British exceptionalism can be exaggerated. Today’s United Kingdom may bear the imprint of Mrs Thatcher, and seem to other Europeans a bastion of market liberalism. But when compared to the United States, the UK, with its National Health Service and welfare state, appears thoroughly European. UK history can also seem exceptional and in many respects it is – but so is every country’s. Her island status and overseas empire have often been seen as setting Britain apart from the rest of Europe, but as the Irish historian Brendan Simms argues, British history is ‘primarily a continental story … her destiny was mainly determined by relations with the rest of Europe rather than with the wider world.’1
As in any other country, security was the major concern for British leaders in the past. That meant engaging with Europe, for that is where the threats came from. Like other European states, Britain participated in an interminable series of wars throughout the eighteenth century, culminating in the struggles against Napoleon, in which Britain was the ally of Austria, Prussia, Russia and others. Britain was a participant in the Concert of Europe that followed, fought in Crimea, and did not stand aside in 1914. In behaving in this manner she was a typical and far from isolated European state.
And yet, Britain’s distinctive history left its mark on British attitudes and interests – on the country’s idea of itself – and this mattered in the aftermath of the Second World War when the future of Europe was being determined. The century that followed Waterloo saw the first great globalization, with Britain and her Empire playing a key role in the process. The debates and concerns of that era continued to echo well into the twentieth century.
The Industrial Revolution, which began in Britain in the late eighteenth and early nineteenth centuries, is the central event in modern economic history. The spread of modern industry across the globe is today transforming the world, bringing prosperity to hundreds of millions in Asia and elsewhere. The initial impact of the Industrial Revolution was very different, however. As noted in the previous chapter it created an asymmetric world, which Europeans in general, and the British in particular, were able to dominate not only militarily but also economically. Local producers across what we now call the developing world were unable to compete with the new technologies, as their markets were subjected to an invasion of European manufactured goods.2 Like the grain invasion encountered in the previous chapter this was made possible by the transport revolutions of the nineteenth century. Steamships and railways greatly reduced the protection previously afforded by distance to such producers: the gains of textile manufacturers in Lancashire were the losses of traditional producers in India and elsewhere.
But the process of economic growth gave rise to asymmetries and imbalances within the newly industrializing countries as well. As the first industrial nation, the process was particularly advanced in Britain. Labour and capital were pulled into those sectors of the economy where technological progress was fastest: industry in general, and cotton textiles, metallurgy and engineering in particular. The result was a large increase in the share of the labour force employed in industry, and a corresponding drop in the importance of agriculture. By 1871 only 22.6 per cent of the British labour force was employed in agriculture, as opposed to slightly more than half in France – where the Industrial Revolution had already been spreading for quite some time – and more than two-thirds in Sweden.3
Not only were people living and working in towns and cities rather than the countryside, but there were many more of them than before. England’s population rose from 5.2 million in 1700, to 8.6 million a century later, to no less than 30.3 million in 1900.4 These extra millions had to be fed, but Britain (and Ireland, an important source of food) were no larger in territorial extent at the start of the twentieth century than they had been 200 years previously. Agriculture was more productive, it is true, but the reality was that this much larger and less agricultural population increasingly had to be fed with imported food. In addition, the factories in which more and more people worked also had to be fed, in large part with imported raw materials such as cotton from the United States, Egypt and elsewhere. In other words, Britain was becoming increasingly dependent on imported food and raw materials grown on land in other continents. It paid for these imports by exporting manufactured goods, and by earning interest and profits on the capital that it had invested overseas.
Rapid industrialization and structural change thus went hand-in-hand with increasing dependence on the international economy.5 This had a variety of political implications, both international and domestic. Internationally, Britain now had a vital strategic need to maintain the naval hegemony that had been secured at Trafalgar – allowing a foreign power to threaten British supplies of food and raw materials was too dangerous to contemplate. Blockade was something that the United Kingdom did to others at times of war, not something that others could be allowed to do to it. In the late nineteenth century, when Germany underwent a similar process of structural change, and became increasingly dependent on international markets for its economic survival also, the predictable result was a naval arms race, and war plans involving blockades and counter-blockades. Questions of national security would become inextricably linked with international trade.6
Domestically, political divisions opened up between traditional agricultural interests and the rising manufacturing and commercial classes. Food was expensive to produce on a small, crowded island, and both farmers and the aristocratic landlords from whom they often rented their land were understandably reluctant to see Britain’s agricultural markets opened up to competition from abroad. The party that defended these agricultural interests, in Britain as in other European countries, was the Conservative Party, while the Liberals, who represented the new bourgeoisie, favoured free trade.
