The Bear’s Lair: 1943 — a road not taken

As I am away this week, I am reprinting a “Classic” Bear’s Lair column, from August 9, 2002
This is an essay in alternate history, to suggest how, had random factors fallen differently, Britain’s history in the gloomy 1945-79 period could have been very different, and perhaps happier. It looks in particular at what might have happened had Thatcherism (without the leadership of Margaret Thatcher herself, then only 18) been adopted in 1943, in the darkest days of World War II.
Corelli Barnett, writing in July 28’s Sunday Times, blames Britain’s elite for the country’s economic failings in the 1950s, as it frittered away the country’s early technological lead in computers, and its position of strength as the only European country whose industrial machine was more or less intact in 1945.
This is in line with his previous books “The collapse of British power” and “The Audit of War” in which he blames the same elite for Britain’s poor economic performance after 1870, and her industrial struggles during World War II.
Barnett fails however to explain Britain’s successful industrial renaissance in the 1930s, under the leadership of Neville Chamberlain, first as chancellor of the exchequer and then as prime minister. The restructuring of British industry; its move from the old sectors of shipbuilding, railways and textiles to the new sectors of motors, automation, aviation and chemicals/plastics, was already well under way by 1938, after a period of stagnation in the 1920s caused by an overvalued exchange rate.
By adopting Thatcherite policies of free markets and low taxes in 1943, without ditching the country’s traditional governing class or their values, Britain could have rebuilt her economy, and her technological lead, before Germany and Japan had recovered, and as a result have avoided her postwar decline into a dependency of Europe. This essay in alternate history shows how it might have happened. It begins with a heart attack that was not fatal, but could have been…
It is March 1943. The big Humber, its tires bald from overuse, slithers through the dark London streets, guided through the sheeting rain by the Foreign Office chauffeur. In the back seat, Foreign Secretary Anthony Eden composes his thoughts for the sad meeting ahead at No 10 Downing Street.
It appeared that the war’s strain had finally got to Winston Churchill; according to Dr. Charles Moran’s phone call, this heart attack was likely to be fatal. Eden can’t help his mind from wandering to his chances of the succession. He was clearly second in the party, and had been chosen by Churchill as his deputy, but at 46, would he be thought too young? Would the late Neville Chamberlain’s remaining supporters, or the Imperialists, block him? On the other hand, whoever was chosen would have to work with President Roosevelt, Russian leader Joseph Stalin and the Labor party — with all three of those constituencies, Eden is clearly first in line.
A truck, ill-lit because of the blackout, shoots across the street at Hyde Park Corner and hurtles towards the Humber. The chauffeur wrenches the steering wheel to the right, but the tires have lost traction, and the Humber spins out of control. Unluckily, a lamppost is in its path.
The double funeral is a huge occasion; in spite of the poor spring weather, and the wartime transportation restrictions, more people turn out to mourn Churchill and Eden than had appeared for Gladstone in 1898.
Deputy Prime Minister Clement Attlee represents the government, of course, but political eyes are turned, not to him but to the Colonial Secretary Oliver Stanley. Attlee, as leader of the Labor Party, is unlikely to become prime minister at the head of a government that depends in Parliament on a huge Conservative majority.
Yes, Lloyd George had done it in 1916, but Lloyd George, like Churchill, had been a man of immense charisma and an obvious war leader. Attlee, to put it mildly, is not.
While Stanley is little known to the wider public, he has a solid base of support in the majority Conservative Party, and has worked well with Attlee and Bevin in the War Cabinet. Moreover he is young — at 47, only a year older than Eden had been — and would thus give an image of freshness and vigor to a Conservative party that has dominated the government for 12 years, is besmirched by the Munich failures and is already nervous of the likely outcome of a postwar election, without Churchill, against a Labor Party fortified by the Beveridge Report, published a few months before, that advocated a postwar Welfare State.
Stanley’s election, not by democratic vote but by the “normal processes of consultation” of senior party and government figures, is more or less a foregone conclusion.
1943 is not 1940 — with U.S. and Soviet participation, and the victories of El Alamein, Stalingrad and Midway won, the war is clearly well on the way to a successful conclusion.
