Kitabı oku: «From Empire to Europe: The Decline and Revival of British Industry Since the Second World War»

THREE
Britain, Germany and France after the Second World War

Where did Britain go wrong after 1945? This question began to exercise the minds of politicians and economists at the end of the 1950s as they compared Britain’s relatively sluggish rate of growth with the spectacular performance of Germany, France and Italy. Many people felt that British industry, whether through its own mistakes or those of governments, had thrown away its opportunities at the end of the war. With their manufacturing capacity largely intact, British firms seemed to be in a strong position to make permanent gains in world markets at the expense of their pre-war competitors. Yet it was Germany, not Britain, which had an ‘economic miracle’, based on an extraordinarily rapid increase in exports. At the same time France and Italy, which had been laggards before the war, made a greap leap forward. By 1960 these three countries were threatening to overtake Britain and in some industries had already done so.

By historic standards the British economy performed well during this period. In common with the rest of Western Europe, Britain benefited from a world economic climate which was far more benign than in the 1920s and 1930s. Thanks to the leadership of the US, now converted to the virtues of free trade, the pre-war system of cartels and protection was dismantled, paving the way for a golden age of economic growth which helped all the European nations raise their productivity and their living standards closer to the US level. The British people, as the Prime Minister, Harold Macmillan, remarked in 1957, had ‘never had it so good’.¹ Yet the Continental countries did even better, and it was this disparity which gave rise to a growing sense of national failure, reflected in books such as Michael Shanks’ The Stagnant Society. The backwardness of much of British industry, Shanks wrote in 1961, ‘is becoming almost a music-hall joke’.²

A large part of the divergence with the Continental countries – and this was often overlooked in the general gloom about Britain’s deficiencies – was due to two factors over which neither British governments nor British companies had any control.³ First, the Continental countries had suffered more extensive damage during the war, and so were starting from a lower base. It was inevitable that once the damage had been repaired and rational economic policies introduced, they would enjoy some years of exceptionally rapid recovery. Most of the destruction had been to transport and communications rather than to factories. This was particularly true of West Germany, where new investment in plant and machinery during the war had exceeded losses from bombing and demolition.⁴

Second, Germany and France had larger agricultural sectors than Britain. As economic growth gathered pace in the 1950s, they could transfer labour from low-productivity farming into high-productivity industry, a transition which Britain had gone through many years before.⁵ In 1950 only 6 per cent of the British labour force was engaged in agriculture, compared with 28 per cent in France and 24 per cent in Germany. Whereas Britain was faced with labour shortages in the first decade after the war, the two Continental countries had a pool of surplus labour on which to draw. In Germany the pool was enlarged by refugees from Soviet-controlled East Germany, many of whom had useful skills and were strongly motivated to contribute to the revival of the country.

TABLE 3.1 Shares of world exports of manufactures 1929–73

Yet these two factors on their own are not enough to explain how the Continental countries converted post-war reconstruction into a period of sustained economic growth which lasted until the early 1970s. By 1973, as TABLE 3.1 shows (previous page), Germany’s share of world exports of manufactures was more than twice as large as Britain’s. This was not a continuation of pre-war trends. Something had changed to give the Continental countries a lift which was missing in Britain. As a first step towards exploring what had changed, this chapter considers the differences between Britain, Germany and France in the aftermath of the war, and the policy choices which were made in the three countries at that time.

The Social Market Economy in Germany

For the first three years after the war, the German economy was in a chaotic state, and living conditions were worse than they had been at any time during the war. The Nazi system of economic management, including price controls and food rationing, was still in place, but there was no central authority to administer it. The country was divided into four occupied zones, and, until the merger of the British and American zones in 1947, there was little co-ordination between them. Normal market incentives were not functioning, and the currency, the Reichsmark, had lost most of its value; firms and households relied extensively on barter and the black market. The slow pace of recovery was due as much to the policies of the occupying powers as to the effects of the war. The victors insisted that Germany must be made to pay for the destruction it had caused. This was to involve reparations, in the form of plant and equipment which would be dismantled and exported to the victorious nations, and restrictions on German industrial production. The main target was heavy industry, especially coal and steel, which was to be cut back in favour of light industry and agriculture. Although extreme ideas about the ‘pastoralisation’ of the German economy were quickly dropped, these measures contributed to a general state of demoralisation in the country.

The turning-point came in 1947, when the Truman administration in the US recognised that punitive policies towards Germany were damaging the interests of the West; a prosperous and united Europe could not be achieved with a permanently weakened Germany. With the announcement of the Marshall Plan and the subsequent merger of the three Western zones, the stage was set for the creation of the Federal Republic of Germany as an independent state, firmly tied to the Western alliance.

