840.50/3513: Telegram

The Ambassador in the United Kingdom ( Winant ) to the Secretary of State

1211. For those concerned with Article VII discussions. Reference Embassy’s telegram 1026, February 6:

Relation Between Domestic and International Reconstruction. The move to expedite the talks with the Dominions has been accompanied by an intensification of work on the Article VII discussions.

There are also numerous signs of increased activity in planning for domestic as well as international economic reconstruction and since the two cannot be kept in isolation from one another, the effect is to widen the interest in the progress of international plans. Those concerned with domestic plans are anxiously scanning the international field to determine how far it may impose limitations on what can be done at home.

In the near future White Papers will be issued on four subjects—a national medical service, the Government’s position on the Beveridge report, workmen’s compensation and full employment policy.19 These papers will represent Government policy approved in ministerial as well as civil service circles and their publication will constitute a step in the direction of legislation.

The White Paper on a national medical service will be comprehensive and based on the acceptance of Government responsibility for ensuring that a full medical service shall be made available to all regardless of income. The economic aspects of the measure will be the most difficult and important. The objective will be to establish health centers in which practitioners will work in association. Coordination of the voluntary hospitals and those of the local authorities will be dealt with. There have been sharp differences on the methods of remuneration of doctors under national service. Sir Wilson Jamieson, chief medical officer of the Ministry of Health, and the more forward looking persons in the field believe that a salaried service is the only satisfactory method but compromise with the British Medical Association seems likely on this point.

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The paper on full employment policy, which will probably be issued within the next three months, will be an important state document, constituting for the first time a British Government statement of official policy on the principles of full employment. It will represent agreement among the leading British economists now in government service and who compose the great majority of economists in the country, and approval by the Cabinet. The bearing of international economic policy on the prospects of full domestic employment will be recognized and we believe discussed to some extent.

The personal conversations with government economists and other civil servants on which this message is based confirm the views expressed in the second subtitle of Embassy’s telegram 491, January 19, noon.

The greatest single anxiety of the British with respect to the prospects of postwar international economic organization and of the maintenance of full employment at home has to do with our chances of maintaining a continuously high level of economic activity in the United States. This anxiety is intensified at present by fears of an increasingly conservative attitude in the Congress after the next election leading to an unwillingness not only to enter into bold international economic arrangements but also to permit effective government action to raise economic activity to and maintain it at the level needed to secure full employment in peacetime.

The public demand in Britain for full employment policies after the war is likely to be so strong that no government of any party or combination of parties that failed to meet it can hope to survive. The spotlight was first turned on social security among measures for postwar domestic reconstruction. This was largely due to the able way in which Beveridge seized the opportunity given by his appointment to head a committee on the subject. It is significant that the Beveridge report stresses the assumption that adequate measures will be taken to maintain a high level of employment, and that Beveridge, again sensing the public feeling, is now giving all his energies to the preparation of a report on full employment policies which, though not associated with any government inquiry, may be expected to have a wide effect on public opinion.

In general, government economists and permanent civil servants believe that the attitudes of the British Government, business men, trade unions and the public have now developed to a stage which makes it politically practicable to follow successfully a domestic policy of full employment provided that external economic conditions are favorable. They are very sceptical, however, whether a corresponding development has taken place in the United States and many other countries and the question with which they are most concerned [Page 12] is how to meet the public demand for full employment in an economic system open to the effects of changes in the rest of the world.

The British economists point out that increased incomes resulting from the pursuit of a full employment policy lead in the absence of restraint to increased purchases of goods abroad. According to one calculation relating to inter-war experience 15 to 20 percent of the rise in incomes is spent on imports. How, it is asked, are exports to be increased correspondingly if an important part of the rest of the world is not following successfully the same type of domestic policy? And if exports cannot be expanded sufficiently, how is the resulting maladjustment in the balance of payments to be met? Lively discussions on these questions in Whitehall and among the few economists—mainly of Continental European origin—who remain outside show differences in emphasis. One approach is to hold out for substantial flexibility in exchange rates and reservation of the right to resort to limitation of imports temporarily to correct maladjustments in the balance of payments. These are regarded as emergency and temporary measures adopted on the assumption that satisfactory readjustments on a multilateral basis will subsequently be attained.

