Canada’s prime minister Mark Carney flew to London last week for talks with Britain’s Kier Starmer, both of them upset about President Trump’s aggression, populism and protectionism. Starmer’s immediate instinct, to snuggle ever closer to the corrupt rotting carcass of the European Union will do Britain no good, nor will Carney’s instinct to create a global socialist authoritarian uber-state achieve anything for Canada. Instead, to protect themselves against the new assertive United States, they should revive an idea that would fill both men with horror: Imperial Preference (and yes, they should call it that, not some feeble woke alternative, as I will explain)!

Imperial Preference was devised by the great Neville Chamberlain as Chancellor of the Exchequer and implemented by the Ottawa Treaty of 1932 as a measure to alleviate the Great Depression in Britain and its colonies, ending 86 years of Britain’s unilateral free trade. That foolish policy had reduced Britain’s wealth and power by leaving it economically defenseless against the highly protectionist U.S. and Germany, who even before World War I had become economically stronger than Britain and its dependents. The Ottawa Treaty was not very protectionist – only a 10% flat duty against products made outside the Empire, but it sufficed to make the middle and late 1930s the period of fastest economic growth in British history, with a plethora of technological achievements, far ahead of the National Socialist Germany and the inward-looking government-meddling United States.

Winston Churchill bears overall a large share of the responsibility for Britain’s sad decline since 1939, but one direct error was to send the anti-Imperialist dogmatic free trading socialist Maynard Keynes as chief negotiator to represent Britain’s position at the Bretton Woods economic conference of 1944. Apart from being all too pally with the Soviet delegation, Keynes gave away all Britain’s advantages, focusing foolishly on the interest rate on the loan Britain was to receive after the war, which resulted in the loan at a modestly subsidized rate being much too small – it would have been much better to negotiate a larger loan on market terms with the New York banks.

Keynes also agreed to a gimcrack fixed exchange rate scheme with the pound fixed post-war at an altogether overvalued parity of $4.03 =$1, making Britain’s post-war export recovery impossible. Almost as a side issue, Keynes caved to prodding by the far more protectionist Americans and agreed to relinquish Imperial Preference over time. The result was that Britain’s currency was overvalued throughout the 1950s and 1960s and its industry open to the blasts of foreign competition – precisely the same problem as had occurred with Britain’s return to the Gold Standard in 1925-31, against which Keynes himself had railed.

Imperial Preference had many advantages for Britain and its other members. For Britain, it allowed the import of commodities and agricultural products at highly competitive world prices, for example lamb from Australia and New Zealand. Given that Britain was already very overpopulated and unable to feed itself, thanks to a century of unilateral free trade following the 1846 Repeal of the Corn Laws, this was an enormous advantage. Transition to inefficient overpriced, over-subsidized and poor-quality European agriculture forced by the 1973 accession to the EU caused British inflation in the 1970s to be far worse than in any other advanced country. It is well past time Britain took advantage of Brexit to resume sourcing agricultural and other products from the former Commonwealth.

For the Commonwealth countries, the advantages of Imperial Preference were equally great. Britain was still one of the world’s great manufacturing centers – in 1950, Britain was still richer than any European country, so the Commonwealth countries had access to this manufacturing capability on preferential terms. This allowed those countries to influence design to suit their own needs – for example, Hindustan Motors continued making copies of the “half-timbered” 1956 Morris Oxford until the late 1980s, because its attractive design, simple mechanics, solid build and good fuel economy worked well for Indian buyers, whose roads were not good enough to require high speeds or rapid acceleration. It was an arrangement that worked well for both sides and could have continued indefinitely had it not been for Britain’s perverse folly in attempting to join the EU (whose skills were competitive with those of Britain, not complementary to them). Even the advantages that Britain might have gained by becoming merchant bankers to the entire EU were thrown away by the Thatcher government’s catastrophic Financial Services Act of 1986, which destroyed the merchant banks.

Today, the equation is somewhat different. Britain is even more overcrowded, to the extent that its living standards are declining rapidly as low-wage immigrants flood the workforce, but has a capability in tech, pharma and defense that is still of value. Conversely, Canada and Australia are not purely pastoral societies with a small population; at 40 million and 27 million respectively, their population is now a substantial fraction of Britain’s, although given their magnificent endowments of land and resources, they are still far less overcrowded than Britain, albeit at least equally ethnically mixed.

The true benefits of a new Imperial Preference containing Britain, Canada, Austria and New Zealand, Britain’s “three true allies” as Daniel Hannan called them, are both economic and strategic. Economically, it will create a single market of about 140 million fairly rich people, with strong cultural attachments and complementary skills. With such a market, large enough to ensure that all necessary skills are present, immigration into all four countries should be halted forthwith, so that those who have arrived can be absorbed properly and the downward effect of immigration on wages can be avoided. Economically, self-destructive policies such as the “Net Zero” attempt to run a modern economy on windmills, something that caused the Netherlands to miss out on the Industrial Revolution 300 years ago, should of course be cast into the trash where they belong.

All four countries will have relatively high wages by global standards; there will thus not be any subsidies to the poorer members and the trading bloc will be able to develop its skills and use them to raise the living standards of their inhabitants. This was the problem with the original Imperial Preference area; it included countries of widely differing workforce capabilities, so closer integration was impossible without the low-skill large population countries swamping the core.

Strategically, the new Imperial Preference area will be competitive with all but the largest powers and will be able to develop its own defense capabilities where necessary. It will form a substantial well-managed bloc, of course with a nuclear capability, which will be attractive to all the major powers as an ally, albeit not very dangerous on its own as an adversary. From nineteenth century experience in a similar world of warring unreliable Great Powers, it will best pursue a policy of Splendid Isolation, as did Britain under Lord Salisbury’s expert guidance from 1885 to 1902. As Sir Robert Walpole said in an earlier era:

“Power will ever be fluctuating among the states of Europe, and wherever the present flow of it appears, there is our Enemy, there the Proper Object of our Fears.”

Walpole’s advice, broadened from Europe to the world, is well taken in the larger, more dangerous world in which we now live.

Finally, the name. Japan’s “Greater East Asia Co-Prosperity Sphere” of the 1940s was both uninspiring to its members and unthreatening to its enemies. Any such “woke” equivalent should thus be avoided. People like to live in an Empire, so long as it is their own Empire. Hence the term “Imperial Preference” should be resuscitated, with the difference only that the Empire will not be purely British, but an Empire of all the disparate peoples lucky enough to inhabit it at its foundation (and their descendants). Messrs. Starmer and Carney may hate this, but then, one advantage of an Imperial Preference project would be to get rid of Messrs. Starmer, Carney and Albanese and replace them with something better.

Then at last Maynard Keynes’ Crime of Bretton Woods can be expunged!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)