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How coherent was the National government’s response to mass unemployment after 1931 in Britain?

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The interwar years were some of the most turbulent in the history of Britain. Given the strong trade and diplomatic links between Britain and the rest of Europe and North America, the former’s economic stability depended on several external factors. The Great Depression that struck the United States in 1929 had repercussions across Europe. The mass unemployment witnessed in Britain during this period is not merely a coincidence.  On the political front the rise of the Nazi Party in Germany gave rise to distrust and apprehensions of war.  In this respect, the social history of interwar Britain is one highly influenced by unravelling economic and geo-political conditions.  To go with widespread unemployment there were also conflicts across class lines.  The General Strike and the hunger marches that were witnessed during this period were expressions of public frustration.  Although the national government was outwardly sympathetic to public angst, and on occasion participated in these mass events, there soon emerged a divergence between public aspirations and government priorities.  This essay attempts to find out how coherent the National governments’ response was to tackling unemployment after 1931.

Britain witnessed three different National governments in the 1930s.  The first one was headed by Ramsey MacDonald between 1931 and 1935. It was followed by the Baldwin government between 1935-1937.  The reigns of the National government were taken over by Neville Chamberlain in 1937 continuing onto the Second World War. (Hill & Lubin, 1934, p. 36)  British polity of the 1930s was full of contradictions. The North of England played host to numerous manufacturing industries and hence supported a large working class base.  The South, though, was financially and political more influential.  Herein was an intrinsic conflict in the British politics of that time. Even as unemployment figures were soaring in the early 1930s the policy making machinery was more attuned towards foreign affairs than domestic crises. We get vivid accounts of worker turmoil in some of the classic literary pieces of the era. Notable among them are Walter Greenwood’s Love On The Dole (1933), Vera Brittain’s Testament of Youth (1933), George Orwell’s The Road To Wigan Pier (1937), and Ellen Wilkinson’s The Town That Was Murdered (1939).  Although these accounts are classified as fiction, their portrayal of working class ordeals in 1930s is realistic and instructive for researchers.  What these works showcase is a ‘domestic policy paralysis’ that had taken hold in Britain at the time, whereby, the national government was remarkably slow in creating constructive solutions for mounting domestic issues, major among them being unemployment.

The causes for high unemployment during the 1930s could be grouped under either political or socio-cultural factors.  The government has had within its power to influence both these realms.  Yet, statistics reveal it’s broad failure in tackling unemployment during interwar years.  A cyclical pattern of rise and fall in unemployment was witnessed, with 1921-22 and 1930-33 being notable peaks.  The number of insured workers who became unemployed was around 10% in 1927 and on average it was around 14.7 %. The total number of unemployed in the UK (including uninsured workers) was a whopping 3,400,000 people in 1932. It was nearly one fifth of the total work force in Britain at the time.  In terms of socio-cultural reasons for unemployment, the government did little to change prejudices and stereotypes relating to women’s participation in the workforce. For example, a major setback met by British working women is the 1931 legislation that made married women unqualified for unemployment benefit, unless

“they could show a ‘reasonable expectation’ of obtaining insurable work, and that their chances were not impaired by the fact of marriage. Thus if in a Lancashire town the only local mill closed down, married women workers lost entitlement to benefit, and between 1931 and 1933 nearly a quarter of a million claims were disallowed under this regulation. Under such a disincentive it is probable that many married women declined to register as unemployed, and were therefore not counted.”  (Burnett, 1994, p. 206)

In what can only be described as dark irony, the unemployment levels in the interwar years was somewhat reduced by the huge number of fatalities in the First World War.  This meant that despite men becoming a minority gender in the population, their employment levels were still very low.  What flourished in this interesting new milieu of war widows, economic distress and unemployed men is the institution of marriage and remarriage.  Indeed, “they began to marry at a younger age regardless of their financial insecurity. The trend was symptomatic of a wider move towards respectability and domesticity in interwar behaviour.” (Pugh, 2008).  Several social and cultural changes took place.  As mass unemployment left large numbers of young men at a loose end,

