The Official History of Colonial Development: Volume 3 A Reassessment of British Aid Policy, 1951–1965

The over-commitment of resources, which was the basic cause of the inflation and the balance of payments problem, had been recognised by successive Chancellors of the Exchequer since Mr Gaitskell's time. None had managed to do more than warn and to trim expenditure plans. This was due to the lack of coherent economic policies by either of the two main parties. By mid-1956, the Government ofSir Anthony Eden was anxious to provide such a policy. It was embodied in proposals-known at the time as 'Plan G'-for the association of the United Kingdom with a new free trade area which might in time, it was thought, eventually embrace the majority of countries in Western Europe. The Plan might be summarised as follows. 23 First, the United Kingdom would enter a partial free trade area with the Customs Union of the Messina Six (Benelux, France, Germany, Italy) and all other OEEC countries which wished to join (probably Norway, Sweden, Denmark, Switzerland, Austria). Secondly, the area would probably not include either British or European dependent territories. Thirdly, the free trade area would cover all commodities, without exception, other than foodstuffs, including processed food products, feeding-stuffs, drink and tobacco. The exclusion of foodstuffs was regarded as an essential condition on which there should be unqualified insistence in the interests both of home agriculture and of Commonwealth producers. Fourthly, within the free trade area, tariffs, apart from strictly revenue tariffs, together with protective quotas and other protective devices, were to be reduced and ultimately abolished in defined and timed stages over approximately a decade. Fifthly, the United Kingdom Government would retain its existing freedom of action in the tariffs on imports from the rest of the world. There would be no change in the free entry of Commonwealth goods, and no commitment to discriminate in Europe's favour against the Commonwealth. Sixthly, the right to impose quotas in balance-ofpayments emergencies would be retained. Seventhly, the international management of the free trade area would be conducted in the OEEC by a Managing Board, at the Ministerial and the official levels, consisting of members of the area and operating under Article 14 of the IO A REASSESSMENT OF BRITISH AID POLICY OEEC Constitution. It was believed that this machinery could be developed in the OEEC on an inter-governmental basis without the establishment of supranational authorities, though some form of Parliamentary institution was thought likely to prove necessary, possibly by the development of a suitable link between the OEEC and the Council of Europe. Association with Europe, on the basis proposed, was expected to provide United Kingdom industry with a unified market of the size which modern technical developments required. It was recognised that it would lead to more intense competition from Europe in the home market, but it was realised that our economy would not survive for long if our industries were unable to compete with those of Europe. While a commercial policy based on the Commonwealth connection would be preferred, it was accepted that the conditions for such a policy no longer existed. The preference system was already crumbling away and there was no hope of re-invigorating it, as the United Kingdom market could not absorb much more of the primary products of the Commonwealth. The United Kingdom had become too small an economic unit and, if not attached to Europe, would be drawn, as a minor partner, into the sphere of influence of the United States. The capacity to invest was more important than the ability to trade, and Commonwealth countries were already being attracted to the United States as a source of investment capital. The economic unification of much of Western Europe was expected to create a new source of investment capital for overseas development. However, there were certain misgivings. It was felt that, although association with a free trade area would have a salutary and, from the long-term point of view, valuable effect on the competitive ability of United Kingdom industry, it would, in the short term, endanger the maintenance of full employment: with a fixed timetable for the removal of restrictions, the consequences, in terms of redundancy in weak industries, would become quickly apparent. As regards agricultural policy, it was considered that there was no incompatibility between Plan G and the policy currently advocated. Yet it was acknowledged that, should there be serious pressure for agricultural concessions in Plan G, HMG would have little room for manoeuvre; also, that ifit were proposed to increase the level of protection to British agriculture or to allow output to rise significantly at the present level of protection, Plan G would become difficult to negotiate. The consumer's interest in cheap food was not mentioned. Finally, it was recognised that the tendency to import too much might well increase if the United Kingdom entered a free trade area and, in the face of THE ECONOMIC BACKGROUND, I9SI-I963 I I German competition, it would be necessary to apply remedial measures more promptly and more vigorously than had previously been done. It was accepted that the Government should, therefore, satisfy itself that the necessary steps would in fact be practicable and be acceptable to the nation, as the risk of