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

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635 / Reluctant retreat, 1959–1968

to capsize. By the late 1950s, the British no longer possessed a world-

system but only its shadow. Without India or the commercial empire

once ruled from the City, without their old claim on the ‘white domin-

ions’, or effective command of the ‘imperial oasis’ in the Arab Middle

East, London peered out on an empire whose assets had been stripped.

The desperate effort to retain a Middle East satrapy had died with a

whimper: what was left was the rind. The brief post-war hope that

Britain’s African colonies would become a new India was already ﬂick-

ering out and would soon be extinguished. The burden of world power

had thus been thrown back upon Britain itself: the costs of world inﬂu-

ence would have to be met there. Everything rested on Britain’s eco-

nomic revival and on exploiting the leverage that the British enjoyed as

a great power in Europe and as America’s principal ally.

The strain was soon felt. Macmillan had intended that ‘inter-

dependence’ would mean the coordination of policy between London

and Washington, in which the British provided the know-how and

the Americans supplied (most of) the military strength. The West’s

defence of its worldwide interests against the communist threat would

be jointly managed by its two ‘trustees’. It would revive the elements

of the wartime alliance in which the commands were shared out but

the resources were pooled.

By the late 1950s, however, the gross

disparity in military power (the United States spent ten times as much

on defence as the British), the growth of American overseas interests,

and the Americans’ conﬁdence in their own expertise (through a huge

expansion in their diplomatic and intelligence machinery) made this

expectation unreal. The American reaction to the threatened advance

of Soviet inﬂuence was not to defer to British advice. Even in Black

Africa, where American involvement had been small and came late,

there was a rapid response to the signs of political change: the visit

by Vice-President Nixon in 1957 was followed by the quintupling of

economic aid between 1958 and 1963.

The Americans were impatient

with the crab-like progress towards majority rule in Britain’s African

colonies. They were extremely mistrustful of British attempts to solve

the chaos in the Congo (with its worrying scope for Soviet intrusion)

by a federal scheme that preserved much of Katanga’s autonomy. In

late 1962, they broke with the British to back Katanga’s reconquest by

a UN military force. And, on an old battleground of Anglo-American

diplomacy, they simply imposed their will: in March 1961, after dogged

resistance, Macmillan was forced to agree to send British troops to Laos

636 / ‘The great liner is sinking’

as part of a joint intervention. He was saved from the furore at home

when President Kennedy reversed the decision.

But he might have

reﬂected on how different things had been only seven years earlier

when Eden had coolly resisted intense American pressure to ﬁght a war

in Vietnam.

But it was ‘summit diplomacy’ that burst the bubble of Macmil-

lan’s pretensions. In another echo of Churchill, Macmillan attached

enormous importance to a face-to-face meeting between the Soviet and

Western leaders. He had rushed to Moscow in February 1959 in an

effort to relieve the high tension over Berlin which Khrushchev had

threatened to cut off from the West. He waged a furious campaign

against American scepticism: ‘We must have a summit’, he told his

Foreign Secretary, Selwyn Lloyd.

He was enraged when Eisenhower

and Khrushchev decided that they would hold separate talks: the ‘UK

had better give up the struggle and accept . . . the position of a second-

rate power’, was his bitter reaction.

The ‘summit’, in fact, was a

crucial part of Macmillan’s grand scheme. Regular meetings of the

American, Soviet, British and French leaders would choke off the trend

towards bi-polar diplomacy, and entrench British (and French) inﬂu-

ence at a global ‘top table’. But the summit when it ﬁnally came in

May 1960 was a diplomatic disaster. It was wrecked at the outset by

the dramatic shooting down of an American spy-plane, the famous

U-2, over Soviet airspace. Amid the furious row that erupted between

Khrushchev and Eisenhower, Macmillan’s entreaties for the talks to go

on fell on deaf ears. The summit collapsed. It was the moment, recorded

Macmillan’s private secretary, when he ‘suddenly realised that Britain

counted for nothing’.

