British Economic Foreign Policy

J. Henry Richardson

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781138105973
• eBook ISBN: 9781351583114
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The financial crisis of 1931 marked a turning point in British economic foreign policy, as decades of laissez-faire principles were abandoned and an active interventionist policy was introduced. This book, first published in 1936, provides an in-depth analysis of the change in Britain's policies, and the effects these changes had on the various aspects of foreign trade.

BRITISH ECONOMIC FOREIGN POLICY

CHAPTER I

INTRODUCTION

The financial crisis of 1931 marked a turning-point in British economic foreign policy. Within a few months laissez-faire principles which had been applied for seventy years were abandoned and an active interventionist policy was introduced. Though previously the electorate had consistently rejected interventionist proposals, and though the Government in 1931 was accorded “a doctor’s mandate” to deal only with an emergency, the new orientation was accepted almost as a matter of course. It may be doubted, however, whether the country yet fully appreciates the significance and implications of the fundamental changes so recently made.

Throughout the period from 1860 to 1931 business men were given maximum liberty to pursue their own policies in international economic relations, the Government remaining passive. Business affairs were conducted independently of the Government and were regarded as falling outside the field of Government action. Non-intervention was so complete and consistent that it was hardly considered to be an element of foreign policy at all. So long as the Government maintained a laissez-faire policy it was not able to reinforce its political foreign policy by economic means, and indeed it might find that business men in the exercise of their economic freedom were acting in ways which conflicted with its political aims.

The transformation of British economic policy from a passive to an active one permits of its coordination with political foreign policy, the one being used to support the other. Up to the present, however, the need for and the possibilities and limitations of such coordination have only been discerned in part. Inconsistencies between the two policies are frequent, and harmony is often accidental rather than a consequence of conscious policy, the economic and the political being still treated as largely independent.

COORDINATION OF POLITICAL AND ECONOMIC POLICY

It should not be assumed that the Government can extensively use the country’s economic resources in peace time to support politically friendly States or to injure potential enemies. Apart from the difficulty of knowing for more than short periods which States fall into these categories such discriminations could not fail to intensify international animosities, and thus increase the risk of war. This danger prevents the establishment of complete coordination between political and economic foreign policy. Thus the expressed political disapproval by Great Britain and other countries of Japan’s disregard of treaty obligations in her treatment of China and in her intervention in Manchuria in 1931 and 1932 might logically have been supplemented by economic pressure. Such action taken independently by one country alone would undoubtedly involve serious risk of conflict. Where several countries unite in the exercise of economic pressure the risk is reduced, though, in circumstances of intense national feeling in the country against which the boycott is directed, the danger of war might not altogether disappear. Still smaller is the risk from collective economic action taken by a large number of countries, as by the League of Nations in the dispute between Italy and Abyssinia, against aggression committed in disregard of international obligations. Such sanctions would, however, be more effective against some countries than against others, and the system might even encourage a movement towards greater national self-sufficiency by potential aggressors so as to reduce their vulnerability to economic pressure.

In principle, little objection is raised against a policy of discrimination in favour of the nationals of a country, provided it is directed uniformly against the nationals of all other countries. Even this policy may, however, arouse resentment abroad if the discrimination is so drastic that foreign traders are virtually excluded from the home market. Also irritation is caused by sudden changes which dislocate production and trade abroad. This may be avoided, in part at least, if the countries most likely to be affected are given the right to be heard and if arrangements to minimise the dislocations are jointly discussed.

It is widely admitted, too, that special arrangements favouring the trade of the mother country in colonial areas, thus discriminating against foreign traders, are not offensive if all foreign countries are treated alike. An “open door” policy is more satisfactory from the point of view of international relations, but during recent years its application has steadily diminished. Nor are preferences between the self-governing Dominions of the British Commonwealth of Nations regarded by foreign countries as violating the principles of international economic relations. Quite different is the attitude towards discriminations which place one foreign country in a relatively more favourable position than another, these being treated as matters of grievance and complaint. Indeed, the long vogue of the unconditional most-favoured-nation clause was due to its value in avoiding this difficulty. Now that the unconditional clause has become almost a dead letter attempts to find acceptable interpretations of conditional most-favoured-nation treatment are made for this same purpose.

