Part 17

In the reign of King Coal all went well. Britain built up a position in the nineteenth century which made her the world's leading manufacturer, carrier, banker, investor, and merchant. By the turn of the century, however, other nations, notably the United States and Germany, were challenging this position. Nevertheless, Britain was able to withstand competition up to the outbreak of World War I through her huge exports of coal and cotton textiles and through her ability to take advantage of the general increase in world trade.

Coal and the industrial revolution, it should be remembered, gave Britain something more than a head start in production: they enabled her to train the first technical labor force in the world. The traveler in Eastern Europe, the Middle East, and Asia will soon realize that the British Empire and British influence of half a century ago were built not on gunboats and redcoats but on the products of British factories and on the bewhiskered expatriates, many of them Scots, who tended locomotives in Burma and sawmills in South America. They, too, as much as the booted and spurred heroes of Kipling, were builders of empire. This advantage, at least, Britain has not lost. Today she still possesses a large force of highly skilled labor.

The economic problems that developed into a whirlwind in the forties of this century first became serious in the years after the close of World War I. British textiles had to compete in Asia with textile products from India and Japan which were produced at a much lower cost because of low wages. Oil and coal from new European mines challenged Britain's lead in coal exports. At the same period there was a fall in the demand for many of the heavy industrial products that British factories had supplied to the rest of the world; locomotives, heavy machinery, cargo ships. The politico-economic dogma of self-sufficiency developed in nations that for long had been British customers. They began to protect their own growing industries with tariffs, quotas, and other restrictions.

But the effect on the British economy of this decline in exports was cushioned by income from investments overseas and by a substantial improvement in the terms of trade. During the twenties and early thirties British industry began to contract for the first time in centuries. Unemployment averaged 14 per cent between 1921 and 1939. By September 1939, however, the economy, stimulated by the armament program, increased production, and greater industrial investment at home, began to improve. Britain faced the Second World War on a secure economic basis. Indeed, there were persuasive gentlemen in the London of that Indian summer of peace who tried to persuade you that economic strength alone could win the war.

When Americans think of the effect of World War II on Britain we are apt to think in terms of bomb damage and ships sunk. Certainly these were important parts of a generally disastrous picture, but the whole is much more impressive than the parts.

The inability to continue industrial maintenance and make replacements under the hammer of war, shipping losses, and bomb damage ran down the British economy by about £3,000,000,000. At the present rate of exchange this amounts to $8,400,000,000. The present cost of rebuilding ships and houses and factories is, of course, infinitely higher due to the upswing in labor costs and material prices since 1945.

This loss was accompanied by a drastic change in Britain's world trading position. To begin with, she lost almost all her overseas assets--those investments which had cushioned the shock of the falling export market and whose income had largely paid for imports. The terrible appetite of war--a ship torpedoed, a division lost, a factory bombed--devoured them. Over £1,000,000,000 worth of overseas investments ($2,800,000,000 at the current rate of exchange) were sold to pay for war supplies. Of this amount, £428,000,000 (about $1,198,400,000) represented investments in the United States and Canada.

Yet even this expenditure of the carefully husbanded investments, the results of thrift and financial foresight, did not suffice to pay for nearly six years of war. Britain also accumulated overseas debts to the amount of £3,000,000,000, or, at current rates of exchange, $8,400,000,000. When the money was borrowed, the pound sterling was pegged at $4.03 and the dollar equivalent of the external debt was closer to $12,000,000,000.

The emphasis on armaments and the priority given arms-producing industries, the arrears of industrial maintenance and replacement, the concentration of manpower in the services and industries of national importance for the winning of the war, and the shortage of shipping all reduced Britain's export trade during the war years. By 1944 exports had fallen to less than one third of their 1938 volume.

This meant that, in some cases, nations whose economy had been less strained by the war were replacing British sellers in these markets. In other instances, nations long dependent on British exports began to make their own products. When the British were prepared to return to normal export trade, the markets were not so extensive as they had been before the war.

The war affected Britain's financial position in two other respects. At its end the real value of the gold and dollar reserves of the nation had been reduced to about one half of the pre-war level. But the physical destruction of the war had increased Britain's dependence, and that of other sterling-area nations and other countries, upon supplies of all kinds from the United States. Yet the dollar earnings by these countries were not enough to pay for their supplies.

