Dan Snow's History Hit - Britain's Economy: How We Got Here
Episode Date: August 29, 2021The industrial revolution began in Britain and became one of the most extraordinary economic miracles in human history but the next two centuries have seen many booms and busts and have been more to d...o with improvisation than planning. But, how should we think about Britain's economy, how did we get to where we are today and is Britain an overachiever or underachiever economically? To help answer these questions and drill down into details of our economic history Dan is joined by Duncan Weldon. Duncan is economics correspondent of the Economist and has recently published his new book Two Hundred Years of Muddling Through: The surprising story of Britain's economy from boom to bust and back again.
Transcript
Discussion (0)
Hi everybody, welcome to Dan Snow's History here.
It's a funny old thing to survey British history.
Once, Britain was responsible for the most extraordinary economic miracle in the history of the world.
The Industrial Revolution, I think it's fair to say, began here in Britain.
The age of railways, the mass use of coal to drive steam engines, create unimaginable horsepower, to create energy
that would then drive looms and other things placed in factories by innovative tech entrepreneurs.
That is very much a British story. And Britain briefly became a hegemonic economic power.
A vast industries, vast output, huge amounts of exports carried in the world's largest merchant
fleet. That was then followed by inevitably decades of decline. How should we think about
the British economy? How do we get to where we are? Is Britain an overachiever or an underachiever
economically? Well, it's time to look at the history, folks. We need to get down. We need
to drill into it. Duncan Weldon is on the podcast. He is a
journalist. He is an author. He's a British economics correspondent at The Economist
newspaper. Is it a newspaper or magazine? I don't know. It's a magazine format. It's brilliant
now. I read it every week, as I've said in this podcast, when they've paid me to do so.
He's worked at the BBC. He's worked elsewhere, he's been immersed in the deets of this data
his entire professional life. It's great to have him on the pod. If you wish to hear other podcasts
about the 19th century, like for example George Stevenson, the first intercity railway in the
world, Liverpool, Manchester, 1830, that section of track still operating today between those two
great cities, those two great cities in the North West, then you can do so at historyhit.tv.
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service. It has gone bonkers. I don't know what to do. In the meantime, while I'm working out what
to do, let's have a listen to Duncan Weldon talking about British economic history. Enjoy.
Duncan, thank you very much for coming on the pod.
Great, let's go.
I was really interested in your book.
You say there's basically two periods of economic history.
There's before the Industrial Revolution and afterwards.
Can you give the audience a sense of that transformation, pre and post?
Yeah, completely.
I mean, I think the Industrial Revolution is the most important event
that's happened in the last 2,000 years.
And the world is really simple. There's a time before the Industrial Revolution,
there's a time after. The world before the Industrial Revolution was best described by Malthus. It was a Malthusian world. What Dr. Malthus said was, the problem was that human
wants were infinite, but human means were very finite. And in a world before
productivity growth, when things weren't developing as fast as they were after the
Industrial Revolution, the single biggest constraint on how economies developed was
the population numbers. And population and income sort of moved inversely. So you got periods when
population was growing quite fast,
but that meant people had less stuff, they became poorer, eventually the birth rate would fall,
the death rate would rise, and population would decline again. And that was really the pattern
of the world for thousands upon thousands of years. But then around the time of the
Industrial Revolution, something changed. Productivity took off. We got better at using our
resources better. And it meant that in the world since about 1800, you've seen this extraordinary
increase in population and at the same time, an extraordinary increase in living standards.
The single biggest difference was the dominant trend in the economy before the Industrial
Revolution was continuity.
People lived very similar lives to their parents, to their grandparents, to their great, great,
great, great grandparents. After 1800, though, we got used to the idea that for every generation,
things should get better. Living standards should rise. People should get richer.
And that was new and revolutionary. What does it mean for Britain that that revolution
effectively took place on this island for loads of fascinating reasons around
accessibility of high yield coal, patent law, availability of venture capital? What's it mean
for the next 200 years, the next 250 250 years now that that was something that occurred
here on this funny little island yeah i mean you know in the grand scheme of global history the
fact that it occurred in europe first is what matters but from the point of view of myself
and you dad of british people the fact it happened in britain first is interesting and it's huge
because it means that income per head in brit starts to rise much faster. And Britain's
got this five or six decade head start on most of its neighbours in terms of income per head rising
quickly. And that means that Britain's overall economy suddenly starts to grow really quickly.
