Michael Kidron

The Decline of British Capitalism

(May 1957)

First published in Socialist Review, May 1957.
Republished in A Socialist Review, London 1965, pp.41-8.
Transcribed and marked up by Einde O’Callaghan for the Marxists’ Internet Archive
Thanks to Ted Crawford.

Everyone, even the Times, is worried about the mess into which British capitalism is leading the country. “Britain’s crucial fight today,” it writes editorially (April 1), “is the fight for the £. This cannot be emphasized too often.” Chancellor Thorneycroft took up the theme in his Budget message: “I must emphasize once more that the general pattern of my Budget must be dictated by the need to place and keep our external position on a really sound footing.”

There certainly is something to worry about. Every two years since the war we have had a balance of payments crisis with Britain unable to pay the import bill. 1957 might prove to be no exception. Precariousness in its relations with the outside world has become a chronic disease of British capitalism.

The explanation is not difficult to find. Between 1934 and 1938 British capital received an average of £215 million a year in profits, interest and dividends from investments abroad. At present prices this would be some £650 million. During the war and immediately afterwards destruction and the sale of British assets held overseas and the accumulation of foreign debts to pay for the war amounted to some £6,000 million (Economic Survey for 1947, Cmnd. 7046, p.11), with the result that this income in foreign currency has dropped to £178 million in 1956 (Economic Survey for 1957, Cmnd. 113, p.7), or less than one-third the pre-war average.

Small reserves; big speculation

In 1938 reserves of gold and foreign currency stood at £864 million (about £2,600 million at present prices); at the end of March this year. They were £789 million – also less than one third of the pre-war average. (And even this sum includes £200 million in dollars which were borrowed from the International Monetary Fund last December to stop the drain on British funds following the Suez War). In 1938 the reserves were almost 10 per cent more than the total value of imports for that year; today they are only about one-fifth the value of our annual imports.

With such small reserves, any upset in international trade- an increase in import prices, a sudden need for a greater volume of imports, loss of markets for exports-could be disastrous. We can pay for only 10 weeks’ imports.

The position is made worse by the fact that the reserves do not cover the foreign trade of Britain alone but that of the fifty odd countries and administrative units in the Sterling Area which contributes 25 per cent of the world’s international trade.

And, of course, when solvency is so precarious, any trading or monetary difficulty encountered in cur international trading relations is immediately aggravated by a loss of confidence on the part of businessmen both here and elsewhere. Loss of confidence means speculation against the pound. Everybody who can exchanges his sterling for another, stronger, currency. That largely explains the intermittent balance of payments crises that have plagued us suite the war and these in turn explain the forced devaluation of sterling in 1949, the fall of the Labour Government in 1951 and the drain of £275 million (or more than one-third of the reserves) in the six months following the Suez crisis this Winter.

The position is serious. And there is only one way out increase exports, cut imports relatively to exports and so build up the reserves. Can British capitalism do it?

Exports, production, investment

Its record in increasing exports has not been a success story. On the contrary, Britain is at the bottom of the European export league. Between 1950 and the third quarter of 1955 the volume of exports front this country rose by 6 per cent while in Western Germany it rose by 151 per cent, Austria 102 per cent, Finland 78 per cent and France, who has not been doing too well either, by 23 per cent (UN, Economic Survey of Europe in 1955, Appendix B, Table IV). In 1956 the volume of British exports rose by a further 6 per cent (Economic Survey 1957, Cmnd. 113, Table 7), but lagged behind that of other major European exporters.

Exports do not drop out of the blue. A comparison of production figures is essential in explaining British capitalism’s comparative backwardness in this respect. Between 1950 and 1955 output in Britain increased by 16 per cent in volume. In Western Germany the growth was 60 per cent. iii Austria 34 per cent, Finland 29 per cent and France 21 per cent (U.N, op. cit., pp.57-63). Britain’s showing was meagre.

Production depends, in turn, on the amount of net investment in factories, machines and other factors. Again Britain conies out worst. a~ table 1 shows. It is riot. then. to he wondered at that Britain’s export performance has been such a sorry one.

Table I: Estimated Capital Accumulation in Some Western European Countries

Net fixed investment as a percentage of net national production













W. Germany
























Source: UN, op. cit., p.44.

Note: Readers might be surprised at the smallness of these figures, especially after the Budget debate when Thorneycroft, Gaitskell and the other Parliamentarians based their defence of, or attack on, government policy on the figure of 16 per cent. The difference lies in the distinction between “net investment” (as above) and “gross investment”. The former being the net addition to existing productive capacity and the latter including both net additions and the replacement of worn out plant and equipment. In an industrial economy, such replacements usually run at about 10 per cent of existing capital.

As for cutting imports, British capitalism has not shown singular aptitude compared with the rest. Between 1950 and the third quarter of 1955 the volume of imports rose by 21 per cent more than the volume of exports, while in Western Germany they rose by 46 per cent less, in Austria 38 per cent less, in Finland 6 per cent less and in France only one per cent more (UN, op. cit., Appendix B, Table IV). No wonder Britain has lost more than one-half of her reserves since the Labour Government fell because of a loss of reserves!

