IT MAY perhaps seem presumptuous for one living in faraway Moscow to venture into an American periodical with his opinion concerning relations between the United States and Great Britain. But the outlines of a mountain range are better seen when viewed from a distance. And so perhaps also the essential features of Anglo-American relations can be better discerned from afar -- and with the aid of the Marxist outlook -- than close at hand.

Since the Second World War the United States and Britain are -- apart from the Soviet Union -- the two remaining Great Powers. Their relations, viewed in perspective, appear a peculiar combination of antagonism and coöperation, as a result of which the United States is constantly gaining ascendancy over Britain, reducing her more and more to the status of a second-rate power in both economic and political respects. This process began nearly half a century ago, but owing to the different effect of the war upon the economies of the two countries it has been immensely speeded up.

The decisive rôle which England played in world economy and world politics in the nineteenth century came to an end at about the century's close. That rôle had been based on the following factors: England's earlier industrial development, as the result of which she became "the workshop of the world;" her richness in coal; a climate particularly favorable for the development of the textile industry, then of overwhelming importance; her vast empire, created in 300 years of wars of conquest, which towards the end of the nineteenth century had a population of about 400,000,000, or one-fourth of the total population of the globe; her merchant marine; and her banking system with its world-wide ramifications. She was the banker of the world, including the United States of America.

In those days England was herself a free-trade country and a champion of free trade, in theory and practice, throughout the world. Thanks to her head-start in industrial development and the consequent lower production costs of her industries, she was in a position to outbid any competitor in the world market. For this reason she could also afford to permit the free import of goods from other countries into her colonies. (It goes without saying, of course, that English firms were given priority in capital investments, railroad construction, mining concessions, government contracts, banking, etc.) The United States and the industrial countries of continental Europe, on the other hand, put up high tariff walls to protect their relatively weaker industries against the strong English competition which they could not meet in a free market.

Politically, that was the epoch of England's "splendid isolation." She needed no allies and looked for none. It was the time, in naval terms, of the two-power standard -- "Britannia rules the waves." It was the epoch of "Pax Britannica." Britain's mastery of the seas was also a guarantee of peace for the American continent and made the Monroe Doctrine possible, thus extending immunity to foreign invasion to all Latin America.

But towards the end of the nineteenth century Britain lost her position as the world's leading industrial power. She fell behind the United States and Germany, which had meantime developed industrially at a swift pace. Here, however, I shall disregard Germany's development and confine myself to a comparison between the United States and Britain. In the second half of the century industrial production in the former developed at a much more rapid rate than in the latter, as the following index figures show:

Britain United States
1860 34 8
1880 53 17
1900 79 54
1913 100 1001
1 Vierteljahrshefte zur Konjunkturforschung. Sonderheft Nr. 31. Berlin: Institut für Konjunkturforschung, 1933, p. 69.

In other words, in the 50 years before the First World War, Britain's industrial output trebled, while that of the United States increased twelvefold.

Since the totals are not comparable, I shall cite figures which are comparable (in thousands of tons) for the output of three leading industries:

Coal Iron Steel
Britain United States Britain United States Britain United States
1871 117,000 42,000 6,600 1,700 200 2,000
1900 225,000 241,000 9,000 13,400 4,900 10,200
1930 244,000 480,000 6,200 31,800 7,300 40,600
1946 192,000 520,000 7,800 41,000 12,700 60,000

This table shows that, whereas in 1871 the United States was far behind Britain in respect to the output of coal, iron and steel, by 1900 she had left Britain far behind. In 1930 the United States produced twice as much coal as Britain (apart from 123,000,000 tons of oil), and five times as much iron and steel. It also far outstripped Britain in most branches of the engineering industry -- in the production of machine tools, agricultural machinery, office machines, automobiles, etc.

The underlying reasons for the swift industrial development of the United States are well known: its vast natural resources, good climate and large areas of fertile land per head of population, and the fact that its rich deposits of coal, oil and ores could be developed unimpeded by feudal survivals (with the exception of the cotton-growing sections in the South). Farming developed in what Lenin referred to as the "American way," i.e., it developed from the very beginning on the lines of capitalist commodity production untrammeled by landlords. All this created a big internal market. As is generally known, the United States exports, on the average, less than 10 percent of the commodities produced in the country,[ii] with agricultural produce still representing a relatively larger share than manufactured goods.

