Pre-and during World War 1, Britain dominated the international market. Communications and technology had improved across the globe. And all currencies were tied to the gold standard up until 1914. This meant that capital flow was stable and so there was an opportunity for increased investment and industrial growth across Britain. But, as global situations changed, Britain needed to move to autarky to ensure stability.
Conscription
But, as the Great War broke out, the British government had to step in and so introduced conscription. The war effort needed all hands. The whole of the British population was almost forced to participate actively, in all sorts of roles, to ensure victory on the Continent. Skilled, unskilled, management. Everyone was used in some form to support the military.
Britain’s Economy
After the First World War, the British government continued to play a role in the country’s economy. This was a big change from the government’s role in the economy pre-War. Across Europe, there was an overall decline in economic power. At this time the British government chose to pursue national economic policies at the expense of long-term international trade. Even though the redevelopment of the country and its prosperity depended heavily on the development of international trade.
Then, in 1929, a worldwide economic crisis, comparable to wartime, caused a shift in balance. It can also be argued that this partly led to the outbreak of the Second World War a decade later.
The Change Post-War
The population profile of Britain looked very different from pre- War and pre-Crash. Men were the economically active section of the population. Millions had died across Europe in the War, the Russian Revolution in 1917, and during the Influenza epidemic of 1918. For the first time, women entered the workplace, especially in the industrial sector.
No country, including Britain, was able to fund itself using its own resources alone. And after exhausting all savings, Britain turned to the USA for financial support. Britain’s national debt went from £650 million to £7,000 million, which as you can imagine negatively impacted future development due to the high-interest rate. Britain lost its importance as the economic hub of the world, and the USA took the lead.
Taxes rose significantly to raise money for health care, pensions, and unemployment support.
Treaty of Versailles
The Treaty of Versailles in 1919 created new national boundaries, which led to high protective tariffs restricting the flow of goods and capital. Autarky, also called ‘economic nationalism’, was thus encouraged by shutting out the competition and preventing free trade.
Peace in Europe post-WW2 led to a number of complications. Germany was held responsible for the War and needed to pay reparations to the Allies. But the Allies had borrowed heavily from the USA after they had depleted their own reserves. They also needed money to repay their own war debts.
Power of the US
At this time the USA was very powerful and other countries (in comparison) were weak. Britain and France both owed a lot of money to the USA that they had borrowed after World War 1. The flow of goods and capital was westwards out of Europe and across the Atlantic Ocean. This drained the continent, and World depression was inevitable.
The USA stopped lending money and they were not importing much (levies of up to 60% were put in place on imports in the USA in the early 1930s). In 1932 even Britain abandoned what was left of free trade and self-sufficiency became the dominant factor in the economy.
It was believed that if you cut yourself off from vulnerable economies you could protect yourself and secure survival.
The beauty of history is that there are always many factors that lead to a single act. But overall, the early years of the twentieth century, and the development of globalisation led to a dramatic economic shift in Britain, with a halt on free trade. This had impacted not only the lives of the British but economies across the planet, as we became more and more dependent and reliant on others, as globalisation took hold.