So if you look at Britain and France, it's easy to forget that for most of early modern history,
France is just a much larger country by population.
But because every British person is becoming richer, the gap between the overall economies
narrows and Britain, despite having a smaller population than France, suddenly has a lot more
economic clout. And because Britain's got this five or six decade head start,
throughout the early to the mid, or even just into the late
19th century, Britain is this hugely successful economy in a league of its own. By the late 19th
century, Britain is the dominant global manufacturer. It's the centre of global finance.
It dominates global shipping and insurance, and it's the world's largest exporter of energy through coal. It sort of plays the roles that China, America and Saudi Arabia do in the current economy, but all in one
country. That unique moment of British power helps explain why the British Empire was the largest the
world's ever seen, why Britain had this outsized world role, which lasts really all the way down
to today in 2021. Your point throughout your book about
political economy is so interesting. First of all, explain what political economy is, because it's
such a, makes me think of Adam Smith all the time. What is a political economy? That's a very good
question. I mean, I tend to use political economy as the idea that politics is influenced by what's
happening in the economy, and the economy is influenced by what's happening in politics. And
particularly over the longer run, you can't just look at the economy as this bloodless
interaction of demand and supply graphs. Politics matters, political power matters. And the way I
think about it over the last 200 years is, to understand how the British economy has developed
and how British politics and society have developed, you've got to look at these economic interest groups,
broadly defined, whether that be landowners,
whether that be the industrial working class,
whether that be the power of one sector over another,
how they've developed economically
has all happened within a social and political framework.
And at different times,
these groups have transformed their economic power
into political power to shape the economy
in their own interest. I was looking the other day at a clip of Senator Orrin Hatch who was in his
80s chairing the digital transformation campaign in the US Senate interviewing Mark Zuckerberg.
And he said, you don't charge any money for your service. And Zuckerberg went, no,
we have ads, Senator, we have ads. And it just
made me think about in the 19th century, what was the Orrin Hatch equivalent doing? We're talking
about the political economy. How were these deeply out of touch, older men dealing with the greatest
transformation in human history in the last 2000 years in Britain? With a great deal of confusion,
I think is the easiest answer. When the railways started,
I think the railways are one of the first great transformations we see from the Industrial
Revolution. Suddenly, you can travel further and faster at a more affordable cost than has been
imaginable for your parents or your great grandparents. And you see some members of the
House of Lords, you see some newspaper articles saying, we're a bit worried about this whole railway thing.
We think it's going to make people too mobile, become too untethered from their local areas.
We think this is going to lead to disruption, disappointment. Maybe we should call a halt to the whole thing.
Of course, they didn't call a halt to the whole thing.
And the railways helped transform Britain into a much more urban society, a much more mobile society,
and just a radically changed society. Indeed, one of the cabinet ministers was killed on the opening
of the Liverpool Manchester Railway. So literally... Yes, indeed. I always think it's really
impressive to be killed by the only train in the world on the only working railway in the world.
Paul Huskisson, it's an astonishing metaphor apart from everything else. Let's extend the metaphor.
Poor Huskisson, it's an astonishing metaphor apart from everything else. Let's extend the metaphor. I mean, did any politicians get out in front of it? In what way did politicians steer the British economic miracle? Or did they just respond? And were the people that we need to be thinking about the men who were, and they were usually men, Arkwright or people laying out the first factories, people pioneering mass production, people working out how to transmit power over
some distance. Yeah, so I think the big interaction you see, I think, between the economy
and politics in the 19th century is, you know, if you think of Britain before the Industrial
Revolution, there's still a political system dominated essentially by landowners. The House of Lords
matters more than the House of Commons. And the House of Commons is not especially democratic,
as we know, and many seats are controlled by local landowners. And that sort of structure
makes sense in a pre-industrial world when the most important economic asset is land ownership.
