What If? Britain doesn't go Bankcrupt at end of WWII

I was recently watching a World War II programme and it talked about how Britain was facing a ‘financial Dunkirk’ at the end of the War. Obviously, a large part of this was because of the government selling off major assets it owned in the US and calling up on lend lease.

So it got me wondering, why was the UK in such a sorry state financially in the first place, in comparison to the USA which came out on top economically, and also, what would of happened to Britains world role, if somehow, it wasn’t in a financially unstable position and actually enjoyed a economic boom because of the second world war? What effects would it have in the post war period?

Britain was in a sorry state financially because, obviously, the war was expensive. Britain had spent most of their reserves buying supply from the US under the Cash and Carry program, went into a large amount of debt with Lend-Lease, and then, after the war, borrowed even more money from the US and Canada to pay for food and consumer goods and things while the British economy was going off the war footing.

A country like the US didn’t go bankrupt after the war, because, largely, it had a much bigger economy, and also didn’t have all the colonies Britain had, which were a drain on the British economy.

The financial strain of the war was tremendous. Just to survive, Britain had pulled out the stops and placed itself on a total war economy, because the alternative was national extinction. By 1945 the British economy was as burned out as someone who’s stayed awake for ten days on meth. There was nothing left. That doesn’t even factor in the physical destruction the war caused (blitzed-out ruins were still being cleared into the late 1950s!). By contrast the US homefront was virtually immune to attack, and although taxes remained sky-high for years to pay off the debt, the US was in a unique position to prosper immediately after the war.

Don’t forget that Britain at the start of the war was still suffering from the losses of WW1 and the effects of the Great Depression.

Did Britain have some equivalent to the G.I. Bill? Seems to me one way to keep returning war veterans (who are well acquainted with violence) from becoming embittered about having to return to stinking poverty was to educate them, making them more employable.

Perhaps I’m being glib/naive, but was part of the solution firing all the women who’d worked in factories during the war.

Both Canada and America were in a position to extend foreign aid to western Europe, Britain and several other countries after WWII . The US Marshal Plan was instrumental in jacking up the GDP of many European countries so that by 52 they exceeded their output from prewar levels.

Germany lagged becaused of industries that were being dismantled. Why Britain lagged to my thinking is contractual obligations to America to keep the Germans at bay, while the rest of Europe(mostly) simply didn’t spend any capital or money financing a war effort.

Why did America (and Canada) get off easy after WWII? I believe their economic and physical infrastucture remained largely intact .

IIRC, the colonies only became a hindrance once the ‘Great Far-Eastern Barrack’ which was India was given independence which meant the UK had to carry on conscription much longer to maintain the rest of the Empire. I’m sure the Raj ended the war with a surplus in it’s account, but I’ll have to check on that.

A dangerous delusion in the United States which emerged from the Second World War is that war and military spending are good for the economy. By 1944 the unemployment rate in the United States was 1.2%. Nevertheless, if the government had been paying people to improve life rather than destroy it, the benefits to the economy would have been greater.

The Great Depression was ended by high government spending and high government employment paid for by high taxes on the rich. In 1944 the top tax rate was 94%. During the 1950’s the top tax rate never got below 91%. That helped the United States pay off the war debt.

Another dangerous delusion is that tax cuts generate more tax revenue than tax increases.

There was some money that was split between India and Pakistan at independence, that’s true. But India was either going to get independence or devolve into an uncontrollable civil war. By 1946, both the Congress Party and the Muslim League were moving towards outright declarations of independence, and had the British refused to grant independence, it’s almost certain that they would have declared it. And even the British Indian Army and Navy were openly flouting British orders. Either way, India wouldn’t have been useful to the British in order to maintain the empire much past 1950.

Possibly, but the factories themselves had to undergo major restructuring as war production shifted to civilian production. I was thinking of the major boost the U.S. (eventually) got by sending a huge number of men to college, something that before the war would have been denied to nearly all of them, and the subsequent boost to the economy led to as schools churned out engineers, scientists, business managers, artists and (even) lawyers. What was university attendance like in the U.K after the war? Still limited to the upper classes and such? Seriously, I don’t know.

There were two important differences between postwar UK and postwar US. One was, as already pointed out, the UK was much more battered than the US. They had been fighting for much longer, they had a smaller industrial and economic base to begin with, they had been in the “front line” and had suffered enormous loss of capital, investment, plant, not to mention life and limb etc through being blitzed, etc, etc. So by 1945 they were recovering from a much lower baseline than the US.

The second was that for the UK it really had been total war, with complete mobilisation of the civilian as well as the military population – civilian labour being directed to where it was needed, for example – being “conscripted”, in fact. Widespread rationing, and an almost Nazi-like level of movement control, restriction of civil liberties, etc.

