Michael Kidron

The economic background
of the recent strikes

(Summer 1958)

Michael Kidron, The economic background of the recent strikes, International Socialist (trial issue), No.1, Summer 1958, pp.57-74. (mimeo)
Transcribed by Ted Crawford.
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
Proofread by Anoma Cartwright (March 2008).


Two things emerge clearly from the recent strikes in London. [a] The first is that they are consistent with a trend – noticeable in the fifties – of sharpening industrial struggles growing in severity and scope. [b]

The second – that the Labour movement is as yet unprepared for the battles implicit in such a trend ideologically and organisationally, and this despite incidents of remarkable self-sacrifice and devotion to principle on the part of the workers involved. This article is an attempt to find out what lies behind the growing industrial struggle and whether the trend will persist. A second article will examine the weaknesses shown during the strikes and deal with the measures that ought to be taken to combat them.

British Capitalism and the World Economy – Introduction

Post-war Britain has inherited an Imperial economy without the resources to sustain it. The pound still finances half of world trade – but depends on only 4 per cent of the world’s reserves; the City’s banking and insurance network services the whole world – but is giving way to independent central banks and national finance houses; above all the trinity of industrial specialisation, free and cheap imports of food and raw materials, and a high level of capital exports (mainly for investment in the transport and utilities, which lubricated the trade of the system) has succumbed to a stronger trinity: world industrialisation; inhibited trade and a drought of capital funds. Specialisation remains – external trade formed 20 per cent of national income in 1956 (compared with some 4 per cent in the US in 1949) – as does dependence on imports, for half the food and most industrial raw materials, but instead of those being, as they once were, signs of British Capitalism’s strength, they are sources of weakness. A close look at the Sterling Area – the current organisation of the Imperial economy – will show how this has come about.


Once Britain was virtually the sole supplier of industrial goods for the world market: in the 1870’s, one third of world manufacturing output and three quarters of world exports of manufactures were British; by 1951, those figures had become one tenth of world industrial output and under one fifth of world trade. [2] Without her monopoly Britain’s position in world markets is more precarious than other industrial economies. First, the newer industrial structures of the US, Germany and Japan are better geared to supply the type of goods needed for industrialisation in large parts of the Overseas Sterling Area (OSA) where there has been a shift from consumers’ goods (textiles) to producers’ goods imports (machinery, vehicles, etc.) Second, industrial capacity in Britain, already devoted in large measure to exports can neither be farther diverted from the domestic market nor made to keep up with an expanding world market, not even with the growth in the traditionally British OSA market.

US capitalism has made inroads into Britain’s preserves in all but two principal categories (vehicles and machinery). In these two the most strenuous efforts had to be made, including import quotas throughout the Area and particularly in the colonies, allocation of steel in accordance with export performance and denying domestic industry capital equipment in Britain, etc., etc. In 1950, US exports to the OSA, first exceeded exports from Britain. [3]

Finally, British capitalism is in a weaker position with regard to prices: the commodity price index for all commodities in the UK stood at 259 in the first half of 1950 compared with 192 in the US (1934-38=100). For the 8 most important exports to the OSA the position is as follows: [4]

US and UK price index, 1950 (half-year)












Iron and steel






Cotton products



Wool products



Synthetic yarns



Petroleum products



There is no doubt that Britain’s dependence on the OSA as a market-outlet for her specialised economy is greater than the OSA’s dependence on her as a source of supply. “It seems doubtful,” writes one specialist, “that OSA import needs have been ... well satisfied when compared with alternate potential sources of supply ... the long run profitability of trading ties with the UK is declining for OSA members ...” [5]


Britain needs to import half her food and most of her raw materials. Imports from the OSA form a large proportion of the total – 45 per cent in 1957. Except for a small number of products – mainly tea and jute – alternative sources of supply exist, but resort to these would entail severe strain in Britain’s balance of payments. First, almost all are American Account countries which require immediate payment in dollars or European colonies which require settlement in dollars within the limits of EPU credit or countries that were, until March 1954, Bilateral Account countries, also requiring settlement in dollars beyond specific credit limits. Britain has had a deficit with each of these groups since the war and would find it impossible to substitute them for her OSA suppliers. As it is marginal imports put severe strains on the balance of payments: when gross fixed investment other than residential building jumped by a record total of £205m, 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. [6] When accumulation fell back to half in the following year, the volume of imports did not rise at all and dollar payments rose by a little under 1½ per cent. [7] The second unique advantage which British capitalism enjoys in its relations with its raw materials suppliers in the OSA is that they can and are forced to grant credit to cover British purchases from them. This, as the National Bank of Egypt pointed out, is a strictly one-way traffic.

