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

TABLE 3.2 Destination of French exports 1952–73 (per centage of total)

The reform process in France differed from Germany in two other respects. First, the French government did little to promote internal competition. Although a law against price-fixing was passed in 1952, enforcement was lax, and cartels continued much as they had done in the 1930s. Second, there was no overhaul of labour relations. Like their German counterparts, most French employers before the war had been hostile to trade unions, and resented the concessions which had been forced on them at the time of the Popular Front government in 1936. After liberation in 1944 there were hopes that relations between capital and labour could be put on a new footing. One of the first acts of the provisional government was to require all firms with more than 100 employees to establish comités d’entreprises, or plant committees, through which managers and employees could work together to increase production. These committees were helpful in coping with the short-term problems of reconstruction, but there was no fundamental change in the labour relations system. The comités d’entreprises left behind ‘a residue of mundane achievement and a sense of unfulfilment’.

Thus the impetus for reform in France after the war was more limited than in Germany, and left some old institutions and attitudes intact. The biggest changes were the national consensus in favour of industrial modernisation and the recognition that a new relationship with Germany had to be forged. One of Monnet’s most valuable contributions, according to his biographer, was to promote a shift in attitudes among France’s ruling élite ‘from the pretensions of a moth-eaten great power to the realism of a medium-sized but ambitious economic one’.

It was the weakness of France’s position after the war which encouraged bold and imaginative solutions to its problems, and in this context the Schuman Plan was crucial.

The European Coal and Steel Community allowed France to assume a position of leadership in building post-war Europe, and pointed the way to the fuller exposure of French industry to German competition.

Britain’s post-war Consensus

In Britain the outcome of the war was an occasion for relief and self-congratulation. While it was recognised that the war could not have been won without American help, there was a justifiable pride in the courage and unity of the British people, and in the resilience of Britain’s institutions. The concentration of effort and resources on winning the war had been achieved, as one participant wrote later, with ‘a spirit of social cohesion and a perception of fairness which could hardly have been bettered’.

When Winston Churchill displaced Neville Chamberlain as Prime Minister in 1940, he invited senior Labour politicians to join the war cabinet, including Clement Attlee as Deputy Prime Minister and Ernest Bevin, head of the Transport and General Workers Union, as Minister of Labour. There was close co-operation between government, employers and trade unions throughout the war, and in planning for post-war reconstruction. The Beveridge report on social insurance, published in 1942, and the 1944 White Paper on employment policy reflected a broad agreement across the political spectrum on the priorities which should guide post-war governments: to maintain full employment and to prevent a repetition of the social hardships of the inter-war years.

Much of this consensus survived Labour’s victory in the 1945 general election. Although the election campaign was acrimonious – Churchill claimed that the socialist state which Labour wanted to introduce could not be run without a Gestapo, while Aneurin Bevan, a Labour left-winger, insisted that the election represented ‘a struggle for power between Big Business and the people’

– the gap between the parties was less wide than the rhetoric suggested. Labour’s landslide victory did not mark the conversion of Britain to socialism.

By presenting a manifesto which combined social reform with an extension of government control over the economy, the Labour Party convinced the voters that it was more likely than the Conservatives to ensure that the unemployment and stagnation of the 1930s did not return. Labour, under the cautious leadership of Clement Attlee, was offering a set of measures that built on the wartime consensus and added to it a number of social programmes, including the creation of a National Health Service, that were widely agreed to be necessary. Attlee and most of his closest colleagues favoured a mixed economy in which the role of government would be powerful but not overwhelming. There was also an assumption that the partnership between government, employers and unions which had been established during the war would continue.

The most pressing economic problem was the financial legacy of the war. The war had been paid for by borrowing, mainly from sterling area countries, and by the sale of overseas investments, supplemented by aid from the US under the Lend-Lease programme. With the abrupt termination of this programme at the end of the war, Britain was faced with an alarming gap between its foreign exchange outgoings, including debt repayments and overseas military expenditure, and its income from exports.

A new American loan was negotiated at the end of 1945, but strict conditions were attached to it, including a requirement that the pound should be made freely convertible into dollars in 1947; there was also pressure from the Americans to dismantle the imperial preference system and open up the British market to imports.

