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 <https://api.parliament.uk/historic-hansard/commons/1931/nov/16/debate-on- the-address#S5CV0259P0_19311116_HOC_264> [accessed 22 May 2018]. 3 Eichegreen and Irwin 2010 4 Horsewood et al, 2010 5 Krasner, p. 341. 6 Gilpin 1975; Keohane 1984; Kindleberger 1973; Krasner 1978; Lake 1988 7 Temin 2008 88 Eichengreen 1996 9 McKeown 1983 10 Oye 1992 cited in Kirshner, Gourevitch, and Eichengreen 1997, 334. 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.