Introduction
This policy brief is the third and final instalment considering the prospects for industrial strategy in Britain. It will provide historical reinterpretation of British economic history that reinforces the central arguments advanced in the preceding policy briefs. The first argued that Britain’s contemporary difficulties in designing and delivering industrial strategy stem from a state characterised by ‘‘power without capacity’’, in which decades of depoliticisation have eroded the institutional capabilities required to shape economic development effectively1. The second demonstrated how, since 1979, this weakening of state capacity has occurred alongside the emergence of a derisking logic that has progressively reoriented the state towards creating and protecting opportunities for financial accumulation rather than strengthening Britain’s productive economy2. Viewed through a longer historical perspective, these contemporary developments appear the latest novel feature of a centuries-long evolution in Britain’s accumulation strategy3. This matters because if Britain’s present economic difficulties have deep historical and institutional origins, then overcoming them will require more than the adoption of another industrial strategy and will demand a fundamental reconsideration of the accumulation model that has shaped the British political economy since the Glorious Revolution and a reconstruction of the state’s capacity to pursue alternative paths of economic development.
The Financialisation of Britain, 1688-1913
The origins of Britain’s distinctive accumulation regime can be traced to the constitutional and financial settlement established by the Glorious Revolution of 1688. This event fundamentally transformed the relationship between the state, finance and political power by strengthening parliamentary control over public borrowing and taxation, thereby creating unprecedented confidence in the creditworthiness of the British state. This credibility enabled the establishment of the Bank of England in 1694, the expansion of a permanent national debt, and the development of increasingly sophisticated markets for government securities4. These institutional innovations underpinned what historians have termed the fiscal-military state: a state capable of financing prolonged warfare, imperial expansion and commercial competition through public credit rather than relying solely on taxation or royal revenues5. Consequently, Britain’s imperial and industrial ascendancy during the eighteenth century rested as much upon its financial capacity as upon its military resources6.
At the same time, these reforms fostered the emergence of a governing elite whose wealth and political influence became increasingly intertwined with financial markets, public debt and overseas commerce. Aristocratic landowners, merchants, bankers and professional classes all acquired vested interests in the maintenance of public credit and the expansion of imperial trade, creating a political economy in which financial interests exercised considerable influence over state policy7. The speculative mania surrounding the South Sea Bubble illustrates the extent to which this new financial order penetrated British society. Participation in the Bubble extended well beyond London’s merchant elite to encompass lawyers, clergy, provincial professionals, merchants and members of the emerging middle classes, demonstrating that financial speculation had become embedded within the broader social and political fabric of eighteenth-century Britain8. Far from representing an isolated episode of irrational exuberance then, the South Sea Bubble revealed the growing social reach of Britain’s financial system and the extent to which the accumulation of wealth increasingly depended upon financial assets, public credit and imperial commerce.
The emergence of this financial and institutional framework preceded, and in many respects conditioned, Britain’s Industrial Revolution. Instead of displacing the financial order created after 1688, industrialisation unfolded within it, producing an economy in which manufacturing and finance developed along relatively separate trajectories. Unlike the later German and American models of industrial capitalism, where large banks became closely integrated with industrial enterprise by providing long-term investment capital, British industrialisation relied predominantly upon retained profits, family partnerships, local credit networks and provincial banking9. Financial institutions centred in the City of London increasingly specialised in government securities, overseas lending, merchant finance and imperial investment rather than systematically financing domestic industrial modernisation10. This institutional separation meant that Britain’s industrial transformation did not fundamentally alter the dominance of finance within its broader accumulation regime. While Britain became the workshop of the world during the late eighteenth and early nineteenth centuries, London’s continued development as the world’s principal financial centre ensured that elite wealth remained concentrated in public debt, international commerce and overseas investment.
This meant that by the late nineteenth century, British capital increasingly flowed towards foreign government bonds, colonial infrastructure, railways and international investment opportunities rather than the modernisation of domestic manufacturing11. In contrast, the universal banking systems that emerged in Germany and the close integration of investment banking and heavy industry in the United States channelled financial resources directly into industrial expansion, fostering more coordinated forms of industrial capitalism. Britain’s earlier financial revolution therefore produced a path-dependent accumulation model in which the institutions of finance retained primacy over manufacturing. Industrial development undoubtedly transformed British production, employment and urban society, but it never fundamentally displaced the political and economic dominance of finance established in the aftermath of the Glorious Revolution, leaving Britain increasingly vulnerable as industrial competition from Germany and the United States intensified during the late nineteenth century.