Britain’s balance of payments remained fragile throughout Labour’s period in office, necessitating a strenuous effort to hold back domestic consumption in favour of exports. Because of this financial weakness, Britain’s economic situation after the war was not as favourable as it seemed compared to Germany and France. Although Britain had sustained less physical damage, the two Continental countries did not have a large foreign debt to service, nor did they have the international obligations which stemmed from Britain’s shared responsibility with the US and the Soviet Union for supervising the transition from war to peace. The Labour government had the difficult task of correcting the balance of payments while at the same time pursuing its social objectives and fulfilling its overseas commitments. Despite severe setbacks, including the abandonment of sterling convertibility in 1947 and the devaluation of the pound in 1949, the balancing act was successful. By the time Labour left office in 1951, Britain’s overseas finances had been strengthened, full employment had been maintained, and a substantial social programme had been carried through.

Some historians have argued that the Attlee government devoted too much attention and resources to social welfare at the expense of what should have been a much higher priority – the modernisation of industry.

But Attlee and his colleagues were well aware of the need for higher productivity. The problem was not that their priorities were wrong or that too much money was spent in other areas, but that their industrial policies were not well conceived. In its election manifesto Labour had committed itself to planning and an extension of the public sector through nationalisation. How the plan was to be formulated, and what machinery would be set up to implement it, was left vague. Most of the wartime controls – over imports, over access to foreign exchange, over the allocation of raw materials – were still in place, and they were used by the government to support the export drive. But no new planning instruments were introduced. The proposed National Investment Board, which was to ‘determine social priorities and promote better timing in private investment’, was not set up, perhaps because the government thought that, by nationalising some of the most capital-intensive industries, it would have sufficient control over investment.

In principle the extension of public ownership enabled the government to plan at least part of the economy. But there was no link between nationalisation and planning. The impetus behind nationalisation was partly ideological. For left-wingers like Aneurin Bevan it was a way of ensuring that ‘effective social and economic power passes from one order of society to another’.

But most ministers saw public ownership as a way of solving particular problems in particular sectors, not as a step towards a socialist economy. Three of the industries which were taken over, gas, electricity and the railways, had been subject to government regulation before the war. The regulatory arrangements had not worked well, and public ownership could be defended as a more effective means of ensuring that these ‘natural monopolies’ were managed effectively in the public interest.

The most ideologically motivated nationalisation was that of steel, but even this could be presented as a way of dealing with the structural weaknesses in the industry which had not been tackled in the 1930s.

No serious consideration was given to extending public ownership beyond steel to other manufacturing industries, and the drive for higher productivity in the private sector took the form of exhortation and persuasion. The most active propagandist was Stafford Cripps, who served first as President of the Board of Trade and later as Chancellor of the Exchequer. He created a production efficiency service within the Board of Trade, supported the establishment of the British Institute of Management, and with Marshall Plan funds helped to set up the Anglo-American Council on Productivity, which sent teams of managers and workers to the US to study American manufacturing methods. Cripps also established working parties in a number of industries soon after the war, through which employers and unions could identify obstacles to higher productivity and work out plans for removing them. The government intended to convert these bodies into development councils with statutory powers, and legislation for this purpose was passed in 1947. But employers were unenthusiastic, fearing that the councils would cut across the work of existing trade associations. Only a few were were set up, and, apart from the Cotton Board (an existing organisation which was reconstituted as a development council), they were in minor industries.

An important strand in the productivity drive was the promotion of greater co-operation between trade unions and employers. But the government did not contemplate any major change in the institutions of collective bargaining, still less a wholesale reform of the labour relations system. The only initiative which might have altered relationships at the shop floor level was an attempt in 1947 to relaunch the factory-based joint production committees, which had had some success during the war. However, many employers saw the committees as a step towards workers’ control, while the unions were anxious to ensure that they did not trespass into the field of wages and conditions, which should be left to the established channels of collective bargaining.

Some union leaders were also concerned that joint production committees might be used as a vehicle for Communist shop stewards to increase their influence. Although the TUC and the major unions were fully supportive of the productivity drive, they were wary of any moves which might restrict their bargaining freedom. The employers, for their part, were determined to maintain their managerial prerogatives and to resist any encroachment either from the state or from the unions.

