Reglued, Unstuck

British Imperialism 1688-2015, P. J. Cain and A.G Hopkins, 2016 (1993).

London, Winter, C.R Nevinson, 1928.

In my previous post on the first half of Cain and Hopkins’ British Imperialism 1688-2015, I considered the authors’ argument that the British Empire was in much better shape on the eve of the First World War than is often supposed. Britain’s financial sector continued to dominate, and the Empire, formal and informal, was expanding. ‘Decline’ is not easily traced to the 19th century.

But we know that, at some point, Britain must have settled for its current role as a densely populated island in the North Sea. The Second World War is easy to pick as a turning point, when the exhaustion of war and the new economic weight of the United States caused the rotten structure of the British Empire to collapse. But, in volume II of British Imperialism, Cain and Hopkins suggest that decolonisation, political and economic, was no “inevitable culmination of a long process of decay”. The empire, they write, “did not simply fall apart but was taken apart by the proprietors as well as by its prospective new owners”.

The first half of British Imperialism makes the argument that a “gentlemanly” service sector capitalist class determined British expansion before 1914. After the war, Cain and Hopkins claim, the gentlemen were, for the most part, very much still in control. As a result, the basic premise of international economic policy from 1918-1972 was re-establishing sterling as the international money it had been before the First World War, a goal more important than “the fate of commodity exports or even the future of the empire”.

The place of financial services in the political economy of Britain did evolve in the 20th century, however. In the interwar years, industry grew quantitatively and qualitatively. Manufacturing’s share of output increased from 30% to 35% from 1931 to 1937, while the services share fell. This, with the observation that the war had turned Britain from a net creditor into a net debtor, may suggest that the preeminence of services declined. But Britain’s international policy is an indicator that the distribution of political power was largely unchanged.

At this point I have to remember that Cain and Hopkins are not writing about the evolution of Britain’s domestic economy, but how that domestic economy determined the rise and fall of Britain’s empire. Their observations (like those I presented above) on the domestic component are rather stylistic; looking at broad macro statistics, inheritance data, and so forth. This is fine, even if can feel lacklustre at times. It is a shame, however, that the domestic perspective is sidelined after the Second World War. The overall impression is marginally circular: the City determined the decline of empire because it was politically and economically predominant, and it was predominant because it benefited the most from imperial policymaking. A few dozen pages of stylised facts are not able to dispel this impression. It is the most vulnerable pillar of Cain and Hopkins argument — which, as I will discuss later, has not gone unnoticed.

Nonetheless, the meat of the second half of British Imperialism is a powerful narrative about how Britain tried to reglue its financial empire, first after the First World War and again after the Second, all for it to become unstuck due to the changing global economy of the 60s. It is important to remember that Britain’s empire expanded substantially after the war, as former German and Ottoman possessions were absorbed. Decline did not show up on a map. But the ‘informal’ empire, especially in Asia and South America, did weaken when Britain’s ability to lend diminished.

The gentlemanly classes did not take this lying down, however. I thought that one of the most interesting sections in British Imperialism was the discussion of Britain’s now largely-unremembered interwar effort to keep a grip on their informal possessions and the world-economy with increasingly little loans to issue from the City, especially after the return to the gold standard in 1925. It was an effort eased, perhaps, by the United States’ reticence to take over that role, especially during the Great Depression. But it was also in vain. When the ‘boost’ of the Depression subsided, Britain’s last global ambitions went with it. With the Second World War, Cain and Hopkins write, it finally happened: “Pax Britannica was replaced by the Pax Americana”.

But the fate of the formal empire tells a different story. As Britain’s hegemonic ambitions faded in the 30s it doubled down on integrating with its Dominions and colonies in India and Africa. Prior to 1931, a number of countries, not only those in the Empire, were in what was called the ‘Sterling Area’: a set of states economically dependent on Britain who fixed their currencies to sterling and held it as a reserve currency.¹ After Britain crashed out of gold in 1931 and the future of global financial leadership burnt with it, this bloc became the locus of imperial economic policy, which the Treasury thought “would give sterling a new force in the world”. The 1932 Ottawa Conference inaugurated this new direction — Britain, its Dominions, and its most important colonies agreed to build a new system based on sterling and ‘imperial free trade’ (tariffs on non-empire nations).