How this state should be organised, and how relations between West Germany and its neighbours should be regulated, were far from clear at the time of the Marshall Plan. The French government was determined to prevent the resurgence of a powerful neighbour that might again threaten France’s security as it had done three times in the previous eighty years. A particular concern was the coal and steel complex in the Ruhr, which, the French argued, should be either drastically reduced in size or placed under international control. These fears were not easily reconciled with the American view that the revival of German industry was vital for the rest of Europe; unless Germany resumed its former role as the main supplier of capital goods to its Continental neighbours, Europe would be dependent for an indefinite period on American equipment and American money.

The Americans wanted to mould West Germany, and Western Europe as a whole, in their own image – an efficient, competitive, capitalist economy tempered by the reforms of Franklin Roosevelt’s New Deal.⁶ But they did not try to impose a detailed blueprint on a cowed West German population. It was for the Germans themselves, subject to Allied approval on key points, to design their own institutions. The outcome was a blend of Americanisation and home-grown ideas.

The Social Democratic Party (SPD), whose prestige was high because of its opposition to the Nazis, believed that capitalism had failed and that it should be replaced by planning, public ownership and ‘economic democracy’; the last had been a long-standing party objective since the 1920s – an equal share for employees and trade unions in the running of the economy and in the management of companies. The Christian Democrats, a new party which united several of the centre-right parties of the Weimar period, were opposed to socialism, but a strong faction within the party had doubts about the free market as the principal regulator of economic activity. The party’s 1947 programme, known as the Ahlen programme, declared that ‘the capitalist economic system has failed to do justice to the vital political and social interests of the German people’, and called for the public ownership of major enterprises.⁷ Even the Free Democrats, a union of pre-war liberal parties, took a cautious line on the restoration of free markets.

The most coherent analysis of Germany’s past history and current situation came, not from the political parties, but from a group of academics who had been pondering the flaws in the country’s political and economic system since the 1920s. One of the leading figures was Walter Eucken, who was appointed Professor of Economics at the University of Freiburg in 1927 and continued in that post throughout the war. Others such as Wilhelm Röpke and Alexander Rüstow went into exile after Hitler’s rise to power, but they remained in contact with one another during the war.

The principal lesson which this group drew from the collapse of the Weimar Republic and the disasters that followed was that a third way had to be found between unbridled laissez-faire and the collectivism that had failed so abysmally under the Nazis. At the heart of their philosophy, sometimes called Ordo-liberalism, was the need for strict safeguards against the concentration of power, whether in the hands of government or of organised interest groups. The government’s influence over the economy must be limited in scope and governed by clear rules, so that the temptation to intervene for short-term political reasons would be eliminated. An independent central bank, with a remit to resist inflation and maintain the value of the currency, was part of this rules-based framework. The conduct of fiscal and monetary policy must be consistent and predictable, with anti-cyclical measures kept to a minimum. The highest priority must be given to the promotion of competition; the prevalence of cartels and tariffs was seen as one of the principal causes of the malfunctioning of the German economy under the Weimar Republic. But the Ordo-liberals did not envisage a passive, nightwatchman state. The government had to be strong enough to ensure that the rules of the market economy were enforced. It also had responsibilities in the social field, at least to the extent of providing a safety net for the disadvantaged. The approach was nearer to classical liberalism than to the Keynesianism which became fashionable in Britain and in the US after the war. It was an attempt to redefine liberalism in a form suitable for a modern society.⁸

These ideas were actively promoted by Eucken and others after the war, but at that time the tide of opinion was running in favour of a planned economy in which the price mechanism would play only a limited role. When the American and British authorities set up a Bizonal Economic Administration in 1947, most of the senior posts were held by Social Democrats and trade-unionists. A mild form of socialism, as favoured by the British, seemed a likely outcome when the Germans resumed control of their affairs. But an advisory committee was established on which pro-market economists, including Eucken, were represented, and they had an important influence on the debate which preceded the currency reform in June 1948. The reform itself, which involved the introduction of a new currency, the Deutschmark, to replace the Reichsmark, was the responsibility of the occupation authorities, but the other changes which were made at the same time – above all, the removal of almost all controls over prices and wages – reflected the victory of the liberals over the dirigistes within the Economic Administration. The man who was responsible for implementing the reforms, and had a large part in shaping them, was Ludwig Erhard.

The son of a shopkeeper in Fürth, northern Bavaria, Erhard was trained as an economist at the Nuremberg School of Commerce and worked for a market research organisation from 1928 until 1942. He then set up his own research institute and from this base he developed ideas about the post-war economy which, though not directly influenced by Eucken and his colleagues, placed the same emphasis on competition and sound money.⁹ In 1944 he circulated a memorandum to bankers and industrialists which included proposals for a currency reform and the phased removal of government controls. Erhard was not an active opponent of the Nazis, but he had kept his distance from them, and when Fürth was liberated by the Americans in April 1945, he was asked to take charge of economic administration in the area. Later in 1945 he was appointed to the post of economics minister in the new Bavarian government. Although Erhard fell out with other members of the administration and resigned in January 1947, he continued to propagate his views, and in September of that year he was invited to head a committee on currency reform within the Bizonal Economic Administration. A few months later the director of the Administration, Johannes Semler, was removed from office after making critical remarks about the policies of the occupying powers, and Erhard was appointed to take his place.

