Sunday, 22 May 2011

The Economics of British Imperialism

This article presents a new analysis of the role played by Britain in the global economy. It shows that the complementary roles played by British-based financial and industrial companies are critical to Britain’s status as an imperialist power. The two related economic foundations of this status are: huge foreign direct investments and the UK-based banking system that acts as a broker for the global capitalist economy. These foundations are the basis for its aggressive foreign policy and show that, far from being a ‘lapdog' of US imperialism, Britain is defending its own interests and privileges.

When Britain’s colonial empire more or less came to an end in the 1960s, it was no longer so easy to exploit the resources of dependent countries. Since that time, and from a position of economic weakness compared to rival powers, the British state has built up a different mechanism for global exploitation. Successive UK governments promoted a UK-based financial system that has leveraged British links with US capital and Britain’s existing financial influence in world markets. The financial system based in Britain is now a key factor in Britain’s global economic status. It generates important trading revenues and is a mechanism to provide cheap funds for British capital. The privileged position Britain holds in the global economy marks it out as an imperialist power, one that is parasitic on the labour of others and one that systematically uses force to ensure that it can continue to do so.

(Note: this article is about 8000 words, with tables of data, two charts, footnotes and a bibliography. However, it is organised into 7 sections for easier reading. The sections build on each other and so are best read in order. Comments on the analysis are welcome.)

1. Introduction

In Britain, when two people meet for the first time and strike up a conversation, it is customary to ask what the other does for a living. A few years ago, when Elton John was introduced to The Queen after a concert, she asked him: “And what do you do?” It was a double faux pas since the singer had not only just performed for Her Majesty at her 60th wedding anniversary concert, he had, most graciously, waived his usually enormous fee - a fact that one might have expected to ‘register’ in the Royal mind.

This curiosity about people’s occupations is all that remains of the influence of the once-celebrated school of English Political Economy which held that what a man is depends entirely on what he does – a rudimentary form of materialist common sense to which Marxism owes a great debt. However, when it comes to what Britain as a country does for a living, there is far less curiosity. Minds go blank. Beyond a vague recognition that Britain is no longer the ‘workshop of the world’, and that ‘the City’ is very important, few people have any idea about how the country pays its way. Britain is still a country that likes to think of itself as guided by the Protestant work ethic - the worthy heirs of Victorian industriousness - and where politicians are in the habit of delivering stern lectures on the prudence of ‘living within our means’. The evidence for how Britain actually makes a living paints a very different picture, and shatters more than a few cherished illusions.

This article explains the nature of British foreign policy without reference to the usual clichés that serve to mystify rather than clarify: ‘Britain is acting as America’s poodle’, wars result from the ‘delusions of prime ministers’, policy is an ‘atavistic survival of an imperial instinct’, and so on. Though it is a junior partner to the American top dog, and though it no longer runs dozens of colonies across the globe, Britain is nevertheless an imperial power in its own right, still, basically, living off the labour of others. Only the mechanism of empire has been transformed. Royal weddings and Baron Ashdown of Bosnia notwithstanding, gone are the pageantry and ceremony of subjection, the viceroys, the serried ranks of colonial troops awaiting inspection and the displays of gleaming artillery. It has been replaced by the streamlined world of global business and finance, multi-billion dollar arms deals and slush funds. And to ensure that other lesser powers do not encroach on this system, that is, to ensure that Britain punches well above its weight while it gets away with punching others down, Britain pursues an aggressive foreign policy backed up by a military apparatus ready to deliver death and destruction to those that step out of line.[1]

Britain’s status as an imperialist power is critical for its economic survival.[2] That status, as one of a small number of countries dominating the world, allows Britain to enjoy certain privileges. These privileges are its means of extracting revenues from the global economy, and they rest on two foundations: huge foreign direct investments and the UK-based banking system that acts as a broker for the global capitalist system. Every year, Britain earns a net £30bn from financial services and even larger sums from its foreign investments. Net profits from direct investments amount to some £60bn per annum, with the highest rates of profit coming from the world’s poorer countries. These revenues are indispensable, and help pay for the £100bn visible trade deficit.

Only a few of the world’s major countries manage to exploit millions of workers abroad. None, with the exception of the US, manages to do it in the parasitic manner of British capital. The cornerstone of British policy is to keep this system going. In this article I explain how the system works, and how it depends on a close integration of the financial and industrial sides of the economy.

2. The goods, the bads and the uglies

In 2010, Britain imported almost £100 billion of goods more than it exported. Yes, that is a deficit equal to £1 followed by eleven zeros, and a record of nearly 7% of GDP. But the pound sterling did not collapse on foreign exchange markets and the austerity threatened by the Conservative government was nothing compared to the decimation of living standards in Greece, Ireland and other countries with large deficits. This is because British capitalism makes money in other ways to help pay the bills.

In fact, Britain has run a deficit on its trade for nearly 30 years in succession.[3] A country’s trade in goods can stay in deficit with little problem if the gap in payments is easily balanced by other funds flowing into the country. In Britain’s case, the key items of its international dealing that bring surpluses are the trade in services and the income from British investments overseas. In 2010, these two items generated a surplus of just over £80 billion, or 5.6% of GDP. This covered most of the huge deficit on trade in goods. So, basically, Britain can import a huge amount of goods more than it exports because it makes money on its services trade and investment income. Table 1 shows the key numbers over the past three years.

