Insurance as an instrument of government in time of war: King’s
enemy risks, marine insurance, and strategy in World War I
Luis Lobo-Guerrero
Keele University, UK
[email protected]
July 2010
Work in progress, please do not cite without the permission of the autor
Insurance could neither protect against destruction, nor make good the ships
and cargoes actually destroyed; but it could make the continuance of
commerce possible by safeguarding individual enterprise against the risk of
overwhelming loss through war perils (Hill 1927: 45)
The day Britain declared war on Germany on 4 August 1914, Chancellor of the
Exchequer David Lloyd George announced at the House of Commons the start of a
War Risks Insurance Scheme (House of Commons 1914). The scheme, originally
devised as a means to ensure security of food supply during times of war, allowed the
government of Prime Minister Alsquith (1908 - 1916) to control the supply of marine
insurance during the first two years of the international confrontation. In effect, the
scheme transformed the government into the British marine insurer and reinsurer of
last resort exercising control on routes and protecting insurance information. This case
constituted the first time the British government directly adopted a technology of
insurance to manage a war effort. Most importantly, however, it became the first
direct and explicit state/insurance partnership through which the British state assumed
the control of shipping by enabling the operation of maritime insurance under
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conditions of declared war whilst seeking to preserve the entrepreneurial spirit of
merchants, underwriters and bankers.
Maritime insurance, as will be expanded later, was a central element in the finance of
international exchange. A shortage in the supply of maritime insurance could amount
to the end of international credit for the United Kingdom. The case is most important
since by June 1914, the United Kingdom and its dominions controlled 36 per cent of
the total number of marine vessels in the world and the circulation of 42 per cent of
global tonnage (Lloyd's 1915). How the new maritime war risks insurance scheme
came into being and how it operated during the first two years of World War One is
part of the remit of this chapter. Its second objective is to explore how the
governmental insurantial role that derived from the scheme became the precursor of a
novel rationality of governance devised to collectivise the management of uncertainty
in times of war. As such, the chapter is used to analyse the constitution of a political
economy of risk management around the problem of marine supply risk under
conditions of war. The security economy that resulted from this problem is here
analysed as the implementation of a strategy that combined traditional elements of
sovereign power such as defence and diplomacy, political economic power in the
form of state finance and public credit, and elements of entrepreneurial power
including the economic interests as well as knowledge and expertise of merchants,
underwriters and bankers.
The effects of this strategy were biopolitical inasmuch as they were intended as a
means to preserve and promote the livelihoods and lifestyles of British populations
during the state of armed emergency. Whereas the study of biopower has traditionally
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been concerned with analysing the strategies through which governmentalities are
employed to operate on the lives of individuals and populations, the analysis of this
case will help understand the detailed elements and practices that can together be read
as a governmentality of war risk management as opposed to one of total war
management implemented from the end of 1916 with the government of David Lloyd
George in Britain. In this respect, the chapter also makes a contribution to the
understanding of the problem of governing uncertainty in times of war through the
preservation of liberal principles of free trade. These contributions will build up
throughout the text and brought together in the concluding section.
As expanded below, the scheme operated in the following way. With respect to hulls,
the government offered an automatic 80% reinsurance for any British ship insured by
a British underwriter grouped under the Liverpool and London War Risk Insurance
Association or the North of England Association (both grouping nearly three-fourths
of the British tonnage employed in overseas trade . In relation to cargo, a State
Insurance Office was established offering a flat rate for all merchant voyages on
British ships. These means were deemed necessary to ensure the survival of the
British insurance industry, to encourage merchant shipping during the war, and to
prevent insurance intelligence from falling into enemy hands through international
reinsurance arrangements (Marangos 2007; Miller & Talas 2007: 89).
The scheme also played a specific strategic role. By interacting with the Liverpool
and London War Risk Insurance Association, the Government could use shipping
intelligence to exercise control on routes and support the state’s strategic defence
plans. For example, on 9 March 1916 the Admiralty issued a notice to the Association
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that on or after 15 March all vessels proceeding to or from Atlantic ports and ports in
the Far East or Australia would use the Cape route, whereas ships proceeding to or
from ports in India would continue to use the Suez Canal (Halpern 1994: 386). This
case, analysed in detail later, is an example of the way in which the Government
influenced merchant shipping in light of the strategic imperatives of naval operations,
particularly in the Mediterranean, operating a sovereign moral economy of war.