By the late nineteenth century, British capital increasingly flowed towards foreign government bonds, colonial infrastructure, railways and international investment opportunities rather than the modernisation of domestic manufacturing.
The institutional framework established by the Glorious Revolution proved remarkably resilient, ensuring that the dominance of finance within Britain’s accumulation regime remained largely impervious to sustained political challenge throughout the eighteenth and nineteenth centuries. Although manufacturers, industrialists and advocates of economic reform periodically criticised the financial system for favouring overseas investment and public credit over domestic industrial development, these criticisms failed to generate a coherent alternative political economy capable of displacing the entrenched alliance between the state, the City of London and commercial-financial elites. The constitutional settlement of 1688 had embedded the interests of public creditors and financial institutions within the machinery of government, while Britain’s commitment to free trade, the gold standard and imperial commerce further reinforced London’s position as the world’s premier financial centre. It was not until the late nineteenth century, as Britain’s industrial supremacy came under mounting pressure from the rapidly industrialising economies of Germany and the United States, that this financialised accumulation model faced its first concerted political challenge.
The most significant expression of this challenge emerged through Joseph Chamberlain and the Tariff Reform movement after 1903. Rejecting the prevailing orthodoxy of free trade, Chamberlain argued that Britain’s continued reliance upon finance, overseas investment and commercial services had contributed to the relative neglect of domestic industry, leaving British manufacturers increasingly unable to compete with the protected and bank-supported industries of Germany and the United States. His proposals for imperial preference and protective tariffs sought to redirect economic policy towards strengthening domestic manufacturing and creating a more integrated imperial market that would promote industrial rather than purely financial accumulation. In effect, Chamberlain represented the first major political attempt to overturn the institutional priorities established after 1688 by challenging the dominance of finance and reorienting Britain’s accumulation regime towards industrial production. Nevertheless, the failure of Tariff Reform to secure a decisive political mandate demonstrated the enduring strength of Britain’s financial settlement. The continued influence of the City of London, the ideological commitment of Britain’s governing elite to free trade and international finance, and the vested interests created by more than two centuries of financial development ensured that the institutional framework forged in the aftermath of the Glorious Revolution remained largely intact on the eve of the First World War, despite growing evidence that Britain’s comparative economic advantage was shifting towards newly industrialising rivals.
The Interregnum: Regional and Industrial Policy, 1914-1957
Between 1914 and the late 1950s, Britain experienced an interregnum between two distinct accumulation regimes. The First World War exposed the limitations of the finance-dominated political economy that had evolved following the Glorious Revolution and necessitated an unprecedented extension of state intervention in economic life. The demands of industrialised total war required the government to assume direct control over the allocation of labour, raw materials, transport, shipping and industrial production, creating a command economy whose scale of coordination was incompatible with the laissez-faire assumptions that had characterised nineteenth-century liberalism. Although these wartime measures were conceived as temporary expedients, they demonstrated the state’s capacity to organise production and mobilise industrial resources on a national scale. Instead of embracing this new model after the Armistice, successive governments initially sought to restore Britain’s pre-war financial accumulation regime by re-establishing London’s position as the world’s leading financial centre. The return to the gold standard in 1925 represented the clearest expression of this objective, reflecting the continuing political influence of financial interests and Treasury orthodoxy12. However, the economic conditions that had sustained the pre-1914 financial order no longer existed. An increasingly uncompetitive industrial base, declining export markets and the deflationary pressures imposed by an overvalued exchange rate contributed to persistent unemployment and industrial stagnation, demonstrating that the institutional settlement established after 1688 could no longer reproduce sustained economic growth under twentieth-century conditions.