“The freedom of London in drawing on the internal resources of the members meant that Britain could obtain the members’ exports, both visible and invisible, by merely offering British Treasury Bills which they (the members) could sell for sterling and purchase British goods; but if they wanted more British goods than they had sterling to buy them with they could not obtain the money by merely offering their own Treasury Bills as London would do; they would normally have to export to obtain the necessary sterling... London denies to others the freedom which she allows to herself. It is no wonder, therefore, that members should make efforts to restrict or contest that freedom.” [8]

Not only does this extraordinary arrangement built into the Sterling Exchange standard system provide British capitalism with its primary means of offsetting balance of payments disturbances in the short term; it also constitutes a handy mechanism whereby economic stagnation in the colonies immediately benefits the Imperial power. By providing Britain with goods in exchange for Sterling Balances held in London and not drawn upon, the colonies, which as we shall see below have been the major accumulators of Sterling Balances in the recent past, provide Britain and its satellites in the independent Sterling Area countries with a significant proportion of their investment capital!

Looked at from the OSA’s optic, Britain’s imports are not as unequivocally attractive. This holds even if we ignore the special position of the Colonies just mentioned or the long-term bulk-purchasing contracts which, in a period of expanding international markets, offered the primary products exporters a redundant stability in exchange for a palpable loss of income when the negotiated prices lagged behind rising world prices. (As soon as world prices levelled off, London reverted to private purchasing). [9]

To quote an expert opinion once again, “So far as trade in primary products is concerned, alternative markets in the sale of exports of OSA regions have been more promising in the post-war period than have alternative sources of supply for the United Kingdom.” [10]

The fact that industrial production has spread, that by 1955 Germany and Japan had a combined import bill three-quarters the size of Britain’s of a very similar nature [11], that Russia and the rest the state capitalist world are fast becoming a factor in world trade and that the tremendous US market is becoming less and less self-sufficient and progressively more dependent on foreign supplies of basic raw materials [12] – all point in the same direction: London’s declining attractiveness as a market for the OSA countries generally. (Of course, in particular cases – New Zealand and Eire, for example – the pull is as strong as ever).

That there has been a shift away from the UK market on the part of the independent OSA countries as a group, compensated by a shift in the opposite direction on the part of the dependent territories, can be seen from the following table [13]:

Sterling Area Exports to UK, 1936-8, 1948, 1956
(as percentage of total exports)








Sterling area




Independent OSA









British capitalism unquestionably benefits from its trade relations with the OSA. These benefits are not, except in particular cases, reciprocal. And yet the sterling area exists. Why? What material interests can the other, if lesser, independent capitalist members – the colonies are not asked – have in perpetuating the system? Part of the answer lies in the operation of the Area’s dollar pool.

All members of the Sterling Area, except the Union of South Africa, which has a special status, contribute their dollar income to a reserve which they use in common for dollar purchases. Squeezing the generality out of this arrangement leaves us with a system whereby the independent capitalist members of the Area finance their dollar deficits by sharing the dollar surpluses generated by the Colonies.

Between 1946 and 1952 inclusive Britain had a dollar deficit of almost $8,000 million which was just about covered by US and Canadian loans and US Defence Aid. The independent OSA countries as a group had a net deficit of $1,051 million; the Colonies as a group, a net surplus of 12,000 million. The position can be seen in greater detail from the following table: [14]

Contributions to and drawings from the sterling area
gold and dollar pool by member countries, 1946-52




Surplus (+) or deficit (−) with Dollar Area



US aid, loan and Canadian loan


UK net contribution to (+) or drawings from (−)
gold and dollar pool (including other items)

+   181

Independent OSA members:


Surplus (+) or deficit (−) with Dollar Area



Gold sales and loan to UK


Net contributions to (+) or drawings from (−)
gold and dollar pool (including other items)




Surplus (+) or deficit (−) with Dollar Area



Gold sales to UK

+   160

Net contributions to (+) or drawings from (−)
gold and dollar pool


Net contributions to (+) and drawings from (−)
gold and dollar pool by individual OSA members


Independent OSA:




−   220


−   325

New Zealand

−   165

Union of South Africa

+   775


−   510


−   195


+   155


−     45


−     75

Southern Rhodesia

+     65

Errors and omissions, independent OSA


−   510






West Africa

+   610

East Africa

+     30

Errors and omissions and
other dependent territories

−   125

The table shows clearly why the dollar pool has “probably been the most important single prop to continued internal cohesion of the Sterling Area” since the war. [15] The fundamental fact is that all the independent members bar three, i.e., the overwhelming majority of the countries politically free to sever their connections with the Sterling Area, were not dollar users. Were they to become net dollar earners, membership of the Area would lose its point, as can be seen from the three exceptions. South Africa, whose main export – gold – is a dollar equivalent, (and whose dependence on London as a market for other exports is extremely tenuous), has never been a full member of the pooling scheme and has always added gold, surplus to negotiated contributions to the pool, to her own reserves. Her willingness to retain sterling area and. Commonwealth membership, and to contribute to the Pool, have been exacted only by denying her the right to float South African issues on the London market (1949) and by threatening her with the denial of private capital exports from London (South Africa was by far the largest official borrower and the only large borrower on private account, 1945-51, of all OSA countries. [16] Ceylon’s continued adhesion can be explained almost entirely by the dependence of tea – nearly two-thirds of her exports – on the London market, as can Southern Rhodesia’s by the importance of London for her tobacco crop – nearly half her total exports.

