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

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585 / The third world power, 1951–1959

countries might break up in anger and acrimony. Thirdly, ﬂoating the

pound might lead to the break-up of the European Payments Union

(a currency pool along sterling area lines) if the pound was devalued

against some European currencies. At a time when London was also

trying to promote defence cooperation among the Western European

states, and soothing French fears of future German aggrandisement,

such a large spanner in the European works was unwelcome at best.

The Foreign Ofﬁce and Foreign Secretary were among ROBOT’s ﬁercest

critics.

Finally, since it was hard to predict how far sterling’s value

would fall under the ROBOT regime, it was hard to deny that, at least

in the short run, the domestic effects might be very unsettling: rapid

inﬂation if imports cost more; severe unemployment if other countries

retaliated against a devaluing pound.

ROBOT was opposed by those who thought Britain’s position

too fragile to survive the shock treatment it promised and by those (like

Cherwell) who argued that sticking to ‘the long steady task of building

up our reserves’ was the best recipe for success. That it would be a long

haul seemed amply conﬁrmed in the next few years. In 1955, after two

better years, inﬂationary pressure in the British economy and a sharp

negative movement in the balance of payments led to credit restrictions

to dampen home demand and strengthen sterling abroad. The follow-

ing year was the year of Suez. The British invasion of Egypt triggered

a ﬂight from the pound; the cost of supporting its value from a fast

dwindling reserve of dollars and gold was the critical factor in forcing

the British withdrawal. In 1957, inﬂation in Britain and the devaluation

of the French franc reopened doubts over whether sterling could hold

its ﬁxed dollar value. It took a ﬁerce contraction of credit (the Bank rate

rose to 7 per cent, its highest level since 1921) and an American loan

to beat off the threat. It seems somewhat surprising after this ragged

performance that the Macmillan government quietly made sterling con-

vertible over the Christmas break in 1958. It was certainly true that the

balance of trade had improved and inﬂation was down. But it was also

true that its hand was being forced. Strict exchange control had already

collapsed: it was the buying and selling of sterling in the market of cur-

rencies that now determined its value. Secondly, France had pre-empted

the British in making the franc convertible (while devaluing again). At

the moment when London was straining to persuade the new European

Economic Community to include Britain in a ‘free trade agreement’, the

pound had to look the franc demi-fort in the eye. But had the reserves

586 / ‘The great liner is sinking’

that were needed to defend sterling’s value been salted away? The Trea-

sury’s target for a payments surplus had still not been reached. Instead,

reliance was now placed on being able to borrow from the International

Monetary Fund if the going got hard.

Convertibility, remarked The

Economist in a phrase that ought to have struck a ministerial chill, was

an ‘act of bravery’.

British leaders knew of course that convertibility was not

enough. To be an economic great power required a central position in

the ﬂows of world trade, and reasonable access to some of the world’s

richest markets. Before 1914, over one-third of British trade had been

with Europe, and nearly one-quarter with the countries that became the

European Economic Community (the ‘EEC Six’) in 1958. In the inter-

war years, the share of British exports sent to the future ‘EEC Six’ fell

to under 15%. After the Second World War, it fell even further, to less

than 10%in1948.

But, by the 1950s, these were the countries that

were growing most rapidly. More generally, it was industrial countries

that made the best markets. Here, too, Britain lagged behind its main

competitors. Its principal rivals increased the share of their exports to

other industrial countries from 58%in1950–2 to 61%in1957–9.The

British share rose from 39%to45%.

To keep up the momentum that

had doubled British exports from their pre-war levels required a major

effort in Europe.

For this reason alone, London kept a wary eye on the progress

of European schemes for economic and political unity that were gather-

ing pace in the early 1950s. Its negative attitude towards the plans that

emerged for an Economic Community from the Messina Conference in

1955 has been much derided in hindsight. In fact, the British regarded

the idea of forming an inner group (with discriminatory tariffs) within

the larger collectivity of Western European states with considerable

hostility. They thought it would damage the prospects for freer trade in

general and for British trade in particular. They wanted it to fail, and

thought that it would.

They saw no point in lending it any support.