Finally, and perhaps most important from the standpoint of a country that must live by trade, the terms of trade changed. The price of raw materials imported into Britain rose sharply after the war. By 1948 about 20 per cent more goods had to be exported than in 1938 to pay for the same amount of imports.

As a result of these changes in her position, Britain emerged from the war as an empty-handed victor. The banker of the world was deeply in debt. The market places of the world were crowded with other nations, and her own goods were few in number and out of date. Shabby, tired, undernourished, the island people, not for the first time, began the long road back.

The road chosen was longer and more arduous than it might have been because the British, government and people, Socialist and Tory, did not wish to abandon their position as a world leader. War might have impoverished them, circumstances might have made them dismiss the maid and do their own washing up, but to an incurious world they turned a brisk and confident face. For years the world had recognized that the British never knew when they were licked. Now, it seemed, they did not know when they were broke.

They knew, all right. On visits to London during the years I spent chiefly in Russia and Germany I would meet friends in the services or the ministries. "We're in a hell of a mess, old chap," they said, "but we'll work out of it somehow." No one seemed to know just how; but no one doubted it would be done.

The first problem then--and it is the first problem today--was the balance of payments. Exports had to be increased quickly, for the terms of trade continued to be against the United Kingdom. It was in the years 1946-51 that American aid counted most. Loans from the United States and Canada, it is estimated, paid for about 20 per cent of the imports of the United Kingdom between 1946 and 1950.

Simultaneously, the drive to increase exports made headway. The country, and especially the industrial worker, was, in the modern jargon, made "export-conscious."

"Export or die"--the slogan may have seemed exaggerated to some, but it was, and is, an accurate statement of Britain's position. British exports had recovered their pre-war volume by 1947, only two years after the end of the war. Three years later they were two-thirds higher than in 1947. Thereafter, as Germany and Japan began their remarkable economic recovery, exports rose more slowly. But they did rise, and by 1954 they were 80 per cent higher than in 1938.

The upswing in exports was accompanied by two other processes. The pattern of industrial production for exports began to change. Textiles were no longer a dominant export product. Instead, emphasis shifted to the engineering industries: electric motors, factory machinery, electronic equipment, precision instruments, chemicals, and shipbuilding. At the same time, imports--including importation of some raw materials essential to the export trades--were severely restricted, and consumer rationing at home directed British production to foreign markets.

Five years after the war Britain had made great strides toward recovery. There was in that year a surplus of £300,000,000, or $840,000,000, on the balance of payments. But the Korean War, which began in June 1950, was a serious setback for Britain's economy. The country, resolved to play its part, began to rearm. At the same time there was a world-wide rush to stock raw materials, and this forced up the prices of the imports Britain needed for her export trade. The satisfactory balance of payments in 1950 became a deficit of £403,000,000 by 1951.

Import prices began to fall after 1951, and in the next three years there was a balance-of-payments surplus. This recovery was accompanied by a steady rise both in industrial production and in the real national product.

The average rate of increase in industrial production from 1946 to 1954 was 5 per cent, while the real national product increased by 3 per cent. The nation used this increased output, first, for exports; second, to make good the capital losses of the war years by new investment; and, finally, for rearmament. Those who wonder at the rocketing German economic recovery after 1949 and the relative slowness of British economic advance should ponder the fact that in 1950-3 defense expenditure gobbled up _approximately half_ of the British total output.

The rationing and other restrictions held over from the war held personal consumption at bay until 1954. Wages rose, but these were offset by a sharp increase in prices, which by 1952 were about 50 per cent above those of 1945. After that year, however, earnings rose more rapidly than prices. With the end of wartime controls after 1952 the standard of living, especially that of the industrial working class, rose perhaps more rapidly than it had ever done before.

The increase in production, the end of rationing, the rises in wages and prices, and the boost in internal consumption all took place against a background of full employment. In the United Kingdom unemployment averaged less than 2 per cent of the working population in 1946-54.

This, then, is the short story of British recovery since the war. By the summer of 1956 the Central Statistical Office could announce that from the beginning of 1946 through the end of 1955 the national output of goods and services had increased in volume by one third. Reckoned in monetary value, the increase was even greater: the figure for 1946 was £8,843,000,000 ($24,480,400,000), while for 1956 it was £16,639,000,000 ($46,589,200,000). The difference between the increase in value and the increase in production is due to the continuous rise in prices since 1946.

These are impressive figures. But no one in authority in Britain believes that the nation can rest on them. The double problem of maintaining exports abroad and defeating inflation at home remains.

