Pessimistic accounts of UK economic performance during the interwar period have been challenged recently, and it has been suggested instead that these were years of regeneration for British industry, notwithstanding the high levels of unemployment which prevailed. Alfred Marshall once suggested that 'one of the best indicators of the nature and extent of a country's leadership is found in the character of goods which she exports, and of those which she imports'. In Discussion Paper No. 83, Mark Thomas and Research Fellow Nicholas Crafts analyse the composition of UK imports and exports from 1910 to 1935 in order to reassess the 'leadership' displayed by the UK economy during the interwar period.

International trade theory suggests that a country exports those goods which it can produce at a comparative advantage. This advantage will lie in goods produced using factors of production which are relatively plentiful in the country concerned. Crafts and Thomas investigate the extent to which Britain exported high- or low-wage goods during the period 1910-35, in order to determine whether the UK's comparative advantage lay in goods using unskilled or skilled labour. They find that throughout the period Britain exported predominantly low-wage goods and showed a comparative advantage in producing goods intensive in the use of unskilled labour rather than those well-endowed with 'human capital'.

This evidence casts renewed doubt on the hypothesis of interwar industrial regeneration in the UK, according to Crafts and Thomas. The pattern of UK imports and exports was very different from that of its major competitors. UK exports still tended to be concentrated in the old 'staple' commodities, while economies such as that of the United States were developing their exports of high-wage goods, in which the use of human capital and research and development were important.

The authors find evidence of considerable continuity between the 1930s and the late 19th century. The Victorian economy had specialised in industries with a relatively low utilisation of technology and human capital, compared to those sectors in the forefront of the 'second wave of Industrial Revolution', such as electrical and chemical engineering. The analysis of Crafts and Thomas suggests that inter-war patterns of employment reflected an earlier reluctance on the part of British industry and government to commit resources to technological innovation and vocational education, a phenomenon remarked upon by contemporaries. This reluctance made the UK economy very vulnerable to the more intense international competition of the 20th century. The authors' results lend support to those economic historians who have argued that inter-war unemployment in Britain was largely rooted in long-term structural problems and was brought out by the decline of low-technology industries which had dominated the 19th century.