In one of history’s great unexpected twists, it was a Conservative Prime Minister, Robert Peel, who made the decisive move towards free trade in 1846 by abolishing the Corn Laws. The wars with France had kept British grain prices high by limiting imports, and landlords were determined to protect their incomes after 1815. The Corn Law of 1815 thus prohibited imported grain from being sold domestically unless British domestic prices rose above a certain threshold: this effectively blocked imports for several years. In 1828 such prohibitions were replaced by a tariff (import tax) on grain imports, to be administered on a sliding scale: as domestic prices fell, import duties were increased. The aim and effect of these policies was to make grain more expensive in the UK, thus protecting the interests of UK grain producers, and not surprisingly many Conservative landowners objected strongly to their removal.7 The reasons for Peel’s change of heart on the matter, and his success in getting the measure passed by Parliament, are varied and complex, and have given rise to an enormous scholarly literature. The Reform Act of 1832 had expanded the electoral franchise in cities, more favourable to the liberalization of trade than the countryside. Some landlords had by this stage diversified their wealth, owning industrial shares as well as agricultural land. And Sir Robert found it increasingly difficult to justify making workers pay more for their bread: a theme that would continue to resonate in British politics for many decades.8
Whatever the reason for the Prime Minister’s conversion, the Conservative Party split on the issue, Peel lost his job, and a free market Liberal administration came to power – with disastrous consequences for the millions of Irish who were suffering during the potato famine, and for whom the market alone could provide no solutions. A belief in the virtues of free trade eventually became a cornerstone of British political orthodoxy. There were however some Conservatives who remained doubtful. In 1881 a Fair Trade League was founded, advocating an end to commercial treaties with other countries ‘unless terminable at a year’s notice’, so as to avoid ‘entanglements’ impeding the adoption of whatever trade policy might be required at the time. The League also advocated moderate tariffs on imports of food from outside the Empire, and tariffs on manufactured goods from countries refusing to accept British manufactured exports ‘in fair exchange’. It received the support of Tories such as Sampson Lloyd and the Earl of Dunraven, but the Conservative Party was divided on the issue of fair trade in the 1885 general election: ‘Many found it wiser to declare themselves free-traders and opposed to any reversal of the fiscal legislation of 1846. Others attempted to gain fair-trade support in the constituencies by a frank espousal of that cause. Still others attempted to straddle the issue.’9
Conservatives were, on the other hand, very keen on another aspect of nineteenth-century globalization, the British Empire. They were proud of Britain’s many possessions in Africa and Asia, but of special emotional importance were Australia, Canada and New Zealand. All three had large British populations and were seen as being part of the British family. All three had seen large inflows not only of British workers, but of British capital, which had helped to develop their frontiers, expand their agricultural output, and provide the infrastructure with which food and raw materials could be cheaply transported back to Britain. All three would eventually fight by Britain’s side in the two world wars, and were crucial in providing manpower and economic supplies during those conflicts. But all three were also on their way to becoming effectively independent, and there were some who feared that this might in the long run deprive Britain of a vital strategic asset and undermine her greatness – at a time when this was already under threat from the rapidly industrializing Germany and United States.
