Ian Locke examines the conundrum of how Britain, though assumed to be bankrupt, managed to pursue an anti-Communist economic war from 1945.
The Yalts and Potsdam conferences of 1945 are significant points of departure for the East-West divide that became the Cold War. By the time the Big Three sat down in early 1945, the suspicions that led to the freeze were already in place. During the Second World War, economic intelligence, political and military aspirations became inseparable on a global scale, to an extent and on a scale never previously seen. Economic warfare extended beyond visible activities -- such as those of the SOE and `resistance economic sabotage' (the direction of forces to economic targets and blockade) -- to cumulative intelligence operations. The latter sought to penetrate and expose Axis economic influence and assets, then curtail or seize them. These goals were wideranging and complex, and inter-Allied cooperation proved essential.
Economic warfare, known as the `white war' (a term coined by The Economist in May 1939) was commenced by the British in 1938. The domestic Economic Warfare department, an independent body with close ties to the War Office and Foreign Office, was headed by a succession of notables, including Sir Desmond Morton and Hugh Dalton (later Chancellor in the Labour administration); MI5 and MI6 both provided personnel. In the United States the British effort was directed by the Canadian industrialist Sir William Stephenson. By 1940 Churchill had acknowledged the primary importance of intelligence, and economic knowledge of the enemy came to the fore in a totally industrialised war plan. Britain had the capacity to marshal such intelligence and use it influentially. The US, for example, only agreed to become the `arsenal for democracy' as a result of explicit information it received from the British.
As the war drew to an end, Britain (overlooking the extant Anglo-Soviet mutual assistance pact) turned its attention to a new economic target: the Soviet Union. Preliminary intelligence work on the Soviets (and Communists) had already been undertaken following the Nazi-Soviet Pact of 1939. British intelligence readily acknowledged an immediate advantage; the Soviets found it impossible to keep secure their internal and external communications by having to deal with up to 125 local languages which had to be translated into Russian. As a result there were limits on the type of signals they could effectively use.
The Economic Warfare department had begun to tailor its objectives towards undermining Soviet economic interests early in 1944, based on the experience of handling the Axis powers. The anti-Communist operations comprised three main areas of activity -- direct intervention in the economy; the gathering, interpretation and handling of economic intelligence; and overt economic counter-espionage.
The first step in 1944 was to cut the Soviets out of shared Allied counter-intelligence, primarily of the G2 and G5 elements of the Secret Intelligence service. In 1946 the USSR was given a `Glass C' designation by the British -- to receive unclassified information only. Britain's treatment of the Soviet Union was not unique. Aware of the Communist infiltration of France, limits were also placed on intelligence passed to the French (though these increased after the Anglo-US plan for the post-war occupation of France was abandoned in 1945).
The first test of the effectiveness of direct economic intervention was in Italy where AMGOT, the Allied occupation authority, rapidly took control of the Italian economy (literally, insofar as it directly held the printing plates for the new Italian currency), and took over all major industry in its efforts to limit the influence of the Communists.
Elements of the counter-espionage policy were immediately compromised by the threat posed by Soviet spies within Britain. The primary known spies working from the 1930s -- Philby, Burgess, Maclean, Cairncross and Blunt -- were exposed by internal enquiry in the 1950s and 1960s. …