The policy of isolationism was a reflection of the fact that there existed a large internal market. Compared with the industrial countries of Europe and with Japan, the United States was less interested in colonies. Not that it waged no wars of conquest. But its aim was expansion on the American Continent, into areas that could actually be made part of the home market, and in the Caribbean. The conquest of the Philippines was an exception. The availability of a large internal market was the economic reason for the withdrawal of the United States from European affairs and her refusal to become a member of the League of Nations after World War I.

Two factors limited the American economic advance in the nineteenth century: capital and manpower. Both of these the United States was receiving from Europe -- capital primarily from England and manpower from the whole of Europe. The shortage of labor had a definite effect upon the development of American industries in the nineteenth century. Many of the immigrants, after some years of work in the industries of the east, proceeded westward to settle as farmers on the still free land. Wages in industry were relatively high. It was therefore more profitable to introduce expensive machinery than it was in England and in continental Europe, with their lower wages. The result was that the United States left England far behind in regard to productivity of labor, to output per man-hour. British capital equipment became antiquated in comparison. More industries in the United States became able to produce more cheaply than the same industries in Britain. The high American tariffs further impeded the import of British manufactures,[iii] while some American manufactures were conquering the world markets. In certain commodities, American exports in 1914 reached the following percentages of the total American output: sewing machines, 40.5 percent; typewriters, 30.9 percent; cash registers, 20.1 percent; bicycles, 13.3 percent.[iv] "Manufactures were gaining in relative importance in American exports before the war and losing ground relatively in the import trade." [v] English economists watched these developments with anxiety. I might recall Arthur Shadwell's book, "Industrial Efficiency," published in London at the beginning of the present century, which drew attention to the danger threatening England.

American competition became still keener after the First World War. At that time, as pointed out in the Balfour Report, about half the exports from Britain was already going to countries within the Empire.[vi] An important contributing factor was the preferential tariffs established by the Dominions for British goods, with margins amounting on an average to 9 percent of the ad valorem duties.

By way of reciprocating, Britain had by then introduced tariffs on various commodities (tobacco, sugar, coffee, cocoa, etc.) and granted preferences to the Dominions. During the great economic crisis of 1929-34 this development took the shape of the system of imperial preferences established at the Ottawa Conference in 1931. The system of imperial preferences has enabled Britain all this time to direct about a half of her exports to Empire markets. For example, she sold the following percentage of her exports in Empire markets: in 1913, 36; in 1929, 45; in 1937, 49; in 1945, 54; and in 1946, 50.[vii]

These figures make obvious how vital it is for Britain to maintain the system of imperial preferences. This is especially the case today, in view of the difference in the economic effects of the Second World War upon the United States, Britain's main rival, from the war's effects upon Britain herself.

The United States took part in the war during a much shorter period and -- in relation to population -- with smaller forces than Britain. Her casualties were relatively slight -- 262,000 killed, or one per 500 of the population. The number of men killed in action was much smaller than the number of Americans killed during the same period in accidents (355,000).[viii] There were no hostilities on United States territory, nor did it suffer from air raids.

The war, which created a practically unlimited demand for goods of every sort, resolved -- for the time being -- the hardest problem that had confronted United States economy after World War I, namely the contradiction between the output capacity of industry and agriculture and the capacity of the home and foreign markets. American industries, during the period between the two World Wars, worked at only 50-60 percent of their capacity (calculated on the basis of 300 shifts per annum),[ix] and millions of workers in the United States were chronically unemployed during those 20 years. Another result was the wholesale destruction of farm produce in the thirties.

The war provided the opportunity to make full use of the productive forces that remained unutilized in the years of peace, and led to a further expansion of the output capacities of American industries.[x] Plants were renovated and improved and the process of production further automatized. The result was that productivity of labor -- output per man-hour -- increased during the war by approximately 20 percent. The gap between the United States and Britain was thus vastly widened.

