The Ambassador in the United Kingdom (Winant) to the Secretary of State
[Received March 25—11:55 p.m.]
2390. For those concerned with Article VII discussions—number 8 in the series. This message is concerned with internal British political developments in relation to postwar international economic reconstruction.
It is intended (a) as a counterpart to two former messages in this series (Embassy’s 1211, February 12 and 1807, March 4) discussing British concern regarding the possible reactions on international economic reconstruction of American political developments in 1944; (b) to give some explanation of the decrease of initiative and the slower place [pace] of British action on Article VII questions.
Underlying elements of unity and stability in British politics have been pronounced ever since May 1940. There has been a genuine coalition Government and all parties have been thoroughly united not only in the prosecution of the war but also—with a measure of compromise—in the social and economic measures adopted in the civilian sector of the war economy. Drastic rationing and controls over prices, production and distribution together with mobilization of both male and female labor and its direction into occupations on a scale unexcelled and perhaps unequalled in any other country, have been accepted by all parties and by the masses of people and administered with outstanding efficiency.
Questions arise how long this unity and stability will continue and to what extent will domestic political changes, when they come, affect British willingness to undertake commitments in international economic matters. Attempts to answer such questions must necessarily be tentative and subject to error and what follows should be considered as a preliminary discussion, subject to correction and extension in the light of further developments and of the results of further inquiries.
First, the electoral truce is becoming increasingly unpopular. The restiveness of the constituencies goes deep. It is influenced in the main by the conviction that the present House of Commons, elected [Page 29] in 1935 with an overwhelmingly conservative majority, is not representative of the country and that Parliament, heavily weighted on the conservative side, cannot be trusted to push postwar plans.
Second, there appears to be a widespread belief, expressed in journals, in cartoons and in casual conversation, that the Government is stalling on postwar social and economic reconstruction. This belief is held by groups and individuals in widely varying degrees.
In its crudest form it is applied to the whole field of reconstruction and in this it is clearly unjustified. The Government has worked out and made public comprehensive and far-reaching measures which will revolutionize the nation’s educational and health services. The education measures are already in the legislative stage. In addition far-reaching social security measures will be announced shortly. The health and social security measures may be expected to place Britain in a leading world position in those fields. Other plans, national and international, are in process of formation but in the British system of Government the strictest secrecy surrounds such plans and the public and even most of the House of Commons have only the vaguest ideas of what the Government is doing.
In the better informed sections of the public and of the Labor and Liberal parties and press considerable credit is given to the coalition Government for its work in “social” fields of reconstruction. It seems clear that the Conservative Party, as well as the Labor and Liberal Parties, is ready to go far in these fields and is not inhibited by doctrinaire aversion to far-reaching Government operation and control in them. Thus there is a wide common area of agreement in the field of domestic postwar reconstruction and a coalition government could carry through a far-reaching program.
Plans for housing programs have been made and the Government’s intentions have been announced on a 2–year program of temporary and permanent dwellings to be undertaken by public local authorities and on labor trains [training?] and recruitment in the building industry. Here again there is a substantial area of agreement. But here, in one part of the field, disagreement begins.
The formulation of Government policy on land acquisition and utilization and accretions to land values in areas to be developed raises questions of political policy and affect number of vested interests towards which the attitudes of the political parties differ considerably. Strenuous efforts are being made to reach a compromise position in order to meet a persistent public demand for a specific Government policy. But it is extremely difficult to go far enough to satisfy the Labor and Liberal Parties without alienating powerful factions in the Conservative Party. In discussions of methods of public control over land utilization the issue of land nationalization or at least a [Page 30] wide extension of public ownership of land inevitably rises. Until very recently it seemed that the Conservative Party could not go far enough to meet the progressive trend and that though a temporary compromise might be reached within the coalition it was unlikely that such a compromise would continue to be acceptable for long to all the political parties and the public.