A genealogy of the War Risk Insurance Scheme, however, uncovers a deeper political
economic problematic that underlies the incorporation of marine insurance as a
sovereign instrument of strategy. Discussions leading to the setting up of the Scheme
were based on the strategic concern of how to ensure the security of food supply in
time of war whilst maintaining a liberal polity where businessmen, bankers’, and
merchants’ independence was preserved as far as possible (Sub-Committee of
Imperial Defence 1914: 3). Food security, a traditional sovereign concern, had been
approached under market principles since the protectionist Corn Laws of the postNapoleonic Wars period were abolished in 1846 (see Schonhardt-Bailey 2006). Free
trade was assumed to provide the mechanisms to achieve the cheapest possible prices
on staple foods whilst ensuring an optimum allocation of the productive resources of
the country. However, under the context of the war in South Africa, food supply in
time of war had become a great national concern (Owen 1909). It was believed by
many that any international conflict involving one or more European powers would
severely affect the continuous supply of foodstuffs into the country. Debate on this
matter led to the formation of an association to promote an official enquiry into the
security of food supply in times of war. This association represented various classes
and interests in society. Through its representations made to Mr Balfour’s
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Government, the Prime Minister appointed a Royal Commission that met between
1903 and 1905 to study the problem. The Commission, where the Prince of Wales
(later King George V) served as a member, recommended a scheme of national
insurance or indemnity against the risk of capture to prevent higher insurance
premiums that would have a direct effect on the prices of food. Subsequently, a small
expert committee was appointed by the Treasury in 1907 to explore such scheme but
the Committee were ‘unable to recommend the adoption of any form of National
Guarantee against the war risks of shipping and maritime trade except that which is
provided by the maintenance of a powerful Navy’ (Hill 1927: 16).
In spite of the negative results of the Treasury Committee, the problem of food
security in times of war remained a prominent concern as evident in a debate that took
place at the Royal United Services Institute (RUSI) in 1909 (Owen 1909). The issue
was taken up again in 1913, this time at the highest governmental level by a
Subcommittee of the Committee for Imperial Defence. The Subcommittee, chaired by
Huth Jackson, a director of the Bank of England, was set up to ensure a practical
solution to the problem and involved the participation of notable people of the
financial sector, including the deputy Chairman of Lloyd’s of London. The report
recommended to the Government the setting up of the War Risks Insurance Scheme
as noted above and as will be explained in greater detail later.
In principle, the war risks insurance scheme translated financial expertise derived
from a well-developed private security technology of insurance into an instrument of
sovereign governance. The scheme enabled the British government to successfully
embark in the war effort between 1914 and 1916. However, the scheme is evidence of
5
an emerging rationality of government that will operate well into the second part of
the twentieth century. Such rationality merges a traditional threat-based understanding
of international security with one premised upon the capacity to calculate the
likelihood of occurrence of particular scenarios and their expected impacts on the way
of life predominant in the country. Whilst adopting what is now known as a risk
analysis approach for the study of a traditional sovereign security matter, the Liberal
Government of the time sought to preserve as much as possible the principles of free
trade and entrepreneurial initiative of marine underwriters, bankers, and merchants in
time of war, whilst ensuring that the State maintained the capacity to defeat its
enemies.
In reality, the scheme also operated as a security for international credit. Access to
affordable and reliable insurance was directly linked to the country’s possibility to
enjoy a credible financial standing in foreign markets, particularly in the United
States. If the shipping of vital supplies were to remain affordable to the country it was
of paramount importance to ensure a stable and affordable supply of maritime
insurance products at the outbreak of the war and throughout its duration. In light of
the heightened risks associated with a war, maintaining the price of insurance
premiums low became a priority since the ‘laying up’ of ships would affect the
maritime trade on which the war effort was supported.
The process that led to the adoption of the war risks insurance scheme, is however,
much more interesting. It details the negotiations between political and economic
actors, the wider imaginary under which the uncertainty that matter for the state and
the nation was made to matter in the form of risk, and the mechanisms through which
6
such uncertainty was rendered fungible –that is, amenable to trade and exchange- in
the form of insurable risks. Finally, the process also details the biopolitical effects of
this way of transforming uncertainty into an object of government. In what follows
these processes will be narrated and analysed in light of the emerging rationality of
governance that they supported.
Understanding the ‘New Liberal’ imaginary of risk management in time of war
The scheme analysed in this chapter as constituting a political economy of risk
management in time of war was the result of transformations in the liberal ideology of
government in early twentieth-century Britain. If ