Imperial Preference (1932): Britain’s Return to Protectionism
Oksana Levkovych | LSE International Relations [email protected] May 2018
Draft for 2018 ESHET Conference, Madrid. Please do not to cite or distribute without permission.
Abstract: It has long puzzled IPE scholars, why following liberation from the gold standard and Keynes’s withdrawal of recommendation for tariff, Britain chose to abandon free trade. This paper argues that Britain’s shift to trade protectionism in 1932 can be explained through establishment of a winning protectionist coalition and need to adopt the Imperial Preference. Emerging from August-September 1931 financial crisis this coalition united free traders and trade protectionists under the National Government tasked with the national economic recovery in the wake of protracted economic Slump and the unexpected sterling float. The major emphasis in this paper is on leading individuals’ and their reactions to the evolving systemic conditions such as interwar collapse of the liberal international trade regime and dismantlement of the British Empire. It focuses specifically on Walter Runciman, the President of the Board of Trade (1931-1937) and a principled free trader in charge of Britain’s shift to protection, and on his efforts to restore Britain’s leadership through adequate trade policy response to domestic, imperial and international economic challenges. Hegemonic stability theory is the clear paradigm central to my analysis where this paper seeks to make a real contribution. For instance, Krasner’s (1976) systemic-level focus simply cannot explain such local-level policy decisions. Drawing from primary and secondary archival sources spanning dozens of collections, this paper is in the enviable position of having the real, local data required to get a handle on this puzzle.
Key words: protectionism, trade policy, Imperial Preference, Walter Runciman, hegemonic stability
“I do hope that you appreciate how much depends on you to make the path more easy! You have the confidence of the Unionist Party. You have the affections of your friends. You have the opportunity of doing more to help the Prime Minister and Stanley Baldwin now more than anyone. I know it is a sacrifice but for God’s sake make it!1”
--- Ramsay Macdonald, Prime Minister, asking Walter Runciman to join the National Government as the President of the Board of Trade, 4 November 1931.
“If my hon. Friend asks me to retain the same views that I had before the crisis in August, I say I do retain the same views, but I have to deal with new conditions, and, still holding those views, I believe that the only way we can face up to our new anxieties is by adapting ourselves to every practical problem as it arises. …what he would have liked me to have done would be to … once more affirm my cherished theories. … I think that the time for that has passed. We have now to sit
1 MacDonald to Runciman 4/11/31 WR245
1 down to every problem as it arises, dealing with it as a practical problem and allowing no preconceptions to influence us”2
--- Walter Runciman, President of the Board of Trade, to George Lansbury, Leader of Opposition, HC Deb 16 November 1931
If Britain’s unexpected abandonment of the gold standard in September of 1931 ‘sent shockwaves through world economy’3, its adoption of trade protection shortly after served ‘the final deathblow to a liberal non-discriminatory international trading regime’4. Given Britain’s decisive influence on the change of international trade regime in the light of hegemonic stability theory, its decision to impose a tariff in 1932 has attracted much attention in IPE. After all, as Krasner argued, “British commitment to openness continued long after Britain's position had declined” 5.
According to the hegemonic stability theory, Britain’s loss of relative power in the interwar period left international system without hegemon capable of providing the public good of international free trade6. Instead of seeing the Depression as a succession of national stories, Kindleberger argued persuasively that it was the result of a failure of the international economic system 7 .“What its author (Kindleberger) originally intended as an interpretation of a specific historical episode”, argues Eichengreen, was subsequently generalized into a theory that has been applied to virtually every setting in which nations interact”8. It has been argued since that Britain offers the best subject for close examination of successive policy choices because its hegemonic period can be said unquestionably to have ended9 offering general lessons: ‘leaders can inhibit beggar-thy-neighbor trading policies, contain financial crises, and ensure monetary stability’10.
2 Hansard, ‘DEBATE ON THE ADDRESS. HC Deb 16 November 1931 Vol 259 Cc515-639’, cols 545–546
2 Nevertheless, “the established wisdom that Britain consciously provided collective goods to the international system” has been questioned11. As Susan Strange put it: “[T]he conflict has been between the realism necessary to any great power, which leads to unilateralist power politics, and the liberalism necessary to a great economy dependent on world markets, which leads to internationalism (whenever realism and domestic politics permit)”12. Considering the inherent contradictions in the nature of hegemony and the problematic nature of power relations in the anarchic international system13, scholars have sought hence to explain ‘why such a seemingly poisoned apple as hegemony should be so avidly sought?’14
Revisiting Britain’s case promises to improve our understanding of these pivotal change in structure of international trade from a perspective that combines domestic politics with international relations. It offers a novel explanation of trade policy shifts not as “reversals” or “departures”, and of changes in structure of international trade not as “fits and starts” 15 events but as continuous progression of free trade and trade protectionist equilibria as replacing each other. It explains how besides multiple systemic and non-systemic causes of change, this process is also, and perhaps, crucially, shaped by actors’ policy efforts in reaction to evolving systemic conditions. It analyses the implementation of Imperial Preference trade policy as a shift to a new protectionist economic policy equilibrium as an outcome of the demise of free trade coalition and the rise of winning protectionist coalition making Runciman16 key to solving this puzzle: how and why do we go from (almost) no protection to full-scale, legislated protection under the Import Duties Act in March 1932?
The paper first introduces the puzzle by briefly sketching background conditions to introduction of Imperial Preference as protectionist measure in response to hegemonic decline. The narrative that follows traces Britain’s shift to trade protectionist policy from Keynes’s proposals for tariff in spring of 1931, through collapse of the Labour
11 Krasner 1976; O’Brien and Pigman 1992, 92 12 Strange 1987, 574 13 Waltz 1979 14 Rogowski 1983, 735 15 Stephen D. Krasner, ‘State Power and the Structure of International Trade’, World Politics, 28.3 (1976), 317–47 (p. 343). 16 Walter Runciman, Britain’s President of the Board of Trade in 1931-1937
3 government in August, election of the National Government in October, introduction of the Import Duties Act in March 1932, till inauguration of Imperial Preference in Ottawa in August of 1932. The main emphasis of the narrative is on the evolution of Walter Runciman’s role from the free trader MP to the President of the Board of Trade in charge of protection and on his efforts in reaction to the evolving structural conditions. It draws from the analysis of the parliament speeches, cabinet papers, policy records, special committee reports, personal correspondence and contemporary media records and expert policy analyses. The paper concludes with the discussion of research findings and reflections on theory.
Research Puzzle: Imperial Preference (1932) as Response to Hegemonic Decline
When after the repeal of the Corn Laws in 1846 Britain launched itself upon the career of unilateral free trade few could imagine that by the 1870s its ascent would be challenged by the rise of the rivals whose system was built on trade protectionism (Germany, the United States). IPE studies of Britain’s trade policy shift and the interwar collapse of the international trade regime have pointed at the reactionary empire protectionism (to the political economic leadership decline) as one of the contributing conditions behind the adoption of Tariff reform and Imperial Preference. However, the principal explanations of this radical change in Britain’s foreign trade policy strategy focused on response to macroeconomic challenges brought about by the Slump, unemployment, gold standard abandonment17 or as a policy capture by interest groups (businesses, the City, the Dominions) 18 following Conservatives’ return to the Government in 193119. These accounts largely avoided to assign reactionary empire protectionism with determinate causal weight20 or conceptualize it for the purposes of foreign economic policy analysis21. Such omission can be explained in part by absence from their analysis of “imperial mercantilism” (formulated by the English Historical economists of the late 19th and early 20th centuries under the influence of Germans
17 Eichengreen 1992, 1981; Gourevitch 1986; Irwin 2011 18 Capie 1983, Self 1986, Rooth 1992, Drummond 1974, Marrison 1996; Chase 2004. 19 Self 1986; Williamson 1992 20 Eichengreen 1992b; Irwin 1994 21 Eichengreen 1992b; Irwin 1994
4 (Schmoller))22. In 1879, Schmoller noted: ‘[t]he times of boom, of increasing exports, of new openings of overseas markets, are the natural free trade epochs, while the reverse is true in times of foreign slumps, of depressions, of crisis’23. This falls well in line with Krasner’s argument. However, the fact that the United Kingdom did not introduce a general tariff till 1932, argues Rooth, “should not lead one to conclude that Britain's rejection of free trade took place only as a direct result of the world economic crisis of 1929-1932”24. Economic crises and systemic shocks may have taken long to shift Britain to protectionist policy equilibrium, however with every downturn since its adoption of the unilateral “imperialism of free trade” in the 19th century, the political movement for trade protection had been gaining momentum 25 . To paraphrase Morrison, “the pursuit of protection might long antedate its achievement”26.
Archival evidence indicates that protectionists had long urged for Britain to refocus its economic effort from developing foreign markets to the intra-imperial one. They called for the implementation of the Tariff system reform which they saw as an essential solution to the problems of the state achieving industrial maturity: social at home - through address of the production and unemployment, and hegemonic decline abroad by building the economic, political and defense union with the Empire. The intellectuals (British Historical Economists) and politicians (the Tariff Reformers led by Joseph Chamberlain) developed the programme of imperial protectionism based on the Imperial Preference trade system that assumed active “imperial-state” management of the economy. Although at the time of their early efforts they failed to overturn the system based on free trade imperialism, they managed to establish new mercantilist political economy in Britain, and in practical politics made exponential gains of protectionists’ seats in the Parliament with each consecutive election running up to the
22 Bernard Semmel, Imperialism and Social Reform: English Social-Imperial Thought 1895- 1914 (Anchor Books Doubleday & Company, Inc. Garden City, New York, 1968). 23 Timothy J McKeown, ‘Firms and Tariff Regime Change: Explaining the Demand for Protection’, World Politics, 36.2 (1984), 215–33 (p. 215)
5 WW127. It can be argued that they had succeeded (relatively) by capitalising on Britain’s growing political need to react to the changing distribution of power in the international system (security and self-sufficiency concern) and to respond to the failure of its unreciprocated unilateral free trade to foster global prosperity and peace. Yet, despite multiple systemic shocks such as World War One, the onset and deepening of the Great Depression bringing in its wake unemployment and economic nationalism, the actual legal dissolution of the Dominion Core of the British Empire through the Commonwealth creation (1926-1931) 28 and two generations of the Conservative politicians coveting implementation of the policy programme of empire-preserving and enjoying full power in 1924-1929 Britain remain on free trade equilibrium.
Archival sources suggest that commitment to the Imperial Preference was one of the contributing causes given that Britain had been one of surviving “empire-states” following the dismantlement of Empires after the WW129. The tariff reform (the pre- condition for Imperial Preference), and imperial unity in face of disintegration both played huge part in moving Britain from free trade to trade protectionist equilibrium. The creation of a winning protectionist coalition in Britain (locally and imperially) was
27 Marvin E. Lowe, The British Tariff Movement (American Council of Public Affairs, Washington, D. C., 1942), pp. 8–14 Empirical evidence suggests that while Tariff reform component of the policy was rejected, the Imperial Preference was generally supported and accepted. Ascendancy of the Tariff Reform: There were significant gains for the protectionist cause as 109 of 157 Tory seats went to the Tariff Reformers in 1906 election. This led to Balfour’s agreement with Chamberlain to make fiscal reform the first task of the Tory Party. The Tariff Reform supporters in House of Lords played strategic role in rejecting Lloyd George’s 1909 Budget, which led to one of the acutest political crises in English history. Imperial protectionists continued to enjoy gradual gains with each election. In January 1910 election Balfour reiterated commitment to Tariff Reform, this time in opposition to rising Socialism . Following the intense propaganda campaign between the Tariff Reform League and the Free Trade Union, Unionist Party seats increased from 157 to 271: “the voting did indicate, indirectly at least, the trend towards Tariff Reform”. . 28 WW1 (1914-1918). The end of pre-war international liberal economic order. Collapse of the Empires after WW1: Ottoman, Austro-Hungarian, German, and Russian. The Failure of Tariff Truce in Europe (1931) The dismantlement of the British Empire between WW1 and WW2: The Irish Free State 1922 More independence to India (1920s-30s) Re-Introduction of the Gold Standard at pre-war par in 1925 Dominions’ Independence, the Statute of Westminster (1926-1931), the Commonwealth. The Wall Street Crash and the Onset of the Great Depression (the Slump) (1929) Smoot-Hawley Tariff US (1930) Financial crisis and Gold Standard Abandonment in Britain (1931) 29 See Rogowski and Frieden 2014, 397–98.
6 key to achieving this after fifty odd years of consistent trying by leading individual and collective actors unable to displace free trade coalition upped and maintained by Liberals, City of London, and since 1923, socialism-oriented Labour. It is not until the acuteness of domestic crisis of August-September 1931 that prompted conversions over trade policy, an unplanned Cabinet reshuffle that returned Tories to the office under national coalition, and election fought over local economic issues (budget deficit, adverse trade balance, unemployment, floated pound) rather than party policies (tariff reform – change, free trade – status quo) that propelled majoritarian trade protectionist coalition of otherwise incompatible free traders and trade protectionists that was finally able to legislate full protection in 1932 (when it was no longer necessary according to Keynes). As Eichengreen puts it: “sudden change comes with continuity” 30 ; the narrative focuses on the sudden change part of the explanation.
Narrative
Keynes’s Defense of Tariffs under Gold Standard
During the interwar period, economic and political justification of protectionism came from John Maynard Keynes 31. Keynes believed in the macroeconomic determinants of the foreign economic policy of the state, such as pursuit of current account surplus via a persistent excess of exports over imports32, and that a positive trade balance increased government’s international political prestige 33 . Echoing Schmoller 34 and earlier mercantilists, Keynes reasserted the relevance of mercantilist prescriptions to the conduct of foreign economic policy, especially in the times of crises such as the Great Depression: “No domestic cure today can be adequate by itself. An international cure
30 Barry Eichengreen, ‘The Origins and Nature of the Great Slump Revisited’, The Economic History Review, 45.2 (1992), 213–39
7 is essential; and I see the best hope of remedying the international slump in the leadership of Great Britain. But if Great Britain is to resume leadership, she must be strong and believed to be strong” 35.
