white men, yellow men, brown men, black men, every colour, every continent, every race, every speech – and all up in arms for THE BRITISH EMPIRE AND THE BRITISH QUEEN. Up they came, more and more, new types, new realms at every couple of yards, an anthropological museum – a living gazeteer of the British Empire. With them came their English officers, whom they obey and follow like children. And you begin to understand, as never before what the Empire amounts to.[36]
Much of the rhetoric from that week in June 1897 was similarly extravagant, often preposterous. A jubilee mug, inscribed with portraits of the 78-year-old monarch, carried the legend The Centre of a World’s Desire. A Canadian poet penned his own tribute:
Here’s to Queen Victoria
Dressed in all her regalia
With one foot in Canada
And the other in Australia.[37]
A truly remarkable posture, but not one that could be sustained for long. In fact, the world we have lost was one that we were bound to lose. Britain’s global power was always more limited than appearances suggested. A closer look at the nature of that power – economic, international and imperial – will help explain why.
The changing relativities of wealth and power
It is a precept of international affairs that wealth is needed to underpin power: to quote historian Paul Kennedy, there is ‘a very significant correlation over the longer term between productive and revenue-raising capacities, on the one hand, and military strength, on the other’.[38] The British case certainly fits that broad argument. In 1880, Britain produced nearly 23 per cent of the world’s manufactured goods; only 10 per cent in 1928 when Churchill was Chancellor of the Exchequer and a mere 4 per cent in 1980, around the start of Thatcher’s premiership. As a trading nation Britain’s slide was slower but the end result was similar. In 1899 Britain accounted for 33 per cent of the world’s exports of manufactured goods, 25 per cent in 1950 and less than 10 per cent in 1980.[39] While Britain’s share of the world’s wealth gradually diminished, the cost of armaments rose exponentially. In the 1980s, for instance, 385 Tornado fighters for the RAF cost more in real terms than all the 21,000 Spitfires produced before and during the Second World War.[40] Yet a nation that fell behind in the spiral of technological sophistication risked eclipse as a first-rank power, especially if others overtook it in economic capacity.
And this was bound to happen. Britain’s Victorian-era economic supremacy was in a sense artificial, given the country’s size and population. Britain’s comparative advantage was certain to be reduced once the process of industrialisation spread to countries with larger populations and greater resources – Germany in the late nineteenth century, America during the twentieth century and China in the twenty-first. The United States and the People’s Republic were both countries the size of a continent, blessed with a booming workforce, abundant natural resources and a vast tariff-free internal market. Apart from being disadvantaged in the long run by relative size, Britain was also susceptible to the ‘catch-up’ phenomenon. Once countries had crossed a basic socio-economic threshold, they could copy an economic leader’s technological innovations, rather than having to learn by trial and error. And the growth rates of previously underdeveloped countries always look particularly spectacular – the ‘Asian tigers’, for instance, in the 1960s, and China during the last quarter-century.
The predominant British response to economic catch-up was to consolidate existing advantages. One of these was its naval-industrial complex – based on integrated steel/armament/shipbuilding firms such as Vickers, Armstrong-Whitworth and John Brown, as well as the Royal Dockyards – which later diversified into military aircraft and tanks. In the early 1930s, Britain and France shared half of global trade in armaments almost equally between them; in 1938, Hawker-Siddeley advertised itself ‘the leading aircraft organisation in the world’. The British arms industry was boosted by the two world wars and sustained by the Cold War. Even though the ‘warfare state’, like the slave trade, is now largely omitted from general narratives about the British economy, it matters as much in the history of modern Britain as the ‘welfare state’.[41]
Even more important were financial and commercial services – another aspect of Britain’s economy often neglected by narratives of rise and decline that focus on heroic industrialism. This service sector coexisted with the development and mutation of industrialisation; indeed these processes were often complementary because goods can be derived from services just as much as services from goods – exemplified by innovations across the centuries ranging from bills of exchange and actuarial tables to barcoding and computerised trading.[42] Britain’s merchant navy, most of it serving non-British customers, headed the list of ‘invisible’ earnings, supported by insurance and banking. Together with profits from overseas assets such as railways, plantations, utilities and oil concessions, these earnings were equivalent to around 75 per cent of the earnings from exports of domestic merchandise in the 1890s.[43] These more than covered the gap between Britain’s imports and exports, and they provided a ‘war chest’ on which British governments drew in both world wars. Indeed, during the 1930s, the Treasury referred to Britain’s financial position as the ‘fourth arm’ – as central to waging a future war as the three armed services.
The other response to sharper economic competition was to shift from free trade to protectionism. In the 1900s, Joseph Chamberlain may have failed in his campaign for tariff reform, but in 1932, at the nadir of the world depression after Britain had abandoned the gold standard, his son Neville – then Chancellor of the Exchequer – steered it through the Commons with Joe’s widow watching proudly from the gallery. In a trading economy now protected by tariffs, ‘Imperial Preference’, meaning preferentially lower rates, was accorded to countries of the British Empire. An embryonic Sterling area was also formed during the 1930s, and then consolidated during the Second World War. This overlapped with Imperial Preference but was not coterminous. Canada, though enjoying preferential tariffs, was outside the Sterling Area; countries in Latin America and Scandinavia belonged to the latter but not the former. Between 1913 and 1938 the empire’s share of British exports rose from 22 per cent to 47 per cent, and during the interwar years the empire attracted far more new British foreign investment than non-imperial countries – a contrast with the pre-1914 story.[44] The empire/Commonwealth and the Sterling Area became the framework for British foreign economic policy – a privileged market for goods and capital which tried to insulate the domestic economy from international competition from the thirties to the late sixties.
The end of imperial preference and Britain’s entry into the EEC broadly coincided with the demise of the Sterling Area, the onset of the oil crisis and the collapse of the post-war boom. The long 1970s recession accelerated the process of deindustrialisation for all Western European countries, but Britain’s experience of it was exacerbated by the ferocity of class politics in the Thatcher era. Within this complex nexus of global economic change, it is no simple task to isolate the historical consequences of joining the EEC. Suffice to say here that a crude declinist narrative fails to take account of the country’s adaptive economic changes since the 1970s: an accelerating shift into services and the success of the financial sector, which adjusted particularly well to the post-imperial era.
‘As the good ship sterling sank, the City was able to scramble aboard a much more seaworthy vessel, the Eurodollar.’[45] This term signified dollar assets held not in the USA but in Europe – starting with those created by Middle Eastern states from