseas.

The shipbuilders did not find it easy to break away from an approach to designing, building and selling ships which was geared to the needs of British owners. Most of them had a close relationship with a small number of British owners from whom they derived the bulk of their orders; the export trade was regarded as marginal and unpredictable. But even if British shipbuilders had been more aggressive in pursuing export business, there would still have been a need to reduce the industry’s capacity. The idea of an industry-wide rationalisation scheme was first broached by the warship builders in 1925, and the discussions were broadened to include the rest of the industry. The Bank of England helped to promote rationalisation through the creation in 1930 of National Shipbuilders Security (NSS), a financial holding company. Financed by a levy on each firm which participated in the scheme, the NSS was given the power to buy up and close down shipyards which were surplus to requirements. Between 1930 and 1935 38 yards were permanently shut, sterilising some 1.4m tons of building capacity.

The capacity reduction scheme was an unusual exercise in collective self-help in an industry which in the past had found great difficulty in maintaining a common front on any issue. Previous inhibitions about government intervention were laid aside as the industry’s plight worsened. Both shipowners and shipbuilders pressed for action to counter subsidised foreign competition. In 1934 the government agreed to provide a temporary subsidy for tramp operators, and in the following year a scrap-and-build scheme was introduced; loans were made available to British shipowners to scrap old ships and order new ones in British yards.

If the response of the employers to the inter-war crisis was defensive, the same was true of the unions. High unemployment made the unions even more determined to preserve traditional demarcations between trades, and less co-operative in their response to technological change. The replacement of riveting by welding provoked a lengthy dispute. The employers proposed the creation of a new class of skilled worker, the ship-welder, to be organised and trained outside the existing union structure. Inconclusive negotiations took place, but no national agreement was reached. The allocation of welding work within individual yards was determined in the time-honoured way, ‘through a process of competitive struggle between groups of skilled workers and their unions for control of the new process’.

Delays in the introduction of welding in the 1930s did not put British yards at a serious competitive disadvantage. The technology was not yet fully developed, and the shipbuilders were understandably concerned that a premature rush into welding might damage their reputation for building high-quality vessels.

But the reaction of the unions was symptomatic of the lack of trust between managers and workers, which was exacerbated by high unemployment.

The inter-war depression made it more difficult for employers and unions to shake off attitudes and habits which had taken root before the war. The employers were more interested in cutting costs than in a radical reform of the industry’s labour relations system or in altering the traditional approach to the organisation of work. Other shipbuilding nations were putting more emphasis on the pre-planning of production and on organising the flow of materials so as to economise on the use of skilled labour. This was the start of a transformation in shipbuilding techniques which was to be taken much further after the Second World War.

The Post-war Boom in World Shipping

The Second World War, like the first, was followed by a worldwide surge in orders, and this time the boom did not quickly evaporate as it had done in the 1920s. From the early 1950s the world economy entered a golden age of growth, which continued for the following twenty years, and sea-borne trade increased at a rate which had no historical precedent. World shipbuilding output, which had fluctuated between 2m and 7m tons a year between the wars, rose to 36m tons in 1975. Yet Britain’s shipbuilders signally failed to profit from this favourable environment. Annual output from British yards was virtually static in the 1950s and 1960s (TABLE 5.1).

TABLE 5.1 Britain’s share of world merchant ship launchings 1950–95

In the early post-war years production in Britain was held back by the scarcity of labour and materials, but these shortages had eased by the early 1950s, and cannot account for the stagnation of output for the rest of the decade. Part of the explanation was the cautious view which British shipbuilders took about the future course of demand. Always anxious lest another depression was round the corner, they were determined to avoid the mistake that had been made after the First World War, when over-investment was followed by a prolonged slump. But two new forces were at work, neither of which sat easily with the skills and experience of British shipbuilders.

The first was a change in the market for ships, leading to a loosening of the ties between national owners and builders. The most striking development was the rapid growth of the so-called flags of convenience. This was a post-war device whereby owners registered their ships outside their home country, principally in Panama, Liberia and Honduras, partly for tax reasons, partly to avoid restrictions imposed by their home governments on manning levels and wage rates.

