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Recession and Recovery in Britain: the 1930s and the 1980s

Published online by Cambridge University Press:  26 March 2020

P.A. Gregg  and
G.D.N. Worswick
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Extract

A few years ago, comparisons were being made between the recession of the early 1980s in Britain and that of 50 years earlier, in the 1930s. The latter was followed by a recovery in output which lasted over five years. A new recession appeared in 1938, but it was swiftly overtaken by growing rearmament and the outbreak of war. On this occasion, the recovery of output has already run for six years and, though there may well be more to come, we now have sufficient figures to make a worthwhile comparison of recession and recovery in the two periods. It is the strong similarity in the strength and depth of the two recessions which makes the comparison of the subsequent recoveries a useful measure of the success of recent economic performance. In terms of annual data 1929 and 1979 were the peaks of the preceding expansion, and we take advantage of the coincidence of the last digit. Those variables expressed in index number form are taken as 100 in the years 1925 and 1975, and we characterise the periods 1925-37 and 1975-87 as Then and Now. Data for Then are taken mainly from Feinstein (1972) and for Now from Economic Trends and other current official sources.

Type
Articles
Information
National Institute Economic Review , Volume 126 , November 1988 , pp. 44 - 50
Copyright
Copyright © 1988 National Institute of Economic and Social Research

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References

(1) See, for instance, National Institute Economic Review, no.95, February 1981, p.7, and G.D.N. Worswick, ‘Two great recessions: the 1930s and the 1980s in Britain’, Scottish Journal of Political Economy, vo1.31, no.3, November 1984.

(2) Feinstein, C.H. (1972), National Income, Expenditure and Output of the United Kingdom 1855-1965, Cambridge University Press.

(3) An additional consideration is that in 1938 the expenditure estimate showed a continuing rise, but the output measure showed a fall, which accords more closely with the fall in the index of industrial production and the rise in unemployment in that year. Use of the ‘compromise’ estimates, while altering details in year-to-year changes, would leave the overall comparison unaffected.

(4) For Then the source is Feinstein (1972); for Now it is the 1988 National Accounts Blue Book, which gives GDP estimates at 1985 prices, while the 1987 Blue Book figures were at 1980 prices. The new output index exceeds the old by 0.6,0.8 and 0.5 percentage points in 1982, 1983 and 1987 respectively. Otherwise the difference between the new and the old never exceeds 0.2 per cent between 1975 and 1987.

(5) Population of working age is defined as 15-64 Then and 16-64 males and 16-59 females Now.

(6) Taking the unemployment rate prior to 1929 as 7.5 per cent, the average excess above this in the following eight years was 4.5 per cent. Taking 1979 as 5 per cent, the average excess in the next eight years was 5.7 per cent.

(7) Measured by output or employment, the ‘recovery’ is dated to begin towards the end of 1932. The figures for industrial investment are (in £ million at 1938 prices):

Since industrial investment was still falling after the recovery had already begun, it can hardly have caused the recession. The timing makes it quite clear that the fall in exports came first, and that in industrial investment much later. There is a fuller account of the recession Then in G.D.N. Worswick, ‘The recovery in Britain in the 1930s’, Bank of England Panel Paper no.23, April 1984. For 1979-81 see M.J. Artis et al., ‘The effects of economic policy 1979-82’, National Institute Economic Review, no.108, May 1984; and ‘The British economy since 1979’, National Institute Economic Review, no.122, November 1987.

(8) The idea that excessive increases in real wages were a major factor in explaining both the 1930s' depression and the subsequent recovery was expounded by Beenstock, Griffiths and Capie in ‘Economic Recovery in the United Kingdom in the 1930s’, Bank of England Panel Paper no.23, April 1984. Their significance for the 1980s is discussed in the Treasury paper, ‘The Relationship Between Employment and Wages’, HM Treasury, January 1985.

(9) There was also a fall Then, in 1926, which has no counterpart Now. The General Strike is the most obvious explanation.