Stanley has already called for greater vigor and clarity in Conservative policies at a party meeting in November 1942. Thus he sees no reason why Labor, who has been pulling politics their way for the last couple of years, with the Beveridge Report and Sir Stafford Cripps’ mission to Moscow, should be allowed to dictate Conservative Party policy for a postwar world that is fast approaching.
Accordingly, he decides on a Cabinet reshuffle, to bring forward a distinctive Conservative view, based on the successes of the 30s, of how the postwar world should look.
To replace the lost Eden, he promotes the immensely senior but sidelined Leo Amery to the Foreign Office, and gives him primary responsibility for negotiations with our U.S. and Soviet allies. Robert, Lord Cranborne (the future 5th Marquess of Salisbury), who was Eden’s deputy at the Foreign Office, is promoted to succeed Stanley at the Colonial Office, with a brief to maintain Britain’s close ties with the Dominions.
In economic policy, too, a distinctively Conservative, free-market voice is needed; accordingly the former merchant banker Oliver Lyttleton is promoted to chancellor of the exchequer, to replace the ailing Kingsley Wood, with instructions to design a truly Conservative policy for the postwar world. Attlee protests, but in truth there is little he can do. Labor’s own Cabinet posts are not affected, and Labor has the right to promote its own postwar economic policy through the Beveridge Report and otherwise, as they have already been doing.
August 1943. At the Quebec conference, Foreign Secretary Amery proclaims Britain “allied, but not subservient” to the United States, and insists on a Third Front, with six British divisions to be sent to Bulgaria, at Tsar Boris III’s secret invitation, to fight alongside Bulgaria against Germany. In spite of Boris’ death in suspicious circumstances on Aug. 28, the regent for the young Tsar Simeon confirms the invitation, and the British force lands at Varna in March 1944.
The Anglo-Bulgarian army advances into Serbia, and makes contact with the Chetnik forces under General Draza Mihailovic, ignoring the communist partisans under Josip Broz Tito.
After initial successes, in May 1944 Amery declares Yugoslavia a “witless Wilsonian fantasy” in the House of Commons, and calls for the recognition of Serbia, Croatia and Slovenia as independent democratic countries. The Tito forces accordingly split, with a “Croatia domovino” force led by the young pro-democracy Col. Franjo Tudjman joining the Allies, and the Ustashe government in Zagreb crumbling by December 1944.
Budapest and Vienna are liberated by the Allies, though the Red Army occupies Romania for its oil. After the war, Serbia, Croatia and Bulgaria are successful democratic countries, with only Slovenia remaining locked in Stalinism under its native-son dictator Tito.
December 1943. Having been briefed by the Government Code and Cipher School on the code-breaking activities at Bletchley Park, and its invention of the Colossus, the world’s first computer, Lyttleton, a merchant banker, realizes that the machine could have huge commercial potential — it could enable banks to manage their risk positions in bond and foreign exchange markets! Told that Thomas J. Watson, IBM chairman, thinks there is a world market for maybe five computers, Lyttleton responds, “How wasteful. Why would there ever be a need for more than one?”
Accordingly, he arranges a consortium of merchant banks and insurance companies, backed by a government research contract, to finance the British Electronic Brain.
March 1944. Stanley and Lyttleton reject John Maynard Keynes as British negotiator for the forthcoming Bretton Woods conference. Instead, Lyttleton decides to attend himself, accompanied by the free market economist, London School of Economics’ Frederick Hayek, whose “Road to Serfdom” is in publication. At the conference, Hayek refuses to endorse U.S. Deputy Treasury Secretary (and Soviet spy) Harry Dexter White’s idea of a World Bank and International Monetary Fund and insists that, after a transition period of no more than five years, world monetary arrangements must be on the basis of a full Gold Standard, with no restrictions on private holdings of gold.
Lyttleton, meanwhile, positively refuses to discuss the abandonment of Imperial Preference tariff protection for the British Empire, and indignantly rejects Treasury Secretary Henry Morgenthau’s plan to pastoralize Germany. The conference breaks up in disarray, and Roosevelt, to work off his annoyance, gives Irish Prime Minister Eamonn de Valera the Presidential Medal of Freedom.