Table 1: Britain’s current account balance of payments, 2008-2010

(£ billion)
Exports of goods
Imports of goods
Net visible trade balance
% of GDP
Net services balance
% of GDP
Net investment income
% of GDP
Other items, mainly ‘transfers’
Current account balance
% of GDP
Source: UK Office for National Statistics, and author’s calculations

Many countries have a trade deficit in goods; this is not unusual. What is unusual is for a persistent and big trade deficit to be mostly paid for by net services and investment income revenues. That happens nowhere else in the world and sets Britain apart. Chart 1 shows the longer-term pattern of the balances in visible goods trade, services trade and investment income. The British trade deficit has widened dramatically in the past 15 years, driven by a boom in consumer spending on imported goods. But the surpluses on the other two accounts have grown to help pay for them. Let us look more closely at these aspects of Britain’s dealings.

British capital has specialised in several areas of production that benefit from a monopolistic position, but it loses out against its competitors in most of the others. The result is a huge trade gap in goods. It has big trade deficits in food products, manufactured consumer goods and most other broad categories of goods. But it has a surplus in chemicals of some £6-8bn in recent years and in medicines of some £7bn. Britain is also a major armaments exporter – on most reckonings, ranking number 4 or 5 in the world. It is difficult to get comprehensive statistics for the arms trade and the associated ‘services’ offered (as in the notorious BAE Systems Al-Yamamah arms deal with Saudi Arabia).[4] However, the presence of major arms manufacturers on a Middle East trip with Prime Minister Cameron in February 2011 shows the value of this kind of export.

A key surplus area for British trade is in ‘services’ rather than physical goods It is the second biggest net exporter after the US. This type of trade includes transport, travel, business services, engineering, insurance and financial services. Britain’s relative strengths here originate from its previous, long history of dominating world trade. The result is net earnings of the order of £50bn per annum, at some 3.5-4% of GDP. This is one major means of paying for the huge deficit on trade in goods. The other is the income from Britain’s massive overseas investments. In recent years it has earned far more from these investments than the money paid on foreign investments in the UK, producing a net income of around 2% of GDP. This is despite the fact that its overseas assets are less than its liabilities, ie that it has a net debt to overseas investors. In the post-World War 2 period, Britain’s global domination weakened, to be eclipsed by the US and by other powers as its position in the world economy waned. However, its status as a global imperialist power has not diminished. It has become more important for its economic survival, as I shall explain below.

The final element of the current account is principally made up from ‘transfers’. These payments are either unavoidable, or are part of the membership costs of being a major power in global capitalism today – subscriptions for membership that have other pay-offs! Transfers have shown a net deficit of £14-20bn in recent years, due to many different items. These include the EU membership-related receipts and payments, with a net payment of around £5-9bn per year, tax payments (a net £4-5bn), aid payments, workers sending cash back to their families, subscriptions to international organisations and military grants.

The net services and income surplus is not enough to pay for the deficit on Britain’s trade in goods and other items, so Britain needs other financial inflows to cover the gap. If these extra inflows were not available, spending on imported goods would have to be cut: no more plasma TVs, no iPads, no Primark clothes, and not enough food, machinery or raw materials to keep the economy ticking over. The extra funds come from large inflows of finance: to buy shares in British companies and British bonds (including government debt) and to give loans to British-based banks. Together, these inflows can be so big that they also provide the money to finance a net outflow of direct investment from Britain to buy important foreign shareholdings and to set up companies overseas.

Chart 1: UK external balances on goods, services and investment income

Just imagine! Not only does Britain not produce enough of the goods that the Brits or anyone else wants to buy, not only does it fail to provide enough of the services that the rest of the world wants to buy, not only does it depend on investment income from overseas, but even that income is not enough to finance the huge imports of goods. But, no worry, Britain can also attract cheap money from abroad to continue on its way. Britain is surely a special kind of sceptred isle! In the next sections I look more closely at how special it is.

3. British imperialism, broker to the world

We have already seen that the surplus gained on the services account is an important prop for UK revenues. I now show that the core element of this account reveals a key dimension of British imperialism. Many diverse items are included in ‘services’, with the main breakdown set out in Table 2. ‘Other business services’ include, for example, ‘legal, accounting and management consulting’ and ‘architectural and engineering services’. Brits on holiday abroad are responsible for the main element of the deficit on the ‘Travel’ account, while there is £3bn per annum spent by the British military overseas in the ‘Other’ category of the table. However, my focus is on the largest surplus item in Table 2: financial services. I should make clear that I am not arguing that trade in physical goods is ‘good’ while trade in services is somehow ‘bad’. My point is to show that the important revenues Britain earns in financial services is because of its position as an imperial power.

Britain has made money from various financial services over the past two centuries and more. This has come from UK institutions financing trade and acting as a banker and broker to the world - for shipping, commodities, insurance, loans, deposits and investments. In the 19th century, despite Britain’s industrial pre-eminence, some historians have concluded that it was more the ‘warehouse of the world’ than the ‘workshop of the world’, since so much revenue derived from commercial trading and associated services on international markets.[5] In the past 50 years, Britain has lost ground in industry and world trade, but its financial role has become more important. That role was boosted especially by the Thatcher governments after 1979, as controls on foreign exchange were dropped in 1979 and controls on financial market trading were relaxed in 1986’s ‘Big Bang’.