But recent developments have modified this prospect. The adverse by-election results in the last 2 months, the hostile reception to Mr. Willinck’s statement in the Commons on March 8 on housing and the course of the debate on March 15, the report of the Tory Reform Committee on a policy for land (development and control), the interim report of the Subcommittee on Housing of the Conservative Party Central Committee on postwar problems, and the severely critical tone of the press, the local authorities, the building trade unions, the contractors associations and the building societies on the failure of the Government to declare a land policy have shaken up the Cabinet severely. There are reasons for believing that the Cabinet is engaged in urgent consultations in which the Prime Minister is taking a hand and that important decisions will soon be reached. There is definite prospect that the Conservatives in the Cabinet may be forced to make more far-reaching concessions than they were previously willing to make.
If this should happen it may have a marked effect on the future of coalition Government and of postwar policy on economic reconstruction. Social security, health and medical services, and education are fields in which an agreed coalition program is practicable and is actually beginning to be put into effect. If to this both housing and policy of land development and control can be added the area covered by agreed measures will be so wide that there will be a formidable case for continuing coalition Government during a limited period immediately after the war. The issue hangs in the balance, however, and it would be dangerous to assume that it will necessarily be decided on its purely economic merits.
It is in the field of the relation of the state to industrial and trading organization that substantial rifts are most likely to develop in the future between the parties. The Labor Party advocates in general more extensive government ownership and control than the Conservative Party desires. Even if this rift is patched up in the field of land policy it seems likely to break out again in industrial fields. However, it is not easy to specify the precise basis for these probable rifts. It seems likely that they lie more in general political philosophy and in public discussions of political principles than in the extent of probable differences of practical application in the early postwar years. The area of actual and prospective agreement described above [Page 31] is wide enough to make large inroads on parliamentary time and on administrative resources. The additional measures which a Labour government could accomplish as compared with a coalition government would be sharply limited in practice. Moreover, none of the political parties has the resources or ability to prepare complicated economic measures in a form for practical application without the help of the permanent and the temporary Civil Service and the latter will continue for some time to be overworked on a vast number of complicated administrative and policy questions connected with the war, with liberated areas and with the immediate transition period as well as with more far-reaching reconstruction problems. Signs of fatigue are noticeable among British experts and administrators in Government. They are a small group of highly able and well trained persons on whom enormous demands have been and will continue to be made. They are essential to the success of any economic program.
The economist of the General Council of the Trade Union Congress recently said confidentially that the Labour Party could not offer a practicable program for the immediate postwar period containing more than 10 percent above an agreed coalition program. Economists of the War Cabinet Secretariat take a similar view. In fact it is difficult to find economists here who do not favor a preliminary period of coalition government on an agreed reconstruction program.
Additional fields in which doctrinal differences on public ownership and control exist include coal mines, railways, banks and electric power.
There can be little doubt, however, that the case for nationalization of coal mines has become so strong that however much it would be disliked by the Conservative section of a coalition government the extraordinarily difficult position of the coal industry might induce them reluctantly to accept it. Coal wages have risen but output per worker has actually fallen. Prospects for postwar exports of coal are black unless some fundamental remedies are adopted. Effective remedies would probably require (1) relating earnings to output more closely than at present; (2) drastic technical changes in the pit; (3) proper grouping of operating units. Since coal in Britain faces no competition from hydroelectric power or domestic oil or natural gas, competitive inducements to improved methods are weak and there is a growing tendency even among thinkers generally opposed to “socialistic” measures to conclude that the second and third of the remedies can only be applied after nationalization in some form. Even Conservative objections tend increasingly to be based more on fears of precedent than on the intrinsic merits of the case.
Two points arise here from the point of view of the Article VII discussions: (1) In view of the part played by coal in British exports [Page 32] in the past the doubling of labor costs per unit of output since 1938 will add to the unfavorable aspects of the British balance of payments position; (2) if, as is not unlikely, the coal industry is nationalized, the problem of appropriate price and subsidy policies with reference to exports from a government industry will arise.
Though Labor on the whole favors nationalization of railways there is a fairly widespread feeling among economists and administrators that because of the wide measure of public control already existing, nationalization of railways in itself would not achieve any very significant economic gain. The same view is widely held with reference to the nationalization of banks.