At the end of the war the following year, there is no question of an American official loan to Britain (though modest private funding continues to be available through Morgan and other U.S. banks.) Instead, Lyttleton devalues the pound immediately to $2.80, thus making Morris Motors cars highly competitive in the U.S. market, as its Chairman William, Lord Nuffield, wants.
August 1944. Following the Warsaw Uprising, Britain assists the London Poles to mount a Warsaw Airlift, which allows the defenders of Warsaw to hold out until the Germans retreat.
Stalin has to sign an agreement with the London Poles, and the Red Army’s advance continues in tandem with Polish forces.
At Yalta, the following February, Amery accuses Roosevelt of being a “stooge of Stalin” and refuses to join the United Nations until the U.S. undertakes to guarantee Polish independence. In late March 1945, Field Marshal Bernard Montgomery conducts a lightning “dash for Berlin” across the North German plain against token German opposition, reaching Berlin well before the Soviet/Polish forces.
The occupation of Germany includes only modest Soviet forces, and the country achieves united independence in 1949 under the staunch British ally and fellow conservative Konrad Adenauer. Poland also remains independent; Soviet occupation in Eastern Europe extends only to the Baltic States, Romania and Slovakia.
July 1945. Campaigning on their foreign policy successes, Labor’s alleged friendship with the Soviets, and an aggressive free market program designed by Lyttleton and Hayek, the Conservatives squeak back to power with an overall majority of 26. To preserve bipartisanship in foreign policy, Stanley offers the Foreign Office to Ernest Bevin, who accepts, Amery becoming Viceroy of India.
After the election, Lyttleton brings in a “Budget of Government Austerity” including an immediate scrapping of rationing and controls, reduction in the top rate of income tax to 50 percent, and deep cutbacks in government spending except for the armed forces. Harold Macmillan crosses the floor of the House and joins the Labor Party, as do a number of non-parliamentary figures such as the young Edward Heath.
1947 “Dominion of Palestine and Transjordan” is proclaimed, with a constitution providing for co-dominion rule, with equal representation of Jewish and Arab religious/ethnic groups in top jobs and security forces. Governor-General Montgomery proclaims a “short sharp shock” for perpetrators of terrorist atrocities, which decline rapidly after the execution of convicted terrorists on both sides. The Dominion becomes a regional economic powerhouse, fueled by capital flows from New York and the Middle Eastern oil-producing countries.
August 1948 The “Confederation of Indian Dominions” is proclaimed by retiring Viceroy Leo Amery, Marquis of Birmingham, including 42 independent states of former British India, Ceylon and Burma, all of which separately join the United Nations.
The states are governed by traditional hereditary rulers where they exist, and have parliaments generally elected by limited franchises, often on the basis of household suffrage.
Jawaharlal Nehru, Prime Minister of Bengal, denounces British perfidy, leaves the Confederation and the British Commonwealth, and joins the Soviet-dominated Bucharest Pact. The remaining 41 independent states of the Confederation thereafter adopt free market policies one by one, and in general prosper economically, with only the occasional ethnic unrest or border difficulty.
March 1949. The prime minister is Oliver Stanley, the foreign secretary is Ernest Bevin (kept on from the wartime coalition to preserve foreign policy bi-partisanship) and the chancellor of the exchequer is free-market former merchant banker Oliver Lyttleton — who relies a great deal on Frederick Hayek as economic advisor.
The first years after World War II have been economically very difficult, but Lyttleton’s low tax and government austerity policies have shrunk the share of the state in British national product, in spite of the still-huge military spending needs relating to the British Empire.
The empire itself is become an increasing economic boon, however, since it provides a large market for British manufactured goods, which can compete with U.S. imports and the nascent German and Japanese industries because of the competitive sterling exchange rate of $2.80 and the increasing streamlining of British bottlenecks in such areas as steel.
