This chapter reviews British economic growth performance from mid-Victorian times to the eve of the financial crisis which erupted in 2007. It aims to place this experience in the context both of Britain's early start as the first industrial nation and its subsequent relative economic decline and also within ideas from modern growth economics. A growth accounting framework is used to establish the proximate sources of growth and to make comparisons with Germany and the United States. Productivity outcomes are examined in relation to successive epochs of supply-side policy.
The chapter analyses and evaluates Britain's long-run growth record using insights based on models which view the sources of growth as ‘endogenous’, that is to say, determined within the economic system. In other words, the incentive structures which underpin decisions to invest, to innovate and to adopt new technology will be of central importance, together with the political economy of government decisions which directly or indirectly affect the rate of improvement of productive potential.
Against this background, special attention is given to several debates, including whether the British economy ‘failed’ in the pre-1914 period; whether the interwar period, and especially the 1930s, saw a successful regeneration of the economy's growth potential; what explains falling behind in the so-called ‘Golden Age’ of European economic growth after the Second World War; and how far the radical change in policy initiated in the Thatcher years after 1979 delivered an improvement in growth compared with other European countries.
AN OVERVIEW OF LONG-RUN ECONOMIC GROWTH
In 1870, Britain was the leading industrial nation and had an income level well above that of major rivals. Before 1913 the United States overtook the UK but in 1950 the UK was still well ahead of both France and West Germany. After that, slower growth in the UK meant that those countries pulled ahead and had established a significant income gap by the end of the 1970s.