The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (88 page)

The failure to agree with Congress did not prevent the British from using Indian resources and manpower to fight the rest of their imperial war. Nor did Quit India prevent the successful defence of the Indian frontier in the desperate battles of Imphal and Kohima. Nevertheless, the Cripps offer and its violent aftermath signalled the definite end of India's special place in the British system: the sentence of death was merely postponed. It was true, of course, that the federal scheme on which the British set such store had stalled politically before the war. It was also true that any further advance towards dominion status would have meant a progressive reduction in India's military contribution to imperial defence. The British garrison, for which India paid, would have had to go home. On the other hand, it was more than likely that, with the power to shape its successor regime (without a deadline, a ‘constitution-making body’, or a prior commitment that India could secede from the British system), the Viceroy's government would have secured special status for the Indian army, largely officered by British expatriates, and tied India closely (through a treaty or bases) into the global system of imperial defence. But for the Pacific War, India would still have been a financial debtor, a dependent part of London's sterling empire. But, in its desperate scramble for a constitutional settlement amid the political fall-out of the Singapore surrender, Churchill's Cabinet was forced to play almost all its trumps. Abdicating control over the constitutional process, let alone the timing of the constitutional convention, was a last-ditch effort to soothe away Congress outrage at the Muslim veto. Cripps’ ultimate failure and the violent unrest of Quit India that followed left the Raj a political bankrupt. It could repress disorder and gaol the Congress leadership (Nehru went to gaol for the rest of the war
⁸⁴
). But it had no means of containing the rising tide of communal tension, and nothing left to trade with India's political leaders. The promise to go had been published abroad. In two revolutionary years, the British had ‘sold off’ what remained of their Indian empire to meet the pressing demands of their last imperial crisis.

The third blow was perhaps the hardest: the collapse of London's commercial empire, the ultimate guarantee, alongside sea-power and the Home Islands' resources, of Britain's global status. By the outbreak of war, that commercial empire was very different from what it had been in 1913. Then London had been the undisputed centre of a global trading system, and sterling the indispensable medium for international transactions. British investment, like British trade, was as much international as imperial: nearly half was placed in Latin America or the United States. The huge stream of income from Britain's ‘invisible exports’ was reinvested abroad to build up still further the enormous claim on overseas resources. The First World War had cut this empire down to size. Its dollar assets were sold to buy munitions in the United States (by 1929, claimed
The Economist
, only 3 per cent of British investment was in the US
⁸⁵
). A huge debt was contracted. And heavy borrowing at home reduced the capital available to lend overseas. After 1931, when Britain went off gold and adopted protection, the commercial empire had become more and more a sterling empire. Following the Ottawa agreements of 1932, the British Empire countries with Argentina (and some other non-empire states) formed a trading bloc. With the exception of Canada, they also acted as a currency bloc, the sterling area. By the late 1930s, a large proportion of British trade was conducted within the sterling area and the post-war tendency to concentrate British investment in empire countries became even more marked – reaching 62 per cent of the total at the end of 1936.
⁸⁶
As the effects of depression bit deeper, Britain's portfolio of overseas assets slowly shrank. The marked shift towards investment at home, and a much less favourable balance of payments after 1930, made it hard to replenish the capital fund at the rate that was needed to maintain its value. Nevertheless, in a world divided into economic zones, London's commercial empire was second to none. London was still the banker to the largest group of trading countries. It had preserved the core of its old financial business, and its overseas clients (including the dominions and India) were among the soundest. Britain's overseas trade was as large as that of the United States – despite the huge disparity in national output. The invisible earnings from this great commercial network still paid for a quarter of her merchandise imports and supplied 5 per cent of the national income.
⁸⁷

