Liberalism at Large

by Alexander Zevin

  The immediate pressure to extend planning within the war economy was always accompanied by longer views – looking forward to a post-war order of greater equality and efficiency, and also back to the past, with the extreme centre acting as the link between them. The Beveridge Report – penned by William Beveridge, the civil servant who helped to pioneer labour exchanges and unemployment insurance under the New Liberals at the Board of Trade before 1914 (only to watch in dismay as these turned into ad hoc schemes of outdoor relief for the mass unemployed of the Depression) – exemplified this duality.30 The Economist had no difficulty endorsing ‘one of the most remarkable state documents ever drafted’ in December 1942, while arguing at the same time that all it did was ‘rationalize’ existing structures on the basis of this experience. ‘All contingencies of life and livelihood, birth, marriage and death, age, unemployment, accident, illness and disease will be covered by a single, comprehensive system of contribution and benefit under state auspices.’ Yet it was simply a tax plan to secure ‘minimum levels of income’ with a Keynesian aim of ‘subsidising consumption’ and ‘preventing sharp falls in production and employment’.31 The success of the entire project, which was ‘not revolutionary’, depended on a return to liberalism at home and abroad: never so loose as to ‘lessen incentives to work and advancement’, promoting ‘full employment and the freest possible trade’, and ensuring low and steady inflation, which Beveridge’s plan secured by creating ‘a greater class of rentiers than ever before’ with a ‘vested interest in the stability of the currency’.32

  Crowther did a variety of war work while editor, from analyses of manpower deployment for the Cabinet, to US goodwill tours.33 No job was more revealing, however, than his role in drafting the follow-up report from Beveridge in 1944, Full Employment in a Free Society. ‘I am fully in agreement with the line you take, which is closely similar to that taken in the series of articles in The Economist a year ago’, Crowther remarked in a detailed memorandum to Beveridge, followed up by in-person meetings, on the draft that emerged from the conference on international aspects of post-war employment policy at Nuffield College in September 1943. ‘The comments I make below are in the nature of footnotes rather than dissent.’34

  Yet these footnotes did make clear three important concerns Crowther harboured about a post-war world of welfare and full employment, which carried over from the pre-war decade, and set strict limits to it. First, any major change in social structure must be ruled out. Crowther poured scorn on economist E. F. Schumacher, who had remarked in the draft that full employment might be hard to achieve without tackling the issue of ownership of the means of production. ‘No doubt it would be easier to achieve full employment if Control of Employment and the Essential Works Order remained in force in peacetime. No doubt it would also be easier if the whole of industry – or at least the large capital-using industries – were nationalised.’ But Conservatives would not consent to the latter, nor Labour to the former. ‘I must confess to being considerably irritated by people like Schumacher, who deliberately try to make it more difficult by raising very large general issues of the type best calculated to frighten the British electorate.’35 Keynesianism must, in the second place, primarily be a strategy of capital investment. Britain required large injections in emulation of its two powerful allies: to close the gap in labour productivity with the American worker, what was needed was ‘a long-term Stalinist policy of investment, on which the chief hope for a rapid rise in the standard of living depends’.36 For Crowther, this excluded any deliberate attempt to restrict savings, and meant that consumption would have to be closely watched, lest stimulus of it lead to ‘a shortage, not surfeit, of savings’. The third point is the most striking, for unlike the first two, it seems to have been the common assumption of all participants including Beveridge.37 The main ‘international implications of full employment’ for Britain in the post-war world were that the country must work to prevent any repetition of the rising tariffs, currency devaluations and other moves to autarky of the inter-war period. Full employment in one country was impossible. For if others allowed their trade cycles to continue, leading to a crash and mass unemployment, they would again try to export their way out of trouble at the expense of trading partners, precipitating a global race to the bottom. In contemplating one international obstacle, however, the participants in the conference tellingly all but ignored another, arguably more salient one – that of finance capital, the free movement of which had repeatedly imperilled progressive social legislation in Britain, in a pattern that was set to recur: cries of capital flight and lost confidence in protest at the People’s Budget in 1909, collapse of the second Labour government amidst a run on the pound in 1931.38

  The war represented the finest hour for the extreme centre, giving its advocates a voice inside the state, while demonstrating that ‘vested interests’ still operated there to frustrate its boldest initiatives. It is significant in this respect that Beveridge introduced his plan only after Ernest Bevin, Labour’s powerful wartime minister of labour, had banished him to what he hoped was an obscure committee; and that the coalition government sought to bury the sequel to it in 1944 with a waffling White Paper, compared unfavourably to the Beveridge Report by the Economist. While the White Paper was indeed a landmark that signalled the state’s ‘conscious assumption of responsibility and authority’ for full employment, it was too ambivalent about the deficit spending this might entail, wrote the Economist: ‘in economic policy, as in war, it would be nice to combine victory with a balanced budget but a deficit is better than a defeat.’39 Beveridge himself became a trustee of the Economist after the war, exchanging letters with Crowther and his successor Donald Tyerman on everything from how to stop communist infiltration of trade unions and wage inflation to getting copies of the Economist into German hands under the occupation. (‘As you know one of the most acute shortages in Germany at the moment is of English periodicals,’ Beveridge wrote from Berlin in 1946.)40

  But this ought not to obscure how careful were its wartime dilutions of free trade, in particular as this affected investment. In a book celebrating the Economist’s centenary in 1943, Crowther drew a direct line from the first editor James Wilson, whose sunken eyes stared grimly from the front page, to himself. Liberalism still aimed at the greatest freedom for the greatest number. But laissez-faire had in this respect turned out to have certain disadvantages: ‘irregularity and inequality of the society it breeds’, at a time when larger electorates insisted ‘inequality and insecurity’ rank ‘equally with that abolition of poverty which seemed, a hundred years ago, to stand alone’. This was followed by an immediate qualification, however, for ‘if events prove that restrictionism and monopoly are organically inseparable from Government intervention in the economic field, then it will be the duty of the Economist to that extent to swing back towards the purest individualism.’41 Hayek, a devoted reader, gently mocked the idea of such an unbroken continuity with the Victorian era, wondering in a review whether Crowther wasn’t himself a little doubtful about it.42 The Economist for its part had only praise for the outspoken emigré at the London School of Economics when his polemic against planning, The Road to Serfdom, appeared a few months later. ‘The state that is fully planned, that is democratic and that preserves the basic rights of individuals does not exist’, it agreed, adding only that returning to pure laissez-faire could prove as oppressive for individuals as a command economy. ‘The problem of this century is to find the most fruitful method of combining planning – the right kind and degree of planning – with freedom.’43

  The Empire Front: Writing Blank Cheques

  Concessions to the working class, embodied in visions of welfare and full employment at home, had their complement abroad in ‘the commonwealth at war’ – the dominions, crown colonies and other dependencies being promised at one and the same time greater self-government and tighter economic integration, underwritten by capital investment from London.44 After the fall of Franc
e in 1940, the Economist shifted focus from European to ‘imperial defence, to see how best a world Empire can win a world war – if need be, alone’. Crowther rested much of his economic optimism on the imperial factor, which was not a question of ‘summoning the Dominions, or India, or even the colonies to the aid of Britain’, for now that ‘aggression walks abroad in three continents, the war is their war’. Canadians, Australians, New Zealanders and South Africans had already enlisted in the services, while supplies from their countries were available to Britain wholesale: Canada’s nickel, lead, zinc, timber, wheat, dairy and industrial plant; Australia and New Zealand’s wool, meat and minerals; South Africa’s gold; Rhodesia’s chrome and asbestos. The dominions needed to cooperate more closely, as each took up a greater share of regional defence: to Cape Town – Kenya, the Gold Coast, Egypt; to Canberra – New Zealand, the Dutch East Indies, Singapore; to Ottawa the English Channel; while London handled logistics, provided most of the air and sea power, and general industrial capacity.