The dollar advantages of the Sterling Area are, however, losing their attractiveness:

“For the ISA (Independent Sterling Area) as a group, gold and dollars held outside the pool increased by about 20 per cent from 1943 to 1953. In the case of Australia and New Zealand the increase was 50 per cent and Australia has declared a policy of building its independent holdings in the interests of fortifying its credit standing in hard currency ... The trend appears to acknowledge the inadequacy of the central reserves. In turn, the building up [of] the independent reserves probably tends to make central pool of reserves still more inadequate.” [17]

Nevertheless, the stream of dollars pumped by the Imperial Power from its colonies to the independent capitalist members of the Area is still extremely important in underpinning the stream of trade on which the Imperial economy depends. It is necessary but insufficient in itself. However, British capitalism has other, equally strong, bargaining counters. One of those is the proverbial strength of the debtor.

Sterling Balances

The war changed British capitalism from being the largest creditor on international account to a net debtor, at least on paper [d]: net external capital in 1938 stood at £4,220m.; by 1945 it was -£500m.; by 1947 another £700m. was added to the debt making – £1,200m. in all. Part of the change was due to the sale of British investments abroad – some £1½m. on paper between 1938 and 1945; part due to a loss of reserves, contracting of dollar loans, etc.; but the major part, some £3,000m. between 1938 and 1945, was caused by the purchase on credit of military stores and equipment and raw materials from the Colonies (India, Burma and the Middle East in the main). [18] This debt, substantially enlarged since, is called the Sterling Balance. As long as it exists, Britain can drive hard bargains with other member countries.

And so she has. She has always shied away from entering into long-term commitments regarding repayment. During the Anglo-Indian negotiations in1947, a proposal to fund nearly half the balances with agreed fixed annual repayments and an interest rate of 2 per cent was rejected by Britain, not only because it would have meant quadrupling the 16 per cent that was being paid at the time, but primarily because “discretionary releases by periodic agreement” gave her the opportunity to exact concessions, (on dollar spending, for example) in exchange for releasing blocked balances.

The retention of the balances has other one-sided advantages for British capitalism beyond this use for commercial and political blackmail. The dollar pool is essential for the functioning of the Sterling Exchange standard, the Balances essential for the Pool.

But it is the overseas regions – in fact, as we have seen, the economically backward colonies – that have to give up the goods with which to build up these Balances. For them the functioning of the system means economic stagnation; for British capitalism it is one of the last defences against stagnation. For both it is the heart of British Imperialism.

Then again, the post-war period has been one of continuously rising prices and continuous devaluation of the Balances. The longer they exist, the less are they worth. The £3,668 of 1945 would be worth £5,955 at today’s prices: in fact they are still valued at the original £3,688, or 62 per cent of their original value.

Despite all efforts, however, the Sterling Balances have lost a lot of their effectiveness as a cement to the system. Not that they have been reduced: on the contrary, they increased from £3,688 in 1945 to £3,912 in December, 1957. [19] What has happened is that the No.2 Account (blocked balances to be released only by special agreement) which amounted to £2,115m., or three-fifths of the total in 1946, were reduced to £1,311n or just over one-third of the total by 1950. [20] They have since become negligible. In 1947-8 OSA Balances, blocked and unblocked, were divided between independent members and colonies in the ratio of 4 : 1; at the end of 1957 they were very nearly evenly divided. [21] Their value as blackmail against the dependent members of the Area and as cement to the system has dropped correspondingly and British Capitalists bargaining position has become that much weaker.

Capital exports

The same might be said of another of British capitalism’s major expedients in keeping the Sterling Area intact, which – with dollar pooling – is considered “one of the two unwritten laws of the Sterling Area” [22], viz., the export of capital to member countries.

British capitalism’s extremely specialised economy has always required a greater dependence on world trade than any of its later rivals and a high level of foreign investment (mainly in transport and utilities) to lubricate this trade. Historically it has been the greatest source of capital exports in the world. And for most of the Sterling Area countries it still is.

