All Commentary
Tuesday, October 1, 1963

Great Britains Age of Economic Growth

Mr. Winder, formerly a Solicitor of the Su­preme Court in New Zealand, is now farming in England. He has written widely on law, agriculture, and economics.

That Great Britain remains out­side the closed economy of the European Common Market is not so much attributable to General de Gaulle as to Britain‘s deter­mination to follow her tradition of free trade with the Common­wealth. The Common Market would place its external tariff wall against such trade.

When Great Britain repealed her famous Corn Laws in 1846, she had for over a hundred years been moving steadily away from the state controlled economy, then known as mercantilism, toward a system of free enterprise. The ex­tent of the state control suffered by the British businessman before this movement began can be judged from a passage in Buckle’s famous History of Civilization in Europe in which he describes mer­cantilism during the eighteenth century: “In every quarter, and at every moment, the hand of Government was felt. Duties on importation, and duties on ex­portation; bounties to raise up a losing trade, and taxes to pull down a remunerative one; this branch of industry was forbidden and that branch of industry en­couraged; one article of commerce must not be grown because it was grown in the colonies, another article might be grown and bought but not sold again, while a third article might be bought and sold, but not leave the country.

“Then, too, we find laws to regulate wages; laws to regulate prices; laws to regulate profits; laws to regulate the interest of money; custom house arrange­ments of the most vexatious kind, aided by a complicated scheme, which was well called the sliding scale. A scheme of such perverse ingenuity, that the duties constantly varied on the same article, and no man could calculate beforehand what he would have to pay. To this uncertainty, itself the bane of all commerce, there was added a severity of exaction, felt by every class of consumers and producers. The tolls were so onerous, as to double and often quadruple the cost of production. A system was organized and strictly enforced of interference with manufacturers, interference with machinery, interference even with shops. The towns were guarded by excise men, and the ports swarmed with tide-waiters, whose sole business was to inspect nearly every process of domestic industry, peer into every passage, and tax every article; while, that absurdity might be carried to its extreme height, a large part of all this was by way of protection; that is to say the money was avowedly raised, and the incon­venience suffered, not for the use of Government, but for the bene­fit of the people; in other words, the industrious classes were robbed, in order that industry might thrive.”

This kind of economic system existed in the eighteenth century throughout Europe. The French writer, Blanqui, claimed that if it had not been for the smuggler during the eighteenth century, trade would have disappeared al­together.

Adam Smith’s great work, The Wealth of Nations, pointing outthe errors of mercantilism and ad­vocating free enterprise and free trade, was published in 1776. This book more than any other single factor brought about Britain‘s conversion to the free economy and caused the famous Repeal of the Corn Laws seventy years later.

With this repeal and subsequent adoption of the Gladstone Budget, the right to trade with whom one liked both at home and abroad be­came for the first time a funda­mental right of every Briton—a right cherished and exercised for 68 years. Not only were these years Britain‘s age of freedom, they also were her greatest age of economic growth.

The Temperate Dominions

Before this revolution in tariff policy Great Britain already had included within her Empire the three great temperate Dominions of Canada, Australia, and New Zealand; but with the exception of Canada these were of little use to her. Many politicians declared they were nothing but liabilities, and there was particularly strong opposition to the annexation in 1840 of New Zealand—a country which then contained many more Maoris than British settlers. Aus­tralia was inhabited only by a few primitive tribes and scattered groups of settlers, and served pri­marily as a prison colony. Although the agricultural potential of these three Dominions was im­mense, this was not an asset much appreciated; for until Britain’s conversion to free trade, all the world’s governments believed that, where possible, food should be a home-grown commodity.

While Great Britain was a free trade country, it was impossible for her to favor her Empire, for the products of the whole world entered her ports quite freely. It happened, however, that the settlers of her three Dominions were the most efficient producers of the very commodities the poor and hungry people of Britain most needed. They made the most of the British market now wide open to them, and from then on never looked back.

British Trade with Canada

Owing to her proximity to the alternative market of the United States, Canada probably benefited less from the new system than did Australia and New Zealand; al­though, during the whole of the nineteenth century, Britain pur­chased more from Canada than did the United States. Between 1846 and 1913, Canada‘s export of wheat to Britain was multiplied seventy times. By the end of the nineteenth century, Britain imported four times as much wheat as she grew at home, andher people had become the best fed in Europe if not in the world. Early in the nineteenth century, sheep had been imported into Australia. In 1840, Britain‘s im­ports of wool from all countries amounted to 49 million pounds. By 1886 she was importing 401 million pounds from Australia alone, and was turning it into in­creasing supplies of woolens and worsteds.

Today, Australia can sell her wool almost anywhere in the world; but in the nineteenth cen­tury the sale of this commodity to Great Britain was essential to Australian growth. The yearly British sales of all commodities to Australia during her 68 years of free trade were multiplied 24 times, while during the same period her sales to New Zealand were multiplied 100 times.

