Island Stories: Britain and Its History in the Age of Brexit

A remarkable rise

On the face of it, decline might seem a plausible description of Great Britain’s changing place in the world over the last century or so. In the 1870s, the country possessed more battleships than the rest of the world combined. It directly controlled about a fifth of the earth’s surface, including India, Canada and Australasia. It was the world’s largest economy, accounting for over 20 per cent of global manufacturing output and a similar proportion of global trade. The first industrial nation had become the greatest power the world had ever seen. A century later, however, Britain had lost nearly all its overseas territories; it accounted for a mere 4 per cent of world manufacturing and about 7 per cent of world trade. The first post-industrial nation was struggling to find its post-imperial role.

Membership of the EEC from 1973 was supposed to resolve that identity crisis – the loss of an outmoded global empire would be offset by a new European dynamic. But in the wake of the 2016 referendum, Brexiters claimed that ‘Europe’ had been a blind alley and that leaving the EU in 2019 was the way to reverse national decline and retrieve Britain’s global greatness.

Yet this preoccupation with Britain’s ‘decline’ can mislead. More historically remarkable is the coutry’s rise. That, indeed, had been Gibbon’s thesis in the case of Rome: ‘The rise of a city, which swelled into an empire, may deserve, as a singular prodigy, the reflection of a philosophic mind. But the decline of Rome was the natural and inevitable effect of immoderate greatness.’ Similarly, observed a more recent historian, François Crouzet, ‘it is a mistake to think that England’s original supremacy was normal and her decline abnormal.’[29] On the contrary, what really needs explanation is the original ‘supremacy’.

To put it simply, Great Britain stood in the forefront of the great surges of European expansion that shaped the world between 1700 and 1900: commerce and conquest in the eighteenth century, industry and empire in the nineteenth century. All these movements were intertwined with the lucrative Atlantic slave trade – half of all Africans carried into slavery during the eighteenth century were transported on British vessels – and the profits from that trade lubricated Britain’s commercial and industrial revolutions.[30] The country’s principal advantage was a relatively secure island base during what was still the era of seapower. Unlike rivals such as France and Prussia/Germany, who shared land borders with bellicose neighbours, Britain could shelter behind the English Channel – what Shakespeare called the country’s ‘moat defensive,’ its ‘water-walled bulwark’. Or, to quote Gladstone in 1870, ‘the wise dispensation of Providence has cut her off by that streak of silver sea … partly from the dangers, absolutely from the temptations, which attend the local neighbourhood of the Continental nations.’[31] Insularity did not guarantee immunity – in 1588, 1804 and 1940 the threat of invasion seemed acute – but it did mean that the British did not require a large standing army of the sort that became normal on the Continent. The Royal Navy, however, was popular and also necessary, not just for direct defence but also because, as an island, increasingly dependent on the import of food and raw materials, Britain needed to protect its seaborne commerce from peacetime privateers and wartime enemies.

Britain’s insular position left it ideally placed to capitalise on five great bouts of warfare against France. Whereas French leaders from Louis XIV to Napoleon Bonaparte had to fight their primary battles on land against continental foes, Britain was able to divert more of its resources into the struggle for trade and colonies. The Seven Years’ War of 1756–63 left the British in control of most of North America and although thirteen colonies won their independence during the next world war of 1776–83, Britain held on to what became Canada and the British West Indies. The Revolutionary and Napoleonic Wars of 1793–1815 was a period of extended crisis, during which Britain endured long periods of economic isolation, but, in the end, the country won a total victory. French seapower had been destroyed and Britain was left as the world’s main colonial power, paramount in India but also increasingly entrenched in Australasia and parts of Africa. Its fleet, previously based mostly at home and in the Baltic and Mediterranean, was now spread around the globe. The Royal Navy’s ability to command the seas depended on holding what Admiral Sir John Fisher, First Sea Lord at the start of the Great War, called the ‘five strategic keys’ that ‘lock up the world’ – the great British bases at Dover, Gibraltar, Alexandria, the Cape of Good Hope and Singapore.[32]

