DRAFT'AN EVALUATION OF THE PSYCHOLOGICAL IMPACT IN THE UNITED KINGDOM OF UNITED STATES FOREIGN ECOMOMIC POLICIES AND PROGRAMS.' (PSB D-36)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-01065A000400080010-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 30
• Document Creation Date: December 15, 2016
• Document Release Date: December 1, 2003
• Sequence Number: 10
• Publication Date: January 13, 1953
• Content Type: MEMO

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CONFIDENTIAL
PSYCHOLOGICAL STRATEGY BOARD
WASHINGTON 25, D. C.
January 13, 1953
MFMORANDUM
TO : The Honorable David K. E. Bruce, Under Secretary of State
SUBJECT: Draft "An Evaluation of the Psychological Impact in the
United Kingdom of United States Foreign Economic
Policies and Programs." (PSB D-36)
I attach a draft of PSB D-36, bearing the above-quoted title,
for consideration and appropriate action by the Board at its meet-
ing on` January 15, 1953.
This Evaluation was developed in the PSB Staff pursuant to
the Board's authorization at its luncheon meeting on August 14,
1952, In accordance with the Boardts instructions and in the light
of the primary initiative and interest of the Department of State
in this matter, the staff has relied primarily on consultation with
the Department of State in preparing this document. Additional
consultation was held with representatives of the Office of the
Director for Mutual Security.
The oxperience gained in this project has, I believe, been
helpful in clarifying requirements for future work in the field
of evaluating the national psychological effort.
I recommend approval of this Evaluation and its transmittal,
as approved, to the President and the National Security Council.,
and to interested Departments and agencies.
S/Alan G. Kirk
Alan G. Kirk
Director
PSB D-36 dated Jan. 12, 1953
Copy No,
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CONFIDENTIAL PSB D-36
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COPY NO. 43
PSYCHOLOGICAL STRATEGY BOARD
WASHINGTON, P. 0,
AN EVALUATION OF THE PSYCHOLOGICAL IMPACT IN THE UNITED KINGDOM OF
UNITED STATES FOREIGN ECONOMIC POLICIES AND PROGRAMS
I. Statement ,of the Prgklem
To evaluate the psychological impact of U.S. foreign economic
policies and programs in the United Kingdom.
NOTE: This evaluation is primarily concerned with the impact
of the policies and programs referred to on the willingness of the
government and-the people of the United Kingdom to act in accordance
with basic U.S. security objectives in the present world struggle.
The time span considered is the period since the end of World War II.
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CONFIDENTIAL PSB D-36
January 12, 1953
II. Summa
1. The positive psychological value of U.S. postwar assistance
to the U.K. is considerably offset by adverse British reactions to
aspects of U.S. aid and other economic policies. Such reactions have
combined with political and other frictions to aggravate British mis-
givings and resentments toward the U.S,, and thus to dampen Britain's
enthusiasm for the alliance. None of these factors threaten British
adherence to NATO or to tel:; U.S. as an ally.
2. The chief sources of friction in U.S. economic policy have
The continued concept of U.S. "aid'9 as applied to
support of Bri?t,aints NATO defense efforts
U.S. tariff and foreign investment policies.
c, U.S. policies and practices in the world: raw materials
market
ci4 U.S. po1.?0y on control of strategic.: }dash-West trade.
3. The U.S. psychological impact is shaped by basic features of
the BiAL'A..sh world ou?'4:look: aware,:uess of their reduced n&t'.onal power
and of the Soviet throat, which makes alliance ith the U.S. a com-
pelling necessity; and the inequality of that alliance, deeply frustrat-
ing to a people long accustomed to world leadership. British satisfac-
tion over the willingness of the U:,S. to assume leadership is qualified
by doubts as to the wisdom, constancy, and responsibility of the U.S.
as leader in the world struggle. Signs of unilateralism in U.S. policy
offend British pride by implying indifference to the sacrifices and
experience of its weaker ally and unwillingness to acknowledge America's
need for the alliance,
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D191 CONF TIAL PSB D-36
January 12, 1953
III. Basle U,S. Po 3c y Objectives and the Role of the United Kingdom
The chief purpose of this study is to discover in what ways
progress toward our basic national policy objectives in the world
struggle has been advanced or retarded by the psychological effects
examined. Those objectives thus constitute the general policy back-
ground and the general criterion of psychological gain or loss for
this evaluation,
The national objectives referred to need not be recapitulated
in detail for present purposes. Although they are global in charac-
ter, as they relate to this inquiry, they may be briefly summarized
as follows: To maintain and increase the ability and determination
of the U.K. (a) to resist and counter Soviet-Communist power; (b) to
contribute to the unity and strength of the free world in the struggle
against aggressive communism; and (c) to continue and extend its
cooperation with the U.S. for these purposes.
Established U.S. policy places exceptional emphasis on the need
for the U.K.. as an ally in the world struggle. This policy takes
into account the following aspects of the U.K. world position and out-
look which combine to give it unique strategic importance:
1. The remaining military, industrial, and economic 1,o er
gn or a of the U.K., taken together, surpass those of any
other non-U.S. member of NATO and make its contribution indis-
pensable to the North Atlantic alliance as a strategic position
of strength.