Keynes first expressed these views before the Macmillan Committee in February 1930 and further reiterated them in front of the Economic Advisory Council’s Committee of Economists36 announcing his support for revenue tariff publicly in the spring of 193137. Taking into consideration Britain’s particular economic circumstances in the late 1920s and early 1930s – downwardly inflexible wages, government’s commitment to the gold standard and a fixed exchange rate, and persistently high unemployment - Keynes recommended tariff protection as a tool of economic planning that could help with a reduction of unemployment. By raising import prices directly, a tariff would bring down real wages, and by enhancing profitability in the traded goods sector it would increase investment relative to saving. Other initiatives, such as tax cuts, public investment, private investment subsidies, and lowering interest rates, ‘might be equally effective in principle, ‘but only a tariff was likely in practice to prove compatible with the maintenance of sterling's gold standard parity’38.
As Keynes put it: “If I knew of a concrete, practical proposal for stimulating our export trades, I should welcome it. Knowing none, I fall back on a restriction of imports to support our balance of trade and to provide employment” 39 . “Free Traders may, consistently with their faith, regard a revenue tariff as our iron ration, which can be
35 Keynes, J. M. (1931) ‘Proposal for a revenue tariff. By J. M. Keynes’, The New Statesman and Nation, Vol. 1, pp.53-54, March 7, 1931. p.54. 36 Ibid., 365. ---- check Echen? 37 Keynes, J. M. (1931) ‘Proposal for a revenue tariff. By J. M. Keynes’, The New Statesman and Nation, Vol. 1, pp.53-54, March 7, 1931. ‘A Reply to Mr. Keynes By Lionel Robbins’, The New Statesman and Nation, Vol. 1, p. 98-99, March 14, 1931. Keynes, J. M. (1931) ‘Economic Notes on Free Trade. I – ‘The Export Industries’, The New Statesman and Nation, Vol. 1, p. 175-6, March 28, 1931. Keynes, J. M. (1931) ‘Economic Notes on Free Trade. II – ‘A Revenue Tariff and the cost of living’, The New Statesman and Nation, Vol. 1, p. 211, 4th of April, 1931. Keynes, J. M. (1931) ‘Economic Notes on Free Trade. III – The Reaction of Imports and Export’, The New Statesman and Nation, Vol. 1, pp.242 – 243, 11th of April, 1931 38 Barry Eichengreen, ‘Keynes and Protection’, The Journal of Economic History, 44.2 (1984), 363–73 (p. 365)
8 used once only in emergency. The emergency has arrived”40. According to Keynes, Tariff measure was ‘unique in that it would at the same time relieve the pressing problems of the Budget and restore business confidence’41 and by ‘substitution of home-produced goods for goods previously imported, [it] will increase employment in this country’ 42. For Keynes, import tariffs were the second-best policy for influencing either employment or resource allocation, to be used by authorities if first-best measures such as currency devaluation and wage reductions were not available 43.
When his proposal provoked negative reaction among liberal free traders 44 and generated heated debate over economic policy45, Keynes explained: “Nor do I suppose for one moment that a Revenue Tariff by itself will see us out of our troubles. Indeed, I mainly support it because it will give us a margin of resources and breathing space, under cover of which we can do other things”46. By ‘other things’ Keynes meant that “by relieving the pressure on the balance of trade it [tariff] will give us a much needed margin to pay for the additional imports which a policy of expansion will require and to finance loans by London to necessitous debtor countries”47. In this way, ‘beggar-thy- policy’ policy effect would be minimized when “the buying power which we take away from the rest of the world by restricting certain imports we shall restore to it with the other hand”48.
It has been argued that if Britain had followed Keynes’s suggestion and adopted a temporary revenue tariff in the early 1930, the eventual concerns about adverse trade balance and depreciation of foreign exchange rate would have been alleviated. That would have removed at least one source of international trade contraction enabling
40 J. M. Keynes, ‘Proposal for a Revenue Tariff. By J. M. Keynes’, The New Statesman and Nation, 1.March 7, 1931 (1931), 53–54 (p. 54). 41 Keynes 1931 (March 7), 54. 42 Ibid., 54 43 Eichengreen, ‘Keynes and Protection’, p. 364. 44 Lowe 1942, 116. 45 Many prominent economists (L. Robbins, W. Beveridge, J. R. Hicks and others) disagreed with Keynes; they argued that reduction in imports would not generate a net stimulus because of the offsetting reduction in exports. 46 Keynes, ‘Economic Notes on Free Trade. I – “The Export Industries”’, p. 175. 47 Keynes, ‘Proposal for a Revenue Tariff. By J. M. Keynes’, p. 54. 48 Keynes, ‘Proposal for a Revenue Tariff. By J. M. Keynes’, p. 54.
9 Britain to remain on the gold standard. Domestic output and employment would have been boosted ahead of the worst of the depression49.
Financial crisis 1931 – from Free-Trade to Protectionist Coalition
On 14 July 1931, the Macmillan Committee issued the Report which concluded that Britain had suffered severely from the international economic depression because of its markedly “open” position and its extreme dependence on foreign trade, income from foreign investments and profits from international financial sector. Together with other signatories of the report, Keynes justified the abandonment of the policy of Free Trade because of Britain’s chronic economic disequilibrium and as a means to obtain additional revenue to the National Exchequer50. They proposed comprehensive average tariff of ten per cent to raise prices relative to costs and set at one or two flat rates, exempting raw materials and granting rebates for items used in export manufacturing51. Publication of May report followed on July 31 causing a financial meltdown by having revealed budget expenditures and deficits of about £120 million (later to be revised to £170 million) that needed to be addressed. May Report triggered a confidence crisis and a run on the pound. Ramsay MacDonald’s Labour-Liberal coalition Government became pressured by the Bank of England to correct the budget by retrenchment. Revenue tariff, therefore, gained importance with the Labour Cabinet appearing “to offer badly needed flexibility in bargaining with the Conservative leaders, and given the Bank of England support, even with the Liberals”52.
But the Cabinet could not agree on the two options available: either introduce revenue tariffs (taxes on imports) or make twenty per cent cuts in unemployment benefit. When a final vote was taken on 22 of August, the Cabinet was split 11-9 with a large minority,
49 James Foreman-Peck, Andrew Hughes, and Yue Ma, ‘The End of Free Trade: Protection and the Exchange Rate Regime between the World Wars’, in Free Trade and Its Reception 1815- 1960. Freedom and Trade: Volume I, ed. by Andrew Marrison (Routledge London and New York, 1998), pp. 262–77 (p. 277). 50 archive.org, 2015. The signatories of the report - Sir Thomas Allen and Messrs. Ernest Bevin, J. M. Keynes, R. McKenna, J. Prater Taylor, A. A. G. Tulloch. [revisit original report Cmd. 3897] 51 Eichengreen, 1984, 366 52 P Williamson, National Crisis and National Government: British Politics, the Economy and Empire, 1926-1932 (New York: Cambridge University Press, 1992), p. 308.
10 including Henderson, Lansbury, Alexander, Johnston, Greenwood, Graham, Passfield, Thomas and Snowden threatening to resign rather than agree 53 . The unworkable Cabinet split made the government resign on 24 August 1931 marking the end of free trade Labour-Liberal coalition in power. The King accepted the resignation of Labour Government and gave MacDonald task to form the National Government54. On 25 of August a Cabinet of ten was announced55 represented by five Labourites (Ramsay Macdonald remaining as PM and Philip Snowden as the Chancellor of the Exchequer; Led. Sankey as Lord Chancellor and J.H. Thomas as Dominions Secretary); four Conservatives (Stanley Baldwin as Lord President of the Council, Neville Chamberlain as Minister of Health, Samuel Hoare as Secretary for India, and Philip Cunliffe-Lister as President of the Board of Trade); and two Liberals (Herbert Samuel as Home Secretary, and Marquis of Reading as Foreign Secretary). Budget pressure for tariff revenue, and inclusion of Conservative protectionists in government created first real conditions for organizing the trade protectionist coalition that could actually enable Britain’s shift from free trade equilibrium to trade protectionist equilibrium.
On August 28, Conservatives increased the pressure for protection from outside and inside the Government with Amery publicly urging the complete reversal of fiscal policy56 , and Baldwin attacking Labour borrowing for unemployment benefit and gradual loss of the old trade balance. He was promoting tariff as essential for completion budget rectification. At the secret Parliamentary Labour party meeting Henderson was elected as leader of the dissentients over support to National Government. Liberals met at National Liberal Club under L. Reading agreeing to support National Government. All parties saw National Government as a temporary situation, making plans for return to party politics briefly 57 . The Conservatives’ insistence on tariff received support from leading business organizations making consistent emphasis on the balance of trade argument for tariffs. On 7 September 1931,
53 Cabinet 44 (31); 22 August 1931 cited in Williamson, p. 326. 54 On August 23rd, King received Ramsay MacDonald (Labour Rime Minister), Herbert Samuel (Liberal) and Stanley Baldwin (Conservative) in turn. Neville Chamberlain went to bed convinced Stanley Baldwin was new Prime Minister, but not; later Cabinet met at Downing Street (Abel 1945, 73-74) 55 Deryck Abel, A History of British Tariffs, 1923-1942 (London, Heath Cranton Limited, 1945), pp. 74–75. 56 Letter to Times, 27 August 1931 cited in Abel, p. 75. 57 Abel, pp. 74–75.
11 the Empire Industries Association (EIA) called for addressing the adverse trade balance, to be followed by the Manchester Chamber of Commerce (MCC) (the citadel of free trade liberalism) issuing a statement from the Board of Directors on 15 September which called for “balancing of the national trade accounts” and “the imposition of the system of tariffs” as the only immediately effective method to eliminate excess of imports over exports. Immediate adoption of tariff programme would be requested by the Federation of British Industries (FBI) by 19 of September58.
The new Government met Parliament on 8 September receiving support by 311 votes to 251. Its first business for the first two weeks was completion of the emergency programme of legislation. On September 10, Snowden introduced budget which reduced salaries and increased taxation. If Britain failed to balance its budget: “…grave doubts [would] arise as to the financial stability of the country” 59. The Budget was approved receiving “ok” from public opinion and positive international reaction. The same day brought about the remarkable “public” conversion of Walter Runciman60 who made a “brilliant contribution and analysis of the British financial, industrial and commercial situation to-day”, which in his view was due to unbalanced Budget61. “I have been a Free Trader all my life”, stated Runciman, “ and I am still a Free Trader. I am not sure that I am not the most bigoted Free Trader in the House, but I am not so much a Free Trader as to shut my eyes to the terrible risks we are running at the present
58 The Times, 7 September 1931; 15 September 1931; 19 September 1931 cited in Lowe, pp. 120–21. 59 Hansard, ‘FINANCIAL STATEMENT. HC Deb 10 September 1931 Vol 256 Cc297-8’
12 time in a failure to balance our trade budget” 62. He warned that as long as there was an adverse balance of trade resultant from purchases paid for by borrowing there would be “the flow of gold from the country” 63. According to Runciman, the two available solutions were to peg the pound to foreign exchanges of trade partners which could be “the death-knell of British commerce”, or “not to buy any more than we can pay for”64. Runciman’s rationale was in line with his long-held views here. In 1927, in Liberalism: The Way I See It, Runciman asserted his firm belief that “[A]bundant trade is essential to our prosperity. …can only be permanently acquired under the conditions of sound finance”65.
Given the financial situation, he opposed the introduction of tariff and proposed the following solution to balance trade budget: “a special tax upon luxuries and estimated that it would produce £20,000,000. … for dealing with an adverse balance of trade amounting to £75,000,000 in two months”66 in order to “assure the outside world that the honesty and punctuality of our payments remain the prime feature of British commerce and finance”.67 If earlier he opposed the interference of the State in trade (as a good Liberal would do): “Political interference with the natural course of commerce without regard to economic laws inevitably does mischief”68; “any attempt to use the State for the purpose of providing them [industries in distress] with profits is one with which we [would] have nothing whatever to do”69, this time he encouraged its active involvement: “I would far rather … see them [Government] taking the most drastic steps in advance of a need which may come upon us in future than wait until the pressure has arrived and try to apply soporifics for cure”70.
62 Hansard, ‘BEER (EXCISE DUTY AND DRAWBACK). HC Deb 10 September 1931 Vol 256 Cc313-412’, col. 332. This measure had been implemented in Britain during WW1 (Runciman was responsible as the President of the Board of Trade in 1914-1916) 63 Hansard, ‘BEER (EXCISE DUTY AND DRAWBACK). HC Deb 10 September 1931 Vol 256 Cc313-412’, col. 381. 64 Hansard, ‘BEER (EXCISE DUTY AND DRAWBACK). HC Deb 10 September 1931 Vol 256 Cc313-412’, col. 330. 65 Walter Runciman, Liberalism as I See It (Ernest Benn Ltd., London E.C.4, 1927), p. 7. 66 Hansard, ‘BEER (EXCISE DUTY AND DRAWBACK). HC Deb 10 September 1931 Vol 256 Cc313-412’, col. 397. 67 Hansard, ‘BEER (EXCISE DUTY AND DRAWBACK). HC Deb 10 September 1931 Vol 256 Cc313-412’, cols 329–332. 68 Runciman, p. 10. 69 Runciman 1930, 8. meaning Iron & Steel – main industries where support is asked 70 Hansard, ‘BEER (EXCISE DUTY AND DRAWBACK). HC Deb 10 September 1931 Vol 256 Cc313-412’, col. 330.