And what you start to see in the 18th and the early 19th
century is that capital starts to become more important as Britain starts to industrialise,
as you start to see these successful mills, whatever. The share of the economy controlled
by these new industrialists and these new commercial and industrial middle classes
starts to matter a lot more. And Britain's political system shifts to accommodate that.
So if you look at 1832 and the Great Reform Act, one way you can understand that change is
these old landed interests saying, okay, we no longer have the economic clout we used to have.
How can we co-opt this new middle class into our governing system? And you sort of see capital and
land coming together, as reflects their economic weight in the management of the political system.
And it's only later, as the returns to workers start to rise, that you start to see the gradual expansion of democracy into something fully democratic by the 20th century.
But on the wider question about economic policy, I mean, the amazing thing about Britain in the 19th century is, I mean, it doesn't have
an economic policy as we would understand it now. The very concept would have been alien.
And this is quite interesting. So Britain industrializes and Britain becomes a very
successful economy. And lots of that happens without much government intervention. And when
you look at Germany or you look at the United States or Japan, countries which big push
industrializations to catch up to Britain, there's a lot more state involvement. But in Britain, at Germany or you look at the United States or Japan, countries which big push industrialisations
to catch up to Britain, there's a lot more state involvement. But in Britain, the attitude is very
laissez-faire, hands off, and it appears to be working. And it really takes a lot of big shocks
to the system, like the First World War, to push the British political system into taking a more
active hand in economic management. But it comes surprisingly late in Britain. And what does that mean? I mean,
it means there's some prosaic reason, like, for example, the railway network is chaotic and
laissez-faire rather than Germany, where it links together the great cities for kind of strategic
purposes. But what's it mean for us today that we, because of that gigantic kind of head start,
that the government weren't involved? What do we see around us today that is the legacy of that? If you think about British banking would be the classic one. You
know, the Germans, the Americans, the Germans in particular have these sort of state backed banks
entirely about, you know, pushing capital, pushing money to develop German industry.
We don't do that. Because Britain's a very rich country in the 19th century,
we've got a higher rate of savings because rich people can afford to save more. You're not on a subsistence level, you can save more. One reason that the city
becomes so dominant internationally is Britain is a comparatively rich country. So it's got
comparatively high savings in the 19th century. And those savings have to find a home somewhere.
And where they often find a home is overseas. Britain becomes the centre of the global financial
system. And British savings, British capital exports go all around the world, paying for railways in North America, paying for docks in South America, paying for the industrialisation of bits of Germany, paying for municipal gasworks in other parts of the world.
off globally focused financial system, which here we are 150 years after the late 19th century,
and it's still how the city of London likes to operate. It's more concerned with global markets than with British markets. It takes a very small L liberal, uncoordinated approach. And
going back at least 100 years, there have been complaints from British industrialists,
and in particular, British small and medium-sized enterprise owners that British banks are failing them.
And this is something that comes up in politics about once every 25 years.
But we still haven't found a solution.
Just the way it developed almost gets baked into the DNA of how the system operates.
Listen to Dan Snow's history. I've got Duncan Weldon on talking about economics. More
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There are new episodes every week. what's the counter example if you look at south korea the way that focused on
i don't know cars and shipbuilding or something because presumably there's lots of examples of
governments picking winners and it being a complete catastrophe have i just been brainwashed
as a post-thatcher baby sort of growing up in a laissez-faire Anglo-Saxon Western economy?
Yeah, I mean, so Britain's got a very mixed results on this.
Harold Wilson in the 1960s comes to power with a plan to modernise Britain, sets up a new Department of Economic Affairs, sets up a new Ministry of Technology, has a national plan of growth targets.
And it's very hard to look at the economic record of the
Wilson government and say, it's worked. Then in the 1970s, British industrial policy,
that's the one we tend to think of. We tend to think of British Leyland and all of that.
But the 1970s, it wasn't even about the government's picking winners and being bad at it.
It was about losers picking the government. Firms that were about to fail coming to the
government saying, you can't allow us to fail. We need a soft loan. And government's being very keen
to preserve this employment. But you look at South Korea, it's had a successful industrial
policy, no doubt about that. Lots of the East Asian tigers, as they called them, did in the
80s and 90s. Germany runs a successful industrial policy now. Britain, the record is much more mixed. And I think that's
partially because this small-L liberalism, laissez-faire approach is really hardwired
into how British firms run themselves, how British government runs itself, how even British trade
unions run themselves. If you look at Europe after 1945, lots of attempts at corporatism, of
getting together trade union bosses and industry leaders
and the government holding the ring between them in these so-called tripartite systems,
deciding how the economy is going to develop. And Britain in the 50s, the 60s and the 70s
tries this corporatism, it tries this tripartite approach, but they can't make it work in Britain
because the institutions aren't there. The historical development has been very different.
An economy which is developed in a very liberal way is then hard to shunt onto a different
set of rails.
And also, it's something that was unbelievably successful.
Again, it was, as you point out, the greatest economic miracle of all time.
So it takes a while to accept that either those positions are unreplicable or that we
need to evolve. And you
famously point out that Britain missed the second and third industrial revolutions, the chemical
revolution, the car, we didn't quite get the cars or the aviation. And so I suppose we've been
slightly hobbled by that initial success, have we? An example I quite like is you see particularly
in shipbuilding. So Britain is the world's leading shipbuilder in the late 19th century, all the way into the early 20th. And then suddenly you see
shipbuilding really develop in Sweden and Germany in the 20s and 30s, and then in South Korea after
the Second World War. And they have the advantage that because they are coming to the game later,
they are starting from scratch with better technologies, new welding techniques,
more capital-intense approaches, whereas British shipbuilding was very much based on a skilled
craft worker doing their own bits and model, which worked really well in the 19th century,
the early 20th, but is then very outdated by the 1940s and 1950s. But because we've got this large
shipbuilding industry built up and all of these people with their skills, it's very hard to say, hang on, we should start again, build these new
South Korean style yards. The older technology is sort of baked in because you were there first.
Where did you come down on empire? It's such an exciting and interesting debate. Did Britain amass an empire because it was rich, or did the
empire make Britain rich in the first place? It's a very, very good question. I think you
can add the earlier empire, not the 19th century empire, but the early imperialism in the 17 and
1800s is definitely a contributing factor towards the Industrial Revolution. The fact that Britain is an early imperial power helps explain the Industrial Revolution. But then the empire people
tend to think of when they think of the British Empire, you know, the scramble for Africa,
India under the Raj, all of this sort of stuff, I think is more a byproduct of Britain already being
a large global power. And I think what's really interesting is there's a very active
debate on to what extent did the empire make Britain rich or to what extent was the empire
a drain on British resources? And for all of the heat in that argument, there isn't a huge
amount of light. What we can say, which I find quite interesting, is even in sort of the high noon of British imperialism, the 1880s, the 1890s, Britain's largest export market remains continental
Europe. Because many of these colonies that were acquired were so poor, there wasn't much you could
export to them. Whereas you can export a lot to a relatively developed country like France, like
Germany, like the Scandinavian markets. Edwardian Britain without
its empire is probably not a radically different place economically than Edwardian Britain with
its empire. You talk a lot about productivity, you talk a lot about average income. Does it matter
for people if they live in a global superpower, economic superpower? Like when I look at the
world, I think the Norwegians, the Icelandic,
the Danes, obviously Norway, some bless everything as a geography
and a backstory and natural resource, whatever it is,
but Canadians, they have pretty good quality of life, right?
What do the bragging rights of being a great economy matter
to actually people on the ground?
That's a very good question.
I do sometimes have some sympathy with the argument that the commonly heard number that Britain is the fifth biggest economy in the world is one of the most dangerous notions in British politics.
Because, yes, we're the fifth largest economy in the world.
But in terms of income per head, we're something like the mid-teens in the world.
It makes us sound more successful than we are.
There are smaller countries than us with higher income per head.
Does it matter to live in a big economy? It matters for the country's global clout and the
country's global role, certainly. And you can argue it brings other benefits as well. It allows
us to have the scale to do things like the NHS on a wider basis, occurring the economies of scale by running a larger
service because we are a richer country. But you know, the absolute bottom answer is, for
the average person in their day to day lives, it matters less than we sometimes think it
does. What matters is that Britain is a rich country, not that Britain is a slightly richer
country at an aggregate level than Denmark.