It may have been also the moment when the weakness of

Britain’s position in Europe began to seem serious. The British were

infuriated by De Gaulle’s refusal to discuss the merger of the impend-

ing European Economic Community – ‘the Six’ – with a larger and

looser ‘Free Trade Area’ of which Britain would be part. In January

1959, the EEC was duly inaugurated. Most British opinion, includ-

ing within Macmillan’s own party and among his Cabinet colleagues,

regarded exclusion as a price worth paying to keep the trade with the

Commonwealth, and continue the heavy reliance on Commonwealth

foodstuffs. But, when Macmillan ruminated on the consequences of

May 1960, it was obvious to him that continued exclusion would dam-

age Britain’s prospects of economic revival. Still more pressing was

637 / Reluctant retreat, 1959–1968

the fear that Britain would be squeezed between a European bloc of

which France was the leader, and an American superpower veering

erratically between special treatment for Britain and disregard of its

interests. In July 1961, Macmillan wrung from his colleagues approval

for the attempt to enter the EEC – provided Commonwealth inter-

ests were not sacriﬁced in the effort.

The British embarked upon the

arduous struggle for terms that would safeguard key Commonwealth

interests. After a year of exhausting diplomacy, De Gaulle intervened.

At an Elys

ee press conference, Britain’s entry was vetoed. Macmillan

was shattered. ‘All our policies at home and abroad are in ruins’, was

his private lament.

To its supporters in Britain a European future had been the

solution to British decline. The European market would be the tonic

required by a ﬂagging economy. European capital, managed from

London, would restore the City’s pre-eminence in global ﬁnance.

Britain’s place at the centre of European politics would ensure that the

continent faced outwards not in, and took its full share in the West’s

global commitments. This was the key argument in Macmillan’s so-

called ‘Grand Design’ and in the case he put to the Cabinet for a British

application.

London’s key role in this European effort would make

it the pivot of the Atlantic alliance and invest the ‘special relationship’

with a whole new importance. With the ‘home base’ thus strengthened,

the British could use their Commonwealth links to greater advantage

in the struggle to inﬂuence the ‘uncommitted world’. The crushing

defeat that Macmillan’s plan suffered is usually attributed to Britain’s

‘missing the bus’ of European unity in 1955–8. But this is much too

anglocentric a view. It was really the consequence of a diplomatic rev-

olution in Europe. The arrival in power of General De Gaulle in May

1958 transformed the balance of Anglo-French power. This was not

because France had become stronger than Britain, though its economic

growth was much faster. It was still deeply embroiled in the Algerian

struggle that threatened De Gaulle’s survival, political and physical.

But De Gaulle was determined to restore France’s greatness on a Euro-

pean platform, a project that was bound to be at Britain’s expense.

His rapprochement with West Germany was the vital foundation. De

Gaulle achieved this in part by exploiting British mistakes: Macmillan’s

apparent reluctance to stand ﬁrm on Berlin in 1958–9; his courting of

Khrushchev and zeal for summit diplomacy; the empty threats directed

at Bonn when ‘Plan G’ was resisted (that the British would withdraw

638 / ‘The great liner is sinking’

their forces in Germany); and his contemptuous dismissal of the ‘half-

crazy Adenauer’. From Bonn’s point of view, Macmillan became an

unreliable ally: De Gaulle was the stalwart against the Soviet peril.

It was this grand realignment that enabled De Gaulle to resist British

pressure for a free trade agreement, to dismiss their request for EEC

membership and to face down the dismay of his other EEC partners.

The ‘inner balance’ of Europe had turned against Britain.

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 ster-

ling 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.’

The British now depended on America’s willing-

ness 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 ‘interde-

pendence’. ‘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 Conserva-

tive government that had ruled since 1951. ‘They ﬁnd our support for

theirs useful and sometimes valuable.’

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

639 / Reluctant retreat, 1959–1968

happy release. In the general election that followed a year later, the Con-

servative 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 con-

sensus on whether Britain should give up its claim to world power, or

whether ‘modernisation’ required the abandonment of ‘obsolete’ mil-

itary 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’,

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 prob-

lem it faced was all too familiar: the relative slowness of the British

economy to adapt to the competitive demands of world trade. With-

out 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 pow-

erful 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

640 / ‘The great liner is sinking’

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 for-

eign currency reserves were held in sterling and banked in London that

their deposits were safe. The danger was that the (political) impera-

tive 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 convert-

ibility 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 repu-

tation 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 gov-

ernment 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.