excessive imports was considerable. Thus, the arguments for and against proceeding with the Plan were fairly evenly balanced. It was recognised that the Plan involved the need for making more rapid and effective adjustments than had hitherto been achieved in internal policy and, once it was put into effect, every economic ill, whether inescapable or not, would be attributed to it. Even so, it was recognised that the economy could not be sustained indefinitely on the basis of a protected and insulated market, and the Plan opened the way to the competitive pressures which would force the economy to become efficient. Commonwealth countries accorded the proposals a friendly reception.24 They were anxious to maintain their market in the United Kingdom for agricultural products. India was more exercised over Asiatic than European competition in the United Kingdom market. Commonwealth members were especially concerned to secure an adequate volume of investment capital for their development, and there was some fear lest, as a result of the proposals, the investment resources of the United Kingdom might be diverted away from the Commonwealth and towards Europe. As far as the Colonies were concerned, it was thought that the Plan would be unlikely to cause serious damage to the trade being carried on with the United Kingdom. Colonial exports of raw materials, such as copper and rubber, enjoyed no preferences in the United Kingdom; and only a few Colonies, such as Malta and Hong Kong, were as yet interested in the export of manufactures to the United Kingdom market. Hong Kong was thought likely to find the prospect of European competition in the United Kingdom market less disturbing than the recurrent threat of quotas against her goods. The exclusion of agricultural products from the scope of the Plan was expected to go some way towards assuaging any fears which Colonial territories would entertain in regard to their current trade, and it was regarded as essential that the condition should be maintained in negotiations. As regards the future, the position was considered to be less satisfactory. Many other Colonies were likely in time to be interested in preferential margins in the United Kingdom on their exports of manufactured goods. This prospect would be denied to the Colonies if the Plan was implemented. Moreover, if the dependent territories of the European Powers THE ECONOMIC BACKGROUND, I95I-I963 I3 to increase Bank Rate to 7 per cent; it had not been so high since I920 nor raised so sharply except at the outbreak of war. 26 IV. COMMONWEALTH ECONOMIC DEVELOPMENT, I957 The Economic Policy Committee considered between February and May I957 the extent to which the United Kingdom could afford to assist economic development in the Commonwealth in the light of the insecure position of sterling and the severe limitations on resources for both internal and external investment.27 The Committee on Commonwealth Economic Development prepared reports on the provision of capital and on technical assistance. 28 At the same time, the Secretary of State for the Colonies, Mr Lennox-Boyd, invited his colleagues to agree that special measures should be taken to avert a serious reduction in Colonial development as a result of the failure of the London Market to provide the loan finance needed by Colonial Governments. 29 The memoranda were considered together by the Cabinet. 30 They were seen to indicate that Exchequer loans might be necessary for those Colonial Governments which were unable to raise funds otherwise for their capital programmes. It was felt that the United Kingdom Government could not, however, sustain a regular system of Governmental capital assistance to the independent members of the Commonwealth, and the Colonial Development Corporation should therefore concentrate its attention on the Colonial territories, and refrain from investing in new projects in Commonwealth countries after they had attained independence. However, it was agreed that the CDC should be allowed to second members of its expert staff to assist in the management of new projects in newlyindependent countries and, on occasion, itself to undertake the management of particularly important projects of this kind. As a result of this review of Commonwealth development, it was clear that there was no scope for the establishment of any new Commonwealth organisation for the co-ordination of economic development in the member countries. There might, however, be advantage in strengthening the Commonwealth Economic Committee; and, in order to ensure that such resources as could be spared for the Commonwealth were used as productively as possible, the Commonwealth Development Finance Company should be encouraged to expand its activities and to establish closer links with the work of those banking houses which operated throughout the Commonwealth. Front Matter....Pages i-xvi The Economic Background, 1951–1963....Pages 1-20 Colonial Development and Welfare, 1951–1961....Pages 21-99 The Modification of Treasury Control, 1951–1965....Pages 100-156 Colonial Sterling Balances, 1951–1961....Pages 157-185 Colonial Loans Policy, 1956–1964....Pages 186-210 The Transition from Colonial to Overseas Development....Pages 211-235 Technical Assistance and the Establishment of the Department of Technical Co-operation....Pages 236-270 The Commonwealth Development Act, 1963....Pages 271-308 The Overseas Development and Service Act, 1965....Pages 309-318 Back Matter....Pages 319-334