The 1948 reforms were spectacularly successful. ‘On the morning after the introduction of the Deutschmark, people accepted money in exchange for goods and labour services, the shop windows were full of goods which had previously been unavailable – at least legally – and black and grey markets were reduced to an almost negligible role.’¹⁰ This was the first step towards the revival of the German economy, but several crises had to be overcome before Erhard’s policies were firmly in place. A wave of price increases in the autumn of 1948 prompted demands for the reimposition of price controls. Despite a one-day general strike Erhard stood firm, the new central bank¹¹ tightened monetary policy and the threatened upsurge in inflation was brought under control.

Erhard’s growing reputation as the architect of economic recovery made him a valuable asset to whichever political party secured his support; he himself had no political ties, although his sympathies were with the Free Democrats. Konrad Adenauer, leader of the Christian Democrats, saw in Erhard a powerful weapon with which to defeat the Social Democrats in the first Federal elections, to be held in August 1949. The Ahlen programme was dropped and the Christian Democrats adopted a pragmatic version of the Ordo-liberal doctrine. The conversion of the principal conservative party to liberalism was an important event in post-war Germany; before the war the parties of the right, influenced by vested interests in industry and agriculture, had put more weight on nationalism and autarky than on the virtues of competition.¹²

Although the Christian Democrat share of the vote in the elections was not much higher than that of the Social Democrats – 31 per cent to 29 per cent – the support of smaller parties, including the Free Democrats, was sufficient to give the non-socialist parties a clear majority, and Erhard was installed as economics minister in the new Federal government. Less than a year later another crisis threatened to derail his policies. The outbreak of the Korean War led to a worldwide shortage of raw materials and semifinished goods as the Americans and their allies scrambled to re-equip their armed forces. A combination of higher prices and rising imports put the German balance of payments into deficit, and Erhard came under pressure to reimpose controls on the allocation of raw materials. Adenauer’s confidence in his economics minister was shaken, and there was a risk that Erhard would resign or be dismissed. But although import liberalisation was briefly suspended, the market economy proved to be more flexible than Erhard’s critics had expected, and by the spring of 1951 the ‘economic miracle’ was back on course.

The impressive performance of the German economy under Erhard’s stewardship made the alternative prescriptions offered by the Social Democrats increasingly irrelevant. Heavy defeats in the 1953 and 1958 elections prompted a reformist group within the SPD to rethink the party’s commitment to planning and nationalisation. The anti-capitalist element was out of touch with events, and the party’s conversion to the principles of the market economy was formalised at the Bad Godesberg conference in 1959; the rhetoric of the class struggle was abandoned. The slogan on which the Social Democrats united – ‘as much competition as possible, as much planning as necessary’ – did not eliminate differences with the Christian Democrats on aspects of economic policy, but there was a broad consensus in both parties about the priority that should be given to competition and free markets.

The opposition to Erhard’s insistence on competition came more from cartel-minded businessmen than politicians. The anti-cartel law which he introduced in 1952 met strong resistance, and when it was finally passed in 1957 it was weaker than Erhard would have preferred. The rules on monopolies were mild, and there were too many loopholes and escape clauses. But the law established the principle that cartels and other restrictive practices were unacceptable, and helped to wean German industry away from the anti-competitive practices which had been widespread before the war.

In pressing for action against cartels Erhard could count on support from the Americans, who regarded the introduction of US-style antitrust policies as a way of injecting dynamism into the German economy. The other aspect of competition policy to which the US attached great importance – the break-up of dominant firms – was more contentious. Two of the principal targets for the American trust-busters were IG Farben and Vestag; other large companies, including Siemens and Bosch, were briefly considered as candidates for break-up, but no action was taken against them. Erhard agreed with the Americans on the need to prevent monopoly, but had no objection to bigness if it could be justified on economic grounds. He was concerned that an over-drastic approach to deconcentration would weaken the ability of German companies to compete in world markets. IG Farben was broken up, but the three main successor companies – Bayer, Hoechst and Badische Anilin und Soda Fabrik (BASF) – were large enough to hold their own against the world leaders in the chemical industry, such as Du Pont in the US and ICI in Britain. In steel, the ties between steel-making and coal-mining were partially broken, but deconcentration was milder than the more enthusiastic American trust-busters had hoped for. The outcome was an industrial structure nearer to the American model of competitive oligopoly than to German practice in the 1920s and 1930s.¹³