The basis of these understandings is that a country may reasonably organise its economic system and make arrangements with its colonies and dominions so as to ensure its maximum strength, security and welfare in relation to the international political and economic conditions prevailing at the time. It may not, however, openly discriminate in peace time in its economic relations with foreign Powers. To do so would be considered unfriendly by those adversely affected, and would evoke protest. The distinction is between “internal” and “external.” Apart from prohibitive measures of wide range or sudden dislocating changes, the view is generally accepted that a country may do what it wishes internally; and “internally” is interpreted, as already indicated, to cover so extensive an area as Great Britain, the Colonies, and the self-governing Dominions of the British Commonwealth. Externally, discriminations are considered to be acts of economic war and to justify retaliations. So long as external discriminations are avoided a State may bring its economic and political foreign policies into harmony. There is, however, no parallel in economic diplomacy to the political policy of balance of power. Though countries may be grouped politically by secret agreements or open alliances and understandings, their official economic relations are not brought into conformity with this pattern. Indirectly, however, the nationals of a country may be encouraged to trade with and travel in certain countries to the disadvantage of others. This method has been frequently used during recent years.

Risk of war and deterioration of political relations are not the only difficulties preventing the adoption of a unified political and economic foreign policy. Business interests within the country may at times demand an economic policy at variance with the Government’s political policy. Thus the political opposition of certain British Governments to Communism and to Soviet foreign propaganda has conflicted with the economic desire of business men for more trade. On the other hand, the safeguarding of economic interests not infrequently involves economic conflicts which inflict injury upon political friends. For example, acute monetary and financial struggles between Great Britain and France have been frequent since the war, while sharp disputes over tariffs and quotas extending from 1932 until the summer of 1934 disturbed the economic but not the political relations between these countries. Still more striking were the bitter economic controversies at the Ottawa Conference between Great Britain and some of the self-governing Dominions, and the disputes arising in the operation of the agreements concluded there, culminating in a boycott of Australian goods by Lancashire towns; this was in protest against higher Australian tariffs on certain cotton goods in opposition, as it was thought, to the spirit of the agreements. Yet political relations remained entirely cordial. Evidently economic warfare may be waged for a time between political friends, or even between members of the same political “family,” though a protracted struggle would undermine the strength of the association.

Amid the rapid changes in international political and economic relations it would, indeed, be impracticable to maintain continuous agreement between the two policies, and from time to time the short-period economic and political interests of a country inevitably diverge. But in their long-range trends these policies must be consistent with one another.

The main object of a country’s joint policies depends largely upon its estimate of the possibilities of war or of peace. A country will organise for war either because it is itself warlike and aggressive, or because, though peace-loving, it feels that it may be forced into war by the aggression of another power. Speaking during a period of insecurity and uncertainty in international relations, Signor Mussolini emphasised that for Italy, “the whole life of the nation, political, economic, and spiritual, must be systematically directed towards our military requirements.”¹ In such a period the first consideration will be to secure adequate self-sufficiency and maximum fighting strength, while material standards of comfort must be sacrificed in so far as they result from an organisation of production and trade which would increase the country’s vulnerability in time of war. Wars in the modern world are no longer affairs of mercenaries or even of regular armies; they draw upon the whole of a country’s human and material resources, and the present wave of economic nationalism is largely a consequence of intense political nationalism and fear of war. Cobden was right in linking peace with freedom of trade; unless there is reasonable expectation of peace international trade will inevitably be diverted from its natural channels.

There is often a close relationship between wealth and fighting strength, and a country which exaggerated the adaptation of its industry and trade to the purposes of war might impoverish itself, thus weakening instead of increasing its power. Under the conditions of world trade prevailing before the war Great Britain so much increased her wealth by free-trade policy that her fighting strength was greater than if a more restrictive policy had been pursued.

Though diminution or removal of the risk of war is chiefly desired on moral and humanitarian grounds, this would open the way to an international organisation of production and trade which would ensure the best utilisation of the world’s resources and the highest standards of comfort. Also, political foreign policy would become less prominent, and increasing attention could be given to economic, social, and cultural relations—a desirable change, as these represent the chief interests of the great mass of mankind. Because of her peculiar advantages for world trade Britain has a special interest in the pacification of international relations.

GENERAL TRENDS OF BRITISH ECONOMIC DEVELOPMENT AND POLICY

For many years the main features of British economic development and policy were influenced by the fact that Great Britain was the first nation to apply extensively the technique of modern industrial production, and the products of the factory system readily found markets abroad. Being first in the field, British foreign trade was complementary rather than competitive. British manufactures were exchanged with mutual advantage for raw materials produced abroad. The balance of trade was favourable and this permitted the use of British capital to open up undeveloped areas. London became the monetary centre of the world, thus permitting a unified control over a large part of the world’s monetary system. The British navy, which was almost unchallenged, patrolled the seas, ensuring security for trade and facilitating the progress of economic internationalism.