And as you point out, Britain itself is such an
interesting country because it's got some of the richest areas in Europe, particularly in the
southeast. It's also got some of the poorest. It's quite a fascinating country. And obviously,
which I'm very glad to see, you think history is essential in that. Quite a bit of the book is on
these regional differentiations and where they come from. So, you know, the Industrial Revolution
is a story of the north, the story of Lancashire, of Manchester, of Liverpool as a great port.
Yes, Surrey was like sheep farming wasteland. Nothing in Surrey.
Yeah, absolutely. And the biggest economic decline in the last 200 years of any region
isn't the de-industrialisation of the North. It's the collapse of agriculture in East Anglia in the
late 19th century. Once we start importing American grain, East Anglia goes from being this incredibly prosperous place to a relatively poor
place across the 30, 40 years. Watching how these shifts develop over time and how politicians
respond to them, I think is fascinating. But it really does bring back that you look at how
Britain got to where it is today to understand that Britain is this strangely paradoxical country.
We can tell two different stories about Britain. We can talk about Britain as one of the richest economies in the world.
Or we can talk about Britain as having some of the worst productivity in Western Europe.
We can talk about world beating financial services industries around London and the southeast.
Or we can talk about the much more soggy picture you get once you get into the North, or bits of Scotland, or bits of Wales. Britain has always
been a regionally unbalanced country. London has always been, except for one brief moment in the
early 1950s, when the West Midlands surpassed it, but London has generally been the richest part of
the UK. But in the last 30 or 40 years, that gap has opened up to sort of new levels.
And this is where political economy takes you, that the straightforward economist answer is to
say, London is enormously successful economically for these reasons, we would expect it to continue.
You put a political economy hat on though, and you say, for how long can this divide remain before
politicians are forced to respond by voters to the fact that London appears to have struck up this huge gap?
It must have been so exciting studying these 200 years of history.
And what strikes me from your work is that we see the same arguments, the same pressures, pressures of geography playing out over and over again.
But also culturally, as you've mentioned already, like bank and lending, how we should be doing our trade. Brexit looms very large in the book,
invariably, because it taps in so many of our traditional divides and ways of doing things.
What else do you think about our history? Do you feel that you're now seeing just play out again
in the present? One depressing conclusion is that little in the British public debate is ever really
that new. We are currently again going through a state of saying Britain needs better vocational
and technical education, look Germany doesn't much better than us. I mean you can find parliamentary
inquiries from the 1860s and 1870s when we'd send depositions over to Germany and they'd come back
and say the Germans do this much better than us. There's this constant fear about, are we falling behind German manufacturing and vocational
qualifications? Is the city too powerful relative to industry? How big are the economic divides in
Britain? And what can we do between them? And yes, the one that again tends to come up every 30 or
40 years, and we've gone through it recently is this balance between economic openness
and integration and national sovereignty but yeah you do get the impression it's all quite cyclical
and many of these problems are never going to be resolved and we will presumably be still arguing
about them in 100 years time i don't doubt that at all if you get to pick i mean who's good at it
in terms of politicians of last 200 200 years? Did anyone get it?
Or are we all just surfers occasionally catching a decent wave and then absolutely spiking off our board on the next one?
I think I would argue that some politicians really have shaped the economy in a way which has really outlasted them. And I think politicians generally tend to overestimate what they can achieve in the economy in the short term,
but underestimate the impact they can have in the long term. There's only so much you can achieve in the economy in the short term, but underestimate
the impact they can have in the long term. There's only so much you can do in one budget.
But over the course of five or six years, you can really set the economy down a certain path.
The politicians that have really achieved those sort of lasting changes in their own ways in the
past 200 years, I would say Thatcher, I would say Attlee, I would say Lloyd George,
and I would say Robert Peel, and to an extent, Gladstone. Beyond that, it gets really hard to
find people who you can say really have shifted the dials. And I guess just to quickly visit a
couple, Peel because of the Corn Laws? Yes, yeah. Winning Britain over to economic openness,
just settling the debate for 70 or 80 years.
