I'd like to throw a couple of ideas in if I may. I've been thinking about this a while and while I agree with much of what has been written here it seems to mostly concentrate on Britain's engagement with the rest of the world. It seems to me that Britain’s internal sea changes played just as important a role in decline.
The main problem with WW1 for Britain wasn't the length of the conflict or the cost in blood and treasure (though both were appalling) so much as what it did to the national psyche.
I could be wrong but my impression is that before WW1 Britain was a more optimistic, enthusiastic, positive society than she subsequently became. When WW1 began, thousands of Britons answered the call to arms, not merely, as many historians would have us believe, because they thought it would be a ‘lark’ but also because they were genuinely patriotic and believed in the justice of Britain’s cause. What this seems to imply is that the British people basically believed in and trusted the nation – the system in which they lived and the leadership.
That great upwelling of positive patriotic feeling died in the trenches because of the nature of the fighting and the apparent futility of the losses. (An aside - this was inextricably linked with the smallness of gains and the cost of those gains. Interestingly British soldiers tended to reflect positively on the ‘Hundred Days’ Campaign of 1918 when warfare became mobile again and negatively on the actions where the fighting was static, though casualties during the hundred days were quite as bad as those at 3rd Ypres (Passchendale).)
The impression of futility was reinforced by the memoirs of Lloyd George and to a lesser extent Churchill that portrayed Britain’s military leadership as incompetent and unfeeling butchers who didn’t care how many of their own soldiers they killed in pointless attacks. Their version of the conflict entered the national consciousness to the extent that the trust that existed in Britain’s leadership and system was badly eroded, the British became more cynical and more suspicious. They began to look out for number one because clearly the British system, Britain’s leadership, could not be trusted with the task.
Then there was the decision to get back on the gold standard and the subsequent economic dislocation that went with it and these two experiences came together to lead to the rise of militant Trades Unionism.
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Britain has Oxford and Cambridge, to the best of my knowledge it still doesn’t have a school of business. Now Oxbridge is all well and good, I’m sure no one would question they are assets to the nation but a peculiarly British conceit meant that until quite recently engineers and entrepreneurs were looked down on by the upper echelons of the British education system. Engineers and entrepreneurs build industrial societies (and one of the reasons Britain has fallen from Superpowerdom is the relative decline in manufacturing) but how long did it take for Britain to have an equivalent of the French Ecole polytechnique, or the German technical universities? How long will it be before Britain has an equivalent of Harvard?
The LSE - which might have become Britain’s business school - was for a long time a think tank for radical socialism. It was founded with the initial intention of renewing the training of Britain's political and business elite, but two of the founders were members of the Fabian Society and so study of social sciences was somehow added too and then pushed aside the study of business. That has all changed now but what a lost opportunity.
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Has the British sense of humour been an asset or a liability? I am British so perhaps I can be forgiven if I say that I can’t help think that we Brits often make jokes about problems rather than fixing them.
Sorry I’ve rambled, does any of this make sense or am I talking complete cobblers?