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Britain’s Grand Strategy of Restrained Punishment


through government contracts and managed by existing ‹rms (Dunbabin 1975, 597–98; Peden 1979, 46, 100, 171–72).


The grand strategy of restrained punishment altered the relative balance of domestic power, ratcheting-up the strength of the supporters of the eco- nomic nationalists while weakening the entrenched free traders. Eco- nomic nationalists translated these political and economic gains into a successful propaganda campaign leading the general public to depart from the traditions of free trade, ‹scal orthodoxy, arms limitations, and collec- tive security to become more defense, protectionist, and empire oriented (Darby 1987, 125–26). The outcome bene‹ted inef‹cient industry, empire-oriented bureaucrats, and the military services.

As the free traders feared, empowering economic nationalists meant the death of “gentlemanly capitalism,” with the state playing an important role in managing the economy and industry. At home, the government led the reorganization of industry. Arguing that British industry was too indi- vidualistic and too competitive, the state supported huge industrial con- solidation, strengthening monopolistic tendencies and thereby breaching economic liberalism. The government also directly intervened in the economy to promote industrial planning. A Director General of Muni- tions Production was appointed followed by the creation of a Directorate of Industrial Planning to survey the industrial capacity of the country and its readiness to convert to the production of weapons in time of war. A Ministry of Supply was created to control the distribution of raw material to those industries most vital to the nation’s defense.

Abroad, the Federation of British Industries (FBI), the primary business lobby, called for binding agreements with Japan and Germany to protect Britain’s market share and to limit competition in manufacturing (Hol- land 1981, 295–96). In 1937, the FBI invited the Japan Economic Federa- tion to a conference to push for comprehensive cartels, including a man- aged price-system (contacts ceased once ‹ghting on the mainland intensi‹ed) (Newton 1995, 492–94). Next, the FBI called for an Anglo- German cartel of producer alliances covering production, ‹xing prices, and allocating markets and quotas (Holland 1981, 296–98). In 1938, the FBI initiated conversations with the Reichsgruppe Industrie (RI) on industrial relations, resulting in the Anglo-German Coal Agreement (1939) allocating to Britain and Germany quotas for the total exports of

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