During the seven-year period 1946-52 the OSA’s combined current deficit with Britain of £1,572m. (£428m. trade deficit plus £1,444m. profits on British capital refunded to London) and the £206 increase in its balances were net to the tune of £1,177m, of 60 per cent, by now (overwhelmingly private) capital exports from London (most of the remainder being covered by a trade surplus with non-sterling regions) [23] The period 1944-51 saw a net export of nearly £800m. of private capital from London to the OSA compared with some £70m. net (£150m. gross) from the US. [24]

The totals look impressive enough at first glance. It is only when we come to inquire into the direction and utilisation of the capital flow, and the related question of its adequacy in terms of the needs of the OSA that that weaknesses begin to show up. [e]

The bulk of capital exports between 1946 and 1952 – some £800-1,000m. – went to Australia and South Africa. The colonies received ‘perhaps’ £300m. (of which about half was private capital). Small amounts went to Ireland and S. Rhodesia, while substantial amounts were repatriated from India. That inflow to both South Africa and Australia was, to a large extent, ‘hot’ money, escaping the threatening austerities of the Labour Government. In South Africa much of the capital flight came to rest eventually in mining and secondary industry; in Australia, only a small part – some £A150-200m. – went into industry, while the lion’s share – some £A300-350m. – remained, according to an official estimate [25] liquid, quickly redeemable funds. Bell’s authoritative view is that as much as one-third of the total British capital export to the OSA during the period 1946-51 remained uninvested in industry or in long-term securities. [26]

Leaving aside the direction and utilisation of British capital exports, there is ample evidence of its inadequacy to satisfy the demand for investment capital in the industrialising economies of the independent USA countries, particularly in Australia, India and South Africa. By the end of June, 1955, these three had turned to the International Bank for Reconstruction and Development for loans amounting to $260m., $140m. and $110m. respectively, as had Ceylon, Pakistan, Iceland, Iraq and others for lesser sums.

Australia’s difficulties started in 1951 when capital imports from Britain covered only half the current deficit. South Africa’s have been observable since the end of the war, although, as in the case of Australia, the return of a Tory government in 1951 cut London’s contribution to the flow of private capital on which she depended to finance two-thirds of her deficit, by half the following year. India’s second Five Year Plan (1956-61), conceived on a vastly more ambitious scale than the first, ran up against a British refusal to grant a much-needed. loan of £200m. in 1957. After drawing down her sterling balances as far as convenient, she was forced to turn to the US for a loan. Ghana, too, has had to look for development finance (for the Volta River project) in the US. [27]

The speculative nature and direction of British capitalism’s exports explains some of this casting around for capital sources other than London, as does the specific need for hard currency. But the fundamental fact is that British capitalism simply cannot find the money to finance the growing needs of the independent OSA countries. (It cannot even find money for the forcibly retarded and stagnating economies of the colonies. In February, 1952, the British Government first admitted defeat by securing a £28m. loan for S. Rhodesia, followed, in March the following year by a £14m. one for N, Rhodesia. [28] The annual shipment of £165m. [29] to £180m. [30] abroad, or some 8 per cent of net national income and half the total accumulation, which took place in the five years preceding the first world war, is higher than total accumulation today. It is some five times the value of the 1952-5 average of £160m. [31] or about 1 per cent of current net national income and under one-fifth of current accumulation.

A glance at the sources of this capital export shows how difficult it has been to sustain even this low level. Between 1946 and 1956 some £2,600m was invested in the OSA. During the same period, over £600m. was “invested” in Britain through the accumulation of Sterling Balances, mainly by the colonies, some £1,000m. borrowed (net) on Government account, more than £400m. received in grants and a similar sum through the sale of British investments in the non-sterling world. [32]

It is clear that capital exports throughout the period were maintained only through heavy borrowings from the USA and Canada and from the forced accumulation of Balances on the part of the colonies. Dollar borrowing was important immediately after the war, the Balances have become a primary source of capital since.

Britain has suffered a sea change: industrial specialisation and a high level of world trade – once the unproblematic corollaries of a “natural surplus of capital” – have now become independent and exigent factors demanding the production of capital – “naturally surplus” or not. The strains involved are great and are precipitating a growing volume of dissension amongst the ruling class itself. [f] Nevertheless, capital exports must continue.

Increasing restiveness on the part of the politically independent members of the OSA at the paucity of British funds, the overwhelming superiority of the US as a source, the probable emergence of Germany as a major exporter of capital, and the possibility that other capitalist countries, e.g., Japan, and even Russia, might enter the list, make it imperative that British capitalism continue to find the money. Without it the imperial economic structure is in danger of collapse.

So far British capitalism has been relatively successful. Capital exports, however inadequate, have continued. The dollar flow – the second golden hoop around the system – has been maintained. Sterling balances have not been run down. Each of these has been, as we have seen, contingent on Imperialist rule over the colonies. Imperialist rule itself has been contingent on a hypertrophied military apparatus which, however necessary to British capitalism, is a major source of weakness.

The Arms Budget

We need go no farther back than the summer of this year to see the importance of British military power in keeping the Sterling Area together. The press made no secret of the fact that an important aspect of the re-occupation of Jordan was its demonstration of support for the corrupt and vulnerable regime in Kuweit, and those of the lesser Protectorates in the Middle East. [g]

Leaving aside their importance as sources of crude oil (one half of Britain’s imports of crude oil are from Kuweit) and fabulous profits, between one-fifth and one-third of the Ruler’s cut of £110m. a year is immediately reinvested in London, “so that,” as Paul Johnson said in the New Statesman,

“... Kuweit currently provides about 11 per cent of the liquid funds available for investment in the entire Sterling Area. Kuweit’s total contribution, both direct and. indirect, to the area’s trading position is impossible to calculate in exact percentage terms, but many economists would argue that, without it, the Area could not continue in its present form.” [34]

After detailing the weakening economic links between Britain and Kuweit – the substitution of foreign forms for the five British ones that contracted for the 15-year development project, the US’s replacement of Britain as the major source of imports, the restrictions placed on dollar transactions last year to prevent “Hot” money escaping through the Kuweit gap – Johnson concludes: “The only reason why Kuweit chooses Sterling is that the Ruler sees it as the price for British protection against predatory enemies, both internal and external.”