13 By September 15th, Budget debates had elicited more declarations of conversions in matters of trade (apart from Runciman, most notably Hore-Belisha and John Simon) making a great influence on Liberals inside and outside the House 71, and bringing tariff nearer. Moreover, the press reported that “in addition to the Liberal Converts, whose numbers are growing daily, there are many Socialists who privately admit that the case for a tariff is overwhelming”72 . However, the two “converts”’ factions arrived at different conclusions: Labour would support tariffs as alternative to expenditure cuts, Liberals as emergency remedy to adverse Balance of Trade. While Amery celebrated the “conversions”: “They come to my confessional in crowds. They go to baptism in platoons”73, the Opposition leaders (Mr. Henderson, Sir Norman Angell, Sr. Stafford Cripps, Mr. Wise, Mr. A.V.Alexander and Mr. Lees-Smith) got “seriously concerned about a number of converts to a tariff policy…. [and] set up a committee to consider fiscal policy”74. Meanwhile, among Conservative members of Parliament there was growing support that in case of the general election “the appeal to the country [...] should be made - on a broad programme of reconstruction which will include tariff - by the National Government as such. [...] the idea that party would be put before country […]. […] a mere relapse into three-cornered contests between three old parties is regarded as grotesque”75.
During this time, MacDonald established a Cabinet committee on trade consisting of Snowden, Chamberlain and Reading with intention to enable the existing Cabinet to deal with trade deficit as continuing emergency and to produce a policy that would address it through modified Conservative tariff package that would be acceptable to ministerial free traders76. On September 17th the motion to approve “the action of the Government in setting up a Committee of the Cabinet to enquire into methods of
71 Abel, pp. 77–78. “Cabinet And Election." Times [London, England] 25 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. See also "Free Imports." Times [London, England] 21 Sept. 1931: 8. The Times Digital Archive. Web. 13 Aug. 2016. 72 "The Balance of Trade." Times [London, England] 16 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 73 Hansard, Commons, CCLVI, col. 745. See Lowe 1942, 121. 74 "A National Appeal." Times [London, England] 17 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 75 "A National Appeal." Times [London, England] 17 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 76 Williamson, p. 400.
14 balancing the trade exchange” was agreed 77 . The Lords shifted the debate from emergency tariff to permanent protection and hurdles in its way: “ […] in the event of this Committee recommending tariffs as the immediate solution […] it may be that this House of Commons would not be prepared to accept the measures in the full sense […]. A mere 10 per cent. revenue tariff is of no use whatsoever. What we require, to-day, is a measure of tariffs that will not only produce revenue for the country, but also protect our manufacturers and our agricultural industry from the blast of competition from abroad with which they are faced”78. The committee on restoring balance of trade worked hard, but it antagonized key players over precisely the choice between emergency and general tariff contributing to early election79.
On 17th of September, Cabinet discussed the adverse balance of trade although establishing “any rates of assured figure” had not been possible: “Estimates varied from/£50 millions to £100 millions a year, but there was great uncertainty.”80 The Cabinet was made aware of “opposition in the City to an early general election because of foreign opinion being nervous about the result” 81. “Mr Peacock (of the Bank of England) had expressed the view that, as a policy of perfection, it would be preferable for the National Government to remain in office to deal with the balance of trade, and that an announcement of this intention would, in his view, do much to restore confidence”.82
In formal and informal discussions in Parliament during that week, however, the general opinion was emerging strongly in favour of an early general election on a
77 Hansard, ‘TRADE INQUIRY. HL Deb 17 September 1931 Vol 82 Cc64-93’
15 national appeal that would establish stable Government which could carry out national reconstruction program including tariff “without fear of a defeat on a “snap” division in the House of Commons”8384. It was believed that Government nominal majority between 50 and 60 could not afford to risk a defection of even a dozen or 15 Liberals if the issue national reconstruction including tariffs was left to free vote: “there is no evidence that those socialists who are said to favour a tariff [only as alternative to economy cuts] would support Government, on the contrary, they would oppose”85. It was believed that all this could have no other effect than to prolong and increase uncertainty.
At the same time, there was a growing consensus around restoration of trade balance, however opinions of how this could be achieved split between curtailing imports by general tariff or expanding exports by either devaluation of pound or price reduction until restoration of competitive power. Runciman and Simon belonged to the imports restrictionist group with Runciman advocating tariff on imported luxuries and temporary controls of imports. Orthodox full protectionism was represented by official Conservative party divide between moderates like Baldwin and “die-hards” like Amery. Expert economic opinion led by Keynes encouraged Labour and some others to consider devaluation 86.
If there any doubts and disagreement over the general election and the fate of tariffs under the national reconstruction programme, the suspension of gold standard on
83 “The Nation's Needs." Times [London, England] 18 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016 84 His Britannic Majesty’s Government, CABINET 59 (31). CONCLUSIONS of a Meeting of the Cabinet Held in the Prime Minister’s Room, House of Commons, on THURSDAY, September 17th, 1951, at 8.3O p.M., p. 211. “(5) The risk of a General Election. The bankers said that the financial world had been a good deal upset when a statement had been made that the National Government was only to be short-lived.” 85 “The Nation's Needs." Times [London, England] 18 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016 86 “Restoring the Balance” The Economist London, England, Saturday, September 19, 1931; pg. 503-4; Issue 4595_Part 1.Pdf . Adverse results for tariff adoption: “prospect of protectionist policy will increase balance trade gap because of surge in imports; raise manufacturing costs and hamper exports; will restrict power of foreign producers to buy British goods and will intensify competition in foreign markets; other countries would retaliate; “it would nip in the bud every plan for saner economic policy in Europe and elsewhere, to which Britain looks with growing hope of advantage” [504]; would retard necessary process of rationalisation and increased efficiency in British industry”
16 September 21 – “a crisis the most serious which the world has faced since August, 1914”87 – removed them decisively. Following calls for trade protection by AEI, MCC, BFI earlier that month, Association of British Chambers of Commerce now issued a resolution in support of National Government and budget economies urging the balancing of national overseas trade account and immediate tariff introduction to restrict imports and negotiate down foreign tariffs”88. On September 22, the Gold Standard Suspension Act passed through all stages and received Royal Ascent. 1922 group meeting on same day forced immediate appeal to electorate to which Stanley Baldwin agreed, but H. Samuel and P. Snowden resisted until no more89. Following the suspension, Beveridge who in August argued for “the selective use of revenue tariffs” as both “revenue-producing and protective” 90 proclaimed: “Unless and until we return to gold standard... to all intents and purposes the case for tariffs is dead”91.
On 23 September, MacDonald retired ill for a few days, and Baldwin took over Cabinet92. Over the weekend at Chequers discussions on next steps on the general election took place in the light of elaborate memorandum on political situation prepared by Herbert Samuel (and approved by Lloyd George). It stated that immediate election was undesirable in the national interests and set various ways to improve present position and adjust balance of trade; and that Liberals were not opposed in principle to emergency tariff if there was a justified case for it93. Conservatives became convinced that “whenever the appeal is made to the electorate, it should be made by MacDonald”94. It was believed that general election of the National Government that could secure majority for a period of 5 years, win on a mandate to save the country on
87 "The British Decision." Times [London, England] 21 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. See J. A. Morrison 2015 “Shocking Intellectual Austerity: The Role of Ideas in the Demise of the Gold Standard in Britain”, International Organization, 1 - 33 88 “Traders' Appeal For Tariffs”. The Times (London, England), Monday, Sep 21, 1931; pg. 7; Issue 45933. See also Eichengreen 1981. 89 Abel, p. 78. 90 Beveridge 1931 Ch. 14 pp. 170-84 cited in Abel, pp. 69–70. 91 Beveridge in News Chronicle on 22 September 1931, Abel, p. 79. 92 “Cabinet And The Crisis.” Times [London, England] 23 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 93 "The 'Doctor's Mandate'." Times [London, England] 29 Sept. 1931: 14. The Times Digital Archive. Web. 13 Aug. 2016 94 "Case For An Election." Times [London, England] 26 Sept. 1931: 10. The Times Digital Archive. Web. 13 Aug. 2016.
17 a programme of reconstruction by whatever means necessary, and be supported by leaders of all parties (except for Henderson and Lloyd George) had to be faced and fought sooner than later95. It was evident that national programme for general election needed support of Conservative Party, whole or substantial part of Liberals, and Labour party members who placed country before party in recent crisis, yet, there were strong doubts as for the ability of the Government to unite”96.
On September 28, Keynes had withdrawn his support for a tariff and urged the currency question as dominant issue97. In his Letter to Times he urged that the rational discussion on fiscal policy was impossible whilst monetary policy remained unsolved, but agitation for tariff intensified98. Keynes would later state: “Not all my Free Trade friends have proved to be so prejudiced as I thought. For after a tariff was no longer necessary, many of them were found voting for it”99. On September 29, Lord Melchett introduced Import Regulations Bill “to make provision for the restoration of the balance of trade by the restriction or prohibition of imports”100. It would last 60 days and would have His Majesty in Council power of restriction101. Whereas five Cabinet Secretaries decided not to resign from National Government, entering the discussion about wording and formulas of MacDonald’s appeal to the nation for general election agreement of all parties over Manifesto, Lloyd George as a leader of Liberal Party opposed to election102. The Liberal Party position was challenged by Grey of Fallodon’s letter to Times pleading “that election should not be allowed to degenerate into a party fight as it would do if either Liberals urging no departure from free trade or Conservatives
95 “A Decisive Week." Times [London, England] 28 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 96 “Working For Unity. "Times [London, England] 30 Sept.1931:12. The Times Digital Archive. Web. 13 Aug. 2016. 97 Tim Rooth, British Protectionism and the International Economy: Overseas Commercial Policy in the 1930s (Cambridge University Press, 1992), p. 65. See the The Times, 28 September 1931 98 Abel, p. 79. 99 Keynes, 1979-1981, vol. 9., cited in Eichengreen, ‘Keynes and Protection’, p. 366. 100 Hansard, ‘IMPORTS (REGULATION) BILL. [H.L.] HL Deb 29 September 1931 Vol 82 C162’
18 insisting on protection being definitely a cure promoted exclusive wisdom of their former party platforms”103. Runciman wrote to Wilfred Auty on 30 September: “. . . the only hope for our ultimate recovery is by adhering to free trade, but during the present emergency we may have to take many emergency steps as we did in time of war... I shall certainly avoid being tricked into protection by the Ameries and the Hewinses etc, and I much regret the lengths to which some of our friends have gone”104.
On October 5 Lloyd George threatened to challenge MacDonald (who had attempted to tackle acute difference of opinion in Liberal Party) on tariff issue if general election was not postponed. It became clear that he could no longer rely on support of official Liberalism for immediate appeal to country. A group of Liberal MPs led by Simon split from the party and formed their own organisation to help MacDonald. Runciman was one of the thirty Liberals who, along with Simon, Brown, and Hore-Belisha, signed a memorial assuring MacDonald of their support for any measures thought necessary by the Cabinet “in the interests of the finance and trade of the country”105.
The aggravated uncertainty of British political situation and unemployed demonstrations rocked the foreign opinion106 leading to dissolution of Parliament on October 7 and Prime Minister broadcasting a short appeal to the nation for a general election. His address stressed that the crisis was temporary and best addressed by the National Government of all parties who had stepped away from the party platforms that divided the country for the time being: “The problem at the moment relates to the financial condition of our state. […] This happened because on account of many economic causes the trade of the world … not merely ours … has come practically to a standstill. And nations like ours depending not only on their internal markets but on their exports have been specially hardly hit […]107. I appeal to you to give us … a
103 "The Cabinet Decides." Times [London, England] 6 Oct. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016 104 Runciman to Wilfred Auty, 30 September 1931, Runciman Papers 245i cited in D Wrench, p. 66. 105 D Wrench, p. 66. 106 "The Cabinet Decides." Times [London, England] 6 Oct. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 107 See video recording of the address: https://www.youtube.com/watch?v=8vlFREOWvl4. Time: 0.56’-1.42’
19 Government …of men of all parties united in serving the national interest and give them power to carry out the task they have placed before them to a successful end”108.
The pre-election campaigning focused on two salient issues: trade policy and public economy. Balance of trade went from a surplus of £103,000,000 in 1929 to a considerable deficit of £104,000,000 in 1931109. MacDonald’s manifesto highlighted that the National Government stopped borrowing, imposed economy and balanced budget. It pledged for national and international steps to be taken without delay: monetary policy to restore sterling confidence; international agreements to remove War Debts and Reparations; “plans to change any adverse into favourable balance of trade”; unemployment address by expansion of markets home and abroad110. The Budget could not be allowed to slip into deficits and the key focus had to be on home and Imperial development. To achieve all of this there could be no partisan fights on platforms and in Parliament, but without the loss of political identity (eventual return to old times politics). As election was unavoidable111, the willing cooperation “as essential now as it was in August”112 was the way forward with “joint responsibility for discussion, examination, and action”113.
This was easier said than done and pre-election campaign fully exposed the political cleavages deepened by crisis. Baldwin enthused Tory party by strongly proposing to redress adverse balance of trade in order to secure financial stability of Great Britain. “This can be accomplished only by reducing imports, by increasing exports, or by combination of both. … I recognize that the situation is altered by the devaluation of
108 The Cabinet Papers The National Archives, 1931 Film Clip Transcript: Ramsay MacDonald’s Election Appeal (The National Archives, Kew, Surrey TW9 4DU, 1931)
20 the pound, but in my view the effect of that devaluation can be no valid substitute for a tariff, carefully designed and adjusted to meet the present situation. …tariff is the quickest and most effective weapon, not only to reduce excessive imports but also to induce other countries to lower their tariff walls”114. N. Chamberlain rallied around the country pronouncing that protection would restart world trade, and that mutual Imperial Preference would be possible when foreign goods were taxed115. Lloyd George refused to fund election and Liberal Manifesto declared Free trade116; the Samuel group also announced support for free trade. Labour manifesto (Henderson) also declared free trade117; while Snowden would only consider protection mandate if it were voted for118. Runciman together with Simon and Hore-Belisha issued a statement in support of Grey letter which had explicitly called for support of tariffs119.
