Industrial development and trade

Why did the UK lose its lead in industrial development and trade in the later half of the 19th century? The UK came to world primacy following the industrial revolution. As Dutch supremacy decreased British trade in all world markets increased allowing them to contest in the Far East with Portugal, Spain and Holland. They became the pioneers of colonisation taking control of Australia, New Zealand and the West Indies, adding to the Empire market.

British innovations also led the way, there was a patent increase of 2000% between 1766 – 1825 leading to changes such as the building of canals which reached a peak of 'canal mania'(Kindleberger, 96) in 1793 and the Railways boom which led to Britain becoming the 'workshop of the world'(Chambers, 1961) in 1850. Britain's rise to economic primacy had come in part due to exploitation of opportunity and self sufficiency but the change to free trade may have been 'the decisive event'(Gamble,1981), in British decline.

Free trade opened up markets to goods which Britain could produce cheaper and better than other nations. There was no immediate effect as British wealth grew on the new imports of raw materials for British industry and the population grew to a level which required food imports to sustain it. This instigated an increase in food imports from Scandinavia and an associated increase in its shipping industries following navigation law removals.

By around 1861 British farming had reached its peak but began to decline soon after, with a ten per cent decrease of farmers between 1860 and 1914, this was due to more mechanisation of farm work and a reduction in labour intensive farming as well as from 'the pull of competing occupations with higher wages and less exacting hours' (Saul, 1969). By the end of the nineteenth century agricultural income had fallen from 20 per cent in 1855-9 to just 6 per cent. However British free trade lead to the worlds 'first capitalist boom' (Gamble, 1981) as countries aided by exports of machinery and capital became rapid industrialised.

These countries imposed tariffs designed to shut out British goods and to stimulate the domestic manufactures and denounced free trade as a selfish policy. In 1904 average tariffs on British imports were 25 per cent in Germany and 73 per cent in the United States. British Naval power now came under threat but it could not force European markets, like Germany, to open its markets to British goods. The newly industrialised nations Government's directly intervened to stimulate industrialisation, a policy which Britain did not undertake.

In France there was greater intervention than it other European countries, where nationalisation was used as a means of developing modernisation and change within in manufacturing industry. There were also many private companies which were strongly influenced by government and were 'used as pace-setters, introducing new products, techniques and methods of organisation' (Eatwell 1982). New financial institutions were also established which 'were founded for people who needed money' (Eatwell, 1982) and linked small savings closely to heavy industrial development.

France developed the industrial bank to provide finance for industry over a long term period, these were also established in Germany but not in Britain as this was considered financially risky. In Germany representatives of shareholders, labour and Germanys three big banks all sit on a supervisory board making a 'circle of mutual interest' to try and guide industry. The Deutsche bank, founded in 1870 by Georg von Siemens, still has close links to the Siemens company. In Britain the allocation of finance is left to the market and unlike France and Germany, British economic planning seems to have always been short term.

The Boer war put immediate setbacks on the British as they needed to borrow money, which began to raise the question of the cost of empire and whether to impose tariffs in preference to the empire. Part of this i?? 30 million loan was put into New York, which began mutterings of New York succeeding London as the world's financial centre. Britain was still at that point the worlds leading financier distributing money to the world, most 'especially to the empire, the United States and Argentina' (Kindleberger, 1996).

British foreign investment reached 4000 million by 1914 and all international trade was centred upon the gold standard, this has however given rise to argument that British finance would have been better used in domestic industry as it was in the above example of Siemens and Deutsche bank. World War 1 saw Britain spending 25 – 30 per cent of its gross national product on the war effort putting strain on the national economy. The return to the gold standard in 1926 saw the value of the pound raised against the dollar which led to the virtual collapse of British export industries like coal and shipbuilding well before the great depression.