Established at strategic points around the globe, able to project power through a strong navy and merchant fleet, Britain after 1815 also enjoyed the huge advantage of becoming the world’s first industrial nation. The country’s initial manufacturing surge had been driven by the cotton trade. All the raw material was imported and most of the production was for export. By 1830, cotton goods accounted for half the value of British exports and raw cotton made up 20 per cent of net imports. After the cotton boom subsided, iron and steel became the new growth sector, stimulated by the railway-building mania of the 1830s and 1840s, and then sustained by British dominance in the financing and construction of railways around the world. By 1860, a country with only 2 per cent of the world’s population was producing half the world’s iron and steel and accounted for 40 per cent of world trade in manufactured goods. It had the highest GDP in the world and its population, despite vast inequalities of wealth, enjoyed the highest average per capita income.[33]

During much of the Victorian era, therefore, Britain did seem truly great as the leading colonial empire, the world’s industrial giant and the dominant sea power. In the decades after 1815, the Royal Navy appeared to rule the waves, driving piracy from the Indian Ocean and the China Seas, confronting slave traders in the Caribbean and South Atlantic, and aggressively promoting Britain’s commercial interests – particularly in the Opium War of 1839–42 to open up China to British trade. Many foreign leaders had no doubt that British power was decisive. ‘Only England, mistress of the seas, can protect us against the united force of European reaction,’ exclaimed Simón BolÍvar, the liberator of South America, as he contemplated the danger of Spanish reconquest. Muhammad Ali, the Ottomans’ unruly viceroy of Egypt, remarked that ‘with the English for my friends I can do anything: without their friendship I can do nothing’.[34] The analogy between the Pax Britannica and the Pax Romana did not sound far-fetched. Like Rome, Britain seemed to rule or shape much of the world, and was what the poet Alfred Tennyson rhapsodised in 1886 as

… the mightiest Ocean-power on earth

Our own fair isle, the lord of every sea.[35]

The country’s global power was on flamboyant display during celebrations for Victoria’s Diamond Jubilee in June 1897. A week of martial festivities culminated in a vast naval pageant off the Isle of Wight when the Queen reviewed 165 of her warships manned by 40,000 sailors. The highpoint was 22 June when Her Majesty processed in state along six miles of London streets amid cheering crowds. Speaking for most observers, the Manchester Guardian described the theme of the celebrations as ‘the world-wide Empire of Britain … the exultant expression of a power the greatest in the world’s history’. Onlookers were particularly intrigued by contingents of troops from the Queen’s domains all over the globe. A reporter for the new popular newspaper The Daily Mail could hardly contain his patriotic fervour as he described them marching up Ludgate Hill to St Paul’s:

white men, yellow men, brown men, black men, every colour, every continent, every race, every speech – and all up in arms for THE BRITISH EMPIRE AND THE BRITISH QUEEN. Up they came, more and more, new types, new realms at every couple of yards, an anthropological museum – a living gazeteer of the British Empire. With them came their English officers, whom they obey and follow like children. And you begin to understand, as never before what the Empire amounts to.[36]

Much of the rhetoric from that week in June 1897 was similarly extravagant, often preposterous. A jubilee mug, inscribed with portraits of the 78-year-old monarch, carried the legend The Centre of a World’s Desire. A Canadian poet penned his own tribute:

Here’s to Queen Victoria

Dressed in all her regalia

With one foot in Canada

And the other in Australia.[37]

A truly remarkable posture, but not one that could be sustained for long. In fact, the world we have lost was one that we were bound to lose. Britain’s global power was always more limited than appearances suggested. A closer look at the nature of that power – economic, international and imperial – will help explain why.