Runciman campaigned as a Liberal keeping closely to the line that he had previously drawn on the question of tariffs and satisfying Snowden with his statement to the electors of St Ives on 2 October: “While I would not be a party to permanent tariffs being imposed, at the present time I am prepared to take such steps as are necessary to preserve our national balance. I would not be in favour of an import duty on food. What
114 Baldwin, from the Election Manifesto, published on 2 October 1931 cited in Craig, pp. 90– 91. 115 Abel, p. 82 N. Chamberlain on October 15, 1931 in Sheffield. On October 26 in Dudley he promised the electorate that National Government would examine thoroughly all possibilities, “you don’t vote for free trade or protection”. 116 Craig, pp. 99–100. October 10, 1931. “Having regard, however, to pronouncements that have been made, we feel bound to declare our view that whatever emergency measures might be found to be necessary to deal with the immediate situation, freedom of trade is the only permanent basis for our economic prosperity and for the welfare of the Empire and of the world”. 117 Craig, pp. 94–98. October 20, 1931. “Tariffs no cure. The Labour Party has no confidence in any attempt to bolster up a bankrupt Capitalism by a system of tariffs. Tariffs would artifically increase the cost of living. ….enrich private interests at the expense of the Nation. … prejudice the prospect of international co-operation. In the circumstances produced by our departure from the gold standard, they have no relevance to economic need. In the face of the millions unemployed in high-tariff America and Germany, they are clearly no cure for unemployment. They would permanently injure our shipping and export trades and conceal our need for greater efficiency in industrial organisation. The Labour Party … urges the definite planning of industry and trade so as to produce the highest standard of life for the Nation.” 118 October 17, 1931. Snowden statement, The Times, 21st October 1931 “willing to consider every alternative to redress the adverse balance of trade”. Robert C. Self, Tories and Tariffs: The Conservative Party and the Politics of Tariff Reform, 1922-1932 (New York: Garland Publishing, 1986), p. 680. 119 “Parties And The Election." Times [London, England] 9 Oct. 1931:12. The Times Digital Archive. Web. 13 Aug. 2016.
21 we ought to cut off is imported luxuries”120. The uncertainty and unpredictability of events disallowed MacDonald setting out the detailed program with specific pledges, he endorsed tariffs from a non-partisan position. The Government had to be free to consider “every proposal likely to help, such as tariffs, expansion of exports and contract of imports, commercial treaties and mutual economic arrangements with the Dominions”121.
The polling took place on October 27, 1931 with a turnout of 76.4 per cent122. The National government partners won the greatest British election victory of modern times by amassing 554 of the 615 MPs with MacDonald remaining as the Prime Minister and the Labour Party, blamed for the inability to solve the August crisis, as the ‘biggest’ and the intended victim’, losing 215 of 267 seats. Opposition was reduced to a sharp minority of 56, including 52 Laborites and Lloyd George’s family group of four 123. The surprising success of Conservatives of achieving 471 seats with 11.926.537 votes “represented the final elimination of any important Free Trade opposition”124.
MacDonald reconstructed Cabinet of 20 members immediately: 3 Liberal Nationals (Samuel, Simon and Runciman) + 2 Liberals (Sinclair and Maclean), 4 National Labour (MacDonald, Snowden, Sankey and Thomas), 11 Conservatives (Baldwin, Chamberlain, Cunliffe-Lister, Hailsham, Hoare, Londonderry, Eyress-Monsell, Gilmour, Betterton, Young and Ormsby-Goare). King’s speech asserted: “that the first task of balancing the budget having been accomplished, Ministers intend to invite the House to cooperate in the second and more complicated task of restoring balance of trade”125.
After the election, keeping the National Government became priority as it gradually and widely began to be viewed as a ‘strong government response’ to exasperating party
120 Philip Viscount Snowden, An Autobiography (London, 1934), vol. II, 99 cited in D Wrench, p. 67. 121 Craig, p. 92 Also see ‘Election Plans.’ Times [London, England] 8 Oct. 1931: 10. The Times Digital Archive. Web. 13 Aug. 2016. . 122 [details on candidates Abel 1945, 84-85; voting patterns to see gender - as 8m women voted] 123 Williamson, p. 477; Lowe, p. 125; Thorpe, pp. 261–62. See how 554 was split: 471 Conservatives, 35 Simon Liberals, 13 National Labour, 2 Nationals. 124 Lowe, p. 125. 125 “An Enlarged Cabinet." Times [London, England] 30 Oct. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016.
22 politics which since 1929 made it difficult to manage growing economic and imperial problems effectively126. On 3 November, the Cabinetdiscussed a telegram from the Canadian Government proposing that the adjourned Economic Conference should be convened at Ottawa at the earliest possible date. Canada’s initiative to hold an Imperial Economic Conference in Ottawa strengthened the expectation of Imperial Preference system to materialize finally under the Tariff reform127. It was agreed to set up a Cabinet Committee “to examine all matters relating to the Ottawa Conference and to make recommendations to the Cabinet as to the policy of His Majesty's Government in the United Kingdom at the Conference128. The Committee was initially composed of N. Chamberlain, Thomas, Runciman, and Gilmour (Simon and Cunliffe-Lister were subsequently added)129. On the same day, November 3 the new Parliament assembled with a task of implementing two bills for the year: Abnormal Importations (emergency trade protection) and the Statute of Westminster Bill130.
Walter Runciman: Free Trader in Charge of Protection.
Introducing tariffs with Snowden in the Government was not an easy task131. As an outgoing Chancellor of the Exchequer in the Cabinet reshuffle after the General Election, Snowden suggested to MacDonald that Runciman should be appointed to the key position of the President of the Board of Trade: “I had suggested Mr. Runciman for this position because of his pronounced of Free Trade. He had been regarded as one of the strongest free traders in the country, holding his views with unshakeable tenacity.
126 Williamson, 1992, p. 390; ‘anxiety over general economic conditions: unemployment rose to 2.8 million in September with 3 million predicted for 1932’ and ‘sharp fall in agricultural prices, industrial production and exports indicated towards large balance of payments deficit’ (Williamson, 1992, p. 388). 127 His Britannic Majesty’s Government, CABINET 75(31): Meeting of the Cabinet to Be Held at No. 10, Downing Street, S.W.1., on TUESDAY, NOVEMBER 3rd, 1931, at 11.50 a.m. CAB/23/69, 1931, p. 14. 128 His Britannic Majesty’s Government, CABINET 75(31): Meeting of the Cabinet to Be Held at No. 10, Downing Street, S.W.1., on TUESDAY, NOVEMBER 3rd, 1931, at 11.50 a.m. CAB/23/69, p. 14; Robert C. Self, pp. 702–4. 129 Robert C. Self, p. 702. 130 “The New House Of Commons. "Times [London, England] 29 Oct. 1931: 7. The Times Digital Archive. Web. 13 Aug. 2016. 131 Williamson, 1992, p. 393 references “and Lloyd George close by’
23 How tragically mistaken I was later events proved!” 132 . Despite Snowden’s disillusionment, this turned out to be the important choice which made possible lower protection and the long-term survival of the National Government133.
Runciman was regarded as the valuable Government asset by both Stanley Baldwin (against diehards - Beaverbrook and Rothermere) and Ramsay MacDonald (to balance Tory protectionists in the National Government) 134 . He had previously stated his affinity with moderate Conservatives except for trade protection: “If Stanley B. and his Front Bench had refused to comply with the doctrines of Amery there would not have been dividing me from them”135. Runciman had been invited to National Government and promised “Exchequer” by MacDonald and Simon; no one expected the overwhelming Conservative victory in the election that would demand a full protectionist Tory Exchequer. MacDonald insisted with Baldwin that another key position for the President of the Board of Trade should go not to a Tory after Chamberlain was appointed Chancellor136. Disappointed Runciman initially refused. In order to convince him, MacDonald pursued him by wire and telephone on 4 November urging the need for a “modifying influence on the Tories”137:
“I do hope that you appreciate how much depends on you to make the path more easy! You have the confidence of the Unionist Party. You have the affections of your friends. You have the opportunity of doing more to help the Prime
132 Snowden 1934, 999. Runciman was convinced to accept the position of the President of the Board of Trade after losing the position of the Chancellor of the Exchequer to Neville Chamberlain. 133 D Wrench, p. 63. 134 Wallace 1995, 313 135 From copy WR to Fitzherbert Wright 25/11/29 WR221 in Wallace p. 312 136 Jonathan Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’ (Newcastle University, 1995), p. 337. NC had been certain WR would be Chancellor, see Neville to Ida Chamberlain, 18 October 1931. The Neville Chamberlain Diary Letters. Volume Three. The Heir Apparent, 1928-1933, ed. by Robert Self (Ashgate, 2002), p. 285. Also, Simon was offered BoT presidency, but thought it lower his rank and refused - see Wrench 2000 (i.e. for WR to accept it was pumped up by MacDonald and the King). 137 Wrench, p. 67 The account of these events is supplied by Hilda Runciman in an undated journal entry, probably written some weeks after the events described. Runciman Papers Add. 6iii.
24 Minister and Stanley Baldwin now more than anyone. I know it is a sacrifice but for God’s sake make it!”138.
Runciman was reluctant expressing his fear that “as Pres of B of T, he would be in the position of being merely forced to carry out Chamberlain's policy backed by the huge majority in the H of C” 139. Even after Baldwin reassured him Runciman was still refusing, and MacDonald finally telephoned again at 7 p.m. offering everything that his self-respect required. According to Hilda’s journal entry: “[I]n fact Ramsay finally told him that if W. did refuse to take the Board of Trade he would be obliged to go to the King & tell him he had failed to form a satisfactory Cabinet. He regarded W as absolutely essential in what he regarded as a key position to balance Chamberlain”140.
Acquiescing to MacDonald’s plea, on 5 November, after the absence of fifteen years, Runciman re-entered the Cabinet “not as a convert to protection, but as a balance to the protectionists”141. He took the position because if he did not “an even more strongly protectionist policy could result” and as President of the Board of Trade he could “influence the operation of tariffs” and “partially balance Chamberlain” 142. As part of his price, he negotiated with MacDonald the right to attend all international conferences on Finance (including Currency, Reparations and Debts) and all Committees at home “as a member and as one of the British ministerial representatives”143. Moreover, the King indicated that Runciman should be treated as a Secretary of State144.
138 MacDonald to Runciman 4/11/31 WR245 139 Wrench, p. 67 The account of these events is supplied by Hilda Runciman in an undated journal entry, probably written some weeks after the events described. Runciman Papers Add. 6iii. 140 The account of these events is supplied by Hilda Runciman in an undated journal entry, probably written some weeks after the events described. Runciman Papers Add. 6iii. cited in D Wrench, p. 68. 141 Wallace 1995, 338. When he came back to politics in 1931 (he had strong hopes and indeed was led to believe that he could be appointed the Chancellor of the Exchequer), he was 16 years absent from career politics, a wealthy businessman. 142 Wallace 1995, 338. There is no direct source linking to WR in Wallace, but cross- referencing with Wrench 2000, 68, Hilda’s journal entry supports this claim [to locate when visiting archive] 143 WR to RM 5/11/31 WR245 cited in Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. 338. 144 D Wrench, p. 68.
25 The working relationship that developed between Runciman and Neville Chamberlain and evolved into something like personal friendship, became one of the National Government administration’s most valuable assets145. Although they would never see eye to eye regarding the degree of trade protection they would find ideal and acceptable, respectively. According to Chamberlain: “fortunately I like Runciman personally and I fancy he likes me so at least we ought to start fair”146. Runciman’s first job and Cabinet’s priority was to introduce “emergency protection” to address growing imports and a worsening balance of trade147. He had envisioned this might be necessary already in his House of Commons speech on 10 September. The degree of protection, however, had to be negotiated with N. Chamberlain representing the Treasury. Runciman convinced Chamberlain to drop his varied tariff scheme (of 20 percent and higher), and to adopt 10 per cent tariff on excessive imports for six months (instead of twelve), which to as suggested by Snowden might go up to 100 per cent if justified148.
Abnormal Importations Act 1931: Protectionist Coalition Truly Aligns
On 16th of November 1931, debating the introduction of the Abnormal Importations Bill, Runciman explained his conversion from free trade to protection:
“If my hon. Friend [Lansbury] asks me to retain the same views that I had before the crisis in August, I say I do retain the same views, but I have to deal with new conditions, and, still holding those views, I believe that the only way we can face up to our new anxieties is by adapting ourselves to every practical problem as it arises. …what he would have liked me to have done would be to … once more affirm my cherished theories. I am not going to affirm any theories this afternoon. … I think that the time for that has passed. We have now
145 D Wrench, p. 63. 146 Nevile to Hilda Chamberlain. 7 November 1931. The Neville Chamberlain Diary Letters. Volume Three. The Heir Apparent, 1928-1933, ed. by Robert Self (Ashgate, 2002), p. 287. 147 His Britannic Majesty’s Government, CABINET 74 (31). CONCLUSIONS of a Meeting of the Cabinet Held at 10, Downing Street, S.W.1., , on TUESDAY, November 10th, 1951, at 10.0 a.M., 1931, pp. 24–27; His Britannic Majesty’s Government, CABINET 78 (31). Meeting of the Cabinet to Be Held in the Prime Minister’s Room, House of Commons, on MONDAY, November 16th, 1 931, at 2,15 p,M., 1931, pp. 72–73. 148 Neville to Ida Chamberlain, 15 November 1931. Robert Self, p. 289.
