Appendix B3: An Imbalance in the Industrial Nation
Appendix B3: An Imbalance in the Industrial Nation.
Government industrial policy, to the extent that it even existed, had two main strands; supporting strategic industries and what could uncharitably be described as "backing losers". The former was straight forward in principal if tricky in practice, the basic premise was that certain industries were vital in wartime but unprofitable in peace and so needed support so they would still be operational when requried. An uncontroversial example would be the armour plate industry, with the ship building 'holidays' enforced by the Naval Treaties the specialist suppliers experienced a dramatic fall in orders leading to idle factories and an workforce facing unemployment. To stop the highly specialised forges and kilns from being closed and the skills being lost when the workforce retrained or moved on, the manufacturers had received a modest subsidy of around £300,000, spread over all the main firms and spaced out to fill the gap until the Treaties allowed shipbuilding to restart. The main complaint about the scheme was that it had been too modest, the Admiralty's estimates on required armour (or their estimate of what the Treasury would allow them to buy) had been too low and too little capacity had been preserved, a problem made worse when the Army started looking for armour plate for it's tank production. The subtler complaint was that the direct subsidy was misleading and hid the indirect subsidies that had been given, for instance the large contracts for 'Research and Development' of new types of armour plate and manufacturing techniques. While these contracts had produced valuable results, for instance the new high-manganese cemented armour plate used on the King George V and Swiftsure classes, it was argued that traditionally the firms themselves had paid for such research themselves, or it had been done in the Admiralty's own research institutions, and thus the contracts were just a disguised additional subsidy. To an extent this was probably true, though given the voracious complaints made at the time it perhaps wasn't a very well hidden disguised subsidy.
Not all 'strategic' subsidies were as defensible, there was the unfortunate case of the War Office continuing to spend £5,000 a year on supporting the stables that breed their light horses. When set along side the £200 that was spent by the same department on subsidy for "Mechanical Transport" (i.e. lorries), at a time when a single new lorry cost somewhere around £250, the scheme does look at best farcical. In the defence of the War Office the actual spending on mechanical transport was far higher and in the hundreds of thousands of pounds, but that money was spent was procuring vehicles for the lorried infantry and development work for the Motor Rifle battalions, none of which counted as subsidy. It should also be noted that the automotive industry was in no way in need of subsidy, it was in fact enjoying something of a boom time from as civilian sales soared along with the growing economy. As we saw in Chapter CXXV Imperial Airways was the recipient of considerable subsidy to fund the Empire Air Mail Scheme and this was again justified on strategic grounds due to the perceived value of better links across the Empire. Finally the merchant fleet received over £6million in subsidy from a scrappage scheme, which subsidised new construction for owners who scrapped obsolete vessels. This was naturally subject to the work being done in British yards with 'modern' methods, while the start of the scheme was heavily impacted by the boilermakers strike by the start of 1938 demand was such that yards were looking at expansion. How much was due to the scheme and how much was just pent up demand from the Depression years and a reaction to rising world trade is, as always, unclear and the conclusion probably depends upon your views on the desirability of industrial subsidy as much as the evidence.

The sugar beet refinery in Spalding, Lincolnshire. Formerly owned by Anglo-Scottish Sugar it had passed to the British Sugar Company when the industry had been nationalised early in 1936. The realm of agricultural subsidy is a matter for a later chapter but it should be noted they were far larger in scale than anything in industry; sugar beet alone received more funds than all the industrial schemes combined and over the decade from 1926 to 1936 agriculture received 85% of total direct government subsidy. Despite the claims of the industry, and those who believed nationalisation and sate control would make any industry more efficient, sugar cane continued to be substantially cheaper than sugar beet. Tate & Lyle, who along with the other sugar cane firms had escaped nationalisation, would continue to dominate and supplied over 50% of the UK market from their three vast refineries in London, Liverpool and Greenock.
If the subsidy schemes aimed to support existing industries, the other arm of government industrial policy was officially aimed at encouraging new industries to start. A prime example was the Team Valley Trading Estate, a vast industrial estate in the North East of England near Gateshead. The estate was planned and built on a vast scale, the central access road was over 2 miles long, and when work started in 1936 it was one of the largest developments in Europe. The estate was entirely government funded in the hopes of supporting an area that had been hit hard by the Depression, similar schemes were being developed for the other Special Areas that were also suffering, for example in a link back to our previous look at Jute, Dundee council were agitating for a similar project to help diversify the city and end their dependence on Jute. Hence the less than generous accusation that the scheme was about supporting losers, in this case those regions that had 'lost out' as traditional industries declined and the Depression ravaged the economy. On it's own terms the Team Valley project was a success, eventually several hundred firms, directly employing almost 20,000 workers, would be based there and would continue to operate long after official support was withdrawn. However, this achievement had taken a great deal of money and effort from almost the entire government. Leaving aside the cost of building the estate, which was just over £3 million when it was finished in 1938, the rents were below market rate, over half of the firms were also eligible for concessions on rates and taxes, and every government spending department was pressurised into making orders with firms based there. The Special Commissioner for the region was also concerned at how many of the jobs were with firms who had moved premises to get those concessions and how many were actually new jobs for the region.