The Achilles’ heel of the British system was its need for dollars. Before the war this was a manageable problem: protection and sterling area cooperation had cut the demand for American goods. Predictions of America's commercial primacy had been decidedly premature. In fact, America's record of economic recovery from depression had been much worse than Britain's. Nor was it obvious that there could be any escape to a permanent level of greater prosperity. The American economy had been badly squeezed by the general collapse of agricultural prices, affecting up to one-third of its workforce. To prop them up and defend manufacturing against outside competition meant heavy protection and a growing burden of internal debt. As imports shrivelled, American exports also suffered – from retaliation abroad and the lack of dollars in foreign hands. There was no ‘dollar empire’ of complementary producers to soak up the surplus of American industry. American resentment at economic misfortune was partly aimed at London's sterling empire, and at what were seen as Britain's persistent attempts to devalue sterling against the dollar.
⁸⁸
Although the late 1930s had seen somewhat better relations (the Anglo-American trade agreement of 1938 had made limited concessions to American exports), there could be little doubt that breaking up (or into) London's commercial empire was the most obvious way of expanding America's trade in a deeply segmented international economy.

Until 1940, there was little chance that they could do so. Chamberlain had been very protective of the sterling empire and part of the rationale of his slow-motion war had been to reduce to the minimum the financial strain of additional dollar purchases. Britain's dollar assets were carefully husbanded and London built up a large stockpile of gold, buying the entire production of South Africa's mines in return for sterling. But, after June 1940, this cautious strategy was blown to pieces. In the desperate rush to re-equip Britain's armies for a war of survival, every marketable asset was pressed into service. Paying cash on the nail, the British purchasing mission bought all the American supplies they could find. By December 1940, more than half of Britain's pre-war stock of dollars and gold had been spent
⁸⁹
and the haemorrhage was such that the rest would have been spent by March 1941. In the event, the threat of bankruptcy, default and economic defeat was lifted by lend–lease. Even so, by September 1941, gold and dollar assets had shrunk even further to $1,527 million (approximately £340 million), out of which pre-lend–lease contracts and non-lend–lease items had still to be met, a total of more than $1 billion.
⁹⁰
Nor, of course, was lend–lease a gift without strings.

Roosevelt's eagerness to help Britain rearm was entirely genuine, and entirely self-interested. From his economic advisers, and the business interests represented in Congress, British pleas for financial aid drew a calculated response. They were determined not to ease London's shortfall in dollars and gold only to find that, when the war had ended, they were back where they started, facing a sterling empire. They were deeply suspicious that the British were hiding their fabled wealth. They demanded a visible sacrifice of British-owned enterprises in the United States.
⁹¹
And they made three stipulations in return for lend–lease. British reserves were to be run down to the lowest possible level (a demand later eased); British exports, especially to dollar markets, were to be pegged back sharply – to less than one-third of pre-war levels; and, at the end of the war, the British would have to agree to abandon any trade discrimination against American exports. The sterling empire would be blasted open. Its industrial engine-room and financial power-house would be drastically weakened. In unspecified ways, it would have to make good the largesse of lend–lease.
⁹²
Its member states would look elsewhere. To J. M. Keynes, the ‘Churchill’ of the economic war, the negotiation with America was a gruelling struggle for what was left of Britain's commercial independence.
⁹³

This doomsday scenario was not entirely realised – for reasons to be explained in the following chapter. But there was little doubt that between 1940 and 1942 the pre-war balance of commercial power between London and Washington shifted for good and erased in the process Britain's century-old status as a (and, for much of the time,
the
) dominant force in the world's trading economy. This was not just a matter of exhausting Britain's assets in dollars and gold. In the sterling empire, too, the dramatic change in the scope of the war piled up new obligations overseas. ‘The growth of balances in favour of other parts of the sterling area is becoming unmanageable’, remarked Keynes in June 1942. ‘The more the war moves to the East, the more we spend in the Middle East and India.’
⁹⁴
By September 1942, Britain already owed India some £360 million for goods and services supplied to the war effort, wiping out the whole of India's pre-war debt to Britain. A year later, the figure was £655 million. Egypt was owed some £250 million. It would mean, said Keynes, ‘great prospective embarrassment’.
⁹⁵
What Keynes had in mind was obvious enough. The large sterling balances (i.e. the amounts Britain would have to pay sterling area countries at the end of the war) would mean much larger exports than before the war, to meet overseas debts and compensate for the loss of invisible income. Without the cushion of invisibles, it would be a constant struggle to avoid a deficit on the balance of payments. There would be no surplus to rebuild Britain's overseas investment, and the attractions of sterling as an international currency (a highly profitable status) would soon disappear. The vicious circle would close. Across the Atlantic, the new economic order had already been glimpsed. The Pax Britannica was dead, announced
Fortune
magazine in May 1942. Britain was ‘broke, her empire shrivelled…her banking and insurance income will never come back and her merchant marine is sinking’.
⁹⁶
‘Since the Pax Britannica can no longer be counted on to defend America, what kind of world-power system does America propose to put in its place?’