On the other hand, Labour

ministers were deeply reluctant to rein back their plans for more public

641 / Reluctant retreat, 1959–1968

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.

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.

It was a volatile mixture.

Labour’s leaders still yearned – amid these huge economic anx-

ieties – 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. Disavow-

ing 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 ‘Non’, 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 anaes-

thetise 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 expan-

sive 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 Euro-

pean 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 con-

nection with Australia and South Africa, and by their military presence

642 / ‘The great liner is sinking’

in the Middle East and Southeast Asia.

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 pol-

icy, 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,

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.

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’.

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

643 / Reluctant retreat, 1959–1968

(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 pres-

ence 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 Indone-

sia (which had opposed the creation of the Malaysian Federation) was

over, the British should leave Southeast Asia, including Singapore.

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 play-

ing 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.

It did not last long. A huge sterling crisis in

June 1966 forced another sharp turn. Now it was said that the num-

ber 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.

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’.

In any event, this new formu-

lation 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.

This time there was little reac-

tion 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.

Three years of argument had brought an uneasy compromise.

A term had been set to Britain’s military presence in Singapore and

Malaysia, still nearly a decade away, with a partial withdrawal by

1971. Meanwhile, the British would keep up their guard in the Persian

Gulf, where a string of Gulf statelets from Kuwait to Oman still needed

644 / ‘The great liner is sinking’

protection. The ‘world role’ lived on, but its lifetime was short. For,

in November 1967, the weakness of sterling, aggravated by the effects

of the Arab-Israeli war, reached a new crisis. With a huge payments

deﬁcit, and large debts already, propping up sterling by further borrow-

ing abroad was no longer possible. Faced with disaster, the tenacious

resistance of Harold Wilson and his Chancellor of the Exchequer, James

Callaghan, to devaluing sterling was broken at last. But the relaunch of

sterling at a new lower parity ($2.40) required a package of measures

to restore foreign conﬁdence in Britain’s ﬁnances – and avert a further

sharp fall. With social expenditure taking the brunt of the cuts in gov-

ernment spending, a furious argument broke out in the Cabinet over the

timing of British withdrawal from its commitments east of Suez. The

outcome was a triumph for the new Chancellor of the Exchequer, Roy

Jenkins, on whose success in retrenchment the survival of sterling (and

of the government) now seemed to hang. Against ﬁerce opposition, he

imposed a new timetable. The British would withdraw completely by

1971. Not only that, they would also abandon their Persian Gulf role,

solemnly reafﬁrmed to the anxious Gulf rulers less than two months

before. This dramatic farewell to Britain’s world role, and its imperial

tradition in Asia, was announced in Parliament on 16 January 1968.

It seems likely, in retrospect, that, while Harold Wilson and his

senior ministers had acknowledged in mid-1965 the need to scale down

the forces stationed east of Suez, and withdraw altogether from the

mainland of Asia, they intended to do so at a relatively leisurely pace. By

offering to contribute (modestly) to regional defence in Southeast Asia,

they would appease their American ally, and could continue to claim

that Britain’s world role was safe in their hands. But everything went

wrong. Facing a huge new war in Vietnam, the Americans dismissed

this scheme with contempt. When London reversed course, its promise

to stand ﬁrm collided with a new crisis in the fortunes of sterling and the

backbench demand that defence share the pain of expenditure cuts. Yet

the brutal ﬁnality of the January statement was not simply the product

of the need to cut costs: bringing forward the date promised marginal

gains; leaving the Gulf, virtually none at all.

Much more important

was Roy Jenkins’ determination to force through a change in Britain’s

external direction away from the relics of empire and towards a future in

Europe. It was also essential to buy off those (on the Left) most ﬁercely

opposed to the austerity programme for sterling’s recovery that he

meant to impose. But, if the result was the unexpectedly sudden denial