The Pound and the Viet Cong
Amid this maelstrom Britain, yet again, was close to bankruptcy. How to get a grip? Devaluing the pound might have given the Wilson government and the country the chance of a fresh start. In a world of fewer and floating currencies, the importance of devaluation is harder to understand now, but it was then the single most important issue facing Wilson. On the one hand, cutting the international value of your currency against others was an admission of failure on the world stage, a humiliation for any government. It would mean imports costing more so unless people bought fewer foreign goods it would mean more inflation. On the other hand it would make exports cheaper, giving British companies a chance to win back markets they were losing. If the government devalued and managed to keep a grip on the consequent inflation while industrial exports grew, then the country could in theory leap in one painful stride away from her economic problems. It was a little like dropping out of a race, intensively retraining, sweating out the fat, slimming down, working on the muscle tone, and then starting the next race better prepared – except that in the economy you never actually stop working. As for a racer, the embarrassment of dropping out would be pointless if there was not the sweat and retraining, the greater efficiency and improved productivity. It needed to be a shock to the system, not a rest from reality. Many people, including in the Labour government, seemed not to have realized this. They thought, when eventually they were prepared to consider it, devaluation would avoid the tough choices at home which, in fact, it absolutely required.
This was a choice which went beyond economics. Devaluation and world politics were inextricably linked. To devalue the pound in the mid-sixties meant Britain’s overseas spending would have to be dramatically cut back, just as the ROBOT floating pound scheme of 1953 implied. Those smaller pounds would buy fewer gallons of oil, foreign-manufactured guns and accommodation for troops. So it probably meant a further withdrawal from Britain’s world role, in particular ‘East of Suez’, the bases in Hong Kong, Malaya, Singapore, Aden and the Gulf. That would irritate Washington, particularly as communist advance in South East Asia was the issue of the hour. The alternative was to try to keep the global role and borrow from the United States. This was certainly on offer but at a large political price. As President Johnson’s special assistant put it at the time, ‘We want to make very sure that the British get into their heads that it makes no sense for us to rescue the pound in a situation in which there is no British flag in Vietnam, and a threatened British thin-out both east of Suez and in Germany…a British Brigade in Vietnam would be worth a billion dollars at the moment of truth for Sterling.’
In the Commons and during the 1964 general election, Wilson had mocked Polaris as being neither independent nor British, and indeed unable to deter. Yet in the later sixties and early seventies, HMS Resolution, Renown, Repulse and Revenge were duly launched. Their names came from battlecruisers and battleships that had been the pride of an independent Royal Navy; but the new submarines’ missiles were American by proxy and the same was true of their successors, the Trident submarines of today. Technological dependence now rendered any idea that this was a truly independent system absurd. In power, Wilson had the option of abandoning the nuclear option, since the submarines being built to take Polaris could have been adapted as conventional hunter-killer boats. He chose not to, and even in the mid-seventies to disguise the economics of the Polaris upgrade, codenamed Chevaline, from the cabinet sceptics. Crossman assessed the dilemma shrewdly, noting in January 1965 that Wilson was committing Britain to defence spending ‘almost as burdensome – if not more burdensome – than that to which Ernest Bevin committed us in 1945, and for the same reason: because of our commitment to the Anglo-American special relationship and because of our belief that it is only through the existence of that relationship that we can survive outside Europe.’
For many this was a positive argument for devaluation. The pro-Europeans in the cabinet hoped devaluation would help drive the country towards its destiny as an ordinary member of the EEC, and away from global pretensions. They felt that Britain had to break with America, despite the financial guarantees Wilson had wrung from Washington earlier. She had to change direction, devalue, join Europe. That, according to Barbara Castle, was what George Brown had decided: ‘We’ve got to turn down their money and pull out the troops…I want them out of East of Suez. This is the decision we have got to make: break the commitment to America…I’ve been sickened by what we have had to do to defend America – what I’ve had to say at the despatch box.’ Castle interjected: ‘Vietnam?’ and Brown replied: ‘Yes, Vietnam too.’ Belligerent, contemptuous, he feared that Wilson would simply go over to Washington and ‘cook up some screwy little deal’. Brown at least had a clear strategic direction. Wilson did not. Cooking up screwy little deals was his forte. He was the master chef of screwy little deals.