  That left India, ‘the next-Dominion-to-be, looking west to Africa and the Middle East and east to Australasia and the Pacific’, producing not only jute, cotton, wool, hides, skins, timber, oilseeds, rubber, manganese and chrome, but a million tons of finished steel per year. ‘India manufactures nine-tenths of her war requirements, rifles, machine guns, propellants, howitzers, ammunition.’45 On closer inspection, however, this arsenal looked less secure. India’s Congress Party was ‘crazy’ to refuse its full cooperation against the Nazis, or expect London to hand it a ‘virtual dictatorship over the Moslem League’ in exchange.46 By 1942 India was itself a theatre of war, after Japan captured Malaya and Singapore in February and then struck at Java and Burma. ‘The dispatch from Batavia in Tuesday’s Times was the most terrifying document that has appeared in print for many years’, ran a panicky Economist after the fall of the supposedly impregnable fortress of Singapore. This was the worst military defeat of the war for Britain, which surrendered 130,000 troops and a state-of-the-art naval base to the outnumbered Japanese in just over a week of fighting. ‘Soft troops, un-enterprising commanders, outwitted strategists, an incompetent administration, an apathetic native population – these are not the signs of a gallant army betrayed by bad luck; they sound uncomfortably like the dissolution of an Empire.’47

  The paper now argued for much larger concessions to Congress in India, urging the mission led by Sir Stafford Cripps in March to barter post-war independence for wartime cooperation.48 Cripps’s failure was a serious blow, and the paper reacted bitterly to the taunt from Gandhi accompanying it, that he had handed India ‘a post-dated cheque on a crashing bank’. ‘If the check was post-dated, it was also blank’, protested the Economist. ‘It imposed no government upon the Indians which they would not work out and accept for themselves. It was honest, generous, and backed by the whole British people. In time, if Indian Nationalism is built on more than sand, they will discover the chance they are spurning. The cheque will be cashed.’49 Credit and liberal good faith had more than metaphorical connections, especially in light of the historic reversal of the relationship between City and subcontinent then underway. ‘All Indian obligations, both direct and indirect, will have been liquidated before hostilities cease’, observed the Economist in early 1942, in fact underestimating the size of sterling balances accruing to India (as forced loans from it to pay for wartime supplies) in London.50

  In the end, the failure to secure a grand bargain in India troubled the Economist less in terms of defence – Nehru had promised to ‘spare no expedient’ in repelling the invaders – than as opening a vulnerable political flank to its US ally.51 The need to present the Empire as an up-to-date and ‘free association’ stemmed in part from the efforts Britain had made to secure that alliance since 1940: the price of Lend-Lease aid from the Americans was an end to imperial preference and all other discrimination in trade and payments after the war, with the US intentionally keeping British dollar reserves at a low level to ensure compliance. The Ministry of Information sent Crowther to Washington, D.C., in 1943 to begin to plead for patience, at a time when growing sterling balances with India and Egypt showed that the Empire was valuable in part as a hedge against total dependence on this official drip of dollars. At the American Economics Association in Chicago, Crowther argued that even as Britain shared a sincere interest in freer trade and a multilateral payments system, in the short run it needed time to resurrect industrial exports and invisible income, with modest tariffs till then to prevent ‘experiments’ in full employment leading to an unbalanced surge of imports.52 Crowther joined another editor, Graham Hutton, now director of British Information in Chicago, with the same public relations mission.53

  Diplomatic overtures soured at the approach of victory, however, as the Roosevelt administration showed every sign of calling in US loans, leading the ‘Americanophil’ Economist suddenly to question the future of the transatlantic alliance. ‘Is it right to surrender the means of safeguarding British interests, as Bretton Woods and the American commercial proposals would have us do, in the hope that American policy will be stable and sound?’54 The paper pointed to hypocritical criticisms of British intervention in Greece as a portent of what London could expect if it traded away its free hand abroad to the US – and this from a ‘country where both political parties were ready to promise in the hope of securing the electoral vote of New York State, that they would force a wholly Jewish State on the Arab minority in Palestine’. Arthur Salter’s American wife added three exclamation points to this line in a furious note to Crowther, explaining, ‘America is a vast continent, young, very generous, eager, sensitive, and critical’, and putting the country ‘in its place’ had caused ‘the greatest pain and consternation … entirely insulting to all Americans of honor’.55 Ethel Salter was not the only one shocked by this leader, which caused a sensation on both sides of the Atlantic. As Isaiah Berlin, monitoring the US press for the British ambassador in Washington, found out, its author was not Crowther – but Barbara Ward, the young foreign editor, whom Berlin called ‘a hysterical and naïve girl’. She had, he wrote, ‘shaken the reputation of the Economist, which is now regarded as an excusably but nevertheless markedly nationalist journal’. Even Roosevelt weighed in and ‘gently pointed out that some things are better not stated’ – a measure not just of who read the Economist, but that its pronouncements packed diplomatic punch, especially since it was considered ‘a liberal, serious, fair-minded and, on the whole, pro-American publication’.56