26 to sit down to every problem as it arises, dealing with it as a practical problem and allowing no preconceptions to influence us”149 150.
Runciman, therefore, set out to install a policy approach that would be “middle way” between Protection and Free Trade (he continued to identify his approach to foreign trade with Cobden’s of the 19th century151). According to Williamson, his changed position originated in a reconstructed economic analysis: ‘the world recession, the intensification of economic nationalism, and the sterling crisis temporarily destroyed the conditions that had made free trade valid’152. It followed that practical free-traders had to adjust153 and find devices that would provide immediate economic and financial self-defense, yet also compel other nations to help restore international free trade’154.
Runciman’s key considerations regarding adverse balance of trade were support of pound, invisible payments receipts (from shipping, exports), and maintaining purchasing capacity of foreign trade partners (in line with Keynes’s prescription for restoration of global trade). He argued that “[T]he only way in which our currency can retain its value is by seeing to it that our adverse trade balance does not increase. …What we must do now, is to go behind the mere currency machinery and see how we can so restore the balance in our foreign trade [by expanding exports rather than
149 Hansard, ‘DEBATE ON THE ADDRESS. HC Deb 16 November 1931 Vol 259 Cc515- 639’, cols 545–546. 150 Runciman’s conversion may not come as a complete surprise. In late 1929 he wrote: “There are many [Conservatives,] … especially the younger generation , with whom I have great sympathy: we can aim at the same thing, almost at the same methods, but unfortunately, just when I began to think that I can work with Stanley B. and excellent fellows like Ralph Glyn and Harold Macmillan, I find your party plunging once more into protective policy, in which a Free Trader like me can see nothing but disaster…If Stanley B. and his Front Bench had refused to comply with the doctrines of Amery there would not have been dividing me from them.” WR to Fitzherbert Wright 25/11/29 WR221 cited in Wallace p. 312. 151 Wallace 1995, 361 152 Williamson 1992, 505. 153 NG September 1931: 58 Libs may be divided into 3 classes: John Simon and supporters - “have driven to conclusion that some abandonment of rigid FT policy is necessary to restore BoT and assist nat reconstr; emergency tariffs (2) have open minds about tariffs, depending on their effect clarity; (3) Libs who whatever happens, will never abandon FT. “The position in favour of tariff is changing daily. “ "A National Appeal." Times [London, England] 17 Sept. 1931: 12. The Times Digital Archive. Web. 13 Aug. 2016. 154 Williamson, 1992, p. 505.
27 curtailing imports] and in our foreign payments as to save us from the anxiety of a further depreciated sovereign”155.
Having had the unanimous support of the Cabinet, the Abnormal Importations Act (AIA) was passed on 19 November by a vote of 329 to 44 as an “emergency” measure156. The Act marked the decisive break with Britain’s free trade of over eighty years and came about as a result of a new protectionist coalition that had emerged under the National Government 157 . It has been recognized that passing the AIA as “emergency protection” was absolutely crucial to the enablement of the permanent protection that would come in February 1932158. Runciman clearly played a crucial part by: first, justifying prohibition of luxury imports in order to address the adverse balance of trade and reduce budget deficit on September 10th; and, second, by negotiating the terms of the AIA with Chamberlain on November 10th. As Chamberlain noted: “So far the Abnormal Imports Bill has gone extremely well and Runciman has made quite a reputation by his handling of it”159.
Since the arrival of the Canadian telegram, Ottawa conference became prominent in the Cabinet and in Parliamentary discussions in November-December as the Statute of Westminster was passing through stages to become the Act 160. According to Amery,
155 Hansard, HC Deb, 1931, CCLIX, cc 515-639 (pp. 545–46)
28 the aim now was “economic Empire of closest cooperation in trade, defence and foreign policy”161. He called for Ottawa preparation to begin as early as December and include agreements, agriculture, and general tariff, arguing that it would be late in February162. Under the mounting pressure for the introduction of permanent tariff protection Runciman was preparing to mold it according to his own terms as much as possible163, to begin with, by gaining time: “the Government … should be allowed time to deal with these matters fully[?] …in dealing with these trade matters we had far better be careful … and with one object before us, namely, the saving of British industry and commerce, not rush into anything prematurely, before Christmas, when what is most necessary at the moment is that we should deal with the immediate emergency”164. The two Acts – the Abnormal Importations which came into operation on 25th of November sharply rising numbers in imports forestalling165, and the Statute of Westminster, passing the 2nd reading in Lords on 26th of November – marked yet another milestone of systemic proportions - (the beginning of) the end of the Empire and cleared the way to the Imperial Preference.
Import Duties Act 1932: Protectionist Coalition’s Biggest Test
Having aligned with the protectionist coalition for the introduction of “emergency protection” in November, on 2nd of December, Snowden sent letter to MacDonald
been a long one with the Imperial Conferences gradually promoting the relation between dominant power and subordinates to the format of equal partnership, and the Empire countries winning nationhood rights by taking to arms for Empire in WWI. As Thomas was preparing the tour of Dominions reciprocal visits from Canada and Australia had Winston Churchill, Leo Amery, Page Croft involved. Whereas Churchill headed formidable unofficial opposition to the passing of the Statute on account of India and the Irish Free State, Amery took a completely different view. For him, the Statute marked the end of political Empire which could not be held together by any legislative structure (“The Statute Of Westminster." Times [London, England] 21 Nov. 1931: 12. The Times Digital Archive. Web. 14 Aug. 2016) 161 “The Statute Of Westminster”. Times [London, England] 21 Nov. 1931: 12. The Times Digital Archive. Web. 14 Aug. 2016. 162 “Balance Of Trade." Times [London, England] 17Nov.1931:14.The Times Digital Archive. Web. 14 Aug. 2016. “Mr.Runciman's Bill." Times [London, England] 18 Nov.1931:12.TheTimes Digital Archive. Web. 14 Aug. 2016. 163 Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. 345. 164 Hansard, ‘DEBATE ON THE ADDRESS. HC Deb 16 November 1931 Vol 259 Cc515- 639’, cols 549–550. 165 "Import Tariff." Times [London, England] 25 Nov. 1931: 12. The Times Digital Archive. Web. 14 Aug. 2016.
29 raising concern of the four free trading cabinet ministers (Samuel, Sinclair, Maclean and Snowden himself) about move into full “permanent” protection with introduction of significant food tariffs by Horticultural Products (Emergency Customs Duties) Bill166. MacDonald organised the meeting between the four misters, Runciman and himself after which Snowden concluded that Prime Minister could not be relied on to resist Tories167.
The Cabinet Balance of Trade Committee including Chamberlain, Runciman, Snowden, Samuel, Thomas, Simon, Cunliffe-Lister, Hilton Young, and Gilmour was appointed on 11th of December: “In the event of an adverse balance of trade being disclosed, the Cabinet Committee were asked to advise what remedies were available and what would be the consequences in each case of their adoption”168. This was in line with what had been promised to free trade national government partners. It became important to Chamberlain to gain support of non-Tory members and MacDonald to his programme of permanent protection after addition of Simon, Lister, Thomas, Gilmour and Samuel meant “that the fight will come in Committee”169. He needed Runciman to achieve this without breaking the fragile, “National” consensus in the Government which having briefly converged over the emergency protection threatened to break apart over policy of permanent protection associated with Tories.
Chamberlain, however, found Runciman less flexible in December when discussions over permanent protection were held (for instance, on matters of food taxes and steel, but he was fine with revenue tariff)170. Runciman succeeded in imposing a compromise on Chamberlain over AIA in November and felt at ease bargaining with Chamberlain. According to Hilda R.: “W had a lot of work in London getting ready for the Import
166 D Wrench, p. 70. 167 Snowden 1934 V2, PP. 1006-7 168 His Britannic Majesty’s Government, CABINET 88 (31). Meeting of the Cabinet to Be Held in the Prime Minister’s Room, House of Commons, on FRIDAY, December 11th, 1931 at 11.0 a.m. CAB 23/69/17, 1931, p. 228 Cabinet Committee, composed as follows: The Chancellor of the Exchequer, (In the Chair- Neville Chamberlain), The Home Secretary (H. Samuel), The Secretary of State for Foreign Affairs (J. Simon), The Secretary of State for Dominion Affairs (J. H. Thomas), The Secretary of State for the Colonies (Sir Philip Cunliffe-Lister), The Minister of Health (Sir Edward Hilton Young), The President of the Board of Trade (Walter Runciman), The Lord Privy Seal (Philip Snowden), The Minister of Agriculture and Fisheries (Sir John Gilmour) . 169 Neville to Ida Chamberlain, 12 December 1931 Robert Self, p. 298. 170 Robert C. Self, pp. 675–77.
30 Duties Bill. Neville Chamberlain more & more friendly & more adaptable than at one time seemed possible. Things were working out so much better than was anticipated ..”171. Runciman told MacDonald: “I.. have examined the grave industrial problems which we are engaged to solve, and I am not brought to conclusion that a three-decker tariff is the means to our end. …I could not agree with it. I told him [N. Chamberlain] that I was sure that this was your view and Snowden's as well as mine.... On the next day I told him that so far as I was concerned... The compromise lies in him adopting and our agreeing to a ten per cent Revenue Tariff”172. After making concessions to Runciman, Neville encountered much Conservative criticism, especially from his half- brother Austen who invoked the National Government’s “free hand” election pledge to push back on Neville’s compromise with Runciman173.
Runciman’s attitude towards imperial economic policy revealed another facet of his “conversion”, it became markedly more protectionist (close to N. Chamberlain’s own). In 1926, Runciman clearly stated his position on the imperial and fiscal policy issues: “Flirting with fiscal heresies impedes our recovery and makes stability of policy well- nigh impossible. What is called imperial preference can only be built on an import tariff. Preferential duties are not benefits conferred on each British Dominion as a whole, but are fiscal benefit granted to individual merchants and manufacturers in the Colonies and Dominions”174. Up until 1931, he defended the view that Foreign Trade was more important than Empire Trade from a position of free-trade imperialism: “The European trade circle is just as important to the people who run businesses and are employed by and in businesses in this country as is the Dominion trade. … Would it be sensible of us to ignore the larger for the sake of the smaller? … The answer is “No””175. He admitted that free trade within the Empire would be “an unmixed blessing to every part of the Empire”, however, this was not attainable. While foreign countries lowered tariffs, Dominions increased them in recent years and hence his conclusion: “We have
171 Hilda Runciman’s diary, January 1932 (written before the 16th), Runciman Papers Add. 7. cited in D Wrench, p. 70. 172 67Runciman to MacDonald, 21 December 1931, Runciman Papers 3/37. cited in David J Wrench, ‘"Cashing in ": The Parties and the National Government , August 1931-September 1932’, Journal of British Studies, 23.2 (1984), 135–53 (p. 151). 173 Sir Austen to Neville Chamberlain, 21 December 1931, Neville Chamberlain Papers NC 1/27/102. cited in D Wrench, pp. 70–71. 174 Runciman, p. 12. 175 Runciman 1926, 7
31 during no less than three generations been able to take toll of the world’s resources. Nothing less than the world will satisfy us”176.
After joining the government and becoming a chief architect of protectionism, Runciman’s position shifted to imperial mercantilism. The Ottawa Preparatory committee of which he was part started meeting since November creating a rift between Thomas and Chamberlain from the start: Thomas wanted unilateral non-discriminatory concessions within Empire, Chamberlain bilateral agreements that could be bargained. According to Chamberlain, the policy of generous gesture had failed to produce any significant results in the past. Moreover, in the “prevailing climate of slump and economic nationalism, Dominion politicians would find specifically negotiated quid pro quo agreements easier to defend to their electorate”177. With Empire unity as first priority and desire to avoid failure in Ottawa at all costs, every effort was made to eliminate contradictions (Chamberlain won)178. Runciman’s position seemed to closely converge with Chamberlain’s. Taking council with MacDonald on 21 December regarding the introduction of imperial preference, Runciman “laid great stress on the essential condition of any preferential tariff here being a real and effective reduction in Dominion tariffs, not a mere impassable barrier to us, to be compared with still more impassable barrier for foreigners…the necessity for genuine concessions by the Dominions is an essential side of the bargain”179.
During the Parliamentary recess in December and January, members of the Balance of Trade Committee held several meetings 180 . They produced memoranda under Runciman’s directions which after the first (out of five) meetings became the sole basis for discussion181, whereas there was no involvement of the expert economist opinion (N. Chamberlain “refused to allow to hear evidence from Keynes” 182 ). The
176 Runciman 1926, 8 177 OC (31) 1st Meeting, paras. 8-11 cited in Robert C. Self, p. 703. 178 CAB 84(31) 2, 2 December 1931 and CP 288(31), 23 November 1931 cited in Robert C. Self, p. 703. 179 WR to RM 21/12/31 WR245 cited in Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. 346. 180 "International Outlook." Times [London, England] 17 Dec.1931:12.The Times Digital Archive. Web. 14 Aug. 2016. 181 Robert C. Self, pp. 677–78. 182 Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. 345.
32 Conservative Research Department’s three-decker emergency tariff structure was unacceptable to Runciman. Instead he suggested “a wide 10 per cent revenue tariff”183. Runciman engaged Samuel and Maclean to support 10 per cent general revenue tariff to enable reduction on Income tax who both consulted Snowden about it184. A few days later Runciman urged Snowden to accept this proposal, pressing precedent of Holland, assuming Protectionist members of Balance of Trade Committee would accept, and thus more extreme tariff proposals could be avoided. Snowden replied: “he could not expect me to commit myself to such proposal, but I would think it over. I gave him no encouragement to believe that I should support it…”185. Chamberlain held preliminary talks with Samuel and wrote to Snowden186 trying to persuade them to support his and Runciman’s proposal: “I then saw Runciman who was very indignant with Samuel’s intransigence and declared that he would resign if we did not have a 10% tariff!”187. According to Wallace, their rejection of proposal would directly undermine Runciman’s position188.
