Economic Shifts: Britain’s Industrial Rise & Post-War Growth
Why Britain?
Western Europe was split into Catholics and Protestants, a division that fueled the Protestant Reformation, which positively affected literacy and political, religious, and economic freedom. There was a commercial boom in Great Britain due to several factors:
- England had one of the highest wage rates in Europe.
- Agricultural productivity had increased.
- Less than 50% of the labor force was in agriculture.
This boom fueled demand.
The English Crown exercised absolute power during the 16th century. The Bill of Rights, written in 1689, gave power to Parliament and established freedoms of religion, economy, and politics (Rule of Law). The Bank of England was founded in 1694. Britain’s limited monarchy was a key factor in its success, contrasting with the absolute power still present in Spain and France. The Royal Society was founded, reflecting a new way of thinking: the Enlightenment. There was also a Scientific Revolution. Another significant factor was Britain’s geography: navigable rivers and canals, and energy resources like coal and iron.
The Industrial Revolution (1750-1851)
The Industrial Revolution (1750-1851) was a historic event that radically transformed Great Britain and the world economy. Mechanization occurred in the spinning industry, initially challenging due to the required patience and skills. The Spinning Jenny made this job faster and easier, increasing the demand for raw materials from Caribbean colonies. Boulton and James Watt created the railway and the steamboat after improvements to roads and canals in the 18th century. This transport revolution led to social change (increased mobility) and greater market integration (imports and exports).
The factory system emerged, enabling the division of labor, the emergence of economies of scale, and increased machine usage. Henry Cort patented the puddling process, producing wrought iron using coal, which rapidly replaced wood as a building material.
Living standards improved: the Public Health Act of 1848 and the Sanitary Act of 1866 were passed. Urban life was developing, and consumption rose due to high employment, leading to higher wages. However, unemployment remained a severe hardship.
Population growth: Birth rates increased due to better living standards, and mortality declined due to advances in medicine and better sanitation.
Why Coal?
Iron was used to make the boilers of steam engines. Coal was crucial as the energy source for these boilers. Wood burned too quickly, leading to potential deforestation. England was the starting point of the Western world’s Industrial Revolution, made possible by the steam engine and fueled by Britain’s vast coal deposits.
Rapid Growth in the Golden Age (1950-73)
The Golden Age (1950-73) was the longest period of sustained economic growth in Western Europe and Japan, witnessing their highest historical growth rates. This growth was due to:
Supply:
- Cheaper energy (low and stable oil prices).
- Sources of growth:
- Extensive growth: Using more inputs (K, L, Z) accounted for over 60% in the USSR, Asia, and Latin America.
- Intensive growth: Using inputs more efficiently accounted for over 50% in Western Europe and Japan.
- Capital accumulation: funds from the Marshall Plan.
- US catch-up (technological advances).
- Structural change: a rural exodus due to agricultural mechanization (tractors and other harvesting machines).
Demand:
The role of the state increased in Western Europe and Japan during the Golden Age.
Welfare State: The state played a role in protecting and promoting the economic and social well-being of its citizens, based on: equality of opportunity, distribution of wealth, and public responsibility. This was for those unable to maintain themselves, with services provided for free (through taxes on wages and goods). It guaranteed: minimum standards, social protection (for those without insurance), and provision of services. Founded in the UK in 1948, it aimed to support the sick and unemployed, guaranteeing education until 15 and universal access to the national health service.
How Was Large-Scale Public Expenditure Sustained?
- Public debt
- Full employment
- High taxation
Mass consumption increased due to:
- Population growth.
- Low unemployment (leading to a larger labor force).
- Wage growth.
Multinational corporations: During the Golden Age, the number and size of firms increased in Western Europe and Japan, leading to greater economic concentration and requiring a managerial revolution.
Economic Policy Changes in the US During the Great Depression
Two New Deals were implemented:
- One in 1933, lasting 100 days.
- Another from 1934-36.
The 3 R’s of the New Deal:
- Reform: Reform of the banking system (Glass-Steagall Act, to reduce banking system instability).
- Recovery: Government control of production (National Industrial Recovery Act, similar to syndicates, to negotiate wages and schedules). The government also created the NRA (National Recovery Administration) and AAA (Agricultural Adjustment Act) to control agricultural production.
- Relief: Creation of a social safety net through the WPA (Works Progress Administration) and Social Security in 1935.
Great Depression: The Federal Reserve System, created in 1913 to safeguard against business depressions, failed due to: overproduction of goods, taxes on foreign goods, “buying on the margin” (speculation), and Black Thursday (October 24) and Tuesday (October 29), 1929.
Post-War Periods: Great War vs. World War II
The Great War (triggered by Gavrilo Princip) ended with the Peace of Paris in 1919, including:
- The Treaty of Versailles, depriving Germany of 13% of its pre-war territory.
- The Treaty of Neuilly, establishing Bulgaria’s borders.
- The Treaty of Saint Germain en Laye, dissolving the Austro-Hungarian Empire.
- The Treaty of Trianon, regulating the states that replaced the Kingdom of Hungary.
There were 20 million casualties (10 million military, 10 million civilian). In agriculture, lands became battlefields (trenches). Great Britain, the US, and Germany held 75% of total GDP before the war, but war requirements and expenditures led to financial losses. US immigration: Due to Europe’s situation, many people left for the US seeking a better life. A literacy test was required for entry in 1917. Inter-allied debts arose after the war (Germany’s being the most significant). Economically, Germany was in trouble, unable to repay its debts. The value of the gold mark experienced hyperinflation, changing from 4.2 to the US dollar in 1914 to 4.2 trillion to the US dollar in 1923. A temporary solution was to devalue the gold mark by introducing the Rentenmark, valued at 1 trillion gold marks.
World War II concluded with the Yalta (February 1945) and Potsdam (July 1945) conferences, where leaders (Roosevelt/Truman, Stalin, Churchill) met to sign the peace. There were 50-60 million casualties, along with physical destruction (ports, bridges, railways, factories, homes). Shortages of food, raw materials, and capital goods occurred. The Cold War emerged between the US and the USSR. Despite the massive destruction, GDP per capita increased from 1939-45, and recovery was relatively “quick” due to the Marshall Plan and other factors (at least quicker than after the Great War). The UNRRA (United Nations Relief and Rehabilitation Administration), lasting from 1943 to 1947, aimed to plan and administer relief to war victims. In 1948 (until 1951), the Marshall Plan, spearheaded by the US and Secretary George Marshall, aimed to recover Europe, transferring $13 billion in economic assistance (food, fuel, raw materials). A requirement was that European firms had to buy US goods, preventing overproduction. The United Nations was founded on October 24, 1945, to maintain international peace and security and develop friendly relations among nations. In July 1944, the Bretton Woods Conference (named after the hotel) saw 44 allied countries establish rules for commercial and financial relationships, creating the World Bank and the IMF (International Monetary Fund).