2. The U.K,ts influence as leader of the British Common-
wealth and Empire, combined with its remaining influence on the
European Continent, in the Near and Middle East, and in other
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D AFT CONFIDENTIAL PSB D-36
January 12, 1953
parts of the free world, make 4t an invaluable ally in gaining
acceptance in these areas for objectives important to the U.S..
3. The U.K.ts t t is location gives it great importance
in case of war as a base for strategic bombing and for support
of military operations on the European Continent. In addition,
the outposts it controls in the Mediterranean, Africa, Southeast
Asia and the Pacific add greatly to its strategic value as an
ally in a future war.
4. The long history of Anglo-American friendship and
cooperation, and long adherence by the two countries to basically
similar political beliefs, form the psychological basis for a
natural alliance of sentiment between them and for, a united
approach to the political and ideological contest with Soviet
Communism.
In the course of this study no exact causal relation has emerged
between the psychological impact of any U.S. economic policy or
program and British attitudes or behavior on any particular question
affecting the U.S. cold war aims cited above. Theoretically it
should be possible to establish such correlations of cause and effect;
but the complex involvement of these factors with the totality of
U.S. policy, and with the wide range of other factors affecting
British attitudes and behavior in the cold war, makes any attempt to
do so impractical and academic.
The presentation below therefore takes a more pragmatic approach.
A broad sketch of postwar British world attitudes provides the psycho-
logical setting. Following that is an examination of British attitudes
toward the chief aspects of U.S. foreign economic policy which concern
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LW--T CONFIDENTIAL PSB D-36
January 12, 1953
the U.K. This approach has been chosen as most likely to yield
reliable inferences concerning the problem posed,
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PRAFT CONFIDENTIAL PSB D-36
January 12, 1953
IV. The Psychological Setting: British Attitudes in the World Crisis
1. The psychological impact in the U.K. of U.S. policy, and of
our economic policies in particular, must be seen in the context of
the attitudes of the British people and their leaders toward the
United States, the world struggle, and their role in that struggle.
These attitudes derive from a variety of circumstances besides the
influence of U.S. policies and programs. The following brief review
of these attitudes and their sources establishes the psychological
setting in which UPS. economic policies and programs have operated
in Britain,
20 Historica1 factors: The British world outlook since World
War II has been reshaped by three major historical developments:
the sharp decline in Britain's own power and fortunes, the emergence
of Soviet imperialism as a vital menace to the security of the West,
and the acceptance by the U.S, of an active role of world leadership.
Awareness of these basic facts has enhanced greatly the importance
in British eyes of their traditional alignment with the U.S.; but
the changed character of that alignment has required emotional
adjustments of great difficulty even for a politically mature and
stable people.
3. P,e 1r*e of ?Bx tlah power : Below the surface of many
specific British resentments against the U.S. is the frustration of
a people who have seen much of their once unrivalled world power and
prestige swiftly dismantled, and their customary role of leadership
transferred very largely to the United States. Despite the strain
and fatigue of war and postwar efforts, they are clearly aware of
their predicament and still strive to exercise to the utmost the very
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A?T CONFIDENTIAL PSB D-36
January 12, 1953
substantial world power that remains in their hands. To this end
they keep a high and precarious balance between world political
commitments and greatly reduced economic resources. The aid and
cooperation of the U.S. in economic affairs are significant factors
in maintaining that balance.
4. Sense of ds endence on the US.: The resulting awareness of
their dependence on American policy is psychologically ambivalent in
British attitudes. There is bitterness in being subordinate to alien
leadership, and resentment because the new leader does not recognize
more fully Britaints continuing contributions and sacrifices in the
common effort. On the other hand, there is appreciation of the U.S.
as the indispensable guarantor of surviving British power and
prestige. This ambivalence appears also in more traditional British
attitudes toward America. On'the positive side they see in the U.S.
a joint guardian of the Anglo-Saxon political heritage, an economy
of unrivalled productive energy, and a friend and ally in time of
greatest need, On the other hand, they shag uneasiness over surviv-
ing overtones of isolationism and a lack of steadiness in the history
of U.S. participation in world affairs, and distaste for qualities
such as impetuosity, excessive materialism, and lack of subtlety
which British observers ascribe to the American temperament.
Of all the negative factors in this relationship, perhaps the
most important in the British mind is that of inequality. Despite
the obvious disparity in power, the British like to believe that
their need of America is equalled by America's need of Britain, and
that the U.S.,-U.K. alliance is thus a special relationship forming
the core of the Atlantic alliance. They are certain that their
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DRAFT CONFIDENTIAL PSB D-36
January 12, 1953
contributions and sacrifices in the common cause are proportionately
at least equal to those of the U.S. Greater U.S. recognition of these
two propositions would strengthen their acceptance of the alliance
and their willingness to sacrifice for it.
5. The Soviet Brest: Although the ever-present evidence of
dependence on the UuS. is galling to British pride, the Soviet threat
and Britain's weakened and exposed strategic position have made the
alliance with America the compelling premise of British survival.
Soviet power and policies are viewed virtually throughout Britain as
a vital threat, and the only serious threat, to British security;
and the U.S. is clearly recognized as the only adequate source of
countervailing power._ Advocates of neutralism or third-force
accommodation with the Soviet bloc have no important voice in Britain
today. However, this appreciation of power realities does not extend
to a full consensus with the U.S. on how to meet the Soviet challenge.
