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The Olympics loom. American eyes will turn to London, hoping for Olympic gold. As they do so, it will be worth remembering that this will be London’s second post-World War II Olympic Games, not the first, and that there are also medals to be won by comparing the condition of the U.K. on the last time the Games were held in London with its condition now.
In 1948, when London hosted the first post-war games, the U.K. was still one of the global Big Three. For all the immediate rationing with which Londoners then struggled, the government there still presided over an enormous empire, still oversaw its own sterling area in which the U.K. currency remained as acceptable as gold, and still managed what in 1948 remained the free world’s second strongest major economy. In the more than six decades since, absolute living standards in London have been transformed, as they have everywhere in the advanced industrial world; but in relative terms the U.K. has definitely slipped. Per capita living standards in London are lower now than in at least 9 other EU countries. U.K. productivity per hour is currently 18 percent lower than in Germany and 16 percent lower than in France. An empire that at its peak covered 12 million square miles and took in a quarter of the world’s population is now entirely gone.
The United Kingdom lost that empire, and slipped into the second league of global economic powers, within the lifetime of a single generation – mine. There are lessons in that loss and slippage for America if we chose to take them; for if we do not, we too might slip that quickly. Which is why it is worth exploring – this Olympic season – how the imperial dominance and economic leadership exercised by the U.K. as recently as the 1940s could have evaporated so completely in so short a space of time.
That evaporation occurred for at least the following reasons.
· The growing burden of its financial system. Empires like the British build their dominance on the global strength of their manufacturing sectors and on the quality of their armaments, and initially the parallel growth of financial institutions at the heart of the empire only reinforces that global strength. In the late nineteenth century, UK-based manufacturers needed overseas buyers, and those overseas buyers needed London-provided credit. In the south of the island, the City built its reputation as a global financial center while away in the north manufacturing firms produced and increasingly exported world-class products (and used their own profits – and not City-provided funds – to sustain their internal investment programs). In the late-Victorian heyday of the British Empire, sterling acted as the world’s global currency and the U.K. traded manufactured goods for food and raw materials in the manner of modern America. But over time (and indeed quite quickly – certainly well before 1914), all that foreign lending helped key overseas economies catch up and surpass the British in manufacturing capability. It gave London-based financial institutions a set of interests in the success of those economies, rather than in the success of their own; and it established a gap between industry and finance that undermined the ability of British manufacturing firms to raise the long-term capital they eventually needed to meet the challenge of all this fierce international competition. The long term consequence of that gap was what London’s leading financial journalist, Martin Wolf, recently described as the U.K.’s current strategic nightmare: “a strong comparative advantage in the world’s most irresponsible industry” – namely finance.
· The loss of manufacturing leadership. Equipped with such a financial system, and though briefly (in the 1860s and 1870s) the manufacturing “workshop of the world,” UK-based manufacturing firms quickly lost their global dominance to more modernized producers in Germany and the United States. Economies catching up invariably follow the best of the practices of the economy they are pursuing, not its average ones: and after 1870 Germany and the United States certainly copied best U.K. practice, the better to then surpass it. Instead of responding to this rise of high-quality global competition by fundamentally altering their production processes and marketing methods, late nineteenth-century UK-based firms then chose instead to cling ever more tightly to processes and methods they already knew, the ones that had worked in the past; and they retreated into the more protected markets of their own Empire. Over time, the largest of these U.K. firms eventually broke from this imperial dependency and, with City help, moved more and more of their production overseas. Indeed, the post-1948 U.K. economy came to be second only to the United States in the number of multinational companies it headquartered. It was the smaller-scale UK-based firms left behind which then lost market share (even in their own domestic markets) to powerful foreign competition. “Made in the UK” came increasingly to be replaced by “made in Germany” and “made in Japan:” now, of course, also “made in China.” After 1948, U.K. capital went off-shore, and prospered. U.K. industry and labor stayed home, and slipped into decline.
· The imperial concerns of a preoccupied state. When the Empire was up and flourishing, its defense was the predominant concern of successive London governments of all political persuasions. Looking back now over the wreckage of empire, it is possible to see the adverse legacy of this prolonged imperial preoccupation. It was not that U.K. governments kept their distance from all sections of UK-based industry. They did not: on the contrary, funding the best kind of defense industries was a constant U.K. state practice. Ship-building industries in the nineteenth century, aircraft industries in the twentieth, the bulk of UK-based science and R&D throughout – all received generous public funding and state direction. But industries geared to civilian markets gained no such political priority. Instead, post-war U.K. governments struggled mightily to protect the global role of the City of London – willingly boosting interest rates and the exchange rate of sterling, the better to bring capital to London. But the cost of that boosting was the steady erosion of the competitiveness of UK-based manufacturing industry in general, and the slippage of U.K. living standards downwards relative to the best of the rest. While the Empire was there to be extended or defended, a political culture was consolidated in London in which it was always acceptable for governments to maintain a military-industrial complex but rarely acceptable for them to develop a sustained industrial policy aimed at any general strengthening of the entire U.K. manufacturing base.
· With the Empire came the hubris. Pride in empire came before the fall of empire, and left a huge mark on the British political mind long after the empire had gone. Generations of British school children were explicitly taught to see the nineteenth century Empire as a civilizing and stabilizing force, and were implicitly taught to think of national pride as something to be measured by the scale of U.K. overseas possessions and military victories. Rearranging other people’s political furniture was seen to be an entirely legitimate practice by the very generation which also prided itself on the British ability to stop the Germans under Hitler from rearranging theirs. Over time, enthusiasm for empire waned away, but pride in the U.K.’s global weight and role did not. British prime ministers in particular continue to give themselves a global self-importance that the current economic standing of the U.K. cannot justify: and U.K. arms remain more globally active than those of any other European power. Empires leave huge shadows, and the shadow of the British Empire is not yet entirely gone. What else explains U.K. reluctance to immerse itself fully in the European Union, or the speed with which Tony Blair joined George W. Bush in the invasion of Iraq?
U.K. governments were forced in the end to exercise some degree of sense. The very scale of the empire they governed made its post-World War II defense too costly to bear, especially once the fight to defeat Nazism had left the U.K. treasury entirely depleted. India – the jewel in the crown – was immediately abandoned when the European fighting was over; and after several unsuccessfully attempts in the 1950s to maintain the last vestiges of direct colonial rule in the face of internal resistance (in Malaya, Kenya and Cyprus), successive U.K. governments quickly learned their lesson. They reset the empire as a commonwealth of free nations, and entirely gave up the formal imperial game. That was wise, for empires always do more than rise. They also fall; so that ultimately the only issue – for imperialists and anti-imperialists alike – is whether, regardless of its apparent power and permanence, the empire will fall involuntarily and with bloodshed or be quietly dismantled in some managed incremental fashion. At the peak of any empire, there are invariably voices insisting that its global dominance can be maintained if only enough resources and will-power are directed to the imperial project: but those voices mislead. For that is the thing about peaks. After them, it is always downhill all the way. The only real choice is between ‘the avalanche’ and ‘steady as you go;’ and the bigger the empire, the steeper the incline you need to manage.
A financial system out of control, a manufacturing base weakened by outsourcing, an over-extended and militarily-preoccupied state, a political class full of hubris – what other country seems currently afflicted by these costs of empire? There are parallels here, surely, for contemporary America – and lessons for its political class. Will we as electors, and those we elect, learn those lessons and so avoid the full damage of the parallels? Perhaps not, but now is still the right time to point those parallels out.
First posted at www.davidcoates.net
The U.S. parallels are discussed more fully in chapter 5 of David Coates, Making the Progressive Case: Towards a Stronger U.S. Economy. New York: Continuum Books, 2012.
 Eurostat news release 186/2011, December 2011: available at https://www.google.com/search?q=Eurostat+news+release+186%2F2011&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
 Philip Inman, “UK productivity lagging behind main competitors,” The Guardian, September 20, 2011: available at http://www.guardian.co.uk/business/2011/sep/20/uk-productivity-falls-behind-competitors
 Martin Wolf, “Why Britain has to curb finance,” The Financial Times May 22, 2009: available at http://www.ft.com/intl/cms/s/0/24bfcb30-4636-11de-803f-00144feabdc0.html#axzz1wH9AGNrk
 Ben Fine and Laurence Harris, The Peculiarities of the British Economy, London: Lawrence and Wishart, 1985, p. 27