Table 2: Breakdown of Britain’s net services payments

(£ billion)
Financial services
Insurance services
Other business services
Total net services payments balance
Source: UK Office for National Statistics, and author’s calculations

The policy decision to promote finance was a reaction to the failure of British industry. Repeated attempts from the late 1960s to boost industry’s productivity, investment and profitability failed.[6] By the mid-1970s, the UK trade deficit was at record post-war levels (see Chart 1) and the global economy was also hit by its worst crisis of the post-war period. The Bretton Woods system of fixed exchange rates collapsed early in the decade and financial markets were in turmoil. After witnessing this, British policy makers decided that there was likely to be more fertile ground for making money out of financial transactions than from making goods. Britain already had the institutional base for this, since London was already a key global financial centre.[7] In the new strategy, the aim was to attract investment from foreign banks - especially from the US, but also from Europe - to provide the financial muscle that an ailing British capitalism lacked. Although British capital did not own the funds, nor even many of the banks, it would still benefit by taking on a bigger role as the world’s broker: it would make money from the extra dealing in the centre of global finance.

By the late 1980s, the ‘boost finance’ strategy seemed to have worked. Revenues from financial trading were growing strongly and the profits of the financial sector based in the UK were high.[8] This meant that the UK was well-placed to take full part in the financial speculative boom of the 2000s as London became the world’s biggest banking centre. It had the largest share of the global foreign exchange market and a leading position in all areas of finance; in some, it was second only to the US.

This is the source of the surplus figures of some £30bn per year for financial services (see Table 2). Of that amount, around £10bn comes from dealing spreads (buying at prices lower than selling prices), around £7bn from bank interest margins (lending at interest rates higher than those for borrowing), some £6bn from net bank commissions and fees, and the rest mainly from fund manager and securities dealer fees. So, where British capitalism could not make a living from producing goods, it was able to get leverage from its global financial status to boost its income in other ways.

Not much of Britain’s surplus on financial services comes from poorer countries, at least not directly. Data available for 2008, when financial service revenues were at a peak, show that of total net revenues of nearly £40bn, £15bn came from EU countries, £8bn came from the US and Canada, and around £4bn came from Japan, Switzerland and Australia. That leaves only a little over a quarter of the total net revenues coming directly from poorer capitalist countries. But this highlights a critical point: British imperialism’s major role in this business is to facilitate the transactions of other powerful countries. Britain acts as a global financial broker and takes the payment for it, no matter where the profits ultimately come from. It will, naturally, also look for any lucrative deals to do on its own behalf.

This role of British imperialism is an important reason why British governments are so busy interfering in other countries’ affairs: the focus of policy is to maintain conditions for capitalist exploitation on a global scale. Threats to capitalist property relations anywhere are bad news for the global broker. Britain looks upon any potential challenge to capitalism in the same way that a real estate agent would look on an anti-social family moving into his patch, especially one that didn’t pay the rent to the landlord whose property he is managing. Property prices, dealing volumes and sales commissions will fall - We can’t have that! To continue the analogy, this estate agent will demand eviction, call the bailiffs and exclude them from the system. If he can’t handle the situation himself, he will call the cops. Hence the British dependence on and close links with the US, but links that are entirely in British capitalism’s interests.

4. Britain’s investment income: making debts pay

It would be wrong, however, to characterise British capitalism simply as a brokerage operation. It has plenty of property itself from which to profit. The UK economy has, so far, escaped much damage from the latest economic crisis, despite its huge trade deficits and debts. This is also helped by its net investment income from overseas. While debt problems are wrecking the economies of many other countries, this factor is another key element in Britain’s better-than-they-should-be transactions with the rest of the world.[9] How can Britain earn £32.3bn of net investment income in 2010 when its foreign assets (what the UK owns abroad) were £254bn less than its liabilities (foreign investment in the UK)? Not many people deep in debt can drive a limo to the bank. Britain is able to manage it because the profit rates on its assets are higher than the payments on its liabilities. But why is this?

The answer to this question reveals other key characteristics of British capitalism’s role in the world and the privileges it enjoys as an imperialist power. In order to understand these, first look at the breakdown of Britain’s foreign investment position. Table 3 shows the stock of overseas investment assets owned by British capital and the scale of foreign investment in the UK over the past three years. Chart 2 shows how the values of the different investment assets and liabilities have evolved since 1987.

As Table 3 shows, the numbers on each side of the balance are huge and run into the hundreds or thousands of billions. The values have grown dramatically alongside the expansion of global financial markets. This development was promoted, or rather enforced, by the US and UK governments from the 1980s. They pressured other countries to relax controls on foreign exchange markets and the flow of finance, putting them in a good position to pick up business from their domination of the global financial system.[10] This led to a boom in financial trading, and lots of profit from banking flows and financial investments. Values of UK portfolio assets and liabilities are generally higher than the values of the direct investment numbers. In turn, ‘Other’ items (mainly international bank loans and deposits) for Britain are usually much higher than portfolio values.

Table 3: Britain’s international investment position *

(£ billion)
Total assets
Total liabilities
Total net investment stock position
Of which:

Direct investment assets
Direct investment liabilities
Net foreign direct investment position

Portfolio assets (equities and bonds)
Portfolio liabilities (equities and bonds)
Net foreign portfolio position

Other assets
Other liabilities
Net ‘Other’ investment position

Foreign exchange reserve assets
Source: UK Office for National Statistics, and author’s calculations
Note: * Total investment positions exclude derivatives, which obscure the overall relationships.

Table 3 also shows that Britain’s total investment liabilities are greater than its assets. This has been true since 1995, and the deficit has widened over time. In earlier years, there was a net surplus of assets, but this was steadily reduced by the extra liabilities taken on every year to finance Britain’s current account deficit (mainly the visible goods deficit, discussed above). One would expect this increasing level of debt to lead to a steadily increasing outflow of interest, dividend and profit payments, so there would be a growing deficit on the investment income account. That did indeed begin to happen from the late-1970s. However, from the mid-1990s the investment income payments coming into Britain again started exceeding those going out. The critical thing to understand here is the different returns on the different types of investment.