The expansion and direction of British commercial relations were subject to little conscious control. Free trade was accepted almost as a natural law and the policy of the “open door” was applied throughout the Empire. Britain “attained its great position not by the pursuit of any preconceived plan, but by a process of almost haphazard evolution based on trial and error and aided by the practical aptitudes and instincts of our race, as well as by certain fortunate accidents in the way of natural resources and geographical position. There has been little conscious direction of the national activities to definite ends.”¹

Britain’s commercial supremacy did not long remain unchallenged. In the years immediately preceding the war she experienced growing competition from Germany and the United States, while other countries were also developing their industries and displacing British products. This competition was felt not only in foreign markets but even within Great Britain. To some extent British imports of manufactured articles were on a complementary basis, Britain buying from abroad certain specialities instead of organising their production within the country, but part of the trade was competitive. It was, therefore, for economic as well as for political reasons, that Mr. Joseph Chamberlain began in 1903 to advocate a policy of protection and Imperial preference.

The challenge to Britain’s industrial, commercial, and financial supremacy was accelerated by the war. Being deprived during the war of adequate supplies of British manufactures, many countries began to meet their own needs, while others, particularly the United States and Japan, organised their industry and commerce to supply markets hitherto almost exclusively British. By the end of the war the United States had been transformed from a debtor to a creditor nation, with ambition to play a larger part in the world’s monetary and financial system. France, largely for political reasons, was determined to exert great monetary and financial influence, particularly in Europe. Being the chief continental victor she sought supremacy in the economic affairs of Europe in time of peace. In place of pre-war internationalism the world became sectionalised into economic groups, within which a complicated system of barriers to trade and economic relations were established. It may indeed be said that the war killed Cobdenism.

The war itself had involved in Great Britain, as in other countries, a high degree of economic organisation and control; also inability to obtain supplies from abroad had resulted in a movement towards greater self-sufficiency. At the end of the war Britain was faced with the alternatives of retaining and developing the war-time system of control and of establishing greater self-sufficiency, or of returning to the pre-war policy of laissez-faire. The first of these alternatives received some support. For example, in May 1918 Sir Albert Stanley, then President of the Board of Trade, referring in the House of Commons to our greater self-sufficiency, attained, as he said, with so little apparent discomfort, urged that “it would be a great pity if we failed to bear in mind this lesson, and allowed ourselves again to drift into a condition of dependence upon foreign sources for so large a part of our actual needs.” Such appeals were unheeded. War-time restrictions and privations had made pre-war conditions seem by contrast to be the Golden Age. The Defence of the Realm Act, under which many of the restrictions had been imposed, was regarded as anathema and public opinion was insistent in demanding restoration of the pre-war system, though in doing so there was failure to recognise that conditions had changed.

The opinion was widely supported that Great Britain could recover her position in world trade and finance only by removing trade barriers and abandoning restrictions upon the investment of capital abroad.¹ Free trade and freedom of capital investment were, therefore, rapidly restored, with, however, a few significant exceptions, particularly the protection of “key” industries. Though Britain joined with her allies in imposing heavy reparation burdens upon Germany she did not favour a policy of isolating Germany and other ex-enemy countries economically after the war. Whatever might be the political attitude adopted toward defeated powers, Britain desired rapidly to re-establish trade relations with them. This policy is indicated by the following quotation from a Board of Trade White Paper issued in 1919: “It may be expected that there will be a considerable demand in late enemy countries for all kinds of goods; as this market is now open to all the world, it is no part of the policy of His Majesty’s Government to discourage British traders from competing therein and it is desirable that British traders should make every effort to secure a proper footing in Central Europe.” So active was British policy for the resumption of trading relations with ex-enemy countries that France became irritated by our apparent eagerness to help Germany and to assist in the economic recovery of Central Europe. France also resented the opening of British trade negotiations with Russia in 1920, contending that any goods which Russia could export should be the property of France and other creditors.

An important section of British opinion, however, considered that the policy of resuming free trade was unsound, and in the Conservative Party’s programme for the 1923 General Election protection of British industry occupied a prominent place. Nevertheless public opinion was not yet ready for a change in fiscal policy. The protectionist policy was rejected at the polls. A substantial majority of the electorate still believed free trade to be in the national interests and to be a sound pri...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Preface
• Table of Contents
• CHAPTER I
• CHAPTER II
• CHAPTER III
• CHAPTER IV
• CHAPTER V
• CHAPTER VI
• CHAPTER VII
• CHAPTER VIII
• CHAPTER IX
• Index