1b: Responding to economic challenges: Creating a managed economy, 1939-51



  • Churchill's gov took control of war production & developed specific ministries for controlling the wartime economy:
  • The Ministry of Aircraft Production
  • The Ministry of Supply
  • The Ministry of War Production
  • The Ministry of Food
  • The Ministry of Labour and National Service
  • All ministries had extensive legal powers to intervene and take over (if necessary) the running of essential war industries.
  • In peacetime, production was determined by prices for goods & profits.
  • In wartime, production levels were decided by the gov.
  • The managed economy was to a large degree maintained by the post-war Labour gov, particularly through the nationalisation of key industries.
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Military expenditure

  • Britain had managed a degree of rearmament before the war, however by 1939 there were still significant shortages in military equipment.
  • In 1940, when Britain appeared to be losing the war, the growth of state intervention resulted in a huge increase in war production & military expenditure - Britain produced 15,000 aircrafts in 1940 & 47,000 in 1944, as well as 6,000-8,000 tanks a year.
  • Military expenditure as % of national income: 15% in 1939, 44% in 1940, 55% in 1943.
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Economic aid

  • Even though USA was neutral, it offered Britain considerable economic help in 1939-41 - the 1939 American Neutrality Act initially allowed the British to buy supplies w/ cash only, but by Dec 1940 Britain's cash & gold reserves were spent.
  • Churchill arranged a credit agreement known as the Lend-Lease Agreement - America would supply Britain w/ the resources it needed but the bill would be paid after the war.
  • American 'Liberty Ships' were large cargo vessels full of oil, coal, timber, food & essential raw materials for the war effort - provided Britain w/ an economic lifeline throughout the war as German U-boats in the Atlantic prevented British ships from bringing goods to Britain.
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Post-war austerity, 1945-51

  • By end of WW2 Britain owed over £4bn of debt to the USA - repaying this & interest cost £70m every day.
  • After the war, British economy had contracted by 25% & trade had declined by 2/3 - British shipping had been sunk by German U-boats & countries in Europe & Asia which previously bought British exports were devastated by war.
  • American wartime aid to Europe & China helped US manufacturers dominate post-war markets, w/ brands like Hersheys & Studebaker cars competing w/ Cadburys & Morris.
  • Economist John Maynard Keynes visited Washington in August 1945 to negotiate an emergency loan for Britain which he argued should be a non-repayable gift in recognition of Britain's wartime efforts - US Congress disagreed.
  • 1948 - Britain received £2.7bn in Marshall Aid however failed to use this to reinvest in industry, instead paying for general expenses at home & overseas.
  • 1950 - Britain's investment in infrastructure stood at 9% of GDP, whereas Germany's was close to 20% - by the 1950s & 1960s, Germany & Japan exported cars, electrical & consumer goods to Britain & the rest of the world.
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  • Can be considered most important economic change to occur under new Labour gov in 1945.
  • State took control of coal, power, railways, ship building & banking - gov hoped nationalisation would give them ability to create full employment.
  • Main priority of Labour & later Conservative govs was not to return to an age of mass unemployment as in the interwar years.
  • During first Labour ministry a series of nationalisation acts brought large sections of industry under gov control:
  • 1946 Coal Industry Nationalisation Act
  • 1946 Bank of England Act
  • 1947 Transport Act (nationalised railways, road haulage & buses)
  • 1947 Electricity Act (nationalised electricity production & the national grid)
  • 1948 Gas Act (nationalised gas industry)
  • 1949 Iron and Steel Act (nationalised iron & steel industry)
  • The shareholders of the industries nationalised were compensated by the gov e.g. private rail companies were bought for £1bn & the total bill for nationalisation exceeded £2bn, which left little money for important modernisation & stored up economic problems for the future.
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Labour's economic record, 1945-51

  • Strong in most regards.
  • First priority was full employment - achieved between 1947-51 & total no. of unemployed reduced dramatically from 1930s levels to just under 300,000.
  • Britain began to boost its world trade & reduce its balance of payments deficit - exports grew by nearly 80%.
  • The economy grew by 4% each year after 1948.
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