At the final committee meeting on 18th of January 1932 Snowden announced he could not subscribe to Majority Report and would submit a note of dissent, Samuel did the same proposing different policy options thus initiating the “days of crisis which ended in constitutional revolution”189. On January 21, 1932 the Balance of Trade Committee presented a majority report to the cabinet that proposed immediate introduction of a permanent general tariff reform190: “…the best method would be a combination of a flat rate tariff with selective surtaxes on nonessential articles” 191. The report attributed adverse balance of trade predicted to be £286 million in 1932 to the fall in invisible
183 Rooth, p. 65. 184 Snowden 1934 V2, PP. 1007 185 Snowden 1934 V2, PP. 1007-8. “…., but I had learned later that he had given both his Liberal colleagues and the Chancellor to understand that I was in favour of it, and that they could count upon my support. He had no ground for saying this from anything I had said to him” 186 Neville to Hilda Chamberlain, 17 January 1932. Robert Self, p. 301. Chamberlain met with MacDonald who was concerned with Snowden’s attitude: “He had already heard about it from the third party and told me [Chamberlain] very confidentially that he had ascertained that Lady Snowden was responsible for her husband’s change of view” 187 Neville to Hilda Chamberlain, 17 January 1932. Robert Self, p. 301. 188 Wallace 1995, 348 189 Snowden 1934 V2, PP. 1015; 1009 190 Neville Chamberlain, CABINET. Committee on the Balance of Trade Report. CAB 24/227/25, 1932, pp. 289–300. 191 Chamberlain, p. 292. ““26. We have examined various possible methods of reaching this objective and have come to the conclusion that….”
33 exports earnings, and not to movements of capital. It recommended: “(i) Negotiations with foreign countries and the Dominions to secure a lowering of their tariffs on British manufactures. (ii) The reduction of our manufacturing costs by the acceleration of reorganisation in the production and marketing of our staple industries” 192 . The reduction of imports (£56 million) could not be obtained by prohibitory tariffs, but by revenue tariff of 10% excluding Empire countries enjoying preferences, and by selective surtaxes. Under Runciman’s efforts, the proposal was designed “as a Liberal alternative to Conservative party policy, an instrument to help Sterling, relieve the direct taxpayer, stimulate industrial efficiency, and bargain for freer trade” more modest in the first place than Chamberlain and the protectionists would have liked’193. In the meeting, Runciman warned that “a failure to act quickly would result in a downward drift in the value of sterling, causing an increase in food prices” but, according to Wrench, “he carefully evaded any suggestion that he had changed his views on tariffs”194. Chamberlain, however, later noted of Runciman’s proposal that combined with sur-tax on selected articles it would end up close to his three-decker scheme195. It also gave unprecedented ministerial powers to manage protection: “… to refuse or to attach conditions to his approval of a duty… to suspend or remove a duty …or to lower it in return for tariff concessions from other countries. …to grant preferential reductions to the Dominions and India (in return for concessions to United Kingdom trade), and to grant reductions, or even exemption, to the Colonies and Dependencies without any such return”196. The decision that the Cabinet had to take “involved a choice of risks: a possible break-up of the National Cabinet, or doing nothing at all on these lines”197
192 Chamberlain, p. 294. 193 Rooth, 1992, 65 cited in Williamson, p. 506. 194 D Wrench, p. 71. 195 Memo by NC 30/01/32 NC papers 8/18/1-12 cited in Wallace, pp. 346–47. 196 Chamberlain, p. 294. “(m) The Minister should have power to refuse or to attach conditions (e.g., reorganisation of an industry) to his approval of a duty and afterwards to suspend or remove a duty (e.g., if it were misused) or to lower it in return for tariff concessions from other countries. He should also have power to grant preferential reductions to the Dominions and India (in return for concessions to United Kingdom trade), and to grant reductions, or even exemption, to the Colonies and Dependencies without any such return” 197 His Britannic Majesty’s Government, CABINET 5 (32). Meeting of the Cabinet to Be Held at No.’ 1 0 , Downing Street,S.W.1., on THURSDAY, January 2 1 St , 1932, at 1 1 a.m. CABINETS 5 (32) and 6 (32). The Balance of Trade. CAB 23_70_5, 1932, p. 88. “If America could be induced to lower tariffs, that would have an effect on the world” (p.93);
34 Snowden’s and Samuel’s memoranda of dissent from the protectionist proposals of the Committee were submitted together with the proposal. Snowden argued that adverse balance of trade was exaggerated, it was going “far beyond the programme upon which the National Government went to the country” and could not warrant “a complete and permanent reversal of fiscal policy” 198 . Samuel pronounced “unfortunate that the Committee declined to bring into consultation at this stage the expert economists and financiers who have previously been advising the Government” 199 . He consulted experts on his own account, having had “a short conversation with Mr. Keynes, who had been quoted in one of the Chancellor of the Exchequer’s memoranda as favouring a 10 per cent, all-round tariff” 200. Samuel found out that Mr. Keynes is “not now worrying about the Balance of Trade.” In his opinion the Government need take no special action with regard to it. He had been in favour of an all-round tariff, but the currency depreciation is doing what he wanted to do by that means, and better. Circumstances might, however, arise in the future which would change the situation and make some restriction advisable. If so, it would be better effected by a system of licences. And it is possible that budgetary or political conditions might be found to require a tariff for revenue”201.
From the beginning of the meeting, Chamberlain argued that “immediate action was imperative … from a national and Imperial point of view” and underlined that sacrifice of principles involved both parties and concessions he had made: “Those who in the past had advocated a Protectionist doctrine had given up a good deal, and the proposals put forward would not be popular with all their friends. They would be accused of
198 Philip Snowden, Cabinet. Committee on the Balance of Trade. Memorandum of Dissent from the Committee’s Report by the Lord Privy Seal. CAB 24_227_31, 1932, p. 339. “To sum up the grounds of my dissent from the Protectionist proposals of the Committee, I may say that I do not believe they will do anything to redress the balance of trade; they will make the recovery of our export trade more difficult, they will increase the cost of living and the costs of production; they will discourage enterprise and efficiency; they will be useless to induce a lowering of foreign tariffs”. p.34.1. 199 Herbert Samuel, Cabinet. Committee on the Balance of Trade. Memorandum by the Home Secretary. CAB 24_227_32, 1932, p. 343. 200 Samuel, p. 343. 201 Samuel, p. 343‘National Self-Sufficiency’, a lecture written with the World Economic Conference in mind JMK, vol. 21, 208-10, cited in Eichengreen, 1984, 372.
35 weakness”202. He also warned that going to the House of Commons “with vague ideas would be to court disaster” (“the present House of Commons was not an easy one to deal with”); as for the suggestion that economists ought to have been consulted, he pointed out that the result of the Home Secretary's enquiries seemed to be that they did not agree among themselves”203. As was both feared and anticipated, “the agreement on the report could not be secured”204. When the Cabinet broke up, the four dissentients –Snowden, Maclean, Sinclair, and Samuel grouped to take counsel about resignations at 8.30 pm at Snowden’s flat. They were joined by MacDonald who, in order to avoid his own position being severely undermined, suggested that “the resignations might be averted by conceding to the dissentient Ministers the liberty to publicly express their dissent”. After an 1.5 hour MacDonald left “in the belief that there was no means of reconciling the differences”205. At the Cabinet meeting on 22 of January, MacDonald managed to persuade them not to quit “allowing dissenters a free hand on the tariff proposals. They might be left free to speak and vote against them in Parliament and in public”206. The dissenters’ demands “that MPs have the same freedom and that the whips not exert any influence to persuade Members to support the Government line”207 were also fulfilled. This led to the suspension of the traditional doctrine of Collective Responsibility for Cabinet and the adoption of the extraordinary expedient known as ‘agreement to differ’208 that had no constitutional precedent in British politics209. It has been argued that Samuelites achieved nothing, for being allowed to come out in
202 His Britannic Majesty’s Government, CABINET 5 (32). Meeting of the Cabinet to Be Held at No.’ 1 0 , Downing Street,S.W.1., on THURSDAY, January 2 1 St , 1932, at 1 1 a.m. CABINETS 5 (32) and 6 (32). The Balance of Trade. CAB 23_70_5, pp. 93–94. 203 His Britannic Majesty’s Government, CABINET 5 (32). Meeting of the Cabinet to Be Held at No.’ 1 0 , Downing Street,S.W.1., on THURSDAY, January 2 1 St , 1932, at 1 1 a.m. CABINETS 5 (32) and 6 (32). The Balance of Trade. CAB 23_70_5, pp. 93, 96. 204 Snowden 1934 V2, PP. 1010 205 Snowden 1934 V2, PP. 1010 206 Snowden 1934 V2, PP. 1010. “Although the Minister who had put forward this suggestion said that he was speaking entirely for himself, the alacrity with which it was received gave me [PS] a strong suspicion that it had been prearranged [by Hailsham].” by Tory members of Cabinet who met previous evening and “it came out later that this way out of deadlock had been discussed” (Snowden 1934 V2, PP.1011-12). Hailsham was credited with designing this solution. 207 Jennings, Cabinet government, 3rd ed, 1965, pp 279-81. Runciman was annoyed with Dissenters “enjoying the luxury of opposition while retaining privileges of government” as he had to accommodate the new circumstances (Wallace 1995, 348-349). 208 Wallace 1995, 348 209 62 op cit, p.281 (footnotes omitted) Jennings, Cabinet government, 3rd ed, 1965.
36 opposition they no longer had to be appeased210. Nevertheless, this was the test of Government Unity and the collapse was narrowly avoided. Resignations would damage all policy projects on which “there was harmony in Cabinet, tariff was the only issue” 211. It was expected that no major problem would arise out of disagreement over tariffs as policy would win overall on its own merit212. However, the incident left Runciman annoyed as contrary to others enjoying the luxury of opposition while retaining privileges of government he had to continue to accommodate the new circumstances locked in protectionist coalition despite his beliefs. According to Hilda, Runciman’s MP wife, he “could at least claim some success in diluting the more extreme proposals of the Conservatives - but there was no recognition on part of Liberals of this triumph over strict protection!”213.
The introduction of the Import Duty Bill in the House of Commons on 4 February 1932 ‘represented a major change in national policy, as momentous as suspension of the gold standard’214. For the Chancellor it vindicated his father’s ‘great campaign in favour of Imperial Preference and Tariff Reform’ of twenty nine years back: ‘if not exactly in his way, yet in some modified form his vision would eventually take shape’ 215 . Chamberlain first outlined the problem of the adverse balance of trade which “the proposals of the majority of the Cabinet” were set to resolve: “… our investigations into the balance of trade have confronted us with disquieting results. ….we find that while the imports remained practically stationary in volume for the two years the
210 Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, pp. 348–49. 211 JAN 26: ”The Cabinet Experiment. "Times [London, England] 26 Jan.1932: 13. The Times Digital Archive. Web. 16 Aug. 2016. “India - where Government is crucial for political and economic structure of the Empire; Far East - restoring peace vital for world interests; foreign negotiations for restoring commerce and capital flows (reparations, debt); retrenchment for balancing of budget to relieve tax payer and defend pound.” | JAN 30:“The Agreement To Differ'." Times [London, England] 30Jan.1932: 10. The Times Digital Archive. Web. 16 Aug. 2016. | "The Temper of Parliament. "Times[London, England] 4Feb.1932:13. The Times Digital Archive. Web. 16 Aug. 2016. 212 JAN 27: “The Experiment and the Policy. "Times [London, England] 27Jan. 1932: 11. The Times Digital Archive. Web. 16 Aug. 2016. 213 HR Diary 1/02/32 WR add 7 and HR Diary 12/02/32 WR add 7 cited in Wallace 1995, 349- 50. 214 Williamson 1992, 508. 215 N. Chamberlain Hansard, ‘IMPORT DUTIES. HC Deb 04 February 1932 Vol 261 Cc279- 96’, col. 296
37 volume of exports decreased by nearly 38 per cent. …What we have to seek for is […] a plan which can readily be varied and adapted to suit changing conditions”216.
