Lack of Competition and De-Industrialization in the Uk 20th Century

Zabrina Chang

EC364A

Due 05 October 2017

Lack of Competition and De-Industrialization in the 20th Century

INTRODUCTION

Industrialization is the movement from agriculture to manufacturing. On the other hand, de-industrialization is the movement from the manufacturing, to the services sector. In the 18th and 19th Century, Britain was the first country to industrialize. The UK’s rise in industrialization was attributed to a mix of many different reasons. On the other side, whilst there are various theories about Britain’s relative economic decline in manufacturing, the plausible theories all have one thing in common – competition. Lack of competition was a very big cause of Britain’s relative economic decline in manufacturing during the 20th Century. According to Crafts in British Relative Economic Decline Revisited, “the weakness of competition… was fundamental to British relative economic decline”. There are several plausible and non-plausible theories explaining Britain’s de-industrialization. The plausible explanations of the Failure Thesis, trade unions, trade protectionism, technology, and collusion would not have led to such an economic decline in manufacturing if there was competition. In his article, Crafts does not want to “suggest that competition was the only or necessarily the most important explanation”, but I disagree. While competition might not be the only reason for Britain’s decline, I believe that competition and making Britain essentially a closed economy is one of the most important explanations to Britain’s relative economic decline during the 20th Century up to 1980.

TRADE PROTECTIONISM

To start off with, the biggest reason for such little competition was because in the 1930s – 1970s, the UK established a very high tariff rate for trade protectionism because of the Great Depression. The problem with such a high tariff rate was that it stopped competitors from entering the UK market as they would have had to pay that tariff and raise the prices on their products. In addition to this, the government provided collusive behavior by promoting monopolies. They did implement policies like the Monopolies and Restrictive Practices Commission (1948), Restrictive Practices Act (1956), and Monopolies and Mergers Commission (1965), but it was not very effective as “few investigations took place, very few mergers were prevented, the process was politicized, a variety of ‘public-interest’ defences for anti-competitive activities were allowed, and there were no penalties for bad behavior” (Crafts). In addition to not being very effective, the government and the committees created by these Acts did not enforce the terms very well as only about 30 percent of manufacturing had no price-fixing and about 35 percent became a cartel. Crafts views that the reduced competition from the tariffs led to inefficiency, higher costs, and lower innovation which led to an economic downturn in manufacturing and I agree. Without competition, there is no drive to make processes more efficient as there is no one else who consumers can choose from. Lack of competition also makes it easier for those cartels and monopolies to have a different objective than maximizing profit, for example, if there was a principal-agent problem, become costly and inefficient, or fail to innovate.