The Bear’s Lair: Why Britain lost its industrial dominance

In 1830, Britain was completely economically dominant, the only significant industrial power. Since that time, it has steadily lost its industrial dominance and that relative decline, while to an extent inevitable, was hurried along by a grossly malign approach to policy which persists today. Unless it is reversed, further accelerating decline is ahead.

Some of the 19th century’s policies, while damaging and foolish, were destructive only in their own time and are of little relevance now. The 1846 Repeal of the Corn Laws destroyed British agriculture once U.S. competition kicked in in the 1870s, and the unilateral free trade to which it led was immensely damaging to Britain’s entire economy, but both policies have now been reversed. (Indeed, British agriculture, intrinsically uncompetitive on an overcrowded, high-cost island, is now excessively subsidized like all agriculture in rich countries, thus making food costly and impoverishing Third World countries where most agriculture should be concentrated.) Peel’s Sugar Duties Act of 1846, which destroyed the economies of the sugar-producing British West Indies by subjecting them to unlimited slave-labor competition from Brazil and elsewhere, is also now a dead letter economically but should be remembered as morally one of the most disgraceful acts in British Imperial history.

There was however a series of policies that deserve to live in infamy, perpetrated by prime ministers Benjamin Disraeli and William Gladstone, both of whom pretended to believe in the free market but did not, beginning the appalling trend towards public and municipal ownership in new industries. (Gladstone had already demonstrated his statism in 1861, by duplicating Liverpool’s 1817 private-sector system of Trustee Savings Banks as a home for working men’s savings with a public-sector monopoly, the Post Office Savings Bank, which weakened the Trustee Savings Banks and, together with subsequent legislation, made post offices notorious time destroyers for anyone wishing to buy a stamp.) The Telegraph Act 1868, passed by Disraeli, provided for the Post Office to take over electric telegraph companies, thereby preventing the emergence of a private sector equivalent of the U.S. Western Union. This nationalization was carried out in 1870, for a price of £10 million.

The Tramways Act 1870 (Gladstone) allowed for private operation of tramways, but only on 21-year concessions from local authorities, with the local authorities having the right to take over the line at depreciated value of assets, with no valuation of the business itself, at the end of that time – this “scrap-iron clause” which prevented investment in upkeep and maintenance in the later years of the concession.

The invention of the telephone in 1876 produced a couple of embryonic telephone companies in Britain before 1880. In that year a court judgement (Attorney General v. Edison Company of London Limited) declared that a telephone was a telegraph, within the meaning of Section 4 of the Telegraph Act, 1868, so private companies had to obtain a 31-year license from the Post Office, which in practice undertook the development of the telephone system itself. This decision produced the appallingly backward and inefficient British telephone system of the 1970s.

The Electric Lighting Act 1882 (Gladstone, again) allowed for electric lighting companies to be set up, but with local authorities having the right to provide their own electric light or to purchase the companies’ assets at depreciated value after 21 years, as with tramways. This discouraged the formation of substantial long-term power companies but led to a crazed stock exchange bubble in the 1880s for fly-by-night companies, whose collapse slowed the development of electric power in Britain. Progress was further stunted by several further acts, one of which in 1926 created the Central Electricity Board, a public body which could choose which power stations were allowed to supply power. The full nationalization of the industry in 1947 was a final step in retarding its development.

The first radio broadcast in Britain, of Dame Nellie Melba singing, was made in 1920 sponsored by the Daily Mail; further such broadcasts were promptly banned at the insistence of the Post Office. A public sector monopoly was set up by the Post Office in 1922, financed by license fees on all those buying radio sets; this became the British Broadcasting Corporation (thankfully, not controlled by the Post Office) in 1926. Private sector broadcasting was not permitted until the 1950s and the compulsory license fee has continued to this day.

These Acts, mostly uncontroversial as they applied to small, new industries, gave local authorities or the Post Office monopoly control of the most dynamic new sectors of the economy. They played a major role in preventing Britain becoming a leader in the second generation of industrialization as it had been in the first.

The downside risks of the Post Office public sector behemoth to British technological innovation was demonstrated during and after World War II, as set out in David Price’s book “Geniuses At War – Bletchley Park, Colossus and the Dawn of the Digital Age” (© Knopf, 2023.) The story of the war’s early years, when Bletchley, aided by the superlative mathematician Alan Turing, decoded the German Enigma machine is well known. However, in late 1942 Bletchley addressed a more difficult problem, the more complex “Tunny” code from Lorenz SZ machines, with two sets of rotors instead of Enigma’s one, that were used to send the messages of Germany’s High Command, including Adolf Hitler himself.

Bletchley’s William Tutte came up with an algorithm that could be applied to Tunny messages to produce a “dot count” that measured whether the first set of rotors were properly set; the highest value of the algorithm was obtained on the correct setting of the rotors. The problem was that trying all 1,271 settings of the first two wheels and then moving on to other wheels would take several weeks per message by hand, or several days even by the electromechanical equipment they had – and the paper tape might not stand up to being run through the feeder 1,271 times.