The second force was a change in the way ships were designed and built. In oil tankers and bulk carriers there was a trend towards scale and standardisation. There was also a growing demand for technically sophisticated ships, such as containerships, roll-on/roll-off ferries and chemical carriers, which called for specialised equipment and skills.

British shipbuilders had traditionally looked to British owners as their primary source of orders. If the British merchant fleet had retained the 26 per cent world market share with which it started the post-war period, this might have been a viable policy. But the British share declined even more precipitately than it had done before the war; by 1970 it was down to 11 per cent as other nations, principally Greece, Japan, Germany and Norway, built up their merchant fleets. Some of the trades in which British operators specialised were in slow-growing sectors of the market. Passenger traffic across the Atlantic, for example, was badly affected by the rising popularity of air travel. There was also a continuing decline in coal exports. But the shipowners responded sluggishly to new opportunities. For example, the 1950s saw a spectacular rise in the volume of oil shipments from the Middle East to the consuming countries of Western Europe, the US and Japan. The oil companies relied even more than before the war on independent tanker owners with whom they negotiated time charters, usually lasting for seven or fourteen years. The charter agreement provided the security on which owners raised loans to finance the construction of new ships. This market was open to British owners, but most of them regarded it as too risky. The Norwegians and the Greeks, as well as Chinese entrepreneurs based in Hong Kong, had no such inhibitions.

A marketing strategy geared to the requirements of domestic owners was becoming obsolete, and the same was true of the industry’s production methods. For the transport of oil and bulk commodities such as iron ore the trend was towards larger, simpler and more economical vessels. In the early post-war years tankers were between 10,000 and 15,000 gross registered tons, but by the middle of the 1950s there were 50,000-ton ships on order. The closure of the Suez Canal in 1956, forcing operators to re-route their tankers round the Cape, led to a surge of orders for 100,000-ton vessels. With increasing scale came greater standardisation. The idea of ‘mass-producing’ ships on a flow-line basis had originated in the US during the First World War, but the big advance, made possible by the introduction of welding and prefabrication, came in the Second World War; some 2,600 Liberty ships – standard dry cargo vessels of 11,000 deadweight tons – and nearly 600 16,000-ton tankers were built in the US between 1941 and 1945. After the war other countries drew on US experience to rethink their approach to ship design.

Flow-line production called for a higher degree of mechanisation than under the traditional British system, and could be applied only in yards which specialised in a narrow range of ships. It also put a premium on planning and organisation. Instead of relying on the initiative and independence of skilled craftsmen, responsibility shifted to the drawing office, and the task of management was to ensure that plans were carried out precisely; a disciplined approach to the control of labour was required. British shipbuilders had difficulty in adjusting to these changes.

Some yards were too small to accommodate the larger vessels now in demand, and specialisation did not come easily to firms which prided themselves on their ability to produce a wide variety of different ships. The resource which had underpinned this flexibility, an ample supply of self-reliant skilled labour, was no longer a competitive advantage.

New entrants, unencumbered by tradition, were quicker to exploit these opportunities, and the most spectacular winner was Japan. For the first few years after the war Japan’s maritime industries were subjected to restrictions by the US occupation authorities, but, as relations with the Soviet Union deteriorated, US policy shifted towards the development of Japan as a prosperous and economically independent nation. This called for a rapid expansion of Japanese exports, and to this end it was necessary to rebuild and enlarge the Japanese shipping and shipbuilding industries. The Programmed Shipbuilding Scheme, introduced in 1947, gave subsidies to owners to place orders with domestic yards, and Japanese shipping lines were allowed to re-establish overseas routes which they had operated before the war. The Korean War, which broke out in 1950, was a turning-point, since it prompted a wave of demand for new ships which European yards, already operating at full capacity, were unable to satisfy. This was the main stimulus for a modernisation of the Japanese shipbuilding industry, which increasingly focused its attention on exports. In 1950 new orders in Japanese yards amounted to 310,000 tons, of which 16 per cent was for foreign registration; the corresponding figure in 1955 was 2.7m tons, of which 86 per cent was for export.