Drawn upon ‘the direct and legitimate descendants’ of J. Chamberlain’s proposals, the Bill laid out seven policy objectives. The proposed “system of moderate Protection” was designed: to address adverse balance of trade; to reduce unemployment; to reunite with the Empire to ward off foreign competition, enhance self-sufficiency; to bring in revenue; to force foreigners to lower their tariffs; to restore efficiency of industry; and to support sterling217218. The Bill proposed a general ad valorem duty of ten per cent upon all British imports, with exceptions for the goods, mainly food and raw materials, on the ‘free’ list; and establishment of an Import Duty Advisory Committee (which May was proposed to head) that would be empowered to apply adjustable surtax as an instrument to obtain rationalization of domestic industries and reductions of foreign
216 Hansard, ‘IMPORT DUTIES. HC Deb 04 February 1932 Vol 261 Cc279-96’, cols 284–286. 217 Hansard, ‘IMPORT DUTIES. HC Deb 04 February 1932 Vol 261 Cc279-96’, cols 286– 288. N. Chamberlain: “What we have to seek for is […] a plan which can readily be varied and adapted to suit changing conditions … the proposals of the majority of the Cabinet. …before I come to the details of the Government's intended Measures, I think perhaps it would be convenient if I were to try to give to the Committee a very brief summary of the objects at which we are aiming, in order that they may perhaps get a better picture of the general scope and range of our intentions. First of all, we desire to correct the balance of payments by diminishing our imports and stimulating our exports. Then we desire to fortify the finances of the country by raising fresh, revenue by methods which will put no undue burden upon any section of the community. We wish to effect an insurance against a rise in the cost of living which might easily follow upon an unchecked depreciation of our currency. We propose, by a system of moderate Protection, scientifically adjusted to the needs of industry and agriculture, to transfer to our own factories and our own fields work which is now done elsewhere, and thereby decrease unemployment in the only satisfactory way in which it can be diminished. We hope by the judicious use of this system of Protection to enable and to encourage our people to render their methods of production and distribution more efficient. We mean also to use it for negotiations with foreign countries which have not hitherto paid very much attention to our suggestions, and, at the same time, we think it prudent to arm ourselves with an instrument which shall at least be as effective as those which may be used to discriminate against us in foreign markets. Last, but not least, we are going to take the opportunity of offering advantages to the countries of the Empire in return for the advantages which they now give, or in the near future may be disposed to give, to us. In that summary, under seven heads, we believe that we have framed a policy which will bring new hope and new heart to this country, and will lay the foundations of a new spirit of unity and cooperation throughout the Empire”. 218 ‘If we consider the basic conceptions underlying the policies of the mercantilist statesmen of the sixteenth through eighteenth centuries [positive balance of trade; bullionism; welfare of population through full employment; home industry protection; primacy of exports over imports; industrial monopoly; state regulation of the economic affairs; taxation for revenue; relative power maximization] we can appreciate the similarities between the doctrine of the Tariff Reformers and that of the older mercantilists’ (Semmel 1968, 140).
38 tariffs219. It was decided that ‘in the true spirit of Imperial unity and harmony’ the British Empire goods would be exempted from tariffs until the conclusion of the Imperial Conference at Ottawa220. Imperial Preference was Britain’s way to show long overdue reciprocity to its Empire trading partners 221 . A more integrated Commonwealth would enhance London’s ‘political, diplomatic and even military status’ and help to ensure its supply of critical raw materials and food in the event of war222. Accordingly, the provisions for trade with foreign countries were entrusted with Runciman and Chamberlain and were of two kinds: in case of discrimination, imposition of additional duty up to 100 per cent, and lowering of foreign via reciprocal trade agreements (on hold till Ottawa)223.
219 N. Chamberlain Hansard, ‘IMPORT DUTIES. HC Deb 04 February 1932 Vol 261 Cc279- 96’, cols 288–289. 220 Chamberlain, HC Deb 04 February 1932 vol 261 cc 291-292. “I now come to the position of the Empire countries in connection with this change in our fiscal system. The Committee is aware that next July the Imperial Conference is to be held in Ottawa, when the economic relations of the members of the British Commonwealth will be discussed. His Majesty's Government attach the utmost importance to that Conference, and they intend to approach it with a full determination of promoting arrangements which will lead to a great increase of inter- Imperial trade. I have no doubt that the Dominions would no more question our right to impose duties in our own interests, for the object either of raising revenue or of restricting imports, than we have questioned theirs to do the same, but considerations of that kind have to be weighed against the advantages to be obtained from preferential entry into Dominion markets, even though they should involve some surrender of revenue or some lessening of the reduction of imports; and since, until we meet the Dominion representatives, we shall not be in a position to estimate the advantages or the disadvantages on either side, and since we desire to mark at every stage our wish to approach this Conference in the true spirit of Imperial unity and harmony, we have decided that, so far as the Dominions are concerned—and in this arrangement we shall include India and Southern Rhodesia also—neither the general nor the additional duties shall become operative before the Ottawa Conference has been concluded.” 221 Amery, HC Deb 04 February 1932 vol 261 cc 314-316. 222 Gowa and Hicks, 2013, 444. 223 Hansard, ‘IMPORT DUTIES. HC Deb 04 February 1932 Vol 261 Cc279-96’, p. 294. “(1) … [in case of] discrimination against the United Kingdom. The Board of Trade will be authorised, with the concurrence of the Treasury, to impose a duty which may amount to as much as 100 per cent., in addition to the existing duties …. we all hope it will never be necessary …if we have the power to extend the principle of reciprocity …. (2) … the lowering of tariff barriers in foreign countries by offering to reduce our own in return …. also the initiative lies with the Board of Trade, which will conduct the negotiations and, on a recommendation from the Board of Trade, the Treasury will have the power to direct the removal or the fixing of a lower rate on any goods …We attach a good deal of importance to this provision as a bargaining factor, but I should like to take the opportunity of stating clearly that we do not intend to conclude any arrangements of this kind with any foreign country until we have made our agreements with the Conference at Ottawa”
39 The Import Duties Bill passed its first reading on February 9 by a vote of 452 to 76224. It was rushed through its remaining stages by similarly crushing majorities, passed its third reading in the House of Commons on February 25, was on the statute-book by February 29, and became effective on March 1’225. Runciman and his wife did not pretend to like or want the Import Duties Bill. It was a necessary compromise of their free trade views arising from the political and economic circumstances of the time. No one could deny that the 10 per cent general tariff was quite different to Conservative protectionism, and was very much Runciman’s own personal contribution226 resultant from skillful maneuvering within constraints that trade protectionist coalition imposed.
No one knew how the tariff would go, everybody suspected in their heart that control over Imperial reorganization was largely diminished by the events since the Imperial Conference of 1926. Introducing Import Duty Bill to the House of Lords, Marquess of Londonderry stressed its importance to the success of the Imperial Preference: “Now we can enter the Conference at Ottawa with confidence and with hope…”227. Imperial protectionists believed that they could enlarge the export markets of the Kingdom as the result of the Ottawa Conference: “if the world decides on dividing itself into self- contained units we shall occupy a more powerful and a more influential position if we can speak to the world with the voice of the British Empire”228. Macmillan, looking with hope towards the meeting of the Ottawa Conference, pointed that under altered structural conditions “quite obviously you must develop the largest unit you can get at229”. Later, “when the world becomes gradually more settled, once more we may be able to move forward into […] the place of leadership of the industrial world”230.
224 adding to the Laborite opposition 28 Liberals (24 from Samuel faction, 3 from Lloyd George’s family and 1 from the Simon group.). 225 Lowe 1942, 132. 226 D Wrench, p. 73. 227 Hansard (Lords), Feb. 29, 1932, col. 675-678. 228 The Marquess of Londonderry, Hansard (Lords), Feb. 29, 1932, col. 675-678 229 Macmillan, HC Deb 05 May 1932 vol 265 cc1299-433. “[…] apart from the empire as a unit we must bring into the sterling and imperial ambit those countries which are prepared to work with us and make friendly and useful trading arrangements with us.” 230 Baldwin, Hansard, Feb. 9, 1932, col. 802. The realist perspective emphasizes that as instinctively political actors, states are motivated by more than simply the accumulation of material things— they have a desire for power as an end in itself Jonathan Kirshner, ‘The Economic Sins of Modern IR Theory and the Classical Realist Alternative’, World Politics, 66.November 4 (2014), 1–29 (p. 7)
40
According to Wallace, after Runciman had defined his position on Imperial Preference in December 1931 with support from MacDonald, there were two central planks to his tariff policy at Ottawa: (1) “their introduction should be used as a weapon in particular against Dominions to induce overall tariff reduction”, (2) “new revenue should be raised to offset other taxes, although unlikely to be enough to balance payments”231. Whereas Chamberlain had long planned “to make tariffs or custom duties only a part of larger Imperial trade policy” 232 , Runciman’s “lukewarm acceptance of the introduction of imperial preference was balanced by a determination that the whole process should lead to the overall lowering of tariffs. The British tariff would be a useful weapon in achieving this goal”233.
Ottawa: Imperial Preference 1932
When the Imperial Economic Conference met in Ottawa from 20 July till 20 August 1932: ‘it was widely viewed as the culmination of British political and fiscal developments’ originating from 1902 and before, and ‘as a long-delayed vindication of Joseph Chamberlain’s work for tariff reform’234. The Imperial Conferences of 1923, 1926, and 1930 had achieved no imperial economic resolutions without reorientation of Britain’s fiscal policy. The Import Duties Act ended this deadlock providing for bargaining position from which British policy-makers could negotiate reciprocal arrangements235.
The UK’s delegation to Ottawa included S. Baldwin, N. Chamberlain, Hailsham, Gilmour, Thomas, Cunliffe-Lister and Runciman who travelled with his wife Hilda. “[T]he Cabinet itself had come to Canada”236 entrusted by MacDonald “with full power to negotiate and in full confusion about the terms it might and might not accept”237.
Lake, and J. Lawrence Broz, International Political Economy: Perspectives on Global Power and Wealth, 5th editio (New York : W. W. Norton & Co., 2010), pp. 13–14.230. 231 Wallace 1995, 347. (also - to keep food free) 232 N. Chamberlain, Diary, 26 July 1929, cited in Feiling, 1946, p. 172.. 233 Wallace 1995, 346 234 Drummond, 1974, p. 170 235 Robert C. Self, p. 701. 236 And a large staff of advisers, most notable – Horace Wilson of BoT 237 Drummond, 1974, p. 217, 221.
41 The Statute of Westminster Act 1931 strengthened the expectation of the Imperial Preference as “a co-operation between the countries of the Empire for their mutual advantage, and not for the advantage of England alone”238. However, it was unclear whether the Conference would produce “one multilateral trade charter or a set of bilateral agreements”239. Chamberlain was working on “an agreement over a series of years with progressive decreases in the duties against British goods”240. In their opening addresses, Bennett welcomed Imperial Preference as the basis for closer economic association 241 while Baldwin delivered a liberal message underlining Britain’s commitment to free trade and principle of reciprocity: “Reverting now to Empire trade, we hope that as a result of this Conference we may … find ways of increasing them [preferences] … - either by lowering barriers among ourselves or by raising them against others. The choice between these must be governed largely by local considerations, but subject to that it seems to us we should endeavor to follow the first rather than the second course. For however great our resources, we cannot isolate ourselves from the world”242.
Because Hilda was at the conference, Runciman spent less time with Chamberlain and Hailsham who became key negotiators. He seemed to have assumed a diminished role, and over its duration developed strong dislike to the conference. Hilda hinted in her diary that this was a deliberate strategy so that Tories should have responsibility in case of failure, or smaller than expected results243. He still managed to wield considerable influence on negotiations and impressed Chamberlain by his treatment of Bennet with whose “pig”-like behavior Chamberlain had to put up for fear of jeopardizing the Conference244: “W was so annoyed by B's bullying manner that he bearded him in his den, told him he resented his behaviour, warned him that the Conference was heading
238 E. B. McGuire, The British Tariff System (Methuen & Co. Ltd, London, 1939), p. 257. 239 Macaonnell 1933, 336 240 Neville to Hilda Chamberlain. 27 July 1932. Robert Self, p. 337. 241 Macaonnell 1933, 335 242 Macaonnell 1933, 335. Reducing tariffs within the empire and not raising them against foreign goods, however, posed a fiscal problem: most empire countries could only reduce tariffs if they raised some, as they could not forgo customs revenue. Drummond, 1974, pp. 217, 219. See Wrench 2000 for Baldwin and “liberal Conservativism”, note affinity with Runciman’s principles. 243 HR diary 7-14/08/32 WR add 7 cited in Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. 353. 244 Neville to Anne Chamberlain, 16 August 1932, NCI/26/474 cited in D Wrench, p. 76.
42 straight for failure, declared that whatever he B. might say the world would put the failure down to him”245. They also shared the same view about Amery, who was suspected to be inciting the Dominions to make excessive demands246.
Their near idyllic co-existence was however soon shattered when Runciman’s pledge against meat duties (that had irritated Austen Chamberlain eight months before) was challenged by his delegation colleagues’ intention to bargain to the point that he considered resignation 247 . The rift between him and Chamberlain opened when Runciman forcefully objected not to duties but to production restriction that would hamper his negotiations with Argentina. Chamberlain had failed to convince him and on 12 August Runciman in conversation with Baldwin he refused outright to be responsible for restriction scheme248.
According to Wallace, Ottawa negotiations were long, difficult and sometimes bitter. The British policy that there should be overall reductions in tariffs was lost on the battlefield of competing national interests which were growing out of increasingly self- interested attitudes of the Dominion governments. Imperial sentiment was notably absent…”249. In the incident involving Runciman, Bruce (Australia) and Coates (New Zealand) withdrew their ultimatum on meat restriction in the end, making crisis overcome and enabling Runciman to return home with his clear conscience and unbroken pledges”250. The Ottawa resolutions stated “[…] That by the lowering or removal of barriers among themselves provided for in those agreements the flow of trade between the various countries of the Empire will be facilitated, and [in line with Keynes’s argument] that by the consequent increase of purchasing power of their peoples the trade of the world will also be stimulated and increased”251. The Ottawa failed to achieve the desired liberalization of intra- and extra-imperial trade, while after the Statute of Westminster passed into the Act of Parliament252 policy makers ‘had no
245 Neville to Anne Chamberlain, 10 August 1932, NCI/26/473 cited in D Wrench, p. 76. 246 Neville to Anne Chamberlain, 27 August 1932, NCI/26/470 cited in D Wrench, p. 76. 247 Hilda Runciman’s diary, 2 August 1932 cited in D Wrench, p. 76. 248 Chamberlain’s Ottawa diary, 16 July 1932; 17 July 1932; 27 July 1932; 1 August 1932 cited in D Wrench, pp. 76–77. 249 Wallace 1995, 353. 250 D Wrench, p. 78. 251 Macaonnell 1933, 336 252 The Statute of Westminster passed into the Act of Parliament on 11 December 1931
43 coercive mechanism to rely upon253. Notwithstanding, British ministers regarded a less than expected number of bilateral agreements as a good start of ‘long-term shift towards the imperial trade’ under the preference system254255. Runciman in particular “could regard the Ottawa agreements as a business-like compromise in which he had quietly minimized the long-term damage to the free trade cause”256.
