ORE Open Research Exeter TITLE The Labour Party's external economic policy in the 1940s AUTHORS Toye, Richard JOURNAL The Historical Journal DEPOSITED IN ORE 12 May 2008 This version available at http://hdl.handle.net/10036/25613 COPYRIGHT AND REUSE Open Research Exeter makes this work available in accordance with publisher policies. A NOTE ON VERSIONS The version presented here may differ from the published version. If citing, you are advised to consult the published version for pagination, volume/issue and date of publication The Historical Journal, , (), pp. –. Printed in the United Kingdom # Cambridge University Press THE LABOUR PARTY’S EXTERNAL ECONOMIC POLICY IN THE 1940s* RICHARD TOYE St John’s College, Cambridge . This article challenges the view that, in accepting the American loan and its attendant commitments to international economic liberalization, the Labour party easily fell in behind the Atlanticist approach to post-war trade and payments. It is suggested instead that Labour’s sometimes seemingly paradoxical behaviour in office was driven, not only by the very tough economic conditions it faced, but also by a fundamental contradiction inherent in its desire to ‘plan’ at both domestic and international levels. This contradiction – the ‘planning paradox’ – is explored with reference to pre-war and war-time developments, including Labour’s reactions to the Keynes and White plans of , and to the Bretton Woods conference of . The decision to accept the US loan, and with it the Bretton Woods agreements, is then examined within this context. Finally, an assessment is made of whether, in this key area of policy, Labour’s pre- deliberations were effective in preparing the party for the challenges it would face in government. I In the s the Labour party domestic programme was based upon the creation of a planned economy in Britain. The corollary of this policy at a world level was ‘international planning’, a concept which, though ill-defined, was seen as an essential prerequisite of the international socialist commonwealth to which the party aspired. During the war period, Anglo-American discussions of international economic reconstruction were briefly seen by some Labour thinkers as a building block towards the realization of such aspirations. These hopes were not fulfilled: the International Monetary Fund (IMF) and the World Bank, to which the discussions gave rise, were hardly socialist organizations. Nevertheless, Labour ministers, with the notable exception of Ernest Bevin, were amongst the strongest supporters within the British government of the agenda which helped create those institutions. Moreover, in the new Labour government accepted an American loan on terms which one cabinet minister, Emanuel Shinwell, declared would make socialist planning in Britain impossible. Indeed, Alan Booth has spoken of a Labour ‘volte face on foreign economic policy’ in the s: ‘Despite the rhetoric of the s on the death of free trade and the need for planning in this area, [Hugh] * I am grateful to Peter Clarke, John Toye and two anonymous referees for comments on earlier drafts of this article. The usual disclaimer applies. Dalton, [Hugh] Gaitskell and others easily fell in behind the Atlanticist " approach to the liberalization of postwar trade and payments.’ In fact there was no such volte face. Rather, Labour’s behaviour in office was driven by a paradox long implicit in its ideology. The party’s aspiration towards international forms of planning – which suggested some surrender of national sovereignty – was clearly at odds with its desire to extend state control over Britain’s own national economy. As the American ambassador noted in after a conversation with Clement Attlee, there appeared to be a ‘real inconsistency between socialism as a part of an international order, except as it may be wholely and completely socialist, and the socialist state as an instrument # for internal planning of the economic life of the nation’. Fundamental as this contradiction was, however, Labour’s behaviour in government cannot be explained purely in terms of ideology. The party’s attitudes were to a great extent conditioned by, and had implications for, Britain’s precarious economic circumstances, in the war years and after. Moreover, not only did Labour ministers play an important part during the war years in determining Britain’s attitude to the proposed new world arrangements; but, in power in their own right after the war, questions of international economic co-operation presented them with profound practical dilemmas. In and after , the Labour government would be faced with the question of whether political alliance with the United States could be reconciled with the pursuit of economic policies that America, Britain’s