For the Ruler of Kuweit the price of British protection is adhesion to the Sterling Area, for British capitalism the price of retaining the Kueweits etc. within the Area and adjusted to its Imperial economic structure, is an extended military structure which in turn is one of its gravest handicaps in world competition.

The record is clear. Over the five years 1952-56, British capitalism spent 10 per cent of Gross National Product (GNP) on arms, compared with an average of around 6 per cent for the other European Nato countries. [35] In 1955 Germany was spending no more than 4 per cent; even France was allocating only 7 per cent. [36] The crippling impact of arms production is greater than suggested by the figures. First, it cuts directly into the output of the capital goods industries and steel. This was made quite clear at the time of the Labour-initiated re-armament drive during the Korean War. Between 1950 and 1952 the arms budget rose from £349m. to £1,561m., or from 7.2 to 11.2 per cent of GNP, and absorbed all but a fraction of the concurrent 4 per cent increase in real national output. In order to achieve this result, Gaitskell, then Labour’s Chancellor; strangled accumulation by suspending the “initial allowances” (the depreciation allowance for taxation purposes of, then, 40 per cent on all new plant and equipment) in his 1951 Budget. [37] The temporary diversion of the increase in national product to arms was, in the event, of less moment to British capitalism than the loss of productive power. A second, short-term, effect of the heavy arms expenditure implied by the fact that one eighth of the output of the metal-using industries is devoted to arms [38] is that Britain’s major export – engineering – is deprived of a substantial proportion of its supplies. Thirdly, military expenditure abroad is terribly costly in foreign currency. Official sources give the direct outlay as £178m. in 1956. [39] Shonfield adds indirect military expenditure of £19m. and special Colonial Grants (of a para-military nature) – £27m. to make a total £224m. for 1956. [40]

Dealing only with the estimated annual direct military outlay, Shonfield goes on to say:

“... if for instance we had been in the position of Germany ... then our average balance-of-payments surplus on current account (in recent years) would have been doubled to reach over £300n. This is, in fact, more than the German average for this period.” [41]

Between 1946 and 1955 inclusive, £1,626m. of a total of £2,372m. or nearly 70 per cent of Government expenditure was “overseas military expenditure”. [42]

True, the weight of arms has lessened from the peak of £1,684m. in 1953 to £1,600m. at current prices in 1956-7, or about £1,480m. in 1953 prices, or from 11.3 per cent of GNP to 8.8 per cent. Nevertheless, it is still significantly greater than that of British capitalism’s nearest rival – Germany – which spent DM7,739m. (provisional) or about £666m. – 4.9 per cent of estimated GNP in 1957. [43]

Nor can British capitalism disarm any more: as a thundering leader in the Times announces in its contribution to the conflict on “defence” policy now raging within the ranks of the ruling class and its government:

“Since the troubles in Lebanon and the coup d’etat in Iraq Britain has had to send reinforcements to places as widely separated as Cyprus, Libya, Bahrein, and Aden, in addition to flying troops into Jordan ... This reinforcement of the Mediterranean and Persian Gulf has been achieved only by scraping the bottom of the barrel. There is now no British infantry battalion in Gibraltar or Kenya, for instance.” [44]

The Times goes on to demand that the decision to abolish national service in 1962 be rescinded. And well it might; intervention in the Middle East has proved to the British ruling class not only that its military power is stretched as far as it will go – “the recall of reservists must have been near at the height of the crisis,”[45] – but that they have lost their monopoly of it. US marines can land as easily in Kuweit as in the Lebanon, and will save the sheikh the high Sterling Club entrance fee.


It is not surprising that the Imperial economy, dependent as we have seen, on a tremendous arms budget and a high level of capital exports which together have drained away more than one-tenth of the British national product, has been one of relative stagnation.