Another approach is to stress the importance of stability in trading arrangements as a means to stability in production and employment. Trading arrangements, it is said, are much more a matter of long term arrangements than they were formerly. By such arrangements Britain might assure itself of essential imports over a stated period of time. It is argued that this would not necessarily involve bilateralism in the sense of balancing accounts between any two countries but might take the form of a sort of planned multilateralism.

Such an approach attracts some of the permanent civil servants and business men who in the inter-war period leaned towards laissez faire. This does not arise simply out of fears regarding the balance of payments position but also out of the habits and practices associated with wartime trading. Civil servants and business men have become so accustomed to bulk purchasing, long term contracts, planned expansion of capacity to meet guaranteed demand that some of them are reluctant to return to the uncertainties of former individualist peacetime methods of trading and production. A most important factor in Britain, which does not have equal force in all countries, is that the wartime methods and controls have been operated with impressive efficiency in the civilian sector of the war economy as well as in production for the armed forces, with the result that on the whole distrust of the ability of government in economic matters has diminished, especially in government circles.

It is only in exceptional cases—and then rarely in government circles—that this second approach is pushed to extremes and that [Page 13] complete regimentation of world trade by multilateral planning is advocated. In most cases, there is a genuine desire for multilateral trade and nondiscrimination and a groping for means of reconciling them with a greater degree of forward planning and large scale operations than were practiced in the 19th and early 20th centuries. When pressed on how far they would carry the second approach described above, some of its advocates take the following position. In pursuing a full employment policy Britain will find itself unable to increase exports enough to offset increased imports. When adverse tendencies appear in its balance of payments, it should put up the whole problem to an international gathering, perhaps through an international commercial policy organization. Its case would be that it could not abandon a full employment policy, that that policy was increasing markets for the goods of other countries, and that those countries should undertake to seek methods of taking more British goods to avoid the necessity of restriction of British imports. Several methods are suggested—one in terms of contracts to take goods needed for internal development in those countries, another that purchases arising out of long term international lending should be directed for a time to readjusting the balance of payments in Britain. While the precise methods may be open to question and need further study, the advocacy of full international consultation by an appropriately equipped body seems one to be encouraged and developed in more detail.

A leading permanent official of the General Council of the Trade Union Congress also in personal conversation strongly favored continuous international consultation on international trade problems. He said his members were not sympathetic towards what he considered to be the tendency of economists to subordinate everything to the interests of the “consumer” in the abstract. He referred especially to cases in which technical changes reducing costs of production of articles consumed only by high income groups might injure workers markedly in return for benefiting wealthy people slightly. He favored international as well as domestic measures for softening the impact of structural changes. As regards the TUC’s attitude to the “World Trade Alliance” he said that they wished to encourage employers to seek international consultation on trade problems, that they were not committed to support any detailed scheme of the World Trade Alliance and that he thought the literature put out by the Alliance was woolly.

It is evident that the TUC has not yet done any detailed work on international economic problems and that for the most part it will examine and form a policy on measures proposed by others rather than construct proposals of its own. There seems little doubt that [Page 14] it would strongly support international organizations on commercial policy, raw materials and monetary questions.

Chester, a well-informed economist of the War Cabinet Secretariat, when asked whether he thought that the fears that full employment policies in Britain would be prejudiced by external influences, would create any risk that Parliament would reject measures on the lines that are being worked out in the Article VII talks, replied strongly in the negative. Inside government circles the economists who participated in the Article VII talks are firmly upholding their position in favor of full cooperation with us in developing and giving effect to the measures discussed in the Washington talks.

We are sending shortly a pamphlet “Export Policy and Full Employment” by E. F. Schumacher which is of special interest in relation to present problems. The eighth in the reports series “Published Material Relating to Postwar Economic Planning and Reconstruction” which will be dispatched next week includes a discussion of the pamphlet.

International Investment. Keynes, who is extremely pleased at the agreement on the monetary plan at the technical level, says he will now turn to the consideration of international investment. Since the British wish to clear the monetary plan with the Dominions, they are keeping it strictly private until the talks with the Dominions take place late in the month.

  1. The four White Papers were printed during the summer of 1944 as British Cmd. 6502, 6527, 6550, and 6551. For text of the Beveridge report of 1942, see British Cmd. 6404: Social Insurance and Allied Services, Report by Sir William Beveridge, November 1942.