Conservatives were not alone in caring about the future of the British Empire, or indeed of the United Kingdom. In 1886 a group of politicians split from the Liberal Party on the issue of whether or not Home Rule (a form of limited self-government) should be granted to Ireland. Chief among these were Lord Hartington, whose brother had been murdered by Irish nationalists in Dublin in 1882, and Joseph Chamberlain, a Birmingham-based self-made businessman and promoter of radical causes within the party. In 1885 Chamberlain had called for, among other things, universal male suffrage, the disestablishment of the Church of England, land reform and free public education;10 but his radicalism had its limits, and he objected violently to Prime Minister Gladstone’s Home Rule proposals. He denied that ‘it is sufficient to find out what the majority of the Irish people desire in order at once to grant their demands. I can never consent to regard Ireland as a separate people with the inherent rights of an absolutely independent community. Accordingly, if Irish nationalism means separation I for one am prepared to resist it.’11
Granting Home Rule to Ireland would not only show weakness to foreign enemies and other subject peoples, it would be a betrayal of the Protestants of Ulster, who were connected by ‘race and religion and sympathy’ with the Anglo-Saxon Protestants of Britain.12 Chamberlain, Hartington and other Liberals opposed to Home Rule thus formed the Liberal Unionist Party. The Liberal Unionists went on to serve in government alongside the Conservatives and eventually merged with the latter in 1912, becoming the Conservative and Unionist Party of our own day. The coalition was a slightly awkward one: defined by attitudes towards Ireland, in an era when the ‘Irish Question’ largely dominated British politics, it contained both traditional Conservatives, suspicious of social change, and radical ex-Liberals who welcomed it, at a time when the working classes were growing in political influence.
Chamberlain was Colonial Secretary from 1895 to 1903: a convinced imperialist, he believed in ‘this race, the greatest governing race the world has ever seen; in this Anglo-Saxon race, so proud, tenacious, self-confident and determined, this race which neither climate nor change can degenerate, which will infallibly be the predominant force of future history and universal civilization’.13 Like many others at the time, and not only in Britain, he believed that ‘our rule does, and has, brought security and peace and comparative prosperity to countries that never knew these blessings before. In carrying out this work of civilisation we are fulfilling what I believe to be our national mission.’14
On 15 May 1903 Chamberlain delivered a speech in Birmingham in which he asked his audience if they would rather that the self-governing colonies of the Empire remain closely united with the UK, or each go off ‘in his own direction under a separate flag’.15 In order that the former and more desirable option prevail, it was essential that Britain and her colonies adopt a system of preferential tariffs, imposing lower taxes on imports from each other than they did on imports from the rest of the world. Such a scheme would help to keep alive the hope of a Federal Union, and ensure that the British Empire be ‘self-sustaining and self-sufficient’.16 Imperial preferences would help to secure ‘a commercial union which, in some shape or another, must precede or accompany closer political relations, and without which, as all history shows, no permanent co-operation is possible’.17 A Jean Monnet for a jingoistic world, Chamberlain wished to use trade policy as a tool to promote political union, with important strategic benefits: as Avner Offer put it, he ‘sought to create a Zollverein, a customs union, to underpin a Kriegsverein, a military union’.18
There was a big problem with the proposal, however. How could the UK offer lower tariffs to her Empire than to the rest of the world, when she was unilaterally offering zero tariffs to everyone?19 In George Dangerfield’s words, it was necessary ‘to build a tariff wall around England for the single purpose of knocking holes in it, through which Imperial goods might pass’.20 In other words, there had to be tariffs on French, German and American goods, if Australian or Canadian goods were to receive preferential treatment. And there was an even bigger problem: the goods which Australia, Canada and New Zealand exported to the UK, and which would have to be given special treatment, were largely foodstuffs: wheat, meat and butter. So imperial preference required imposing tariffs on food from the US or continental Europe, and that in turn inevitably meant increasing the price of food. Protection of any kind was anathema to many Conservatives and Liberal Unionists, but taxes on food imports were especially toxic, since food represented a large share of working-class expenditure.