The failure of financial orthodoxy prompted a gradual, albeit hesitant, expansion of state intervention during the interwar period. Rather than immediately adopting comprehensive industrial planning, governments initially sought to manage the social consequences of structural economic change through active labour market measures, unemployment insurance and labour exchanges13. As mass unemployment became increasingly concentrated within Britain’s declining staple industries, however, policymakers were forced to acknowledge that labour market interventions alone could not resolve the country’s deepening regional and industrial imbalances. The introduction of regional industrial policy through the Special Areas Act of 1934 therefore represented a significant departure from the assumptions of the pre-war liberal economy. Although modest in scale, the designation of Special Areas marked the first sustained recognition that government possessed responsibility not only for mitigating unemployment but also for influencing the geographical distribution of industrial development14. These interventions did not amount to a coherent alternative accumulation regime, but they nevertheless reflected the growing abandonment of the financial orthodoxy that had dominated British political economy before 1914.
The institutional settlement established after 1688 could no longer reproduce sustained economic growth under twentieth-century conditions.
The Second World War completed this process of institutional transition by re-establishing a command economy characterised by comprehensive state planning, investment controls, labour direction and close coordination between government and industry. Unlike the experience after the First World War, however, many of these institutions survived the return to peace. Successive post-war governments retained extensive economic planning, expanded public ownership, continued regional industrial assistance and accepted responsibility for maintaining full employment through macroeconomic management. Consequently, the period between 1914 and the late 1950s is best understood not as the continuation of Britain’s nineteenth-century political economy nor simply as the immediate emergence of post-war Keynesianism, but as an interregnum between two accumulation regimes. During these four decades, repeated attempts to restore the finance-dominated settlement established after the Glorious Revolution gave way to successive experiments in state intervention before ultimately culminating in the consolidation of a mixed economy in which industrial development, regional policy and macroeconomic management assumed a central role within Britain’s accumulation strategy.
The Quiet Re-Financialisation of Britain, 1958-1979
The period between 1958 and 1979 is conventionally understood as the final phase of Britain’s Keynesian post-war consensus. However, this interpretation obscures the coexistence of two competing institutional logics within the British state concerning the future direction of Britain’s accumulation strategy. On the one hand, governments remained publicly committed to the post-war settlement based upon full employment, regional industrial policy, macroeconomic demand management and an active role for the state in supporting domestic industry. On the other hand, different parts of the state, notably the Treasury, the Bank of England, successive governments and senior civil servants, pursued a series of overlapping reforms that cumulatively strengthened Britain’s international financial position. This was not a coherent or centrally coordinated project, nor was it primarily an ideological conflict between Keynesianism and neoliberalism. Instead, it was an incremental and technocratic process through which Britain’s historic comparative advantage in international finance was gradually reconstructed, even while official political rhetoric continued to emphasise Keynesian objectives. Consequently, the post-war period contained two competing visions of Britain’s political economy. One sought to preserve the interventionist settlement established after the Second World War, while the other quietly restored Britain’s role as a global financial centre through monetary liberalisation, offshore banking and the revitalisation of the City of London.
This gradual reorientation towards finance can be observed across a succession of policy decisions that are often treated as unrelated episodes within the historiography. Early proposals such as Operation Robot revealed that sections of the Treasury were already contemplating a more liberal monetary order during the early 1950s15, while the restoration of sterling convertibility in 1958 represented an important step towards reintegrating Britain into international financial markets16. More significantly, the decision by the Bank of England to permit the rapid expansion of the Eurodollar market in the City of London17, together with the encouragement of Britain’s remaining overseas territories to develop as offshore financial centres18, laid the institutional foundations for the re-emergence of London as a leading centre of global finance. Domestically, the Competition and Credit Control reforms of 1971 further shifted the financial system away from direct administrative controls towards market-based mechanisms of credit allocation19. Individually, these measures appeared as technical adjustments to monetary and financial administration; collectively, they represented a gradual reconstruction of Britain’s finance-dominated accumulation regime beneath the surface of the post-war consensus.
The restoration of sterling convertibility in 1958 represented an important step towards reintegrating Britain into international financial markets.
