The Economics of Britain's Imperial Decline: The 1920s and 1930s were abnormal times by most criteria, not easy years for any country; and Britain, though she no longer led the world, stayed amongst the front runners, and perhaps only needed a slight change of fortune to put her into the lead again.  This was how some felt; but the bare economic facts of the time were gloomier.  Production in Britain's old staple industries was stagnant, or (as in textiles) actually declining; or if it was rising (as it was in steel) it was doing so sluggishly and at a lower rate of profit.  This was serious for the present; what was more ominous for the future was that Britain was lagging in some of the most promising new growth areas of industry too, which meant that as the old export staples declined there would be nothing to take their place.  Britain's foreign trade, though it kept just ahead of her rivals', was declining both relative to theirs (in 1938 her share of world trade had slumped to 14%, from 17% in 1913 and 25% in 1860), and relative to her total production; she was exporting a smaller proportion of what she manufactured.  Partly this was due to her own difficulties, partly to an overall drought of world trade in the 1920s and 1930s.  Worse still; her overseas investments, on which she had depended in the past to balance her books, never wholly recovered from her massive sale of them recently to pay for the war, so that in 1930, for example, they were L1,000 million down on the 1914 figure, and reaping less interest too.  In the 1930s Britain's balance of payments even with invisibles and investment earnings counted in began to go very badly into the red, for the first time in over a century.
All this spelt a sad decline from the halcyon days of the 1860s, or even from the breezier time before the war.  But more than this, it spelt a quite dramatic change in the balance of Britain's national interest in the wider world.  In the first place, between the wars Britain was trading with and investing in the wider world to a lesser degree than before.  In 1935-39 her import trade represented only 19% of her national income, compared with 33% in 1910-13; her export trade 10% as against 22%, her foreign investment 3.9% as against 8.6%.  Of course this did not signify necessarily that foreign trade and investment had become less important to Britain (a crust might be as I portent to a hungry man as a loaf, if it is all he can get); but it did signify that they now played a smaller part in her total economic activity than before.  But secondly: within this shrinking asset, the empire's share at the same time was getting larger.  Between 1910 and 1914, 25% of Britain's import trade and 36% of her export of her import and 49% of her export trade were with her colonies.  After 1920 both increased considerably.  Between 1935 and 1939 39.5% of her import and 49% of her export trade were with her colonies.  The trend was the same for foreign investment: 46% going to the empire in 1911-13, 59% in 1927-29.  Such figures were vivid proof that, although it was fashionable in progressive circles to decry it, from Britain's material point of view the empire was very far from being an anachronism; that on the contrary it was only just beginning to pay the dividends its old champions had always expected from it, and handsomely.
For some the dividends were higher than for others.  They were especially high for the giant British-based industrial and commercial combines and cartels which the war and the depression, by weeding out their smaller, weaker competitors, had left in control of many of the empire's most valuable resources; in concerns like Unilever, which had started the trend and had its fingers everywhere, but particularly in west Africa where it had bought out most of the old trading companies; Dunlop, which had massive interests in Malaysia; Tate and Lyle in West Indies; and the like.  To a large extent now British industry not only bought its raw materials from the colonies but was directly involved in growing them there too, which further cemented the bonds between British capitalism and the empire.  The benefits of the empire were spread unevenly, but to some degree or other they were supposed to filter down to everyone.  'At the bottom of his heart', wrote George Orwell in 1937, no Englishman wanted to lose the empire; for 'apart from any other consideration, the high standard of life we enjoy in England depends upon our keeping a tight hold on the Empire, particularly the tropical portions of it such as India and Africa'.  This had been true for some time; but it was especially true of this, as the importance of the empire increased steadily, in an overseas trade which overall was diminishing.
This trend had fundamental implications for British foreign policy.  Throughout the nineteenth century and a good way into the twentieth century the empire had not been the exclusive or even the main focus of foreign policy, because it had not been the exclusive or main repository for Britain's economic interests.  Always she had traded more with the world outside her formal possessions; always therefore her main interest had lain in maintaining the widest possible geographical scope for her trade and investment, and never in favouring or protecting exclusively one part of it. . . . the wider world was becoming less Britain's oyster, more its own or someone else's; Britain's oyster was becoming smaller and closely defined.
The diminution of trade was new, but in a way it was only continuing a familiar trend for Britain, the trend which, since 1870 or before, and for whatever reason, had made her industry increasingly less competitive in world markets; which after 1918 was only just beginning to bring on it the nemesis it deserved.  Before the war there was a tendency for Britain to export less and less to industrialized countries and more and more to 'underdeveloped' countries; which was a reflection of her increasing inability to compete with other nations in the production of sophisticated goods for sophisticated markets.  The underdeveloped world was an easy refuge for inefficient or hard-pressed entrepreneurs, and its existence itself perpetuated their inefficiency.  After the war the same trend continued; in 1927-29 over 75% of British exports went to non-industrial countries, compared with 69.6% in 1909-13 and 58.5% in 1867-69.  The growing preponderance of the empire between the wars was in part an aspect of this trend, for the empire consisted mainly of underdeveloped or agricultural markets, which for that reason, as well as reasons of familiarity and sentiment, would be likely to remain when others fell away.  They were the easiest markets, the last ditches of British commercial defence; consequently in times of difficulty they were likely to form a larger proportion of a small trade than in good times they did of a big trade.  While colonial markets remained there was still no pressing necessity for change.  The end-result was to allow her relative economic decline to continue, masked and cushioned more and more by the empire; and to give the empire a few last years of prominence, and imperialists a few last years of dreaming, before the prominence and the dreams were both finally dissolved by reality.