How Successfully Did the National Government Deal with the Economic Problems of the 1930s free essay sample

Faced with a steep decline in international trade the; partly due to America’s protectionist tariffs which set import prices of British goods so high that even were they to cost nothing, the price would still be far out of the competitive market, the government implemented an Imperial Tariff System which encouraged the public to buy only from countries within the empire and aid the situation of 1929 wherein the value of British exports was halved ands avoid external goods, thus keeping money in our own economy and not worsening the economic drought, the response tariffs this then caused further encouraged isolationism. In response to floundering businesses and lack of new companies the National Government lowered interest rates to 2% to boost the economy and encourage people to open new businesses using loans from banks which worked to ensure more spending in the aim of growth. This helped the middle class by helping them to help the economy but the effect that this would have on peoples savings was underestimated as suddenly their own money they kept in the banks during a depression at some risk to themselves is now doing less. The National Governments main means of recovery was a surprise to the Labour party, one minister quoting that â€Å"we didn’t know we could do that† referring to the decision by MacDonald to â€Å"come off† the Gold Standard in 1934 and massively boost trade by valuing the pound at its real worth rather than the inflated one. This set trade goods prices far more competitively and eased the depression. It didn’t even cause the hyper-inflation akin to that in Germany in the 1920s that the Labour Government had feared when Keynes first suggested the policy in 1931. The policy did come slightly bitter-sweet however with the news that other countries had left the gold standard as well, either now or years previously and that Britain was the last major power to still hold it. Furthermore this increase in trade did not balance out the loss in international trade of the USA and USSR markets. It may seem that the majority of the National Government’s policies were effective to some degree but, at other times, the coalition seemed utterly useless and reluctant to commit any major money to the restoration of the economy, and this was generally the case; in my opinion the best example of their futility is their attempt to boost industry. The North Atlantic Shipping Act of 1934 attempted to restore the shipbuilding commerce by restoring the building of the Queen Mary ship. The massive cost involved in this task and the purely short-term benefits are symptomatic of other policies. For example, the Cotton Industry Reorganisation Act of 1936 initialised the closure of non-profitable cotton mills, a privately owned sector. The supposedly non-profitable mills employees would now be completely out of work. In an attempt to cut spending the National Government announced a 10% cut in the â€Å"dole† the unemployment benefit and for a means inspector to test you to be sure that you do not possess any items you do not need that could be sold, e. . three chairs when there are two permanent members of the household. Supposedly a policy to save money in the interests of the budget the implications of the act were that everyone is now poorer, the means employees require wages and the time it requires to balance the budget is substantial. In the most direct (and somewhat vague) policy The Special Areas Act of 1934, money was to be applied to the worst affected areas, but this was dependent on their income and the result was many of the poorest people did not apply. Furthermore, the budget for the act was only ? 2 million. These policies seem to suggest that the National Government was somewhat lost on the right course of action to take, and even then their commitment to not worsen the deficit limited them to gimmicks or simple lack of effectiveness. They were hardly helped with the condition that Britain now found itself in. Unemployment figures reached new peaks with the largest being in Wales where 33% of men now found themselves without work. The traditional industries, of coal, cotton, iron, steel and shipbuilding, known collectively as the staple industries were the hardest hit; The coal pits of north Wales were finding themselves without contracts, and the shipyards in Jarrow, near Newcastle were so bad that the men announced a march to London, taking several weeks. It accomplished very little but to show just how bad the north of England had been hit. The south meanwhile suffered heavily from cyclical unemployment, wherein the employee would latch onto short-term work, finish the contract and become unemployed and then find something else. But even then, the unemployment level for the South east never fell below 15% during the 1930s, in stark contrast to Scotland, where employment never reached 85% in the decade. This was partly due to the leadership of the National Government, Both Baldwin and Snowden leaders of the Conservative and Labour parties respectively, disagreed on the trade protection acts, the Tory’s advocating Tariff protection and Labour, free trade. However the two unanimously agreed on treasury policy, the belief that Britain could only become strong through a return to â€Å"normality† of the pre 1914 days. This meant that they believed in no more debts, the very thing that Keynes and Lloyd George recommended as necessary to stimulate the economy. At the time, every other power was engaging in public building works i. e road improvement, phone lines expansion. Keynes spoke of the limitations of our one country, that we cannot â€Å"fix the world† and must focus on domestic problems and recommended rearmament as a means to recovery, referencing the multiplier effect that would emerge where every pound the government spends is returned to the economy at many times its own number. Instead the National government focused instead on housing construction, building 400,000 between 1930-31, ignoring the desperate need of the country; with an average of 4. 3 phones per 100 people, upstaged by America’s 16. 4 It could be argued that in some ways it was the consumer boom that led the way to recovery. The depression lowered prices of goods, insuring that those with money could afford more, known as a real wage increase, the same amount of money could now buy 35% more than the pre-depression days. The government therefore asked the people to spend their way to prosperity, in a manner similar to that to America and Roosevelt’s plans, but with their own laissez-faire element where the government believed that were to intervene too radically, the businesses would collapse or be too dependent on their finance. The consumer boom did therefore lead to some point of recovery, but such a process would take far too long to be completed before the break-out of war in 1939. It is my opinion that the cause of Britain’s recovery from the depression had a great deal to do with the Second World War, and the policy of appeasement that the leadership adopted. The attitude bought Britain time to strengthen itself and get people back into work, with one million jobs created in the weapons development industries between 1936-1939, leading to an overall recovery of there being only one and a half million out of work by 1939. Therefore I believe that contrary to some views that the National Government was a hindrance to recovery, it was more of a half-hearted effort, or a belief that to go in ham-fisted would only worsen the deficit. The leadership certainly did not perform acts of God to speed up the process, they should have undertaken public construction works to provide a longer-term source of jobs, but in the end they did balance the deficit, it simply required the correct circumstances to boost the country in the right direction. Those circumstance came with the rise of the European fascist dictators and the National Government felt the urgency to create work on the scale needed.