The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (97 page)

Test of Empire, 1951–1952

In its six years of office from July 1945 until October 1951, the Labour government had followed a remarkably consistent external policy. Its aim had been to protect British independence in Europe, where it seemed to be threatened by Soviet expansion, as well as British power in the world. It was no less committed to regaining Britain's old place in world trade as the best guarantee of domestic prosperity and restored living standards. It pursued these objectives by what seemed the logical means. It sought to engage the United States as fully as possible in the defence of Western Europe, recognising that Britain, even with its Empire and Commonwealth behind it, could not hope to hold out against a Soviet onslaught in another world war. It hoped to deter a further Soviet advance partly by alliance diplomacy in Europe (‘Western European Union’) and partly by digging in on the Soviet flank in the Middle East. After the dramatic upset of the convertibility crisis in July–August 1947, it vowed to defend the sterling economy by exchange control and commercial restriction until London's reserves of dollars and gold were sufficient to meet the pound's post-war liabilities and restore the City to its premier place in global finance. It was committed, in short, to building a new British world-system, not as grand perhaps as its pre-war model, but more
dirigiste
, more development-minded and, up to a point, more democratic.

In retrospect, this might be seen as a quixotic endeavour to turn back a tide that had set irrevocably against European empires in general and Britain's in particular. In fact, the Labour leaders behaved with what they clearly regarded as tough-minded pragmatism. They accepted the need to let India go quickly lest it drag them into a vast communal conflict. They abandoned Burma as ungovernable and made almost no effort to dissuade its new rulers from leaving the Commonwealth. They acknowledged the claim of Ceylon's Sinhalese elite to swift independence and endorsed the claim of the Commonwealth Secretary that ‘if we treat them strictly as a[n] [independent] dominion, they will behave very like a loyal colony.’
¹³¹
They made little fuss when the Irish Free State became the Irish Republic, preferring a bilateral agreement to the tattered remains of the crown connection to protect British interests. They threw up the Palestine mandate and simply withdrew rather than enforce a partition that would further damage their relations with the Arab states. On the other hand, they were also determined to hold the Commonwealth together and get the help of the self-governing dominions in the defence of sterling – by forceful methods if necessary. They were ready to modify what was widely regarded as its main source of cohesion to mitigate the effects of the end of the Raj and retain the friendship of India. After their initial attempt to win Egyptian agreement to a new defence treaty by the drastic reduction of their military presence, they showed a stubborn refusal to give up British rights to use Egypt as a vast military base in the event of a new war. And, across the wide expanse of their tropical empire, they demanded economic and political change on a scale and at a speed that seemed likely to test the colonial state to the point of destruction.

After April 1949 and the signing of the North Atlantic treaty, with its promise of American help in the defence of Western Europe, Attlee and Bevin could have been forgiven for thinking that they had turned the main corner. Their aim, after all, was to preserve British power as a ‘third force’ in world affairs, in alliance with America to contain Soviet aggression, but not subordinate to it. Just as they hoped to restore sterling to something like parity with the dollar as a trading currency, they thought that a modified British world-system, with its treaty relations, Commonwealth links, informal connections and far-flung network of bases, would secure Britain's status as America's all but co-equal in the Western alliance. They looked forward to the easing of Cold War tensions and the demands they had made on the British economy. What remained of these hopes was largely demolished in the course of 1951–2 by the seismic consequences of the Korean War and the delayed after-shocks of the Palestine conflict.

1950 had been a good year for the British economy and the sterling area. With the balance of payments back in surplus and the easing of the dollar deficit, Marshall Aid was suspended. The sterling area, the Chancellor of the Exchequer told his Australian counterpart, was stronger than at any time since the war.
¹³²
But, he warned, it was a ‘darkening picture’. The darkest cloud was the huge increase in Britain's defence spending, the price Britain must pay, so the Attlee government argued, to maintain the American commitment to Europe's defence at a time when East Asia had become Washington's most urgent priority. The defence budget was raised to the enormous figure of £4.7 billion over three years, doubling the level of 1948–9, and threatening to consume more than 10 per cent – perhaps even 14 per cent – of output. Almost at once a vicious circle set in. The price of dollar goods rose just as rearmament made them more necessary. British production was diverted from overseas exports and dollar-earning activity. Britain's dollar reserves, the key to sterling's revival as a convertible currency, began to dwindle rapidly. Even in March 1951, before the crisis really set in, they stood at only one-third of the 1938 figure.
¹³³
Between June 1951 and March 1952, they fell by half. By October, the incoming Conservative government was engulfed in a full-blown sterling crisis, the third in six years. At an emergency meeting of Commonwealth finance ministers in January 1952, an urgent programme of dollar-saving was agreed.

Sterling recovered and staggered on to achieve convertible status in the (briefly) easier conditions of 1958. But the 1951 crisis was a real turning point. It offered stark evidence that the closed sterling economy could not be the springboard to the pound's full recovery as a world ‘master-currency’ or London's revival in global finance. The pound's credibility was badly damaged in Europe. Nor was it possible to prevent the leakage of sterling as dollars were bought by indirect methods. We have reached a ‘dead end’, concluded a secret report in the Bank of England.
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The draft communiqué of the Commonwealth finance ministers in January 1952 acknowledged the core of the problem.
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Sterling could only rebuild its old status and be safely convertible if London's reserves were restored to pre-war levels. That would require an enormous effort to increase trade and earn more dollars. But this could only be done if more investment was raised and if the sterling countries gained better access to the goods and capital of the dollar economies. Britain alone could not provide the development capital that was needed to improve the productiveness of its sterling area partners. Indeed, much of what it did send abroad was not the result of domestic saving but capital brought back from non-sterling countries (like Argentina).
¹³⁶
As a result, investment (in Australia) was ‘incredibly and worryingly low’.
¹³⁷
The finance ministers agreed that capital had to be sought from outside the sterling area, but, as the Australian ministers gloomily noted, it was hard to attract while sterling remained a ‘soft’ currency. And so the circle was closed. It was hard to escape the conclusion that its long convalescence had prepared Britain's commercial empire – the central pillar of British strength in the world – not for rejuvenation but for premature senility.

