The second characteristic of the British people goes hand in hard with the first. They are overwhelmingly a nation of manufacturers, miners, traders, and transport workers or are engaged in those countless professional and personal services which flourish in urban communities. Very few of them are farmers. In the prewar years only six out of every hundred gainfully employed persons worked on the land.

The rest of them were distributed as shown in the first column of the following table. In the second column we have the distribution of workers in the United States.

Percentage of Persons Engaged in Different Occupations

In each country the overwhelming majority of the people are engaged in industry, trade, transportation, or service occupations. In each the relative numerical strength of the farming class has declined steadily during the last fifty years. But our farm families still comprise about a fifth of the whole nation; in Britain they constitute not more than one-fifteenth.

It is obvious that these few farmers, working intensively the small area of good land available, simply cannot supply all the food and raw materials needed by the rest of the 47,000,000 people. In peacetime they did manage to produce about two-fifths of the country’s food supply; but even their most heroic efforts have been unable to provide more than about two-thirds of the shrunken food supply available during the present war. They cannot provide enough hides for leather or enough wool for cloth; and it is impossible for them to grow such tropical or subtropical products as oranges, silk, cotton, rubber; coffee, tea, or bananas in a climate where 80° in the shade is regarded as a deadly heat wave. The rest of the food and raw materials must be imported, and they must be paid for by the export of coal and manufactured goods or by the rendering of shipping, banking, insurance, and commercial services to people overseas. So we come to the third basic characteristic of British life—the great dependence of the country on its ability to sell and serve abroad in order to be able to buy and import. In technical jargon, Great Britain lives largely in an “export-import economy.”

It was not always so. There was a time when the country fed its less than ten million people and when most industries catered chiefly to the domestic market. But conditions began to change about two hundred years ago, as Englishmen and Scotsmen devised new industrial methods or invented new equipment. Their machines, water wheels, steam engines, and applied science gave them the power to produce iron, steel, cloth, crockery, hardware, etc., in far greater quantities, more quickly, more cheaply, and often of far better quality. Having transformed production, they turned to revolutionize transportation. They put a steam engine on wheels and created the railroad. They put another engine into the hull of a vessel and produced the steamship. In short, they discovered a. new frontier for their energy and enterprise; on it they built a huge workshop, or factory, which for a long time was almost the only one of its kind in the world; and into it they gathered a population that was doubling itself every fifty years.

To supply that workshop and its workers the outside world was combed for food and raw materials. Tariffs were abolished, and the ports were thrown open to welcome, free of duty, supplies from any continent. The grain or pork of the North American prairies, the lamb, beef, wheat, and wool of Australia and Argentina, the butter, eggs, and cheese of Denmark, Siberia, and New Zealand, cotton from our own South, lumber from the Baltic or Canada, iron ore from Spain or Sweden, and a score of other products of farm, forest, ranch, plantation, or mine flowed into Britain in an ever broadening stream. In the pre-World War year of 1913, for instance, the country imported the wheat or flour it needed for forty-two weeks out of the fifty-two. For every man, woman, and child there arrived 170 pounds of sugar, 65 pounds of meat, 23 of potatoes, 20 of butter or cheese, 7 of tea, but only 10 ounces of coffee. When the British housewife went marketing she was a global shopper. She drew on domestic, imperial, or foreign supplies, and bought what seemed the best value for her money, regardless of where it came from. In her basket she probably carried home some food from every continent.

For Years Britain Has Been One of the World’s Best Customers

For every dollar’s worth of food imported another dollar’s worth of raw materials was brought in, and about fifty cents’ worth of finished manufactured articles from those other workshops which gradually grew up in Germany, France, Belgium, Japan, and the United States. If these newer industrial countries could make articles which were better or cheaper than those made in Britain, the British readily bought them, and no tariff stood in the way to raise the purchase price.