The strongest safeguard against a return to cartels was not domestic competition policy, but the openness of the German economy to imports.¹⁴ Erhard was an enthusiastic proponent of free trade, and Germany was the pace-setter in European trade liberalisation; the average level of tariff protection was reduced from 19.6 per cent to 10.6 per cent during the 1950s. Imports of manufactured goods, principally from neighbouring European countries, increased rapidly, adding to the competitive pressure on German industry.¹⁵ Erhard favoured the widest possible free trade area and the minimum amount of government intervention in regulating exports and imports. When the French foreign minister, Robert Schuman, put forward the idea of a European Coal and Steel Community (ECSC) in 1950, Erhard was not enthusiastic. He disliked the idea of a supranational authority to control European trade in steel, suspecting that it might be a vehicle through which the German and French steel-makers could recreate their pre-war cartels. But there were great political attractions in the scheme for West Germany. It offered the prospect of defusing French anxieties over the future of the Ruhr, bringing to an end Allied controls over German steel production, and confirming the status of the Federal Republic as an acceptable partner in European affairs. These were the issues which mattered most to Adenauer, and the Coal and Steel Community proved to be a decisive step towards European political integration.¹⁶

On this larger issue, too, Erhard did not see eye to eye with his Chancellor. He was concerned that the proposed European Economic Community – first put forward by the Dutch foreign minister, Johan Willem Beyen, in 1953 – would be pushed by France in an illiberal direction. A better alternative, in Erhard’s view, was a free trade area covering Western Europe as a whole, including Britain. But Adenauer was more interested in the political than the economic aspects of the Common Market, seeing it as a means of binding West Germany into the Western alliance and strengthening the Federal Republic’s ties with France. The row between the two men simmered on after the Common Market had come into operation in 1958, and Erhard was disappointed, as were other liberals within the German government, when General de Gaulle vetoed Britain’s application to join the EEC in 1963. However, although the creation of the Common Market had a distorting effect on the pattern of trade – most notoriously in the field of agriculture – it had the offsetting advantage for West Germany of opening up the two most protected European markets, France and Italy. The process of tariff reduction within the EEC was almost certainly faster than it would have been in a looser free trade area, and in that sense the creation of ‘Little Europe’ had a positive effect on the growth of West German exports.¹⁷

Membership of the Common Market did not alter the fundamentally liberal thrust of German economic policy. But there were other reforms which had to be made if the social market economy was to function effectively. Conflict-prone labour relations had contributed to the instability of the Weimar Republic, and the collusion of many employers with the Nazis made the trade union movement even more determined to reassert itself after 1945. The unions were in a strong political position because of their opposition to fascism, and their demands for public ownership and ‘economic democracy’ were regarded sympathetically by the Labour government in Britain. But nationalisation faded from the political agenda after the defeat of the Social Democrats in the 1949 election, and the unions concentrated their efforts on the issue of codetermination – the sharing of power between employee representatives and shareholders in the management of companies.

The unions had made a significant advance on this front in 1947, when the British authorities in the Ruhr agreed that the reconstituted steel companies should assign half the seats on their supervisory boards to employee representatives.¹⁸ But this was only an interim arrangement. Final decisions had to await the establishment of the Federal Republic, and by that time the employers, some of whom regarded codetermination as socialism by the back door, had recovered their self-confidence. It was only through the patient diplomacy of Konrad Adenauer that a compromise was reached in 1951, confirming the arrangements that had been made in the Ruhr in 1947, but imposing a more limited form of codetermination in other industries. This was at best a partial victory for the unions, and it was followed by the Works Constitution Act of 1952, which was widely regarded as a defeat. All companies with more than fifty employees were obliged to have a works council, but council members were appointed by the workforce as a whole, not by the trade unions, and there were strict limitations on what the councils could do. They could not, for example, initiate a strike; their role was to act as mediators between management and workforce.

The strengths of the new system were that it entrenched the rights of employees in a legal framework which was designed to encourage cooperation between the two sides, without seriously impeding managerial freedom. Day-to-day issues in the factory, which were the domain of the works council, were separated from bargaining over wages, which took place at a regional or industry level. The two-tier arrangement was facilitated by the reorganisation of the trade union movement into a small number of industrial unions, each of which bargained on behalf of all blue-collar employees in its industry. Although relations between unions and employers remained uneasy for several years after the new laws had been passed, the bitterness of the Weimar years gradually faded. Even hard-line employers who had barely reconciled themselves to the existence of trade unions recognised that a fresh start had to be made.