The two are closely related. In 1950 Britain had grabbed 26 per cent of the world market for manufactured goods. German, Japanese, and other competition has now reduced the British share to about 20 per cent, the pre-war figure. To maintain it, Britain must continue the export drive, and this, in turn, involves the attack on inflation.

Inflation began at the time when the British people were emerging from years of war and post-war austerity. There was more money, and suddenly there was plenty to buy as one by one the controls on raw materials, building licenses, food, and clothing disappeared. By 1955 cars and other products that should have gone for export were being sold in bulk in Britain, and gasoline was being imported for them. Industries that should have been almost totally devoted to export trades were producing for a lucrative home market.

The "squeeze" applied by the Conservative government early in 1956 to halt the buying boom is not, as so many Britons hope, a temporary affair. Until British industry can increase its production and adjust itself to the demands of world-wide competition, the country will have to restrain its home purchases in the interests of overseas sales. The preservation of the present standard of living depends directly on exports. If this hard fact is rejected by the British people, then the economy will deteriorate rapidly.

Those interested in the future of Britain, both Americans and British, have been looking at the nation's industry for a decade and sadly shaking their heads. It is too traditional, it is unenterprising, its workers don't work as hard as the Germans or the Japanese, it is restricted by the trade unions or the employers, monopolies and trade rings stifle it. There is a little truth in each of these accusations. But if all were true or even one completely true, how is the sharp increase in volume of production and the general economic recovery to be explained?

Early in 1956, about eleven years after the last Allied bomber flew over the Ruhr, German steel production outstripped British steel production. This caused a good deal of "viewing with alarm" in Britain, much of it by people who failed to realize that before the war Germany yearly produced about five million more tons of steel than Britain. The health of the British economy today does not rely primarily on its output of basic products such as steel or coal but on the nation's ability to sell its manufactured products.

If the number of employees is taken as a criterion, the most important of these manufacturing industries are: (1) engineering, shipbuilding, and electrical goods, with 1,695,000 employees; (2) motor and other vehicles, 934,000; (3) textiles, 898,000; (4) food, drink, and tobacco, 654,000; (5) precision instruments and other metal goods, 531,000; (6) clothing, 524,000; (7) metal manufactures, 519,000; (8) manufacture of wood and cork and miscellaneous manufacturing industries, 472,000; (9) paper and printing, 445,000; (10) chemicals and allied industries, 402,000.

All of these industries contribute to the export drive, including food, drink, and tobacco. There has been no overwhelming demand for such Northern delicacies as toad-in-the-hole or Lancashire hot pot from British markets, but the demand for Scotch whisky seems to be holding up reasonably well.

These industries are the meat and potatoes of the British economy. Since the war there has been a steady increase both in production and productivity (output per man in industry) in these industries. Fortunately for Britain, the greatest rises in over-all production have taken place in the engineering-shipbuilding-electrical-goods group, the vehicles group, and the chemicals group.

Productivity was a more serious problem. Lack of maintenance and capital investment during the war, antiquated machinery, the understandable physical weariness of a labor force that had been working at top speed since 1939 all contributed to a relatively low rate of output per man year in industry compared with the United States.

In 1948 the Labor government took an important step to meet the problem when it formed the Anglo-American Productivity Council. Its goal was to increase productivity in Britain through study of manufacturing methods in the United States. Teams representing management, technicians, and shop workers went to the United States to study American methods. They returned to boost British productivity.

The effort did not stop there. An independent body, the British Productivity Council, was established in 1952 to continue the work. Represented on it are the British Employers' Confederation, the Federation of British Industries, the Trades Union Congress, the Association of British Chambers of Commerce, the National Union of Manufacturers, and the nationalized industries. Under the aegis of the Council, Local Productivity Committees have been formed and the exchange of information and visits between groups from industrial firms have been encouraged.

The Council is a good example of the British approach to a national problem in modern times. The nation's difficulties have gradually, but not entirely, eased the old enmities between some employers and workers. Aware of the extreme seriousness of the situation, they are working together to boost productivity, and they are making headway. Employer-worker consultation is becoming the rule. When the rule is broken by either side there is trouble.

The increase in productivity has been steady. Taking 1948 as the base year with a figure of 100, output per man year in industry rose to 105 in 1949. Save for 1952, when there was a slight relapse, the figure has improved steadily ever since.

