The Economic History of the UK and its relevance today
By Hugo Thomas
The creation of the British Empire is arguably the United Kingdom’s greatest legacy, but also one that polarises opinion. The development of a small island nation into a global superpower is of course history now, but still has relevance today and influences how the country interacts with the world.
Once the world’s economic superpower, the UK still has one of the largest economies in the world. However, as other countries catch and overtake her, her role on the global stage and how she is perceived has changed. She is no longer an industrial powerhouse and no longer does she ‘rule the waves’. The impact of COVID-19 and (possibly) Brexit may presage a further decline in her standing (although that may be a problem she has in common with other developed nations in Europe, Japan and even the United States). Just as modern industrial giants such as China and India are benefitting from large, relatively low paid but skilled workforces, so too was the UK able to utilise the vast population and resources of her empire - covering a quarter of the world’s land mass at its height and a similar proportion of its population, from New Zealand to the Indian subcontinent, and to Canada. This enabled her to control not only the raw products, but also the means of production and distribution. Unfortunately, one consequence of the rise of empire was the use and abuse of the subject peoples. Whilst the UK was the one of the first countries in the world to abolish slavery throughout its empire (by Act of Parliament in 1807) her trading companies were able to continue to exploit their overseas possessions in ways that were not so very different. For instance, , the UK was able to create a triangular trading system, transporting slaves from Africa to the colonies in North America, then bringing back home goods such as cotton, rum and tobacco, which would in turn be sold to Africa as trade goods. Profits were huge and allowed the UK’s industrial sector to expand quickly and become one of the dominant players on the economic stage. Even after abolition, these established trading practices enabled the UK to maintain its status throughout the 19th and well into the 20th century.
The UK’s military strength was often used to strengthen and support the country’s commercial operations. Land forces helped expand and consolidate colonial possessions, but it was the navy that most obviously benefitted the UK’s industrial growth. The ‘Pax Britannica’ was a time during which the navy had almost unchallenged sea power and controlled the world’s principal maritime routes. That enabled the UK to enforce a free trade policy, giving UK companies access to even more markets around the world. However, over the course of the twentieth century post-industrial decline took its toll domestically, hastened by the financial burden of two world wars. The lengthy process of decolonisation also deprived the UK of unfettered access to markets overseas, and as her military presence shrunk, the UK’s industrial pre-eminence also came under increasing challenge, and it was the United States and the Soviet Union that assumed the mantle of global superpowers.
Nevertheless, the future is not all doom and gloom. The UK economy is expected to grow by around 7% in 2021 (albeit following a contraction of almost 10% in 2020 as a result of the pandemic). She is still the sixth largest economy in the world, ranked by GDP. London remains one of the largest trading hubs for financial services in the world (and Brexit seems unlikely to end that supremacy any time soon). Arguably too, the pain of deindustrialisation that the UK underwent form the 1980s has left it in a stronger position than its western rivals to face the newer challenges from the Indian subcontinent and the far east. The growth of London as a financial centre can partly be attributed to its historical trading strengths, but also to more recent decisions, such as the deregulation of the financial markets in 1983 (often referred to as the “big bang”). This has helped consolidate the UK’s position as probably the most important financial centre in the world. Companies trading on the London Stock Exchange are now worth a staggering £3.8 trillion.
The UK also has a number of other significant but less quantifiable advantages. It is geographically well placed between China and the Americas, and the time zones work in its favour. There is also the lasting legacy of the English language, which is the unofficial lingua franca of business around the world. Even Brexit may turn out to be beneficial, as it will enable the UK to secure its own trading relationships, re-establishing partnerships with the Commonwealth and other nations that were severed when the UK joined the then EEC (now EU) in 1973. Time will tell whether these will successfully replace the undoubted advantages of free trade with the EU, but as a maritime trading nation, with a specialism in financial services, there are certainly grounds for optimism.
In addition, one must not underestimate the UK’s non-commercial presence. She has been a permanent member on the UN security council since 1945 and even today remains one of the world’s foremost military powers. Successive governments have emphasised the need to use this power for humanitarian purposes and disaster relief. Unquestionably, the use of the military has sometimes been the subject of fierce criticism, but that does at least demonstrate that even with her diminished status the UK continues to maintain a significant global presence.
So, although the future of the UK has many uncertainties and it’s probably fair to say that as a country she hasn’t yet fully faced up to the more shameful aspects of her history (the slavery debate for instance is raging on). However, the country has a habit of bouncing back from adversity and has much to be optimistic about as we enter a new age, and with (hopefully) some far-sighted and single-minded leaders at the helm, there is every reason to believe that a bright future awaits the UK as it sails off into the unknown.