Market, Competitor Or Battlefield? British Foreign Economic Policy, Finland and the Cold War, 1950-1970
Total Page:16
File Type:pdf, Size:1020Kb
Market, Competitor or Battlefield? British Foreign Economic Policy, Finland and the Cold War, 1950-1970 Henri Niklas Jensen-Eriksen London School of Economics and Political Science Doctor of Philosophy UMI Number: U615255 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U615255 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 m Library 1 and Economy Scieno F S 3 0 9 Abstract During the Cold War, neutral Finland shared a long border with the Soviet Union. Despite two wars against the Soviet Union (1939-1940 and 1941-1944), and the threat of communist takeover, Finland survived as an independent, democratic country with a market economy. When the Cold War started in the late 1940s, the United States government and the British Foreign Office began to view trade as a potential means of drawing Finland closer to the West and preventing it from falling under Soviet domination. The extensive evidence of this has led many historians to underline the role of political considerations in Western foreign economic policy towards Finland. The present work argues that the Cold War rhetoric of the British Foreign Office paints a misleading picture of British government policy. Despite attempts by the Foreign Office to make political considerations central to the formulation of British foreign economic policy towards Finland, the impact of such considerations was in fact negligible. This was in part because the British were facing economic problems after the Second World War that limited the policy options available to British foreign policy makers, but was at least as much the result of the categorical refusal by the Treasury and the Board of Trade to take political factors into account and to use economic methods as tools of foreign policy in the Finnish case. Regardless of whether the economic costs of the proposed policies were large or small, the economic departments of the government treated them as an unwelcome interference in the promotion of the British economic interest and attempts to strengthen the British economy. The present thesis is based on a detailed study of British government documents. It argues that if one wishes to explain the underlining aspirations of British policy one must examine the UK decision-making process in detail, and not rely only on arguments the UK government representatives used to justify UK policy. 2 Table of Contents Abstract 2 Table of Contents 3 List of Tables and Figures 5 List of Abbreviations 6 1. Introduction 8 Reluctant partner? 10 Existing literature 15 The time-frame and structure of the thesis 20 2. The political and economic motives of UK foreign economic policy towards Finland 23 Why support Finland? 23 Why economy? 28 The economic motives and British foreign economic policy 43 Conclusion 63 3. The bureaucratic politics approach to the study of British foreign economic policy 64 Bureaucratic politics approach 64 The administrative machinery and formulation of British foreign economic policy towards Finland 80 Conclusion 89 4. Economic aid to Finland? 91 Countering Soviet pressure 91 Bureaucracy, economic aid and the lack of will 92 Aid for Finland or for British exporters? 95 Night-frost Crisis 102 Note Crisis 114 “Non-political” loans: World Bank and the Western capital markets 118 Conclusion 129 3 5. Finnish exports of woodworking products and butter to the UK 131 The UK as the traditional market for Finnish exports of woodworking products 131 Bilateral trade relations 1950-1957, aid in disguise? 133 No other choice? 149 ’’The wooden bridge” 154 Timber or paper - the drawbacks of Finnish-British trade for Finland 159 The half-hearted liberalisation, 1958-1970 163 Finnish butter exports to the UK, 1958-1970 175 Conclusion 185 6. The UK and Finnish participation in European economic integration 187 The outsider 187 The road to FINEFTA 201 The new arrangement in danger 219 Conclusion 223 7. Conclusion 225 Bibliography 230 Appendix A: The structure of British imports from Finland 258 Appendix B: The structure of British exports to Finland 259 4 List of Tables and Figures Table 1: British exports to and imports from Finland at current prices, 1950-1970 11 Table 2: The main destinations for Finnish exports (%) 12 Figure 1: The Eastern bloc's share of total Finnish exports and imports 35 Table 3: Finnish share of total British imports on certain woodworking products and the rank as a supplier, 1950-1960 45 Table 4: The UK balance