The fresh memory of grave losses in World War II, and awareness of
their present strategic exposure, make avoidance of global war a
vital necessity in British thinking and cause great stress on the
importance of avoiding provocation, trying to negotiate specific
agreements, and laying a firmer basis for prolonged co-existence. In
their estimate of the Soviet menace, moreover, the British tend to
feel that the U.S. exaggerates the danger of an early Soviet military
attack and under-estimates the importance of conserving its allies'
economic strength and maintaining their already austere standards of
living for the long pull. As will be seen in the next section, both
the positive and negative aspects of this outlook on the cold war
affect British reactions to important U.S. economic policies,
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CONF jTIAL FS$ D-36
January 12,1953
6. Political andotheerdifferences w3th the UPS;; In addition
to differences in general political outlook and national temperament,
specific policy disagreements outside the economic realm have marred
the sense of common purpose underlying the U.S.-M, alliance. In
political affairs differences-some of them highly charged with
emotion--have persisted over China, the Korean war, the ANIZUS treaty,
Irah, Egypt, Japan, and (until recently) European union; and agree-
ment on German questions has often been difficult to maintain.
Additional differences in the military-political field have occurred
over atomic weapons policies, Mediterranean and Middle East strategy,
and the sharing of commands. In no case have these frictions imperiled
the basic adherence of the U.K, to the alliance; but they have
illustrated and reinforced the negative side of the more general
attitudes described above and thus form an integral part of the psycho-
logical setting of this study.
7. group versus national ttitu4gs; British attitudes on foreign.
policy and foreign economic problems show a high degree of con-
sistency as between different political and occupational Groups,*
The relative homogeneity of British society, and the critical nature
Many differences in detail and emphasis naturally occur among
various groups' views on all the questions discussed here.
For instance, right-wing Conservatives and British agricultural
interests show strong emphasis on tariff protection; and Labor
party criticisms of the U.S. stress American anti-socialist
tendencies and the supposed perils of "boom-and-bust capitalism."
Such variations in opinion, together with differences in the
particular impact of U.S, economic policies, are important
information for those charged with applying and interpreting
U.S. economic policies on the group level. They cannot be
treated adequately within the scope of this study.
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DRAFT CON FDFNTIAL PSB D-36
January 12, 1953
of British economic problems, tend to cast these attitudes in a
national rather than a group pattern. This is sufficiently true of the
two major political parties that the change of government in 1951
caused no essential change in the psychological problems discussed
above.
To some extent the Bevanite wing of the Labor party is an excep-
tion to the above generalization. This group is the chief voice of
political dissent in Britain. It has opposed the Government's agree-
ment to a few important U.S. foreign policies, notably the rearmament
of West Germany. However, with few such exceptions the attitudes of
Bevani.sm on U.S. policy--both political and economic-- do not consti-
tute a separate and identifiable opposition doctrine so much as a
distillation (and on some issues a socialist adaptation) of views
which color all British thinking: independence from America in
foreign affairs; distrust of the stability of the American economy
(reinforced in this case by socialist distrust of capitalism as
such); a tendency to consider American policy undependable, too
little responsive to the voice of British experience, and likely to
lead to war unless checked; desire to avoid war and to explore all
possibilities of negotiation with the Soviets; emphasis on the need
for "butter" and resentment of alleged American pressure for "guns"
instead; and a belief that the American estimate of Soviet warlike
intentions is exaggerated. By the same token,Athe majority of
Bevanites accept--albeit less wholeheartedly--the same basic foreign'
policy premises as does the British majority: the fact of the
hostility of Soviet-Communist power and the strategic necessity
of NATO and the U.S. alliance, Bevanite criticism of U.S. economic
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DLAFJ CONFIDENTIAL PSB D-36
January 12, 1953
policies, though expressed in sharp terms, focusses on important
grievances which are often heard elsewhere. Much the same can be
said of the Fanpire wing of the Conservative party, a less potent
grouping at the other political extreme.
Nor do basic distinctions appear between popular and official
views. With individual variations at both levels, both reveal gener-
alized attitudes similar to those noted above in connection with
Bevanism. Official views, while perhaps less prone to accepting adverse
stereotypes of American character, show greater concern than exists on
the popular level with U.S. official attitudes on relatively techni-
cal questions, especially in the economic field, such as burden-sharing
in the NATO program, sterling convertibility, trade agreements, U.S.
priorities for NATO, offshore procurement, and raw materials.
S. Summary: The very closeness and the strategic and economic
necessity of the British alliance with the U.S. magnify psychologically
the strains inherent in it: its unequal nature, especially trying for
a people long accustomed to world leadership; the anxieties of vital
dependence on a country different in temperament and looked on as
somewhat erratic in its approach to problems of international power;
the differences in interpreting and approaching the Soviet menace
and the inevitable stream of specific disagreements between nations.