New Zealand Farming

Of the three temperate Domin­ions, New Zealand fits best of all into this picture of Commonwealth growth based on free entry into the British market. Her first great export was wool, nearly all of which for many years went to Britain. Then, when refrigerating machinery was invented, she sup­plied Britain with the greater part of her production of mutton and lamb. Again, when her dairy industry was developed, the greater part of its production went to Britain in the form of butter and cheese. Today 73 per cent of all the butter and 78 per cent of all the cheese produced in New Zealand is consumed in Great Britain. A third of the but­ter and cheese Britain consumes comes from New Zealand. In 1960, New Zealand‘s total exports to Great Britain were three times as great as to all the Common Mar­ket and European Free Trade Area countries added together. The farmlands of New Zealand could be correctly described as an overseas extension of the farm­lands of Great Britain. Today, they are as much a part of the British agricultural economy as are the farms of Cornwall and Devon.

The United States is Britain‘s best single customer but the 13 million people of the two domin­ions, Australia and New Zealand, buy more from Britain than the 180 million people of the U. S., the figures in 1960 being of £383 million and £340 million respec­tively. If we add Canada, then the 30 million people of the three dominions buy more from Britain than the 160 million people of the six Common Market countries—in 1960 £602 million against £562 million.

If we could exclude wool from our calculations, the extent of

Australia‘s and New Zealand‘s in­tegration with the British econ­omy could be emphasized still more. Wool, which accounts for about one-third of the value of the exports of both countries, is peculiar in being almost the only agricultural product which enters the majority of the world’s mar­kets free of duties. Against vir­tually all the other products of the two southern Dominions, the world presents an almost unbroken line of tariff barriers, like a great inhospitable cliff in which there is only one opening—that which leads to the British market. With­out this opening, Australia and New Zealand could not have de­veloped a very great part of their present trade or obtained the capital they needed for their re­markable growth.

Remarkable Economic Growth

If we consider poverty stricken Great Britain and her three unde­veloped Dominions at the time of the Repeal of the Corn Laws in 1846, and study them again before the outbreak of the First World War, after only 68 years of Brit­ain’s free trade policy, they pre­sent what must surely be the world’s greatest example of rapid economic growth. The only com­parable development is that of the United States during the same period. Within this short space of time the three Dominions had grown into great nations able to send armies to aid the mother country in her hour of need, while Great Britain developed in wealth and power, head and shoulders above all her continental neigh­bors. Between 1855 and 1913 Brit­ain‘s national income quadrupled, while her population and standard of living both doubled. Between 1846 and 1914 her exports were multiplied 8½ times. Never has the policy of allowing men to buy and sell just as they like, free from state interference, been more completely vindicated.

Other Commonwealth Countries

I have so far confined my atten­tion to Britain and her three tem­perate Dominions, but the effect of Britain‘s policy of allowing all Commonwealth goods free entry to her markets is also reflected in her exports to many other Com­monwealth countries. In 1960 Brit­ain‘s nearest neighbor, France, purchased British goods to the value of just over £2 per head of her population, and the United States of America slightly less than £2 per person. But the Fed­eration of Rhodesia and Nyassa­land purchased £6, Ceylon £6, Ghana £8, Malaya £4, Kenya £5, Singapore £20, Hong Kong £12, Jamaica £14, Trinidad and To­bago £33, and South Africa £15per head. The trade developed with these countries during Britain‘s free trade era is kept alive today because she still applies toward them the rules of free trade and allows their products free entry to her markets, the only important exception being sugar.

Until World War I destroyed many firmly established economic ideas, the British people fully real­ized the great economic develop­ment free trade had brought about and the benefits it had bestowed upon them. The ninth edition of the Encyclopaedia Britannica, pub­lished toward the end of the nine­teenth century, reported: “The benefits of free trade experienced during the last thirty years are so generally admitted, that the advocacy of the exploded theory of protection is looked upon as a harmless whim which has no chance of popularity.”

Progress Follows Freedom

It is sometimes claimed that Great Britain owed her nineteenth century supremacy to her ample supplies of coal and to being the first country to experience the in­dustrial revolution. But this is to place the cart before the horse. It was because Great Britain was the first of all European countries to develop the system of free enter­prise and follow it to its logical conclusion in free trade that she experienced and made such ad­vantageous use of the industrial revolution and gained her su­premacy.

In the days of mercantilism, she showed no such supremacy. In the eighteenth century when Britain began to abandon her state con­trols over commerce and produc­tion, France was by far the richer and more powerful nation in Eu­rope with a population nearly twice that of Britain; but as Toc­queville tells us in L’Ancien Re­gime, France remained hidebound in her mercantilism right up to the Revolution. In fact, the all-per­vasive control over the French economy exercised by the state was probably the chief cause of that cataclysm.