While the United States grew richer during the war, Britain -- despite lend-lease aid from the United States and contributions from the Dominions -- lost nearly a quarter of her national wealth (at home and abroad). According to official English figures,[xi] the decline by the middle of 1945 amounted to £5,083 million: £4,198 million abroad (£2,879 million representing the increase in foreign debts and £1,118 million the reduction of investments in foreign countries), and £885 million in Britain. This sum does not include damage caused by the war, deterioration of buildings due to lack of repair, or the depreciation and loss of household articles and various stocks. Britain's total loss of national wealth may be put, in round figures, at £7,500 million, or approximately a quarter of the total. And, what is worse, it is not apparent in what way Britain can make good this loss.

Britain's output is now undoubtedly below prewar. True enough, in December 1946 there were approximately 19,500,000 men and women "employed," against approximately 18,500,000 in June 1939. But these included an additional 1,000,000 in the armed forces and 700,000 in "public services."[xii] Hence the number of men and women employed in production was smaller than before the war.[xiii] Obviously, also -- in view of the wear and tear of machinery -- the productivity of labor is not higher, and in many cases it is even lower.

In the United States, the volume of industrial output in 1947 was 60 percent above the figure for 1939. No postwar index figures have so far been published for Britain. But in the "White Paper" we read: [xiv] "By the end of the year [1946] the rate of national output was probably not significantly below prewar over the economy as a whole." British economy is in fact in a vicious circle. If the national wealth is to reach the prewar level again, larger amounts of capital must be accumulated yearly than before the war. If consumption is to reach the prewar level, it is necessary to produce considerably more than before the war. Since fewer persons are employed in production, the productivity of labor must be higher than before the war. This could be achieved only by a thorough renovation of antiquated plants, as well as by the replacement of plants used up in the war or destroyed by bombing. But this would involve heavy capital investments. In other words, in order to accumulate capital, more capital has to be invested first.[xv]

So far, British economy, as admitted in the "White Paper," has not been able to break out of the vicious circle: ". . . capital equipment and maintenance work . . . done in 1946 . . . was probably much the same as in a normal prewar year. But this does not go far towards making up arrears from six years deferred maintenance." Even this accomplishment was possible only by keeping the standard of living of the large masses of the British people at about 10 percent below prewar by means of rationing nearly all consumer goods. This is something no Conservative Government could have achieved without provoking big mass strikes.

Closely connected with this question is the problem of increasing exports and balancing Britain's payments. In order to make up for the lost income from overseas investments, Britain would have to increase exports sufficiently above the prewar level to attain a favorable balance of payments. In 1946, receipts from exports and reëxports amounted to £900 million, against £533 million in 1938. Still, there was an adverse balance of payments, the deficit amounting to £450 million (compared with £70 million in 1938.[xvi] To balance the payments, exports would have to be increased by £450 million. Since, however, British export goods contain foreign raw materials, such as copper, nickel, manganese ore, chromium, cotton, wool, etc., to a value of about 20 percent, exports would have to be increased by a further £90 million. They would have to be raised still more if lost overseas investments were to be built up again. So far this is out of the question. As The Economist wrote in its issue of January 20, 1947: "The country is still running into debt abroad. Each month our balance of overseas payments is still unfavorable."

To add to the difficulties in the way of balancing overseas payments, Britain is buying heavily from the dollar area, while her sales in that area are much smaller. As The Statist reported on March 8, 1947: "In 1946 we took 35.1 percent of our imports, against only 22.3 percent before the war, from the dollar area, while exporting to that area only 7.6 percent (against 10.1 percent before the war) of our total exports. . . . That is why the dollar loans are running down so fast."

The balancing of overseas payments seems to be a virtually unattainable task, the more so since the imminent crisis of overproduction in the United States will reduce the chances for the export of British goods.

