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Fourth International, May 1946


Review of the Month

The British Crisis


From Fourth International, May 1946, Vol.7 No.5, pp.133-135.
Transcribed, edited & formatted by Ted Crawford & David Walters in 2008 for ETOL.


More than two decades ago, in 1925, Leon Trotsky wrote a book, Whither England, in which he predicted the downfall of the British empire. The prime factor, speeding England along the road of capitalist disintegration, Trotsky pointed out, was the rise of the United States to world power:

The powerful and constantly growing influence of the United States on world affairs is rendering more and more impossible and hopeless the situation of British industry, British trade, British finances, and British diplomacy.

The rulers of England, still flushed at the time with their victory over Germany in the First World War, pretended to be greatly amused by this prognosis. Even during the Second World War they proclaimed that no power in the world would liquidate their empire. With the negotiation of the American loan, however, the authoritative spokesmen of the British bourgeoisie are beginning to sing a different tune.

England’s financial dependence on Wall Street has already gone far beyond London’s loss of its former functions as the world’s banking center. Not only has that position been irretrievably lost, but an increasing financial dependence upon the American bankers remains the only possible perspective.

Britain Now A Debtor

After the war of 1914-18 England, although greatly weakened, still retained her position as one of the world’s creditor countries. She is now a debtor country, obliged to incur bigger and bigger debts to achieve even a temporary stabilization. In addition to massive foreign debts, the country’s economic life is staggering under the load of an unprecedented domestic debt. The interest or “carrying charges” on the internal and foreign debt must in the last analysis be borne by industry, increasing its costs, and impairing its ability to compete on the world market.

At the height of her world power in 1914, England’s domestic debt was 706 million pounds ($3.5 billion). This debt increased more than tenfold as a result of the First World War, rising to 7.5 billion pounds ($37.5 billion) in 1919. Despite her then position as creditor country, the weight of this internal burden made it impossible for England to hold her former position on the world market. Her export trade continued to decline. From an annual average of 800 million pounds ($4 billion) in 1918:29 it dropped to an average of 500 million pounds ($2.5 billion) in 1929-36, or almost one-third.

Today, as a debtor country, England is carrying an internal debt-load that is thirty times greater than in 1914. According to official figures, her internal debt in 1945 reached the astronomic sum of 22.5 billion pounds, or more than $100 billion. Proportionately this is a heavier burden than the people of this country are being asked to carry, because England has only one third the population, is vastly poorer, and has a far weaker industrial apparatus. We leave aside the fact that England’s budget remains hopelessly unbalanced, with deficits running into billions annually, with no prospect of immediate amelioration; and that the maintenance of a huge military machine constitutes an additional drain on the country’s economic life. Assuming that the internal conditions can be stabilized, what are the prospects? England cannot hope to regain even the positions to which she dropped in the years of world depression (1929-36). This is acknowledged today by the most authoritative spokesmen in England, in particular by the foremost bourgeois economic periodical in the world, the London Economist.

Its leading editorial, December 22, 1945, states:

The economic consequences depend entirely upon whether or not British exports can be expanded by the requisite amount – to 175 percent of the 1938 volume – by the time the line of credit in America is exhausted. If they can then all will be well. (Our emphasis.)

In other words, here we have the most hopeful perspective for English capitalism. What does it mean for the people of England? We yield the floor to the same authority:

If the national accounts can be balanced off by an expansion of exports, we shall at least be no worse off than in the years of the Great Depression.

The lowest levels to which modern England sunk in peace time are thus offered to her people as the best perspectives in the postwar world. And even this is not at all guaranteed:

It is not an impossible picture. But it will be immensely difficult to achieve.

As we shall presently see, even this abysmal goal is beyond the powers of the British imperialists, precisely for the reason adduced by Trotsky in 1925.

Let us note in the first place that England’s financial dependence on her trans-Atlantic rival has already reached the stage where there cannot even be talk of stabilizing her economic life on a capitalist basis without “the line of credit in America.” Small wonder, Congress is in no hurry to approve the loan without which capitalist England could not avert immediate bankruptcy. The insolvent debtor is thus being acclimated to his condition of permanent dependency.

Only A Breathing Spell

With the American loan, British imperialism gains a breathing spell. But not a long one. “clearly,” says the Economist, “the (American) credit will not last very long; zero hour cannot be very far distant.”

Everything hinges on the immediate and swift expansion of exports. “The job has to be done by the time the line of credit is exhausted, for if it is not, the only recourse will be to further borrowings, which if possible at all, would involve further humiliations.”