Thus Britain became a tremendous customer of the farmers and miners of the outside world and a good customer of the other industrial lands. Of every six dollars’ worth of goods that people in all countries sold beyond their own borders in 1913, Britain ought one. In return she exported about one-third of her coal output; 4,000,000 miles of cotton piece goods, which went especially to the Far East; 100,000 miles of woolens; vast quantities of iron and steel, engine, machines, chemicals, and steamships built for foreign buyers; and a great variety of articles, such as books and beer, clothes and crockery, shoes and Scotch (or Irish). All told, these exports absorbed one-third of the country’s total output from farm, mine, or factory. It would probably not be far wrong to say that in 1913 one worker out of every three was engaged in producing goods for export or carrying them to the overseas consumer.

With these exports Britain paid for most of her imports, but not all of them. For nearly a hundred years she has always bought more goods than she sold. The difference has been paid for by selling services of various kinds. In 1913 Britain owned two-fifths of the world’s ocean tonnage, and earned money by carrying passengers and cargo for every nation. London was the banking, commercial, and insurance center of the world, and earned large sums for the trading and financial services it rendered to clients scattered over the globe: Finally Britain was the world’s leading foreign investor. Its capital flowed abroad to be invested in colonial or foreign government loans, or into the stocks and bonds of industries, mines, railroads, banks, oil fields, rubber plantations, tea gardens, ranches, shipping lines, etc. In all, about $20,000,000,000—at least a fifth of the country’s wealth—was invested overseas in 1913.

The income from these services and investments—these “invisible exports” as they are called—paid for the excess of visible imports of food, raw materials, etc., over the visible exports of coal and manufactured articles. In fact, that income often more than paid for the excess. When all the bills had been settled there was still some money due from the outside. This money the British usually left overseas to be lent or invested in further developing the New World or in modernizing more of Asia and Africa.

By developing and expanding this world-wide exchange of goods and services for goods, the British prospered, and never more so than on the eve of the first World War. They were able to maintain a growing population on a rising standard of living; a standard which was the highest in Europe. But war upset the exchange. Exports had to be reduced. Foreign customers had to do without British supplies, get them from us or the Japanese, or begin to make the goods for themselves. After the war some nations raised their tariffs, and others were too poor to buy. Consequently the British found it difficult to win back their old customers or to find new ones to replace the old Japan, India, and China now made their own cheap cottons, and the Oriental market was lost to Lancashire. The demand for woolens was injured by changes in clothing fashions; the need for coal was reduced by the growing use of oil or electricity; the shipyards were idle, for the world had too many ships. By 1929 none of the old staple export industries had regained its prewar position, and when the depression, which began in 1929 widened and deepened in every part of the world, Britain’s visible and invisible exports alike dropped again by half.

Occupations of the British People

Prewar Census

How Britain Paid for What It Bought Abroad

Based Upon a Chart Published by Fortune

= goods.

= shipping, insurance, banking, and similar earnings.

= income from overseas investments.

= gold.

The scale on the left side is in millions of pounds sterling. For all years except 1932 the pound was a little less than $5. Note: (1) In 1913 and 1929 there was a surplus left over for further investment. In 1932 there was a deficit:

(2) In 1913 the “invisible exports” paid for about two-fifths of the imports, in 1932 for one-third, and in 1938 for one-third. But in 1938 gold was also exported in large quantities to balance the account.

This collapse brought Britain to the acute crisis of 1931. While the exports were down by half, the imports had fallen only a quarter. Hence the country did not have enough exports to pay for its imports; it was about $500,000,000 short. It had 3,000,000 unemployed, and its stock of gold was being drained out of the country. Obviously the export-import formula no longer worked. If the country could not sell, ship, and serve abroad in its old volume, it could not buy abroad in the grand old easy manner. Or, to put it another way, if people overseas would not buy from Britain they could no longer expect to sell duty free to her. She must produce more goods at home, import only what she could afford to pay for, and buy from countries which were willing to take her goods in exchange:

The free trade policy which had been the basis of British “free enterprise” for eighty years, and which had left manufacturers, miners, farmers, and shipowners to seek their own salvation in a competitive world without any state protection, was discarded. Tariffs were imposed on most imports. Commodities from the dominions and colonies were admitted duty free or at preferentially lower duties, and at an imperial conference held in Ottawa in 1932 the various parts of the British Commonwealth of Nations agreed to treat each other’s goods more favorably than they did those from other lands. The British farmer was helped by tariffs, by limiting the amount of imported foods, and by subsidies. Trade treaties were negotiated with countries which were willing to make reciprocal tariff concessions.

