Introduction and revision overview for the National Governments: economic crisis and
political extremism
Most likely questions:
Why was unemployment so high between 1929 and 1935? (12)
How successful were the National Governments in bringing about economic recovery in
Britain by 1939? (24)
Why did political extremism fail to take hold in Britain? (12)
How serious was the challenge from extremist political parties in the 1930s (24)
What was the National Government and what were its economic problems?
The first National Government was formed in August 1931. MacDonald’s Labour cabinet had
failed to agree a programme of spending cuts which would balance the budget, generate loans
from the USA and thus save the value of the pound. MacDonald believed that, once the
National Government had “balanced the budget” and “saved the pound”, Britain would
revert to party government.
But the crisis temporarily deepened in Aug-Sept 1939. The government increased taxes and
cut unemployment benefit and public sector salaries. The cut in their pay led the sailors at the
Invergordon Naval Base to refuse the orders of their officers. The mutiny aroused memories
of the Kiel Mutiny (that had started the German Revolution in 1918) and the Kronstadt
Mutiny (that had been the signal for the Bolshevik revolution of 1917). Fearful of losing their
money in a revolution, the international bankers refused to give Britain any more loans and,
unable to maintain the value of the £ against the dollar, the government was forced to
abandon the Gold Standard!
As the crisis was clearly not over, the Conservative-dominated coalition decided to seek a
mandate for its policies (the so-called “doctor’s mandate) and was returned to power, by 554
seats to 56. It ruled until May 1940, after being re-elected again in 1935. As well as the short
term financial crisis, the National Government had to face the continuing decline of Britain’s
staple industries, a drop in international trade as a result of the Wall Street Crash and high
structural and cyclical unemployment, which tended to be concentrated in certain regions of
the country. Britain also had a taste of the political extremism that afflicted many other
countries in Europe in the 1930s.
By 1939, unemployment was back at 1929 level overall, but there were large pockets of longterm unemployment in the North and Wales. The big question is whether it was deliberate
government policy, or cyclical recovery and then re-armament that reduced unemployment.
Why was unemployment high in 1929-35?
Explain structural unemployment - Long-term problem of over-capacity in declining staple
industries; over-priced exports because of outdated techniques and the Gold Standard (until
1931)
Explain cyclical unemployment - Results of Wall St Crash – reduction in demand led factories
to close and unemployment to rise; those in work felt insecure and bought less, leading to
further closures and redundancies.
Explain the actions of the 1931 government - by cutting unemployment benefit and public
sector pensions, the government reduced the purchasing power of millions of people,
resulting in a temporary increase in unemployment to 2.9 million in August 1932, the lowest
point of the Depression in Britain.
What factors improved the situation by 1939?
Government policies
o It passed the Import Duties Act, 1932, placing tariffs on imports from countries outside
the British Empire.
o It tried to set up an “imperial preference” trading network within the British Empire
whereby the dominions accepted British goods in preference to those from countries
such as the USA and vice versa. The success of the Ottawa Conference, 1932, was
limited, however, because countries like Canada and South Africa were trying to
develop their own industries and didn’t want to give preference to British goods.
o It passed Special Areas Acts, giving small amounts of investment to the depressed
staple industries in return for the closure of the least profitable textile mills, ship yards
etc.
o It guaranteed prices and offered subsidies to farmers.
o It borrowed £1,500 million after 1935, in order to rearm.
o It granted monopolies to new industries to help them develop without competition e.g. the British Overseas Aircraft Corporation (BOAC = BA)
Factors not the direct result of government policy
o Low interest rates and therefore cheap mortgages stimulated private house building
and all the related industries e.g. furniture manufacture, motor vehicle manufacture,
white goods
o Low interest rates enabled manufacturers to invest in new industries in Midlands and
London area
How far did the situation improve?
The figures here show that overall unemployment decreased, but that regional long-term
unemployment in the staple industries remained high, even after the government began a
serious rearmament drive.
a) Total unemployment:
b) % of workers unemployed, by region, in 1936
1927 = 1.1m
SE England 5.6%
1928 = 1.3m
London
6.5%
1929 = 1.2m
SW England 7.8%
1930 = 1.9m
Midlands
9.4%
1931 = 2.7m
1932 = 2.8m
1933 = 2.5m
NW England 16.2%
1934 = 2.1m
NE England 16.6%
1935 = 2.0m
Scotland
18%
1936 = 1.7m
N. Ireland
23%
1938 =1.9m
Wales
28.5%
1939 = 1.25
1941 = less than 1 m
c) % of unemployed who had been unemployed for over a year
Sept 1929 – less than 5% of the 1.2 million unemployed people i.e. fewer than 60,000
Aug 1932 – 16.4% of the 2..9 million unemployed people i.e. more than 400,000
Aug 1939 – 19.5% of the 1.25 million unemployed people i.e. 244,000
How successful was the National Government in bringing about economic recovery in the 1930s?
Introduction: Context (what was the NG), debate (were problems solved and should gov’t
take the credit) and argument you will put forward (are you orthodox or Keynesian??)
Development: Government policies that had some success:
o The first National Government under MacDonald made the spending cuts that
restored financial confidence
o It made the decision to take sterling off the Gold Standard, which had several
beneficial effects – cheaper exports and low interest rates
o It took several measures to stimulate the staple industries – import tariffs,
rationalisation agreements, the Special Areas Acts
o It protected British farming
o It gave monopolies to several new industries
o It borrowed money to enable rearmament
Government policies that had limited or unintended success:
o The first National Government’s spending cuts reassured international
financiers but, by reducing millions of people’s spending power, they increased
unemployment
o The government did not choose or want to leave the Gold Standard, so cannot
really take the credit for low interest rates or cheaper exports
o The measures to stimulate the staple industries were too little; the government
believed that people should move to areas where there were jobs, rather than
being committed to job creation
o Import tariffs, whilst protecting British industries, led to retaliatory tariffs from
other countries. Thus British industries had to rely heavily on the home market
(UK consumers)
o Rearmament, a necessity not a choice, may have been the government’s most
effective policy
Factors other than government policy that helped recovery:
o The employed majority benefited from low prices and low interest rates and, by
buying homes and goods, helped the home market revive
o Because of effective contraception, family sizes were decreasing, leading people to
have money for all kinds of “extras” such as entertainment and holidays – helped
transport, tourism, leisure industries
o Entrepreneurs were developing new industries based on electricity, chemicals, aircraft,
motor vehicles
o German foreign policy forced rearmament on Britain
o The world gradually recovered from the cyclical slump, Britain included
Conclusion: The National Government’s largely orthodox policies helped create a climate of
stability that helped cyclical recovery, after the trauma of 1929-31. But they were marginal in
terms of cutting unemployment, especially in the staple industries. The main factor in
reducing unemployment (and it didn’t entirely recover) was rearmament.
How serious was the threat posed by political extremism and why did it fail?
See Mr Panter’s pp on Moodle