The relative decline of the British economy in the century up to the late 1970s has been reversed. Since then, the UK has caught up with and even overtaken its principal trading partners. The previous two sentences are neither a typing mistake nor a daydream. They are the sober conclusions of the country’s leading quantitative historian, Prof Nicholas Crafts.* UK per capita output, which had fallen in 1979 to 86-90 per cent of German and French levels, was by 2007 1-6 per cent above theirs. There was still a gap compared with the US, but less than before. On a more subtle comparison of productivity in the market sector, the UK still lagged behind its main trading partners, but the gap had very much shrunk. Yet it was in just this period of improvement that an investigation of “British declinism” became a major industry among other academics.
Prof Crafts, who is as non-partisan as it is possible to be, finds that both the improvement and the earlier deterioration took place under governments of varying political persuasions. He believes the main reason for Britain’s recovery in the decades up to 1997 was the increase in competition, which mainly accounted for the economic improvement, just as the weakness of competition accounted for its earlier decline. This “interacted with institutional legacies, namely craft control on the shop floor and the separation of ownership and control in the boardroom” and “inadequate management and dysfunctional industrial relations”.
Prof Crafts needs no apology for ending his investigation in 2007. Too much attention is paid to short-term financial shocks as distinct from underlying patterns. Yet what has happened since the financial tsunami does matter, even if it is too early to say how it will affect long-term trends. Here the picture is much less favourable. A Financial Times investigation, based on national accounts data, showed that while the US, Germany and France had more or less recovered the ground lost in the recent Great Recession, UK output was still 4 per cent below the pre-recession peak. The danger, of course, is that this short-term weakness will feed into the longer-term trend and that all the sacrifices in the name of redeployment will have been in vain. It is surely not excessively short-termist to worry about the latest indicators, especially but not only those from the retail trade, suggesting recovery has slowed to a snail’s pace, if it still exists at all.