In order to make up for the adverse balance of payments for a few years to come, Britain asked the United States for a loan on non-commercial terms, pleading that her sacrifices in the war had been bigger than those of the United States. After protracted negotiations the loan was granted. But the United States categorically demanded that Britain should give up or at least mitigate the imperial preferences system. This demand is quite in line with the interests of big business in the United States. For the United States today holds a position in the capitalist economy similar to that of England in the nineteenth century. Given equal opportunities, she could best all competitors in the world markets. Hence the demand for the Open Door all over the world. But, unlike England of the nineteenth century, the United States is opposed to free imports. Even though American industry can hold its own against any capitalist competitor, big business still insists on maintaining high tariffs.[xvii]

It is true that in the loan agreement a reduction of American tariffs was promised in return for the abolition of imperial preferences. But the prospects of such a reduction are very slight. Business representatives are, indeed, in favor of reducing tariffs on raw materials which they have to import, but they object to a reduction of tariffs on goods which they manufacture. That is the stand taken by the Iron and Steel Institute, the National Association of Wool Manufacturers, the American Tariff League, and the like. Many of the unions belonging to the Federation of Labor are also opposed to a reduction of tariffs. The victory of the Republican Party in the recent elections has further diminished the chances of any material reduction in tariffs. Any changes may be rendered worthless by the application of the "escape clause," which stipulates that the contracting countries may revoke the tariff reductions if they lead to an increase in imports which may prove seriously harmful for an industry.

On the other hand, the experience of the twentieth century, and especially of the 1930's, has not been lost on American capitalists and economists. They are aware of the weaknesses of the American economy. They understand that American industry, with an output capacity which has increased by one-third during the war, cannot dispose of its entire production in the home market, that it is essential to push exports to the utmost in order to prevent a situation where more than a half of the industrial plant is constantly idle and there is a permanent army of unemployed, ten million strong. With Germany, Italy and Japan for the time being out of the running in the rivalry for world markets, and since for some time to come the European Continent can buy American goods only on credit, American competition is directed primarily against Britain, against the institutions which give her a position of advantage in her own Empire -- preferential tariffs, sterling bloc, colonies. The ultimate aim of American policy is to break up the British Empire.

Naturally, British statesmen as long as possible took a sharply negative attitude to the demand for the abandonment of preferential tariffs and the sterling bloc, and strongly resented American criticism of British colonial policy. Everyone remembers Churchill's statement: "I have not become the King's First Minister in order to preside over the liquidation of the British Empire." During the framing of the Atlantic Charter and the negotiations for the lend-lease agreement, he insisted on the insertion of clauses protecting the imperial preferences system.

Since circumstances made it imperative for Britain to obtain an American loan, the British eventually had to yield. But the American policy evoked a great deal of bitterness among British Conservative leaders. This is clearly discernible in a book by Mr. L. S. Amery, in which the blunt charge is made that America's foreign economic policy endangers the prosperity of other countries and the peace:

The American system means a free field for irresponsible American surplus production and financial power to create chaos and instability in a world of small economic units forbidden to coöperate for their mutual benefit and tied down by the restrictive effects of a rigid international monetary system.[xviii]

Another prominent Conservative leader, Lord Woolton, was reported by The Times, January 24, 1947, to have stated:

It was also stipulated that there should be conversations regarding preferences within the Empire. There was no harm in that so long as they ended in the right direction. There was no price on gold or dollars which could induce us to give up Empire trade. There might have to be changes, but he was certain it would be a very bad day for this country if it abandoned its right to trade within its own Empire or to trade among its own people under conditions which it determined. It would be a bad day if it allowed any other country, however friendly, to dictate the terms of its economic policy.

I have pointed out above that the United States is now assuming the position in capitalist world economy which England held in the nineteenth century. As has always been the case in history, the change in economic position has led to a change in foreign policy. Gone are the days when American foreign policy was based on the Monroe Doctrine, on interests confined to the American Continent, on "isolation" from European affairs, on aloofness from the League of Nations.

"The epoch of isolation is ended. It is being replaced by an epoch of American responsibility," wrote The New York Times on March 12, 1947. Today the United States is pursuing a world policy of imperialism in the fullest sense of the term. She has a bigger navy than all other countries of the world combined. She has the strongest air force. She has naval and air bases all over the world. She has the secret of the atom bomb. She has the biggest war budget of all the countries of the world.