The years between the two wars have thus seen Britain’s foreign trade become a less important part of the country’s economic life. The fraction of the total output that was exported fell from 33 per cent in 1913 to 22 per cent in 1930, and possibly to 15 per cent on the eve of the present war. Coal mining, cotton          weaving, and shipbuilding became generally regarded as “declining industries,” which would never again be as large or flourishing as they had been. But by way of consolation for this loss, there was a great expansion in many new industries between the two wars. In Britain as in tile United States, there was the coming of the automobile and of all the industries and occupations which the car and truck brought into being. There was a widening use of electricity anti electrical appliances; a vast spread of cycling; a great increase in the commercial production of bread, cakes, candies, and canned goods; a widespread spending of more time and money attending movie houses, playing or watching games, going on hikes or holidays, or seeking other forms of relaxation; and there was a vigorous effort to overcome the shortages of houses and to wipe out slums.

The first World War impoverished the old rich and many of the middle class; but it raised the wages of many workers, and various other factors helped to improve the condition of the general population outside the depressed industries. Hence there was more money to spend on the activities and commodities listed above. Between 1923 and 1938 the number of persons working in these “expanding” occupations rose 50 per cent, while the number in the “declining” industries dropped nearly 25 per cent. Some of the new industries might export goods, but most of them served only the domestic market. They helped Britain to recover more quickly than did any other country from the depression of 1929–32, and the nation discovered that it could do a lot more work for itself at home instead of relying so heavily on overseas buyers.

Yet the old order is still vitally important. Britain can creep part way into the shelter of its domestic economy; but the country is too small to be a foxhole for 47,000,000 people. The British cannot live alone, unconcerned with the rest of the world, or even the rest of the world outside the Empire. They cannot feed themselves, they cannot produce all the raw materials they need, and they have no domestic supply of gasoline. Britain must continue to import on a large scale, and the problem of paying for those imports is one of her fundamental postwar problems, perhaps the fundamental problem. Many of her foreign markets are gone for the duration, and will be hard to regain. Her invisible exports will be greatly shrunken; for in the first place her merchant marine has been greatly reduced and she will face the competition of a vast new fleet of American freighters; and in the second place her income from overseas investments has declined, may disappear entirely if the war lasts long, and may be replaced by a debt to foreign creditors. It is estimated that 70 per cent of her overseas investments have been sold to pay for war supplies; she owes India more than she had invested there, and perhaps the same is true in the case of Canada, the Argentine, and possibly Australia. Consequently the invisible exports which used to pay for over a third of the visible imports will be very much smaller; in place of the old inward excess flow of goods to pay interest; etc., here may have to be an outward excess flow of British goods to pay interest on top of the flow which goes out to pay for food and raw materials.

If postwar conditions are such as to make international trade possible on a large scale; the British will go after it eagerly in order to pay what they owe and to buy what they need. Under the stress of war they have scrapped much that was old in their industrial equipment, organization, and methods, and have shown ingenuity and efficiency of the very highest order. The nation which designed the Spitfire and the Rolls Royce engine, which had radar all ready for use in 1940, which built the Queen Mary, which discovered the value of penicillin, and which is producing more ship tonnage per man-hour than any other country is far from finished in the world’s markets, provided there are any markets.

If there are few markets, the outlook will be gloomy, and the British will have to do without many things they would like to import. If this hurts them, it will also hurt the countries whose old customer or new debtor Britain is, for if she cannot afford to buy from them there will probably be no other good customer available. In the prewar world there was virtually no other place to which Danes, Argentineans, New Zealanders, Australians, Canadians, and many others could sell their farm produce. What they got for it depended in large measure on what the British could afford to pay them. Britain’s poverty as exporter in the twenties and thirties accounted for some of the low prices of farm produce in those days. So it may be after this war. If Britain is too poor to buy or pay good prices, sellers the world over will share her poverty, and the task of adjusting themselves to new conditions will be long and painful.

From EM 41: Our British Ally (1944)