Comparatively little has been accumulated productively. At between 5 and 7 annually, net investment as a percentage of net national income (1950-1956) has been one of the lowest in Europe (the higher figure was reached only during the 1955-6 investment boom which precipitated the balance of payments crisis). Compare this with an annual average of 15% in Germany and Austria, 12% in Italy and 20-22 per cent in Norway, Finland and Eastern Europe. [46] Investment in machinery and equipment – the important index – has been lower in Britain than in all other prospective members of the Free Trade Area: 6.5 per cent of Gross National Product (1951-54), compared with Germany – 10.9, Austria – 10, Norway – 13.9, Belgium – 7.5, France – 8 in the same period. [47] Even the lead in real investment per head was lost to Germany in 1955. [48]

Understandably, economic growth between 1950 and 1955 – as measured by an average annual increase in gross national product of 2.9 per cent – has been one of the slowest in Europe, if not the slowest: less than one-third that of Germany (9.8), half that of Austria (6.9), and Italy (5.9), lower than France (4.2), Belgium (3.1), the Netherlands (4.9) or Norway (3.5), and better than only two other candidates for the Free Trade Area – Switzerland (2.6) and Denmark (1.5) [49] Between the first quarter of 1953 and the first quarter of 1958 aggregate production increased by 13 per cent in Britain, 56 in France, 50 in Germany, 38 in Italy, 2 in the Netherlands, and 19 in Belgium. [50] The index of production in Britain in the first quarter of 1958 was 1 per cent lower than in the 1955 boom year, whereas in Germany, France and Italy it was higher by 16, 33 and 16 per cent respectively. [51]

Exports repeat this same pattern: between 1950 and the third quarter of 1955, British exports rose by 6 per cent in volume, compared with Germany – 151 per cent, Austria – 102 per cent, Finland – 78 per cent and France – 23 per cent. [52] It is not surprising that Britain’s share in world trade in manufacture dropped from 22 per cent in 1951 to 18 per cent in 1957, while Germany’s for example increased from 13 to 18 per cent. [53]

The Labour Market

The costs of an imperial economy cannot be measured purely by the primary impact of the arms drain and capital exports. Their indirect effects are probably greater, however difficult they might be to measure.

It is not merely such facts as 7 per cent of the labour force is either in the army or engaged directly in providing for it [54] or that 11,000 of the 20,000 scientists in the chemical industry are working on military projects [55] which are important. The cardinal fact is that production of commodities for waste or export without immediate payment has contributed very largely to the maintenance of full employment in post-war Britain. Add to this the relatively slow rate of growth in the size of the working population and it can be seen that British capitalism has had to operate within a tight labour market. The facts are these: in Britain, unemployment has been 1½ per cent of the working population since 1951, except for this last year when it reached the uncommon peak of 1.8 per cent; in Germany it has been as high as 10.5 per cent and never, since the war, below 2.5 per cent. [56] By 1955, the working population had grown to only 13 per cent above pre-war in Britain (base year 1937), whereas in Western Germany, mostly as a result of the constant stream of refugees seeking escape from the stark realities of the East German “Democratic Republic”, the comparable figure was 51 per cent (1936). [57] The result has been a relatively strong bargaining position for the labour movement, or as the Economist sadly commented (April 6, 1957), “full employment since the war has not led to more strikes because the unions, now more highly organised than ever, have been getting their own way without recourse to them.”

Not that British working-class standards are extraordinarily high, nor that they have been rising at a greater rate than in other European countries. On the contrary, hourly earnings in manufacturing in 1955 adjusted for differing levels of “social charges” (employers’ contribution, State transfers, etc.) were 152 per cent of the British level in Sweden, 105 per cent in France, 94 per cent in Belgium and 35 per cent in Germany. [58] (The figure for Germany is understated since family allowances are not included. In addition, the greater rate of increase in real earnings – see below – and the introduction of a new scheme for old-age pensions in 1957 have narrowed considerably, if not eliminated, the gap in living standards implied by the figures given above). And the rise in living standards in Britain has been, once again, one of the slowest in Europe, as can be seen in part from the following table [59]:

Indices of real personal income per head






















































However, living standards as such and their rate of increase are less important to British capitalism and less an indication of its lack of elbow room in the 1abour market and loss of competitive power in world markets than the relatively large proportion of increased output which the working class has exacted. The Economist Intelligence Unit put its finger on the problem when it pointed out that “the growth of real wages in British manufacturing industry was as much as this growth in Austria and the Netherlands, where the increase in total output between 1950 and 1955 was respectively more than twice and over one and a half times as great as in the UK.” [60] In greater detail, between 1948 and 1956 production per man in the economy as a whole rose by 19.5 per cent; real weekly earnings per head increased by just under 18 per cent in the same period. Even more significant is the behaviour of the two sets of figures before and after 1952: between 1948 and 1952, real weekly earnings per head rose by only 2 per cent while productivity increased by 8.7 per cent, but then the rates reversed, from 1952 to 1956 real earnings rising by 15½ per cent while productivity rose by 9.9 per cont. [61]

The Dilemma of British Capitalism

Contemporary British capitalism is thus in a fundamentally exposed position vis-a-vis its competitors. Industrial specialisation, once the strength of British capitalism, has become its weakness. Dependence of world markets and supplies, once the unproblematic corollary of industrial pre-eminence, is now a burden, circumscribing and qualifying every action. Having lost its economic advantage over its rivals, British capitalism is becoming increasingly dependent on the political forms which defined that advantage. It must retain them – the Sterling Area, the vestiges of Empire – whatever the cost. Hence the bloodletting of capital exports, the drain of an arms budget greater than any if its nearest competitors. Hence too, the growing reliance on naked repression in the colonies and the repeated involvement in military adventures in the Middle East. Nor can the cost be lessened. As it is, British capitalism is being eased out of its dominant position in its traditional spheres of influence – the Middle East is an outstanding and recent example. German and US capital, US and Russian military power – each has to be met in kind on a world scale. The effort promises to grow with the mounting pressures, and British capital will have to look for its solution at home, in beating down the real price of labour power and weakening the labour movement.