Yet the volume and occasional sharpness of British complaints over
U.S. policy and behavior should be interpreted with reserve. While
they express genuine frustration, they may also serve to relieve
it in some measure.L-12n,nocase do he resentments-eve4 of the
Bevanites constitute a challenge to the alliance itself. In Britle,h
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psychology, the discords of the alliance are decisively outweighed
by the factors both of necessity and sentiment which hold it together.
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DRAFT CONFIDENTIAL PSB D-36
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U.S. Economic Policies and U.K. Reactions
l. The following paragraphs treat specific aspects of U.S. foreign
economic policy# and their psychological impact in Britain. Certain
general observations are necessary by way of prefaces
(a) A close relation exists between the psychological re-
sults of U.S. economic policies and their purely
economic results. Given the general similarity of
British aims in the cold war with those of the UoS.,
their willingness to plan and act in furtherance of
those aims is closely related to their view of their
economic ability to do so. Thus the attitudes of en-
thusiasm or resentment evoked by U,S. economic policies
are often less influential in British action than the
British estimate of how those policies logically affect
their power to act in the common interest,
(b) The strength and stability of the U.S. domestic economy
is more important to the British than any aspect of U.S.
foreign economic policy, Even a mild American recession
might, in the British view, cause disastrous conse-
quences internationally. Hence they are constantly anxious
over the adequacy of U,S. plans to forestall such an event,
,Issues over certain U. economic policies involving third countries
or areas have been omitted from this study because they have largely
arisen from, and are closely involved with, complex political questions
beyond the scope of this evaj.uatinn. This applies to problems of
European economic cooperation (on which substantial USA-U.K. agreement
has now been achieved); the economic aspects of the Iranian crisis; and
the restoration of Germany and Japan as commercial powers competing
with the U.K.
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2. U.S. Aid Programs
Psychologically the British are almost unanimous in preferring
trading opportunities to continued foreign aid--trade not aid as a bridge
across the dollar gap. British officials and popular opinion share deep
misgivings about the political and psychological effects of ten yearst
dependence on some form of U.S. aid--'7corrupting both the Europeans and
the Congress and turning an alliance of self-respect into a confederation
of clients,?t as the Economist put it,,
However, the aid portion of the bridge is considered dispensable
only to the extent that the trade portion fills the resultant gap. Since,
as will be seen below,* dollar solvency through trade alone seems very
unlikely in the short run even with full U0S. policy cooperation, the
psychological implications of continued aid have important relevance at
least for the early future.
Attitudes toward Ur,Sa aid have fluctuated but on balance have
been highly favorable, Lend-lease was regarded as Britain's by right and
as only partial payment for the disproportionate burden borne in a common
cause, and the abrupt termination bit deeply into Britain's psychological
marrows The failure of the venture in sterling convertibility in 1947
also furnished an occasion for popular resentment against the U.S., since
the convertibility deadline had been set as part of the U.S. loan agreement
of 1946: despite the official British share in the original errors of
economic judgment, British public opinion tended in retrospect to blame the
U.S, and even to cite the affair as an instance of overbearing American
pressure?
*For discussion of British trading desires and U,S. policy, see section 3
below.
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The Marshall Plan was greeted with universally high regard for
the generous and far-sighted way in which ECA was conceived and handled.
British receptivity to ECA was dramatized by the important role played by
Foreign Secretary Ernest Bevin in mobilizing Furopean governments behind
the plan and fathering OEEC. Termination of ECA aid to Britain in
December 1950 was mutually agreed upon and welcomed by the U.K. as evidence
of Britain's ability to stand on her own economic feet, but in the light
of growing post-KQrea rearmament commitments the termination was carefully
labelled "suspension" not "end."
Under the NSA program, on the whole the attitude has continued
to be favorable. It is not the receipt of aid as such that is unpalatable;
defense support was welcomed as necessary for meeting joint NATO obligations.
But string misgivings developed about the particular way in which the N1T4
mutual aid program was carried auto Ill-feeling has arisen over the laggard
manner in which aid was finally given in 1951, and the severe restrictions
placed on its use. The British resent the "handout" spirit in which they
regard defense support aid as having been given by the U.S. They feel that
despite the original design, the U.S. does not regard defense support
aid as part of "mutual" aid, earned by the reciprocal contributions of
NATO recipients. The want of mutuality appears for the British in such
U,S, practices as detailed examination of British military production
plans without apparent point; and by what the British tend to view as
inadequate priorities in the U,Sa mobilization machinery for deliveries
to NATO-especially since the Lisbon timetable for Atlantic rearmament
was agreed to primarily at U.S. urging.
,Iutual aid is seen as a cooperative and mutually beneficial
pattern in the Joint defense effort. with Britain's share of the burden
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higher than that of any other country of Europe and second only to that
of the U.S. About its place in the mutual aid picture Britain does
not have a bad conscience; on the contrary, the British believe rightly
or wrongly that since 1945 they have contributed overseas far more than
they have received. Their basic attitude now is that NATO aid arrange-
ments should revert from unilateral concepts back to the original
principles of burden-sharing and mutuality, taking into account the
memberst broader (nod,-NATO) contributions to world securityc
Several conclusions stand out from a survey of British
attitudes toward ten years of aids
(a) Although subjected to criticism on a variety of grounds,
ranging frim faults of administration to left-wing and Communist
charges that the Marshall Flan was a device for getting rid of U.S.
