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By Root 1144 0

The tenfold rise in government debt meant that by the mid-1920s interest payments alone sucked up half the government’s budget. Britain wanted to keep up militarily and, after World War I, bought up the German fleet at fire-sale prices and momentarily retained its status as the leading naval power. But, by 1936, Germany’s defense spending was three times higher than Britain’s.9 The same year that Italy invaded Abyssinia, Mussolini also placed fifty thousand troops in Libya—ten times the number of British troops guarding the Suez Canal.10 It was these circumstances—coupled with the memory of a recent world war that killed more than seven hundred thousand young Britons—that led the British governments of the 1930s, facing the forces of fascism, to prefer wishful thinking and appeasement to confrontation.

Financial concerns now dictated strategy. The decision to turn Singapore into a “massive naval base” is a perfect illustration of this. Britain saw this “eastern Gibraltar” as a strategic bottleneck between the Indian and Pacific oceans that could stop the westward movement of Japan. (Britain had the option of maintaining its alliance with Tokyo—more accommodation—but the United States and Australia had objected.) The strategy was sensible. Given Britain’s precarious finances, however, there was not enough money to fund it. The dockyards were too small for a fleet that could have taken on the Japanese, the fuel insufficient, the fortifications modest. When the Japanese attack came in 1942, Singapore fell in one week.

World War II was the final nail in the coffin of British economic power. (In 1945, American GDP was ten times that of Britain.) Even then, however, Britain remained remarkably influential, at least partly because of the almost superhuman energy and ambition of Winston Churchill. When you consider that the United States was paying most of the Allies’ economic costs, and Russia was bearing most of the casualties, it took extraordinary will for Britain to remain one of the three major powers deciding the fate of the postwar world. The photographs of Roosevelt, Stalin, and Churchill at the Yalta Conference in February 1945 are somewhat misleading. There was no “big three” at Yalta. There was a “big two” plus one brilliant political entrepreneur who was able to keep himself and his country in the game, so that Britain maintained many elements of great powerdom well into the late twentieth century.

Of course, it came at a cost. In return for its loans to London, the United States took over dozens of British bases in the Caribbean, Canada, the Indian Ocean, and the Pacific. “The British empire is handed over to the American pawnbroker—our only hope,” said one member of Parliament. The economist John Maynard Keynes was more enraged, describing the Lend-Lease Act as an attempt to “pick out the eyes of the British empire.” Less emotional observers saw that it was inevitable. Arnold Toynbee, by then a distinguished historian, consoled Britons that America’s “hand will be a great deal lighter than Russia’s, Germany’s, or Japan’s, and I suppose these are the alternatives.”

The fundamental point is that Britain was undone as a great global power not because of bad politics but because of bad economics. It had great global influence, but its economy was structurally weak. And it made matters worse by attempting ill-advised fixes—going off and on the gold standard, imposing imperial tariffs, running up huge war debts. After World War II, it adopted a socialist economic program, the Beveridge Plan, which nationalized and tightly regulated large parts of the economy. This may have been understandable as a reaction to the country’s battered condition, but by the 1960s and 1970s it had condemned Britain to stagnation—until Margaret Thatcher helped turn the British economy around in the 1980s.

Despite a seventy-year-long decline in its relative economic place, London played its weakening hand with impressive political skill. Its history offers some important lessons for the United States.

America’s Long Run

First, however,