Modern Britain, 1750 to the Present

Introduction

At this stage, with less than a century left to cover before we reach the present, it is worth recalling that we are perhaps only half way through the story of the rise, demise and reinvention of liberal political economy. The last three chapters have shown how a variety of economic and political crises from the late nineteenth century provided fundamental challenges to the central tenets of liberal political economy. The first Great Depression punctured faith in the efficiency of free markets, and the Great War accelerated the erosion of cheap government and laissez-faire. Yet it was the second Great Depression, and the final abandonment of free trade and the gold standard in 1931, that marked the decisive moment of transition to a new system of government and economic management. The next three chapters will outline the development of a new social democratic system of government that sought to actively manage markets so as to secure the rights to work, health, housing and education for all members of society. Rather than allowing markets to determine the fate of individuals, governments would now manage the economy in the interests of society as a whole.

This system had three chief characteristics. First, the development of new forms of economic management and planning by the state that stretched across, and depended on Britain's imperial economic system. Britain did not introduce anything approaching the ‘New Deal’ President Roosevelt developed in the United States to combat the Great Depression that unfolded after the financial crash of 1929. Yet the new importance attached to developing colonial economies, the introduction of protectionist tariffs and a new Sterling Area to bolster the value of the pound, as well as the designation of ‘Distressed Areas’ with the highest rates of unemployment at home that required assistance, all signalled a new approach to state planned economic management. The experience of mass unemployment during the Great Depression was vital to the Labour Party's success at the end of the Second World War in arguing that the state should nationalize and publicly own key industries to secure ‘full employment’.

Economic management enabled the second important feature of social democratic government, namely a system of welfare that would provide social security for all. The welfare systems developed either side of the Great War had been limited to specific demographics and proved deeply inadequate for the challenges of the Great Depression.