THE NATIONS: Hard Hearts, Hard Facts

The British economic crisis, which had been building up ominously for months, was no longer a subject in the sedate preserve of economists and statesmen. Britain was in a worse position than at any time since war’s end, and by last week every plain newspaper reader in Britain and the U.S. knew it, and knew more details than he had ever known before. Britain’s dollar reserves had dropped almost to $1.2 billion, dangerously below the safe minimum of $2 billion. In short, Britain was teetering on the verge of bankruptcy; since she acts as banker for the whole sterling area, her plight also meant the danger of panic and dire economic distress from Manchester to Melbourne.

In Washington next month a conference of the U.S., Britain and Canada will meet to see what can be done to save America’s most important ally. What worried the U.S. as much as the prospect of Britain going bankrupt was the possibility that, in an effort to stave off bankruptcy, the British might withdraw into a tight autarchic sterling bloc which would in effect split the West in two.

The Old Backbone. As the conference approached, the U.S. press sat up and took notice. It was natural that most U.S. papers, from the polite New York Times to the loud-roaring Hearst press, should pointedly recall the $3.75 billion U.S. loan to Britain, which the British had long since run through, and more than a billion dollars worth of ECAid, which had kept the British going so far. It was also natural that the press of a capitalist, free-enterprising democracy should blame Britain’s Socialist government and its works (e.g., nationalization of coal and railroads, the billion-dollar-a-year health plan) for a lot of Britain’s trouble. U.S. press comment ranged from the thoughtful view that Britain’s Socialist regime had merely aggravated a British economic weakness of long standing, to sharp criticism and invective (“The old British’ backbone is turning to putty…Here is that beggar again…”).

Before the U.S. press had got very far, the British hit the ceiling. War Secretary Emanuel Shinwell, who like most other Labor leaders has been free in his denunciation of free-enterprise capitalism as practiced in the U.S., last week cried petulantly: “Our magnificent efforts in the past are being overlooked.” Cried the tabloid pro-Laborite Sunday Pictorial: “It is fair to say that the British are riled; in fact, we are damned annoyed…We British are tired of Yankee insults.”

Some American comment was indeed impolite and some of it was unfair; a great deal more was sound and factual, and it could have given British readers a close view of their plight, which they appeared never to have gotten so clearly from their own press or their government. Britons who, when they got the U.S. loan, complained that U.S. prices were too high (and would cut down the amount of goods Britain would be able to buy in the U.S.) now cried that U.S. prices were too low; British manufacturers could not compete with them. Other Laborite headlines: “Stop the Sneers,” “Warning to Americans,” “They Are Slinging Mud at Britain.” Tory Lord Beaverbrook’s Daily Express had its own summary of these goings-on, and it was all but unique in Britain: “Judging by the undignified outburst of hysterical resentment…it looks as though all we can take today is dollars. But criticism? Never!”

Only a few British Laborites found a grain of comfort in what they heard from the U.S. They thought that there was political capital to be made from the crisis, even suggested the possibility of a quick general election this November. Explained one Labor M.P.: “A bit of American stonewalling, and we would go to the country with a dramatic clarion call to rally round retrenchment and reform rather than knuckle under to the dollar.”

A Revolution of Sorts. At the bottom of the crisis was a by now familiar phenomenon—the yawning “dollar gap,” i.e., the fact that Britain, like most of the rest of the world, spends more dollars than it earns in the U.S. The British have tried to meet the situation by more production, increased exports, by cutting dollar expenditures, and rigging bilateral trade deals with nondollar countries. The chief trouble (in U.S. eyes) is that the British are poor salesmen, do not adapt their products to what is wanted in the U.S. and have prices which are far too high for the briskly competitive dollar market.

Why are British prices so high? At least partly because British industry helps support Labor’s elaborate welfare state. But another big reason is British industry itself, which grew inefficient and complacent long before Labor came to power.

Washington believes there is only one way out for Britain—she must scrap her restrictive bilateral trade policies, produce more cheaply, and compete for all she is worth. That would mean a revolution of sorts in British industry and a sharp reduction in some of Labor’s pet projects. It would also require efficient redeployment of British workers to industries where they are needed most; that would cause temporary unemployment. The hard fact is that Britain cannot whip herself into trim competitive shape without at least temporarily lowering her standard of living.

It would be harsh medicine, but U.S. policymakers will do their best to make Britain agree to swallow it.

Cold Shoulder. President Truman last week picked tough, tight-lipped Treasury Secretary John W. Snyder to head the U.S. team at the Washington talks. In Britain, Economic Boss Sir Stafford Cripps and Foreign Secretary Ernest Bevin were packing up 20 top-secret briefs to take with them to Washington. Washington had a hunch what kind of suggestions the British might bring along. Some the U.S. was ready to consider, e.g., cutting of U.S. tariffs, stockpiling of British colonial products like tin and rubber. Other suggestions would meet cold U.S. shoulders, e.g., devaluing the dollar by raising the price of gold.

The British were not even expected to ask for another loan; Washington was in no mood to grant one. Reported one Washington newsman: “For the conference, the U.S. is developing an official hard heart.”

The official hearts would remain hard so long as the British held to what the U.S. regards as palliatives. A lot of sober Americans believed that it would be better for Britain if she faced up to the crisis now (e.g., by devaluing the pound, achieving more efficient production). As of last week, there was little evidence that Britain would accept this view. There was also little hope in Washington that the conference would produce major results in resolving the Western world’s crisis.