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and a loss of marketing skills. British capitalism had remained old-fashioned and rigid. British industries were set up as small cottage-scale enterprises with skilled craftsmen rather than the rationally organized mass factories that sprang up in Germany and the United States. There were signs of broader cultural problems as well. A wealthier Britain was losing its focus on practical education. Science and geography were subordinated to literature and philosophy. British society retained a feudal cast, given to it by its landowning aristocracy. This elite disdained manufacturing and technology, so much so that successful entrepreneurs would set themselves up as faux aristocrats, with country houses and horses, and hide every trace of where the money had come from. Rather than study chemistry or electrical engineering, their sons spent their days at Oxbridge ingesting the history and literature of ancient Greece and Rome.7

Perhaps none of these failings were actually crucial. Paul Kennedy points out that Britain’s dominance in the nineteenth century was the product of a series of highly unusual circumstances. Given its portfolio of power—geography, population, resources—it could reasonably have expected to have 3 to 4 percent of global GDP, but its share rose to around ten times that figure. As those unusual circumstances abated—as other Western countries caught up with industrialization, as Germany united, and as the United States resolved its North-South divide—Britain was bound to decline. The British statesman Leo Amery saw this clearly in 1905. “How can these little islands hold their own in the long run against such great and rich empires as the United States and Germany are rapidly becoming?” he asked. “How can we with forty millions of people compete with states nearly double our size?” It is a question that many Americans are now asking about the United States in the face of China’s ascent.

Good Politics, Bad Economics

Britain managed to maintain its position as the leading world power for decades after it lost its economic dominance, thanks to a combination of shrewd strategic outlook and good diplomacy. Early on, as it saw the balance of power shifting, London made one critical decision that extended its influence by decades: it chose to accommodate itself to the rise of America rather than to contest it. In the decades after 1880, on issue after issue London gave in to a growing and assertive Washington. It was not easy for London to concede control to its former colony, a country with which it had fought two wars (the Revolutionary War and the War of 1812) and in whose recent Civil War it had sympathized with the secessionists. Still, Britain ultimately ceded the Western Hemisphere to its former colony, despite having vast interests of its own there.*

It was a strategic masterstroke. Had Britain tried to resist the rise of the United States, on top of all its other commitments, it would have been bled dry. For all of its mistakes over the next half century, London’s strategy toward Washington—one followed by every British government since the 1890s—meant that Britain could focus its attention on other critical fronts. As a result, it remained the master of the seas, controlling its lanes and pathways with “five keys” that were said to lock up the world—Singapore, the Cape of Africa, Alexandria, Gibraltar, and Dover.

Britain maintained its control of the empire and worldwide influence with relatively little opposition for many decades. In the settlement after World War I, it took over 1.8 million square miles of territory and thirteen million new subjects, mostly in the Middle East. Still, the gap between its political role and its economic capacity was growing. While the empire might originally have been profitable, by the twentieth century it was an enormous drain on the British treasury. And this was no time for expensive habits. The British economy was reeling. World War I cost over $40 billion, and Britain, once the world’s leading creditor, had debts amounting to 136 percent of domestic output afterwards.8