Cain and Hopkins argue that this progression — from attempted restoration of pre-war conditions to imperial preference and the Sterling Area — reveals again the political preeminence of finance and gentlemanly capitalism. In the first case, the pursuit of a high-value pound was obviously not beneficial for manufacturing, and British exports slumped after 1925. But the Sterling Area provides an even clearer example. In order to convince the empire to accept British financial authority, Britain allowed the Dominions and India to install tariffs on British exports. Britain’s share of the Empire market rose less than the Empire’s share of the British market from 1929 to 1937. That the colonies were able to keep paying their debts in London mattered more whether the mills of Manchester were able to keep selling in India and Australia.

This system sustained Britain’s empire through the Great Depression and the Second World War. But its value would gradually diminish, and as it did, Cain and Hopkins argue, “so did the economic obstacles to decolonisation”. At first, one of the advantages of the Sterling Area was that it allowed Britain to ‘pool’ the foreign exchange earnings (especially dollars) of the empire, which helped it protect the value of sterling even while Britain ran a deficit with the United States. In the crisis-stricken years after the Second World War, this was vital to the survival of the Sterling bloc and to the vestigial prominence of the City.

But changing economic circumstances both in and outside the empire would fatally undermine this system. Indian ‘independence’ in 1947 was a product of its changing economic role in the empire — no longer after the war was India a contributor to the dollar pool, but, deficit to the United States, a drain.² As Cain and Hopkins write, “by 1947 Britain ceased to have substantial economic motives for retaining India”.

Still, the Sterling Area prompted a brief imperial renewal. Within the context of European reconstruction and the Korean War, commodity exporting parts of the Empire saw their exports boom, letting Britain “close the dollar gap”. It is true that, after 1945, the world was America’s. But it is worth remembering, Cain and Hopkins suggest, that sterling accounted for half of all international transactions by the end of the 40s. There is an ongoing debate about how to characterise Sterling’s role as an international currency after 1945.³ But Cain and Hopkins are right to make the point that it was not yet dead.

In the end, it was not so much American power but European renewal which caused Britain to give up on empire. Accelerating growth in Europe and Japan caused the proportion of inter-empire trade and finance to fall. Half of British trade in the 40s was with the empire — by the seventies, half was with Europe and only a quarter in the sterling bloc. Australia went from 40 to 18 percent of its exports going to Britain, with Japan its new largest trading partner. Britain also faced increasing balance of payments problems made worse by the City’s obligatory role as lender to the empire. The economic logic of the empire was cracking. But the City, Cain and Hopkins insist, was still at the reins. It needed an alternative sustenance, however, for empire to be abandoned outright.

This materialised in the 60s, when the traditional business of the City, finance for trade in sterling, gave way to a new and lucrative business: offshore dollar financing, otherwise known as the Eurodollar market.⁴ Cain and Hopkins put it that “as the good ship sterling sank, the City was able to scramble aboard a much more seaworthy young vessel, the Eurodollar”. The growth of a market for offshore dollar financing was not, of course, due to the City. But Cain and Hopkins argue that it is because of the political power of the City, the weight of gentlemanly capitalism, that London stayed the “most open money market in the world” and attracted most Eurodollar business. The City’s new role was that which it, and, broadly speaking, Britain still plays: according to Cain and Hopkins, “an ‘offshore island’ servicing the business created by the industrial and commercial growth of much more dynamic partners”.

That story is the essence of British Imperialism, ‘volume II’. Is it as cleanly put together as the first half I wrote about last time? No — as I mentioned earlier, there is more style than substance to their sketch of the ‘gentlemanly classes’ post-1918, and their narrative largely sidelines that richer concept for a story of financial determinism. This leaves Cain and Hopkins vulnerable to critique. David Edgerton, in his 2018 The Rise and Fall of the British Nation: A Twentieth Century History, questions whether industry really was so far from the levers of power, and if finance really did call all the shots. Basically, Edgerton calls in to question the very core of ‘gentlemanly capitalism' as a thesis. I’ll be looking at his argument in detail in the next post!

Check out my supplemental to this review below!

1. The only significant exception was Canada, which for obvious reasons was more dependent on the dollar.

2. While India became no longer a colony but a Dominion in 1947, it wouldn’t leave the Empire properly until 1950.

3. See this recent paper. I will also soon be reviewing Catherine Schenk’s The Decline of Sterling, which is a fantastic intervention in this debate, and has many critiques of British Imperialism to offer.

4. I wrote this in more detail in my review of Eric Helleiner’s States and the Reemergence of Global Finance. It will also be coming up again soon.