The changing relativities of wealth and power

It is a precept of international affairs that wealth is needed to underpin power: to quote historian Paul Kennedy, there is ‘a very significant correlation over the longer term between productive and revenue-raising capacities, on the one hand, and military strength, on the other’.[38] The British case certainly fits that broad argument. In 1880, Britain produced nearly 23 per cent of the world’s manufactured goods; only 10 per cent in 1928 when Churchill was Chancellor of the Exchequer and a mere 4 per cent in 1980, around the start of Thatcher’s premiership. As a trading nation Britain’s slide was slower but the end result was similar. In 1899 Britain accounted for 33 per cent of the world’s exports of manufactured goods, 25 per cent in 1950 and less than 10 per cent in 1980.[39] While Britain’s share of the world’s wealth gradually diminished, the cost of armaments rose exponentially. In the 1980s, for instance, 385 Tornado fighters for the RAF cost more in real terms than all the 21,000 Spitfires produced before and during the Second World War.[40] Yet a nation that fell behind in the spiral of technological sophistication risked eclipse as a first-rank power, especially if others overtook it in economic capacity.

And this was bound to happen. Britain’s Victorian-era economic supremacy was in a sense artificial, given the country’s size and population. Britain’s comparative advantage was certain to be reduced once the process of industrialisation spread to countries with larger populations and greater resources – Germany in the late nineteenth century, America during the twentieth century and China in the twenty-first. The United States and the People’s Republic were both countries the size of a continent, blessed with a booming workforce, abundant natural resources and a vast tariff-free internal market. Apart from being disadvantaged in the long run by relative size, Britain was also susceptible to the ‘catch-up’ phenomenon. Once countries had crossed a basic socio-economic threshold, they could copy an economic leader’s technological innovations, rather than having to learn by trial and error. And the growth rates of previously underdeveloped countries always look particularly spectacular – the ‘Asian tigers’, for instance, in the 1960s, and China during the last quarter-century.

The predominant British response to economic catch-up was to consolidate existing advantages. One of these was its naval-industrial complex – based on integrated steel/armament/shipbuilding firms such as Vickers, Armstrong-Whitworth and John Brown, as well as the Royal Dockyards – which later diversified into military aircraft and tanks. In the early 1930s, Britain and France shared half of global trade in armaments almost equally between them; in 1938, Hawker-Siddeley advertised itself ‘the leading aircraft organisation in the world’. The British arms industry was boosted by the two world wars and sustained by the Cold War. Even though the ‘warfare state’, like the slave trade, is now largely omitted from general narratives about the British economy, it matters as much in the history of modern Britain as the ‘welfare state’.[41]

Even more important were financial and commercial services – another aspect of Britain’s economy often neglected by narratives of rise and decline that focus on heroic industrialism. This service sector coexisted with the development and mutation of industrialisation; indeed these processes were often complementary because goods can be derived from services just as much as services from goods – exemplified by innovations across the centuries ranging from bills of exchange and actuarial tables to barcoding and computerised trading.[42] Britain’s merchant navy, most of it serving non-British customers, headed the list of ‘invisible’ earnings, supported by insurance and banking. Together with profits from overseas assets such as railways, plantations, utilities and oil concessions, these earnings were equivalent to around 75 per cent of the earnings from exports of domestic merchandise in the 1890s.[43] These more than covered the gap between Britain’s imports and exports, and they provided a ‘war chest’ on which British governments drew in both world wars. Indeed, during the 1930s, the Treasury referred to Britain’s financial position as the ‘fourth arm’ – as central to waging a future war as the three armed services.

