The Role of Economic Factors (AQA A-Level History): Revision Notes
The Role of Economic Factors
Economic considerations shaped both the expansion and subsequent decline of the British Empire. From the mid-19th century onwards, Britain's economic priorities influenced territorial acquisitions, trade policies, and ultimately decisions about decolonisation.
Economic factors played a dual role in imperial history: they drove expansion when Britain sought to protect and extend its commercial interests, and later contributed to contraction when the economic burden of maintaining the Empire outweighed its benefits.
Economic concerns, 1857–1914
The shift from mercantilism to free trade
Britain's early territorial acquisitions followed mercantilist principles, which emphasised controlling trade through possession of territory. By the 1850s, British politicians had moved decisively towards free trade. Unlike mercantilism, which benefited the imperial power at the expense of colonial subjects, free trade theoretically allowed both Britain and its trading partners to profit. During the 1850s and 1860s, the free exchange of goods adequately and cheaply met Britain's commercial needs.
Informal imperialism describes the practice of securing British commercial interests through influence rather than direct territorial control. Historians Ronald Robinson and John Gallagher argued in 1953 that British imperialism constituted an "imperialism of free trade", shaped as much by informal influence as by formal annexation. Where Britain could safeguard commercial interests without expensive territorial acquisition, it preferred to do so. British informal influence in China, the Middle East and Latin America during the late 19th century proved as substantial as formal colonisation elsewhere.
Robinson and Gallagher's Key Insight:
The concept of "imperialism of free trade" challenged traditional views of imperialism by showing that British power operated through both formal colonial control and informal economic influence. This meant Britain could dominate markets and secure commercial advantages without the expense of direct rule.
Rising competition and economic anxiety
Until the 1870s, Britain held pre-eminence in global trade and manufacturing output. By 1880, however, other nations—particularly Germany and the United States—were growing in industrial strength and challenging British dominance. Whilst Britain maintained its commitment to free trade, industrial rivals imposed high tariffs designed to protect their own economic interests. If Britain's competitors acquired colonies, Britain risked losing access to substantial global markets.
The Economic Depression Crisis (1870s-1880s)
The economic depression of the 1870s and 1880s intensified fears about market access and created a powerful impetus for imperial expansion. Falling profits and rising unemployment generated concerns about market scarcity, leading British governments to conclude that the country needed secure export outlets through expanding its Empire. This economic anxiety was a major factor driving the scramble for Africa.
Consequently, British governments involved themselves in the scramble for Africa and in Chinese affairs. At the time, there was recognition that Africa and China represented limited immediate economic value. Nevertheless, concerns existed about future developments. Britain had no wish to rule China directly; its aim was to prevent other countries from doing so. Britain essentially achieved this objective and secured its trading rights across large parts of China.
The tariff reform debate
Given that most major economic rivals imposed high tariffs on British goods, some Britons advocated imperial protectionism. Tariff reform became particularly associated with Joseph Chamberlain. In 1903, he called for greater imperial economic unity, proposing that:
- Protective tariffs should be levied on manufactured goods, safeguarding British industry against unfair practices
- There would be no tariffs on colonial imports
The tariff reform issue split the Conservative/Unionist coalition. The Liberal Party, committed to free trade, won the 1906 election, and Chamberlain's hopes of establishing an imperial common market protected by high tariffs collapsed.
The tariff reform debate represented a fundamental clash between two economic philosophies: the traditional Liberal commitment to free trade versus the protectionist vision of a self-sufficient imperial trading bloc. The Liberal victory in 1906 ensured free trade remained British policy for another quarter-century.
Colonial trade patterns
In theory, British colonies continued to operate within a free trade environment. In practice, Britain dominated most colonies as both supplier and buyer. In most colonial territories, the encouragement to produce goods for the British market benefited Britain more than it benefited the producers. Colonial production tended to focus on a narrow range of commodities. This lack of economic diversification made colonial economies vulnerable to market shifts.
Economic concerns, 1914–67
Pre-1914 trade patterns
Before 1914, Britain traded more extensively with countries outside its formal Empire than with its possessions. Nevertheless, the Empire provided a substantial market for British goods. Empire countries varied considerably in the economic benefits they conferred on Britain. India dwarfed all others, accounting for nearly 40 per cent of Britain's colonial exports. Australia, Canada, South Africa and New Zealand (in that order of importance) were Britain's next most important imperial trading partners, together taking over 40 per cent of colonial exports. The remaining dependent colonies held relatively little economic importance.