But this was far from an attitude of indifference or hostility towards

closer cooperation with Europe, although there were plenty of those

in the Conservative party who took a ‘blue water’ view of continental

commitments. Instead, in the late summer of 1956, the Cabinet agreed

on a plan that was intended deliberately to seize control of the move-

ment towards a European customs union and drive it in the direction

that British policy favoured. This was ‘Plan G’, which proposed to

587 / The third world power, 1951–1959

sink the EEC project within a larger ‘Free Trade Area’ within which

there would be free trade in manufactured goods but no common agri-

cultural policy. The obvious merit from a British point of view was

that this would allow continued preferential arrangements both for

British farmers (heavily protected since the Second World War) and for

Commonwealth producers. It would give Britain the beneﬁts of a large

open European market with few of the drawbacks of being tied to an

economic bloc.

The plan was put to the Cabinet by Harold Macmillan, then

Chancellor of the Exchequer, as a series of rhetorical questions,

designed to ﬂush out its ﬁercest opponents. ‘Is this a good plan for

the British economy?’, asked the Chancellor,

Will it bring us strength in the long run . . . ? Can the British

economy survive alone, insulated and protected from

European competition? Will it be able to maintain its

exports to Europe . . . ? Equally important, can it maintain

its exports to other countries against the competition of

European countries, either individually, as now, or in a

uniﬁed Europe largely under German domination? Can we

enter into a new structure and at the same time maintain

the advantages of the Commonwealth, our preferences and

all the rest? Can we retain them even if we keep out?

Nor, of course, were the issues at stake of solely economic concern.

Were the aims of Plan G ‘politically sound’? ‘Can we retain the leader-

ship of the Commonwealth world

and at the same time seize the leadership of Europe? Would

it help us to create a new period of British strength and

power, or should we be foolishly throwing away what we

have? Would it bring us promise for the future, or is it an

abdication and betrayal of our past?

Macmillan also spelled out the risk of division within the Conservative

party, the threat posed by free trade to maintaining full employment

and the need to reassure both Commonwealth countries and the United

States. But there was no doubt that he wanted his colleagues’ approval

for a plan which among other things, was intended to make London

588 / ‘The great liner is sinking’

the centre for Europe’s foreign investment. ‘The economic uniﬁcation

of much of Western Europe’, declared Peter Thorneycroft, President of

the Board of Trade, ‘would create a new source of investment capital

for overseas development which might be expected to ﬂow out to Com-

monwealth countries through London under our management’.

the discussion that followed, there were predictable fears that the main

Commonwealth countries would turn away from Britain towards the

United States and ‘the status of Britain as a world power depends on

her position as head of the Commonwealth’.

But Macmillan insisted

that, without a new basis for the British economy, it could not provide

the market that the Commonwealth needed, nor secure the future of

sterling. When Eden summed up, his view was decisive. There was little

hope, he said, of an economic policy based on the Commonwealth: even

Australia and New Zealand seemed to be turning towards the United

States. The Asian Commonwealth could not be relied on. ‘Unless we

were capable, acting alone, of meeting formidable European compe-

tition in oversea markets, there seemed no alternative but to base our

policy on the proposed plan for closer association with Europe’.

After

further consultations, and some positive signals from the United States,

Europe, the Commonwealth and domestic opinion, the decision was

made in early November to press ahead and negotiate.

But, as it turned out, the British had badly mistaken the strength

of their hand. They had coolly assumed that, if they took a ﬁrm line

on the exclusion of foodstuffs from the free trade arrangements, they

would get their way: ‘We should expect this condition to be ultimately

accepted’, said Macmillan and Thorneycroft.

They also assumed that,

once they had given a lead, the idea of a free trade area would trump

the plan for an economic community drawn up by the Six. One key

to their thinking was the belief that France shared Britain’s fear of a

‘German-dominated’ Europe, to which Macmillan had referred, but felt

it even more deeply. French paranoia would give the British the lever

they needed to switch the points towards the free trade line, or derail

the train. All this proved wrong. The European Six signed the Treaty of

Rome in March 1957. When the British began to negotiate in October

that year, they met a stubborn refusal on the foodstuffs question. And,

far from France proving the weak link in the EEC chain, the reverse

was the case. In June 1958, General De Gaulle returned to power, ﬁrst

as prime minister in the dying Fourth Republic, then as president in

the Fifth. It was De Gaulle who ﬁrmly put an end to the free trade

589 / The third world power, 1951–1959

area diplomacy. It was an unmistakable omen. All the British could

hope (with some justiﬁcation from history) was that his tenure would

be short and his retirement long.

It was a major defeat. London tried to make the best of things.

