Darwin J. The Empire Project. The Rise and Fall of the British World-System, 1830-1970

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575 / The third world power, 1951–1959

Right (Daily Express, Daily Mail, Daily Sketch and Daily Telegraph)

had a circulation (in 1956) of approximately 8.2 million; those to the

Left (Daily Mirror, Daily Herald and News Chronicle) approximately

7.2 million.

Although it could not be assumed that this reﬂected the

relative strength of opinion for or against the defence of empire, these

ﬁgures gave some indication of the ﬁne line to be trodden if it was

to enjoy general backing at home. The more serious danger was that

public opinion in general would become disillusioned by the cost (in

lives and money) of ﬁghting colonial insurrections; that the burden of

world power on the domestic standard of living would grow unac-

ceptably heavy; or that some shocking abuse of colonial rule would

give the critics of empire (usually a vociferous but minority group

chance to derail ofﬁcial policy and encourage its local opponents – those

politicians who were labelled ‘extremists’ by the colonial authorities.

In general, however, a revolt by public opinion seemed unlikely, and

the counter-insurgencies in Malaya, Kenya and (after 1954) Cyprus

were successfully portrayed as a ﬁght against communism, terrorism

and barbarism.

British opinion was important, but so was opinion elsewhere in

what was still meant to be Britain’s sphere of inﬂuence. In Australia, the

sense of being a ‘British’ country was still very strong. Intense rivalry in

cricket, periodic bursts of resentment over trading arrangements, irri-

tation at London’s indifference to Australia’s regional defence and the

knowledge that Australia now depended more upon American power

for its national security had not erased the close identiﬁcation with

Britain’s fate and fortunes.

Britain’s survival as a major world power

and the centre of a global trading system still seemed emphatically in

Australia’s interests. To most Australians, the stability of their own

society and its cultural cohesion still seemed to derive mainly from its

British origins and continuing ‘British’ character. As a small community

of European stock on the maritime margins of Asia, the cultural life-

line to Britain had always been important. The independence of India,

Pakistan, Sri Lanka, Burma and Indonesia, and the political change

impending elsewhere in Southeast Asia may have deepened the feel-

ing of antipodean isolation, and increased the urgency of keeping the

British connection. One measure of this continuing bond was the pat-

tern of migration. Increasing Australia’s British-born population was

government policy, and (white) British immigrants (a large proportion

of them ‘assisted immigrants’) made up half the intake of newcomers

576 / ‘The great liner is sinking’

until the 1960s.

There was also a migration in the other direction as

Australians came to Britain in substantial numbers to pursue education

and seek career opportunities. The public stance of the Menzies gov-

ernment (Menzies was prime minister from 1949 to 1966) of loyalty

to Britain and devotion to the Crown (the Queen’s visit to Australia in

1954 – the year after her coronation – was received with great pop-

ular enthusiasm) thus largely reﬂected Australian feeling – and the

expectation that the British should continue to behave like an imperial

people.

Not surprisingly, perhaps, these attitudes were echoed with still

greater vehemence across the Tasman Sea in New Zealand. There, the

cool calculation of an expert committee at the end of the war that

immigration from Britain was unnecessary

was overturned by ‘the

clamour of public opinion’.

The sense of dependence on the British

market for New Zealand’s foodstuffs and wool was almost overwhelm-

ing. Under the National party government of Sidney Holland, New

Zealand’s place in a Britain-centred world was announced unequiv-

ocally. ‘Where Britain goes, we go’, declared Holland’s press state-

ment after the Commonwealth Finance Ministers Conference in early

1952. ‘If Britain sinks, we are sunk . . . but neither of us will sink’, he

added – perhaps a little hastily.

Like the Australians, New Zealanders

expected the British to behave imperially, especially when it came to

safeguarding the Suez route to the South Paciﬁc. On the future of the

Suez Canal, the New Zealand press was even more unbending than

the Conservative diehards in Britain.

At the height of the Suez crisis

in November 1956, Holland asked himself: ‘Do we want to be in a

position where Britain will say, or even think, we sought their help

and it was not forthcoming . . . ?’.

His answer was no. Of course,

there was scope for friction and disagreement, not least over the role

of British-owned shipping companies in New Zealand’s trade.

But, in

the Cold War climate, there were few parts of the ‘British world’ where

London could hope for a more sympathetic hearing than in 1950sNew

Zealand.

In the other ‘old dominions’, public attitudes were less crys-

talline. Canada ‘is no longer a British dominion trying to act like

a nation’, said Fortune magazine approvingly in August 1952.