The tension between these competing institutional logics became increasingly difficult to sustain during the economic crises of the 1970s. The growing instability of sterling, accelerating inflation and deteriorating public finances exposed the limitations of attempting simultaneously to maintain full-employment Keynesianism while restoring Britain’s position within increasingly liberalised international financial markets. This contradiction culminated in the Labour governments of the mid-1970s. Denis Healey’s address to the Labour Party Conference in 1975 and James Callaghan’s landmark speech to the 1976 conference, delivered in the aftermath of the IMF crisis, marked the political acceptance that post-war demand management could no longer operate independently of international financial constraints20. Often portrayed as an abrupt and substantive break with the post-war consensus, these speeches can instead be interpreted as the culmination of a longer process in which the institutional restoration of finance progressively displaced the interventionist priorities of the post-war settlement. In this sense, the political economy associated with Thatcherism did not emerge suddenly in 1979 but represented the consolidation of institutional changes that had been developing within the British state for more than two decades.
The Financialisation of Britain after 1979
The election of Margaret Thatcher’s Conservative government in 1979 therefore marks the political consolidation of a finance-led accumulation regime whose institutional foundations had been progressively reconstructed during the preceding two decades. The reforms implemented after 1979 extended and deepened this transformation through a process of financialisation in which the British state increasingly reoriented its activities away from the direct ownership and management of productive assets towards the creation, regulation and protection of opportunities for private capital accumulation21. Instead of simply withdrawing from economic management, the state assumed a new role as market-maker and risk manager, facilitating the expansion of financial markets and creating new investable asset classes through privatisation, the marketisation of public services and, later, the financialisation of national infrastructure. This represented the gradual institutionalisation of a derisking logic within British capitalism, whereby government actively created investment opportunities and reduced political and commercial risks for private capital22. Financialisation after 1979 should therefore be understood not merely as the expansion of financial markets, but as a broader transformation in the relationship between the state and capital in which public policy increasingly sought to sustain economic growth through the promotion of financial accumulation rather than productive investment.
Yet the restoration of Britain’s finance-led accumulation regime did not resolve the structural weaknesses that had prompted earlier experiments with industrial intervention. While financial liberalisation successfully reinforced London’s position as one of the world’s leading financial centres and attracted substantial volumes of international capital, it generated comparatively weak improvements in productivity, real wages and regional economic development. The accumulation regime proved highly effective at creating profitable financial assets but considerably less successful at expanding Britain’s productive capacity or reversing long-term industrial decline. Successive governments therefore found themselves confronting a persistent contradiction. Despite publicly championing market mechanisms and financial liberalisation as the principal engines of economic growth, they had to repeatedly use the levers of state power to intervene via industrial policy to preserve strategically important industries, attract inward investment and support sectors considered essential to Britain’s long-term economic competitiveness23. The shortcomings of financialisation thus did not produce a return to the post-war interventionist settlement, but instead necessitated continuing state intervention to stabilise an increasingly finance-dominated model of capitalism24.
After 1979 public policy increasingly sought to sustain economic growth through the promotion of financial accumulation rather than productive investment.
This contradiction was reflected in the emergence of what may be described as a dual accumulation strategy. Publicly, governments since 1979 consistently advanced a discourse centred upon deregulation, competition, privatisation and the superiority of market allocation. Beneath this rhetoric, however, successive administrations continued to deploy extensive, albeit often uncodified, industrial policies directed towards selected firms, sectors and technologies. Far from disappearing under Thatcherism, industrial policy was reconfigured into a more selective and frequently concealed instrument of statecraft, supporting industries such as aerospace, defence, automotive manufacturing, advanced technologies and, above all, financial services25. This pattern persisted under governments of both major political parties, extending through the administrations of John Major, New Labour, David Cameron, Theresa May, Boris Johnson and Rishi Sunak26, each combining pro-market rhetoric with selective interventions intended to shape the composition of economic activity27. Consequently, the post-1979 period as the consolidation of a finance-led accumulation regime whose persistent productive weaknesses required continuous, if often unspoken and understated, industrial intervention. Industrial policy did not disappear under financialised capitalism; rather, it became an essential mechanism through which successive governments sought to manage the contradictions generated by Britain’s restored dependence upon finance as the principal driver of economic accumulation.
[1] Power without Capacity? Depoliticisation, the British State, Industrial Strategy and AI, James Silverwood, Policy Brief, May 2026.