Let us look a little more closely at the “job” which these bankrupts hope to accomplish before the “zero hour”, that is, before they accept, without demurring, their position of complete subserviency (“further humiliations”) to American capitalism. The total value of British exports in 1938 was 470 million pounds, the specified 75 percent increase would bring it up to 822 million pounds. In the past, this figure was not only reached but frequently surpassed. Today it is the height of aspiration. So far as the exports of food and raw materials are concerned, there is no pretence that any gains can be secured. “Food and raw materials, so far from contributing to the necessary increase in exports, may very well be less than they were,” admits the Economist. In 1938 these two categories constituted one-fourth of English exports, with coal being the largest single item by far. The sole remaining possibility of expansion therefore lies in manufactured goods. “This third and largest class, in short, will have to be doubled if the target is to be reached.” In other words, English industry must pit itself against American industry, and, under the conditions of the American loan, it cannot avail itself of any of the methods of the past. The “empire preference system” has been reduced to a mere shadow. Currency cannot be devaluated by more than 10 percent. Export subsidies are prohibited after 1949. “Reciprocal bargains for the mutual assurance of markets are very strictly ruled out.”

English industry must double its exports – or die – in a contracting world market. Here is the situation as the Economist itself sees it:

Whose imports are going to increase? The hypothesis on which the whole argument is based is that there will be very little increase in British purchases. Germany and Japan will clearly not be importing as much as before the war. These three together made up 29 percent of the world’s imports in 1938.The other countries of Western Europe, whose purchasing power has scarcely been increased, made up a further 14% percent. As for the extra-European countries, there is hardly one of them that has not increased its domestic industry during the war, and the immediate effect – whatever the long-run consequences maybe must inevitably be to reduce their imports.

Problem Of Export Increase

In a world with fewer purses, and with former buyers themselves turned into sellers, how can English industry possibly sell twice as much as before? Only by winning this trade from its rivals. Among these rivals is, of course, the United States which is itself seeking enormous increases in exports for its colossal industrial output. The outcome of this competition is a foregone conclusion. But perhaps England can gobble up the share of her defeated rivals, Germany and Japan? Let us again give the floor to the Economist.

But from whom is this trade to be won? Some can doubtless be taken from the Germans and the Japanese. But not very mud for it is already the official American policy that the Germans must, be allowed to export in order to pay for their necessary imports, and the same doctrine will be applied to Japan. Moreover, there are other claimants for any markets that are going begging.

Chief among these “other claimants” is, of course, again the United States which has already grabbed the lion’s share of former German and Japanese markets. What, then, is the conclusion? The “job” is obviously a hopeless one, and the Economist, despite its pretended confidence, concedes that it is “outside the realm of possibility.”

In short, it is all Lombard Street to a china orange that the export targets of English capitalism will not be attained, or even approached at all closely.

The real hope of the British imperialists to balance the “national accounts” therefore can really lie only in a drastic reduction of imports. We have already heard from the Economist that the whole “hypothesis” rests on there being “very little increase in British purchases.” In 1938 British imports totalled 920 million pounds, more than two-thirds of this sum going for foodstuffs. “Any reduction, in fact,” admits the Economist, “would necessarily fall with very heavy weight on the category of food.” Meanwhile, as a recent London dispatch reported, the prices of England’s food imports have doubled. This means that even if the English imports were maintained at the 1938 figure, the immediate result would be a 50 percent reduction in living standards. But the 1938 import levels, as we have seen, cannot and will not be maintained. Conditions will be worse than during the depression years. Every decrease in imports will deal savage blows to the English masses, whom their rulers must now seek to reduce to coolie levels. English capitalism can follow no other course in face of the overwhelming financial and industrial preponderance of the United States.

Classs Struggle In Britain

There is little likelihood that the English people, who kicked out the Tories, will agree voluntarily to pay such a price under a Labor government in order that capitalist England continue to survive on ever lower levels. On the contrary, this must lead to a monstrous sharpening of the class struggle in the country. The pressures generated are already very great. They undoubtedly will furiously erupt right inside the labor party itself.

An interesting item appeared in the press which provides an insight into the processes that are now at work in England. On March 15, Gault MacGowan, New York Sun’s correspondent in London cabled that the Chairman of the Labor Party, Harold Laski, predicted that the Labor Party would split “within two years.” According to this dispatch, Laski envisages a coalition between the Labor Party right wing, led by Attlee and Bevin, and the Tories under Churchill’s leadership. Laski grants in advance that such a coalition would carry the majority in a general election.

There is nothing new in a gentleman like Laski reducing the class struggle to a winning combination on the political chessboard. That is quite in the nature of things. But it is unprecedented for a chairman of a party that is in power to acknowledge the inevitability of a split in its ranks. It is a gauge of the speed at which things are now moving in England. Laski, we think, is correct. Such a split is entirely possible. But whether such a split will signalize the installation of another coalition government or England’s entrance into the phase of revolution depends on the tempo and strength of the class struggle and on the strength of the labor party left wing.

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