Its

population had risen by 20 per cent since 1940, its national product

by 90 per cent while its foreign trade had tripled. The presumption

remained deeply rooted that what made Canada Canada was its British

577 / The third world power, 1951–1959

inheritance, in institutions particularly. Canada also continued to be a

major destination for migrants from Britain. But, in communications,

business and cultural life, the dominant inﬂuences now came up from

the south. After the Second World War, Canada was integrated much

more fully into a ‘continental’ economy. A huge tide of investment

poured in from the United States to develop Canada’s natural resources:

a huge stream of raw or semi-processed materials, especially minerals

and wood-pulp, poured back in return. Canada’s ‘“triangular trade”

seems nearly done for’, crowed Fortune: now Canada had to pay for its

American imports by exporting not to Europe (as before the war) but

to the United States. Defending Canada against the effects of American

mass culture came to seem urgent enough to prompt a ‘Royal Commis-

sion on Arts, Letters and Sciences in Canada’ – a revealing designation.

Perhaps the need to deﬁne a distinctively Canadian culture signalled

the increasingly rapid decline of older British connections in the media,

publishing and higher education. Canadian troops formed part of the

‘Commonwealth’ division that fought in Korea and Canadian minis-

ters took a prominent part in Commonwealth meetings. But Canadian

opinion had far less reason than Australian or New Zealand to interest

itself in Britain’s imperial problems in the Middle East or elsewhere,

and was far less likely (as events were to prove) to give public support

where that risked disagreement with the United States.

South Africa was a paradox. After 1948, Afrikaner nationalism

had strengthened its grip on the country. While the shift to republican

status that had been a public goal of the National party for thirty years

was quietly deferred, the right of ‘coloureds’ (i.e. persons of mixed

race) to vote – a right conﬁned to Cape Province and a relic of its

‘colonial’ parliamentary system – was swept away amidst a ﬁerce con-

stitutional crisis. As the elements of what became the apartheid pol-

icy (residential segregation, urban removals, formalised racial status,

stricter labour controls, and prohibitions on political and social mix-

ing) were gradually enforced, the volume of public disapproval from

interested parties in Britain became far louder than before 1939.In

their relations with London, however, the governments of Malan and

Strijdom showed caution and pragmatism. The long-standing demand

for the transfer of the ‘High Commission Territories’, Basutoland (now

Lesotho), Bechuanaland (Botswana) and Swaziland, to South African

control was kept in low key. In 1955, the Simonstown agreement ended

British control over the naval base near Cape Town, but placed the

578 / ‘The great liner is sinking’

South African navy under the overall command of the Royal Navy

in wartime.

Meanwhile, British investment in South African min-

ing and industrial companies continued to grow rapidly. Among the

South African ‘English’, still around 40 per cent of whites, attach-

ment to Britain remained strong, reinforced by disdain for Afrikaans

(a ‘kitchen’ language) and for most Afrikaners, stereotyped as the dim

‘Van der Merwe’ (a common Afrikaner surname) from the platteland

or backblocks. By the mid- 1950s, however, ‘English’ feeling was being

cooled by resentment at the chorus of criticism from Britain aimed

at apartheid and by the growing suspicion that British colonial policy

elsewhere in Africa posed a threat to white supremacy.

Elsewhere in their ‘system’, the British could draw comfort from

what still seemed the malleability of colonial opinion in their Asian and

African empire. Even in Kenya, where they faced the Mau Mau uprising

and resorted to drastic measures to ‘rehabilitate’ those suspected of Mau

Mau sympathies, they could rely on a much larger group of anti-Mau

Mau ‘loyalists’.

In Northern Rhodesia (now Zambia) and Nyasaland

(now Malawi), they dismissed African opposition to the making of a

white-ruled federation as a temporary ebullition fomented by ‘extrem-

ists’ and insisted that it would die away once federation’s material ben-

eﬁts were seen.

Nor by the mid-1950s had London given up hope of

Anglo-Indian friendship as Eden’s diplomacy at the 1954 Geneva con-

ference revealed. Once the policy of colonial self-government was fully

established, or so it was thought, much of the friction in Anglo-Indian

relations would be soothed away. The one region of British inﬂuence

where the prospects seemed gloomier (although not so gloomy as they

later appeared) was the Middle East.