Japan was a new shipbuilding nation, and there was an enthusiasm for expansion and for new technology, just as there had been in Britain a century earlier. In 1956 Japan overtook Britain in shipbuilding output, and in the same year shipbuilding displaced textiles as Japan’s largest export industry. The diffusion of modern production methods was assisted by the presence in Japan of an American company, National Bulk Carriers, which had been active in the Liberty ship programme during the war. This company leased the former naval yard at Kure, and the fifty-two ships which it built during the 1950s were based on production methods blending American know-how in welding and prefabrication with a novel Japanese approach to flow-line assembly. The Japanese chief engineer at Kure installed a production planning system which stemmed from his experience in the aircraft industry during the war.

Other shipbuilders studied Kure’s methods and applied them in their own yards. Productivity rose rapidly, and the Japanese industry was well placed to profit from the boom in orders which followed the closure of the Suez Canal in 1956.

Within Western Europe the most successful shipbuilding nations during the 1950s were Sweden and West Germany. Oil tankers were a Swedish speciality, and leading yards like Kockums in Malmo and Gotaverken in Gothenburg had a close relationship with Norwegian owners. Substantial investments were made in welding and prefabrication; in 1950 nearly 40 per cent of Swedish launchings were of all-welded vessels compared with only 4 per cent in Britain. The American approach to mass production was much admired in Sweden, and in 1959 Gotaverken decided to apply assembly-line principles to shipbuilding on a greenfield site at Arendal. Although the Arendal project later ran into difficulties, it was regarded at the time as the most advanced shipyard in the world.

As long as British yards had plenty of orders and were making good profits, the loss of market share was not a matter of pressing concern. But as Britain’s lag became more evident, especially in the construction of larger ships, several companies committed themselves to ambitious re-equipment schemes. Capital investment rose sharply after 1956, and, as if to confirm the warnings of the Cassandras, these schemes came on stream just as the world shipping market entered its first serious post-war downturn. The reopening of the Suez Canal in 1957, together with the US recession in that year, led to a sharp fall in freight rates. In Britain new orders fell from 5.4m tons in 1956 to just over 2m tons in 1962.

The response to this setback showed how deeply pre-war experience had influenced the thinking of the industry. The view of senior managers was defensive, as it had been in the 1930s. Capacity should be reduced in line with the lower level of demand, and, in assessing how much capacity would be needed, the primary consideration was the likely size of the British merchant fleet.

If an industry-wide capacity reduction scheme was to be instituted, the approval of the government was necessary. The reaction of ministers was unenthusiastic. They believed that the industry’s problems were mainly of its own making: the shipbuilders had failed to modernise as effectively as the Japanese and the Swedes had done. This diagnosis was confirmed by a critical report published in 1960 by a government agency, the Department of Scientific and Industrial Research (DSIR).

Its analysis drew attention to managerial weaknesses in British shipbuilding, including a primitive approach to production control and an old-fashioned approach to labour relations. An ominous sign of declining competitiveness was the increase in the number of orders placed by British shipowners with overseas yards.

Belatedly the industry began to put its house in order. In 1959 a joint delegation of employer and union representatives visited Swedish shipyards. They concluded that Sweden’s superior productivity was due to the careful planning of the production process and the flexibility with which labour could be deployed. The absence of demarcation between trades made it easier for Swedish yards to maintain a stable labour force.

This visit was followed in 1961 by a more extensive study of production methods by a committee of industry experts, and this report also highlighted deficiencies in planning and supervision as major causes of low productivity.

The Conservative government which held office until 1964 was concerned about the industry’s performance, but reluctant to intervene directly. In the discussions over the capacity reduction scheme (which was eventually abandoned) the Minister of Transport, Ernest Marples, suggested that the industry might create a small number of multi-yard groups. This would facilitate the closure of uneconomic capacity and allow yards to specialise in work for which their equipment and skills were best suited. But a collective solution of this kind did not find favour with the shipbuilders. They claimed that they were losing orders from domestic owners because foreign yards offered more generous credit terms. The government commissioned a report from Peat Marwick, the chartered accountants, which showed that credit was much less important than price and delivery. But the government’s non-interventionist line was hard to sustain as the continuing recession led to yard closures and unemployment. Between 1958 and 1963 employment in merchant shipbuilding fell from 78,000 to 48,000.