By now the complex nature of the choice facing him was apparent. Devaluation and the future of socialism; Britain’s relationship with America and attitude to the Vietnam War; and whether we could and should be in the European Community, were all completely interlinked. Had Britain broken with America during the most testing time in its Vietnamese agony, the story of the Atlantic alliance would have taken a very different turn. We would probably have entered the EEC much earlier and, again probably, have played a role closer to that of France in the following decades, less linked in nuclear defence or intelligence terms to Washington. What this would have meant for the British economy’s failing experiment in continental corporatism, and for the stability of the anti-Communist world, is impossible to say. Further, because many Commonwealth countries held their reserves in sterling in London, devaluing the pound would have been a one-off and unilateral cut in the wealth of friendly and often poor countries. Deciding about the value of the pound was also a choice about Britain’s place in the world.
Oddly, the thing that would do most to destroy Harold Wilson’s reputation on the left was also the policy for which Britain has most cause to remember him gratefully. We have seen some of the pressure he was under to commit British troops to Vietnam. The Australians had committed a battalion, President Johnston constantly reminded him; perhaps the Black Watch might be sent, or at the very least a military band? American hints had been mingled with those American threats about the pound; and Britain’s economic position was, as we have seen, weak enough. Whitehall mandarins and some of his own advisers thought he should have committed at least some troops, but though Wilson may have been tempted and though British special forces had been considered, he held back from doing so. He tried to buy the Americans off with words of support and stabs at a diplomatic solution, hoping to use his connections in Moscow and suggesting some intervention directly with the North Vietnamese. He managed to placate nobody. The initiatives infuriated Washington, while the anti-war marchers at home simply heard his supportive words for Johnson.
Wilson was berated in the streets as a murderer. His Secretary of State for Defence who had quickly realized the scale of risk that Vietnam posed and helped keep Britain clear, was rewarded on university campuses with cries of ‘Hitler Healey’. When the trade union leader Frank Cousins, briefly in the government himself, asked Wilson why he wasn’t taking a firmer stand against American war-making, Wilson furiously replied, ‘Because we can’t kick our creditors in the balls.’ One of Wilson’s later biographers made the case for the defence with steely eloquence. Losing all Washington’s friendship and financial support would have been devastating: ‘Few considered the implications for domestic social, housing, education, arts and science policies, including the probable effect on student grants. Few, indeed of those who attacked the prime minister and his colleagues simultaneously for helping the Americans abroad and not doing more to help the poor at home, ever came to terms with the bleakness of the choice.’ Yet, the same writer went on, it was over Vietnam that ‘the party of conscience seemed to lose touch with its soul’ and over Vietnam too that many who had pinned their trust in Wilson decided his principles were ‘a shattered crystal, beyond hope of repair’. Here, for once, he was doing the right thing, or the best thing, and it was over this that he was most denounced. Who said politics was fair?
Even Wilson’s close supporters were at times disgusted by his twisting to keep the options open. Tony Benn, a few weeks before Wilson went to the country to try to increase his majority early in 1966, had recorded: ‘My opinion of Harold was lower tonight than it has ever been before. He really is a manipulator who thinks that he can get out of everything by fixing somebody or something. Although his reputation is now riding high, I’m sure he will come a cropper one day when one of his fixes just doesn’t come off.’ At almost exactly the same time, Crossman summed up Labour’s wider problem: ‘The main trouble is that we haven’t delivered the goods; the builders are not building the houses; the cost of living is still rising; the incomes policy isn’t working; we haven’t held back inflation; we haven’t got production moving. We are going to the country now because we are facing every kind of difficulty and we anticipate that things are bound to get worse…’
Wilson then had his successful re-election in March, when Labour’s tiny majority of three was replaced by one of ninety-seven seats. This ought to have ushered in his golden years. His dominance of the Commons had helped finish off Alec Douglas-Home, who was replaced by Edward Heath. The age of the grammar-school boys was truly established. Wilson, whatever his failures of vision, had fought a near-faultless campaign and won a mandate which obliged the British Establishment to accept that Labour truly was entitled to rule. He had shown himself a self-confident showman abroad, in Moscow and Washington, and had pursued frantic diplomacy over the Rhodesian crisis. Now, surely, his time had arrived. Yet there was plenty in the record of that first Wilson administration to give pause for thought – the dithering and manoeuvring over devaluation; the mutual suspicions about screwy little deals already dividing the cabinet; Wilson’s own habits of duplicity, notably over deflation and his attitude to British membership of the EEC.