surpluses, most people have regarded aid favorably and on balance it
has brought rich psychological dividends for the U.S. The British
sense of self-respect is fortified by the knowledge that Dritain has
itself rendered substantial aid to other countries during the postwar
period; they are "givers" as well as "receivers." But the British
feel keenly and increasingly that the concept of "American aid" gives
poor recognition to the British effort on both an Atlantic and a world--
wide scales and to the importance of that effort to UaSa security, Thus
the continuance of this concept in U.S. policy has be-some a serious annoyance
to British pride and a growing drag on their willingness to collaborate
in the alliance9
(b) Whether termination of the U.S. programs involved would
solve this psychological problem would depend on other economic circum-
stances. Except as other ways of meeting the continuing dollar needs
of the British could be found, termination would force curtailment either
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CONFIDENTIAL PSB D-36
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of their military-strategic commitments or of their standard of living,
with a corresponding loss of British purpose in the world struggle.
(c) In the short run at least, therefore, the best psychological
solution would appear to call for maintaining as much of the economic sub-
stance now called "aid" as Britaints commitments appear to require, while
transforming the concept of aid into some idea more psychologically
acceptableo The shape of such an idea is already fairly clear in British
minds. In their view the U0S. economic contribution to the alliance--
whether in arms or otherwise--should be conceived and presented as a willing
transfer of U,S. resources to other hands, whose use of those resources
will do more for the common security (on which UQS. security depends)
than would the same amount spent in the U.S. In this concept, the ideal
U.S. economic contribution to its partnerst security efforts is that which
permits the most efficient sharing of burdens in the common enterprise,
and thus the greatest over-all achievement of the military aims of the
North Atlantic Treaty. This concept would bring improvement in British
attitudes particularly if, as expressed in program terms. it involved sub-
stantial expansion of U.S. purchases of British arms or other products,
whose manufacture would not require further diversion of British
resourcesa Conversely, failure to develop such programs expressing the
burden-sharing principle would invite continuing friction,
3 o L i b e r . alizat1on of U-S . tradan, policies and expansion of
overseas investment,
Ideally, the richest potential for improvement in U0K,
attitudes lies in liberalization of U.S. tariff and trading policies
and expansion of U.S. investment overseas. Optimum benefit would. result
from unii~ateral, liberalization of U.S, tariffs, removal of discriminatory
shipping and protective agricultural measures, elimination of Buy
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January 12, 1953
American provisions, and large-scale investment overseas not tied to
dollar purchases. By reducing British dependence on direct aid-and
facilitating a trade-not-aid pattern--such steps would provide a
direct psychological stimulus to British self-respect and self-reliance;
by broadening opportunities for earning dollars they would reduce to some
extent the economic necessity of Soviet and satellite trading connections;
and they would encourage British cooperation toward a multilateral trading
system, Conversely, retreat from the Reciprocal Trade Agreements position
of the past 17 years would evoke fears of a return to Smoot-Hawley pro-
tectionism and fortify drives in the U.K. for greater Commonwealth and
sterling area economic insulation. Re-enactment of the Reciprocal Trade
Agreements Act in substantially its present form might quiet the worst
apprehensions about U.S, economic intentions; but any marked favorable
psychological impact would require 1o-ering rather than maintenance of
present tariff levels.
The nature of the attitude changes stemming from such changes
in U,S.trading policies would depend in part on the actual extent of
economic benefits which the British would derive. British public opinion
generally shows a major preoccupation with U,,S. protectionism, which tends
to be regarded as the chief source of Britai_n7s economic ills and the one
great obstacle to dollar solvencyo Official and unofficial British
spokesmen reflect similar views in their contacts with U.S. officials,
That such impressions are exaggerated is suggested not only in U.S.
economic analyses but also in informed economic discussion in some British
quarters= for instance, the Economist has referred to "the great tariff
delusion" and has emphasized the "blunt fact" that greater U,-$. productive
and marketing efficiency also stands in the way of .British dollar solvency
through trade. If the question were ever put to a test through the
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CONFIDENT PSB D-36
January 12, 1953
desired U.S. policy changes, it thus seems likely that one result would
be a deflation of the more extravagant British estimates of how much
good U,Sa tariff changes could do theme
Nevertheless, liberalization in U.S. tariff and trading policies
would bring substantial political and psychological dividends. far out
of proportion to economic results, which might themselves be substantial.
By reducing dependence on direct aid it would fortify the British'sense
of self-reliance; it would widen the horizons of UQK0 exporters and
give a psychological lift to British producers; it would effectively
neutralize left-wing and Communist charges based on the stereotype of the
U.S. as the home of Smoot-.I iawl,ey. The chief psychological benefit, however,
would derive from reassurance to the British that under any administration
the U?S* proposes to live up to its economic obligations as the worldts
foremost creditor power. British doubts on this point have be-deviled
U.,S-U,K. relations, particularly since the British tend to idealize the
role of the U.K itself played when it was the world's leading creditor,.