This formed the context in which British governments tried to

set their course through the 1950s. They were eager for detente to ease

the strain on their overloaded economy. They were also determined to

uphold if they could their regional pre-eminence among the Western

European powers and check any change there that threatened their

interests. They expected to enjoy a privileged status as Washington’s

closest and most valuable ally in the evolving Cold War. They attached

huge priority to rebuilding the strength of the sterling economy and

restoring as much as they could of Britain’s old commercial role in the

world. They were anxious to retain Britain’s Middle East imperium

as much for the leverage it conferred geopolitically as for the access

it promised to oil – rapidly replacing coal as the source of industrial

579 / The third world power, 1951–1959

energy. And they were keen to reinforce Britain’s close relations with the

‘old’ dominions – especially Australia and New Zealand – and, where

they could, to build new ones. We can trace the faint outlines (however

opaque) of a grand design. Britain would remain at the centre of an

empire of both inﬂuence and identity, the head of a civic association (the

Commonwealth) and a ‘British world’ held together in part by ethnic

and cultural ties. But, as British leaders half-acknowledged, and as their

advisers insisted, the fate of this ‘project’ depended almost entirely on

forces that lay beyond Britain’s control. As the 1950s unfolded, these

were to turn London’s uphill struggle into a headlong descent.

The sterling economy

Any hope of restoring Britain’s pre-war position as the centre of an

independent world-system was bound to turn on its economic perfor-

mance. This was not just a question of achieving a surplus on the bal-

ance of payments, and competing successfully in overseas markets, nor

of attaining a steady improvement in the standard of living, depressed

by the austerity of wartime and post-war conditions. Regaining the

economic independence, commercial inﬂuence and relative wealth that

Britain had enjoyed in 1938, let alone in 1913, was a much more

demanding task. It required Britain to be free from external obligations

and debts and the distorting effect these might have on its domestic

economy. It meant reviving the capacity to be the prime source of over-

seas borrowing for established clients among the developing countries

(like Australia and South Africa) as well as some new ones. It implied

the steady (re-)acquisition of those overseas assets that had contributed

so much to past British wealth and security. It needed Britain to serve as

an expanding market for overseas produce, both for domestic consump-

tion and for re-export to other ‘end-users’ – its old entrepot function.

For this to work smoothly, it was vital to have a freely convertible cur-

rency that could be traded easily and which potential customers would

be willing to hold. It also followed that Britain would have to supply in

return a large portion of the manufactures wanted by its non-industrial

partners if their commercial relations were not to become too unbal-

anced. And, of course, the efﬁcient working of this commercial system

would depend (as it had in the past) upon a vast network of services:

shipping, insurance, banking and merchanting. Largely managed from

580 / ‘The great liner is sinking’

London, these had been one of the most proﬁtable elements of the

pre-war ‘commercial empire’.

It was a daunting list. But British leaders in the 1950s were

determined to restore Britain as an economic great power, and to use

its economic strength to preserve a wide sphere of inﬂuence and a world-

power status. They were acutely conscious of the enormous scale of the

American economy, which produced almost two-thirds of the world’s

manufactured goods in the late 1940s. They expected the Soviet Union

to become in time an advanced industrial power within its closed trad-

ing bloc. They were aware of how quickly Germany was emerging from

the economic abyss of the end of the war to compete with Britain in

industrial exports. They hoped nevertheless to exploit Britain’s assets

and its economic inheritance to construct a modiﬁed form of commer-

cial empire to underpin the domestic economy and meet the overseas

costs of a world-power role. It was a goal they pursued with gradually

waning conﬁdence until its futility overwhelmed them after 1960.

The economic crisis of 1951–2 could be blamed in part on

the huge rearmament programme on which the Attlee government had

embarked. It was eased quite quickly by imposing strict controls on

imported dollar goods, and by restraining domestic demand through

higher interest rates. But it was a painful reminder that, after six years

of recovery, the British economy was still very vulnerable to sudden

ﬂuctuations in overseas trade. The reserve of dollars and gold to meet

any emergency was still desperately slim. Despite the huge effort to raise

British merchandise exports well above their pre-war level, building a

margin of safety in the balance of payments proved very hard. A key

reason for this was the drastic reduction in overseas income and the

corresponding huge rise in foreign obligations since 1939.In1913,

Britain’s net overseas assets (at £4 billion) had been nearly twice as

large as its GDP.

In the depressed 1930s, they had fallen just below

the ﬁgure for GDP. But, in 1951, after wartime disinvestment and

large-scale borrowing from other sterling area countries (incurring the

so-called ‘sterling balances’), net overseas assets were actually negative:

−0.05 per cent of GDP. In constant (1938) prices, they had declined

from £7.3 billion in 1913,to£4.1 billion in 1937 to −£0.3 billion in

1951. Income from abroad as a proportion of national production was

one-sixth of what it had been in 1913. The huge foreign earnings that

had helped keep Britain solvent and fund ever more foreign investment

had largely vanished. So had the means to restore the huge foreign

581 / The third world power, 1951–1959

portfolio sold off or mortgaged after 1940.In1913, overseas assets

accounted for over one-third of all British assets: in 1973, despite a

wave of post-war investment, they stood at only 3 per cent.