“there was an increase in minor, opportunistic crime against property. But the trends were largely in the other direction. The great Victorian offences such as drunkenness and prostitution went into major decline, and there were also fewer murders between the wars. As a result, by 1930 the prison population of England and Wales stood at just over 11,000 compared with 21,000 in 1910, and local prisons were being closed down.” (Pugh, 2008)

It was a disappointing feature of the National Governments that rather than welcoming these positive trends they actually misrepresented them for narrow political gains.  The government twisted these figures to actually give the impression that crime was on the rise. The agenda behind this move was to apparition blame for the ‘crime wave’ on a small ‘criminal class’, comprising of foreign recruits and obscure alien influences.  The politics of ’us against them’ is an age old trick and the National government of the 1930’s Britain was also trying to exploit it.  Left unattended in its preoccupation with power is creating opportunities for job creation in the war-battered country.

In assessing the National Government’s response to the unemployment crisis, it is important to consider broader geo-economic factors. In particular, the high unemployment rate in Britain was correlated to the Great Depression that was devastating the American economy.  In this respect the National government can only do so much in stimulating the economy.  What did not help the British cause are the series of policies issued by the Federal Reserve between 1929 and 1933, whereby it “intensified the recessionary forces by cutting the money supply by one-third, converting a fairly serious but by no means unusual slowdown into a catastrophic recession.” (Ormerod, 1998) It should be borne in mind that the kind of economic slump experienced in the 1930s is as yet unmatched by any subsequent financial market crash.  Between 1929 and 1932 “the output of the western economies fell by no less than 16 per cent; though the UK economy shrank by only 6 per cent, America shrank by almost one-third, and US output did not return to its 1929 level until a full decade later.” (Ormerod, 1998) But all said and done the mass unemployment of the 1930s was in good measure due to the government’s failure to insulate domestic economy from the vagaries of global financial markets.

The dominance of the Conservative Party between the wars played a role in shaping policy.  Although Labour won more eats in 1929, it garnered lesser total votes. The success of the Conservatives during a period of high unemployment is atypical in the short history of democracy and universal franchise.  The universal franchise for men was enacted just a decade earlier and women won this right by 1928.  This availability of the votes of two historically subordinated communities (un-propertied men and women) should have naturally benefitted the political left.  Added to this were mass unemployment and the rise of fascism in Europe. Yet the British electorate delivered a surprising verdict in 1929 in favour of the Conservatives.  Perhaps the electorate was nostalgic for a regime of peace that prevailed prior to the war and hence found Conservatism appealing.  However, remedying the unemployment situation was not a high priority for the party, and this reflected in the policy lacunae in this area. (Bogdanor, 2013)

To be fair to the National Government, some of its prudent economic measures during its reign unexpectedly backfired.  For example, leading up to the 1930s, an important factor having a bearing on unemployment was Britain’s decision to abandon the gold standard after the First World War.  This meant that Britain (as well as many other European nations) no longer had strong monetary links that had aided free trade.  Free trade usually acts as an insurance mechanism to prevent mass unemployment. Given the isolation of national economies after the abandonment of the gold standard there were no trade-based stimuli to create new jobs. But there is always a divergence between economic theory and ground reality.  When in 1925 the government under Conservative leadership re-entered the gold standard, the move backfired.  In just four years the unemployment rose by at least 100,000.  The Wall Street Crash that precipitated the Great Depression was the final nail in the coffin.  This event nearly doubled unemployment in Britain.  Hence integration with the global economy through the adoption of gold standard was a double edged sword.  It can save or smother the participant nation depending on prevailing conditions. When in 1931 the second Labour government collapsed and Ramsay MacDonald’s conservative government took over as the National Government it was thus very apprehensive about the gold standard.  The Great Depression has also pushed Britain’s balance of trade situation into a precarious corner.  Despite these misgivings orthodox economic theory did prevail and “Conservative and Labour governments alike stuck faithfully to the gold standard, encouraged by the City bankers.” (Laybourn, 1990, p.18) But where the government showed its lack of imagination is in summarily dismissing alternative programs for job creation, even as it steadfastly held on to policies based on orthodox economics policies.