Since Bletchley had never bothered hiring any engineers, at this point they called in a Post Office engineer called Thomas Flowers (I will not use the diminutive Tommy by which he was known; it degraded the cockney-accented Flowers in the British class system, a problem that was to blight his later life). Flowers, from the Post Office’s engineering laboratory at Dollis Hill (a London suburb) had done some work on Bletchley’s previous machines; more important, he was an expert on electronics, having designed a semi-electronic switching system for the Post Office’s telephones, which had gone into service in 1939. Flowers knew that vacuum tubes/thermionic valves were acceptably reliable if not switched on and off, but left running, and could be used for very fast counting, so that an all-electronic solution to the Tunny decryption problem was possible.

Not amazingly, despite Flowers’ support by Turing and his boss Max Newman, Bletchley turned down Flowers’ proposal. Much more amazingly, Flowers’ boss at the Post Office Gordon Radley decided that Dollis Hill would build the machine, since it was clearly vital to the war effort. Flowers and a team of Post Office engineers (none of whom were told the purpose of the machine) accordingly designed and built “Colossus” the world’s first electronic digital computer, complete with 1,600 vacuum tubes, in eleven months, solving hitherto unthought-of problems such as how to get the vacuum tubes to work synchronously.

Colossus worked beautifully, decoding its first message in ten minutes and speeding up Tunny decryption by a factor of 100 compared to electromechanical equipment. A second Colossus II with 2,400 vacuum tubes was ready just in time to decode messages confirming that the Germans were expecting the D-Day attacks at Pas-de-Calais, not Normandy. By the end of the war, 10 Colossi had been built. In any normal economy, despite the secrecy of Bletchley’s work, the British computer industry would then have taken off, three years ahead of the Americans.

Alas, the ghosts of Gladstone and Disraeli prevented this. Eight of the 10 Colossus machines were dismantled, the other two were moved to the Bletchley team’s new location and remained in service at GCHQ until around 1960. The public sector Post Office had no interest in computers but wanted a better telephone system, so Flowers, who had no seniority or political pull, was put to work on that. Manchester University worked on developing a computer, complete with Turing, but Turing was no engineer, spending his time instead on “Big Brain” problems such as the nature of Artificial Intelligence, so progress was slow and the first machine did not appear until 1950, well after the Americans. The British computer industry was late and feeble. Since Flowers’ work had been top-secret, he received no recognition, even though he lived until 1998, well after the “Colossus” secret had been revealed – oh, other than an MBE in 1978, a very modest medal which he could have got by delivering mail diligently.

The tendency for governments to make decisions and own assets that should be left to the private sector was greatest during and immediately after World War II, but despite the demonstration effect of Margaret Thatcher’s reforms, it has returned in force since her departure, even under a nominally Tory government. The worst current example of such meddling occurs in the policies surrounding the “climate change” delusion.

It is now absolutely clear – even the United Nations admits it – that the world has warmed a total of 1.1 degrees Celsius since the onset of the Industrial Revolution, 250 years ago – how much of that is the natural recovery from the “Little Ice Age’ and how much the result of additional atmospheric carbon is a matter for rational debate and study. The natural “null case” forecast for the future is thus of an additional 1.1 degrees Celsius warming by 2273, which in itself is no problem but suggests we should look at the data again around 2250 to determine if action is then necessary.

Needless to say, nobody would make any money by accepting that reality and a large number of well-paid scientists and U.N. officials would be out of work. Hence the main focus of the “climate change” lobby is to obscure that reality and generate hysteria that can produce profitable consulting opportunities and the chance to control the lives of plebs who don’t share their fanaticism. There are several strategies to achieve this. One is by setting a target of holding warming to 1.5 degrees Celsius from the pre-Industrial Revolution level that is completely unattainable, since we have already warmed by 1.1 degree Celsius and the trend, irreversible in under a century, gets us to 1.5 degrees Celsius in 2114, 91 years from now (4/11 x 250).

Another is to “fiddle” the mathematical models’ long-term forecasts. Models with an annual cycle will generally run off the page anyway after about 40 years, because the “rounding errors” in the data exponentially compound year by year – that was why the Club of Rome forecasts of 1971 had universal catastrophe around 2010, no matter what assumptions you used. (I am not an “expert” in atmospheric chemistry, but I most certainly am an “expert” in mathematical modelling, and the ways the models can be distorted.)

Alas, Boris Johnson majored in classics, not mathematics, which is why the Blob was able to fool him with a well-written exposition of the climate change delusion, resulting in targets for “net zero” in 2050, bans of petrol driven cars by 2030 and compulsory heat pumps by about 2035. None of these decisions should be made by government; even if they believed the climate change delusion, they should limit themselves to imposing a carbon tax, and let the market work out which carbon-saving solutions it preferred. Johnson’s economically illiterate approach is making everybody poorer and allows the left to blame these economic difficulties on Brexit, thus very likely destroying the one positive development in Britain in the last 50 years. (Johnson also completely botched Ukraine policy, stymieing a cease-fire that had been agreed in principle in March 2022; he has less excuse for this, having presumably read Thucydides in the original.)

Once upon a time, Britain was significantly better governed than the rest of the world, which is why it developed the Industrial Revolution. Alas, that is no longer the case, and both government policy and Britain’s position appear to be worsening rapidly.


(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)