What are the particular difficulties that beset British capitalism more severely than any other? Why can’t it keep pace with its competitors in investment, production and exports?

The weight of armour

First, there is the heavy burden of armaments. Despite the progressive reduction in the burden of armaments over the past few years and especially after the recent Sandys’ axe, Britain is still wasting more than double the amount on “defence” (as a proportion of national income) than Germany and just less than a third more than France. Last year 9 per cent of our national income went on “ military defence” (calculated from Preliminary Estimates of National Income and Expenditure 1951 to 1956, Cmnd. 123, pp.5, 7), while Western Germany spent no more than 4 per cent in 1955 and France only 7 per cent in 1955 (UN, op. cit., p.7). That means that both of these competitor countries had a clear handicap (of 5 per cent in the case of Western Germany) in the world investment race.

Strong working class

Then British capitalism is in a sticky position as regards the labour force. Between 1953 and 1955, the labour force in Britain increased by 1.3 per cent (men) and 4.2 per cent (women). In Western Germany the increase (due in large measure to the constant stream of refugees seeking escape from the stark realities of life in the East German “People’s Democracy”) was 5.7 per cent (men) and 11.7 per cent (women) in the same years. While unemployment figures in Britain have fluctuated between 1 and 1½per cent of the labour force since 195 I, unemployment in Western Germany has been as high as 10.5 per cent and never below 2.5 per cent (UN, op. cit., pp.128, 148. The unemployment figures are insufficiently detailed for more than rough comparison and should be treated circumspectly – MK).

The result has been, as the Economist sadly comments (April 6) that, “full employment since the war has not led to more strikes because the unions, now more highly organized than ever, have been getting their own way without recourse to them.”

What this means in terms of capital accumulation is simply that in Britain as compared with, say, Germany, more has gone to the workers. Their strong bargaining position – resulting more from the labour shortage than from anything else – has lessened the rate of exploitation in comparison and thus hampered accumulation. The results can be seen in the relatively greater rise in real wages here over the rise in the national output than elsewhere, and also iii the inflation we have had for the past few years. (This does not mean, of course, that the rate of increase in real wages here is greater than elsewhere; indeed, the following table proves the contrary):

National Income, Wages and Prices


Gross product

Money wages

Real wages

Export prices

(1954 figures as a percentage of 1949)











West Germany





Source: How Much Investment?, Times (January 6, 1956).
Note: *Finished manufactures only.

Dependence on imports

There is a further obstacle it) increased investment to which British capitalism is especially vulnerable – her extraordinary dependence on imports of industrial and agricultural raw materials. An increase in investment entails, in the vast majority of cases, an immediate addition to the import bill which, even assuming that these imports will eventually pay for themselves in the form of exports, puts a strain on the reserves of foreign currency in the interim. The position is aggravated by the fact that almost tile only source of additional supplies of the imports necessary for investment is the dollar world. That is why, when gross fixed investment other than residential building jumped by the record total of £205 million in the investment boom of 1955, the volume of imports rose by 11 per cent and the value of dollar imports by 36 per cent (Economic Survey 1957, pp.8, 17, 29). in the following year, when the increase in investment had fallen back to half, the volume of imports did not rise at all and dollar imports rose by a little tinder 1½ per cent (ibid.).

In other words, the very fact that makes increased production and exports so necessary – the smallness of the reserves – makes it difficult to finance the import of the raw materials that are essential for such an increase in production and exports.

Other problems too

These are not the only difficulties that burden British capitalism. Its inability to direct resources to essential production jobs (over the past two years employment in distribution has gone up by 78,000 and in the “professional, financial and miscellaneous” categories by 64,000): its creation of surplus capacity through competition at home (for example. in the motor industry, and other features are inherent in British as in all capitalism. But as we are interested in the comparative failure of British capitalism compared with other capitalist countries, we shall deal only with the three major obstacles to capital accumulation already given, namely. the heavy arms budget, the relative scarcity of labour and the resulting strong bargaining position of the workers and, finally, Britain’s dependence on a particularly high level of imports. These affect Britain in a particularly sharp manner, more so than almost any other capitalist country. Unless the British ruling class can alleviate their combined effect, it is faced with the early prospect of becoming the Joe Louis of the developed capitalist world: fighting fifth-rate competitive matches and desperately trying to pay hack the taxes levied on its former glory.

Limitations of National State

These are the problems. What of the solution? As long as the international market is a capitalist one, unplanned, chaotic and competitive (even if the competition is between monopolies aided by the various capitalist states) a solution must be found within the boundaries of the national state. In the case of Britain, the national state includes, in this context, the colonies and dependents where the imperialist power imposes its economic policy by force, if necessary as in Malaya, the goose that lays the dollar egg. Unable to rely on international co-operation, capitalist Britain must obey the dictates of the world market and adjust conditions at home accordingly.