In 1963, with an election looming, the government announced a £30m scheme to help finance new orders from British shipowners for British shipyards. This was presented as a temporary measure to help the industry through its difficulties, but it marked the start of a more interventionist policy which was to be taken much further by the Labour government after 1964.

State-directed Modernisation

The new government was strongly committed to industrial modernisation, and shipbuilding was high on the list of industries which needed attention. Shortly after the election a committee was appointed under Reay Geddes, chairman of Dunlop Rubber Company, to examine what changes were necessary. While the committee was still taking evidence, the government was faced with a crisis at Fairfield, one of the largest yards on the Upper Clyde. This company had modernised its facilities and built up a substantial order book, but its debts were high and it had incurred serious cost over-runs on a luxury car/passenger ferry being built for an Israeli line. After making heavy losses in 1963 and 1964, the company declared itself bankrupt in October 1965. The attempted rescue, which became known as the Fairfield experiment, has been seen by some observers as one of the greatest missed opportunities in the history of British shipbuilding.

The prime mover was Iain Stewart, a Scottish industrialist who had been arguing for some years that insecurity of employment lay at the heart of the industry’s poor labour relations. He believed that Fairfield could be used as a laboratory for a new approach based on a constructive partnership between employers and trade unions. If Fairfield could be saved by these means, it would set an example to other shipbuilders. For the plan to be put into effect, an immediate injection of funds was necessary, and it could come from only the government. Stewart’s request for help came at an opportune time, since ministers were anxious to avoid a major yard closure before the Geddes committee had reported. A £1m loan was made available in November 1965, and the government took a 50 per cent stake in the new company which was formed to take over the Fairfield assets.

The Fairfield experiment lasted for just under two years. During this period progress was made in relaxing demarcation barriers between trades and in introducing a job evaluation scheme as the basis for a more rational wage structure. A consultative council was established on which all the unions were represented, and shop stewards were given the right to participate in matters which had previously been the preserve of management. Stewart and his colleagues were also firmer than their predecessors in only taking orders which offered a realistic prospect of profitability. But Stewart’s vision of using the yard as an example for other shipbuilders had to be abandoned in 1967 when the industry was restructured in line with the recommendations of the Geddes committee.

Much of the Geddes report went over familiar ground – the need for more stable industrial relations, more attention to research and development, and better yard management.

The novel recommendations were, first, that the shipbuilders should focus more strongly on the world market, and, second, that the industry should be reorganised, with government financial support, into four or five large groups. These groups, the committee argued, would be able to reduce costs by allowing each yard to specialise in a particular type of vessel. The committee recommended that within each group naval work should be clearly segregated from merchant shipbuilding.

Although the Geddes committee did not quantify the benefits which would accrue from the creation of large groups, its proposals were quickly accepted by the government. A new government agency, the Shipbuilding Industry Board (SIB), was set up to implement the scheme. The availability of public funds was a strong incentive for companies to co-operate, especially those which were in a weak financial condition or, like John Brown, wished to reduce their commitment to shipbuilding. It was difficult for the SIB to exclude yards which wanted to take part, even if their prospects of commercial viability were doubtful.

The most fragile of the new groups was Upper Clyde Shipbuilders (UCS), which brought together the Stephen, Connell, Fairfield, John Brown and Yarrow yards. The last of these, a warship specialist, participated with great reluctance and insisted on being treated as a separate, autonomously managed subsidiary. The finances of UCS were under pressure from the start. This was partly due to losses on inherited contracts, but the management also decided to keep the labour force stable and to give the highest priority to winning new orders. The cost savings which had been anticipated at the time of the merger did not materialise, and further support from the SIB was necessary to keep the business alive. Yarrow withdrew from the group in 1971, leaving it entirely dependent on merchant shipbuilding.

The other large groups formed as a result of the Geddes report were Scott Lithgow on the lower Clyde and the Swan Hunter group in the north-east. On the Wear the SIB tried without success to promote a merger between the three leading companies, Doxford & Sunderland, Austin & Pickersgill, and James Bartram. (The smallest of the three, Bartram, was later acquired by Austin & Pickersgill without SIB intervention.) On the other side of the country merger discussions were held between Vickers at Barrow, Cammell Laird at Birkenhead and Harland & Wolff at Belfast, but no agreement was reached.