It should be remembered that Britain was still a dominant imperial power in the 1930s and its central bank still held sway over the global economy.  Theories of macroeconomics indicate that by skilful manipulation of the availability of Pound Sterling and its equation to the gold standard, the economic system could be made stable.  One explanation for the stability of the gold standard preceding the Second World War is due to adept management by the Bank of England. The Bank is “said to have stabilized the gold standard system by acting as international lender of last resort.” (Eichengreen, 1991) This had a cascade effect and stalled unemployment numbers.  Although the Pound Sterling no longer held the same value as it did prior to the First World War, it was still able to provide stability to a weak economy.  Moreover, when global credit conditions were quite constrained and a release has to be found somewhere, the requisite adjustment had to be carried out in concert by several central banks. Under such circumstances, “the most prominent central bank, the Bank of England, signalled the need for coordinated action. When it lowered its discount rate, other central banks responded in kind. In effect, the Bank of England provided a focal point for the harmonization of national monetary policies.” (Eichengreen, 1991) Hence the policy lacuna under the National Government was partially offset by the skilful handling of currency and gold by the central bank.

Even when faced by high unemployment levels, the government response ranged from indifferent to outright antagonistic.  When the unemployed tried to organize under NUWM (National Unemployed Workers’ Movement), it was ignored by the TUC (Trade Union Congress) as well as the Labour Party.  With financial resources drying up, the NUWM had no choice but to take the help of the Communist Party of Great Britain. As a consequence it suffered harassment by the government.  The atmosphere of distrust reached such an extent that even the union’s National Council was penetrated by police espionage.  But all these hardships endured by NUWM did fetch some rewards.  First, the demonstrations and hunger marches brought public attention to the difficulties faced by the unemployed.  Second, it brought the bureaucracy under pressure to make its procedures more efficient and expedient. Third, the NUWM was able to

“represent the unemployed in tribunals and Courts of Referees in order to obtain their legal rights under the highly complicated benefit systems. Although its influence on raising benefit levels is debatable, it did have some success in fighting off cuts in the thirties, while its hundreds of local branches provided social and recreational facilities giving mental and often material support to the unemployed and their families.” (Burnett, 1994, p. 256)

The National Government’s response to hunger marches and public protests were bordered on the contemptuous.  For example, following the tradition of local marches across Liverpool, Belfast, Birkenhead, etc, in 1932, more than two thousand marchers protested against the ‘means test’ and the 10% reduction in worker benefits.  Though the protestors were by and large peaceful, the threat of police retaliation loomed on them all the time. The nightmare did come true when the marchers were given baton charges upon reaching Hyde Park.  In this backdrop it is fairly clear that “the national government after 1931 consistently refused to meet deputations of the marchers on the ground that extra-Parliamentary pressure should not be encouraged…” (Burnett, 1994, p. 256)

The Communist Party, with its radical rhetoric and worker-centric ethos, was particularly targeted by the government. Based on first hand records left by Communist Party (CP) leaders, we learn that they were frequently imprisoned upon allegations of ‘incitement and riot’.  It is instructive to note that many of the unemployed young men of the 1930s were sympathetic to the manifesto of the CP although they did not openly claim membership to the party.  Caught into the whirl of desperate poverty, unemployed men were dreaming of radical social change. The unemployed men of the period were not apathetic to politics.  Instead, they seemed to have grown disillusioned with the failures of the Labour Party.  They felt alienated even from the trade union movement, for it catered to only those still having jobs. The coalminers, cotton mill workers and heavy industry workers who lost their jobs experienced an increase in their political awareness. But it would take one more decade for them to express this awareness through political participation. If unemployment “produced an apathetic resignation in some, it burnt into the souls of the many who found no acceptable remedy for their discontent until 1945.” (Clavin, 2000, p. 30)