It is no secret that the process has already begun. It would have begun even earlier had British capitalism not succeeded, through the Labour Government, in imposing a temporary wage freeze, and had it not, after the election of a Tory Government in 1951, benefited from a windfall turn in the terms of trade from the beginning of 1952 until the middle of 1954 of some 12 per cent or £400-500 million. [62] Thereafter – and the story needs no repeating -after a period of preposterous confusion described in detail in Shonfield’s book [63] the policy was set – deflation became the order of the day. As Shonfield writes of the Government’s policy, reaffirmed in 1957, “the new deflation was motivated neither by the needs of the balance of payments, nor by the purpose of relieving a strain on the productive resources of the economy; in 1957 these resources were plainly underemployed. The objective this time was social rather than economic: stability was an end in itself, the condition for an orderly society with a hierarchy of relationships which were comfortable and fixed.” [64]

The Cohen Council, reporting in February of this year, provided the “philosophy” for the attack – price stability above all – and the method – “no-one should be surprised or shocked if it proves necessary that it (unemployment) should go somewhat further.” [65]

That the capitalist class, operating primarily through the nationalised industries and Government-operated “arbitration” system has registered some success is clear from the following facts: in the first five months of this year three million workers received weekly wage increases totalling £643,000, compared with 3,250,000 worker who received those worth £3,161,000 in 1957. Where annual wage claims were once settled at the end of the year, in 1955-6 they came at the beginning of the year, in 1956-7 they were pushed back to the spring, and in 1957-8 to the middle of summer and later. Finally, while workers in nationalised industries have managed to extract 3 or 4 per cent increases with strings in the shape of rationalisation (speedup and unemployment), the private sector has been freed to pay an unconditional 4 or 5 per cent. [66]

The measure of Capital’s success is the measure of the labour movement’s weakness and lack of preparedness, as is be seen in the series of strikes that took place in London this summer. An analysis of these strikes will, however, have to wait a further article.


a. 50,000 bus crews on official strike from May 14 to June 20; 2,500 meat-transport drivers on unofficial strike from April 19 to June 16, joined unofficially by 4,600 Smithfield market workers on May 12; 3500 cold-store men and dockers (Tooley Street) – unofficially in support of the meat-transport men – from the second week in May to June 16; another fluctuating number of dockers, reaching a total of over 20,000 in the first week of June – unofficially in indirect support of the Tooley Street men.

b. The relevant strike statistics are contained in the following table [1]:


No. of stoppages
beginning in year

No. of workers involved in
stoppages in year (’000s)

Aggregate no. of working days
lost in stoppages (’000s)





























1957 [c]




c. provisional

d. I say “on paper” because British capitalism was still getting a net £110m. p.a. in “interest, dividends and profit” at the end of the war despite a negative balance sheet. However, this position night have come about through the sale of low-yield, fixed interest-bearing stock and the retention of high-yield investments, on the one hand, and the payment of derisory interest on sterling balances on the other. This latter is the view held by Bell (op. cit., p.368 passim) and A.R. Conan, The Sterling Area (Londen, 1952, pp.120-1). Shonfield, (op. cit., p.268) opposes.

e. Lack of published data makes quantification hazardous. I have mainly relied on Bell’s comprehensive work for data up to and including 1957. [27]

f. Andrew Shonfield, Economic Editor of the Observer and one of the most successful bourgeois publicists, has made the attack on capital exports and the “Empire psychosis” the theme of his book, British Economic Policy Since the War (Penguin, 1958). He writes: “... the British economy is robbed of necessary nourishment ... its growth is stunted, as a result of this too vigorous pursuit of overseas investment.” (p.10) Michael Barret-Brown, reviewing the book in extenso [33] points to the muted, but very real, cleavage between the bankers and raw materials processing monopolies on the one hand and the heavy industrialists producing capital equipment on the other, led by Lord Chandos of AEI and Mr Stedeford of Tube Investments on the other on recent Government policy and, ultimately, on the value of capital exports.

g. E.g. the Times:

“... the one sure thing is that there would be no chance at all of encouraging loyalist forces in Iraq to rally if Lebanon and Jordan were to appeal for help without any answer from the West. Nor would there be any hope of saving the oil-bearing states farther East.” (July 16)

“Not only the future of Jordan is at stake. In the oil-bearing region of the Persian Gulf many eyes are turned to see whether a harassed state can rely on support in need.” (July 17)

