Britain's changing international interests: economic influences on foreign policy priorities

Abstract

Even though the age of gunboat diplomacy has passed, the linkage between national economic interests and foreign policy objectives remains strong. It is a linkage that transmits both ways and that is relevant across the political spectrum. In the Eastern bloc countries, foreign economic policy is an acknowledged means to political ends. Yet the domestic economic costs of some security decisions, such as the arms race, cannot be ignored. For countries in the West the situation is sometimes the other way round, so that external economic influences are considered so important that they dictate national positions (or more often the lack of them) on international political issues such as terrorism or third-party aggression. While recognizing that it is the interplay of several factors-not only economic but military, strategic, political and other considerations that have little to do with economics-that shapes foreign policy decisions, this article will focus only on the economic aspects of the formation of national foreign policy priorities. It is not that these are of paramount importance, but rather that the implicit assumptions of foreign policy-makers about their country's role in the world economy and its external economic interests have an important but largely unexamined bearing on the political choices that are made. In Britain's case, the natural bureaucratic divisions between Foreign Office and Treasury, the propensity of academic economists for turgid jargon and mathematical formulae and the tendency of press reporting to focus on immediate news rather than basic economic trends are all factors that contribute to a gap between underlying economic changes and current political debate. The world economy is currently undergoing structural changes whose domestic economic impact is not yet widely recognized in Britain. Outdated attitudes that focus on industrial decline and losses of historical market share in certain export categories carry with them the risk that important new opportunities for an effective British foreign economic policy will be missed. If Britain's economic interests in this changing environment are to be identified, the traditional view of economic links with the rest of the world will need to be broadened and the public debate on the new options available become better informed. In the first section of this article we will review the recent history of Britain's role in the international economy and how that economy has changed. In section two we will then identify three structural changes of significance to Britain's current and future position: the internationalization of business activity, the changing balance between manufacturing and service industries, and the legacy of oil exports. The impact of these changes on Britain's external economic position will be traced in section three, with DeAnne Julius was formerly with the World Bank and is currently Director of Economics at the Royal