on the World Today

IN A few months Great Britain has changed. It is different in its own concept of itself, in its situation, in its size, in its mood, and in its relationship with America. It has become more dependent on the United States for its own nuclear defense, for the hope of peaceful progress under a wider Pax Americana, and for its trade (America is now the biggest single market for British exports).

Yet Britain sees itself growing more independent of America in policy. “We are prepared to wait, but only a little longer, to see whether by further effort we can proceed by agreement with the Uniled States,”said Foreign Secretary Selwyn Lloyd in April as he outlined plans for extending Britain’s trade with Communist China.

This is perhaps the lesson from Nasser: that when the extension of politics is no longer war, but more politics, there is merit in a policy of robust independence (or even righteous infransigeance). The main value of Bermuda may have resulted from an expression of this intent of independence and an understanding that there is a break-even point beyond which it would be foolish, if not disastrous, for Britain to go.

British optimism

At home the pattern of this new Britain is still somewhat incoherent. But a pattern exists. The Macmillan Government is proving tough, revolutionary, and optimistic. the public is uncertain, argumentative, and also optimistic.

This optimism may seem insecurely based. The Government has received some heavy blows in parliamentary by-elections. Polls show its popularity running well behind that of the Labor Opposition. Lord Salisbury, who was such a power in the selection of Macmillan as Prime Minister, has resigned. The “last-ditch reserves” of the sterling area have been called up to protect the pound. The country has been facing serious and widespread strikes.

Yet the optimism undoubtedly exists. It can be seen and felt in the streets. It is the very basis of the national budget that distributed its main benefits to the well-to-do. It is even implied in the strikes, for they have been caused by a conviction that Britain is booming and can well afford much larger wage increases than are offered.

The position of the country is something like that of a defeated heavyweight who has discovered that he need not after all ignominiously retire but by shedding a little superfluous weight can make a good living as champion of the middleweights.

Britain is shedding weight and making a good living. It is withdrawing from many of its overseas commitments. It is hastening the independence of a number of colonies — Ghana is already on its own; Singapore and Malaya will be next; the Caribbean after that. Britain is revolutionizing its defense— no draft after 1960, priority for the Hbomb, no more manned bombers and fighters, no more battleships, overseas garrisons to be progressively reduced, and a small mobile striking force to be maintained within the British Isles. With American aid in the shape of guided missiles, Britain is even this year saving $500 million on defense costs.

Banker to half the world

The main purpose of all this is to protect the pound sterling so that Britain can maintain its position as banker to half the world. The big unsettled question, however, is whether the financial defense of sterling will have to go the same way as the military defense of Britain. On the answer to it almost everything else depends, particularly the length of life of “Macmillan’s England.”

As yet no British Government since the war has managed to combine, for longer than a few months, an expanding economy with a surplus of the balance of payments. No Government has solved the paradox that when the country is doing well the people feel hard pressed, and when the people feel prosperous the country’s overseas accounts are in the red.

The Conservative Government has indeed achieved a surplus of trade, but at the cost of two full years of stagnant production. Even while achieving a surplus of trade, it has lost a vast proportion of its reserves of hard currency. The short-term reason was the loss of confidence in the pound following Suez. The longterm reason has been and still is capital outflow — withdrawal of sterling balances by Western European countries and Japan, and use of sterling for capital investments in or by present and former colonies.

If 1957 were the model for future years, Britain would need a regular trade surplus of $1 billion. This is a greater surplus than any nation except the United States has ever achieved — even including modern Germany. To achieve it, and at the same time to expand production (and consequently draw in imports), would be an unparalleled achievement on the part of Peter Thorneycroft, the Chancellor of the Exchequer. Not to achieve it would be either to court unemployment or to imperil the pound sterling as a world currency.

In this light the attitude of the trade unions seems to represent an unconscious ret reat-wish, as if they believed Britain would find life easier and pleasanter if the final withdrawal from power were made and Britain ceased to be banker to half the world. In the last analysis the value of the pound — but not necessarily the feeling of individual prosperity — depends on production’s keeping pace with wages. While production has been static, wages have increased by 10 per cent. In the engineering and shipbuilding dispute the demand of the unions has been for another nation-wide wage boost of 10 per cent. This trend also imperils sterling.

Macmillan’s revolution

The tough attitude of the unions has not been softened by Thorneycroft’s otherwise most promising budget. Contrary to some impressions, Thorneycroft has not distributed very much money. He has used only a third of his defense savings to give tax relief. He has budgeted for a revenue surplus of nearly $1 billion, more than any since the days of the austere Sir Stafford Cripps. But most of the $280 million he has distributed has gone to the payers of surtax, an additional graduated income tax that started after one had earned $5670. (The Russian $12,000-a-year family man keeps 87 per cent, of his pay; the American 83.2 per cent; the British even now only 67.2 per cent.)