After Ottawa
The dissenting ministers (Snowden, Samuel, Sinclair and eight junior Liberal ministers) who “having swallowed the camel of a general tariff, strained at the gnat of imperial preference” 257 refrained from making any general criticism of the National Government’s policy until they all resigned on 28 September 1932 over the decision to give effect to the Ottawa agreements on imperial preference258. Snowden wrote: “I was very sorry for Runciman. He seemed to be a very unhappy man. …The national Government was transformed into Tory government”259. The exit of free traders from the protectionist coalition left Runciman presiding over trade with less pressure and less support at the same time. Through political friendship Runciman remain a useful ally to MacDonald and Baldwin ensuring National Government endurance, also his friendship with N. Chamberlain and Hailsham deepened. For Bladwin’s ‘liberal, Disraelian brand of politics” - liberal Conservatism practiced in 1930s - retention of
253 Cain, Hopkins, 2002, p. 473. None of the Conference participants would sign a Chamberlain draft of ‘principles of imperial trade policy’. 254 Williamson 1992, 509. 255 HR diary 25/08/32 WR add 7 citen in Wallace, p. 355"(The Conservatives) drove a bad bargain, gave away more than was necessary…the one great gain from our point of view is that our Protectionists have really abandoned High Protection + actually committed themselves to a policy of lower tariffs as essential for the recovery of the world. Whether this is worth the trouble + expense + disillusionment of the conference I don’t know… I don’t think W really knows if we gained much…But perhaps he was right in leaving the negotiations to the Tories… It has been a great eye opener to Chamberlain + I hope had knocked off a good deal of sentimentality with which he clothes his imperial views". 256 D Wrench, p. 78. 257 62 op cit, p.281 (footnotes omitted) Jennings, Cabinet government, 3rd ed, 1965 258 House of Commons Library, Research Paper 04/82 , 15 November 2004, The Collective Responsibility Of Ministers- An Outline Of The Issues. Oonagh Gay, Thomas Powell Parliament And Constitution Centre, House Of Commons Library p.61 op cit, p.67. See also T Wilson, The downfall of the Liberal Party 1914-1935, pp 369-76. ‘having swallowed the camel of a general tariff, strained at the gnat of imperial preference’ 62 op cit, p.281 (footnotes omitted) Jennings, Cabinet government, 3rd ed, 1965 259 Snowden 1934 V2, PP. 1030
44 Runciman was key. After acquiescing to Runciman’s tariff design the Runcimans labelled Chamberlain as Low and not High protectionist 260 . The Runciman– Chamberlain partnership created the essential “compromise [between the Treasury and the Board of Trade] that enabled the National Government to dominate British politics for the rest of the decade”261. To Runciman, the extent to which he was free to carry out a policy that was in his view consistent with Liberalism, was important. The Tariff agreements with foreign countries which resulted in mutual reductions “vindicated his view that Britain could only work for freer trade by tariff bargaining”262
By October 1935 Runciman reported on trade agreements of preceding three years with nineteen non-Commonwealth countries: Argentina, Denmark, Finland, Germany, Iceland, Norway and Sweden in 1933; Estonia, France, Latvia, Lithuania, Holland and Russia in 1934; Brazil, Italy, Poland, Romania, Turkey and Uruguay in 1935. […] Rolling 12 month in June 1935 saw increase in British exports of 22% vs corresponding period in 1933; all exports including the empire increased 17%, and for non-Empire without agreements the increase was just 7%. The figures focused on specific industries, for instance coal, and overall economic recovery had to be considered263. These agreements reduced the relative impact of the Imperial preferences negotiated at Ottawa, and some of them (the treaty with Germany) encountered considerable criticism. After a long debate on 1 May 1933, fifty-five Conservatives backed a hostile motion by Austen Chamberlain, and thirty-three supported one moved by Amery264. In another debate on 25 May, Amery [unsuccessfully] pressed a motion to limit the Board of Trade’s powers to reduce duties recommended by the Advisory Board after which he concluded that “[Runciman] will have to be got rid of somehow”265. Moderate
260 Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. tbc. 261 Wrench, ‘Very Peculiar’, p. 82. cited in David Dutton, ‘Walter Runciman and the Decline of the Liberal Party’, Journal of Liberal History, 84.Autumn (2014), 26–36 (p. 65). 262 D Wrench, p. 79. 263 From draft memo by WR Commercial Negotiations with Foreign Countries 16/10/35 WR275 cited in Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’, p. 360. 264 John Barnes, David Nicholson, and Leo Amery, The Empire At Bay: The Leo Amery Diaries, 1929-1945, ed. by John Barnes and David Nicholson (London: Hutchinson, 1988), p. 293. 265 Barnes, Nicholson, and Amery, p. 295.
45 Conservatives supported tariff bargaining and Runciman's conduct of trade policy was a price they were prepared to pay to keep “National” protectionist coalition in power266. The elder Liberal statesmen like Lord Shuttleworth acknowledged the sincerity of Runciman’s compromise: “There has been gross misrepresentation of your work, but I feel sure that you took the right line in very peculiar circumstances to which the obstinate extreme Free Traders [Samuelites] could not adapt themselves 267 . By December 1933 Runciman was able to assert his sense of achievement: “we have succeeded in pulling down tariffs in every country with which, during the last twelve months, we have made trade agreements. Indeed it is a matter of pride that I know that I am the only British minister who has succeeded in bringing about a reduction in foreign tariffs since the time of Cobden's French Treaty”268269
Britain’s Long Return to Protectionism: Reflections on Theory
So how does this empirical narrative reflect back on hegemonic stability interpretation of Britain’s shift to protectionism and the systemic effect it had on the interwar structure of the international trade? Krasner attributes “the final dismantling of the nineteenth century international economic system” not to changes in British trade and monetary policies270, but to the First World War and the Depression: “Some catalytic external event seems necessary to move states to dramatic policy initiatives in line with state interests” 271 . For Kirshner, hegemonic system disruption functions as a signal
266 D Wrench, p. 80. 267 Runciman to Shuttleworth, 18 November 1933, Runciman Papers 264 cited in D Wrench, p. 80. 268 Runciman to Shuttleworth, 1 December 1933, Runciman Papers 264 cited in D Wrench, p. 80. There are few studies about Runciman; they seem to support this claim. See Wallace 1995, Wrench 2000, Dutton 2014. 269 Jonathan Wallace, ‘The Political Career of Walter Runciman, 1st Viscount Runciman of Doxford (1870-1949)’ (University of Newcastle-upon-Tyne, 1995), p. 360–361; 368;
46 compelling policy strategy rethink 272. Following the decline and systemic disruption (economic challenge from Germany, WW1) Britain was obliged to switch its commercial strategy between power and influence 273 . Theory predicts that “a hegemon’s interest should switch from openness to closure after its lead over rivals has peaked”, hence Britain’s shift to protectionism should have taken place in the 1880s, and not in 1932? According to Gowa, lags between power and regime change strongly suggest that other variables are necessary to any adequate explanation of regime continuity and change’ 274.
For Keohane, Krasner’s theory offers an interpretive guide “with post hoc qualifications” rather than a rigorous explanation of the past changes of international trade structures. He finds “lucidity” of Krasner’s analysis problematic because of the gaps in its causal arguments, in its explanation “why hegemony should engender openness”275. Here the problem, which Eichengreen finds with the hegemonic stability argument as applied to trade relations, is that “the neoclassical trade theories […] predict precisely the opposite, namely that large countries have the most to gain from restricting trade” 276. Also, political pressures for closure are more likely to focus on imports than on exports when hegemon attempts to tackle decline. While “Krasner’s hypothetical state seeks the public good of national advantage, … he does not explore the conditions under which such a state’s internal institutions would enable it to overcome fragmented interests and problems of collective action”277278.
Trade and Protection in Britain, 1860-1929’, in Protectionism in the World Economy, 1992, pp. 162–90. 272 Jonathan Kirshner, Currency and Coercion The Political Economy of International Monetary Power (Princeton University Press Princeton New Jersey, 1995), p. 215. 273 Kirshner, Currency and Coercion The Political Economy of International Monetary Power, p. 193. 274 Joanne Gowa, ‘Hegemons , IOs , and Markets : The Case of the Substitution Account’, International Organization, 38.4 (1984), 661–83 (pp. 682–83). 275 Keohane 1997, 153 276 Barry Eichengreen, ‘Review Trade Wars: The Theory and Practice of International Commercial Rivalry by John A. C. Conybeare’, The Journal of Economic History, 48.3 (1988), 799–801. (p. 800). 277 Keohane 1997, 155. 278 Kirshner, ‘The Economic Sins of Modern IR Theory and the Classical Realist Alternative’, pp. 8–9. “Revisionist approaches to realism admit to the complex interplay between domestic and international factors affecting structural change: ‘The trajectory of state choices is uncertain and influenced by domestic politics - political goals and values, historical legacies, collective ambitions and the content of national sentiment; and, importantly, the choices made by other
47
Using data from various archival collections, this paper offers a local-level explanation which aims to address the gaps in systemic accounts. Common imperial policy was a product of Imperial Conferences, and ever-changing party- or coalition-led governments in Britain and the Dominions. According to Pincus, “Britain and its empire need to be understood not as a nation-state with subordinate colonies but as an imperial state. […] deep divisions over how exactly to organize that imperial state’. […] occurred within both England and the colonies”279. Within the context of empire- entity lobbying was aggregated along national interests and was manifested politically: “Canada first!” as it turned out at Ottawa 280. From Seaton arguing that “it is impossible to separate international trade from politics. All argument on the subject that leaves politics out of account is argument in the air”281 to Kirshner a hundred years on it follows that “to understand which choices and outcomes will emerge from … plausible range [of economic policies], one must turn to politics”282.
Milner indicates that the structure of government and the nature of the party system as “important institutional factor shaping trade policy’ also can help explain why some policy makers are more favourable to protectionism than others” 283 . By focusing analysis on trade protectionist coalition’s ascent to power during the financial crisis in August-September of 1931, this puzzle provides interesting insight into the complexity (motivations of different factions regarding protection) and dynamic nature (conversions) of interest groups and individual actors. It shows that it is possible to great powers whose behavior shapes the nature of the opportunities and constraints presented by the system”. 279 Pincus, 2012b: 63. The interwar international system was composed of Empires, declining and rising. The ‘imperial state’ as an analytical category has been largely overlooked in both systemic and sub-systemic IPE analyses Charles P Kindleberger, The World in Depression,1929-1939 (Berkley: University of California Press, 1973); Robert Gilpin, U.S. Power And The Multinational Corporation: The Political Economy Of Foreign Direct Investment (Basic Books, Inc., Publishers, New York, 1975); Krasner; Helen V. Milner, Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton University Press Princeton New Jersey, 1988); Ronald Rogowski, Commerce and Coalitions: How Trade Affects Domestic Political Alignments (Princeton University Press: Princeton, New Jersey, 1989); Joanne Gowa, Allies, Adversaries, and International Trade (Princeton University Press: Princeton, New Jersey, 1995).. 280 Joseph M. Jones Jr, Tariff Retaliation: Repercussions of the Hawley-Smoot Bill (University of Pennsylvania Press, Philadelphia, 1934). 281 Seaton 1912, 31 282 Kirshner 2003, 23 283 Milner 2013
48 disagree and still negotiate consensus over the economic policy (as Runciman and Chamberlain did over protection and still get on with it). Attributing relative importance to individual actors284, Eichengreen and Irwin argue that discriminatory trade policies and international monetary arrangements during the interwar period “had neither a uniformly favourable nor unfavourable implication for world trade; instead the balance of trade-creating and trade-diverting effects depended on the motivations of policy- makers, and hence on the structure of their policies”285.
Why did Runciman go from the “bigoted” free trader to the chief architect of protection in the Cabinet politics under the National Government? The answer to this question offers a novel reading of Britain’s shift from free trade to protectionist equilibrium in 1932 through the analysis of leading individuals’ decision-making in reaction to the evolving systemic conditions. Crucial to this story is understanding of how Runciman shaped Britain’s foreign trade policy from his key position as the President of the Board of Trade in the National Government. Various crises in party politics, policy and government, including less studied imperial and international have been studied in isolation, yet they “did not bear upon contemporary political leaders in isolation, nor did they just happen to coincide: they became interconnected, and they reacted upon each other” 286 . While Runciman’s choice of trade policy instruments in financial “emergency” was subject to pragmatic calculation of the most viable solution to the problem, his essential belief in the imperialist brand of free trade continued to influence his attitude towards protection, and imperial preference in particular. The IPE theories which seek to provide a complete explanation of the process and conditions under “which policy makers will abandon ideas that produce “bad” results and what ideas
284 Douglas A. Irwin, ‘Political Economy and Peel’s Repeal of the Corn Laws’, Economics and Politics, I.1 (1989), 41–59; Morrison, ‘Before Hegemony: Adam Smith, American Independence, and the Origins of the First Era of Globalization’; James Ashley Morrison, ‘Shocking Intellectual Austerity: The Role of Ideas in the Demise of the Gold Standard in Britain’, International Organization, FirstView (2015), 1–33
49 they will adopt” seek to assess relative importance of variables’ shifts responsible for policy outcomes 287 . Thinking counterfactually, had it not been for the National Government obtaining mandate for imperial trade protection from the electorate and establishing protectionist coalition, there might not have been Import Duties Act and Imperial Preference in 1932. Had it not been for the free trader Runciman’s appointment to the Board of Trade and his skilful negotiation of the Tariff Reform Britain could end up being more protectionist, without his efforts the impact of Britain’s historical shift to protection on the structure of international trade could be different.
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