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

Intro

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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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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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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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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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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