A policy that was consistently followed by the Stanley Baldwin government (and later followed by the Ramsay McDonald government) was that of deflation.  The basic thrust for this policy is achieving a stable economy, but it proved very harmful for the unemployed as it made it difficult for them to avail benefits. The provisions under National Insurance Act of 1920 were also unfavourable to the unemployed.  War veterans, many of whom had only partially contributed to the unemployment insurance fund, nevertheless made claims on it upon returning to Britain.  This meant that the fund ran into debt very quickly.  It was for the government to intervene through underwriting the debt and offering the ‘dole’. By the time the Great Depression hit the United States, the size of the ‘dole’ had become a sizable burden on the exchequer.  Growing ever concerned with the unbalanced budget situation by the early 1930s the Conservative government was determined to reduce “the cost of unemployment benefit and to provide only for the ‘genuine’ unemployed.” (Laybourn, 1990, p.19) Although this helped balance the budget, the condition of the unemployed grew ever precarious, so much so that official unemployment numbers touched 1.5 million in January 1930 and 2.75 million by June 1931. (Laybourn, 1990, p.19)

In an interesting juxtaposition, just as interwar years were one of unemployment and poverty, it also witnessed a craze for consumerism.  In retrospect, historians note how the interwar years set the foundation for the consumer society that would take shape later in the century.  Research conducted in recent years throw light on how such a phenomenon could hold up in the face of economic depression.  The explanation is that, “in terms of lost output and unemployment, it was never as deep as it was in America and Germany.” (Hill & Lubin, 1934, p. 36) Britain was also fortunate in that it witnessed phases of growth between 1919-20, late 1920s, and between 1933 and ‘37.  Even when economic conditions were at their worst, a majority of the workforce was still in employment.  For this workforce savings was not a high priority.  They instead put the last penny of their incomes back into the economy thereby offering a constant stimulus.  Also helping consumerism was the fact that

“the major fall in prices in both the agricultural and manufacturing sectors across the world made this a difficult period for producers in general, but a good one for consumers. Even in the worst slump years prices fell faster than wages, making for an improvement in the real value of most people’s salaries.” (Pugh, 2008)

It was the crucial factor of rise in value of real incomes that supported and encouraged consumption.  The result was a general rise in consumption of necessities such as food and housing; as well as expenditure on leisure and entertainment.  But the consumption boom was not orchestrated by policy makers – it was the natural consequence of favourable economic factors.  One area where the National Government did make a contribution was in increasing milk production in the 1930s.  By the 1930s milk consumption had increased by 55% compared to pre-war levels.  In 1922, the Ministry of Health made “pasteurization compulsory for commercial milk production as a means of checking the spread of tuberculosis, and from 1933 onwards the Milk Marketing Board was able to offer consumers reliable quality and stable prices.” (Pugh, 2008) This stabilization of prices somewhat alleviated the sting of unemployment that had gripped Britain in the early 1930s.  The government can take credit in this regard.  The National government can also take some credit for facilitating a minor housing boom during the interwar period.  For example,

“The changes in housing tenure during this period represent a major social revolution with long-term political and economic implications… By 1938, 35 per cent of homes were owner-occupied. The building societies had accumulated large funds during the war and enjoyed tax advantages. Whereas in 1910 they had advanced 9 million [pounds sterling] in mortgages, in 1936 they advanced 140 million [pounds sterling].” (Ormerod, 1998)

These measures on the real estate sector added more jobs to the ailing economy while also creating wealth.