Morris Motors, in particular, has benefited greatly from an export drive into the U.S. market. It is satisfying pent-up demand for automobiles among U.S. consumers, particularly at the compact end of the market, where the new Morris Minor and the “half-timbered” Morris Oxford have proved very popular among East and West Coast intellectuals against the increasingly clumsy and overweight Chevrolet, Ford and Plymouth.
Morris’ 1948 U.S. sales are 120,000 units; its 1949 sales, in spite of a slowdown in the U.S. market and the beginnings of saturation of the postwar boom in demand, are expected to top 200,000.
The inflow of foreign exchange allows Britain to begin repaying her wartime and postwar debts, particularly the short-term bank credits acquired at high cost in 1945-46.
The domestic economy, too, is showing signs of revival, with high activity in the housing and construction sectors limited only by Bank of England Governor Cameron Cobbold’s high-interest rate policy. The bank rate has just been raised to 7 percent to prevent a resurgence of inflation.
January 1950. Secretary of State Dean Acheson excludes South Korea from the U.S. defense perimeter in Asia. Foreign Secretary Bevin, supporting the Conservatives during a jingoistic election campaign, announces that South Korea is unquestionably within the defensive perimeter of the British Empire, which has fought two World Wars to prove its implacable opposition to international aggression. Soviet plans to support a North Korean invasion are accordingly shelved. The Stanley government is re-elected with an increased majority.
In the new Parliament, the ailing Bevin, attacked by his old colleagues in the Labor Party, retires and is succeeded as foreign secretary by Robert, Lord Salisbury. Shortly thereafter, Stanley dies and is succeeded as prime minister by Lyttleton.
Education Secretary Richard (Rab) Butler, from the extreme left of the party, becomes chancellor of the exchequer, but Lyttleton and Hayek retain close control over economic policy.
September 1950. Following the South African National Party government’s passage of the Group Areas Act and the Population Registrations Act, Salisbury declares its apartheid policy “unworthy of the British Empire.”
South African Prime Minister Daniel Malan makes a Unilateral Declaration of Independence, and appeals for help to Stalin and Bengali Prime Minister Jawaharlal Nehru. Empire forces, with large contingents from Canada, Australia and the Indian Confederation, land at the Simonstown Naval Base.
The war lasts just over a year, with major Soviet and Bengali assistance for the National forces, and substantial African assistance for the Empire forces, both local and from other African colonies, before Pretoria is captured. A constitutional convention led by Salisbury designs a new color-blind South African constitution with full protection of majority and minority rights and voting on the basis of education or payment of income tax.
A United Party government — including three black Cabinet ministers — is elected in February 1952, mops up the remains of Afrikaner resistance with empire help, and embarks on a free market economic policy. South Africa prospers and elects its first black prime minister, the conservative Nelson Mandela, in 1971.
December 1951. The King’s Speech includes a bill proposed by Home Secretary Peter Thorneycroft sharply limiting commonwealth immigration, which has recently increased, with immigrants attracted by Britain’s vibrant economy though repelled by its lack of social “safety net.”
Only those with university degrees, 100,000 pounds in cash, or signing up for a 14-year term of service in His Majesty’s Forces will henceforward be admitted.
British race relations are henceforth excellent, as the modest inflow of educated, wealthy and fanatically loyal immigrants is easily integrated.
March 1952. Butler proposes to the Cabinet the secret “Robot” scheme, designed by the Treasury, which involves free floating of the pound. Lyttleton and the cabinet reject this, and instead announce Britain’s intention to return to the gold standard, at a price of 12.50 pounds per ounce, on the new queen’s Coronation Day, June 2, 1953.
Gold coins of one, five and 10 pounds will be minted and banknotes under 100 pounds withdrawn. Butler resigns, joins the Labor party and is succeeded by Peter Thorneycroft.
June 3, 1953. The Brain, developed by the British Electronic Brain Corp., owned by a consortium of City institutions, has been operating for three years now in the Royal Exchange building, opposite the Bank of England. It has provided the City with daily updates of its foreign exchange and bond positions.