With the Conservatives once again split on the issue of trade policy, the Prime Minister, Arthur Balfour, manoeuvred frantically to keep his government together: if it were to fall, he argued in a letter to Hartington, by now the Duke of Devonshire, ‘I, and I suspect many others of our colleagues, would be in the embarrassing, and indeed, somewhat ludicrous position, of having to say that on the point which divided us, we had not made up our own minds, and could not, therefore, pretend to give a decided lead to anyone else.’21 There followed a period of intense negotiation within the British government, with Balfour suggesting compromise language that the two warring factions could live with: the British government should have ‘fiscal freedom’, that is the freedom to negotiate commercial treaties with other countries while disregarding free trade doctrine; any tariffs that it imposed should nonetheless not have protection as their ‘primary object’; and tariffs should not increase the average cost of living of the working man. What all that meant in practical terms was far from clear. As a historian of the controversy comments, Balfour was a great believer in ‘verbal formulas as a means of resolving genuine conflicts of belief.’22 The tactic sometimes worked: Balfour’s ‘success in isolating the Duke of Devonshire from the doctrinaire free traders in the Cabinet rested in part on the Duke’s inability to understand the precise differences between Balfour’s position and Chamberlain’s. In this, the Duke was in distinguished company, which included many other leading politicians, members of the public, and even the Monarch himself.’23
In the long run, however, it was all to no avail: the Duke of Devonshire ended up resigning from government anyway, and the Conservatives remained hopelessly divided: they were trounced by the free-trading Liberals in the 1906 general election, and remained out of power until the war.24 ‘By 1913 tariff reformers were a small minority even within the Unionist party … Even so, their influence within the party was disproportionate to their numbers … all the leaders of the Conservative party between Balfour’s resignation and the Second World War came originally from the tariff reform wing of the party, and moreover from the extreme end of that wing.’25
The 1906 general election ensured that Britain would remain a free-trading nation until the outbreak of war in 1914. And the war proved that even in the absence of an imperial trade bloc, Britain’s overseas possessions could still play a crucial role in ensuring her security. Even better, countries no longer part of the Empire, notably the United States, could also play such a role. The economic resources of the New World were essential in enabling Britain and her allies to defeat their enemies, while the Allied blockade of Germany undermined morale there, and was maintained until the peace treaties of 1919 had been signed.26
Total war meant pervasive government intervention in the economy, and the abandonment of Britain’s traditional free trade policy. It also meant the international coordination of the Allies’ economic efforts, a task in which the young Jean Monnet was intimately involved along with his British, Italian and American colleagues. After the war the British government introduced protection for industries regarded as being important for national security. Nonetheless, the UK reverted to a broadly free-trading policy: the descendants of the tariff reformers would have to wait a little longer.
The post-war United Kingdom also recognized that both it and its Dominions (Australia, Canada, the newly independent Irish Free State, Newfoundland, New Zealand and South Africa) were ‘autonomous Communities within the British Empire, equal in status, in no way subordinate one to another in any aspect of their domestic or external affairs, though united by a common allegiance to the Crown, and freely associated as members of the British Commonwealth of Nations’.27 It even acknowledged that India – not a settler colony – should eventually become self-governing within the Empire. Imperial conferences were held at regular intervals, at which delegates from the UK, the Dominions and India discussed matters of mutual interest, including economic policy. These conferences were not just talking shops: they promoted cooperation on scientific research, forestry, transport and communications, intra-imperial migration, and a wide range of other subjects. The 1926 conference, for example, not only adopted the declaration regarding the status of the Dominions cited above; it also agreed inter alia that workers who had been incapacitated following work-related accidents, and their dependants if they had been killed, should continue to receive compensation after moving to another part of the Empire.28 But there was no formal constitution defining the Commonwealth, setting out its purposes, or specifying decision-making rules. This sat well with the British political system, which famously functions without a written constitution, and the fact that the Commonwealth worked effectively during both the interwar period and the war that followed helped to shape British attitudes towards international cooperation more generally.