The labour relations reforms, like other parts of the new order which took shape in West Germany in the late 1940s and early 1950s, combined a determination to learn from past mistakes with elements of continuity. Most of the interest groups which helped to build the new order – political parties, trade unions and employers’ organisations – had existed in much the same form under Weimar.¹⁹ But the reforms corrected weaknesses that had prevented the Weimar Republic from functioning effectively. The other crucial difference from the Weimar days was an exceptionally favourable economic environment, for which the US was largely responsible. The importance of the Marshall Plan lay not so much in its financial contribution to the modernisation of German industry as in opening the way towards free trade in Europe and creating the conditions for West Germany’s reintegration into the world economy.²⁰

Modernisation in France

The fall of France in 1940 has been described as ‘a psychological avalanche that buried pre-war certainties and created a new landscape on which reformers could build anew’.²¹ From it sprang a collective sense of national failure, and a conviction that fundamental reforms were needed to reverse the country’s economic decline. France appeared to be trapped in a state of permanent inferiority vis-à-vis its neighbour on the other side of the Rhine. Breaking out of this trap was the over-riding objective for post-war French governments. It was to be achieved by industrial modernisation and by preventing Germany from dominating Europe as it had done before the war. The hope was that, if this twin-track policy could be implemented quickly, France would displace Germany as the strongest industrial power on the Continent.

France’s backwardness could be traced partly to the slow pace of industrialisation in the nineteenth century, partly to the crippling effects of the 1930s depression. France had kept pace with the German states in the early phase of the industrial revolution, but the governments of the Third Republic, established in 1870, did not regard the promotion of industry as an important policy objective. Prosperity and social harmony were thought to depend on preserving a balance between agriculture and industry; Germany and the US, with their pell-mell rush for industrialisation, were not seen as models which France should imitate. This did not prevent an impressive French performance in some of the industries of the second industrial revolution. The French motor industry, for example, was the largest in Europe before the First World War, and France was also the leader in aircraft production. In the 1920s modernising elements in French business sought to propagate scientific management, mass production and other American techniques. But with the onset of the Depression, which came later in France than in other European countries and bit more deeply, French industry reverted to a defensive and inward-looking posture, with an increase in cartelisation and greater reliance on colonial markets.

This was the legacy which faced General de Gaulle’s provisional government when it was installed in Paris in September 1944. The government was a coalition in which the three main parties were the Communists, the Socialists and the Christian Democrats or MRP (Mouvement Républicain Populaire). The Communist Party, then at the peak of its influence, did not seek to promote a revolution, but rather to retain its hold on power, to preserve the unity of the left and to ensure that France did not align itself with the US-dominated Western alliance. It was also eager to participate in the task of national recovery, pressing its trade union allies to increase production and to refrain from strikes.

The economic programme was a compromise between the disparate elements in the coalition. Most of the basic industries, including electricity, gas and coal, were taken into public ownership, as were the leading banks and insurance companies (the nationalisation of Renault was a special case, prompted by the owner’s collaboration with the Pétain régime during the war). While these measures gave the government control over some key industrial sectors, they were not part of a comprehensive plan to direct the economy from the centre. Pierre Mendès-France, minister of national economy in the provisional government, tried to formulate such a plan, which would be administered by a strong planning office attached to his department. But he was opposed by other ministers, notably René Pleven at the Ministry of Finance, a former businessman and close ally of de Gaulle. Mendès-France resigned in the summer of 1945 and the Ministry of Finance established a dominant influence over economic policy.

The shift away from socialism became more pronounced when the Communists left the coalition in 1947. In April of that year an unofficial strike broke out at Renault in protest against the government’s wages policy. The strikers were at first denounced by the Communist Party. But as support for the strike spread, the Communists came under intense pressure to reverse their stance. When they did so, the government insisted that the maintenance of its wages policy was a matter of confidence, and that if the Communists were not prepared to support it they should resign. What emerged after 1947, under governments of a predominantly centrist or centre-right composition, was a distinctively French form of managed capitalism. Its inspiration was not a coherent body of doctrine akin to Ordo-liberalism in Germany, but the conviction on the part of an influential group of politicians, economists and government officials that the archaic structures of the French economy could be reformed only through purposive intervention by the state.

A central figure was Jean Monnet, appointed by General de Gaulle in January 1946 to head a small planning body, the Commissariat Général au Plan. Monnet was a businessman who had close ties with the US and he greatly admired the dynamism of American industry. He was also well aware, given France’s dependence on US aid, that any modernisation plan had to be framed in a way which was credible to American policy-makers. Monnet was convinced that French industry had to be made fit enough to face up to international competition. The first step was to rebuild and expand the basic industries which had been damaged in the war. The first Monnet Plan, published at the end of 1946, gave priority treatment to six sectors – coal, steel, electricity, railways, agricultural machinery and cement – which were given privileged access to public funds. In other industries modernisation commissions were established, consisting of government officials, businessmen and trade union leaders. The Planning Commission had no powers of compulsion, but the planners were able to put pressure on firms by using the government’s control over the allocation of credit, foreign exchange and essential raw materials.

