Continuity and change? The operation of capital and labour markets: a comparison of the late 19th century and the interwar years

"This paper extends the discussion from the preceding papers to assess the extent to which the inter-war years were a transition period separating the 'long nineteenth century' from the post-1945 period. Our analysis is based on key aspects of the operation of the labour market and developments in corporate finance in Britain between the two World Wars. For both markets (labour and capital), we find that short-time working and personal capitalism - prominent features of the nineteenth century British economy - persisted throughout the inter-war period. This raises the central question: why was there so much inertia in these institutions; why did they respond so sluggishly to the radically different economic environment between 1919-39? Our analysis of the labour market indicates that, in many respects, short-time working was inherited directly from the nineteenth century. However, one key difference is that instead of being used on an infrequent and short–term basis to respond to the trade cycle, its use during the interwar years - at least in many industries - was almost continuous. This suggests that demand fluctuations alone cannot provide a complete answer. Such an observation raises the possibility that the practice of short-time working became embedded in labour relations during the inter-war period. This, in turn, requires examination of the operation of short-time in the post-1945 period in which a pronounced gender division became apparent. We argue that consideration of this overlap indicates that short-time working (or labour rationing) may have been used by employers as a defensive response to macroeconomic uncertainty in the post-1945 period, with clear implications for labour productivity and investment. It is well established in the literature that city-industry relations have also been paramount in analyses of British economic performance. Analysis of corporate finance during the interwar years provides important clues on the way in which corporate governance structures established during the interwar years carried over into the post-1945 period. Our analysis of the ways in which external funding was raised (debt versus equity; banks versus non-banking sector) suggests that key characteristics of corporate governance during the interwar years were carried over into the post-1945 period. This, too, also had implications for productivity and competitiveness in the post-1945 period."