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The devaluation of the pound sterling on November 18, 1967, and the announcement on January 16, 1968, of a firm timetable for Britain's withdrawal east of Suez have been widely lamented as marking the "end of an era." Along with such spectacular domestic reversals as the imposition of charges for medical care and the promise of still heavier taxation, the events of the past several months may at least justify the clichés, so often repeated, that Britain is at a "turning point" or has reached a "crossroads." But does all of this necessarily mean continuing deterioration or indicate that Britain's economic base can no longer support her as a major power? Or can those of us looking on from outside reasonably hope that what Labor Ministers have called the "second Battle of Britain,"1 will result in new patterns of economic expansion?
Grounds can be found for predicting either outcome. The attempt here will be to search out some of the more encouraging possibilities. To fit these into perspective, one must first take a closer look at what has been going wrong in Britain during the post-Marshall Plan period, and then at what seems to account for the climax reached near the end of 1967. Indeed, any appraisal of where the British economy is heading must be mainly based on an analysis of where it has been.
II. WHAT HAS BEEN GOING WRONG?
Britain's root problem is that she has been attempting for too long to do more than her own capabilities, as currently mobilized and motivated, could support or afford. The gap between ambition and performance has revealed itself most arrestingly in the succession of balance-of-payrnents deficits, culminating with increasing frequency in balance-of-payments crises, and climaxing at the end of 1967 in the devaluation-in effect, a repudiation of 14.3 percent of Britain's external obligations to unprotected holders of sterling, in a last-resort effort to bring her receipts into line with her outpayments. A diagnosis of what went wrong must clearly begin, therefore, with the balance of payments; but it must then be extended back into the functioning of the British economy itself.