And Lloyd George, more because of his tax and spend policies, so further breaking the power of the aristocracy, would that be rather a, or tell me? I think that's right. So it's two things.
The birth of a very nascent welfare state with old age pensions, with national insurance,
and the particularly radical idea of funding it through progressive
taxation and higher taxes on the very wealthy. And obviously, we tend to look at 1945 and the
Attlee government as the big expansion of the welfare state, but they're not building on a
blank canvas. The real starts of this shift into the state providing more services as a matter of
course to its people. And before then, most of what the
state does is war. The state pays for a navy, it pays for a smaller army, and it pays the interest
on debts incurred in previous wars. Whereas after the new liberalism and Lloyd George, there's this
idea that actually the state can do more. The state can be involved in unemployment insurance,
the state can be involved in providing for the elderly. And that's quite a radical path,
which then slowly builds up throughout the 20th century.
Atlee obviously builds upon that, but also nationalisation, I guess. The example of the
Second World War seemed to be that government could play a role in coordinating national
resources very efficiently from Whitehall, and it was best organised Easting centrally.
Absolutely, I think, yeah. So after 1945, what you've got to bear in mind,
when you're looking after 1945, you've got to look back to 1918. And after the First World War,
Britain suffers a calamitous economic disaster. It demobilises too quickly. The 1920s, we talk
about a roaring 20s, but in Britain, there really isn't a roaring 20s. There's high unemployment,
there's squeezed wages, there's the general strike, calamity after calamity. And after 1945, there's very much a
no return to the 20s and 30s. The state got much bigger during the war. The state is going to stay
bigger now. We're going to have this actively managed economy. We're going to keep unemployment
low. We're going to nationalize certain industries. It's a really muscular state and the economic borders of the state and the market shift decisively with the state taking a
much bigger economic footprint. You know, as we know, it lasts for a good old 35 years and then
you see a lot of that rolling back in the 1980s under Margaret Thatcher because by the 1970s,
the consensus has shifted again and people aren't thinking of the problems of the 1930s,
they're thinking of the problems of the 1970s. And you get a pushback. But yeah,
Attlee rolls the state out, Margaret Thatcher rolls the state back, they both have an enormous impact.
Does Britain have an economic policy today? I read your excellent newspaper every week,
and I actually don't know what it is. Tell me.
That's a very good question. Britain is obviously responding to the pandemic, but this is to me,
I think, a really interesting thing, that 2020 should have been a decisive and important year
for Britain. It's the year that Brexit finally happened, that we had to set a new course.
Then the pandemic came along, and obviously the last 18 months have just been firefighting the
pandemic and dealing with that fallout. So as we come out of the pandemic, fingers crossed, touch wood, etc. This is the big
unanswered question of, okay, Brexit has happened. We in theory have more flexibility and more
freedom in terms of our economic policy. What are we going to do with it? There are two distinct
answers out there in the government at the moment. There's a Boris Johnson agenda of levelling up of a slightly more muscular state of lots of infrastructure spending outside of London, trying to cement that majority he won in 2019.
the 1980s and a bit more, we should be using this newfound freedom to deregulate things and cut taxes. And that's really the unresolved tension within the government before we even think about
where the opposition and other people might be at the moment. That's fascinating stuff. Duncan,
thank you very much for coming on the podcast. What is your book called?
The book is called 200 Years of Muddling Through.
When you say muddling through, is muddling bad?
That's a very good question. Is muddling bad? There are times that muddling is fine. And when the economy is doing well,
just continuing to muddle through is the path of least resistance. But there are times,
you can see it in the 1960s, you can see it in the 20s and 30s, you can see it in the late 19th
century, when things are not really fine in the British economy, it's becoming obvious to contemporaries that there are real problems
which will arise in the near or distant future.
But politicians very often continue to muddle through
on the grounds that tackling these problems will cause them too much pain
and they would rather just hope something turns up in the end.
That's the negative way that muddling through can be bad.
Interesting. Well, thank you very much indeed, Duncan.
Thank you, Dan.
I feel we have the history on our shoulders.
All this tradition of ours, our school history, our songs,
this part of the history of our country, all were gone and finished.
Thanks, folks, for listening to this episode of Dan Stone's History.
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