Today the United States is the land in which militarism is most in vogue. Big business is bent on using the country's military power for the economic subjugation of the world. Dazzled by this military power, many Americans insist that the twentieth century must become "the American century." The present foreign policy of the United States -- the conversion of China and Japan into semicolonies; expansion in the Middle East (oil concessions and pipelines); the far-reaching penetration of American capital into Italian industries and aviation; the position taken by the United States in Africa; the 20 percent share of the United States in the foreign trade of British India, despite preferential tariffs; the entire foreign economic policy of the United States -- entails squeezing Britain out of her positions in every part of the world.

Historical development is unquestionably driving towards the disintegration of the British colonial empire. Even the most astute manœuvring of British colonial politicians cannot delay India's liberation much longer. And, as Curzon once said, without India there is no British Empire. The need to balance overseas payments makes it impossible for Britain to continue overseas government expenditure at the rate of £300 million (the sum spent in 1946) per annum. That is why she had to yield her positions in Greece and Turkey to the United States. Should American policy succeed in breaking down the system of imperial preferences and the sterling bloc, and, consequently, severing the special economic ties binding the Dominions to Great Britain, the latter will be reduced to a second-rate Power with a population of 48,000,000. The United States will then remain the only capitalist Great Power.

As reported in The Times on March 7, 1947, Churchill said in the course of the debate on India in the House of Commons that "it was with deep grief that he watched the battering down of the British Empire with all its glories and all the services it had rendered to mankind." (To be sure, the peoples of India, China and Africa have a different opinion regarding the "services rendered" by the British Empire.)

The change in the economic basis has led to a change also in the domestic policy of the United States. Roosevelt, as a great statesman, understood that it was in the interests of the American bourgeoisie itself to blunt the edge of the class struggle between the bourgeoisie and the proletariat by timely concessions which did not imperil the existing system. After his death, the forces of social reaction have been gaining the upper hand in the United States. The Republican victory in the latest elections further strengthened these forces. The numerous plans designed to circumscribe the rights of the working class, President Truman's order to remove from the civil service all persons suspected of Communist sympathies, the suggestions that the Communist Party should be outlawed, are all signs of the times.

The internal policies of Britain and the United States are moving in opposite directions. The Labor Government has a program of nationalization and peaceful transition to Socialism, and the British bourgeoisie displays flexibility in avoiding a showdown fight with the working class. In the United States, there is growing reaction harboring the danger of Fascism. As George Catlin aptly remarked in The Fortnightly for January 1947, "The British Tory shows himself these days, by comparison with his American brother, as already half a Socialist."

How does it happen that, in spite of all these contradictions, as Foreign Minister Molotov has pointed out, the United States and Britain form a bloc in the sphere of foreign policy?

The basis for this bloc is the joint fight waged by the United States and Britain to maintain the system of society existing outside the U.S.S.R. and to counter the influence of the Soviet Union in world affairs. The Truman doctrine, a turning point in American foreign policy, is a clear departure from Roosevelt's policies; whereas Bevin's policy is a direct continuation of Churchill's. Churchill, as is now generally known, was opposed to a second front in the west and favored an invasion of the Balkans in order that a British army might be in existence there as a counterpoise to the Soviet Army at the end of the war. Roosevelt's and Stalin's objections thwarted this scheme.

The Truman-Bevin policy is finding increasing opposition in the ranks of the Labor Party, while the British Liberals are finding justification for Bevin's policy in Britain's economic dependence on the United States. W. Rydal wrote in The Fortnightly in March 1947: "The Socialist rebels who berate Mr. Bevin for a foreign policy which, to all intents and purposes, makes Britain into a satellite of the mighty U.S.A., might reasonably be asked to face up to the unpalatable economic and financial facts." [xix]

The United States and Britain are pursuing policies which have many aspects in common. Truman's recent proposal to finance the arming of Greece and Turkey was described by The New York Daily Mirror as the most determined anti-Communist step taken by the United States since 1917. And Henry Wallace has pointed out that Truman's policy aims at having American troops patrol the frontiers of the Soviet Union.