For the government to have banged heads together, or to have imposed labour relations reform by legislation, was politically out of the question. Ministers needed the cooperation of the trade unions in holding wages down (and in preventing strikes), and that of the employers in increasing production and exports. Thus the status quo was preserved.

An alternative approach for promoting industrial efficiency would have been to inject more competition into the economy, by taking action against price-fixing agreements and by opening up the home market to imports. But the Labour Part’s attitude to competition was ambivalent. Many of its members were suspicious of the profit motive and preferred public ownership or public regulation to unfettered competition. Others argued that in industries where nationalisation was not feasible, private enterprise should be forced to become more enterprising, and this called for a vigorous competition policy. The 1945 manifesto contained a promise that ‘anti-social’ restrictive practices in industry would be prohibited. But it was not until 1948 that a Monopolies and Restrictive Practices Commission was set up, with limited powers. There was no automatic assumption that cartels were against the public interest; each case had to be looked at on its merits. By 1951 the Commission had published only two reports, and its impact on the behaviour of companies was negligible. Cartelisation was probably even more pervasive in the early 1950s than it had been in the 1930s.

As for competition from imports, the weakness of the balance of payments ruled out any immediate removal of the tariff and quota restrictions which had been in force since 1932. The government was also determined to retain imperial preference, despite strong criticism from the US. Friction with the Americans over trade policy increased after the announcement of the Marshall Plan. The US government was pressing for Britain to take the lead in European economic integration, but Ernest Bevin, the Foreign Secretary, insisted that Britain was ‘not just another European country’.

As leader of the Commonwealth and America’s most important ally, Britain wanted to co-operate with the US in managing a one-world system which would include the Continental countries, but not as a separate trading bloc. In 1950, in a decision which had profound implications for future relations with Continental Europe, the Attlee government decided against membership of the European Coal and Steel Community.

Britain was not prepared to cede sovereignty over two of its most important industries to a supranational authority. The Labour Party was also hostile to the idea of Britain throwing in its lot with countries which did not share its commitment to full employment and a planned economy. Many people in the Party deplored the electoral swing to the right in France and Germany. Aneurin Bevan saw the defeat of the German Social Democrats in 1949 as ‘one of the blackest days in the history of post-war Europe’,

and there was a widespread feeling that economic liberalism as practised on the Continent was a prescription for social injustice.

Some economists in the Board of Trade favoured membership of the Coal and Steel Community on the grounds that the steel industry would benefit from being exposed to European competition, but this was a minority view. The negative reaction to the Schuman Plan was indicative not only of the government’s lack of enthusiasm for competition, but also of the low priority which it attached to trade with Europe. In the immediate aftermath of the war Germany’s absence from world markets created an opportunity for British manufacturers to increase their exports, and some of the restrictions imposed on Germany – for example, the ban on aircraft production – were designed to help British industry. But the idea of Britain replacing Germany as the main supplier of manufactured goods to European markets was not seriously entertained, even less so after the US change of policy in 1947. The general assumption was that in due course Germany would resume its prewar trade position in Europe, and that British industry would have little to gain from entering into head-on competition with German manufacturers in their natural market. As an internal government memorandum put it as early as 1946, ‘where German essential goods compete with the United Kingdom, it will be better for Germany to supply Europe and ourselves to concentrate on non-European markets’.

In relation to Europe, as in most other areas of domestic and foreign policy, the Conservative government which took office in 1951 continued along broadly the same lines as its predecessor. In 1952 another opportunity to join the European Coal and Steel Community was rejected, and the British government played no part in the negotiations which led to the creation of the Common Market. Its position was that since the bulk of the country’s trade was outside Europe, it would gain nothing from membership of a narrow European trade bloc which might discriminate against the rest of the world. The movement towards European integration seemed ‘at best irrelevant to Britain’s economic self-interest and at worst a political nuisance which had to be tolerated, if only in public, because of the Americans’.