When the war ended, therefore, there was certainly a sense of indebtedness to the troops, and a sense that returning soldiers needed to be honoured and looked after, but this was coupled with a widespread feeling that the same could be said of the entire population; they had all fought the war. So where US social engineering of the time focussed on the troops – the “GI Bill of Rights” – British social engineering extended to the whole of society – the National Health Service, for example. As part of this a system of university fee payments and maintenance grants was introduced (or greatly expanded) in the UK. In terms of generosity I don’t know how it compared to the US arrangements for demobilised soldiers, and I don’t know what the takeup was like. But, crucially, it was not particularly focussed on ex-servicemen; it was available on the same terms to all. My impression is that the really big expansion in UK university education didn’t come until the 1960s, but I could be corrected.

Not necessarily an advantage, long-term.

This probably contributed to the post-war prosperity during the 50’s, but by the 60’s & later, the US & Canada were suffering from aged infrastructure, which was falling behind compared to the new infrastructure that had been rebuilt from the ruins of the war.

For example, much of the US steel industry’s old plants couldn’t compete with newer steel plants in Japan & Germany, that were build after the war.

I believe Lend Lease amounted to about 3% of the UK’s GDP at the most.

The greatest disaster to befall the UK post war was the Attlee Labour Government. Attlee and Co. believed all of the bogus economic growth statistics churned out by the Soviet Union for the previous twenty years, pre and post war, and were convinced that an economy managed by government bureaucrats was the wave of the future.

The idiots were even stupid enough to retain war time rationing for years after WWII. That’s one major factor that helped Churchill and the Conservatives return to power.

But surely, both things happened, didn’t they?

Britain had no control over events during the partition when Pakistan (‘Land of the Pure’) engaged in a bloody - by which I mean many millions slaughtered - separation from predominantly Hindu India.

You know you’e in total war when the female population is conscripted, as happened in Britain towards the end of 1941 - afaik, even the Nazi’s did’t conscript women.

Women were responsible for 1/3 of British manufacturing by 1942.

Full on war effort.

They weren’t conscripted to fight.

The Israelis, however, still conscript women to this day.

True. And a greater percentage by the end of the conflict. They were a vital part of the war effort.

It had nothing to do with “bogus economic growth statistics churned out by the Soviets”. The British knew from their own experience that it was only through the most far-reaching state control and management of the economy – indeed, of the national life – that they had survived and eventually won the war. They believed – and this was widely accepted at the time – that a centrally planned economy, done right, was more efficient and effective. They had, in fact, much more state control of the economy than the Nazis and this, they thought, was at least partly why they won.

The objection to state control was not inefficiency but unfreedom; the British had tolerated a degree of state control during the war which was justified by the national threat, but wouldn’t otherwise be acceptable. At the same time, there was widespread consensus that some degree of state control of the economy was justified and necessary to prevent a repetition of, say, the Great Depression, or the kind of social inequality that characterized pre-war Britain. The postwar Labour government was an attempt to find that balance.

I should point out that the notion that state planning was at least potentially efficient was also widely accepted in the US. People were painfully aware that it took the Soviets four years to replicate the atomic bomb but just two years, shortly afterwards, to replicate the hydrogen bomb. And by the late fifties they appeared to be ahead in the space race – the first artificial satellite, the first man in space. This led to a sense of crisis on the part of some; they expected the US to be eclipsed, economically and militarily, by the USSR. They did not think that the US would (or should) tolerate the unfreedom necessary to match the Soviet performance, and thought that the best hope was a conflict sooner rather than later, while the US still had superiority. Plus, they thought their inevitable eclipse by the Soviets could be postponed for as long as possible by the state at least taxing the population for an unprecedented level of defence expenditure. Hence the British had marginal tax rates in excess of 90% to support the development of the NHS, while the Americans had marginal tax rates in excess of 90% for a federal government whose main expenditure was on the military.

There were others, of course, who argued that central planning was inherently inefficient, but this didn’t really become the received view of the political and economic establishment until the 1970s. By the 80s and 90s it was the dominant view and has heavily influenced economic policy since which, of course, is why in our own time we had the Global Financial Crisis

Not yet mentioned, most countries involved in WWII were severely weakened in military power by the end, including England. They expended everything they possibly could, and at that needed even more which is why Lend Lease was done in the first place. Add in the lack of fighting spirit, Europe was justifiably weary of war.

On the other hand, the United States didn’t even fight all of the war. We sat out the first half. During the war, the US had to develop the ability to deploy it’s military on a massive scale almost anywhere in the world. We weren’t as war weary as Europe was, as evidenced by the fact we got into the Korean war within 5 years. So the US’s military power was greater than before WWII, everyone else was weaker than before. Don’t underestimate how much gunboat diplomacy can get favorable trade deals.

It also helped that there was the USSR boogieman. The US could, and often did, take advantage of western Europe depending on it for defense from the Warsaw pact. For the most part, we didn’t abuse it nearly as much as we could have, but even so, the US was clearly the dominate partner and the dominate partner gets the good trade deals.

So to a fair extent, part of the answer is the US had the nukes, the US had the military power, thus the US had a favorable trade situation worldwide.

While it is true that the 1944 Education Act greatly expanded the general provision for university maintenance grants, there were also separate arrangements - the Further Education and Training Scheme - for demobbed ex-servicemen. Which did mean that many men who would otherwise not have gone to university did do so. It was just that this was on nowhere near the scale of the American equivalent.