The profits recorded on direct investment have been systematically higher than returns on portfolio investment, or on bank loans and deposits. This has encouraged British capital to invest abroad in direct investment, either in new operations or buying 10% of more of the assets of overseas companies. One problem for this strategy is that Britain persistently runs a deficit on its current account. So where would it get the extra cash with which to invest abroad? This is where Britain’s role as a financial broking operation comes in again. It uses the London banking centre to attract the funds needed. British-based banks earn revenues on the dealing, the cost of the funds is less than the returns on the foreign investment and there is a boom in profitable direct investment abroad. ‘Everybody’ wins: profits all round from the strategy of British imperialism!

Table 4 details the returns on the different types of foreign investment. The return is calculated by measuring income against the stocks of assets and liabilities. We should note that the income and rates of return can vary a lot: there are huge sums of capital involved with values that are affected by changes in rates of interest, moves in global stock markets and currencies. However, the net income Britain gets from these investments comes with two kinds of protection.

Chart 2: UK net overseas investment position by type of asset/liability

Firstly, the rate of return from the kinds of asset in which it has a surplus, direct investment, are relatively high, and the return on investment abroad is higher than the return paid on investment in the UK. In 2010, for example, Britain earned a net £58bn from direct investments, based not only on the fact it has more assets abroad than foreign investors have in the UK, but also because the average rate of return was 8.5% on the overseas assets versus just 4.6% on UK-based investments. Secondly, the rates of return on portfolio and other (bank loans/deposits) investments are not only much lower than on direct investments. Just as important, Britain also has large deficits on the former two accounts, so that it pays a relatively small cost for these deficits. In 2010, it was paying only 2.4% on equity and bond investments that foreign investors had in the UK and just 1.2% for the money borrowed. These factors also show that it is in British imperialism’s interests to keep interest rates as low as possible: this island of (deficit) finance needs cheap funding![11]

The net effect of all this like being able to borrow from the bank at 2% and then lend the money back to the bank at 10%, so earning a large net return on the borrowed funds. No bank would willingly do this kind of business, for obvious reasons. However, if your position as an imperialist power puts you in a privileged position in the world economy, you can pull off this kind of trick.

Table 4: Income and returns on Britain’s international investments *

Income (£ billion)
Total net investment income
Of which:

Net direct investment income
Net portfolio income investment income
Net Other investment income
Income on government FX reserves
Rates of return (%)

Total assets
Total liabilities
Difference in rate of return on totals
Of which:

Direct investment assets
Direct investment liabilities
Difference in direct investment return

Portfolio assets (equities and bonds)
Portfolio liabilities (equities and bonds)
Difference in portfolio rate of return

Other assets
Other liabilities
Difference in Other rate of return
Source: UK Office for National Statistics, and author’s calculations
Notes: * The rate of return is income for the year divided by the average stock of investment at the end of that year and the one before. The same calculation is made in Table 4. The breakdown of investment income returns excludes returns on official government FX reserves.

There could easily be changes in the relative returns on investment that would make Britain’s net investment income disappear. For example, the profitability of overseas direct investment could fall; it may have to pay more to attract foreign portfolio investment (with higher yields on government and corporate bonds), or it may have to accept higher interest charges on borrowed funds. These factors all point in the same direction: British capital will have a clear concern to keep the conditions for capital investment running profitably, both at home and overseas. The steady stream of net investment income began in 1997, and it has been on an increasing trend since then. In the previous 20 years, this net income balance was mainly in deficit. So, while the returns are far from guaranteed, this is one more material factor explaining Britain’s active role of interfering in the affairs of other countries.

5. Where does the money come from?

We have already seen that Britain’s investment income surplus comes entirely from direct investment. It is possible to break down where this money comes from, and to work out the implied rates of return from British direct investments in different parts of the world.

Most foreign investment from major capitalist countries tends to go to other major countries. But, despite this, the returns on investment in poor countries are generally much higher, given lower wages and harsher working conditions than elsewhere. This makes the smaller scale investments especially lucrative. Capitalists may complain about ‘low productivity’ in these countries, but they compensate themselves in other ways at the workers’ expense. The exact figures are always hidden from company accounts, but national statistics can pick up some of the otherwise undisclosed relationships, even though these figures will generally not appear in much detail in official press releases.[12] Table 5 sets out the key details from UK statistics.

Table 5: Geographical returns on Britain’s overseas direct investments

% 2009 revenues
% 2009 assets
Return on all direct investments

of which: *

Asia, ex-Japan
   Of which Near & Middle East
Latin America
Europe, total
Source: UK ONS and author’s calculations
Note: * Canada, Japan, Australia and New Zealand are excluded in the geographical breakdown.

Only around 20% of Britain’s direct foreign investment assets are located in the world’s poorer countries. Table 5 shows that in 2009, 17% of total assets were in Africa, Asia (outside Japan) and Latin America taken together. These regions nevertheless account for a much higher 30% share of total revenues because their rates of return on average were nearly twice as high as in the rest of the world. The European figures include a range of both rich and powerful and poor and weak countries, but most of the funds are invested in the former. Europe accounts for 54% of assets, and 51% of revenues, generating a return of just 6% in 2009, below the world average of 6.6%. Within the European total is Poland (return of 21%) and Russia (return of 15%), but the sums invested in these countries are small, barely 3% of total European assets. The US has produced the worst return on investment in recent years, down at 3-4% in 2008-09, but it still accounts for nearly a quarter of total assets overseas.