of payments, 1950- 1970 (£ million) 49 Table 5: The main sources of Finnish imports (%) 62 Table 6: World Bank Loans to Finland, 1949- 1970 121 5 List of Abbreviations: AID Agency for International Development. (USA) BofE Bank of England BP British Petroleum BOT Board of Trade CIA Central Intelligence Agency (USA) CBI Confederation of British Industry CoCom Coordinating Committee (of Western strategic embargo) CRE Commercial Relations and Exports Division of the Board of Trade DOT Department of Overseas Trade DTI Department of Trade and Industry ECGD Export Credit Guarantee Department EEC European Economic Community EFTA European Free Trade Area EPU European Payments Union ERD Economic Relations Department of the Foreign Office FBI Federation of British Industries FINEFTA Association between the Member States of the European Free Trade Association and the Republic of Finland FCO Foreign and Commonwealth Office FO Foreign Office FOLA Freedom of Information Act (USA) FTA Free trade area GATT General Agreement on Tariffs and Trade HMG His/Her Majesty’s Government IBRD International Bank for Reconstruction and Development (World Bank) ICI Imperial Chemical Industries IFC International Finance Corporation IMF International Monetary Fund IR International Relations (discipline) 6 KGB Soviet Committee for State Security MAD Mutual Aid Department of the Foreign Office MAFF Ministry of Agriculture, Fisheries and Food MFP Ministry of Fuel and Power MOP Ministry of Power MP Member of Parliament MRC Modem Records Centre, University of Warwick NATO North Atlantic Treaty Organization NUM National Union of Manufacturers NSC National Security Council (USA) OEEC Organisation for European Economic Co-operation ONC Overseas Negotiations Committee SD State Department (USA) SGHWR Steam Generating Heavy Water Reactor SKDL Suomen Kansan Demokraattinen Liitto SMMT Society of Motor Manufacturers and Traders Try Treasury 7 1. Introduction ”Previous histories o f the Cold War have stressed open conflict and diplomacy. It is high time for a new history stressing economics” Diane B. Kunz (1997)1 The research on the history of the Cold War has expanded in recent years to include more cultural and economic topics in addition to the traditional political, diplomatic and military issues. This is not surprising, since the Cold War between the socialist and capitalist blocs had an impact on practically every field of human activity. The battle was not only a military or a diplomatic confrontation but as least as much a battle of “hearts and minds”2 and of economic superiority. This thesis is about the economic history of the Cold War, and more precisely about the conflict between economic and political motives in British Cold War foreign economic policy.3 On a global scale, both sides of the Cold War tried to promote the expansion of their economic systems and used economic methods to support and recruit allies and to coerce opponents. In practice, foreign trade and financial policies were often as much instruments of foreign policy as methods of promoting a country’s economic interests.4 1 Diane B. Kunz, Butter and Guns. America’s Cold War Economic Diplomacy (New York London Toronto Sydney Singapore: The Free Press, 1997), p.2. 2 For a review of recent literature on cultural Cold War and Western propaganda see Kenneth A. Osgood, "Hearts and Minds. The Unconventional Cold War". Journal o f Cold War Studies 4, no. 2 (Spring 2002), pp. 85-107; Tony Shaw, "The Politics of Cold War Culture". The Journal of Cold War Studies 3, no. 3 (Fall 2001), pp. 59-76. 3 Foreign economic policy, or external economic policy, includes government’s foreign trade and external financial policies, as opposed to the domestic economic policy, which is focused on domestic economic issues. These two fields are of course closely connected. 4 See for example Gunnar Adler-Karlsson, Western economic warfare 1947-1967. A case study in foreign economic policy, Stockholm economic studies. New series, 9 (Stockholm: Almqvist & Wiksell (distr.), 1968); Alan P. Dobson, US Economic Statecraft for Survival 1933-1991. Of sanctions, embargoes and economic warfare (London and New York: Routledge, 2002); Robert Owen Freedman, Economic warfare in the Communist bloc; a study of Soviet economic pressure against Yugoslavia, Albania, and Communist China, Praeger special studies in international economics and development (New York: Praeger Publishers, 1970); Ian Jackson, The Economic Cold War. America, Britain and East-West Trade, 1948-1963 (Houndmills, Basingstoke, Hamphsire and New York: Palgrave,