There are three main reasons for a “big brass" budget concession. In the first place, it has been given to those most likely to save it, Secondly, it has broken for the first time through the sound harrier of the surtax, whose low ceiling, compressed ever since 1919 by continually rising prices, made promotion almost valueless after the $5670 point had been reached. Thirdly, the decision fitted squarely into the concept of Macmillan’s revolution.

This Government is tough. And it is pushing through its “Opportunity State" — a version of the American system of modified competitive capitalism—even against opposition within its own ranks. The Rent Bill, taking controls off ihe rents of privately owned unfurnished accommodation, is a case in point. The country, sheltered by rent, control for nearly twenty years now, is afraid of this bill, and many Tory M.P.’s have fought it in private and public.

Another sign of toughness is the way Macmillan allowed Lord Salisbury, his patron and the greatest power in the House of Lords, to drop out of the Government. The Prime Minister now also seems to have firm control of the Suez “rebels.” Their leader, the redoubtable Captain Waterhouse, has announced he will not stand again for Parliament, Their second-in-command, Julian Amery, is silenced by virtue of his appointment to the cabinet.

Tensions in the Labour Party

Aneurin Bevan remains, publicly and privately, convinced that inner tensions even yet will cause this Government to fall in a matter of months. But inner tensions inside the Labor Party—there has been almost a complete split over whether or not to demand immediate cessation of all H-bomb tests before Britain explodes her first meanwhile servo to strengthen the Government. The most striking development in the Labor Party remains the growing stature of Bevan himself. He is now personally credited with dissuading India from leaving the Commonwealth, a step it was close to taking (against Nehru’s weakening wishes) when Bevan arrived on a tour there in April.

Tories believe that us far as repul alions go that of Hugh Gaitskell has gone. Although the wish is father to the thought, it seems likely that Gaitskell has not yet. won the leadership of the Labor Tarty for keeps. Ilevan today is a more serious competitor than ever.

What kind of defense?

On the Government side, Iain Macleod, Minister of Labor, shows a kind of brilliance that the British admire, getting results without flamboyance. And Duncan Sandys has made a name for himself with his defense proposals. There is a growing feeling, however, that these proposals will later have to be modified. They may be too revolutionary. They seem to result from an “independence neurosis.” But concentration on a British H-bomb does not make Britain any more independent than it has been before, and the eventual scrapping of orthodox forces could clearly make it less so.

Presumably it is taken for granted (hat a “Suez conflict” can never happen again. But difficult questions remain unanswered. What do you use in a limited war in which you wish to kill as few people as possible? Can aircraft and infantry everywhere in all situations be opposed by rockets and tactical nuclear weapons? The defense proposals are possibly most important not in detail but in general; in their tonic effect upon the economy, in the notice of acceptance of change that they give, and in the bold way they seek to make a new best of Britain’s changed position in the world.

The Common Market

Equally bold, equally determined, and equally subject to the pressure of unplanned and possibly unwanted changes are Macmillan ‘s proposals for British participation in a European Free Trade Area. The terms of this are already familiar — an area of free trade in manufactured goods surrounding a complete six-nation Common Market. Macmillan wishes to exclude food and farm products from the deal and to maintain the preferential tariffs Britain accords its colonies and Commonwealth partners. But already France has persuaded the Common Market six to include colonial possessions in the central plan, thus giving Continental European dependencies a marked advantage over those of Britain if the country does not change its mind.

And Macmillan’s hopes are challenged in another way, The Common Market is intended as another step on the road to union. It is to have a legislative Assembly, a Council of Ministers, and a Court of Justice. The Free Trade Area is intended as a straight coöperative effort, with no relinquishment of sovereignty. Can the two combine?

The Economic Commission for Europe comments: “Some understanding seems to be required that persistent deficit countries will be willing to deflate ... or to devalue . . . and that persistent surplus countries will be equally willing at least to keep up a steady rate of economic expansion and also to make some contribution to necessary exchange rate adjustments.”

Germany, a persistent surplus country, is to be in one group, and Britain, a frequent deficit country, in the other. Something more than coöperation may he needed to bring them together. Here again Britain’s addiction to “independence” is challenged.

Tunnel to Calais

Fortune has suddenly smiled upon the Channel Tunnel Company. The firm was founded in 1880 and then dug 2026 yards of a tunnel from Folkestone toward Calais. For the past fifty years the company has been kept alive by a handful of faithful servants and shareholders turning up year after year to the lonely annual meeting. This spring its shares jumped from bedrock bottom to ten shillings apiece almost overnight. Interest has been aroused by the investigations being made here into the possibilities of a modern tunnel by Technical Studies Inc. of America. Investors believe the tunnel will soon at last go all the way.

In the past, British Governments have opposed the tunnel on military grounds, the same grounds on which French Governments have persistently favored it. Government approval, which is confidently expected, would be striking testimony to the reality of the change that has come to Britain.