Many of the targets set in the first plan were missed, and there may have been over-investment in basic industries to the detriment of the rest of the economy.²² But the existence of the plan, and the skill of Monnet and his colleagues in persuading businessmen to co-operate with it, helped to change attitudes.²³ The choice, Monnet insisted, was between modernisation and decadence, and this was a slogan which struck a chord in the country at large. The drive for modernisation affected civil servants as well as businessmen. The old administrative élite – products of the Ecole Polytechnique and the other grandes écoles – had played little part in the reforms that followed liberation; many of these officials had served in the Vichy administration, and they were widely blamed for contributing to the stagnation of the inter-war years. But de Gaulle believed that his plans for restoring the grandeur of France depended on a cadre of highly trained administrators dedicated to the service of the state. To combat the narrow-minded conservatism of the older schools, a new graduate school of public administration, the Ecole Nationale d’Administration (ENA), was set up in 1945. All senior civil servants were recruited through ENA; its curriculum was broader and less technical than that of the older schools. Although ENA did not democratise civil service recruitment in the way that some of its architects had hoped – its students continued to come mainly from the Parisian middle and upper classes – it helped to propagate a technocratic view of the state as a promoter of modernisation.²⁴ The technocrats were in command, too, in the newly nationalised enterprises. The spirit of the times was personified by the flamboyant head of Renault, Pierre Lefaucheux, a businessman who had played an active part in the resistance. Although he had socialist sympathies, he saw the company as ‘une entreprise-pilote’, setting an example of dynamism and innovativeness for the rest of the motor industry.²⁵

The first Monnet Plan had an important international dimension.²⁶ What was at stake was France’s place in Europe and, above all, its relationship with Germany. If France could take advantage of Germany’s defeat to build up its industrial strength, the balance of power on the Continent might be permanently altered in France’s favour. In this context the steel industry had a special significance. The French steel mills, concentrated mainly in Lorraine, had always obtained most of their coking coal from the Ruhr. The expansion of steel-making capacity envisaged in the Monnet Plan was based on the assumption that German steel production would be held well below its pre-war level. This would ensure that adequate supplies of coal would be available to France and that the enlarged French steel industry would take over from Germany as the principal supplier to Continental markets. In the aftermath of the war, when Allied policy towards Germany was in its punitive phase, these ambitions seemed realistic. But after the announcement of the Marshall Plan France had to accept that West Germany would soon be created as a sovereign state and reintegrated into the European economy. While the Americans recognised French sensitivities over the Ruhr, they were not willing to contemplate permanent curbs on German steel production. France had to find alternative means of fulfilling its industrial ambitions while protecting itself against German domination.

The outcome of this reappraisal came in 1950 with the proposal for a European Coal and Steel Community (ECSC), presented to the world by Robert Schuman, the foreign minister, but largely devised by Jean Monnet. The primary motive was political. It was a way of dealing with one of the most contentious issues in Franco-German relations and establishing a new partnership between the two countries. It was also an imaginative approach to European integration, and for that reason attracted the immediate support of the Americans. John Foster Dulles, Secretary of State, saw the Schuman Plan as ‘brilliantly creative’, while President Truman described it as ‘an act of constructive statesmanship’.²⁷ But Monnet also saw the plan as a way of shaking up a conservative and cartel-minded steel industry, he regarded the Treaty of Paris, which established the Community, as Europe’s first antitrust law. In the event, the impact of the Community on competition was more limited than Monnet had hoped. Although intra-European trade in steel increased, national governments continued to intervene in the industry for political and social reasons. Yet the treaty marked a shift away from the privately regulated cartels of the past and established a concept of European interdependence which could be applied to other sectors.

For the shift to go further, a transformation would have to take place in the attitudes of French businessmen. France was a highly protected country, and in the early 1950s some 40 per cent of its overseas trade was with the colonies. Monnet and his colleagues knew that intra-European trade offered far greater possibilities for industrial modernisation than trade with the Empire. A possible way forward was to continue the sectoral approach, extending to other industries the same principle which had been applied to coal and steel. But the Beyen Plan, which proposed the elimination of tariffs on all industrial goods among the six member countries of the ECSC, involved a much bigger leap in the direction of free trade.²⁸ The initial French reaction was hesitant, partly because of the weakness of the balance of payments, but by 1955, when the foreign ministers of the six ECSC countries met in Messina to consider the Beyen Plan, France’s trade position had improved and the advocates of free trade were in a stronger position to argue their case. As they saw it, sectoral arrangements along the lines of the Coal and Steel Community had serious limitations. ‘The French renaissance had to be completed by pushing the whole of French manufacturing into a competitive common market … Either France renounced liberalisation, modernisation and its hopes for the future, or it took the economic risk.’²⁹ That risk was taken when France signed the Treaty of Rome in 1957, and the next decade saw a rapid reorientation of French exports towards its Common Market partners (TABLE 3.2).

