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Interwar industrial policy

Interwar trends

Several trends are discernible in the structure of British industry between the wars. There was a tendency towards 'rationalisation' and the establishment of larger business units. Companies merged at an unprecedented rate during the 1920s, forming large-scale corporations, such as ICI and Courtaulds, while trade associations were formed in increasing numbers. The government was more concerned with unemployment and overcapacity than the formation of monopolies and restrictive practices, the Balfour Committee on Industry and Trade found that legal restraint might provide a 'formidable impediment to industrial development' and argued for rationalisation through amalgamation.

Governments were also critical of the banks' unwillingness to supply credit to industry. The Bankers' Industrial Development Corporation, established in 1929 with Bank of England backing, was a means of promoting rationalisation without direct state intervention. In 1931, the Macmillan Committee on Finance and Industry illustrated the difficulties smaller firms had in obtaining capital.

Established industries

Restructuring and rationalisation to eliminate harmful competition and overcapacity was a key element of government industrial policy between the wars. Owners in traditional industries, such as coal mining and iron and steel, tended to be resistant to reorganisation and proceeded slowly. However, early success was achieved in the railways when the Railways Act of 1921 merged some 60 companies into just four, achieving reductions in operating costs.

The government made a determined effort to achieve rationalisation in the coal industry through the Coal Mines Act of 1930. The intention was to establish an industry-wide cartel to prevent destructive price-cutting between mines and regions. The owners, however, were hostile to the act and it was only in the late 1930s that significant consolidation was achieved. In 1938, ownership of coal reserves was nationalised.

The government attempted to reorganise iron and steel production during the late 1920s and 1930s. However, progress towards consolidation in the industry was slow. The industry was in favour of import tariffs to protect it from foreign competitors. After 1932, the Import Duties Advisory Committee raised the tariff on imported steel to 33.3 per cent, on the condition that the industry undertook reorganisation.

In textiles, a pattern of collective action assisted by state intervention also developed. Here, the aim was to reduce surplus capacity. Government support for rationalisation operated through the Bankers' Industrial Development Corporation. In 1936, the government intervened more actively through the Cotton Spinning Act, which allowed enabling legislation and financial assistance.