INTRODUCTION

This chapter reviews UK economic growth performance from mid-Victorian times to the end of the interwar period. It aims to place this experience in the context both of initial British pre-eminence and subsequent relative economic decline and of new ideas in growth economics. A growth accounting framework is used to establish the proximate sources of growth and to compare UK experience with that of Germany and the United States. Against this background, special attention is given to two controversies, namely, whether the British economy ‘failed’ in the late Victorian and Edwardian period and whether the interwar period and, especially the 1930s, saw a successful regeneration of the economy’s growth potential. Finally, in so far as the UK underperformed during these years, it is important to examine the incentive structures which informed decisions to invest and to innovate and the roles played by market and/or government failure.

AN OVERVIEW OF GROWTH

Britain was the first industrial nation but by the end of the twentieth century had become just another OECD economy with an income level below that of North America, most of western Europe and parts of East Asia. This relative economic decline is sometimes regarded as a continuous process that started around 1870 and had already alarmed contemporaries in the late nineteenth century as Germany and the United States emerged as powerful economic rivals. Its dimensions are, however, not well understood by many commentators. This section sets out a basic quantitative framework within which debates about UK growth performance can be placed.