A long-standing parliamentary democracy with a constitutional monarchy, the United Kingdom is held up as a classic laissez-faire system based on rule of law. Its dominance as an economic and political power is backed by its naval supremacy. The British Empire is the world's biggest: It covers a quarter of the earth's land surface with a population of 425 million, 366 million of whom live in India.
The empire goes to war against the central powers following the murder of Archduke Ferdinand. Millions of men are recruited into the military, which plays a pivotal role in campaigns on the continent, in the Mediterranean, and the Middle East. The economy is taken over and planned by the government, its resources pumped into a total war effort.
Following the Allied victory and the dismemberment of the Ottoman Empire, the British Empire expands to its greatest reach with the trusteeships of Palestine, Iraq, and Transjordan. But Britain is saddled with massive debt and no longer the strong power or hegemonic guarantor of the world economy. Domestically, the war causes profound social change, such as granting women the right to vote.
To troops returning home, the promise of a land fit for heroes turns out to be a false hope. Following a short-lived boom, Britain experiences unemployment, strikes, rising prices, and a slump in wages. The decline in traditional industries leads to a growing division between the affluent South based on a flourishing London and the decaying North, a dividing line that remains to this day.
Like the rest of the world, Britain struggles to cope with the repercussions of the Great Depression. But its political culture and social solidarity help maintain order. The rapid development of new industries to replace the declining staples, along with a housing boom, the start of rearmament, and growing demand for consumer goods, result in a marked improvement in the standard of living.
Britain ends a policy of appeasement by declaring war on Germany in 1939. As in World War I, the government takes control of the economy, planning every aspect of its production. After France's surrender, Britain fights on alone against the Axis powers, for a year and a half, enduring terrible bombardment, casualties, and economic pain. Some 54 percent of its GNP is devoted to the war.
A Labor government turns Britain into a socialist democracy. It nationalizes industries, builds the welfare state, and establishes a mixed economy, which has wide appeal around the world. After decades of demands for self-government, India is declared independent in 1947, setting in motion a rapid unraveling of the British Empire. Almost all the colonies will be independent by the late 1960s.
On the surface, the 1950s are a time of expansion and prosperity. The economic well-being of the average Briton rises dramatically and visibly. But rising interest rates and inflation combine with outbreaks of industrial unrest and a series of "stop-go" three-year cycles to significantly damage the economy. As the empire dissolves, Britain searches for a new role and identity in the world.
The economic concern of successive governments is to increase productivity and ensure peace with the labor unions so that public expenditure can be met. The reality is poor labor productivity, sterling crises, and trade union unrest. Britain resorts to a planned economy, while benefiting from an unprecedented rise in tourism attracted to the culturally "swinging London."
Prime Minister Edward Heath aims to take Britain into the European Economic Community (EEC), break the unions' power, and restore economic growth. After Britain's successful entry into the EEC in 1973, the oil shock hits. The energy crisis results in British industry operating only three days a week. Heath is defeated by the unions, and the economy falls into stagflation.
Prices continue to rise rapidly, and labor union unrest escalates into a series of nationwide strikes that bring the whole country to a virtual standstill, the "Winter of Discontent." The Labor prime minister, James Callaghan, is defeated by a vote of no confidence, the first since 1924. Conservative Margaret Thatcher becomes the first woman prime minister in British history.
Thatcher ends the postwar Keynesian consensus and sets Britain on a new course. She aims to halt the period of decline and instill a spirit of enterprise. Victory in the Falklands War over Argentina lifts her popularity and Britain's international standing. The defeat of the 1984 miners' strike breaks the power of the unions, and a policy of privatization sells off most state-owned industries.
Britain signs the Maastricht Treaty on closer integration among members of the European Union, but Britain's traditional European skepticism leads to significant opt-out clauses, particularly on currency and social issues. Britain's withdrawal from the Exchange Rate Mechanism (ERM) has a damaging political impact, but effectively ends the country's longest recession since the 1930s.
Prime Minister Tony Blair's theme is New Labor, a different Labor Party eager for modernization. Under his leadership the party continues Thatcher's monetarist-style policies and agrees on harnessing the power of markets, but he restores full employment as a goal and aims to rebuild the spirit of community and social welfare damaged under Thatcher.
Tony Blair and Labor win a sweeping reelection in 2001 and continue to dominate the political landscape, promoting incremental reforms but maintaining overall market orientation. The economy still outperforms much of Europe but is affected by the global slowdown. The successful advent of the euro raises fears that the UK has been wrong to opt out.
Blair's close alliance with the U.S. in the three-week military action against Iraq causes a Labor rebellion and the resignation of several ministers of Parliament. But the House of Commons supports the campaign. Antiwar sentiment among the public is strong, as is disappointment over the government's failure to improve public services. Economic growth, albeit slow, remains ahead of most of Europe's.
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