0I4s spirit of reassurance would probably carry over into political
relations on principal cold war issues insofar as it reduced mistrust in the
U.K. of t:.e endurance of U.S. political in entions and behavior in world
affairs o
In the British view, expansion of dollar investment overseas,
particularly in underdeveloped areas, is a logical extension of America's
creditor position and essential for the full success of Britain's own
overseas development plans,, Realistically, however. the British tend
to discount expectations, They fear that U.S. public investment will be
tied to dollar sales or to U.S. Government direction; they do not expect
private investment in large volume to leave the safe areas of Canada
and Latin America for the disproportionate risks of investment in Africa
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CO.TFIDiJTIAL PSB D-36
January 12, 1953
and Asia. The British also minimize prospects for U.S. overseas invest-
ment because of their disappointment over the limited scope of Point IV.
Ideally the British would like to see a large-scale U.S. investment program
not tied to dollar purchases, coordinated with their own development
plans (notably the Colombo Plan, and taking account of Britain's
special interests in certain areas, notably the Commonwealth and the
Middle East, A large-scale investment program along these lines would
bring sizable psychological benefits; but the British expect much less
and their attitudes reflect this, realism, Psychologically, libberaliza-
tion of U.S. trading policy has been dramatized for the public mind,
while overseas investment has played a relatively minor role,
Stabilizing international commodity markets.
Ranking probably third-after aid and freer trade--in psychological
consequences for both good and ill are British views of U.S. policies
affecting raw materials availability and marketing. "Potentially,"
says the Eco o ist, "this is the most important question of all?"
Access to supplies on fair terms and stability of markets for sterling
area raw materials have long b en of major concern to the U.K. Con-
siderable resentment was stirred up by U?S. materials policies following
Korea. There w ?e two phases; in the first, increased demand for
official stockpiling and private industry was largely res--;onsible for a
sharp rise in world prices of scarce materials and for shortages in some
materials (e,g., sulfur, non-ferrous metals and ferro-all.oys), In
the second phase, the U,,S. (through centralized buying of rubber and tin,
price controls on wool, and other measures) sharply curtailed purchases
in a successful attempt to reduce prices drastically, with serious
losses to sterling area raw material producers. The.U.S, was criticized
for arbitrary action in matters affecting joint NATO inc.erests, for
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DIW January 12, 1953
creating initially an inflation threatening the ec-)nornies of the U.K.
and other countries and later for precipitating a dollar crisis in the
sterling area throt,gh the collapse of export prices,,
The,problem of access to materials was secondary and short-
lived, having been eased through cooperative effort in the International
Materials Conference. For the U.K. and the sterling area the central
problem is that of stabilizing prices and volumes of exports at
reasonably high levels; fluctuation in export earnings haschronically
disturbed sterling area producers and the need to introduce stability
A
(which can be done only with U,S, cooperation) was one of the principal
items on the agenda of the Commonwealth Prime Ministers Conference
recently held in London*
These price fluctuations in the sterling area's chief dollar-
earning exports contrast with the relatively high and constant levels of
dollar import prices for foodstuffs and raw materials needed in the U..'~.
--an aspect of the long-range adverse shift in the U.K.ts terms of
trade which cannot be reversed in the short run. Against this constant
drain on the sterling area's already slim dollar reserves9 instability
in the raw materials export market is inevitably disturbing, The drop
NW in sterling area export prices at the end of 1951 hurt the U,,K0 with
special force, and her leaders fear repetitions of such a squeeze,
According to British interpretations, the Paley Commission Report on world
raw materials forecasts a double blow to their interests: raw materials
(notably metals) that Britain obtains from non-sterling area sources will
become scarce and their prices higher; on the other hand, dollar markets
for sterling area commodities, such as rubber and fibers will not enjoy
a corresponding prosperity because of the growing competition of
synthetic substitutes,,
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CONFIDENTIAL P" B :D-36
D Az January 12, 1953
A long-range solution for this problem would require attention to
the ;hole complex of factors that has weakened the competitive trading
position of the U.K, and the sterling area. Meanwhile, however, the
British look for U.S. cooperation in dealing with manageable aspects of
the problem. British discussion has shown some interest in the possibility
of long-term purchasing arrangements with the UcS,, or of multilateral
agreements which would assure the orderly marketing of sterling area
commodity exports at reasonably high prices. With or without such
agreements,which might in any case be unattainable without increases in
dollar import prices--British leaders would like to see the official
actions of the UoS, in commodity purchasing reflect a greater concern over
? the impact of those actions on its allies. They complain that not only
the actions but the public statements of U.S. officials have had
unsettling effects on the world market. Steps in the U.S. to meet these
criticisms would introduce a psychologically helpful note of stability
into U.K. and Commonwealth economic expectations; reassure the British
that the U.S. desires to support, not undermine, the economic found:_tions
of the Commonwealth and sterling area; and would, more generally, help
to relieve British misgivings as to the degree of responsibility with tih ich
the U 4S. approaches its role as leader of the free world,
5. Strategic controls and East4West trade.
Since 1948 the U.K. has accepted in principle and practice the
need for cooperation to control strategically significant exports to the
Soviet bloc. However, the history of this cooperation is marked by
disagreements over implementation on both economic and political grounds,
in all of which the British have viewed U.S. policy as excessively strict
and prohibitive. Even sharper resentment has been expressed against U.S.
legislation on the subject, which is considered unilateral and coercive.