  Indeed, that was almost certainly the point in publishing this ‘plain-spoken’ piece in the Economist, in the midst of the tense Anglo-American negotiations over the shape of the post-war international economic order. The hostile reaction from the US press did not deter Crowther, who may have received quiet approval for these philippics from Brendan Bracken, then Minister of Information.57 In a follow-up, the Economist wrote that the US would violate the spirit of the Atlantic Charter to interpret ‘non-discrimination’ too literally. This would restrict (rather than free) trade between war-ravaged countries, whose pent-up demand for US goods was so vast that the only post-war check on their export would be the availability of dollars – not the existence of a British sterling area.58 Leo Amery, secretary of state for India and Burma, wrote volubly a few days later: ‘Your article on American relations the other day created a great stir and I think provided a useful jolt to American self-satisfaction and criticism of everybody else.’ Amery added: ‘The Americans not only identify non-discrimination with the Most Favoured Nation but want to ram the latter down our throats, even to the extent of forcing us and the Dominions out of Imperial Preference.’59

  But Washington’s abrupt cancellation of Lend-Lease in August 1945 – a ‘guillotine’, the paper called it – brought Britain’s position painfully home. Though a ‘bitter pill’, the Economist advised swallowing the Americans’ new offer: another loan, to settle the outstanding Lend-Lease orders, and to secure a line of credit. Yet it
denounced the terms attached as ‘cruelly hard’, and warned of disaster if they were enforced. Strong-arming Britain into free trade and convertibility within the Bretton Woods system in just two years’ time risked repeating the debacle of 1925, when London prematurely returned to gold, a deflationary strait-jacket that had also left it vulnerable to swings in the US economy.60 The parallel was more exact than Crowther realized. For in the convertibility crisis that arose as soon as the terms of the American loan were honoured in 1947, the paper swung back to ‘sound finance’ with attacks on Labour as in 1931.

  Strange Victory: Labour and the City, 1945–51

  The surprise victory of Labour in July 1945, in the first general election in ten years, thus occurred under dark clouds, with the Economist friendly to the new government for barely two years, until the next dollar crisis. That record is striking. For not only did the paper agree with Labour on the post-war objectives of social security and full employment at home, along with preservation of a liberal empire and commonwealth abroad; it also supplied the party with ideas on how to link these zones, centred ‘above all on the provision of capital’ to raise living standards and bind commonwealth and colonies more closely to Britain.61 The XYZ alumni now at the top of the Labour Party proved in most respects highly deferential to the culture and customs of the City, whose investment activities had already shifted to the sterling area – the currency bloc formed after much of the Empire and key trading partners followed London off gold in the 1930s – making the City more central to the imperial project, even as its purely international standing declined. Labour’s plans and City interests seemed to overlap, and the two to be set for cooperation after 1945.62

  Crowther viewed the new prime minister, Clement Attlee, as sound on the subject of finance and empire, cheering his cabinet picks from Labour’s right wing: Ernest Bevin, as foreign secretary, who backed keeping conscription in order to defend British assets in the Middle East and Asia; Herbert Morrison, deputy prime minister, given to describing Labour as ‘great friends of the jolly old Empire’; Arthur Creech Jones, the colonial secretary, and Hugh Gaitskell, at fuel and power, who likewise saw colonial development in Africa as in Britain’s ‘enlightened self-interest’.63 Their strategies turned to a large extent on the sterling area, where the Labour leaders hoped to lock in features of the wartime imperial economy after 1945. The sterling balances were a paradoxical advantage for London, which managed non-sterling purchases and currency flows for the whole bloc, while acting as its largest importer – re-exporting, in turn, dollar-earning commodities such as oil from the Middle East, rubber from Malaya, or minerals and cocoa from the Gold Coast and Northern Rhodesia. Sterling members submitted to this control since restoring convertibility too soon might result in a run on the pound, as happened in 1947, making the balances worthless and ruining most members’ prime export market.64