Across the three National Governments, protectionism was promoted and interest rates were allowed to fall.  But it did not have much beneficial effect on the unemployed. When in September 1931 the National Government abandoned the gold standard and undertook protectionist economic measures that lasted well into 1932.  But protectionism, “although it did not necessarily impose the same deflationary pressures as were imposed to return to and operate the gold standard, brought little relief for the unemployed.” (Laybourn, 1990, p.23)  In the same month the ‘Household Means Test’ was introduced on the ‘transitional payments’, which are remitted to applicants after six months of standard benefit had expired.  Further, the government introduced measures to reduce unemployment during winter months (when it is seasonally high) and did nothing about the summer months.  The three different National governments of the 1930s found competition among staple industries as problematic.  They solved this problem by shutting down inefficient units or merging firms. The industries that witnessed a bulk of such restructuring are the mining, cotton and shipbuilding industries.  As to the question of the effects of these measures on unemployment, the answer is in the negative. The industry restructuring process might have helped improve overall efficiency and productivity, but its effects on erstwhile industrial small towns was devastating.  In towns such as Jarrow unemployment levels reached as much as 50% during the reign of National Governments. What financial assistance package the government was able to offer to the unemployed was generally inadequate.  The worst hit regions in the UK were identified as the North East, West Cumberland, southern Scotland and South Wales.  Special Commissioners were appointed to these regions “to spend £2 million a year to help local authorities carry out amenity schemes and to attract firms to their areas – although the figure was increased in 1936 and 1937 to allow the commissioners to spend £17 million in 1938.” (Laybourn, 1990, p.25)

It soon became evident that an unemployment problem that is 100 million pounds in magnitude cannot be alleviated by the limited funds entrusted to the commissioners. For example, in the North East region, of the 350,000 enrolled in the unemployed registry only 50,000 could be find suitable employment by 1935.  A major factor in the National government’s failure to arrest unemployment was its misplaced adherence to economic orthodoxy.  This meant they were more focussed on keeping expenditure low and by consequence keeping the budget balanced. Neville Chamberlain, the Chancellor of the Exchequer in Mac-Donald’s National government,

“was first of all concerned to control the Public Assistance committees, which had been set up by local authorities to replace the Poor Law, since some of them were considered to be generous in the assessments they made in their provision of government money to those claiming ‘transitional’ benefit. Secondly, he wished to distinguish between the short-term and long-term unemployed. In these endeavours he was supported by the Royal Commission on Unemployment Insurance, chaired by Holman Gregory, which, in 1932, reported on the need for a reorganization and rationalization of unemployment relief. The Unemployment Act of 1934 reflected these concerns.” (Laybourn, 1990, p.26)

In conclusion, it is fair to sum up the various National governments’ approach to the unemployment problem as ‘incoherent’.  At no point during the decade long regime by National governments was Britain able to contain the problem.  On the monetary policy front, the going back and forth on the gold standard did not create new jobs in the economy. The efficiency drive that led to restructuring and relocating staple industries away from small towns created livelihood issues for the local population.  Although a robust culture of consumerism kept the economy afloat during much of the 1930s, it had no impact on alleviating unemployment numbers.  One constructive measure taken by the National government during this decade was tax incentives to boost the real estate industry.  But given Britain’s traditionally strong links to the American economy, the Great Depression experienced by the latter dealt a shock to the former’s economy.  The National government could not successfully insulate Britain from global factors, thereby failing to curb unemployment.  Moreover, the domination of Conservatives meant that the policies of National Governments were fiscally orthodox.  The National Government’s attitude toward trade unions and public demonstrations made its antipathy to unemployment quite clear. The government’s contemptuous treatment of Communist Party and its sympathizers is another low point.  The ‘dole’ that it offered to bolster insurance funds was insufficient to the requirements of nearly 3 million unemployed (in 1934).  The protectionist measures and application of deflation, again, did not have a significant impact on unemployment.  Hence, it is a fair assessment that though the National Governments introduced several piecemeal initiatives to tackle unemployment, there is no cohesion and synergy between these initiatives – some of them were conflicting or counterproductive to reducing unemployment.

References

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