In 1929 the Great Depression struck the world economy, and with it came demands for protection everywhere. Britain was no exception. In October 1931 a general election returned a ‘National Government’ to power, dominated by protectionist Conservatives. Joseph Chamberlain’s son Neville was appointed Chancellor of the Exchequer, and wasted no time in pursuing his father’s trade agenda. Within weeks tariffs had already been introduced on some manufactured and horticultural goods, and the following February a decisive move was made towards imperial preference: a general tariff on imports (subject to some exceptions) was introduced, with imports from the Empire still being admitted duty-free. As Chamberlain said to the House of Commons, with his mother in the visitors’ gallery, and his half-brother Austen sitting on the Conservative benches,
There can have been few occasions in all our long political history when to the son of a man who counted for something in his day and generation has been vouchsafed the privilege of setting the seal on the work which the father began but had perforce to leave unfinished. Nearly 29 years have passed since Joseph Chamberlain entered upon his great campaign in favour of Imperial Preference and Tariff Reform. More than 17 years have gone by since he died … His work was not in vain. I believe he would have found consolation for the bitterness of his disappointment if he could have foreseen that these proposals, which are the direct and legitimate descendants of his own conception, would be laid before the House of Commons, which he loved, in the presence of one and by the lips of the other of the two immediate successors to his name and blood.29
The commitment to imperial preference was further strengthened at the Imperial Economic Conference held in Ottawa later that year. A series of bilateral treaties was signed between the participants according each other preferential tariff treatment, while Britain and her Dominions continued to raise trade barriers against the rest of the world (although not by as much, in general, as other countries). If the aim was to increase trade within the Empire at the expense of trade with the rest of the world, it seems to have been effective. Between 1930 and 1933 the proportion of British imports coming from the Empire rose from 27 to 38 per cent. Recent research suggests that the switch to imperial preference can account for as much as 77 per cent of this dramatic increase in the share of the Empire.30
The British Empire was not the only trade bloc during this period, and the 1930s saw a general tendency towards increased trade within blocs, at the expense of trade between them. This was true of other European countries, such as France, who already had empires and who, like the British, traded more with them during the decade; and it was also true of countries who did not yet have empires but who aspired to have them in the future, such as Germany. In other words, international trade became less multilateral during the 1930s: rather than buying from some countries and paying for these imports by selling to others, states increasingly bought from the same countries or groups of countries to whom they sold their exports, in bilateral fashion. Observers at the time and subsequently believed that this decline in multilateral trade not only reflected, but exacerbated, the international tensions of the period: during the war, the well-known New Zealand economist John Condliffe wrote that it is now ‘so obvious as to hardly need statement that bilateral trade took on aggressive and destructive aspects as international rivalries were sharpened in the era of what is now known as pre-belligerency’.31 The rise of imperial trade blocs strengthened the hand of nationalists in countries such as Japan who argued that it was safer to seize territory and become economically self-sufficient than to rely on international markets for one’s survival.
On 14 August 1941, some four months before the United States entered the war, Winston Churchill and Franklin Roosevelt met secretly in Placentia Bay, off the coast of Newfoundland. They issued an eight-point document known to history as the Atlantic Charter, the fifth point of which reads, ‘They will endeavour, with due respect for their existing obligations, to further the enjoyment by all States, great or small, victor or vanquished, of access on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity.’32 In the light of the 1930s the consequences of unequal access to trade and raw materials seemed too dangerous for it to be permissible any longer.
It is therefore hardly surprising that the very first Article of the General Agreement on Tariffs and Trade (GATT), signed in 1947, prohibited trade policies which discriminated in favour of some countries and against others. In the jargon of trade policy, all signatories to the GATT became each other’s most-favoured-nation, implying that no one else could be more favoured than them. This commitment to general non-discrimination remains at the heart of international trade law today, with consequences for Brexit that we will encounter later.
There were two major exceptions to the principle of non-discrimination permitted by the treaty. First, Article XXIV recognized
the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements … Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area.33
The definitions of customs unions and free trade agreements permitted by Article XXIV are spelled out in the text, and since they matter a lot for current debates about Brexit it is worth reproducing them (almost) in full:
8 (a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that
i) duties and other restrictive regulations of commerce … are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and,
ii) … substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;
(b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce … are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
The question of what ‘substantially all the trade’ actually means is an important one that we will return to later in this book, since it limits what is and is not legally possible for Britain after Brexit.
The second major exception to the principle of non-discrimination permitted by the GATT was a series of exemptions allowing Britain, France, Belgium, the Netherlands and the United States to continue their preferential trading relationships with current or former colonies.34
Britain thus entered the post-war world with her imperial preferences intact. While this was a source of considerable irritation to the United States, there was no reason to think that these preferences could not continue into the future. And in the Commonwealth Britain had a model for successful international cooperation, relying not on formal supranational institutions but on voluntary agreement between independent countries. Even better, the Commonwealth was a group of countries in which the United Kingdom quite naturally played a leading role, and enjoyed an unusual degree of influence. Perhaps this was a model that might serve as a useful template elsewhere?