The British had already committed themselves (at the Montreal Com-

monwealth Economic Conference) to stand by the system of Common-

wealth preference and to make up the shortfall of private investment in

their colonial and ex-colonial territories through government aid and

loans.

All this was intended to hold the Commonwealth together as

a system of trade and inﬂuence and provide reassurance of British aims

and intentions. But it was starkly clear as the decade came to an end

that what mattered most was the export competitiveness of the British

economy. The 1959 Radcliffe Report on the British monetary system

gave a ringing endorsement of ‘the general harmony of interest between

the United Kingdom economy and that of the rest of the sterling area’,

and insisted that it was in Britain’s interest to invest more and more

in the economic development of the Commonwealth countries.

But it

also warned that sterling’s role as a reserve currency had been displaced

by the dollar, and that the UK’s reserves still formed only a fraction

of sterling’s liabilities. The only solution, as Cherwell had argued some

seven years earlier, was to press on in the hope that export growth

would build up the margin of safety to protect the domestic economy,

make sterling secure and fund the export of capital to non-industrial

countries.

But, on this battlefront, there were very mixed signals. The

British economy had not performed badly. It had paid for a notable

increase in living standards at home – the ‘afﬂuence’ for which the

Conservative government was keen to take credit. But it had not per-

formed well enough to allow Britain to become (or remain) an eco-

nomic great power. There were several reasons for this. It may have

been partly the fault of an old or obsolete infrastructure whose renewal

was too costly under post-war conditions. This was the burden of being

an ‘old’ industrial power. A more immediate difﬁculty was the need to

transform an industrial structure largely adapted to the highly diversi-

ﬁed markets in non-industrial countries that had been Britain’s main

customers since the inter-war years and before. The move towards

a production system based on higher volume and standardisation was

technically difﬁcult and very disruptive in labour relations.

As a result,

the great shift from textiles to engineering as Britain’s industrial staple

590 / ‘The great liner is sinking’

was made too slowly.

Thirdly, British leaders shrank from the chal-

lenge to domestic opinion. In theory at least, they might have hoped to

improve Britain’s export performance and suppressed the inﬂationary

trend that helped make sterling so fragile by enforcing a ‘ﬂexible’ mar-

ket in labour. An attack on restrictive practices, and the willingness to

risk a short-term rise in unemployment, might have forced down real

wages and secured productivity gains. Politically, there was no ques-

tion of this. Full employment was part of the post-war compact: it was

widely assumed that electoral suicide would follow its breach. Thus the

sterling economy followed a zigzag path dictated by the aspiration to

great-power status, the fear of abandoning its traditional base in the

‘Commonwealth world’, and mortal terror of an electorate enraged by

an attack on job security and hard-won afﬂuence. It would have needed

an exceptionally benign outside world for this course to have brought

British leaders the results that they craved.

Descent to Suez

As we saw in the last chapter, almost unobserved there had been a

critical change in the position of Britain in Egypt. The means and the will

to exert British military power directly in Cairo had quietly collapsed in

January 1952. The political crowbar in the Residency’s possession since

the era of Cromer could no longer be used. Yet, in London, the value

of Egypt and the Canal Zone base had never seemed higher. Reaching

an agreement over the use of the base and for Egypt’s cooperation in

Middle East defence was as urgent a priority for Churchill’s government

as it had been for Attlee’s. But, by the time it was signed in October

1954, it was an open question whether the hard-won agreement had any

value at all, except to avoid a hugely embarrassing ‘scuttle’. The arduous

path to its making had signalled a shift in the balance of strength. The

tragedy that followed sprang from a gross paradox. The importance

that London attached to its regional primacy now had no counterpart

in its regional power: the reverse was the case. The desperate remedy of

Eden’s Suez invasion was required to conceal this. The crushing failure

that followed exposed its truth.

Why did London care so much about Egypt and the Canal

Zone? Behind the logistical detail of stores and supply routes, the imagi-

nary defence lines against a Soviet advance into the Middle East, and the

plans to bomb Southern Russia in the event of world war, lay a (largely)

591 / The third world power, 1951–1959

unspoken assumption. Britain’s ability to use the Canal Zone and its

bases (as well as drawing more widely on Egyptian resources since

the Zone was not self-sufﬁcient) was its greatest surviving geostrategic

asset outside the Home Islands. It served as the pivot from which British

power could be projected north towards Russia, eastwards to the Gulf

(and its oil), across the Indian Ocean to Australia and New Zealand,

and south to East Africa. The Canal Zone depended upon Egyptian

goodwill to function efﬁciently; but it was also the lever with which

to extract cooperation from Cairo. Preserving Britain’s claim to make

use of the Zone was a standing affront to Egyptian nationalist feeling.