But the adjustments will be neither easy nor painless in a capitalist Britain. It is difficult to see how they can be made at all.

Two-edged sword

The arms budget is a case in point (although here I don’t want to say more than a few words as the subject really merits another full length article). The commercial competition of other capitalist countries is an irrefutable compulsion to British capitalism to reduce armaments in favour of investment. But the very existence of such competition makes it imperative for British capitalism to retain its freedom of action, or as much of it as possible, and prevent further subservience to its competitors. in this case American capitalism. Caught in the cleft stick of these contradictory forces the British ruling class can neither save the economy from bleeding white nor defend itself and its interests single-handed. The “prestige” of the tests on Christmas Island cloaks an unbreakable impasse.

Credit squeeze

When it comes to restricting imports British capitalism lands itself in another web of contradictions. A Tory government cannot use selective import control to keep up essential imports at the expense of inessentials and luxuries. It cannot allocate and ration raw materials and investment funds which would have to be part of selective import control. To do so now would mean political suicide. The only way open to it is so to depress the level of economic activity in the country that the demand for imports falls automatically.

That was the declared aim of the credit squeeze and the other economic measures adopted by the Tory government over the past two years. By removing subsidies and increasing rents, payments for the health service and the like, the mass of consumers have been forced to spend a higher proportion of their incomes on home produced goods and services and cut purchases of imported articles. By tightening hire-purchase regulations and raising interest rates (“the credit squeeze”) the government has narrowed the market for some goods – especially consumer durables like cars, electrical appliances, furniture – lowered the level of production and therefore the level of imports of raw materials. By creating a small measure of unemployment it has added another element in alleviating the pressure on the import bill.

Pound vs. production

The result has been satisfactory from their point of view, at least in the short run. The volume of imports remained stationary between 1955 and 1956. Reserves fell by only £151 million during 1956 compared with a fall of £225 million in the previous year. But the cost was tremendous. lit amounted to another setback in Britain’s competitive position as an industrial country. According to the official Economic Survey for 1957 from which the above figures are taken, industrial production remained stationary throughout the year and total manufacturing output – our mainstay – even fell by 1.2 per cent from the 1955 level (ibid., p.16).

Future stagnation

British capitalism has thus shown clearly the choice before it: either stagnation at home plus stability abroad or expansion at home and erosion of h2r international position, of her reserves. It is a choice between production and the pound. And the credit squeeze proved that they have chosen the pound. Indeed, Thorneycroft’s Budget promises to continue the same treatment. As the Economist writes in alarmed tones, “if one adds together one’s highest estimates of the possible increases in real consumption, exports and investment, and then subtracts from them the £100 to £150 million odd of apparent real saving on Government current expenditure they would suggest an increase in demand and production this financial year of a little over £500 million. This is a sizeable increase. But it is still only a little more than two-thirds of the annual rate of increase in production that was being achieved in the two years up mid-1955, despite the fact that the present under-utilisation of expanded capacity has led many economists to suggest that the rate of enrichment could now he considerably highe.” (April 13, emphasis added – MK).

Preparing a showdown

Armaments reduction is a labour of Sisyphus for British capitalism – an ever present and pressing task which can never be accomplished. The import front presents – failing selective import control, raw materials allocation and national planning – the sorry “solution” of defence of the pound at the cost of stagnation in production. Can British capitalism save its bacon on the domestic labour front? Can they weaken the bargaining power of the workers to such a degree that production can go up without an increase in wages, so that the individual capitalists will have to supplement the narrowing home market with an expanding one abroad?

The struggle against “brimful” employment has been waged for some time now. But despite the credit squeeze and the other government measures and despite careful preparations on the part of the business organizations to skip wage increases this Spring the first whiff of large scale industrial action by the ship-building and engineering workers brought ransom-money jumping out of their pockets. Eighteen months of preparation were swept away in one week of trade-union militancy. The ruling class were clearly unprepared for such a response. They are certainly not ready for a showdown now.

The road to the brink

Nevertheless there is no other way out for British capitalism. However much its difficulties might he alleviated by the transfer of British conditions and problems to the other capitalist countries. that is, however much Germany, for example, becomes saddled with increased armaments expenditure, with a stickier labour situation (and the recent strikes in Germany point in this direction) and will, the need to find an increasing amount of eseential materials beyond their own borders, Britain will still be the most vulnerable in the contemporary capitalist world. The only way out for British capitalism lies in undermining the strong bargaining power of its workers.

Unable to force a showdown now, unwilling to go to extremes in a basically prosperous conjuncture, the British ruling class can he expected to mix guile with aggression in a conscious attempt to corrode and undermine British working class conditions. A perspective of ever-increasing conflict, of sharpening class-struggle and enhanced class consciousness is opening up in Britain as British capitalism slowly gives ground to its better-equipped foreign rivals.


Last updated on 15.8.2003