City research has determined that a whole host of “derivative” instruments — swaps, options and forward contracts — can be designed and managed using Brain technology. Today, following yesterday’s Coronation, is launched the Empire Derivatives Market, which will be controlled by the Brain.
Participants in the market must be licensed by the Bank of England and must report their positions on a daily basis to the Brain, which will calculate their level of risk and the necessary hedging strategies; 50 percent of the derivatives-market profits will go to the Brain Corp. and used for further development of the Brain and uses for its capabilities.
Both demand for the Brain’s services and funding for research on its development grow exponentially from this point.
June 1954. The Labor party, led by Hugh Gaitskell, wins the general election, on a program of a National Health Service and extended social services, fueled by Harold Macmillan’s election slogan “You’ll never have it so good.” Gaitskell becomes prime minister, Macmillan foreign secretary and Butler chancellor of the exchequer.
Gaitskell, bound by Clause 4 of the Labor Party constitution, nationalizes the coal mining industry. Health Secretary Harold Wilson introduces a limited National Health Service.
Butler increases income tax to finance coal nationalization and the NHS. The economy stagnates, while the budget is in deficit. Trade unions win inflationary pay settlements, granted by Minister of Labor Walter Monckton
November 1956. The British attempt to recapture the Suez Canal after Egyptian nationalization is foiled by a U.S. attack on sterling. Macmillan advocates leaving the gold standard and continuing the military action but is outvoted in Cabinet.
Gaitskell and Butler resign, Macmillan becomes prime minister, with Wilson foreign secretary and Edward Heath chancellor of the exchequer.
January 1957. Declaring that Suez has brought a “Wind of Change” Macmillan gives independence to Gold Coast and Nigeria. Gold Coast (Ghana) heads towards bankruptcy, Nigeria towards civil war. Economy continues sluggish. Heath raises taxes again.
June 1958. Lyttleton runs against the Gaitskell/Macmillan government’s poor economic performance, inflationary union pay settlements and chaos in the NHS with the slogan “Bring Back the Family Doctor.”
Elected by a large majority, he makes Thorneycroft — again — chancellor of the exchequer and Alec, Earl of Home, the foreign secretary.
1958-60. Minister of Labor Enoch Powell repeals the 1927 Trades Disputes Act and outlaws the closed shop. Thorneycroft replaces the NHS and social security with a Social Provident Fund, with compulsory investment in individual accounts, to provide for health, unemployment and old age, and with private provision of health services.
Bookkeeping is of course carried out by the Brain.
Individual investment in the stock market soars, and the stock market and economy take off again. Morris Motors launches a takeover bid for Volkswagen and buys a controlling shareholding in Toyota. Powell is promoted to home secretary.
1961. Concerned about rising crime, Home Secretary Enoch Powell rejects the perennial Labor party demand for abolition of hanging and instead announces a stepped-up program of capital punishment to deter crime, which he publicizes as the “Swinging Sixties.”
The crime wave is stopped in its tracks, and the former East End hit men Ronald and Reggie Kray become well known interior decorators.
October 1962. The Lyttleton government is re-elected owing to the surging economy. Heath replaces Macmillan as Labor Party leader in a close election over Wilson.
January 1963. General de Gaulle asks Lyttleton to consider joining the European Economic Community, since Britain’s independent foreign policy will act as a useful counterweight to the United States. Lyttleton refuses.
In March, Lyttleton retires on his 70th birthday, becoming Duke of Chandos, since it is recognized that while Churchill won the war, Lyttleton won the peace. He is succeeded by Thorneycroft, who is replaced by Powell at the exchequer. The Conservative leadership process is “democratized.” The leader is now to be directly elected by Conservative members of Parliament.
June 2, 1963. To mark the 10th anniversary of the Queen’s accession, the Duke of Chandos opens the Empirenet, a communication system developed by the Brain Corp. whereby any British or Dominion subject can buy an Empirenet terminal, and through it be connected to the Brain’s huge information system and information-processing capability. Empirenet terminal holders can also communicate with other holders through Empiremail, a facility that becomes known popularly as e-mail.
