Appendix

Were Keynes's assumptions about the size of publicly controlled capital, the centrality of “Public Corporations” and the rise of market power in the private sector in Britain's interwar economy consistent with the historical record?

In The Development of the British Economy: 1914-1980 (Pollard 1983), the eminent British historian Sidney Pollard provided evidence broadly con­sistent with Keynes's interpretation of two key trends in British industry.

BIF and the Board of National Investment 111 substitutes for unrestrained private-sector competition were the order of the day in private industry in the interwar years.

Pollard argued:

A large share of industry and transport was, even in the 1920s, not controlled by private enterprise at all, but by various types of public or non-profit-making organisations, and their growth is one of the most significant aspects of the period. Among the most important of them were the co-operative societies, registered under the Industrial and Provident Societies Act, and the building societies, registered under the Buildings Societies Act; enterprises administered by charitable, educational and similar bodies; local authorities, administering over one-third of the gas works, two-thirds of electricity supplies, four- fifths of water supplies and of tramway mileage, virtually all the trolley-bus systems as well as a large proportion of omnibus and other services. There were, further, ad hoc authorities such as dock and harbour boards, including those of London, Liverpool and Glasgow, and the Metropolitan Water Board, established in 1902; companies established by Act of Parliament, mainly in the public utilities field, including the railways; enterprises administered directly by the State, including the Post Office, the dockyards, and the Crown Lands; and the Public Corporations.

(Pollard 1983, pp. 99-100, emphasis added)

Pollard explained that it took experience and experimentation for Britain to create an acceptable and efficient way to regulate those key industries that eventually became Public Corporations.

The country groped its way to through to a new and significant form of organization, the Public Corporation. Public Corporations had been pioneered by Dock and Harbour Boards before 1914. Between the wars the most important new authorities were the Forestry Commission (1919), the Central Electricity Board (1926), the British Broadcasting Corporation (1926), the London Passenger Transport Board (1933) and the British Overseas Airways Corporation (1939). In addition, the Post Office was modelled more closely on that of a Public Corporation... The Public Corporation was an attempt to cope with the problem of the administration of large or nationally important industries, mostly requiring large public sums, a secure control of their market and a strong interest in general or social, as distinct from sectional, welfare. It was a compromise, to avoid both the exploitation of the public by a

private monopoly, and the day-to-day political interference to which ordinary Departments of State are normally subjected. The capital might be held by the State or by former owners, including private shareholders, but there was the most complete separation between ownership and control... The Public Corporation enjoyed general support and roused widespread interest as a new administrative device.

(Pollard 1983, pp. 106-107)

Pollard also provided support for Keynes's second assertion that a dis­tinct historical trend toward the regulation and control of competition in the private sector through various organizational and administrative devices developed in the interwar years.

Even this does not show fully the extent of industrial concentra­tion, for many firms, while nominally independent, were being combined frequently in their own industry, but sometimes even in different industries in complex ways inadequately described as "lat­eral" or "diagonal" integration. The links between the firms forming a group were sometimes economic or technical, but often they were little more than financial. Holding companies or subsidiaries were the most common means of control, but there were also inter-locking capital holdings, frequently unknown to the public, and inter-locking directorates. In the main, however, growing concentration was associated with restrictions of competition and the creation of mon­opolistic markets. The logical conclusion of this development was the creation of a single large monopolistic firm dominating an industry by controlling, say, 70% or more of its capacity. Several of these survived from before 1914. Apart from the single firm, the most widespread form of monopoly to arise in the inter-war years was the trade asso­ciation. At the end of the war. John Hilton, the Secretary of the Committee [on Trusts], estimated that over 500 associations were then in existence. Many of these trade associations collapsed in the slump of 1921-2, but in the "rationalization" movement of 1924­29, much of it Government supported, others were formed. By the late 1930s there were probably 1000-2000 in existence in manufacturing alone, with a similar number to be found in distribution and other spheres. Most of them were driven sooner or later to concern them­selves with price fixing and control. Some trade associations went further and approached those of the German-type cartel by control­ling not only prices, but also output quotas or capacity [through con­trol of investment].

(Pollard 1983, pp.

The end result, according to Pollard, was:

Monopolistic combination of one kind or another became much more common during the inter-war years, to the extent that by the end of the period restrictive practices had become the normal framework of economic life, buttressed as they were by associations, agreements and Acts of Parliament. "As a feature of industrial and commercial organization," wrote an observer in 1937, "free competition has nearly disappeared from the British scene."

(Pollard 1983 pp. 103-104, emphasis added)

Pollard also documented a "striking" change in the attitude toward mon­opoly on the part of the British public and the British government starting in the 1920s. Initially, the change was simply an acceptance of the suppression of free competition in the name of economic rationality by private firms - a sea change for a people raised on the sanctity of "free" competition. Later, the government and the public came to support the suppression of competi­tion through government coordination of private-sector economic activity, a task made easier by the rise of self-administered inter-firm relations.

The drive towards "rationalization" of industry, first introduced in this country from Germany about 1924, was perhaps the first har­binger of change. It began as a movement to improve techniques, but it was soon mainly looking for savings by structural and economic, rather than technical, reorganization, "the right arrangement of the relations of the producers to each other." This often required the col­laboration of firms to provide common services, or, more commonly, to provide a full load for the more up to date plant while scrapping the less efficient. Such measures were more logically applied to the whole of an industry, and thus rationalization led directly to schemes of control and monopoly.

(Pollard 1983, p. 104)

By the end of the 1920s, Pollard argued, all three political Parties supported the trend toward cooperative relations among dominantfirms in markets organized as oligopolies and the use of industry planning by the state.

The new Labour members of the Committee on Trusts had as early as 1919 emphasized their belief that evolution towards combination and monopoly was "both inevitable and desirable, as long as it was controlled in the public interest." Conservative opinion by the early 1930s was equally strongly in favour of regulation and control. Some Conservatives were even prepared to go further, and plan industry as a whole.

(Pollard 1983, p. 105)

Many in the Conservative Party supported this "rationalization" movement as a necessary condition for an efficiently managed qualita­tive increase in government planning or guidance of the economy. Pollard quoted a 1933 book on economic reconstruction written by the influen­tial Conservative politician Harold Macmillan, who was the British Prime Minister from 1957 to 1963:

[State economic planning] is impossible without the cooperation of industry. Production cannot be planned in relation to established demand while industries are organised on competitive lines. In pre­sent circumstances there are no channels through which any economic policy at all can be effectively administered throughout the field of pro­ductive effort. It is for this reason that I regard it as a matter of primary importance to produce an orderly structure in each of our national industries amenable to the authority of a representative directorate conducting the industries as self-governing units in accordance with the circumstances of the modern world.

(Pollard 1983, p. 105)

The growing movement toward private-sector self-regulation of com­petition under the guidance of the state in concert with the vast amount of capital controlled by public and semi-public bodies and the support of all three political parties did indeed seem to have created the foundations needed for Keynes's policy revolution to succeed.