The struggles at Team Valley were put into sharp relief by the experiences outside the Special Areas. At the same time as Teams Valley was under construction a dozen large estates had been built by the private sector in the Midlands, the eastern Thames Valley and above all around Greater London, none of the schemes were individually as large as Teams Valley but in the aggregate they provided vastly more facilities and employment. Moreover these schemes did not benefit from any tax advantages yet were still often fully rented ever before final completion, proving the voracious demand for new premises and factories that existed. This did not come as a revelation to the Board of Trade and those in government concerned with industrial policy, even in the 1920s the uneven distribution of employment was a known problem and it had been noticed that the Depression had made thins substantially worse as the heavy industries were hit hardest. Despite the tailwind of re-armament those industries were still growing slower than the booming light industries, the majority of which were based in the Midlands and South East. With the market failing (or at least failing to do what the politicians wanted it to do) and the existing approaches apparently failing to work, pressure was building for a Royal Commission to investigate the problem.

The Guinness Brewery with a small part of the wider Park Royal industrial estate in the background. Built by Guinness in response to the Anglo-Irish Trade War and fears of British tariffs on Irish beer imports, it was the first brewery the company opened outside Ireland and despite it's vast size was only capable of supplying half the UK market when it opened in 1936. The wider Park Royal industrial estate was developed at the same time and, at peak, the developers (Allnatt London) were opening a new factory site every fortnight. While the government could match that speed of construction, they could not hope to match the rate at which new tenants for the factories were acquired.
As with most Royal Commissions those proposing it already knew what the answer 'should' be, knew it wouldn't be popular and so wanted the Commission to help them build support and, to a large extent, take the blame for the unpopular decision. In this instance it was the soft left of the Conservative Party around Neville Chamberlain, at this time Minister for Pensions and Welfare, who wanted to significantly increase government intervention to force industry to locate where it was perceived to be needed. The theory, if that is not too grand a name, was that making the Special Areas more attractive to industry was hard, but making London far less attractive was comparatively easy. The proposal was therefore to cripple Greater London and, to an extent, the Midlands, this was was to be achieved by a moratorium on new factories, higher rates and anything else they could think of to stop new firms starting in the 'wrong' location and encourage existing ones to move. This was, naturally, an anathema to the traditional wing of the party, MPs with seats near the to-be-restricted areas and those around Oliver Stanley that had close links to or a background in industry and so could see the obvious flaws. With the ongoing boilermakers strike, and trouble clearly brewing in the coal mining industry, Prime Minister Eden decided he did not want another industrial problem and vetoed the idea of the Royal Commission. Instead he placed his faith in the reforms being made by the Board of Trade and Chancellor's Amery's confident assertions that between the re-armament boom and Empire Free Trade all would be well. The problems would come if those assurances were not borne out by reality and the regional disparities continued to grow.
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Notes:
Firstly, of course those subsidy numbers are real. No-one would dare invent a world where the War Office was spending £5k a year on breeding horses as late as 1939. The £200 figure on lorries is a bit unfair, I believe it was just the winding down of an old scheme (they had been paying more in 29-31 when things were really bad). But I couldn't resist pointing it out. Ship scrappage scheme is OTL but was only £4million ish, in Butterfly more money is being spent to encourage people to weld and cover the extra costs of getting started on it. OTL the aim was just "scrap old ships, build new ones", here it is "scrap old ones, build new ships with modern methods".
Regional industrial policy, I've done my best to make it interesting but it is just a bit of a grim area as no-one (not just UK but anywhere) seems to be able to make it work on a sustained basis. OTL Chamberlain and the Special Commissioners got their Royal Commission, which duly suggested throttling London and forcing people elsewhere. War intervened and then the Labour Party went for it (Bevin had been on the commission so was keen) producing the f*cking awful "Industrial Development Certificate" scheme to stop anyone building a factory where central government didn't want it. As one would expect, this was a relentless disaster. Here I've killed it as Neville is not in power and Eden has enough problems, but the basic issue remains so will doubtless re-appear.
British policy for sugar was, is and probably always will be barking and full of contradictions. It's not EU farming policy mad (which includes such features as setting a high tariff on sugar cane imports, then refunding slightly more than that fee back to the sugar refiners who have to use the sugar cane) but it gets close. In any event I tip my hat to Tate & Lyle, they've dodged at least two attempts to be nationalised and are still going strong.
Finally the Guinness brewery dates are all OTL and is perhaps proof that in the UK at least the trade war never got that heated as people kept drinking Guinness. The Park Royal factory supplied the South of England, while Scotland, Wales and the North got it from Dublin. I believe Guinness were a bit less precious about the "magic" of the St James' gate brewery at that point, so no-one noticed.
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