For France, as for Germany, intra-European trade was crucial to the high rate of economic growth which was achieved in the 1960s. But France’s approach to economic policy was more erratic than that of the Federal Republic. The most glaring failure was persistent inflation; successive governments were unable either to control public spending or to impose a German-style monetary policy. Consistency in economic management was not helped by the fragmentation of the political parties, leading to a series of short-lived coalitions. While the withdrawal of the Communists in 1947 had removed the risk of a swing to the left, none of the conservative parties commanded the same solid national support as the Christian Democrats in West Germany. General de Gaulle formed his own party, the Rassemblement du Peuple Français (RPF), rather than accept the leadership of the MRP. Political and social divisions were exacerbated by the colonial wars in Indo-China and Algeria, culminating in 1958 in a political crisis, the return of General de Gaulle to power and the inauguration of the Fifth Republic. The new constitution provided for a stronger presidency, and economic policy became more coherent.

TABLE 3.2 Destination of French exports 1952–73 (per centage of total)

The reform process in France differed from Germany in two other respects. First, the French government did little to promote internal competition. Although a law against price-fixing was passed in 1952, enforcement was lax, and cartels continued much as they had done in the 1930s. Second, there was no overhaul of labour relations. Like their German counterparts, most French employers before the war had been hostile to trade unions, and resented the concessions which had been forced on them at the time of the Popular Front government in 1936. After liberation in 1944 there were hopes that relations between capital and labour could be put on a new footing. One of the first acts of the provisional government was to require all firms with more than 100 employees to establish comités d’entreprises, or plant committees, through which managers and employees could work together to increase production. These committees were helpful in coping with the short-term problems of reconstruction, but there was no fundamental change in the labour relations system. The comités d’entreprises left behind ‘a residue of mundane achievement and a sense of unfulfilment’.³⁰

Thus the impetus for reform in France after the war was more limited than in Germany, and left some old institutions and attitudes intact. The biggest changes were the national consensus in favour of industrial modernisation and the recognition that a new relationship with Germany had to be forged. One of Monnet’s most valuable contributions, according to his biographer, was to promote a shift in attitudes among France’s ruling élite ‘from the pretensions of a moth-eaten great power to the realism of a medium-sized but ambitious economic one’.³¹ It was the weakness of France’s position after the war which encouraged bold and imaginative solutions to its problems, and in this context the Schuman Plan was crucial.³² The European Coal and Steel Community allowed France to assume a position of leadership in building post-war Europe, and pointed the way to the fuller exposure of French industry to German competition.

Britain’s post-war Consensus

In Britain the outcome of the war was an occasion for relief and self-congratulation. While it was recognised that the war could not have been won without American help, there was a justifiable pride in the courage and unity of the British people, and in the resilience of Britain’s institutions. The concentration of effort and resources on winning the war had been achieved, as one participant wrote later, with ‘a spirit of social cohesion and a perception of fairness which could hardly have been bettered’.³³ When Winston Churchill displaced Neville Chamberlain as Prime Minister in 1940, he invited senior Labour politicians to join the war cabinet, including Clement Attlee as Deputy Prime Minister and Ernest Bevin, head of the Transport and General Workers Union, as Minister of Labour. There was close co-operation between government, employers and trade unions throughout the war, and in planning for post-war reconstruction. The Beveridge report on social insurance, published in 1942, and the 1944 White Paper on employment policy reflected a broad agreement across the political spectrum on the priorities which should guide post-war governments: to maintain full employment and to prevent a repetition of the social hardships of the inter-war years.

Much of this consensus survived Labour’s victory in the 1945 general election. Although the election campaign was acrimonious – Churchill claimed that the socialist state which Labour wanted to introduce could not be run without a Gestapo, while Aneurin Bevan, a Labour left-winger, insisted that the election represented ‘a struggle for power between Big Business and the people’³⁴ – the gap between the parties was less wide than the rhetoric suggested. Labour’s landslide victory did not mark the conversion of Britain to socialism.³⁵ By presenting a manifesto which combined social reform with an extension of government control over the economy, the Labour Party convinced the voters that it was more likely than the Conservatives to ensure that the unemployment and stagnation of the 1930s did not return. Labour, under the cautious leadership of Clement Attlee, was offering a set of measures that built on the wartime consensus and added to it a number of social programmes, including the creation of a National Health Service, that were widely agreed to be necessary. Attlee and most of his closest colleagues favoured a mixed economy in which the role of government would be powerful but not overwhelming. There was also an assumption that the partnership between government, employers and unions which had been established during the war would continue.

The most pressing economic problem was the financial legacy of the war. The war had been paid for by borrowing, mainly from sterling area countries, and by the sale of overseas investments, supplemented by aid from the US under the Lend-Lease programme. With the abrupt termination of this programme at the end of the war, Britain was faced with an alarming gap between its foreign exchange outgoings, including debt repayments and overseas military expenditure, and its income from exports.³⁶ A new American loan was negotiated at the end of 1945, but strict conditions were attached to it, including a requirement that the pound should be made freely convertible into dollars in 1947; there was also pressure from the Americans to dismantle the imperial preference system and open up the British market to imports.