An example of the advantages accruing to Great Britain as a result of her adoption of free trade is provided by the great ex­pansion of her merchant marine. In 1849 when she repealed her protectionist Navigation Act, she had a slightly greater merchant tonnage than the United States (4,100,000 tons, against 3,750,000) but the United States ships were by far the more modern and effi­cient and included the famous Baltimore clippers which were the envy of the world. In 1907, after 60 years of free trade, Britain‘s tonnage had grown to 11,485,000 tons—four times as great as that of Germany, the next most impor­tant maritime power—while that of the United States had shrunk to 871,000 tons. During these 60 years, Britain did not attempt to help her shipping in any way.

The End of an Era

Great Britain‘s period of free trade came to an end with World War 1 and the great depression which followed it. This depression caused many British people who had grown up in the complete ac­ceptance of free trade to doubt its wisdom for the first time. Had they taken the trouble to look abroad, they would have dis­covered that comparatively free trading Britain suffered less from that depression than many pro­tected countries.

In 1915, the first step toward protection was taken by Britain with her McKenner duties, fol­lowed in 1921 by her Key Indus­tries duties, and then by a series of further protective tariffs. In 1932 she passed her Import Duties Act which imposed tariffs on most foreign products. Since then, her relative importance in the world has steadily declined.

Britain‘s departure from free trade, however, is not as complete as is popularly supposed, for her people have resolutely refused to place tariffs against the Common­wealth. With a few minor exceptions, such as the sugar duties, Great Britain still retains her free trade system as far as her Com­monwealth is concerned.

Her three temperate Dominions began placing protective tariffs against British goods before the end of the nineteenth century, and have increased them since, par­ticularly after World War I; but Britain has virtually never re­taliated. Her ports remain open to Commonwealth goods. Since World War II, however, she has subsidized her farmers and there­by undoubtedly done some injury to Commonwealth trade.

But Commonwealth tariffs and Britain‘s farm subsidies may be described as merely blemishes on what is still fundamentally a pat­tern of highly integrated and mu­tually beneficial Commonwealth trade. The channels of that trade have been cut too deeply during the nineteenth century to be easily obliterated.

Moreover, trade is a two-way street. By keeping her ports open to the products of Commonwealth countries, Britain enables them to earn large quantities of ster­ling, which is nearly all used to pay for British services and to buy British goods that move into Commonwealth countries in spite of their tariffs.

It would appear that once a trade is well established it takes more than the government of one of the parties concerned to destroy it. The Commonwealth countries may erect their protective tariffs, but as long as Britain‘s ports re­main open to the free entry of their goods, the two-way trade continues.

The Real Reasons

Because the British people de­pend so much on Commonwealth trade, they dared not allow the European Economic Community‘s external tariffs to be erected against it. The Community’s farm­ers, on the other hand, dared not allow the far cheaper Common­wealth food free entry into Eu­rope because it would undercut their own products. They con­sidered this too high a price to pay for Western unity. To the British people, a Western union which left out their 30 million fellow Britons overseas was no union at all.

Great Britain almost certainly would have joined the Common Market if she had not been re­quired to place its tariffs against her Commonwealth. This opinion is supported by the fact that she has already joined the European Free Trade Association, for in this case no change in her econ­omic policy toward her Common­wealth was required. Some even see in Britain‘s intention to abandon her tariffs against im­ports from the other members of the Outer Seven an extension of her Commonwealth economic sys­tem.

A Great Tradition

Had Britain‘s era of free trade been a mere incident of the past, safely relegated to history, the problem of her entry into the Common Market would not have been a difficult one. But her free trade past to a large extent still conditions her economy.

A hundred years ago, with her poverty stricken people pressing on her agricultural resources, she was in a desperate position. She solved her problem by allowing her people freedom to trade as they liked and to develop, unaided by the state, her three temperate Dominions into great agricultural economies.

Although these Dominions leaped to Britain‘s side in two great wars, it is now said that the British Commonwealth is a thing of the past. Politically, this may be so; but economically, it is as real as ever. And the instinctive realization of this fact finally de­cided the British attitude toward the Common Market. Perhaps Britons remember little of the moral and economic principles which made them great, but they feel that to impose the Common Market’s external tariff barrier against the products of fellow Britons overseas, while allowing similar products into the country from Europe free of tariffs, would be an obviously unfriendly act not to be tolerated. Equally important, perhaps, they realize that such a policy would greatly increase the price of their food.

As a result, all the efforts of economic planners and politicians and the appeals of the Prime Minister himself, persuasive as he is, could not convince the British people that they should sacrifice the Commonwealth for the Com­mon Market.

In British history, rapid econ­omic growth and economic free­dom have been inseparable. In the great debate on whether Britain should enter the closed economy of the European Economic Com­munity many British leaders seem to have forgotten that habits of thought and trade, left by a hun­dred years of economic freedom, take time to destroy.



Ideas on Liberty

Henry Hazlitt

The real gain of foreign trade to any coun­try lies not in its exports but in its imports.