At the centre of all the difficulties the government faced was the dilemma of devaluation. The Chancellor, Jim Callaghan, remained under almost intolerable pressure, as he had been from the day when he took office. At times he seemed close to giving way under the strain. Jenkins recalled a cabinet in July 1966 when Callaghan, later famous for being imperturbable, suddenly started talking away from the agenda about the appalling pressures on sterling. He suggested to the startled ministers around him ‘both that the objective situation was desperate and that his own nerve had cracked. Wilson hushed him up and brought the meeting to an end rather like a policeman trying to get a blanket around a nude streaker.’ Indeed, Wilson regarded any talk of devaluation, public or private, as indecent. Once he, Brown and Callaghan had decided against it immediately after the 1964 election, it was known as ‘the unmentionable’. From then on a complicated three-way dance had been going on in private. Brown turned in favour of devaluation as one way to revive his hopes for expansion and the DEA. Callaghan dithered, but wanted any devaluation to be accompanied by the shock of deflation too. Wilson, against both devaluation and deflation, played the two of them off against each other, always worried that if Brown and Callaghan agreed, he would be scuppered. By July 1966 he was telling Barbara Castle in the Commons tea-room that Brown and Callaghan were plotting to get rid of him: ‘You know what the game is – devalue and get into Europe. We’ve got to scotch it.’ This, however, was classic Wilson: Castle was an anti-European, so his words were calculated to flatter her. But at the same time the Prime Minister was telling pro-Europeans in the press that he intended to lead Britain into Europe himself. As the press magnate Cecil King related in his diary months earlier, Callaghan was confidently predicting that Britain would enter Europe: ‘the pledges were only given to keep Barbara Castle and her kind quiet…Apparently Wilson thinks that after a successful election he will be able to eat any number of words with impunity.’
Europe had sliced the party horizontally, cutting through the vertical divisions of left and right. Generally the party’s activists and left-wing MPs believed that the Common Market was a ‘bankers’ ramp’, a capitalist plot whose rules would prevent true socialism in Britain. The strongest view that Wilson himself had about it all was that he strongly didn’t have a view. He had been against on the grounds that Europe would be ‘anti-planning’, which seems a little odd. But as he moved camp, he told Barbara Castle, according to her diaries, that ‘The decision is purely a marginal one. I have always said so. I have never been a fanatic for Europe.’ And later, when she accused him of presiding over a messy, middle-of-the-road muddle about conditions for entry, he complacently replied: ‘I’m at my best in a messy, middle-of-the-road muddle.’ He did not holiday abroad and had a strong sentimental attachment to the Commonwealth and the provincial reassurance of traditional British life. Unlike Jenkins or Heath he had no friends in continental politics. When the referendum finally came in 1975, both Wilson’s wife and his political secretary Marcia Falkender voted against staying in, which probably hints at Wilson’s private instincts.
Yet in the late sixties British business saw the European Economic Community as an essential escape-route into a more modern and efficient world, words which triggered a response in Wilson. The press was overwhelmingly in favour. Some of his most effective colleagues, notably Jenkins, were vehemently pro. Whitehall opinion, though divided, was leaning that way too. Europe offered Wilson a new theme when he needed it. In 1967 he and the strongly pro-European George Brown gently perambulated their way around Rome, Strasbourg and Paris discussing possible British membership, though de Gaulle was still chilly. Brown spent much of the time insulting and clumsily chatting up secretaries. Soon afterwards Wilson formally announced a renewed British membership bid. De Gaulle, though dismissive in public, privately told the British ambassador in Paris that he envisaged a new kind of Europe, wider but also looser, and led by the strongest military powers, France and Britain, then Italy and Germany. It would allow for more national sovereignty. He implied that this complete reshaping of Europe should be cooked up between Paris and London, then publicly proposed by Britain, after which France would come in to support it. This was not only an early sketch of the kind of Europe that Britain would yearn for but a classic Gaullist swipe at the federal Europe being built from Brussels. It seemed an act of French disloyalty to their German and other continental allies. In London, unsure whether it was a devilish trap, officials urged Wilson to leak the idea to the Germans. The leaks infuriated almost everyone, de Gaulle most of all, and the idea died. Despite all this, and despite warnings that food prices would rise by up to a quarter as a result of British membership, talks went on. Shortly before Wilson finally lost power, the six member states concluded their own pre-British-entry deal which badly tilted the budget system and agricultural support against the UK and the other would-be joiners.