The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (110 page)

It may not be fanciful to see in this episode a futile last bid to revive a British world-system. Its failure demolished what remained of the post-war assumption that Britain could remain indefinitely as the ‘third world power’, head and shoulders above any other contender. By the time that Macmillan resigned as prime minister in October 1963, such vaunting ambition seemed simply absurd. The weakness of sterling had not gone away. By 1962, even a Conservative chancellor was longing to jettison the pound's ‘reserve currency’ status. Britain's ‘knife-edge’ economy, as Macmillan had called it, now seemed in need of a structural change. With the scrapping of ‘Blue Streak’ in 1960, the British abandoned the effort to make their own nuclear weapons in a partnership with Australia. Britain would depend on the United States after 1965, remarked the Australian deputy prime minister, ‘Black Jack’ McEwen, to the Naval emissary sent to bring the bad news. ‘We must now face a future’, he told his Cabinet colleagues, ‘when the United Kingdom, because of its small size, must drop out of the race and rely on another power.’
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The British now depended on America's willingness to indulge their claim to be an ‘independent’ nuclear power, first with ‘Skybolt’, and, when that was aborted in 1962, with the ‘Polaris’ system. But there could be little pretence that they enjoyed ‘interdependence’. ‘As much the weaker partner, dependent on overseas trade and with worldwide responsibilities, we find American support for our overseas policies virtually indispensable’, remarked R. A. Butler, now Foreign Secretary, in September 1964, in the last weeks of a Conservative government that had ruled since 1951. ‘They find our support for theirs useful and sometimes valuable.’
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The status barrier, 1964–1968

After his crushing defeat at the hands of De Gaulle, Macmillan's prestige was in tatters. His retirement through ill-health in October 1963 was a happy release. In the general election that followed a year later, the Conservative government under Macmillan's successor, Sir Alec Douglas-Home, the former Foreign Secretary, was ejected from power, though by the slimmest of margins. A new Labour government, with Harold Wilson as Prime Minister, came into office. Since much of Wilson's rhetoric, as the party's new leader in succession to Hugh Gaitskell, had dwelt on the need to modernise Britain and poured scorn on the illusion that British governments possessed an independent nuclear deterrent, it might have been expected that an aggressive new realism would infuse British policy. The rapid handover of power in the colonial territories that remained enjoyed all-party support. But there was no such consensus on whether Britain should give up its claim to world power, or whether ‘modernisation’ required the abandonment of ‘obsolete’ military burdens in the world east of Suez. In fact, it soon became clear that the new Labour Cabinet would not sound the retreat. The ‘world role’ would continue. What one Labour minister sardonically termed ‘breaking through the status barrier…as difficult to break through as the sound barrier: it splits your ears and is terribly painful when it happens’,
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seemed too risky and painful. What happened instead was a morale-sapping struggle to square the costs of that status with the brutal demands of economic recovery. Under this pressure, what was still left of the ‘imperial’ world-view began to wither away. Even so, it required an intense economic and political crisis to smash it completely.

Indeed, from the moment it took office, the Labour government found itself in a vice of economic misfortune. The fundamental problem it faced was all too familiar: the relative slowness of the British economy to adapt to the competitive demands of world trade. Without the old cushion of a large invisible income, success now depended upon the export performance of the engineering, electrical and chemical industries. In turn they had to match the productivity gains (or lower labour costs) of their foreign competitors. But to complicate matters, the economic climate in Britain was shaped by two immensely powerful constraints. The first was the commitment of both major parties to maintain ‘full employment’ – broadly defined as under 500,000 out of work (around 300,000 was considered to represent those between jobs) – by avoiding restraints upon purchasing power that drove it any higher. The effect was to keep wages relatively high (or prevent them from falling) and strengthen organised labour. The second great constraint was to maintain the fixed value of sterling (at $2.80). If the balance of payments moved into deficit, foreign holders of sterling began to sell off, and sterling's price fell, and the London authorities were forced to take action. To attract holders back, they would raise the ‘Bank rate’ in London (making credit at home more expensive) and borrow abroad to shore up their reserves, thus incurring new debts. What made this more urgent was the need to reassure those overseas countries (including Kuwait and the colony of Hong Kong) whose foreign currency reserves were held in sterling and banked in London that their deposits were safe. The danger was that the (political) imperative to delay any slowdown in the domestic economy (and thus raise unemployment) would conflict with the (economic) imperative to keep sterling strong by early action on the Bank rate. Once sterling's convertibility was restored in 1958, this delicate balancing act became more and more critical.