But it was also the main guarantee that Egypt’s leaders would take a

‘realistic’ view of their national interests and accept the reality of their

‘satellite’ status in the British world-system.

Egypt was important for itself. It was also the pre-eminent

state of the Arab Middle East. It had the biggest population, the

largest middle class and the oldest tradition of nationalist politics. Its

writers, intellectuals and journalists exerted a pan-Arab inﬂuence. For

most cultural purposes, Cairo was the capital of the Arab world. The

Al-Azhar, half mosque, half university, was the great centre of Islamic

learning. This gave Anglo-Egyptian relations a particular delicacy. A

compliant, if not ‘loyal’, Egypt was the key component of Britain’s

Middle Eastern imperium as the regional power, regulating the rela-

tions of the Arab states with each other as well as with the outside

world. An Egyptian ‘revolt’ against this ‘system’ would be a serious

threat. As we have seen, under post-war conditions the Arab Middle

East as a whole had become even more valuable from London’s view-

point than before 1939. This was partly a matter of strategic defence

against Russia, partly a matter of oil. But, despite the prominence that

both these assume in the archival record, the intensity with which British

leaders regarded their Middle East interests, and the extent to which

they became the index of Britain’s world power status, hint at a larger

assumption. It was sometimes expressed in terms of prestige, but its

real meaning ran deeper.

Before 1939, it was a commonplace that the ultimate source

of British power in the world, including its great-power status in

Europe, was the Royal Navy. British sea-power had had to share global

supremacy with that of America: but, in European waters and the Indian

Ocean, it had remained pre-eminent in the inter-war years. Almost

unheralded, the course and outcome of the Second World War struck

the maritime sword from Britain’s hand. Taken together, the growth

592 / ‘The great liner is sinking’

of air warfare, the massive scale of Soviet land forces and the colossal

expansion of the American navy removed any illusion that the strate-

gic signiﬁcance of Britain’s sea-power was remotely comparable with

what it had been just a decade before. We ‘cannot afford the Ameri-

can technique of building up large naval forces to support continental

land battles’, remarked the Chiefs of Staff sorrowfully.

The Middle

East imperium silently ﬁlled the gap. Strategic command of the region

gave Britain a critical role in the defence of Europe. It secured its pri-

macy among the West European states and (perhaps more important)

conferred an exceptional leverage in London’s often tetchy relations

with Washington. More than anything else, it lifted Britain out of the

category of a merely European power. And, although London sought

material help from the Americans, it insisted on Britain’s claim to be the

political guardian of the West’s regional interests. In the plans drawn

up in mid-1953, it was British, Arab and Commonwealth forces that

were to defend the Middle East against a Soviet invasion.

Among

British leaders, no one was more sensitive than Anthony Eden to the

grand geopolitics of Middle East power.

This was the setting in which the British tried to reopen the

question of their right to use the Canal Zone bases after the expiry of

the 1936 treaty due in 1956. Eden as Foreign Secretary was determined

to do this, despite lurid warnings from Cairo where the British ambas-

sador was convinced that Egypt was on the brink of chaos.

Against

Churchill’s scepticism and the ambassador’s proposal that, rather than

seek an agreement, British policy should aim ‘to isolate Egypt as a

potential enemy’,

Eden insisted that the new set of ministers King

Farouk had appointed (following the bloody riots in Cairo) offered the

best chance for striking a bargain. Egypt, as part of a new ‘Middle East

Command’, would take charge of the Canal Zone bases in peacetime.

The British would keep on the spot only the minimum force needed to

‘help’ the Egyptians to maintain the bases. The alternative, Eden warned

his Cabinet colleagues, was a long confrontation and the effective loss

of the base. ‘I am convinced’, he told Churchill,

that we shall not reach an agreement unless we are willing

to agree to the principle of evacuation. The net result of the

last ﬁve months has been to bring Egypt to the verge of

anarchy. The present Egyptian government is the best we

can hope for. Its position is precarious and its continuance

593 / The third world power, 1951–1959

in power depends on its ability to clip the wings of the

Wafd. To do this it needs some helpful move by us, and it

needs it soon . . . The plain fact is that we are no longer in

a position to impose our will on Egypt, regardless of the

cost in men, money, and international goodwill both

throughout the Middle East and in the rest of the world.