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GOTIDETTTIAL PSB D-36
D_1AFT January 120 1953
Economic grounds for British disagreement with U.S. policy
arise both from Britain's traditional trading patterns and from her
present economic predicament. Eastern Europe has long been far more
important in British trade than in that of the U.S.; Britain has depended
especially on this area for imports of coarse grain and timber. Since
these commodities bear importantly on nutrition and housing in the U.K.,
the 3ritish look on this trade as an economic necessity as long as
their dollar stringency forbids buying the needed goods from the dollar
area., Some British comment points to the obstacles to greater exports
to the dollar area as further justification for this position. The
British argue that nine of these economic pressures apply to the U.S,
which has never had important trade with Eastern Europe and thus can
more easily afford a restrictive policy,
However, even if economic justification for trade with the East
were less strong in British opinion and habit, political considerations
in their minds would still argue for its continuance at a substantial
level.
Considerable feeling exists in both parties--particularly in
Labor and trade unions, the latter to some extent under Communist blandish-
ment-that maximization if trade would tend to ease world political
tensions and indirectly, at least, improve prospects for political
negotiation with the Soviet Union; and that further restrictions would
have a contrary effect. Thus the sharper character of U.S. policy on this
subject falls in with the more genera l,ized British anxiety over U.S*
"recklessness" in the face of possible war. In addition, some British
officials link on trade as a vehicle for political penetration and manipula-
tion within the Soviet orbits
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CO1TFIDEi\1TxAL PS3 D-36
January 12, 1953
All the above considerations enter into the British official
view that export embargoes should apply only to items having important
military security significance--a relatively small list according to
their estimate of the Soviet bluets strategic import needs,
These views partly explain the continual resentment which the
3ritish have shoran against the terms of the Battle Acts its more
sweeping restrictions, including retroactive application to exports
already contracted for, reflect an esti_.jate of the trade c ntrol problem
far beyond what they are prepared to accept. Psychologically, hot,rever,
it is the unilateral character of the law, and its setting up of com-
pliance as a condition for mutual security aid, that most offends British
opinion. They feel that this provision carries a gratuitous implication
of mistrust not warranted in view of their past cooperation in MA.iltilateral
trade controls and not in keeping with the spirit of the alliance.
6. N lateralism and convertibilitt ,
U,S,-U.Kp differences on Britain's economic state of readiness
to take the plunge into multilateralism and sterling convertibility have beat
an underlying source of friction between the two countries. Almost
without exception official and business circles hold that mul.tilateralism
and convertibility are desirable long-terin goals for the world's fore-
most trading nation but that the time is not now. Chancellor of the
Exchequer Butler recently expressed the view that recovery of the sterling
area would not be complete until conditions were created allowing con-
vertibility, but emphasized that the end was not convertibility as such
but the maintenance of a sound and expanding economy. A substantial
segment of Conservatives and businessmen appear to subscribe to the
policy of the "rapid dash" for convertibility, provided it is not accom-
panied by elimination of trade controls. There is a tendency to pass
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CIVIDENTIAL January 12. 1953
the ball to the U.S.; the British question whether the U.S. would be
preparad to make the concessions needed to make convertibility workable,
Difficult to pin down but also discernible is an apparent British tactic
to exploit American eagerness for sterling convertibility as leverage for
gaining economic concessions which they claim are necessary to make
convertibility a reasonable risk. Labor has taken a firm stand against
premature convertibility. Morrison told the Commons on November 10, 1952s
"Our view is that making the pound convertible would involve
going back to the interwar years, namely, balancing our trade
at a lower level of economic activity than before, for then
we could only balance our trade if the government were to
pursue deflationary policies at home. Indeed, the choice for the
Government is between full employment, in which case it must
accept economic planning and controls. or convertibility, in
which case we must expect the consequences of the deflationary
policies as in the interwar years."
On this score much resentment against the U.S. has focused
on the General Agreement for Trade and Tariffs (GATT) which is widely
regarded as American-sponsored and as res-:)onsible for restricting the
scope of imperial trade. For some time underlying hostility to GATT
appeared to increase among both Conservatives and Laborites, taking the
form of extreme hostility in empire-minded quarters. But recently
criticism of GATT has been muted somewhat at the instance of some British
officials who increasingly view it as a fundamental U.K. commitment and
not without value to the U.K. Many officials and businessmen believe
that the purposes of GATT and the imperial preference system can be
reconciled since the former is a long-tern move toward multilateralism
(which is also the U,K is long-term goal) and also serves as a shield
against retaliation, Opinions are still widespread, however. that "GATT
is more of a handicap than a blessing to this country" and that the U.K3
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COTS E?IDM,TTIAL PSB D-36
DRAFT January 12, 1953
cannot afford to give up the security of trading insulation, Much anti-GATT
sentiment stems from provisions which bind preferences at levels considered
harmful to British trading prospects in the Common*ealth.