It was precisely the effects of such a ‘political’ delay that Labour inherited in 1964. The result was a huge payments deficit and emergency action to bring it under control. But the problem persisted. There were large deficits, and the associated sterling crises in 1965, 1966, 1967 and 1968. The search for a way out of this economic labyrinth dominated government policy. No Labour leader could afford to ignore the reputation for economic mismanagement that had been fastened upon the post-war Labour government and its ill-fated precursor in 1929–31: a disaster for sterling would wreck him as well. Equally, no Labour government could afford to let unemployment creep up, or abandon the claim that it would stimulate ‘growth’, the new holy grail of economic endeavour. Between these two jaws of political fate, Harold Wilson and his colleagues squirmed and wriggled. One solution to their difficulties might have been to devalue the pound (or even let it ‘float’) and give up its role as a ‘reserve currency’ with its own ‘sterling area’. But this was ruled out – until the last possible moment. Devaluation bore the taint of misconduct and failure. It might lead overseas holders of sterling to bail out completely. It might damage the prospects of the City's revival as a great centre of finance. If the sterling area fell apart, the effects on British trade might also be serious, since some of it benefited from doing business in sterling, and this was hardly the time to risk a downturn in exports. Nor did the experts agree on how beneficial devaluing sterling would be, or what new rate should be set.
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On the other hand, Labour ministers were deeply reluctant to rein back their plans for more public investment. Between 1963–4 and 1966–7, their expenditure rose by one-sixth in real terms (over 16 per cent), and by nearly 13 per cent in 1966–7, so that in the course of four years there was a 6 per cent rise in the proportion of GDP taken by public expenditure.
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A high tide of employment helped sweep them to victory in the 1966 general election; and, amid the warnings and woes of 1967, they eased the constraints on domestic consumption.
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It was a volatile mixture.

Labour's leaders still yearned – amid these huge economic anxieties – to be seen as a power in the world, and to maintain Britain's ‘traditional’ place on the ‘management committee’ of global affairs, at the so-called ‘top table’. There were several reasons for this. Disavowing Britain's claim to be a world power (even the failure to avow it with conviction) was not easily done. Despite the damage of Suez and De Gaulle's brutal ‘
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’, many bastions of empire still spangled the map to produce the illusion of power. The press and public opinion could not be expected to discount them completely. The idea of the Commonwealth as a vehicle of post-imperial world influence had been fiercely promoted: it was hard to repudiate. It had helped to anaesthetise British public opinion against the pain of decline; the patient might howl if it were taken away. The wafer-thin mandate that the Labour party had gained in October 1964 was thought to reflect the electorate's doubt that it could bend Churchill's bow and keep Britain ‘great’. To confirm this suspicion might be electorally fatal. Nor was the new Prime Minister, once established in office, reluctant to strut the world stage, and reap the prestige that a high-profile performance could bring. There were also practical reasons to keep up the appearance of world power. With so much unfinished colonial business from Hong Kong to the Falklands, where predatory neighbours harboured expansive ambitions, great-power prestige was a valuable asset, and perhaps even vital to a dignified exit. Renouncing the claim to world power might soften De Gaulle's opposition to Britain's entering the European Common Market – though taking his words at face value had rarely brought anyone luck – but would weaken the case for getting favourable terms. Above all, as most British leaders understood very well, much of their leverage in a superpower world derived from their claim to have close relations with Washington. But American favour depended in large part on the British ability to add influence and muscle to the global containment of communism by their long-standing connection with Australia and South Africa, and by their military presence in the Middle East and Southeast Asia.
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It was by this curious route that a strange paradox had arisen. The subsidiary spheres of the old British system, the vulnerable outposts of their Indian sub-empire in the Persian Gulf and Malaya, had now become the chief theatres where British military power was deployed as ‘vital’ British interests. To gloss over this, and to give their ragbag of commitments a patina of logic, British leaders fell back on an elegant phrase. The aim of their policy, they began to insist, was to maintain Britain's ‘world role’. Like all the best arguments, it was perfectly circular. Upholding the ‘world role’ was why Britain had to be there (anywhere). Unless it was there (anywhere), it could not play a ‘world role’.