But progress was meagre. There was little incentive for the Egyptian

ministers to risk acceptance of Eden’s terms, all too readily seen as a

transparent device for keeping Britain’s grip on the Zone and its military

bases. Nor did they dare give up Egypt’s claim to be sovereign in the

Sudan, whose political future remained deeply uncertain. The Egyptian

ambassador was convinced, reported a senior Foreign Ofﬁce ofﬁcial,

that the only chance of our inducing the Egyptians either to

accept our formula or to begin negotiations with us over

the Sudan . . . lay in our being able to make them believe

that the ultimate result of their refusal . . . would be the

reoccupation of Cairo by British forces. This was the only

thing they were really scared of.

While the British brooded over this latest rebuff and pondered Egypt’s

place in their new global strategy, Cairo’s politics lurched in an unex-

pected direction.

In July 1952, a military coup pushed aside the old

rivalry between the Court and the Wafd. The ‘Revolutionary Com-

mand Council’, led by Neguib and Nasser, became the real power. The

Egyptian army, hitherto a quiescent if discontented force, now had to

be squared.

By the end of the year, Eden was ready to try again. The same

set of pressures was still pushing him forward. Without Egyptian good-

will, the Canal Zone was useless as a great military base. Indeed, with-

out an agreement, it might become the scene of a guerrilla war. Its

huge British garrison of 80,000 men was chieﬂy employed in defending

itself: ‘It is their presence that creates the need for them to be there’,

said a British ofﬁcial with mandarin irony.

But simply handing it

over would be a colossal defeat. It must be available in case of a war

against Russia, said the military planners. Egypt had to promise its help

if the Middle East were invaded. To let Cairo completely cut loose from

its British connection would weaken Britain’s allies in the other Arab

594 / ‘The great liner is sinking’

states, and might provoke further demands for British withdrawal –

including from the important air bases at Habbaniya and Shaiba in

Iraq. It would signal a drastic decline in both the will and the means to

enforce British interests. It would be bound to stir up ﬁerce objection

at home among those who disliked the ‘appeasement’ of nationalism

or any retreat on the front line of empire – opinions well represented

in the Conservative party. Eden’s new formula was a cautious advance

on the abortive proposal for a ‘Middle East Command’. Now, with

American backing, the Egyptians were urged to join a new organisa-

tion for the region’s defence, the ‘Middle East Defence Organisation’

or MEDO. Loosely modelled on NATO, MEDO would include both

the Arab states and their Western ‘friends’, principally Britain and the

United States. On joining this club, Egypt would be entrusted with the

Canal Zone and its bases, to be run with some British help. This time

the prospects for settlement seemed brighter. In February 1953, London

and Cairo reached an agreement on the future of the Sudan, so often the

stumbling block to their friendly relations. Like all previous regimes,

Egypt’s military leaders were determined to regain what they saw as its

rightful authority in the vast country it had colonised in the previous

century but then lost to the Mahdist revolt and the British reconquest.

All shades of opinion resented what was seen as a British conspiracy

to encourage Sudan’s separation and patronise Sudanese nationalism.

The British, for their part, had brieﬂy considered giving up the Sudan

as the price for a new treaty with Cairo in 1946, but then had drawn

back.

Neither Attlee nor Bevin had known the Sudan’s peculiar his-

tory – unlike the veteran of Omdurman now at 10 Downing Street. The

1953 agreement was an interesting compromise. It promised Sudanese

self-government by 1956, the same year that the Anglo-Egyptian treaty

expired. The Sudanese people would choose through the ballot box

whether they wished to become independent or seek a union with

Egypt. For both the signatories it was a calculated risk. But Neguib

(who had close ties with the Sudan) may have hoped that giving up

Egypt’s sovereignty claim would increase the backing for union in

Sudanese politics against its Mahdist opponents and their nationalist

rhetoric.

But as the pessimists had predicted, the defence talks soon

stalled. Neguib and his colleagues rejected an advance commitment to

MEDO. Nasser knew about ‘Rodeo’, said an embassy ofﬁcial

and was

deeply suspicious of British intentions. The Revolutionary Command