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Economic Growth and Structural Change in the United Kingdom, 1870–1914

Published online by Cambridge University Press:  03 March 2009

William P. Kennedy
William P. Kennedy
Affiliation:
Lecturer in Economic History at the London School of Economics, London, England, WC2A 2AE.
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Abstract

The paper presents an estimate of the limits to British economic growth in the period 1870–1914. It is argued that in contrast to the historical experience, vigorous and effective exploitation of the technological possibiites of the period would have required the relative expansion of some sectors—most of which, like engineering, were growing in relative size in any case—and the relative contraction of others. The conservatively estimated gains from such counterfactual sectoral shifts of economic activity were found to be of the order of 25 percent to 50 percent of British GNP in 1913. The paper concludes with a brief consideration of why opportunities of this magnitude were not seized.

Type
Papers Presented at the Forty-First Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 42 , Issue 1 , March 1982 , pp. 105 - 114
Copyright
Copyright © The Economic History Association 1982

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References

1 For a cogent review of Britain's difficulties, see Landes, David S., The Unbound Prometheus: Technology Changes in Industrial Development in Western Europe, 1770 to the Present (Cambridge, 1969), chap. 5.Google Scholar

2 This argument has been expressed most clearly by McCloskey, Donald N., “Did Victorian Britain Fail?” Economic History Review, 2nd ser. 23 (12 1970), 446–59.CrossRefGoogle Scholar

3 There is a large literature on Britain's late nineteenth-century economic performance which stresses comparisons with other economies. A convenient introduction to this literature may be found in Landes, Prometheus, chap. 5.Google Scholar

4 Average relative sector size was calculated as follows. First, the average value of the sector's index number was calculated. In all cases, 1913 = 100. The sources of the index numbers are discussed in the Essex Discussion Paper cited earlier. The sectoral index number was then compared with an index number of real GNP to form a ratio. If the ratio were greater than unity the sector was growing more slowly than GNP; if less than unity, the reverse was true. For 1907 in the United Kingdom and for 1909 in America, it is possible to obtain reasonably accurate comparable sectoral shares of GNP. The share in each country for the census year is then multiplied by the ratio of the sector index number to the GNP index number. A ratio value of unity would imply that the census year relative share could be used for the 1870–1913 average. Otherwise the appropriate correction is made.Google Scholar

5 Kuznets, Simon, Modern Economic Growth: Rate, Structure, and Spread (New Haven, Connecticut, 1966), pp. 262–84.Google Scholar

6 An example would be the reversal of the perceived growth rates of textiles and engineering such that engineering would be found to have grown substantially less rapidly than GNP and textiles more rapidly. Such a reversal would, not surprisingly, have a substantial impact on the counterfactual estimations.Google Scholar

7 Akerlof, George A., “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics, 84 (08 1970), 488–500.Google Scholar Even when markets are not completely destroyed, the influence of imperfect information can easily lead to the persistent nonclearing of markets. If the problem is sufficiently serious, investment for even the most promising projects may be strictly rationed. See Stiglitz, Joseph E. and Weiss, Andrew, “Credit Rationing in Markets with Imperfect Information,” American Economic Review, 71 (06 1981), 393–410.Google Scholar

8 It is important in this context to note the virtually complete absence of competitive takeover bidding in British capital markets before 1948, when the disclosure laws were significantly tightened. See Hannah, Les, “Takeover Bids in Britain before 1950: An Exercise in Business ‘PreHistory’’ Business Hisory, 16 (01 1974), 65–77. Competitive takeover bidding for corporate control is not a sufficient condition of capital market efficiency but it is surely a necessary condition.CrossRefGoogle Scholar

9 This argument is rehearsed in Kennedy, William P., “Institutional Response to Economic Growth: Capital Markets in Britain to 1914,” in Management Strategy and Business Development, ed. Hannah, Leslie (London, 1976), pp. 151–83.CrossRefGoogle Scholar