But the picture was not an entirely bleak one. The British may

have lagged far behind the United States in industrial production but

they remained at the centre of a far-ﬂung system of trade. In the early

1950s, about half the world’s trade was still transacted in sterling.

Britain imported more foodstuffs and raw cotton than the United States.

The Americans had built up their overseas assets to around $17 billion

by 1950 – perhaps a total no larger than Britain had held before 1939.

But nearly 70 per cent was concentrated in Canada and Latin America

and both regulation and practice made lending difﬁcult to many of those

countries that had traditionally looked to London. The Soviet Union

was not a foreign investor and showed (at ﬁrst) little sign of offering

economic aid to countries in the British ‘sphere’. The British hoped

to restore the City’s role as the banker and ﬁnancier of the develop-

ing countries. They expected to proﬁt from the surging demand for raw

materials that had loomed so large in the post-war recovery. With much

of the world’s high-value minerals in their colonial empire or in ‘sterling’

countries, and with other raw materials like cocoa and tin under their

economic control, they looked well placed to proﬁt from the general

expansion of trade. With a large part of the world’s deep-sea shipping

still British-owned, they could expect to earn a handsome dividend

from supplying the services that kept commerce moving, just as they

had before 1914. British merchant enterprise was still very active across

much of the Afro-Asian world. Nor was it solely a matter of exploiting

colonial windfalls or long-practised trades. Britain also seemed in the

van of the new science-based economy. It had large investments in oil,

the fuel of the future. Its large aerospace industry – partly the product

of war – had built the world’s ﬁrst jet airliner (the ill-fated Comet) to

transform long-distance air travel. The post-war commitment to build-

ing nuclear weapons promised economic advantages. With the opening

of Calder Hall in 1956, the British pioneered the generation of electricity

using nuclear power, an achievement revealed to an awed New Zealand

prime minister.

And, right through the decade, the British spent heav-

ily on research and development (both civil and military), more heavily

than any other Western country except the United States.

We shall see later on that few of these ‘assets’ yielded more

than a modest return in the quest for economic revival. The immediate

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task, which commanded a wide consensus in both Whitehall and the

City, was to maintain and enhance the strength of the pound, and

restore its position as a ‘top currency’: that is, a ‘top favourite for

international monetary transactions, most often and most widely used

for a great variety of monetary purposes . . . the choice of the world

market’.

The strong pound would enable Britain to proﬁt from the

growth of world trade. It would attract the deposits of other currencies

to London, swelling the funds at the City’s disposal. It would boost

the appeal of the commercial services that London could offer, since

overseas conﬁdence in insurance and other ﬁnancial arrangements was

bound to be greater if sterling’s value was impregnable. It would help

to stabilise the domestic economy and reduce the threat of inﬂation

which had brieﬂy reached 9 per cent in 1951–2. A strong pound was

the key to a strong British economy. The weak post-war pound had to

put on weight and gain muscles. The question that tormented bankers,

ofﬁcials and their ministerial masters through the 1950s was how to

achieve this goal.

What was generally agreed was that the sterling area was the

essential platform for sterling’s revival as a top currency. Under its

rules, the member countries held their dollar earnings in a common pool

managed in London, pegged their currencies on sterling, and imposed

strict control over their dollar purchases and the exchange of sterling

into other currencies. The incentive for Britain’s sterling partners to

observe these rules sprang from their fear that the shortage of dollars

worldwide (a result of the huge demand for American goods and the

difﬁculty of selling into the American market) meant that the freedom

to exchange sterling at will would result in a crash of its value (as in the

near-disaster of 1947). If that were to happen, their claims on London

(the sterling balances) would be worthless, and the economic disloca-

tion in Britain would wipe out their most important market. For the

British, the sterling area’s existence offered a guarantee that the sums

Britain owed to the other sterling countries (mainly debts arising from

the war) could be paid off at an affordable rate and without jeopardis-

ing sterling’s value against the dollar. It averted the risk that a country

holding large sums in sterling might suddenly sell them for dollars

and wreck the British balance of payments. It also allowed a gradual

resumption of British overseas lending but without the danger of that

foreign investment being exchanged into dollars. It propped up the sys-

tem of trading preferences (‘Commonwealth preference’ also extended

583 / The third world power, 1951–1959

to Canada) to which British industry was still deeply attached. More

than 50 per cent of British exports were being sent to ‘British coun-

tries’ throughout most of the 1950s.