In contrast to France and Germany, the challenge which Britain faced in the first decade after the war did not call for a radical break with pre-war institutions and policies. The biggest change was the enlargement of the government’s role in managing the economy and the focus on full employment as the prime economic objective. This was the consensus which emerged from the war, and Labour was remarkably successful in fulfilling the goals laid down in the 1944 White Paper. Keith Middlemas has suggested that the Attlee government may have been almost too successful in setting the pattern of post-war Britain. ‘It may, in the long run, have been unfortunate that so much was achieved in an extraordinarily fluid period at the war’s end which then set quickly in a particular mould before the 1950s began. Subsequently, the system could not easily be altered, even if it appeared no longer suitable to changing circumstances.’

In the first half of the 1950s the system did not appear to need changing. Living standards were rising, unemployment and inflation were kept low, and the mixed economy which had been forged during and after the war seemed capable of meeting the aspirations of the people. In the second half of the decade this comfortable state of affairs came under threat on two fronts. First, the British economy was clearly under-performing in comparison with West Germany and other Continental countries. Second, social consensus was breaking down. With full employment taken for granted, self-restraint on the part of trade unions and their members in pressing for higher wages was fading fast. In the 1960s the search began, first under the Conservatives and then under Harold Wilson’s Labour government from 1964 to 1970, for ways of remedying the flaws in the post-war settlement.

Continuity and Change

The policy choices made in Germany, France and Britain in the 1940s and early 1950s flowed from the lessons which each country drew from its experience before and during the war. The shock to the political and economic system was far greater in France and Germany than in Britain, and the break with the past more complete. There was a strong desire in both countries to correct the errors which were responsible for earlier disasters. In France this meant state-sponsored industrial modernisation; in Germany, the decentralisation of economic power, with strict rules for the conduct of fiscal and monetary policy and a strong emphasis on competition. In both countries, too, European political and economic integration was given a high priority, as a means of preventing further wars and as a competitive stimulus for industry.

There were many differences between the two countries. France nationalised the leading banks and financial institutions, Germany did not. France adopted a system of indicative planning, Germany did not. Germany reformed its labour relations system, France did not. While Germany was cutting its tariffs unilaterally, France remained one of the most highly protected countries in Europe until the formation of the Common Market. The fact that both countries grew very fast despite these differences cautions against putting too much weight on particular reforms as a source of economic success. But the continuity with pre-war institutions and policies was greater in Britain than in either France or Germany, and this had an important impact on industrial performance, as the next ten chapters will show.

PART II (#ulink_6e01505e-e3ac-5d13-857c-c59e5fccba45)

FOUR (#ulink_3e1bb3b4-8927-5b21-9ba9-43799d9efe7d)

Textiles: Misdirected Modernisation (#ulink_3e1bb3b4-8927-5b21-9ba9-43799d9efe7d)

As the first factory-based industry and one of the principal drivers of the industrial revolution, the textile industry has a special place in British economic history. The extraordinary growth of the cotton textile sector, in particular, was a triumph for the mill owners and merchants of Lancashire. In the 1880s more than 80 per cent of world cotton-cloth exports came from Britain. The subsequent decline of this part of the industry, beginning in the inter-war period and accelerating after 1945, was to a large extent the inevitable result of the spread of industrialisation. The production of cotton textiles, with its relatively simple technology, low capital requirements and easily transportable raw material, was a natural starting-point for developing countries as they began to build up their industries. Many of them moved on from cotton to make a wider range of textiles and clothing, and their low labour costs gave them a competitive advantage in overseas markets. From the 1950s onwards, despite the protective barriers which were raised against them, manufacturers in the developing countries steadily increased their share of world textile production and exports, and the shift is continuing.

Low-cost imports posed particular problems for the British textile industry, especially the cotton textile sector, because of its exceptional size at the start of the post-war period. The response was to restructure the industry through mergers and take-overs. This turned out to be a mistake. Many of the mergers which took place in the 1960s were unwound in the 1980s and 1990s. By contrast, the two most successful European textile industries, those of Italy and Germany, relied mainly on small and medium-sized firms, targeting sectors of the market which were less vulnerable to competition from imports. They also benefited to a far greater extent than the British industry from the expansion of intra-European trade in the 1950s and 1960s. This is a case where the long-standing British bias towards non-European export markets proved to be a serious disadvantage.