most powerful creditor, in fact found objectionable. There was a risk that, if the Atlanticist agenda on trade and payments was implemented in the short term, the British economy, already in a parlous state, would be crippled – and yet Labour ministers still needed to maintain the rhetoric of liberalization in order to secure much-needed US assistance. Labour was in this way caught between its prior aspirations towards ‘international planning’, and the consequences of the compromises such planning turned out to involve. A deeper perspective on these dilemmas can be gained by examining the Labour party’s own, often ambiguous, attitudes to international economic co- operation in the years before . Such questions have received little previous attention from historians. Richard N. Gardner made certain observations on the party’s war-time attitudes in his book Sterling-dollar diplomacy, but only on $ the basis of published sources. The principal studies of the Labour party during the war leave the issue to one side (albeit in the case of Stephen Brooke’s % Labour war: the Labour party’s economic ideas in the s consciously so). " Alan Booth, ‘How long are light years in British politics?’, Twentieth Century British History, () pp. –. See also Alan Booth, British economic policy, –: was there a Keynesian revolution? (London, ), pp. –. # Foreign Relations of the United States (FRUS) , vol. , pp. –. $ Richard N. Gardner, Sterling-dollar diplomacy in current perspective: the origins and prospects of our international economic order (New York, ). % Paul Addison The road to (London, ); Kevin Jefferys, The Churchill coalition and war- time politics, – (Manchester, ); Stephen Brooke, Labour’s war: the Labour party and the Second World War (Oxford, ), p. ’ Discussions by Alec Cairncross and Jim Tomlinson concentrate on the – & period, as do Booth’s brief remarks. The socialist historians Teddy Brett, Steve Gilliatt, and Andrew Pople, who seek explicitly to demonstrate the desirability of bilateralist trade in the modern world by reference to the experience of the ' s, use the same restricted time-frame. There is, however, a considerable quantity of published and unpublished material which makes a detailed consideration of the pre- issues possible. This consists partly of the Labour party’s public programme and of its internal papers and policy documents, partly of official sources, and partly of the writings and private papers of Labour leaders and advisers. The purpose of this article is to throw light on the Attlee government’s dilemmas over international economic co-operation with reference to the Labour party’s prior views, and to assess whether, in this key area of policy, these pre- deliberations were effective in preparing the party for the challenges it would face in office. These dilemmas principally revolved around proposals for economic liberalization, a term which encompassed several issues: greater freedom of payments through multilateral settlements; the elimination of discrimination in foreign trade; tariff reductions; and reductions in non-tariff barriers (e.g. quantitative import restrictions). The aim is to establish whether or not, by the end of the war, the Labour party had clear and coherent policies on what action to take on these questions in the post-war period. It will be argued that the course taken by the Attlee government was a product both of contradictions in Labour’s own previous thinking, and of the need to comply, albeit reluctantly and partially, and in the face of awesomely difficult circumstances, with the wishes of a powerful ally. First, it will be necessary to remark briefly on the party’s pre-war thought on foreign trade and international planning. Next, early war-time socialist thought on these issues will be considered. The party’s reaction to the respective international post-war finance plans of John Maynard Keynes and Harry Dexter White will then be looked at, followed by a consideration of its approach to the Anglo-American negotiations which culminated in the Bretton Woods agreement of . The Attlee government’s approach to the post-war American loan will be examined in the context of these earlier attitudes. Finally, some brief suggestions will be made as to the extent to which that government’s approach to international economic co-operation in the longer term reflected, or departed from, war-time developments. & Alec Cairncross, Years of recovery: British economic policy, – (London, ), pp. –; Jim Tomlinson, Democratic socialism and economic policy: the Attlee years, – (Cambridge, ), pp. –. ' Teddy Brett, Steve Gilliatt, and Andrew Pople, ‘Planned trade, Labour party policy and U.S. intervention: the successes and failures of post-war reconstruction’, History Workshop, (), pp. –.