Production has shown a corresponding rise. The general index of industrial production, using 1948 as the base year of 100, rose from 114 in 1952 to 121 in 1953 and then jumped to 136 for 1955. But production leveled off in 1956. As that year ended, the expectation was that 1957 would see a new rise in production as the capital investment of the previous five years began to show results.

These figures are one answer to questions often asked abroad: "Why don't the British boost production? Why don't they work?" The answer is that they have boosted production and they are working. Early in 1957 the factory where Jaguar cars are made was almost entirely destroyed by fire. Great efforts by both management and labor put the factory back into production two weeks later. Production and productivity are rising fastest, of course, in the new industries such as electronics. But the economy is burdened by elderly industries such as coal-mining, where extra effort by labor and management cannot, because of existing equipment and conditions, produce dividends in production as they would elsewhere.

Britain's long predominance in both industry and commerce, especially during the last half of the nineteenth century, fostered a lack of enterprise and lethargy in management that is highly unsuitable to the nation's present economic situation. This attitude lingered until the period after the last war when the situation became plainly desperate. Changes of styling and packaging abroad failed to impress British business. "We make a much better product than some of this flashy foreign stuff," one was told loftily. "Let them have their fancy wrappings."

Memories of the golden days of the last century also encouraged a conservative attitude toward change in business methods or the routine of production. Some of the larger industries, however, emerged from the war intent on drastic changes, and others, less progressive, were forced to change by the increased competition for export markets and by the new necessity of using the restricted quantities of raw materials to greatest advantage.

Industrial engineering, including work study, work simplification, plant layout, and planned maintenance, has become a primary concern of industrial management. Many of the managers--the managerial class is about half a million strong--are much more interested in new methods of industry than are the workers. Any innovation that seems to disturb the happy condition of full employment and high wages can provoke discontent among the workers. The more progressive unions are doing their best to explain and advocate change. It is in the middle ranks of labor's officer class, the ranks most interested in the emotional support of "the lads," that the strongest resistance to change is located.

Management in industry, therefore, is beginning to assume some of the importance and standing that it attained long ago in the United States. Facilities for training in management are increasing, although the majority of today's managers never received any special training. Trade unions, employers' associations, and individual concerns are pressing forward with training schemes.

There is a relationship between this development and the arrival in British society of the new middle class. Many of the leaders of this class are in management work in industry and commerce. As their position is solidified by Britain's increasing reliance on the export industries they serve, their social and economic importance is bound to increase. In the past their social position has been well below that of the lawyers, doctors, soldiers, and civil servants who were the elite of the old middle class. That, too, is changing.

Gross fixed capital formation recently has been at about 14 per cent of gross national expenditure. By 1954 its volume was 17 per cent above that of 1938 and about 30 per cent greater than in 1948.

In 1951 and 1952 the government responded to the pressing needs of defense and exports by taking measures to curtail certain kinds of investment. In 1953 and 1954 the policy was reversed, and incentives for investment were written into the Budget. But the wave of home buying in 1955 made it necessary for the government again to impose restraints on investment. In particular it sought moderation in capital outlay for municipal and local building and improvements and a deceleration of investment programs in private industry.

These and other actions taken at that time were the result of the Conservative government's preoccupation with the balance of payments, the nation's gold and dollar reserves, the inflationary trend in the national economy, and the need for investment and expansion in the export industries. These objectives will dominate the economic approach of any government, Socialist or Tory, that achieves power in Britain in the foreseeable future.

British industry has many problems of finance, of production and productivity, of management. But to an outsider it appears that the gravest problem of all is the indulgence by the two main partners in industry, labor and management, in restrictive practices. By preventing the most effective use of labor, technical ability, or materials, or by reducing the incentive for such use, these practices gravely damage the industrial efficiency of the country. Restrictive practices seem to many competent observers a far greater danger to the British economy than strikes.

It is important to understand that such practices are almost as prevalent among management as among labor. Each group has the same basic motivation. They seek a reasonably stable economic life free from the strains and stresses of competition. The psychological explanation may be unspoken desire to return to the old easy days of Britain's unquestioned economic supremacy.

The employers' restrictive practices are less widely advertised than those of the workers. Their classic form is the price-fixing agreement which insures that even the least efficient manufacturing firms will have a profit margin. To maintain the price-fixing system, employers maintain private investigators and courts of inquiry; they can and do discipline the maverick who breaks out of the herd.