Why British Empire bankrupted after WW2, yet USSR did not collapse or become third-rate power (and even grew into superpower), despite suffering much greater devastation and 27 million deaths?

by SiarX
WhatsThis_Now

The other post has offered insights into the Soviet Union's economic policies and outcomes of the war. For the British Empire, I think it is important to clarify that Britain was bankrupt after the war. The British Empire was not. Indeed, South Africa did very well financially and economically during the war, the other former settler-colonies, by this time called dominions (Australia, Canada and New Zealand), also did relatively well in some respects. Britain owed a great deal of money to India, and a colony like Malaya was the major dollar-earning part of the empire in the post-war years due to rubber exports (in high demand in the US).

Why was the UK bankrupt? In the major beats of the war:

  1. After the defeat of France, Britain threw its financial planning out of the window and committed its financial and economic resources to its survival. This included taking over orders that France had placed in the US for aircraft etc. that it had not envisioned in its carefully constructed financial planning.
  2. The cost of the war was such that Britain rapidly ran out of hard currency (dollars, gold, etc.) The US decided to keep supplying Britain (via Lend-Lease) on the basis that Britain first spent all of the financial resources it could and did not rebuild its reserves during the war - money earned had to be spent on war supplies. This went as far as the US sending a ship to South Africa to pick up newly-mined gold that was to be added to Britain's resources. The US also wanted Britain to liquidise its significant portfolio of securities, essentially its investments around the world, as this was a means of payment. The earnings from these investments had helped cover Britain's balance of payments deficit in the interwar years. These were largely gone by the war's end.
  3. When Britain was struggling to pay for supplies from the dominion countries, those countries allowed payment through the repatriation of debt. That is, Britain gave up its ownership in things like factories, railways, dock facilities and also national or state debt to those countries as a form of payment for supplies. This ownership had given Britain both economic and soft power in those countries that could not be replaced after the war.
  4. Britain agreed with India a deal in which India paid for its army's use within India and Britain paid for its use beyond the borders of India. The Indian Army was massive and fought in several campaigns outside India. By the end of the war, Britain owed India a massive sum of money. This was not a huge concern at the time because the debt was in Britain's currency, sterling, and it could revalue the currency to affect what was owed. As John Maynard Keynes noted to the British Cabinet, about India and other sterling countries' loans to Britain: "On such conditions, by cunning and kindness, we have persuaded the outside world to lend us upwards of the prodigious total of £3,000 million. The very size of these sterling debts is itself a protection. The old saying holds. Owe your banker £1,000 and you are at his mercy; owe him £1 million and the position is reversed." Nevertheless, this was part of Britain's bankruptcy. Other countries carefully avoided this trap - Canada ensured all debt owed to it was in Canadian dollars, so if Britain devalued its currency Canada would not lose out.
  5. Britain suffered considerable war damage and needed to rebuild parts of its country. It had to manage mass demobilisation of soldiers. It also wished to remain a world power, and that meant taking on roles like occupying part of newly-defeated Germany (which cost money). It took sizeable loans from the USA ($3.75bn) and Canada to help meet the immediate costs at the end of the war, adding to its debt.

That's a very quick overview.

Select bibliography:
R. Sayers, History of the Second World War, United Kingdom Civil
Series: Financial Policy, 1939–45 (London, 1956) (p.438. for Keynes's quote).
R. Skidelsky, John Maynard Keynes, Vol. III: Fighting for Britain,
1937-1946 (London, 2000)
D. Reynolds, The Creation of the Anglo-American Alliance 1937-41:
A Study in Competitive Co-operation (Chapel Hill, 1981)
I. Johnston-White, The British Commonwealth and Victory in the Second World War (London, 2017)
W.K. Hancock & M. Gowing, History of the Second World War, United
Kingdom Civil Series: British War Economy (London, 1975)

klawehtgod

While you wait for an answer that addresses your entire question, here is an answer that addresses how the USSR grew economically and politically in the years following WWII (actually it covers much more Russian history than that) written by u/tough_guys_wear_pink