Post-1919 developments
After 1919, the Empire became increasingly important to Britain's trading position, as the country found it difficult to sell goods to the rest of the world. The Great Depression of the early 1930s had a major impact on Britain's economic relations with its colonies. In 1932, Britain abandoned free trade and introduced the Import Duties Act, which imposed a 10 per cent tariff on most imports.
An Imperial Economic Conference at Ottawa (1932) accepted the principle of imperial preference. The conference resulted in agreements establishing preferential trade between Britain and the Dominions. Although imperial protection did not fulfil the hopes of those who had pressed for complete Empire free trade, it generated some positive effects.
Effects of Imperial Preference:
Britain's trade with the Empire/Commonwealth increased considerably following the Ottawa Conference. Between 1935 and 1939, approximately 40 per cent of Britain's imports came from the Empire/Commonwealth, and 49 per cent of Britain's exports went to the Empire/Commonwealth. The trade agreements contributed to increasing imperial cohesion and helped sustain British industry through the harsh economic climate of the 1930s.
Britain remained the world's greatest trading nation, albeit the country now faced a balance of payments deficit.
Post-Second World War economic recovery
Britain emerged from the Second World War economically weakened. Trade with the Empire/Commonwealth became essential if the British economy was to revive. The economy did recover, partly through the sterling area. Most Dominions and dependencies used the British pound sterling as the basis of their currencies, depositing their overseas earnings in London. Britain, moreover, remained the most important market for members of the sterling area.
The Sterling Area System:
Various measures agreed in 1947 tied sterling area members more closely than before to a common trade policy, obliging them to purchase more imports from Britain. The sterling area thus became a closed economic bloc in a manner the Empire had never been, creating stronger economic ties than had existed under the pre-war system of imperial preference.
The shift towards Europe
For most of the 1950s, half of British trade occurred with Empire and Commonwealth countries. Anxious to preserve its special relationship with the Commonwealth, Britain initially chose not to join the European Economic Community (EEC) when it formed in 1957. However, by the early 1960s, Macmillan decided joining the EEC served Britain's interests.
The Turning Point: From Commonwealth to Europe
Britain's shift towards Europe marked a fundamental reorientation of economic policy. By the early 1960s, several factors drove this change:
- Britain's share of global manufacturing exports was declining
- The country faced a growing trade deficit
- Trading activity was shifting away from the Commonwealth and towards Western Europe
- The Commonwealth, despite its size, could not match the EEC's purchasing power
Although Britain's initial application for EEC membership was rejected in 1963, it ultimately joined in 1973—an indication that Britain had abandoned its hope of creating a viable economically linked Commonwealth.
Did Britain benefit economically from its Empire?
Britain probably benefited economically from its Empire. However, whilst it spent relatively little on the Empire's administration, it spent considerably on defence. Britain hoped that colonies would contribute towards their own defence costs, but this was barely realised—although India did help fund the Indian army.
The Cost-Benefit Balance:
Generally, British taxpayers bore most of the Empire's defence costs. Many developments which supposedly made the Empire worthwhile—emigration opportunities, high returns on capital investment, increased trade—were insufficiently powerful to transform vast defence expenditure into an overall balance of financial gain. This suggests that while the Empire brought some economic benefits, the financial case for maintaining it was far from conclusive.
Remember!
Key Points to Remember:
- Britain shifted from mercantilism to free trade by the 1850s, but rising competition from Germany and the USA by the 1880s created economic anxiety that drove imperial expansion
- The tariff reform debate of 1903 split British politics; Chamberlain's proposals for imperial protectionism were defeated by the Liberal Party's commitment to free trade
- The Great Depression prompted Britain to abandon free trade through the Import Duties Act 1932 and establish imperial preference at the Ottawa Conference, significantly increasing trade with the Empire/Commonwealth
- Post-1945, the sterling area tied Dominions and dependencies more closely to Britain's economy, aiding British recovery from wartime damage
- By the 1960s, Britain shifted focus from the Commonwealth to Europe, joining the EEC in 1973 as its share of world manufacturing declined and trade deficit grew