1964. Malaysia, Singapore, Kenya and Rhodesia are given Dominion status, Malaysia with a franchise tempered by its hereditary state monarchies; Singapore, Kenya and Rhodesia with education and income tax payment qualification franchises. Rhodesian white supremacist leader Ian Smith is captured and imprisoned.
1966. Following the death of Party Chairman Nehru, Bengal petitions for re-admission to the empire and to the Confederation of Indian Dominions. This is granted, to follow a preliminary five-year period of direct British rule by retiring Bank of England Gov. Rowland, Earl of Cromer, to re-establish property rights and the free market and privatize state industry.
Ghana, following the overthrow of Kwame Nkrumah and Nigeria, following the end of the civil war, likewise petition for readmission to the empire, and are granted Dominion status after the same interim period of direct rule by British governors.
Independence movements in the remainder of British Africa are greatly weakened by the examples of poor performance of Ghana and Nigeria and economic advances in the mixed-rule Dominion of South Africa.
June 1967. Labor leader Edward Heath wins a surprise election victory. James Callaghan becomes chancellor of the exchequer, Roy Jenkins home secretary, Denis Healey foreign secretary. Taxes go up again. Jenkins passes “permissive society” legislation, but abolition of capital punishment fails in the House of Commons.
1969. Heath announces Britain’s application to join the European Commission, to get “European levels of social justice.”
Thorneycroft supports the application in principle, but is outflanked by Enoch Powell, who reads the Treaty of Rome, and announces that there will be “rivers of much blood” if this is imposed on the British people.
Heath signs the Treaty of Accession in 1970, to take effect on Jan. 1, 1972. The 1970 Conservative Party conference repudiates Thorneycroft, and the subsequent leadership election makes Powell leader of the party.
1971. The Commonwealth Conference, with strong backing from Powell, forces Heath to hold a referendum on EC membership, which is defeated. Heath resigns and Powell wins the subsequent general election. Cromer becomes foreign secretary, Margaret Thatcher the first woman chancellor of the exchequer. Heath retires from politics and is succeeded as Labor leader by the anti-European James Callaghan.
November 1973. Oil Crisis. Miners strike. Powell announces the closure of the British coal mining industry and the government’s intention to import future coal supplies from free-market Poland. The Shah of Iran’s attempt to nationalize Anglo-Iranian Oil Co. is foiled by a coup d’etat engineered by Cromer, which replaces the Shah.
Britain grants Iran Dominion status and imposes a constitution with the franchise qualified by education and payment of income tax. The oil price settles at $7 per barrel, but 1974 and 1975 are still recessionary years.
March 1976. General election results in a minority Labor government led by James Callaghan, with Jenkins chancellor of the exchequer and Healey foreign secretary again. In the following year, Powell retires at 65 and is succeeded by Thatcher. Jenkins pursues an austere budget policy, taxes go up, and the economy fails to recover. The Callaghan government falls in March 1979, and Thatcher wins the subsequent general election.
The situation inherited by Thatcher is overall a strong one. The Imperial Preference bloc, consisting of Canada, Australia, South Africa, the Indian Confederation, Iran and the other Dominions, is an enormously powerful economic grouping.
It is stronger than the United States, let alone the EC, which of course includes Poland, Croatia, Serbia and Bulgaria but not Britain.
It is held together by a modest common external tariff, political links, a common energy policy (it is self-sufficient in oil, with North Sea oil being supplemented by supplies from the Dominions of Canada, Iran, Kuwait and the Gulf states) and the Empirenet.
The City of London is unquestionably the financial capital of the world, since it is by far its most important source of international finance. Latin American countries, for example, have several times been bailed out of financial profligacy by London merchant banks providing loans and good economic management.
The British automobile industry — Morris Motors, the somewhat struggling Austin-Renault and the hugely profitable up-market Rootes-BMW — dominates the world automobile market in all but the very large car sector.
The Brain and the Empirenet have given Britain a lead in information technology that has put her 20 years ahead of the competition.
Medium-sized military threats abound, but the crumbling Soviet economy and the multi-polar world political system have prevented the Soviet Union from ever mounting a strategic military threat to the West.
Life is good.