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A united Britain was victorious in war – but fallacies about the interwar peace persist

THE REPUTATION of the interwar period but especially of the 1930s as the decade of the slump and appeasement has done untold damage to British self-confidence ever since. It was a period during which supposedly a prosperous world power became economically second-rate, a weakling in international affairs and lost its place as a top-rank power.…

THE REPUTATION of the interwar period but especially of the 1930s as the decade of the slump and appeasement has done untold damage to British self-confidence ever since. It was a period during which supposedly a prosperous world power became economically second-rate, a weakling in international affairs and lost its place as a top-rank power. None of this was true.  

Germany and the USA suffered worse depressions than we did, as did France in the later 1930s. France and the USA were greater appeasers than the United Kingdom. Moreover, large parts of the economy by 1939 were booming. To quote A.J.P. Taylor: if the 1930s were the devil’s decade, “at the same time English people were enjoying a richer life than any previously known in the history of the world: longer holidays, shorter hours, higher wages. They had motor cars, cinemas, radio sets, electrical appliances.” Little wonder, there was no threat to democracy in Britain between the wars. None the less, the dreadful reputation of the Thirties has been exploited by the numerous exponents of the myth of national decline in the twentieth century – left-wingers and European federalists – to undermine British self-confidence. This myth has also served Scotland’s nationalists, so from now on this revisionist history of Scotland will set its story within the parameters of a revisionist history of Britain. 

It cannot be denied of course that Britain, and Scotland within it, faced many challenges in the 1920s and 1930s. The First World War had killed off the old international economy and Britain’s place therein. The USA had become the world’s leading economic power and had taken over many British export markets. The Japanese had done so, too, in the Far East, India, China and the East Indies. After the war, too, countries like Canada and Australia began to industrialise with the result that there was less demand for British staples on which for example the Scottish economy depended. India, meanwhile, had gained control of her own tariffs and could levy these on British goods. Even demand for coal began to fall with the rise of petroleum-based transport. There was a post-war glut in shipping but also in primary products causing world prices to fall for countries which traditionally purchased British goods. 

The British position regarding invisibles was also weakened. Ten percent of overseas assets had had to be sold off to help pay for the war and we had accumulated a large war debt with the United States. (While German war debts were later written off, the Americans refused to write off ours.) Britain lacked a surplus on current account throughout the 1930s and on her trading account throughout the whole interwar period. This meant she could not rebuild her overseas wealth. Finally, the 1925 return to the gold standard at $4.85 an ounce brought only deflation. 

Even so industrial productivity grew between 1920 and 1929 at 2.8 per cent per annum and industrial productivity by 3.8 per cent. World War One had spurred on technical advances: motor cars, aircraft, advanced machine tools, chemicals, ball-bearings, leading to more applied science and standardisation in the new industries such as automobiles, electrical engineering, chemicals, paper and printing. Even staples became more efficient with an 18 per cent rise in productivity in coal between 1924 and 1930 and 25 per cent in iron and steel production between 1923 and 1930. And clearly the economy was changing. The old staples produced 42 per cent of export receipts in 1929 and the new industries only 8.2 per cent. By 1937 the corresponding figures were 37 per cent and 21 per cent. Other positive signs were that average growth in industrial production per annum during 1929-1937 saw Britain with 3.4 per cent, Germany with 3.0 per cent, France with minus 2.8 per cent and the USA with 0.4 per cent. The equivalent figures for the average growth in output per manhour per annum for the same period were: Britain 2.1 per cent, Germany 2.1 per cent, France 1.6 per cent and the USA 3.3 per cent. And in England from the mid-1930s there was a huge house-building programme.  

The international economic situation was made even worse by the US stock market collapse in 1929, followed by the US Smoot-Hawley Act of 1930 which raised American tariffs by an average of 20 per cent at the same time that the US money supply was being cut by a third. A US depression inevitably followed. This meant that other countries would find it nigh impossible to export to the USA. In response, the British government did what it could in a very bad situation. In 1931 Britain left the gold standard and in the same year she introduced tariffs of her own as well as imperial preferences agreed with Commonwealth Dominions at Ottawa. The new – and very competent – Chancellor of the Exchequer, Neville Chamberlain, also created ‘cheap money’ by cutting bank rate from 6 per cent to 2 per cent. 

Still, the economy was scarred by high unemployment. Between 1932 and 1935 over 2 million people on average were out of work and a peak figure of almost three million was reached in the winter of 1932-33. This was almost one quarter of the insured workforce. Moreover, those areas dependent on staple industries – Northern Ireland, South Wales, the North East of England and Lancashire and Central Scotland – became depressed and faced huge social and economic problems, even if they benefited from a certain amount of slum clearance, municipal building and relief schemes. Areas such as Jarrow, Gateshead, Motherwell and Greenock saw almost 75 per cent of insured workers out of work in 1932. Half a million Scots emigrated during the 1920s and every year between 1927 and 1939 Scottish unemployment was higher than the national average. In July 1933 it stood at 28 per cent compared to 16 per cent in England and Wales. On the other hand, a social survey of Oxford in 1938 could dismiss unemployment as “almost negligible”. 