British business will tend to locate in the major markets of Europe and the US, despite the lower returns. Especially for the larger companies, this is very often to carve out a monopolistic share of the global market, getting both economic and political influence in every important region.[13] Moving into other countries also helps a company adapt its product better to the needs of other large markets and to gain information on the strategy of important rivals. This is why we see a similar pattern of foreign investment being concentrated in richer countries for the other major world economic powers, despite what may be lower returns.[14] All these are important factors in the increasing monopolisation of economic power. However, the poorer countries provide a much-needed source of premium profits.

Direct investments in Africa have provided Britain a rate of return 2-3 times higher than the world average for British capital in the past 10 years. Asian investments have also been lucrative, providing twice the global average returns. Within this Asian total, investments in the Near and Middle East stand out. Although the volume of investment in this latter area is relatively small, rates of return averaging 30% between 2003 and 2007 meant that British capital did not have to think too hard about ‘human rights’ and ‘democracy’ when making deals with the regional dictators. Britain’s concern now is that a fall in general profitability after 2007 has coincided with growing turmoil among the popular masses in the region. This makes the outlook for re-imposing British influence and keeping the profits flowing so much more troublesome![15] Latin America, from Mexico to Southern Argentina and Chile, has also provided above average returns for British capital. Some of the data for the region is distorted, with Bermuda’s financial centre included in our reckoning and accounting for a large share of the asset values, but countries like Brazil provided a 21% return in 2009, showing the region remains a source of premium value for British capital.

The data for direct investments overseas underline the fact that British capitalism is far from being a purely financial market operator, despite the strength of the City. The bias of British imperialism’s overseas business operations has shifted from the industrial and commercial sphere into finance, which accounted for nearly 30% of total investments at the end of 2009. However, the commercial and industrial operations overseas are still far more important. An industrial company’s direct investments abroad may be for a shareholding (10% or above) in a foreign company simply to benefit from a share of its profits, rather than to run the production facility itself. But that would just be a logical conclusion of capitalism’s development that we see everywhere: production for the sake of profit, with no concern about the production of goods, use-values, per se.

Aside from the return on direct investment assets, official data for the geographical spread UK overseas portfolio and ‘other’ (mainly bank loan) investments and returns is not readily available. However, my contact with some helpful ONS officials did provide some data for several years to 2008. Analysis of this information led to conclusions that will very likely be valid for the broad, longer-term picture. The first point is that only around 12-14% of total portfolio or ‘other’ assets are held in the regions of Africa, Asia-ex Japan and Latin America. Secondly, these regions account for a very similar share of investment income, though slightly higher at 14-15% for portfolio assets. This means that there is no significant difference between average rates of return on investments in major countries and in the poorer regions of the world for either portfolio investments or for ‘other’ investments. In the case of direct investments, as seen already there is a clear premium rate of return in the poor regions compared to that in the major capitalist countries. The lack of evidence for premium exploitation rates in financial transactions does not necessarily mean they do not exist. It is just that there is no evidence for this in the data that we have been able to find to compare geographical patterns.[16]

6. Britain’s rank in the global economy

The case that has been made here is that Britain enjoys a privileged position in the global economy, one that enables it to extract premium revenues from other countries. That is what being an imperialist power is all about: the economics behind the aggression. Of course, Britain is not the only imperialist power. A brief review of where it stands in relation to others in terms of foreign investments will clarify British imperialism’s status.[17]

It is no surprise that the country with the largest foreign direct investments is the US. If we take the average value of foreign direct investment assets from 2007 to 2009 in order to smooth out yearly variations, the US held assets worth a massive $4227bn. Britain was well behind this vast sum, but it was in second place among the major powers, with assets worth $1673bn. This was very close to France’s $1611bn and not far above Germany’s $1342bn. The next in line was Hong Kong, with $869bn.[18] The Netherlands ($854bn) and Switzerland ($748bn) came next, while Japan was in 8th place with $655bn. Such figures highlight one dimension of the international wealth of the major powers, but they also show a steep descent in global holdings as a country’s position in the hierarchy falls. The top club of major powers is an exclusive one. By the time we get to the country with 17th position in terms of foreign direct investment assets (Denmark), the total value of foreign assets owned drops below $200bn.

A similar concentration of economic power is shown in the listing of major global corporations. Of the world’s top 100 non-financial corporations ranked by the value of foreign assets they held in 2008, 18 are American, 15 are British, 15 French, 13 German and nine Japanese. In other words, just five countries account for 70% of the top 100 companies! In this ranking, the next in line is Switzerland, with five in the top 100. Other countries have fewer. The concentration is pretty much the same in the case of the top 50 financial companies ranked by their overseas assets. Here Britain shares first position with the US, each having seven banks or other financial institutions in the top 50.[19] For Britain, this is a consequence of the trends outlined earlier in this article. However, it also shows that Britain directly owns some of the biggest global players in finance, even though ‘the City’ is dominated by foreign banks and institutions. France and Canada each have five in the top 50 financial companies, Germany and Switzerland each have four, Japan, Italy and Sweden each have three. No companies from poorer countries are included in the ranks of this top 50.