Britain’s balance of payments remained fragile throughout Labour’s period in office, necessitating a strenuous effort to hold back domestic consumption in favour of exports. Because of this financial weakness, Britain’s economic situation after the war was not as favourable as it seemed compared to Germany and France. Although Britain had sustained less physical damage, the two Continental countries did not have a large foreign debt to service, nor did they have the international obligations which stemmed from Britain’s shared responsibility with the US and the Soviet Union for supervising the transition from war to peace. The Labour government had the difficult task of correcting the balance of payments while at the same time pursuing its social objectives and fulfilling its overseas commitments. Despite severe setbacks, including the abandonment of sterling convertibility in 1947 and the devaluation of the pound in 1949, the balancing act was successful. By the time Labour left office in 1951, Britain’s overseas finances had been strengthened, full employment had been maintained, and a substantial social programme had been carried through.

Some historians have argued that the Attlee government devoted too much attention and resources to social welfare at the expense of what should have been a much higher priority – the modernisation of industry.³⁷ But Attlee and his colleagues were well aware of the need for higher productivity. The problem was not that their priorities were wrong or that too much money was spent in other areas, but that their industrial policies were not well conceived. In its election manifesto Labour had committed itself to planning and an extension of the public sector through nationalisation. How the plan was to be formulated, and what machinery would be set up to implement it, was left vague. Most of the wartime controls – over imports, over access to foreign exchange, over the allocation of raw materials – were still in place, and they were used by the government to support the export drive. But no new planning instruments were introduced. The proposed National Investment Board, which was to ‘determine social priorities and promote better timing in private investment’, was not set up, perhaps because the government thought that, by nationalising some of the most capital-intensive industries, it would have sufficient control over investment.³⁸ In principle the extension of public ownership enabled the government to plan at least part of the economy. But there was no link between nationalisation and planning. The impetus behind nationalisation was partly ideological. For left-wingers like Aneurin Bevan it was a way of ensuring that ‘effective social and economic power passes from one order of society to another’.³⁹ But most ministers saw public ownership as a way of solving particular problems in particular sectors, not as a step towards a socialist economy. Three of the industries which were taken over, gas, electricity and the railways, had been subject to government regulation before the war. The regulatory arrangements had not worked well, and public ownership could be defended as a more effective means of ensuring that these ‘natural monopolies’ were managed effectively in the public interest.⁴⁰ The most ideologically motivated nationalisation was that of steel, but even this could be presented as a way of dealing with the structural weaknesses in the industry which had not been tackled in the 1930s.

No serious consideration was given to extending public ownership beyond steel to other manufacturing industries, and the drive for higher productivity in the private sector took the form of exhortation and persuasion. The most active propagandist was Stafford Cripps, who served first as President of the Board of Trade and later as Chancellor of the Exchequer. He created a production efficiency service within the Board of Trade, supported the establishment of the British Institute of Management, and with Marshall Plan funds helped to set up the Anglo-American Council on Productivity, which sent teams of managers and workers to the US to study American manufacturing methods. Cripps also established working parties in a number of industries soon after the war, through which employers and unions could identify obstacles to higher productivity and work out plans for removing them. The government intended to convert these bodies into development councils with statutory powers, and legislation for this purpose was passed in 1947. But employers were unenthusiastic, fearing that the councils would cut across the work of existing trade associations. Only a few were were set up, and, apart from the Cotton Board (an existing organisation which was reconstituted as a development council), they were in minor industries.⁴¹

An important strand in the productivity drive was the promotion of greater co-operation between trade unions and employers. But the government did not contemplate any major change in the institutions of collective bargaining, still less a wholesale reform of the labour relations system. The only initiative which might have altered relationships at the shop floor level was an attempt in 1947 to relaunch the factory-based joint production committees, which had had some success during the war. However, many employers saw the committees as a step towards workers’ control, while the unions were anxious to ensure that they did not trespass into the field of wages and conditions, which should be left to the established channels of collective bargaining.⁴² Some union leaders were also concerned that joint production committees might be used as a vehicle for Communist shop stewards to increase their influence. Although the TUC and the major unions were fully supportive of the productivity drive, they were wary of any moves which might restrict their bargaining freedom. The employers, for their part, were determined to maintain their managerial prerogatives and to resist any encroachment either from the state or from the unions.⁴³ For the government to have banged heads together, or to have imposed labour relations reform by legislation, was politically out of the question. Ministers needed the cooperation of the trade unions in holding wages down (and in preventing strikes), and that of the employers in increasing production and exports. Thus the status quo was preserved.

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