At almost exactly the same moment, the same wasting disease became painfully visible at the heart of Britain's Middle Eastern
imperium
. As we have seen, quite apart from the value of the Suez Canal Zone as the main base from which Britain's regional presence could be supplied and reinforced in time of war, and the need to use Egyptian resources and assets outside the Canal Zone, the Anglo-Egyptian relationship remained the centrepiece of Britain's Middle East influence. It was hard to imagine how that could survive the defection of Egypt from the British connection. That was why the British were so anxious to reconcile Cairo to their military claims. But they remained surprisingly confident that they could sit out the storm in the short term at least. In the last resort, or so they assumed, they could seal off the Canal Zone and send troops into Cairo and Alexandria to protect their citizens and enforce a change of government. But, between October 1951 and January 1952, a revolution took place in Anglo-Egyptian relations.

It was triggered by the treaty abrogation that Nahas had announced. At first, the British were tempted to dismiss it as simply ‘hot air’. But it soon became clear that something much more than an empty gesture had happened. Egyptian labour disappeared from the Canal Zone. The police became hostile.
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British soldiers began to be murdered. The Canal Zone, remarked the Middle East Office in Cairo, ‘can no longer be considered a base for the defence of the Middle East, having lost its wider operational potential’.
¹³⁹
The British cast around for remedial measures. Reinforcements were sent out to Cyprus, but, since the strategic reserve in Britain was already exhausted, flooding the Canal Zone with troops was not a viable option. Financial sanctions against Egypt were considered and rejected.
¹⁴⁰
Sealing off the Canal Zone under a military government would impose administrative complications that were ‘almost intolerable’, said the Chiefs of Staff.
¹⁴¹
Instead, the local commander-in-chief was empowered to disarm the troublesome Egyptian police. Then came disaster. At Ismailia on the Canal, on 25 January 1952, the British stormed the police station, killing more than forty Egyptians. The next day, in Cairo, there were violent anti-British disturbances in which British civilians were killed and British property wrecked including the famous Shepheard's Hotel. The British had long had a plan in case of such an event. Operation ‘Rodeo’ would bring British troops from the Canal Zone to the city. But now the generals held back. They could not be sure to keep the Canal Zone secure and have an adequate force to make ‘Rodeo’ work. For two things had changed. The first was the rise of a popular nationalism, a form of mass opposition that the British had not faced since 1919. The second was the risk of a clash with the Egyptian army, on whose tacit acquiescence the British had always previously counted. The immediate crisis blew over; Nahas was dismissed by Farouk; the desultory talks were resumed. But, almost unnoticed, the armed strength that had underlain British influence in Egypt since 1882, and which had given the Residency its ‘whisper behind the throne’, was melting away. The decolonisation of Egypt that Nasser completed was now under way.

‘Thinking over our difficulties in Egypt’, remarked a senior Foreign Office official, ‘it seems to me that the essential difficulty arises from the very obvious fact that we lack power. The Egyptians know this, and that accounts for their intransigence.’
¹⁴²
The ‘basic and fundamental aim of British policy’, he went on, ‘is to build up our lost power. Once we despair of doing so, we shall never attain this aim.’ It was a lapidary comment on the British dilemma: ‘We are not strong enough to carry out the policies needed if we are to retain our position in the world; if we show weakness, our position in the world diminishes.’
¹⁴³
Until the double crisis over Egypt and sterling, it had been possible to think that, by subtle diplomacy, Spartan economics, and the vigorous deployment of Britain's imperial ‘assets’, Britain would regain its old position as an independent centre of world power. But the crippling weakness at the core of their post-war system had now been revealed, with little hope of relief. Without a strong sterling economy or the great power leverage conferred by their Middle Eastern
imperium
, the British claim to world power would look threadbare indeed. The huge expansion of the Cold War conflict that Korea had signalled sealed their geopolitical fate. It marked the final arrival of the bipolar world that had advanced in stages since 1943. It meant that British dependence on American power would not lessen but grow. It forced British policy into a stance both defensive and brittle, and driven more and more by the search for prestige. After 1951, the best they could hope for was to be the third world power: within a few years, they had become something different – a power in the third world.

13 THE THIRD WORLD POWER, 1951–1959

An empire of influence

As the economic crisis unleashed by the Korean War and the strain of rearmament began to intensify, a new government came to power in London. It was headed by the indomitable Churchill, now seeking to crown his career by a summit conference with Stalin to end the Cold War – a plan regarded coldly in Washington and by his own Foreign Office. The Conservative party had won the election under a populist banner – ‘Set the people free!’ – that decried the bureaucratic austerity of the Labour regime. Rationing was indeed abandoned in 1954, and Labour's late nationalisation of the steel industry reversed. But there was no major departure from the domestic priorities of the previous government. Full employment remained at the centre of economic policy. The welfare state, its social corollary, was politically sacrosanct: indeed, one of its main Conservative architects, R. A. Butler, was Chancellor of the Exchequer from 1951 to 1955. The tax system was left much as it was.
¹
No great ideological shift separated the two phases of British post-war politics between 1945 and 1963, even if over particular issues (like the Suez crisis or entry into the Common Market) there was sometimes a wide gap between the two major parties.