The truth, however, was that throughout the interwar period never less than 75 per cent of the UK workforce – and often considerably more – was in employment. And in the Midlands and South of England, new industries were creating new jobs. Welsh miners would flock to Slough, for example, where many other Welshmen had already found jobs. Scots on the other hand lived too far away from these new centres of light industry. 

Several factors encouraged a rise in prosperity in the South. Wages fell by 2 per cent for those in work but prices by 10 per cent. This rise in real wages stimulated the purchase of all kinds of goods and investment in building societies. These latter investments rose from £88 million in 1920 to £711m in 1939. Houses were cheap and so were mortgage rates, so hence the private housing boom in Southern England and the Midlands. Moreover, these new houses had electricity and two thirds of all homes were ‘wired up’ by 1939. The great boost in electricity supply also furthered the sale of all sorts of new electric appliances – washing machines, Hoovers, fridges, radios and record players. It also boosted the electrification of suburban railways and the completion of the national grid. For some industries, indeed, the 1930s were years of unprecedented growth. Britain by 1937 was producing half a million motor cars a year at factories in Coventry, Luton, Oxford and London which employed a workforce of 400,000. Some 1.8 million people owned cars by 1937. Advances in petrochemicals meanwhile brought about the use of Bakelite in consumer goods and man-made fibres in clothing. 

J.B. Priestly could describe England in the 1930s as a country of “arterial and by-pass roads, filling stations and factories that look like exhibition buildings, of great cinemas and dancing halls, bungalows with tiny garages, cocktail bars, Woolworths, motor coaches, wireless, hiking, factory girls looking like actresses, greyhound racing and dirt tracks, swimming pools and everything given away for cigarette coupons.” Orwell wrote in only slightly different terms of the poorer, working class areas in the North, although what he said also applied to Scotland: “It is quite likely that fish and chips, art-silk stockings, tinned salmon, cut-price chocolate (five two-ounce bars for sixpence), the movies, the radio, strong tea and the Football Pools have between them averted revolution.” He could have added dance halls, record players and popular magazines. The Frankfurt School of Marxists thought the same. Consumer goods, jazz, cinema and nylons gave the working class a “false consciousness” that capitalism worked. 

Yet there were other reasons why the unemployed remained so passive. For a start in areas like Central Scotland the scale of unemployment was simply so massive that it seemed like an act of nature about which nothing could be done. More to the point, everyone was on the dole and could avoid starvation. There were even supplementary benefits for the worst off. Labour certainly had no ready solutions and only bothered to organise one demo in 1933. The trades unions were equally useless. They represented only employed workers anyway. Insofar as the radical Left had posed a challenge with the Red Clydesiders after 1918, their influence had died by the early twenties and any challenge from a united left collapsed with the defeat of the General Strike in 1926. It only lasted a week until the miners were deserted by their fellow trade unionists. Evidence for working class militancy or alienation is in any case hard to find.  

The famous Jarrow March of 1936, for example, consisted of only two hundred men, was non-political and organised with the cooperation of the police; one marcher was expelled because he was a communist. On the eve of World War Two the Communist Party achieved its greatest membership – a mere 17,756 members. Even the British Union of Fascists (BUF) had achieved a peak of 40,000 active and non-active members in 1934. The country seemed content to follow a Conservative lead.  

In 1932 supporters of the National Government won 533 seats to Labour’s 35. Even in 1924 in Scotland the Unionists had won 38 seats to Labour’s 27. Orwell conceded: “However much one must hate to admit it, it is almost certain that between 1931 and 1940, the National Government represented the will of the people.” And the leading British socialist intellectual of the time, G.D.H. Cole admitted: “Tory spokesmen are not talking sheer nonsense when they claim that the National Government has pulled Great Britain successfully through the greatest depression in history.”   

This is the sixth part of the series, here are the others:  

Part one – Mythology in the history of Anglo-Scots relations;   

Part two – From Auld Alliance to creating the Union;  

Part three – Scotland 1707-1914: The Union adjusts and consolidates;  

Part four – A loyal Scotland fights for Britain: 1707-1918; 

The Union survives the War and evolves: 1918-1938 

Alan Sked was educated at Allan Glen’s School in Glasgow, before going on to study Modern and Medieval History at the University of Glasgow, followed by a DPhil in Modern History at Merton College, Oxford. Sked taught at the London School of Economics where he became a leading authority on the history of the Hapsburg Empire, also teaching US and modern intellectual history and the history of sex, race and slavery. Alan Sked is now Emeritus Professor of International History at the London School of Economics. 

Portrait of Neville Chamberlain by Sir William Newenham Montague Orpen (1878-1931) 

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Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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