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2.3 1929 – 1932

By 1929 the economic situation in Britain had more or less stabilized. The unemployment rate stopped at the level of 9.6 million and the gap between the potential and the actual output was still approximately 10 per cent (Floud and McCloskey, 358). Prices continued to fall, but that had little or no influence on the behaviour of the consumers or producers.

Then suddenly a shock, which rocked the world economy, came. On 29th October 1929 the stock-market on the Wall Street in the USA crashed. The impact it had on the whole word was devastating, causing prices and output to fall dramatically in every corner of the world. Investments and trade declined. Banks and businesses went bankrupt.

The British economy moved from the stage of stagnation into that of depression. The industrial output fell by more than 5 per cent a year in this period and unemployment rates climbed up to twice the size they had been before October 1929, suddenly becoming "the highest rate in Europe" (Constantine, 66). The value of exports almost halved between 1929 and 1931. Industries, which had been fighting depression in the 1920s, were now facing an economic catastrophe of unheard severity. The industrial areas and the coal mining districts received the hardest blow. Many coal mines were closed and the production was concentrated only in bigger pits. The same was happening in the textile and shipping industries. The production of ships fell by almost 90 per cent in this period, and that in turn affected the supply industries such as coal or steel. (Buxton and Aldcroft, 81) It went so far that some manufacturers were buying ships from overseas manufacturers, because the price was much lower. Furthermore, British producers had to face the emergence of overseas producers, even in branches which, until then, had been the domain of Great Britain – such as steel, shipbuilding and coal.

Foreign manufactures started to invade British home markets. They had the advantage of lower costs, higher efficiency or government subsidies. An example of the lack of British competitiveness was India’s export of cotton to Britain.

The drastic decline in economy lasted until 1931. The National Government tried to fight the depression by means of further cuts in wages and by increasing the income tax. The wages were cut by approximately 10 per cent and the income tax jumped from 22.5 to 25 per cent. According to Constantine "The cabinet was obliged to discuss cuts in public sector pay, in the road-building programme and, most importantly, in unemployment benefits." (68) However, all these efforts only invoked a reduction of purchasing power and as a consequence the unemployment rate rose dramatically, by the end of 1931 amounting to almost 3 million people out of work (Constantine, 70). As was already written in the previous chapter, Oswald Mosley with his radical plan of Mosley's Memorandum tried to suggest a way that would improve Britain's economical position and economical domestic affairs that were so needed to be dealt with, most importantly unemployment. His memorandum was rejected, but many politicians and economists, e.g. Winston Churchill and John Maynard Keynes, saw this as a wrong decision from the government. Winston Churchill even recommended that government should put more of its economical decisions into hands of economically educated and qualified people.

The matters worsened to such an extent that on 21 September 1931 the government was finally forced to forsake the Gold Standard. The exchange rate of pound immediately fell by 25 per cent – from $ 4.86 to $ 3.40 (Floud and McCloskey, 299). As a consequence the price of British products fell and the demand went slightly up. Furthermore, a general tariff on imported goods, except raw materials, was imposed in 1932, amounting to up to 10 per cent. This decision was very popular with the new industries such as the chemical or the motor industries, but also the textile industry was in favour of it, as it gave it a chance to compete. The tariffs also made the domestic goods more profitable, as people’s interests in imported goods started to fade.

Nonetheless, Britain wanted to stay on good economic terms with the Commonwealth countries, because they were loyal to Britain when she was having a very difficult time. Thus the government met their representatives in Ottawa and agreed on favourable treatment of their exports, and in return the Commonwealth would grant a concession on the treatment of British goods.

2.4 1932-1939

This period could be seen as the recovery period of the world economy. The recovery of the British economy was very similar to that in 1921, with the difference that this one lasted longer. It is important to say that Britain mainly concentrated on domestic markets and affairs. Nonetheless, the increase in exports also played an important role in the process of recovery – the exports rose by 24 per cent in the last months of 1932 (Floud and McCloskey, 359).