But even a ‘world role’ had a material cost. It was measured in defence spending and development aid, and more indirectly by the export of capital. Although British foreign investments were desperately modest compared with their total in 1913, and income from abroad at 1.4 per cent of GDP was less than one-sixth of the earlier figure,
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they had begun to recover. Rebuilding Britain's overseas property empire, and enlarging its invisible income, were seen in the City as the only road back to its old global role and the rewards it had earned. Even before 1964, the export of capital had been closely controlled (to limit its impact on the balance of payments) and most had been steered towards sterling area economies – especially Australia. The shock of two crises in 1964 and 1965 brought a radical rethink. One way of squaring the circle of domestic employment and currency weakness was to redirect British savings into investment at home. Labour's ‘National Plan’ in September 1965 signalled this change of priorities.
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It was followed nine months later by a ‘voluntary programme’ to restrain British investment in the main sterling recipients, Australia, New Zealand, South Africa and the Irish Republic. In 1965, remarked a later Treasury memorandum, the aim was to bring about ‘a permanent shift of emphasis away from investment abroad in favour of investment at home’.
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Scrapping the time-honoured doctrine that the export of capital was a key function of the British economy and one of the pillars of British prosperity showed how far official thinking had moved in barely six years since the Radcliffe Report of 1959 towards something close to a siege mentality. But the second decision in 1965 had even more dramatic (if unintended) consequences.

This was the insistence that defence spending should be fixed at a ceiling of £2,000 million a year, to reduce its very high share (7 per cent) of GDP and to save on foreign exchange. The logic of this, senior ministers agreed in June 1965, was that the cost of Britain's world role east of Suez must be sharply reduced. A small military presence should be kept in the Middle East and in Northern Australia, while retaining island bases in the Indian Ocean would allow the projection of force if the need should arise. But, once the ‘confrontation’ with Indonesia (which had opposed the creation of the Malaysian Federation) was over, the British should leave Southeast Asia, including Singapore.
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It was an attractive solution. It would avoid a risky commitment on the mainland of Asia in a region where ‘neutralisation’ seemed the most to be hoped for. But it could still be asserted that Britain was playing its part in global affairs. Under fierce American (and Australian) pressure, this plan was shelved, and the promise was made (in the defence white paper of 1966) to remain in Malaysia and Singapore for the foreseeable future.
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It did not last long. A huge sterling crisis in June 1966 forced another sharp turn. Now it was said that the number of troops in Southeast Asia would be reduced (‘confrontation’ had ended). The British would stay but no further commitments on the same scale could be made.
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To one critical minister, the discussion of policy was ‘a futile attempt to remain Great Britain, one of the three world powers, while slicing away at defence’.
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In any event, this new formulation was quickly abandoned. A backbench revolt changed ministers’ minds. With a pay freeze at home and rising unemployment, the cost of defence became an irresistible target. In April 1967, the Cabinet agreed to withdraw in two stages from Singapore and Malaysia, reducing the British presence by half by 1970–1, and leaving completely by 1975–6. Britain would retain the means to return if need be, but from a base in Australia, if the Australians agreed.
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This time there was little reaction from Washington. A more urgent concern was withdrawing from Aden which the British had made part of a ‘South Arabian Federation’. By mid-1967, the federal government's authority had collapsed. Faced with a street war against rival nationalist groups to keep control of a base which they had already decided to leave, the British threw in the towel and abandoned the colony in November 1967.