It is worth taking a step back to the early 1900s to better understand the state of the British economy on the eve of World War II.

THE RISE OF NEW COMPETITORS
The Industrial Revolution gave the British Empire a significant advantage over other Western nations in manufacturing development. However, by the latter half of the nineteenth century, other countries had also begun to industrialize. Two of these countries, the United States and Germany, did so at an accelerated pace, overtaking Great Britain around 1900. According to Cameron and Neal (2005), the United States had become the world's leading industrial power by 1890, and Germany had also taken the lead in Europe two decades later.

Allen (2011) argues that, paradoxically, it was the progress made by British industry in its attempt to strengthen its competitiveness that led to the spread of new methods of industrial production outside the United Kingdom. He argues that one reason the Industrial Revolution occurred in Britain rather than elsewhere is that mechanizing industrial processes was more convenient there due to high labor costs and low coal prices. However, technological improvements over the decades led to significant steam engine efficiency gains, making their introduction profitable even where wages were lower or coal was more expensive.

A widespread return to protectionism in the second half of the 19th century then facilitated the rise of new industrial nations. As Bairoch (1996) points out, while Britain's policy of promoting free trade was highly successful in the 1860s, the United States and continental Europe began imposing high tariffs on their manufactured imports in the following years. This policy shift allowed these countries' industries to operate in their domestic markets, protected from the competition they had previously faced from Britain's more advanced industry. This facilitated their development.

Their rise was also aided by the fact that they began industrialization later than Britain. As Kemp (1997) points out, this delay enabled them to acquire more modern equipment than Britain had. This advantage could have been lost, of course, if British entrepreneurs had responded to the advance of these new competitors by modernizing their production facilities. However, they moved very slowly in this direction and were thus unable to prevent significant shares of the world market from being taken away from them. According to Kemp, this inertia can be explained by the fact that, for a long time, it was more profitable to maintain old plants whose costs had been fully amortized than to replace them. Replacing them would have allowed them to maintain their market position, but it would have required new investments.

THE FAILURE TO RENEW THE INDUSTRY
This last argument illustrates how the reduction and, in extreme cases, the elimination of the gap between Great Britain and other Western countries was determined not only by the latter's ability to progress but also by the former's inadequate defense of its primacy. In this regard, we can also cite Barratt Brown's (1977) argument that, in the late 19th century, British industrialists were discouraged from investing in technological improvements to their plants by the continued availability of cheap labor guaranteed by the influx of Irish immigrants. Another factor contributing to backwardness is the reluctance of British operators to innovate the techniques and organization of production to create large, vertically integrated enterprises.
According to Jha (2007), this was due to British industry's dependence on international trade, specifically its colonies, which were indispensable as suppliers of raw materials and markets for its products. This made companies operating there vulnerable to events beyond the government's control in London. This led them to maintain lean, flexible structures that allowed them to respond quickly to unfavorable changes, reducing the possibilities for integration between the different parts of the industrial structure.

This technological and organizational conservatism can be attributed to financial operators' propensity to prefer foreign investment. As Barratt Brown reports, this may have meant that despite the exceptional development of the financial sector in Great Britain, capital available for industrial use was scarce and expensive. This tendency can be attributed to the existence of safer and more profitable investments outside the country than those in domestic industry. For example, Barratt Brown mentions foreign government bonds. However, it is difficult to understand the extent to which the international projection of British finance caused the failure to renew the manufacturing sector and the extent to which it was a consequence of this phenomenon.
After all, it was precisely the loss of competitiveness of domestic industry compared to foreign industry that may have led City operators to prefer foreign investment. Arrighi (2008) supports this view, arguing that the decline in profitable investment opportunities in domestic industry led to capital flight from the country. He also argues that the latter phenomenon aggravated the former because British capital, seeking more profitable investments than those available at home, was particularly attracted to the United States, the country developing most rapidly and therefore posing the greatest threat to British industrial hegemony.

Cameron and Neal also note the modest technical preparation of British entrepreneurs and managers due to the low value placed on scientific subjects in the British school system. This factor became increasingly important in the last decades of the nineteenth century when the "second industrial revolution," based on steel, chemical, and electrical technologies, began. In this new phase, scientific research played a much more important role in industrial progress than in the past.

PUBLIC INTERVENTION IN THE ECONOMY EXPANDED
Despite its declining industrial dominance, Great Britain remained faithful to its traditional policy of defending free trade for a long time, failing to adapt to the protectionist and interventionist tendencies of newly industrialized countries. However, this policy changed with the outbreak of World War I, when strict regulation of production and trade became necessary to ensure military and food supplies. Berend (2008) describes this shift in British economic policy. He reports that controls on economic activity were introduced, and entire sectors were nationalized from 1914 onwards. Tariffs were also introduced to protect domestic agricultural and manufacturing production. The demands of the war also led to an increase in public spending, causing the amount of currency in circulation to increase almost tenfold. This forced the abandonment of the gold standard for the pound sterling, which had helped maintain its value and promote its use in international transactions.
After the war, there were attempts to return to the previous situation by reducing customs duties and reestablishing the link between the currency and gold. The hope was to restore international trade to pre-war levels and keep Great Britain at the center of the world financial system, even if it meant penalizing domestic industry, which suffered from the revaluation of the pound. However, these policies were crushed by the Great Depression of the 1930s. This led the government to adopt strong public regulation of the economy once again, in line with what was happening in other countries.
After World War II, the trend toward state ownership of enterprises became even more pronounced, with the nationalization of various strategic sectors (coal mines, railways, electricity production, air transport, the Bank of England, and parts of the oil and aviation industries). Tariff protectionism was abandoned again in favor of joining organizations that promoted free trade between member countries. From 1960 to 1972, Great Britain was a member of the European Free Trade Association (EFTA), which it had founded with other countries that were not part of the European Economic Community (EEC). Then, Great Britain became a member of the EEC itself when the French veto on its accession was lifted.

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Source: Publication No. 19 of February 2014 of the Library of the Senate of the Italian Republic