There was a very good opportunity for investments, because the interest rates were very low and, more importantly, stable. The building industry took a full advantage of this situation and therefore helped with the recovery enormously. This led to the housing boom, which in turn generated many job opportunities in industries connected with it – such as the producers of bricks, pipes and other construction materials. Those industries alone were responsible for the decrease in unemployment.

The new industries producing goods mainly for domestic market also used these favourable terms for upgrading their machinery. Therefore they were able to manufacture goods of higher quality and to compete against foreign manufacturers. Industries which were based on scientific findings started to employ new materials, like plastics, and new technologies, mainly electrical. One of the industries which showed a huge improvement was the motor industry. Cities where the motor industries were located, for example Birmingham or Coventry, enjoyed a boom. The quality of the products improved significantly and caused a decrease in the import of this kind of products. The art movements such as Art Deco had greatly influenced the design of British cars and were important for the distinction of British car industry and modern British car. As noted by Down (25) "By the late 1930s, British designers had learned to apply the elements of 'airline' design, which had become more universally accepted and were adopted by more manufacturers." Prosperity was also enjoyed by those industries which used mass production methods. Due to these methods new products, such as washing machines and radios, were available to a wider range of consumers. The increase in output stimulated a further decrease in unemployment.

Although the British economy was recovering and many cities and districts were experiencing a boom, there were many parts of the country where the situation remained the same, or the changes were nearly imperceptible. The North and other areas where the traditional industries were placed were having a very difficult time during the 1930s. The recovery in those industries was very difficult because, in comparison with other countries, they were behindhand in production and had a high number of employees. This was even more evident in the northeast, a home of shipbuilding industry. The demand for ships during the Great Depression was almost zero and the situation did not change in the 1930s. In some towns and cities was gigantic unemployment – up to 70 per cent (Constantine, 79). The most affected town was Jarrow, where the unemployment problem and unbearable situation led to the famous Jarrow March: a march of unemployed people who walked 300 miles from Jarrow to London as a protest against unemployment. What led to the greater publicity of the march and of noticing the overall living conditions and state of unemployment in Jarrow was according to Vernon (252): "The march from Jarrow was seen as representative of the whole town, not a specific party or class." Similar picture could be seen in the northwest of Britain, a home of textile industry, south Wales, one of the centres of coalmining and steel industries, and central Scotland, another centre of shipbuilding industry. The government tried to help those severely damaged industries by loans, and in the effort to reduce unemployment it pursued several policies, such as road building. They helped a little, but they were not carried out on a large enough scale to make any lasting difference. It was mainly those regions which are responsible for creating the image of Britain in the 1930s as a land of hunger marches, people standing on the corners with nothing to do, long queues at the kitchens of the Salvation Army and dole queues. George Orwell described the life of unemployed people in northern England in his book The Road to Wigan Pier (1937) as:

Several hundred men risk their lives and several hundred women scrabble in the mud for hours … searching eagerly for tiny chips of coal in slagheaps so they could heat their homes. For them, this arduously-gained coal was more important almost than food. (george-orwell.com)

Nonetheless, the unemployment rates were falling. Its modest fall began in 1933, when it was on the level of 23 per cent, and it continued as a very slow decrease – it was most noticeable in the years 1935 and 1936 (Constantine, 4). However, this occurred mostly in the areas where new industries had developed, or where a housing boom was taking place. The northern parts and centres of traditional industries kept their high unemployment figures throughout the whole decade.

In 1936 the National Government launched a policy of mass rearmament because Nazi Germany started to be perceived as a threat to the world peace. Quite ironically this policy provoked a stimulus which finally ended the depression. The traditional industries started to recover. The unemployment had fallen to 1.5 million by 1937, mostly in the north of Britain (Constantine, 4), and it kept falling and was ended by the mobilization after the outbreak of the war.
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