1750–1914: Lancashire’s Triumph

Before the industrial revolution the production of wool textiles was Britain’s largest manufacturing industry, and cotton was an expensive luxury. But cotton was a more versatile material – washable, easily dyed and printed, comfortable to wear in hot weather – and a huge market was waiting to be tapped if the price could be brought within reach of the mass of the population. This became possible in the second half of the eighteenth century when hand spinning and later weaving were replaced by machines. The invention of the spinning mule and the powerloom led to a shift of production from the home to the factory, and a sharp fall in manufacturing costs.

As prices came down, domestic demand expanded rapidly, but from the early decades of the nineteenth century the main impetus to the growth of the industry came from exports. In 1850 more than 80 per cent of Britain’s cotton textile production was shipped overseas, representing nearly half the country’s total exports. Wool textile manufacturers also adopted the factory system during this period, but their growth was less spectacular, mainly because export opportunities, largely confined to countries with a warm climate, were more limited.

Two distinctive features of the cotton textile industry were its geographical concentration and its fragmented structure. Lancashire had been an important centre of linen production since the seventeenth century, and the pre-industrial putting-out system, whereby spinning and weaving were carried out in the worker’s home, had created a pool of skill and experience on which factory owners could draw. There was also an array of middlemen who bought the raw materials, co-ordinated the various stages of the production process and handled the marketing of the finished cloth.

Lancashire had other advantages – a damp climate, easy access through the port of Liverpool to supplies of raw cotton (mainly from the US), and nearby reserves of cheap coal. Once the momentum of growth had been established, new entrants gravitated to the area where suppliers and sub-contractors were already in place. For example, Hibbert & Platt, which as Platt Brothers was to become the world’s largest textile machinery manufacturer, was founded in Oldham in 1822, and its presence helped to make that town a leading cotton spinning centre.

Establishing a spinning mill or a weaving shed needed only a modest amount of capital, and from the start the industry was made up of small enterprises. Although combined spinning and weaving firms were not uncommon in the early years, the trend as the industry grew in size was towards specialisation by function, and each firm, whether engaged in spinning, weaving or finishing, generally concentrated on a narrow range of products. Administrative costs were kept low by delegating to middlemen much of the responsibility for buying and selling. A central role was that of the merchant-converter, who, having secured an order, bought grey cloth from the weaving mill and arranged for it to be bleached, printed or dyed. Foreign trade was in the hands of export merchants, many of whom – like Nathan Mayer Rothschild, who moved from Frankfurt to Manchester in 1799 – came from overseas. Manufacturers rarely had direct contact with the final customer for their products. This dense network of inter-connected businesses generated what economists have called external economies of scale. Firms did not need to ‘internalise’ functions which could be handled more efficiently by other members of the network.

The management of production within the mill depended on a compromise, sometimes an uneasy one, between employers and their most experienced workers. Before the advent of the factory the spinner or weaver, working from home, was given a contract for a piece of work, and he was expected to hire other workers, usually including members of his family, to get the job done. The factory owners adopted a modified version of this arrangement – internal contracting – whereby the senior spinner or weaver hired and supervised other workers in return for a fixed payment based on output.

These senior workers organised themselves into trade unions, seeking to negotiate a fair price for each piece to be produced, and to prevent employers from cutting wages when trade was depressed. Despite initial resistance, employers gradually came to terms with trade unions, and by the end of the nineteenth century the cotton industry unions were among the strongest in the country.

Thanks to its early technical lead and efficient organisation, the Lancashire industry established a competitive advantage which was not seriously challenged before the First World War. Germany was the second largest exporter of cotton textiles, but in 1913 its share of world exports, measured by value, was only 10 per cent, compared with Britain’s 55 per cent.

The US was not a significant exporter, even though its industry was in some respects more technically advanced than its British counterpart. The scarcity of skilled labour in the US encouraged entrepreneurs to develop new machines – the ring spindle and the automatic loom – which could be operated by inexperienced workers. There were also differences in the structure of the industry. To produce long runs of standard cloth, which was what the US market wanted, the automatic loom had to be fed with yarn of consistent quality, and spinning and weaving operations had to be closely linked. Large, integrated mills were built to accommodate spinning and weaving under the same roof. American employers also dispensed with the system of internal contracting, so that the organisation of work was in the hands of managers rather than workers; trade unions were never as strong in the US cotton textile industry as in Lancashire.