Published by EH.NET (January 2005)
Peter Burnham, Remaking the Postwar World Economy: Robot and British Policy in the 1950s. London: Palgrave Macmillan, 2003. viii + 236 pp. $69.95 (cloth), ISBN: 0-333-55725-5.
Reviewed for EH.NET by Catherine Schenk, Department of Economics & Social History, University of Glasgow.
The conflict between external and domestic economic objectives often features in the development of economic policy. In the historiography of post-war Britain, the management of sterling as an international currency is often seen as an example of this dilemma. In the 1950s, contemporaries such as Andrew Shonfield argued passionately that the interests of domestic industry were being sacrificed to the requirements of managing an external currency through high interest rates and periodic contractions in the domestic economy to protect the balance of payments. For many at the time, and for some more recent scholars, abandoning sterling’s international role by repudiating short-term sterling-denominated debt and/or allowing the pound to float (i.e. to sink) would have eased the pressure on the domestic economy and increased the competitiveness of exports, thus avoiding the relative economic decline of Britain in the post-war decades.
Burnham’s book fits into this general stream of thought. The so-called ROBOT episode of early 1952, in which a floating exchange rate for sterling was debated at the highest level of British government, has captured the imagination of many historians, notably Sir Alec Cairncross and Scott Newton. It provided a forum for ideological debate about the future of Britain in the international economy, it provoked passionately written briefs and arguments for the archives, and it marked a moment of secrecy and drama, which always appeals to historians. Its long-term significance, however, is in danger of being exaggerated. Adoption of a floating exchange rate in 1952 would have marked such an extreme change of position for the UK, both on the international and domestic front, that it is hard to see in hindsight how it could ever have been a realistic possibility. It would have required the abandonment of the international obligations and responsibilities that Britain had so painstakingly built up in the 1940s, such as the special relationship with the U.S. and cooperation with the Commonwealth. On the domestic front it would have required the abandonment of the commitment to full employment and price stability on which the entire wartime and post-war state had been built. Hindsight in this case isn’t very long since immediately after the rejection of ROBOT even its supporters agreed that a floating rate was unrealistic, and that the sterling area and Europe would have to be brought along with the plan (p. 93-101). Burnham recognizes the costs of ROBOT but he nevertheless believes that a floating exchange rate in 1952 would have “re-establish[ed] Britain as a leading power alongside the USA” (p. 17). More ambitiously, he claims that adopting ROBOT would have given Britain an “opportunity to remake the world economy” (p. 185).
Burnham gives an admirable account of the existing archive records relating to the debate over ROBOT in private collections as well as the Bank of England, Treasury and Prime Minister’s office. After an introductory chapter, the next three chapters give a blow-by-blow account of the development, discussion and ultimate rejection of ROBOT on 29 February 1952, which will be very useful to scholars. His main thesis is that this was a missed opportunity to avoid the strains on the balance of payments that plagued the following two decades. More generally, an early end to the Bretton Woods system would have pushed the world economy onto a new and better path. This is a provocative thesis, but Burnham does not provide any evidence to help the reader believe that Britain’s economic and political situation would have been improved by a floating exchange rate. There is no economic analysis, for example, of the extent to which the rate was overvalued, of import and export elasticities, or of the potential impact on employment and prices. There is no account of the cost of managing a depreciation of sterling, or the difference between nominal and real exchange rates. Instead Burnham relies heavily on the assertion that the application of freer market forces would eventually have led to a better outcome than what was achieved. In terms of Britain’s political position, Burnham seems to argue that if ROBOT had been adopted, the EEC would not have been formed, with all its negative implications for Britain’s position in the world. Moreover, ROBOT would have “encouraged structural adjustment and jettisoned the politicized form of economic management … which ensnared governments until the late 1970s” (p.185). Thus, ROBOT would have resolved Britain’s industrial relations problems before they culminated in crisis in the 1970s. These are bold claims but readers are left wishing for more supporting evidence.
The second half of the book details the archival record on the route actually taken toward convertibility in the second half of the 1950s. Burnham joins other scholars who have mined these papers to show that Britain’s options were constrained by the need for American and European support for earlier convertibility at a fixed exchange rate. For Burnham, this was evidence of the chronic economic and political weakness of Britain after its missed opportunity in 1952. Under pressure from the Commonwealth, the government adopted the Collective Approach to Convertibility at the end of 1952. This was essentially a non-starter because it relied on European cooperation and American financial support which was never likely to be forthcoming. In the end an administrative approach was adopted that provided de facto external current account convertibility by 1955. De jure current account convertibility followed in concert with the rest of Europe at the end of 1958. Unlike those left-wing critics who argue that the fixed exchange rate constrained the British government’s ability to pursue more expansionary domestic policy, Burnham views the fixed rate as protecting the British government from having to make politically and economically difficult choices to restructure the domestic economy along free market lines, especially with regard to industrial relations.
Burnham has written a meticulous account of the archive record, and provides a provocative thesis. Accounts of missed opportunities, however, require some calculation of a counter-factual to make them persuasive.
Catherine Schenk is Professor of International Economic History at the University of Glasgow. She is the author of many articles on Britain’s international monetary and financial policy since 1945, including Britain and the Sterling Area (Routledge, 1994). She is currently completing an ESRC-funded research project “Managing the Decline of Sterling 1958-73.”
|Subject(s):||Financial Markets, Financial Institutions, and Monetary History|
|Time Period(s):||20th Century: WWII and post-WWII|