The Challenge of Hegemony
the European coal-exporting countries. The sequel, the Dusseldorf Agree- ment, was intended to increase the consumption of British and German products through the regulation of production and consumption by market sharing, quotas, ‹xed prices, and joint development schemes (Francis 1939, 325–28; Newton 1995, 495–96).
The shift in Britain’s international environment guided London’s grand strategy by altering the relative political power of domestic actors and interest groups. In contrast to the decades prior to World War I in which Britain confronted a mix of liberal and imperial contenders, during the interwar period, Britain confronted mostly imperial contenders, especially in regions that were important markets. Speci‹cally, Germany, Japan, Italy, and to a lesser degree France sought to impose a system of economic autarky and commercial self-suf‹ciency in any region they came to domi- nate, blocking Britain’s future access to its traditional interests in the locale.
Confronting predominantly imperial contenders altered the domestic structure of opportunities within Britain, strengthening economic nation- alists, while diminishing the standing of the free traders, especially the City as a ‹nancial center. Empowered economic nationalists translated these gains into a program of imperial preferences, tariffs, duties, and embargo on capital issues for non-empire borrowers; rearmament; and retreat from laissez-faire economics through abandonment of the gold standard, producer cartels, state intervention in the economy, and indus- trial planning.
For reasons of economy and to safeguard their faction’s existence, the entrenched free-trade coalition pushed for a self-reinforcing strategy of cooperation with Germany, Japan, and Italy. Their fear was that the eco- nomic nationalists’ agenda would completely destroy gentlemanly capital- ism in Britain. Cooperation had the domestic consequence of moderating the rollback of their faction’s relative political power, even though it risked undermining the nation’s interests (see chap. 6 for an extended dis- cussion of this point). After 1935, the impact of the free-trade coalition was felt more on their resistance to the economic nationalists’ calls for transitioning to wartime government control over the economy than on restricting military Estimates. As one author notes, three changes would have made Britain more prepared for war by 1939: (1) the creation of a Ministry of Supply (to organize the economy by implementing physical