The other response to sharper economic competition was to shift from free trade to protectionism. In the 1900s, Joseph Chamberlain may have failed in his campaign for tariff reform, but in 1932, at the nadir of the world depression after Britain had abandoned the gold standard, his son Neville – then Chancellor of the Exchequer – steered it through the Commons with Joe’s widow watching proudly from the gallery. In a trading economy now protected by tariffs, ‘Imperial Preference’, meaning preferentially lower rates, was accorded to countries of the British Empire. An embryonic Sterling area was also formed during the 1930s, and then consolidated during the Second World War. This overlapped with Imperial Preference but was not coterminous. Canada, though enjoying preferential tariffs, was outside the Sterling Area; countries in Latin America and Scandinavia belonged to the latter but not the former. Between 1913 and 1938 the empire’s share of British exports rose from 22 per cent to 47 per cent, and during the interwar years the empire attracted far more new British foreign investment than non-imperial countries – a contrast with the pre-1914 story.[44] The empire/Commonwealth and the Sterling Area became the framework for British foreign economic policy – a privileged market for goods and capital which tried to insulate the domestic economy from international competition from the thirties to the late sixties.

The end of imperial preference and Britain’s entry into the EEC broadly coincided with the demise of the Sterling Area, the onset of the oil crisis and the collapse of the post-war boom. The long 1970s recession accelerated the process of deindustrialisation for all Western European countries, but Britain’s experience of it was exacerbated by the ferocity of class politics in the Thatcher era. Within this complex nexus of global economic change, it is no simple task to isolate the historical consequences of joining the EEC. Suffice to say here that a crude declinist narrative fails to take account of the country’s adaptive economic changes since the 1970s: an accelerating shift into services and the success of the financial sector, which adjusted particularly well to the post-imperial era.

‘As the good ship sterling sank, the City was able to scramble aboard a much more seaworthy vessel, the Eurodollar.’[45] This term signified dollar assets held not in the USA but in Europe – starting with those created by Middle Eastern states from the profits of the 1970s oil shocks. They were attracted to the City of London by the tax benefits on offer and by the deliberately more relaxed regulatory environment than Wall Street. But this was not the ‘old’ City, geared to sterling and the British economy, but a ‘new’ City, ‘externally orientated’ and ‘foreign-owned’ (dominated by US, Japanese and continental European banks) and which ‘flourished as long as it was left alone by the authorities’.[46] This externalisation process accelerated when the Thatcher government ended exchange controls in 1979 and encouraged the ‘Big Bang’ deregulation of the stock market. In 1981 only 3.6 per cent of the UK stock market was owned by foreigners but the proportion then rose to 43.1 per cent in 2010 and 53.9 per cent in 2016. There are, of course, still plenty of British players in this business – Jacob Rees-Mogg, for instance, made his multimillion fortune as a hedge-fund manager – but in large measure the City had adapted to change by becoming an immensely lucrative offshore banking sector through which foreigners, not least post-Soviet Russian oligarchs, could move their money without too many questions or impediments.[47]

So the erosion of Britain’s relative advantage in manufacturing did not mean that the country became a minor feature of the world economy. On the contrary: today it is the tenth-largest global exporter and fifth-largest global importer; it ranks second or third in both inward and outward direct foreign investment. In economic terms Britain is roughly where one might expect for a country of its size, resources and historic commercial expertise. What has changed is that Britain’s relative power internationally has diminished because, over the last century, other states have generated economies that are equal or superior to it.

What mattered even more for the country’s place on the world stage was the changing nature of geopolitics. International rivalries intensified from the 1860s, after a half-century of peace since the defeat of Napoleon. And then revolutions in the technology of warfare over the subsequent century negated many of the benefits of Britain’s insular position.

Despite what is a common belief, ‘European peace in the nineteenth century did not derive to any great degree from Britain’s maintaining a continental balance.’[48] That equilibrium stemmed from the exhaustion of Europe in 1815, after more than two decades of ruinous war, and the acceptance of the post-Napoleonic peace by all the continental powers except defeated France. Rather than the Pax Britannica sustaining the peace it was peace that sustained the Pax. Indeed Britain was almost a free rider – allowed to concentrate its resources on global expansion because of the unusual tranquillity of Europe, which was in marked contrast to the eras of Philip II, Louis XIV and Napoleon.