British hesitations and fears concerning multilateralism
and convertibility are reflected in resentment at the U.S. which is
regarded as the principal champion of the doctrine in theory though not
always in practice. In extreme circles on both the right and left
critics charge that the U.S. advocacy of this doctrine is (a) a cover
for efforts by U.S. interests to capture mark- to at ;3ritish expense, (b)
a cover for inherent hostility to the sterling area, and (c) a hypocritical
policy since the U.S. dies not practice in its own tariff policies what
it preaches to the Commonwealth,
In more respon.Able quarters resentment at U,S, views has been
muted largely because U.S. policy has taken the form of exhortation rather
than direct political or economic pressure. But latent irritation might
erupt into a wave of bad feeling on the part of bath protectionist-minded
Conservatives and Labor (which holds that national economic stability
must be sheltered against world depression hazards) if U.S, economic
policy moved from advice to pressure. The psychological result of such a
move would result not only from anticipated adverse economic consequences
but from deep resentment over U.S. "meddling" with internal British
economic policies. There is a widespread feeling in the U.K. that the
U.S. misunderstands the chronic ill-health of the U.K. economy and fails
to draw the ligical policy conclusions from the basic structural maladjust-
ments in world economic relationships. ,eluctance to set the pound free
and give up trade and currency hedges has deepened as a result of the
psychological shock of the hasty but short-lived attempt at convertibility
in the summer of 1947 under provisions of the Anglo~American//greement,
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PSB D-36
January 12, 1953
There has not been sufficient discussion in the U.K. to hazard
judgment on the psychological impact of proposals for a stabilization
loan. On the basis of recent py liamentary and press statements on the
general aspects of GATT, INS. and prospects for liberalizing trade
and payments, it appears likely that the U.K. would find unacceptable a
stabilization loan of moderate size conditioned on near-term convertibility
of payments on current account and elimination of trade barriers. Even
fewer have been expressions of British views on proposals for an Atlantic
d .eserve Fund or Atlantic Payments Union. Generally press opinion has been
non-committal, On the basis of past attitudes, however. it is judged
that the U.K. would not be favorably disposed to any scheme that involved
both an end to discriminatory trading practices and the right of inter-
national mana_ers of such a fund to intaervene in sovereign economic decisions
in London, A recent article in the Economist (November 22, 1952) con-
sidered the feasibility of an Atlantic Payments Union backed by a U.S.
reserve of some ~35 billion; it speculated that only a measure of such
heroic proportions might be pbbent enough to overcome political. and
psychological obstacles in the U.K. and Commonwealth to any scheme involving
close supervision of internal policies,
7, Influencing British internal econn n ,c RnligX.
Adve1?se feeling about U,S. attempts to persuade the U.Ke
to adopt corrective economic measures along orthodox financial and
monetary lines is fairly widespread. In official circles, among
Conservatives and in the financial press there is appreciation for the
restraint and tact shown by U.S. officials in ECA dealings and in other
economic negotiations. At the same time a certain pervasive resentment
exists in all circles over criticisms of British economic policies by
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CONFIDENTIAL PJB D-36
D.ATT - January 12, 1953
U.S. business men and Congressmen, and, particularly in Labor circles,
over statements by leading Americans counselling that aid be withheld
from countries engaged in "socialisation." The very fact of disparity
in economic strengths leads to a presumption that the U.S. seeks to
interfere in domestic economic and financial measures.
Psychological reaction is not necessarily related to 13'ritish
judgments of the substantive validity of American advice. Most
leading Conservatives, businessmen and the financial press would
agree as to the desirability of purs4.ing more orthodox monetary and
fiscal policies--raising interest rates, cutting budgetary expendi-
tures. lowering social services--.although many of them would not
go along with U.S. recommendations for elimination of restrictive
practices in the domestic market. But it is felt in both Conservative
and Labor circles that U.S. advice is neither suitable nor proper;
that the nature of the economies is so different that analogies drawn
from U.S. experience are pointless; and, that in any case U.S.
"intervention" is not warranted by the size of U,,S. aid and constitutes
intolerable "meddling" in internal affairso
Psychologically U.S. leverage on U.K. financial policies
is limited by these attitudes and particularly by U.K. irritation
over any signs of U?S. interventionp The very fact of UeS. sponsor-
ship sets up a negative reaction evoking resentment and ill-.feeling
which can probably be traced to the emotional_ impact of disparities in
strengths. Typical. Is the reaction to recent financial and economic
recommendations by the American Chamber of Commerce to the Commonwealth
Ministers Conference: Irrespective of the intrinsic merits of the
American proposals for economic and financial reforms some British
financial writers resented its "gratuitous" advice.
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January 12, 1953
In labor (and left-wing intellectual) circles hostility
stems partly from doctrinal differ aces over the merits of financial
ortllod,axy,s partly from resentment over U.S. criticism of nationaliza-
tion policies and the high level of welfare services, but mainly from
the fee I ing that U.S. "capitalism" ill use its leverage to undermine
the sneialist awns of Labor,
Generally psychological reaction has not beer serious
because US. "intervention" has evidently been restrained except for
occasional irresponsible statements from non-official circles. But
there is a latent suspicion of U,S, "interference" which could readily
be stirred up at any sign that the U*S. would attempt to use its
economic strength as leverage to change U,:'. economic policies. Again,,
the psychological impact would be generalized rather than specific,
"-,eddling" would not throw the U.K. into Soviet arms nor would it be
likely to change the basic political direction in the c-+td war;, It
would, horever, feed latent hostilities and sap the enthusiasm of
Britain in the western allianceq
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