An alternative approach for promoting industrial efficiency would have been to inject more competition into the economy, by taking action against price-fixing agreements and by opening up the home market to imports. But the Labour Part’s attitude to competition was ambivalent. Many of its members were suspicious of the profit motive and preferred public ownership or public regulation to unfettered competition. Others argued that in industries where nationalisation was not feasible, private enterprise should be forced to become more enterprising, and this called for a vigorous competition policy. The 1945 manifesto contained a promise that ‘anti-social’ restrictive practices in industry would be prohibited. But it was not until 1948 that a Monopolies and Restrictive Practices Commission was set up, with limited powers. There was no automatic assumption that cartels were against the public interest; each case had to be looked at on its merits. By 1951 the Commission had published only two reports, and its impact on the behaviour of companies was negligible. Cartelisation was probably even more pervasive in the early 1950s than it had been in the 1930s.44
As for competition from imports, the weakness of the balance of payments ruled out any immediate removal of the tariff and quota restrictions which had been in force since 1932. The government was also determined to retain imperial preference, despite strong criticism from the US. Friction with the Americans over trade policy increased after the announcement of the Marshall Plan. The US government was pressing for Britain to take the lead in European economic integration, but Ernest Bevin, the Foreign Secretary, insisted that Britain was ‘not just another European country’.45 As leader of the Commonwealth and America’s most important ally, Britain wanted to co-operate with the US in managing a one-world system which would include the Continental countries, but not as a separate trading bloc. In 1950, in a decision which had profound implications for future relations with Continental Europe, the Attlee government decided against membership of the European Coal and Steel Community.46 Britain was not prepared to cede sovereignty over two of its most important industries to a supranational authority. The Labour Party was also hostile to the idea of Britain throwing in its lot with countries which did not share its commitment to full employment and a planned economy. Many people in the Party deplored the electoral swing to the right in France and Germany. Aneurin Bevan saw the defeat of the German Social Democrats in 1949 as ‘one of the blackest days in the history of post-war Europe’,47 and there was a widespread feeling that economic liberalism as practised on the Continent was a prescription for social injustice.48
Some economists in the Board of Trade favoured membership of the Coal and Steel Community on the grounds that the steel industry would benefit from being exposed to European competition, but this was a minority view. The negative reaction to the Schuman Plan was indicative not only of the government’s lack of enthusiasm for competition, but also of the low priority which it attached to trade with Europe. In the immediate aftermath of the war Germany’s absence from world markets created an opportunity for British manufacturers to increase their exports, and some of the restrictions imposed on Germany – for example, the ban on aircraft production – were designed to help British industry. But the idea of Britain replacing Germany as the main supplier of manufactured goods to European markets was not seriously entertained, even less so after the US change of policy in 1947. The general assumption was that in due course Germany would resume its prewar trade position in Europe, and that British industry would have little to gain from entering into head-on competition with German manufacturers in their natural market. As an internal government memorandum put it as early as 1946, ‘where German essential goods compete with the United Kingdom, it will be better for Germany to supply Europe and ourselves to concentrate on non-European markets’.49
In relation to Europe, as in most other areas of domestic and foreign policy, the Conservative government which took office in 1951 continued along broadly the same lines as its predecessor. In 1952 another opportunity to join the European Coal and Steel Community was rejected, and the British government played no part in the negotiations which led to the creation of the Common Market. Its position was that since the bulk of the country’s trade was outside Europe, it would gain nothing from membership of a narrow European trade bloc which might discriminate against the rest of the world. The movement towards European integration seemed ‘at best irrelevant to Britain’s economic self-interest and at worst a political nuisance which had to be tolerated, if only in public, because of the Americans’.50
In contrast to France and Germany, the challenge which Britain faced in the first decade after the war did not call for a radical break with pre-war institutions and policies. The biggest change was the enlargement of the government’s role in managing the economy and the focus on full employment as the prime economic objective. This was the consensus which emerged from the war, and Labour was remarkably successful in fulfilling the goals laid down in the 1944 White Paper. Keith Middlemas has suggested that the Attlee government may have been almost too successful in setting the pattern of post-war Britain. ‘It may, in the long run, have been unfortunate that so much was achieved in an extraordinarily fluid period at the war’s end which then set quickly in a particular mould before the 1950s began. Subsequently, the system could not easily be altered, even if it appeared no longer suitable to changing circumstances.’51
In the first half of the 1950s the system did not appear to need changing. Living standards were rising, unemployment and inflation were kept low, and the mixed economy which had been forged during and after the war seemed capable of meeting the aspirations of the people. In the second half of the decade this comfortable state of affairs came under threat on two fronts. First, the British economy was clearly under-performing in comparison with West Germany and other Continental countries. Second, social consensus was breaking down. With full employment taken for granted, self-restraint on the part of trade unions and their members in pressing for higher wages was fading fast. In the 1960s the search began, first under the Conservatives and then under Harold Wilson’s Labour government from 1964 to 1970, for ways of remedying the flaws in the post-war settlement.
Continuity and Change
The policy choices made in Germany, France and Britain in the 1940s and early 1950s flowed from the lessons which each country drew from its experience before and during the war. The shock to the political and economic system was far greater in France and Germany than in Britain, and the break with the past more complete. There was a strong desire in both countries to correct the errors which were responsible for earlier disasters. In France this meant state-sponsored industrial modernisation; in Germany, the decentralisation of economic power, with strict rules for the conduct of fiscal and monetary policy and a strong emphasis on competition. In both countries, too, European political and economic integration was given a high priority, as a means of preventing further wars and as a competitive stimulus for industry.
There were many differences between the two countries. France nationalised the leading banks and financial institutions, Germany did not. France adopted a system of indicative planning, Germany did not. Germany reformed its labour relations system, France did not. While Germany was cutting its tariffs unilaterally, France remained one of the most highly protected countries in Europe until the formation of the Common Market. The fact that both countries grew very fast despite these differences cautions against putting too much weight on particular reforms as a source of economic success. But the continuity with pre-war institutions and policies was greater in Britain than in either France or Germany, and this had an important impact on industrial performance, as the next ten chapters will show.