I showed in the previous section that the rich pickings from the international economy are derived from foreign direct investment. It is not possible to separate out the revenues earned by non-financial as compared to financial companies in the statistics available, but there is every reason to believe that the bulk will come from industrial and commercial companies. With that in mind, Table 6 details the 15 British non-financial companies which ranked in the top 100 listing just discussed, and so which ranked highest in terms of foreign assets. Before discussing some details, it is worth commenting on the issue of nationality.

Table 6: The top British-based companies investing overseas, 2008 *

     Assets ($bn)
Royal Dutch/Shell Group
Petroleum expl./ref./distr.
Vodafone Group plc
BP plc
Petroleum expl./ref./distr.
Xstrata plc
Mining & quarrying
Rio Tinto plc
Mining & quarrying
Anglo American
Mining & quarrying
AstraZeneca plc
National Grid Transco
Utilities (elec., gas & water)
BAE Systems plc
Aircraft, weapons
WPP Group plc
Business services
BG Group plc
Electricity, gas and water
GlaxoSmithKline plc
SAB Miller
Food, beverages & tobacco
Diageo plc
Food, beverages & tobacco
Source: UNCTAD, World Investment Report 2010
Note: * These are the 15 UK companies that are among the top 100 non-financial companies worldwide, listed by the size of their foreign assets. See the text for comments on the nationality of the companies listed.

The companies in Table 6 are almost all headquartered in Britain and have substantial share ownership by British residents, but they may not be ‘British’ in origin. This is a common feature of major companies and encourages use of the term ‘transnational or ‘multinational’ when describing them. For example, SABMiller was originally founded in South Africa in 1895 as South African Breweries and it only began investing in Europe in the 1990s. It listed on the London Stock Exchange in 1999, as a means of attracting more capital resources, bought the US Miller Brewing Company in 2002 and is now the world’s second largest brewer, measured by revenues. The British connection dates back to the colonial era, but the stronger connection today results from the need of capital to raise funds for expansion and to enjoy low tax rates. These factors will be critical for determining a company’s ‘nationality’. Whether SABMiller would enjoy the protection of the British government with the same special care and attention as the more evidently British companies like BAE Systems or BP is less clear. However a major corporation quoted in the FTSE100, having global influence and bringing in important revenues would expect to have its interests looked after. Similar comments may be made about Royal Dutch/Shell and Unilever (Anglo-Dutch), Xstrata (headquartered in Switzerland, but with a primary UK share listing), Anglo American and several others. With these provisos in mind, provisos that apply to all major global companies, we will treat the companies in Table 6 as ‘British’. In any event, they are responsible for paying out over half the dividends on the London stockmarket!

All of the companies listed in Table 6 have a high rank in their sector of activity; most are involved in a wide range of countries. For example, Shell and BP are two of the oil and gas industry’s six ‘supermajors’, operating in more than 90 and 80 countries, respectively.[20] Vodafone, which grew out of the military radio technology company Racal Electronics, is the world's largest mobile telecommunications company measured by revenues, operating in some 30 countries. GSK is the world’s third largest and AstraZeneca the seventh largest pharmaceuticals company, the latter operating from 100 countries. BAE Systems operates mainly from the UK and US, although it considers Australia, India and Saudi Arabia as other ‘home markets’. In 2008 it was the world’s top military contractor by sales.

Britain has other major companies not present in this list, for example Tesco, which is the third largest retailer in the world with stores in 14 countries. However, it is clear that British imperialism is far from being represented by shopkeepers. Each of these companies has a colourful history that may include tax evasion, secretly siphoning off profits, slush funds, environmental damage and oppression of the workforce. However, the objective here is to bring out the concentration of economic power that is wielded by British imperialism, and to stress that this power rests on Britain being able to maintain the advantages that it has in extracting profits from the global economy.

7. Conclusions

This analysis of Britain’s international economic relationships has brought out the special features of British imperialism today. Two factors stand out: Britain is extremely dependent on the revenues from financial services trading and direct investment. The British state’s promotion of the financial sector, especially from the 1980s, built on its existing advantages in the world economy, and the City of London became the broker of the world. Its financial dealings draw in the money and investment funds of the whole planet, from which it derives dealing revenues, and they provide the funds for the outflow of British direct investment to exploit higher profits from overseas. This has allowed Britain to receive a net income from foreign investments despite being a net debtor to the rest of the world. Such a position is shared with only one other country, the US, which operates in a similar fashion.[21]

Britain is more able than most other major capitalist countries to make a living as a parasite in the global economy. Marxist theory explains how the financial sector is unproductive of value, since the most it can do is facilitate market transactions, not directly produce useful things. Any advance of capital by banks to producers (for a fee!) is for others to do the producing. Even the head of Britain’s Financial Services Authority, the sector’s official regulator, agreed in 2009 that “the whole financial system has grown bigger than is socially optimal” and that some products were of “dubious social value.”[22] However, these considerations were given two years after the financial bubble burst, and were made more in sadness than in anger.

Unproductive and socially useless the financiers might be, but they bring in revenues for British capital. That is what counts: the money made by financial institutions is not simply recycled profits from the rest of the domestic economy, but money drawn in from other countries. In addition to the international revenues discussed above, British financial companies also provided the government with £53bn of tax revenues in 2009-10, 11% of the total tax take, and directly provided over 1 million jobs (with many more indirectly) and some 7% of GDP.[23] This is why the British state has gone out of its way to save the banks, despite planning new laws to try and limit the chance of another crisis.[24] British banks, and the banking system that has been built by decades of considered government policy, are not some accidental, unpleasant feature of the economy that can be reformed away. Their balance sheets are five times the value of GDP and they are integral to the operation of British imperialism.[25]

In the early post-war period, Britain was forced to step back from direct control over and exploitation of most of its former colonies as they gained some measure of independence or as the US pushed Britain aside.[26] This highlighted the weakness of domestic British capital, and later Britain steadily lost ground to rival powers as it failed to compete in global markets. By the late 1970s, with attempts at industrial revival failing, the British state embarked more determinedly on a separate strategy to boost the financial sector. Britain now has a financial machine to extract profits from the world economy, both directly from its own investments abroad and indirectly from its role as a global brokerage operation for other powers.