The fall of Singapore

Churchill had convinced himself, and sought to convince others, that Japan would not dare enter the war until Britain was defeated or disabled. Under the terrible strain of the invasion threat, the Atlantic struggle and the see-saw war in the Mediterranean and North Africa, it was hardly surprising that neither he nor his Chiefs of Staff found much time to ponder the risks of defeat if Japan attacked Singapore and Malaya. Even after Pearl Harbor, Churchill fell back on the comforting mantra that Singapore could hold out in a six-month siege.
⁹⁷
Local army opinion took refuge in racial contempt for Japanese military prowess: the Japanese might beat Chinese armies; Europeans would be different. But, when the Japanese army invaded northern Malaya, its battle-hardened veterans were more than a match for its British, Indian and Australian defenders, many of them recently recruited, poorly trained or barely acclimatised. The catastrophic loss of
Prince of Wales
and
Repulse
, poor intelligence and the lack of air power combined with poor generalship to turn Singapore from an ‘impregnable fortress’ into the ‘naked island’. Once the British forces had abandoned the mainland and fled onto Singapore island, their fate was sealed. On 15 February 1942, 130,000 British Empire troops surrendered to a numerically inferior attacking force.

The symbolic importance of such a shameful failure was bound to be large. In
The Times
despatch from nearby Batavia (modern Jakarta), the obvious lesson was drawn. ‘“Soft” troops, unenterprising commanders, an apathetic native population – these are not the signs of a gallant army betrayed only by bad luck; they sound uncomfortably like the dissolution of an empire.’
⁹⁸
In his private diary, Churchill's most senior military adviser expressed a similar foreboding. ‘We are paying very heavily now for failing to face the insurance premiums necessary for security of an Empire! This has usually been the main cause for the loss of Empires in the past.’
⁹⁹
As defeat sank in at home, there were loud demands for a new approach to colonial rule, and a ‘colonial charter’ to win the hearts and minds of Britain's subject millions. Fresh impetus was given (as we saw earlier) to the search for an Indian settlement. A propaganda campaign was launched to make the imperial case in the United States, before opinion there hardened into an angry contempt for Britain's dysfunctional empire. But the meaning of Singapore was not just symbolic.

Singapore's fall was the brutal proof that the Eurasian Revolution of the 1930s and 1940s had reached its climax. The global preconditions in which a British world-system had been continuously viable since the 1830s and 1840s had all but disappeared in the storms of war. The European balance, precariously restored after 1918, had been comprehensively wrecked: indeed, German domination of Russia seemed more than likely in the early summer of 1942. ‘Passive’ East Asia had become an uncontrollable vortex of anti-Western imperialism. In this colossal emergency, the British system lacked the means to defend itself unaided and had not the faintest hope of restoring the
status quo ante
. The internal structure of Britain's pre-war system, as well as its ethos and assumptions, had been drastically destabilised by a geopolitical earthquake: the relentless consequence of Anglo-French strategic defeat in 1938–40. How much would survive in a modified form, were the Allies to emerge victorious, was, in 1942, anyone's guess.