“The moral obligation on Britain (to send troops to Jordan) was unequivocal and compelling: to dodge it would have been highly damaging to British credit. Other Arab rulers, who actually are under Protectorate treaties, would have drawn the inevitable conclusion that Britain was a broken reed.” (July 18)


1. Ministry of Labour Gazette, January 1958.

2. Folke Hilgerdt, Industrialization and Foreign Trade, New York, 1948, pp.13, 160.

3. R. Palme Dutt, The Crisis of Britain and the British Empire, second edition, London, 1957, p.137.

4. Economic Cooperation Administration, Special Mission to the UK, The Sterling Area, London, 1951, p.663 (Henceforth ECA).

5. P.W. Bell, The Sterling Area in the Postwar World, London, 1956, p.405.

6. Economic Survey for 1957, Cmnd.113, pp.8, 17, 29.

7. Ibid.

8. Economic Bulletin, No.4, December 1948, p.170.

9. Bell, op. cit., p.405.

10. Ibid.

11. Calculated from UN, Direction of International Trade, Statistical Papers, Series T, Vol.VII, No.6.

12. See Report of the Presidents’ Materials Policy Commission, excerpts from which were published in mimeo form by USIS, London, June 1952.

13. From Board of Trade, The Commonwealth and the Sterling Area, London, 1957, Tables 15, 17, 18.

14. From Bell, op. cit., pp.36-7.

15. Ibid., p.61.

16. See Ibid., p.374.

17. Judd Polk, Sterling, the Meaning in World Finances, London, 1956, p.170.

18. ECA, p.194.

19. Bank of England, Report for the Year Ending 28th Feb, 1958, London, July 1958.

20. Figures for blocked balances from Jean de Sailly, La Zone Sterling, Paris, 1957, p.56.

21. Central Office of Information, Annual Abstract of Statistics, 1957; Economist, June 7, 1956. Ghana and Malaya are included with colonies in both cases.

22. Economist, December 16, 1950, p.1108.

23. Bell, op. cit., p.369.

24. Ibid., pp.388-9.

25. Commonwealth of Australia, The Australian Balance of Payments, 1946-7 to 1950-1, p.6.

26. Bell, op. cit., p.376.

27. The Times, August 13, 1958.

28. Bell, op. cit., p.377.

29. W. Arthur Lewis, Economic Survey, 1919-1939, London, 1949, p.208.

30. Hilgerdt, op. cit., pp.104, 112.

31. Central Office of Information, Britain’s Contribution to Economic Development Overseas, June 1956 (mimeo ), p.5.

32. From Annual Abstract of Statistics, 1957; Bell, op. cit., pp.8l-4.

33. Universities and Left Review, No.4, Summer 1958.

34. Paul Johnson, High Noon in Kuweit, New Statesman, July 26, 1958.

35. HMSO, Britain, An Official Handbook, 1958, p.102.

36. UN, Economic Survey of Europe in 1955, p.7.

37. See Shonfield, British Economic Policy since the War, London, 1958.

38. HMSO, Britain, op. cit., p.102.

39. Ibid., p.102.

40. Shonfield, op. cit., p.105.

41. Ibid., pp.104-5.

42. Dutt, op. cit., p.448.

43. Defence forecast from NATO Information Service, NATO Letter, January 1958; German GNP from UN, Monthly Bulletin of Statistics, August, 1958.

44. The Times, August 14, 1958.

45. Ibid.

46. UN, Economic Survey of Europe in 1955, p.44; Shonfield, op. cit., p.35.

47. Economist Intelligence Unit, Britain and Europe, London, 1957, p.26 (henceforth EIU).

48. Ibid.

49. Ibid.

50. ECE, Economic Bulletin for Europe, Vol.X, No.1, May 1958.

51. Daily Worker, August 15, 1958.

52. UN, Economic Survey of Europe in 1955, Appendix B, Table IV.

53. Information Division of the Treasury, Bulletin for Industry, May 1958; Council on Prices, Productivity and Income, Cohen Report, HMSO, 1958, p.39.

54. HMSO, Britain, p.102.

55. Prof. J.D. Bernal at an NCLC Socialist Forum meeting on the H-Bomb, Autumn 1957.

56. UN, Economic Survey of Europe 1955, pp.123, 143; Cohen Report, p.41.

57. UN, Economic Survey of Europe 1956, Chapter VII, p.13.

58. EIU, p.31.

59. UN, Economic Survey of Europe 1956, p.4.

60. Economist Intelligence Unit, op.cit., p.23.

61. Based on Cohen Report, pp.15, 66. Figures for earnings are pre-tax.

62. Shonfield, op. cit., p.134.

63. See Chapters 6 and 9.

64. Shonfield, op. cit., p.247.

65. Cohen Report, op. cit., p.41.

66. John Kerr’s column, Tribune, July 25, 1958.

Last updated on 3.5.2008