However, the conventional arguments of the past on socialism and private enterprise have been overshadowed by discussions on full employment and national planning. Thus nationalization of banking is advocated by some groups as necessary to give the state power to maintain investment at an appropriate level: others think that there is sufficient control already to render this unnecessary. Nationalization of railways is widely considered as a side issue, the main issue being national planning with reference to the transport system as a whole. The difference between Labor and Conservative circles on these issues is probably in the last resort more on means than on ends. A comparison between the speeches of Morrison48 and Lyttelton49 helps to illustrate this.
However, the difference on means should not be underestimated. It is particularly noticeable in regard to monopoly questions. There seems little doubt that a Labor government would establish sharper controls over monopoly than a Conservative or a coalition government would do. Agreement on international cartel policy would probably be easier with a Labor than with any other government here. At the same time Labor would be more likely to maintain bulk purchasing of food imports under government direction and this would, as indicated in Embassy’s 1026 of February 6, 11 p.m., necessitate careful definitions in the Article VII agreements as to conditions of nondiscrimination.
Thus when account is taken of (a) the substantial area of agreement already existing between the parties on social legislation, (b) the widespread recognition that the state must continue firm economic control for a few years, and (c) the time and resources needed to put into effect the agreed measures discussed above and others covering demobilization, the gradual relaxation of controls, and the reconversion of industry—the conclusion may be drawn that the economic [Page 33] programs capable of early practical application by a coalition or a Labor government would not differ widely.
But the dissolution of the coalition is likely to be decided on other grounds than the differences between the economic measures which the different political parties would be able to adopt in early post-war period. There are convincing political reasons as far as present indications go why the present coalition is unlikely to last long after the defeat of Germany. First, there is a widespread consciousness in the country of the unrepresentative character of the present House of Commons. Second, local Labor parties feel themselves stultified by enforced inaction in the constituencies. Third, the electoral truce is unpopular all round. Fourth, many Conservatives would like to cash in on Mr. Churchill’s war reputation as soon as practicable, and certainly before the war in the Far East ends.
However, many of those who oppose the electoral truce and demand a general election as early as possible recognize when pressed that there is a strong case for the formation of another coalition to carry through an agreed program in the early post-war years. In fact, though the point cannot be proved, it is conceivable that the majority of British people, if pressed to take a definite position, would favor (1) holding a general election quickly after the fall of Germany, (2) the formation of a new temporary coalition to put into legislative effect a common post-war program in a specified period after which there would be a complete return to party politics.
Such a procedure would face many hazards. It would be difficult or impracticable to arrange any commitments in advance that a new coalition would subsequently be formed. If one party gained a sweeping majority it might not be willing to consider a new coalition.
There is, however, one factor which might influence even a party with a clear majority to favor a temporary post-war coalition. It will be essential to maintain a number of economic controls for some time after the war. Some of these controls will be unpopular in peacetime and a single party government might suffer from this unpopularity in a subsequent election. Thus the uncertainties are so great that confident predictions are impossible. The difficulties of the coalition government which have been analyzed above account to a considerable extent for the slower pace and the hesitancy of the British in recent months in following up the Article VII conversations. The difficulty has been largely at the ministerial level and as the conversations advance towards the stage of formal negotiations it becomes increasingly necessary to obtain the assent of Ministers to specific policies. The political uncertainties described above have made Ministers hesitant to take long range decisions. A leading civil servant in a [Page 34] confidential conversation recently referred to the coalition government as “a dying administration”.
The significance of this statement should not be exaggerated. The administration functions with undiminished efficiency in the war effort and in addition—as far as the civil service goes—in planning for the transition and for long range reconstruction.
Nor is the difficulty of getting ministerial decisions on post-war questions due solely to the difficulties described above. Ministers, like the leading experts and civil servants, are suffering from fatigue and some of them are intensely preoccupied with the work and prospects associated with the coming Western offensive. This should be taken carefully into account in any attempts to press the British to speed up decisions on post-war matters.
I thought the Secretary, and the Under Secretary and those who will accompany him here might find it useful to get this message before the group leaves for London.