[2] ‘Derisking, Industrial Strategy and the British Economy’, James Silverwood, Policy Brief, July 2026.
[3] ‘The distinctiveness of state capitalism in Britain: Market-making, industrial policy and economic space’, James Silverwood, Craig Berry, Environment and Planning A: Economy and Space, Volume 55, Issue 1, February 2023, Pages 122-142.
[4] Dickson, P. G. M. (1967). The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756. London: Macmillan.
[5] Brewer, J. (1989) The Sinews of Power: War, Money and the English State, 1688–1783. London: Unwin Hyman.
[6] Patrick Karl O’Brien. (2011). The Nature and Historical Evolution of an Exceptional Fiscal State and Its Possible Significance for the Precocious Commercialization and Industrialization of the British Economy from Cromwell to Nelson. Economic History Review, 64(2), 408–446.
[7] P. J. Cain, & A. G. Hopkins. (2001). British Imperialism, 1688–2000 (2nd ed.). Harlow: Longman.
[8] Anne L. Murphy. (2009). The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble. Cambridge: Cambridge University Press.
[9] Rondo Cameron. (1967). Banking in the Early Stages of Industrialization: A Study in Comparative Economic History. New York: Oxford University Press.
[10] P. J. Cain, & A. G. Hopkins. (2001). British Imperialism, 1688–2000 (2nd ed.). Harlow: Longman.
[11] Lance E. Davis, & Robert A. Huttenback. (1986). Mammon and the Pursuit of Empire: The Political Economy of British Imperialism, 1860–1912. Cambridge: Cambridge University Press.
[12] Barry Eichengreen. (1992). Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. New York: Oxford University Press.
[13] Alan Booth. (1986). “The Evolution of Employment Policy, 1918–1939.” Journal of Contemporary History, 21(3), 385–411.
[14] Alan Booth. (1987). Britain in the 1930s: A Managed Economy? The Economic History Review, 40(4), 499–522.
[15] Peter Burnham. (2000). Britain’s External Economic Policy in the Early 1950s: The Historical Significance of Operation Robot. Twentieth Century British History, 11(4), 379–408.
[16] Catherine R. Schenk. (2010). The Decline of Sterling: Managing the Retreat of an International Currency, 1945–1992. Cambridge: Cambridge University Press.
[17] Gary Burn. (1999). The State, the City and the Euromarkets. Review of International Political Economy, 6(2), 225–261.
[18] Ronen Palan. (2003). The Offshore World: Sovereign Markets, Virtual Places, and Nomad Millionaires. Ithaca, NY: Cornell University Press.
[19] Silverwood, J. (2021). Competition and Credit Control, Monetary Performance, and the Perception of Macroeconomic Failure: The Heath Government and the Road to Brexit. In A. S. Roe-Crines & T. Heppell (Eds.), Policies and Politics Under Prime Minister Edward Heath (pp. 87–114).
[20] Kevin Hickson. (2005). The IMF Crisis of 1976 and British Politics: Keynesian Social Democracy, Monetarism and Economic Liberalism. London: I.B. Tauris.
[21] ‘The distinctiveness of state capitalism in Britain: Market-making, industrial policy and economic space’, James Silverwood, Craig Berry, Environment and Planning A: Economy and Space, Volume 55, Issue 1, February 2023, Pages 122-142.
[22] ‘Derisking, Industrial Strategy and the British Economy’, James Silverwood, Policy Brief, July 2026.
[23] Silverwood, J., & Woodward, R. (2018). From Maggie to May: Forty Years of (De)industrial Strategy. The Political Quarterly, 89(4), 631–639
[24] Silverwood, J., & Woodward, R. (2018). From Maggie to May: Forty Years of (De)industrial Strategy. The Political Quarterly, 89(4), 631–639.
[25] Ibid.
[26] Silverwood, J. and Woodward, R. (2024) ‘Back to the Future? Rishi Sunak’s Industrial Strategy’, The Political Quarterly, 95(3), pp. 535–543.
[27] Silverwood, J. & Woodward, R (2025). Tales from the Crypt: Margaret Thatcher’s Industrial Policy. In Elgar Companion to Margaret Thatcher. Cheltenham: Edward Elgar.