When continental states once more resorted to war as an instrument of policy – resulting in the unification of Italy and then Germany between 1859 and 1871 – Britain could do little to affect the outcome. Its trump card, the Royal Navy, was largely impotent in the face of fast-moving crises in the hinterland of Europe, and the British did not adopt the continental practice of large standing armies sustained by military conscription. In 1871, during the Franco-Prussian war, Lord Salisbury reckoned that whereas the Austrians and the Germans could each put over a million men into the field, and the Russians 1.5 million, Britain’s ‘utmost strength’ for ‘foreign action’ was 100,000. Little wonder that Otto von Bismarck, the Prussian chancellor, reportedly scoffed that if the British army landed on the German coast, he would send the local police force to arrest it.[49] Bismarck’s new German Empire – created through successive victories over Denmark, Austria and France – became the greatest military power on the continent, dominating Central Europe. Benjamin Disraeli called the Franco-Prussian War of 1870–1 ‘a greater political event than the French Revolution … The balance of power has been entirely destroyed and the country which suffers most … is England.’[50]

Even more important for future geopolitics was the outcome of the American Civil War. At the start, in 1861, Britain declared its neutrality: 80 per cent of Britain’s cotton imports came from the Confederacy, supporting a textile industry that employed 4 million people. And the ethical issues looked confused: the Federal government claimed to be fighting to preserve the Union, not to abolish slavery, and many English liberals saw the Confederate cause as a war for national liberation, like the recent secession of the Italian states from the Habsburg Empire. In October 1862 Gladstone told an audience in Newcastle that the ‘leaders of the South have made an army; they are making, it appears, a navy; and they have made what is more than either, they have made a nation.’ Indeed, he welcomed the potential break-up of the Union because it was ‘in the general interests of Nations that no State should swell to the dimensions of a continent.’[51]

But talk of possible British mediation in the conflict was a passing phase. By April 1865, the North, with its far superior resources, had defeated the ‘Rebellion’ and the United States of America regained its unity ‘from sea to shining sea’. The implications of a country the size of a continent were not lost on Europeans. In 1866 the French economist Michel Chevalier urged Europe to unify in the face of ‘the political colossus that has been created on the other side of the Atlantic’. And in 1882, as the pace and intensity of economic development accelerated throughout America’s vast and now peaceful single market, the German writer Constantin Frantz considered it ‘hardly preventable’ that ‘the New World will outstrip the Old World in the not far distant future’.[52]

What is more, the balance of force across the whole world was shifting against Britain. After the post-1815 lull, imperial rivalries renewed with the scramble for Africa in the 1880s and 1890s and the attempted partition of China at the turn of the century. Britain’s naval supremacy had by then been undermined. In 1883 the Royal Navy boasted 38 battleships; the rest of the world had 40. By 1897 Britain was outnumbered: 62 against 96.[53] By this time the Russian Empire had expanded across Asia to the Pacific, creating friction along the borders of British India. And other non-European powers were emerging. Japan had industrialised and turned its economic strength into military might, defeating China in 1894–5 and Russia in 1904–5.

In the first half of the twentieth century, the British therefore tried to defend a global position that had been consolidated during a rare half-century of European peace and stability after 1815. And they had to do so against rivals which had caught up with Britain, and even surpassed it, in economic and military capability. France remained a competitor in the 1920s and 1930s, and the Japanese threat was acute in 1937–42. But the most momentous and sustained challenge came from the German Reich.

Unified Germany’s first bid for hegemony, in 1914–18, was stopped but at great cost. Britain and the empire lost one million dead, as well as nearly 15 per cent of the country’s total assets. The war also saw a geopolitical shift to the Pacific as both Japan and America – wartime allies of Britain – developed into major naval and economic powers. And although the Habsburg and Ottoman Empires disintegrated under the strain, Russia survived revolution and civil war to re-emerge under Bolshevik leadership. This posed a double danger for Britain, because traditional rivalries with Russia in Asia were now coupled with the ideological challenge of a Soviet state officially dedicated to world revolution.