Ironically, the role of British capitalism, the oldest imperialist power, is usually ignored in critiques of and commentaries on imperialism today. If Britain is mentioned at all, it is to berate British politicians for being lapdogs of the US. This view completely fails to understand Britain’s fundamental economic interests as an imperialist power. The British state’s readiness to intervene militarily in Afghanistan, in Iraq and now in Libya, to name only the more prominent recent examples, is a consequence of these interests. Britain’s longstanding support of Israel, its backing of Middle East dictators, and its previous support of Apartheid South Africa, are yet further examples of a consistently reactionary policy that is the lifeblood of British imperialism.

Tony Norfield, 17 May 2011

BBC (2000), ‘Vodafone seals Mannesmann deal’, 11 February 2000
BoE (2006), ‘The UK international investment position’, Bank of England Quarterly Bulletin, Q3 2006
BoE (2010), ‘Evolution of the UK banking system’, Bank of England Quarterly Bulletin, Q4 2010
Clarke, William M (1967), The City in the world economy, England: Pelican 1967
Curtis, Mark (2003), Web of deceit: Britain’s real role in the world, Great Britain: Vintage 2003
Newsinger, John (2010), The blood never dried: a people’s history of the British empire, London: Bookmarks Publications 2010
Barratt-Brown, Michael (1974), The economics of imperialism, England: Penguin 1974
Cain, P J & Hopkins, A G (2002), British imperialism: 1688-2000, Great Britain: Pearson 2002
City (2010), ‘The Total Tax Contribution of UK Financial Services’, City of London Corporation, December 2010 available at
Goux, Christian and Jean-Francois Landeau (1971), Le péril américain, Le capital américain à l’étranger, Paris: Calman-Levy, 1971
Lenin, V I (1916), Imperialism, the highest stage of capitalism, available at
ONS, UK Office for National Statistics,
The Independent, ‘Secret memos expose link between oil firms and invasion of Iraq’, 19 April 2011
Turner, Adair (2009), ‘How to tame global finance’, a discussion in Prospect magazine, 27 August 2009.
UNCTAD (2010), World Investment Report 2010: Investing in a Low Carbon Economy, United Nations Conference on Trade & Development, July 2010
US BLS (2009), ‘China’s manufacturing employment and compensation costs: 2002–06’, Bureau of Labor Statistics, Monthly Labor Review April 2009

