During the 1920`s many economic problems occurred in Britain. However the main problems did not occur until 1929 when the Wall Street Crash occurred. The Wall Street Crash involved share prices falling to about 1/4 or even less than what they were bought for. This essay will examine how Britain was affected during the 1930`s and will look at the reforms introduced by the National Government. This will be done by examining four areas namely Depression, Labours Response, National Governments Response and other reasons for recovery.
By examining these four areas it will hopefully become evident whether or not the reforms introduced by the National Government contributed to economic recovery. Depression was felt world wide especially in America and Britain. America was affected by the wall street crash more than other countries because many people held shares and due to prices falling were unable to pay their debts which led to financial ruin. Due to many people relying on trade from America and little money being available meant that America could not provide trade to the same extent as previous years. Britain was badly hit by depression in areas where industries such as coal, steal and shipbuilding were based.
Due to demand for trade in these areas being low many of these industries had to lay off their workforce or even close down. Due to these redundancies and closures the levels of unemployment rose. Areas in Britain which were drastically affected by these closures were Clydeside, South Wales, the North East of England and Northern Ireland. During this time of high unemployment figures peaked at 3 million. This level of unemployment stayed the same for a period of three years. Overall it can be seen that depression occurred world wide and that full economic recovery was going to be hard to achieve.
It can also be seen that it was going to take a long time to achieve full economic recovery especially in areas which relied on traditional industries. The first party to try and tackle the economic problems was the Labour party led by Ramsey McDonald. Labours approach to tackling the economic problems was to follow the traditional line of the classical economists which was to balance the budget and use laissez faire. Laissez faire meant that the government did not get involved in the economy.
Their immediate response was to introduce 10% wage cuts for those working in the public sector e. g. teachers. Another change they introduced involved withdrawing about 200,000 women from being eligible to receive benefits. These steps clearly show that the labour party were tackling economic recovery the wrong way.
Labours financial advisors called the May Committee wanted Labour to take reform even further. They wanted labour to reduce benefits and introduce a scheme called means testing. Means testing meant families incomes would be examined before any benefit would be handed out. However many of labours party members opposed further reform as they felt that they were elected to help the poor and the working class. By introducing the May Committees proposals the opposing members felt that they would be breaking their promises.
Due to the mixed reaction occurring within the labour party and people having different ideas on how to tackle the economic problems the labour party split. Overall it can be seen that the labour party set out to try and solve the economic problems but could not go to the extent needed. It can also be seen that labour took the wrong direction when trying to tackle the problems. The split of the labour party showed that lots of people had different ideas on how to combat the economic problems.
As a result of the labour party splitting a National Coalition Government was formed. This party consisted of the whole Conservative party and a minority of the Labour party. The coalition party was led by the ex labour prime minister Ramsey McDonald. The National Government continued on the same line as the labour party which was to use laissez faire and balance the budget.
The first thing they did was to introduce the proposals of the May Committee which meant that Means Testing was introduced and benefits were made available for a period of 26 weeks. These changes led to a public out cry and clearly showed that laissez faire was not the right way to tackle the economic problems. The National Government realised this and gradually changed their line thought to the way of the keynesian economists. This change involved government intervention and meant that finacial resources were used and borrowing was increased. The changes introduced involved taking Britain off the Gold Standard in 1931. This resulted in cheap exports and meant Britain could make more money.
The reason for this change working was that when Britain went on the Gold Standard in the 1920`s they went on to high. The idea behind Britain going on the Gold Standard was to make the pound seem strong and to attract people to buy the pound. However this did not happen, instead people sold the pound as they had no confidence in Britain. As a result there was no point in staying on the Gold Standard.
So Britain came off. In 1932 the national government introduced import duties. This involved introducing a 10% duty on foreign goods and even higher duties on products directly competing with British goods. These duties resulted in protecting British goods and meant British goods would be cheaper and would be more likely to be bought. In 1932 there was also an Ottawa Conference where the national government agreed with the countries in the British Empire to treat each others goods more favourably than those from foreign countries.
This again meant that more money would be coming into Britain therefore improving the economy as people would buy british products as they would be cheaper. The most important change involved lowering interest rates. This allowed the Goverment, other public bodies and private companies and individuals to borrow cheaply. As a result this led to slum clearance, an increase in lower rent council housing . A housing boom also occurred as prices of houses fell. This change resulted in money coming in and employment rising due to the demand for houses.
Industries and Agriculture were given subsidies. In Agriculture the government introduced a Wheat Act which guaranteed the price of the home product. Other acts involved Agriculture Marketing Act which involved setting up marketing boards to deal with selling and buying of products such as milk, potatoes etc. In Industry acts set up involved the cattle industry and the sugar industry. Other reforms involved Nationalisation. This meant that some industries were take over by the government and had money injected into them.
Industries affected by this were the new aircraft industry, some aspects of coal and transport in London. By injecting money into these industries employment was produced and worthwhile industries were saved. In 1934 an unemployment act was introduced. This act restored the cuts of 1931 and replaced the local bodies for dealing with unemployment with Central Government Unemployment Assistance Board.
These boards were set up as people thought that some local bodies were more generous than others. In 1935 a Depressed Areas Act was introduced. This involved the Government providing money and incentives to attract businesses to those areas which had relied on traditional industries and needed special help. This would result in employment rising and would be good for areas which were badly hit by depression.
Other reasons for economic recovery involved the re-armandent program. This programme created work in the areas which were linked to heavy industry. Work was created in these areas as ships and weapons had to be built for World War 2. Another reason for recovery was due to the fact depression was world wide. This meant prices had fallen all over the world and this had led to a consumer boom as people who had money could afford products as prices were cheap.
Overall it can be seen that the changes introduced by the National Government were good and contributed to economic recovery. This is most evident when you look at unemployment figures. Unemployment fell from 3 million to 1 million, more houses were being built and electricity was being provided, there was an increase in public spending especially on goods such as hoovers, radios etc and finally living standards had improved. However these changes introduced by the National Government may have made some difference in some areas but not in others.
In the Shipbuilding industry 20% of the workforce was still unemployed. In society as a whole 1 million people were still unemployed, there was also families still living in poverty and high death rates also occurred. By examining areas such as depression, labours response, national governments response and other reasons for recovery it can be seen that recovery was hard to tackle but once the National Government found the right way to tackle these economic problems they did it well. Recovery may not have been totally made but this is understandable considering the extent of depression.