As late as 1958, the sterling

area’s merits were still being trumpeted in the most inﬂuential quar-

ters. It was well designed for its members’ interests and also for world

trade, declared Sir Oliver Franks, a former ambassador in Washington

and chairman of Lloyds Bank. Member countries had no need to worry

about bilateral balances, and using the pound kept down the demand

for gold – any shortage of which would restrain world trade. The ster-

ling area also allowed Britain to earn gold (by its trade with South

Africa), and encouraged the City to use its ﬁnancial machinery to

help expand British exports.

It was not a system to be abandoned

lightly.

But it was also acknowledged in the Bank of England, by Trea-

sury ofﬁcials and even by ministers, that preserving the sterling area

as a closed currency zone was not a long-term solution to the prob-

lem of sterling. Sooner or later, the ‘one world’ economy envisaged in

the Bretton Woods agreements at the close of the war would have to

come into force. The alternative was return to the protectionist blocs

of the inter-war years with all the consequences that might follow from

that. Open disavowal of the Bretton Woods system would be hugely

controversial. It might easily lead to an open breach with the United

States, and perhaps the break-up of the Western Alliance. Washington

had been patient with London’s delays, but on the understanding that

it intended to honour the promise of a convertible pound as soon as

it could. There were other reasons as well. It was widely agreed that,

before very long (the timescale was unclear), the dollar famine would

end (as more countries recovered and were able to earn dollars). The

case for restrictions would be harder to make. The sterling area coun-

tries were already eager to borrow American dollars for development

purposes but were unlikely to entice the American investor if his div-

idend was paid in inconvertible pounds. Their interest lay in a looser

system. And the British themselves knew perfectly well that, so long

as the pound was ‘soft’ and the dollar was ‘hard’, they would lose the

race to restore sterling’s old status and win back for the City its central

place in international trade. It was too much to hope for the long-lost

pre-eminence of 1913. But, in the 1930s, as the head of the sterling

bloc and with a convertible pound, Britain had been the world’s largest

trading economy.

584 / ‘The great liner is sinking’

The terms and timing of ‘convertibility’ became the central

issue in economic policy. Within the Bank of England and the Trea-

sury, there were those who were eager to get it done quickly, arguing

that sterling’s prospects would not improve with delay. The sterling

crisis that broke over their heads at the end of 1951 pushed them into

a radical plan. Under the acronym ‘ROBOT’, it proposed to make

sterling convertible subject to two drastic conditions. First, it would

be necessary to persuade those countries with large sterling balances

that the bulk of them should be frozen, leaving only the amounts they

needed for normal trading purposes. This was the quid pro quo for the

end of exchange control. Secondly (and much more controversially),

the plan proposed that sterling should ‘ﬂoat’ (just as it had in the

1930s). The reason for this was that defending a ﬁxed rate (sterling

had been ﬁxed at $2.80 to £1 in 1949) might quickly consume much

of Britain’s reserve of dollars and gold (just as it had in 1947)and

wreck the experiment almost before it had started. Allowing sterling to

ﬁnd its own level in the period of sharp adjustment that would follow

free exchange would also reduce the risk of British exports becoming

uncompetitive with the end of import controls and dollar restriction in

sterling area markets.

With the support of the Bank of England and

his own expert advisers, the Chancellor of the Exchequer, R. A. Butler,

presented ROBOT to his colleagues as the best solution to the ﬁnancial

crisis that the new Churchill government had inherited. The sequel was

instructive.

For all its heavyweight backing, ROBOT soon attracted ﬁerce

opposition, not least from Lord Cherwell, Churchill’s scientiﬁc adviser,

known colloquially as the ‘Prime Minister’s Adder’. Cherwell was

scornful of the ﬂimsy statistical basis on which ROBOT was built,

and argued persuasively that the pressure on sterling could be relieved

by the use of much less drastic measures. It was, he said, ‘a reck-

less leap in the dark involving appalling political and economic risks

at home and abroad’.

The objection to ROBOT was not just that

Butler’s medicine was unnecessarily strong. Four arguments sank it.

First, although there had been ambiguous signals from across the

Atlantic, ﬂoating the pound would breach the ﬁrst commandment of

the Bretton Woods doctrine. It was hard to believe that the American

response would not be severe. Secondly, it was far from certain that all

the other countries in the sterling area would adopt a ﬂoating exchange

rate. Far from forming a bloc of like-minded states, the sterling