[1] For example, under Prime Minister Tony Blair (1997-2007), the UK bombed, attacked or invaded the following countries: Yugoslavia, Iraq (twice), Sierra Leone and Afghanistan. Gordon Brown continued the policy, as did David Cameron, whose government is now attacking Libya. These examples exclude other covert operations, for example those against Iran. For useful histories and exposés of UK policy, see Mark Curtis (2003) and John Newsinger (2010).
[2] Lenin’s ‘Imperialism, the highest stage of capitalism’, written in 1916, is the classic Marxist definition of imperialism. His concept was drawn from a characterisation of the capitalist world economy dominated by the major powers that had divided up the world between them, controlling and exploiting it in various ways. Lenin makes a special note of the manner in which British imperialism was living off the exploitation of other countries. This article looks at its contemporary form.
[3] Recent historical data are taken from UK Office for National Statistics publications, and from its website (see ONS). Britain has run a trade deficit for almost all of the period since the late 1700s! See Barratt-Brown (1974, Table 6, pp124-5). The last annual UK trade surplus was in 1982, helped by rising oil exports and a domestic economic recession.
[4] The Al-Yamamah arms deal that was in the UK press headlines in 2003-06 was reported to be worth up to £40bn. A BAE official also noted there was a previous set of deals worth £43bn over the 20 years from 1985. In 2010, BAE Systems pleaded guilty in a United States court to charges of false accounting and making misleading statements in connection with the sales. The UK courts did not investigate allegations of bribery and a ‘slush fund’, on ‘security grounds’.
[5] In the early 20th century and up to the period before the Second World War, the surplus on services was relatively larger, reflecting Britain’s greater importance in world trade, and it was even more important as a means of offsetting the persistent trade deficit. In 1899-1913, net services revenues amounted to 4.3% of GDP, versus the trade deficit that averaged 6.1% of GDP. See Cain & Hopkins (2002, Table 5.8, p165). The remaining gap was more than made up by the huge inflow of net investment income, which averaged 6.8% of GDP!
[6] This was a time of serious trouble for the British economy, within a growing world economic crisis. The late 1960s Labour government under Prime Minister Wilson tried to promote the ‘white heat of the technological revolution’ for industry. That did not happen. The 1970-74 Conservative government, under Edward Heath, tried to restructure industry too, and let ‘lame ducks’ go to the wall, but ended up trying to boost the economy with credit policies. Heath’s pro-Common Market policy was another strategy to try and force an improvement in British industrial competitiveness.
[7] In particular, the UK government had already encouraged the growth of the ‘euromarket’ in international loans after 1958, mainly attracting dollar funds from the US. See Clarke 1967, pp73-6.
[8] UK data show that the net operating surplus of financial companies rose from an average of 5% of non-financial profits in 1984-85 to nearly 17% by 1990. The financial share of profits was volatile but it trended upwards, reaching more than 30% by 2009.
[9] It is easy to confuse net investment income with the net surplus on financial services trade, but these two items are separate. They represent different aspects of Britain’s financial strength.
[10] The ‘Washington consensus’ and IMF demands that indebted countries should relax controls on financial flows and foreign investment and also ‘privatise’ state-owned assets reflected these imperial economic interests.
[11] Strictly speaking, the key issue for the relative cost of borrowing is the gap between lending and borrowing rates. However, status as an imperialist power usually brings a Triple A credit rating from the ratings agencies for the government. This keeps relative borrowing costs low.
[12] See BoE 2006 for a useful review of Britain’s overseas investments. There is only a very brief note of the differences in returns from different regions in this report, however. US statistical reports can be more forthcoming, publishing research rarely seen from other official bodies. See for example US BLS 2009, detailing the huge differences in workers’ wages and working conditions between poor countries and richer countries, with a special focus on China.
[13] A good example is Vodafone’s takeover of German mobile company Mannesmann in February 2000. The deal worth £112bn was then the world’s biggest ‘hostile’ (not mutually agreed) takeover. Mannesmann had been an ‘alliance partner’ of Vodafone, but it bought another UK company, Orange, in October 1999 and this had “contravened a gentleman's agreement not to compete on each other's territory”. Suitably enraged that its own monopolistic plans were under threat as the industry was in a merger boom, Vodafone launched its hostile bid for Mannesmann in November 1999. See BBC 2000. It is worth noting that Vodafone Egypt is the biggest mobile network operator in the country, and shut down its network on orders from the Egyptian government in January 2011.
[14] See Goux & Landeau (1971, pp47-48) for an analysis of US investment in the pre-EU ‘Common Market’, where they argue that only half of US investments were due directly to the search for profit. However, investment returns in richer countries are not always lower than elsewhere, especially when the company can secure monopolistic rents. This is the case for British investments in Australia’s mining sector, for example, which have usually generated profits well above average.
[15] UK data does not list Libya separately when detailing investment returns in Africa! It is worth noting two other salient points about Britain’s role in the Middle East. Firstly, the company we know now as BP used to be called the Anglo-Iranian Oil Corporation, running the biggest oil refinery in the world at Abadan in Iran. It made very significant profits for British imperialism before the 1953 US-UK promoted coup, which transferred key power to the US. Secondly, the fact that the 2003 invasion of Iraq was about Iraq’s oil has finally been documented. The Independent reported how BP and Shell had talks with the UK government on their positions post-Iraq invasion. See The Independent 2011.
[16] Official estimates of interest on loans and returns on portfolio holdings may be more misleading, and less accurate, than for corporate profits. Financial deals may be more likely to be done with ‘offshore’ funds and companies that fall outside official reporting requirements for tax avoidance reasons.
[17] The data in this section are taken from UNCTAD 2010 and the associated statistics on its website.
[18] Hong Kong is the main exception to the general rule that poorer countries do not rank highly in the foreign asset league table. Its commercial and trading power developed to some extent under British rule up to 1997, but, when Britain handed it back to China, Hong Kong-based companies were able to leverage the Chinese connection and the growing power of China’s economy.
[19] The top British financial companies operating overseas are: banks – Barclays, HSBC, RBS, Standard Chartered; asset managers – Aviva, Old Mutual, Prudential. The company with the highest number of host countries was HSBC, with 54, and the lowest was Prudential, operating in 25 other countries.
[20] The information in this paragraph is taken from a variety of internet sources, company accounts and media reports.
[21] US statistics show that in 2009 its assets abroad were $2866bn lower than foreign investments in the US, making it a net debtor country. However, it still had a net investment income of $129bn. Its direct investment assets were $1378bn more than its liabilities, but there was a massive deficit on portfolio investments, with foreign central banks and private investors buying US bonds and equities. The US does not depend on deficit finance via bank loans as the UK does, but like the UK it earns a lot more from its direct investments than it pays on its foreign portfolio liabilities.
[22] See Turner 2009.
[23] Tax figures include corporation taxes, income taxes and other taxes. See City 2010.
[24] The plans are likely to be based on the ‘Vickers report’, the Independent Commission on Banking Interim Report of 11 April 2011. The details of this we will leave aside here, except to note that the conclusions were such that UK bank share prices rose on the day that it was released!
[25] The relative size of banks in Britain is second only to Switzerland, and much higher in relation to GDP than in the US. See BoE (2010, p324).
[26] The most significant post-World War 2 losses to British imperialism were probably India after 1947, Iran after 1953 and Egypt after the Suez crisis in 1956. In some cases, US influence directly replaced Britain’s. In others, formal independence meant that British power and its ability to derive extra profits using the old methods of direct control were weakened.


  1. Hi Tony,
    Seems to be a very interesting article! Looking forward to reading it in detail.

  2. Just seen your article on British imperialism. I have been writing on the issue since 1979 making the important point re the nature of Britain as an imperialist power second only to the US. Suggest you look at Britain: parasitic and decaying capitalism and numerous other articles. See - search David Yaffe or FRFI articles or imperialism. You can contact us at Send me your email and I will comment on your contribution.


  3. Thanks for this, quite useful.

    And as a financially illiterate Marxist who mostly focuses on history, my doubled thanks for the accessibility.

  4. Thats a really good read.