Britain, on the other hand, and more specifically the Labor Party leadership, is conducting an ideological struggle against the rising Communist influence in continental Europe. The American ideology of unrestricted capitalism and free enterprise is hardly likely to find a congenial soil in present-day Europe. As Attorney General Sir Hartley Shawcross stated in a speech early this year: "The political conflict in Europe today is not that between Conservatism and Socialism; it is between Social-Democracy and totalitarian Communism." [xx]

So we see that, in spite of the serious differences dividing the United States and Britain, the two nations are united in the chief aims of their foreign policy. They are waging a common diplomatic policy, as was shown, for example, at the Conference of Foreign Ministers in Moscow. The money and armaments to prop up the far-from-democratic governments of China, Greece, Turkey, etc., are supplied by the United States. In its struggle against Communism, the new democracy and the Soviet Union, American reaction has taken the British Labor Government in tow, despite the increasing opposition which the latter is encountering from its own left wing.

Such are the main features of American and British policy, as seen from a distance.

[ii]Statistical Abstract of the United States. Washington: 1946, p. 888.

[iii] American tariffs on "staple British exports" averaged 19.5 percent in 1914 (the ad valorem level of American duties on British goods) and 32 percent in 1924. Committee on Industry and Trade, "Survey of Overseas Markets." London: 1927, p. 545.

[iv]Ibid., p. 459.

[v]Ibid., p. 452.

[vi] ". . . between 40 and 50 percent of our total exports are directed to Empire markets." "Final Report of the Committee on Industry and Trade," London: 1929, p. 22.

[vii] Calculated on the basis of figures cited in the "Statistical Abstract for the United Kingdom," 1913-1937, and The Board of Trade Journal, London.

[viii]Cf. The New York Times, October 13, 1945.

[ix] Even in the boom period, 1925-29, American industry worked at only 79 percent of capacity, according to the calculation of E. G. Nourse in his "America's Capacity to Produce." (Washington: Brookings Institute, 1934). But even these calculations contain serious methodological errors. Cf. my book, "Two Systems: Socialist Economy and Capitalist Economy." New York: International Publishers, 1939, Chapter IV.

[x] The Government alone built new factories valued at $16 billion, or about one-quarter of the value of all factories in the United States before the war. Cf. "Additional Report of the Special Committee Investigating the National Defense Program." Washington: U.S. Government Printing Office, 1944.

[xi] "Statistical Material Presented During the Washington Negotiations," Cmd. 6707, December 1945, p. 12-13.

[xii] "Economic Survey for 1947." Cmd., p. 36.

[xiii] The most serious setback for Britain is the continuing decline of productivity in the coal-mining industry. Here is the output per wage-earner of saleable coal in tons per annum: 1938, 301.9; 1940, 299.4; 1942, 274.8; 1944, 259.2; 1945, 246.2. The Times, February 20, 1947. The output is barely enough to meet Britain's domestic requirements.

[xiv] "Economic Survey for 1947," op, cit., p. 11.

[xv] American and Canadian credits are of some help, but far from enough -- the less so since nearly half of the American loan so far used has been spent to purchase, not capital equipment, but foodstuffs.

[xvi] Receipts from "oil, shipping, insurance" are not included in the balance of payments.

[xvii] In the past 50 years protective tariffs have undergone a functional change. Whereas in the nineteenth century they served as a means of protecting new and still-feeble industries against the competition of older industrial countries, in the twentieth century they serve in older industrial countries like the United States as a means of protecting the super-profits of the big trusts. These latter, protected by high tariffs against foreign competition, are enabled to maintain high prices within the country and to dump goods (which are sold at high monopoly prices inside the country) at low prices on the world markets. The Aluminum Company of the Mellon family furnishes a graphic example of what high tariffs mean to a trust. For decades prices of aluminum in the United States could be maintained above world prices with the aid of protective tariffs. This netted the Alcoa additional millions in profits every year.

[xviii] L. S. Amery, "The Washington Loan Agreements." London: MacDonald and Company, 1946, p. 153.

[xix] Naturally, England is trying to pursue a foreign policy of her own, too. The schemes to create a western bloc are directed not only against the Soviet Union; they also represent an attempt to bring together the European countries possessing colonies into a bloc capable of standing up against the United States.

[xx] Quoted in a letter from Ziliacus to The Times, January 25, 1947.

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  • E. VARGA, Director of the Institute of World Economics and Politics, Moscow; author of many economic studies
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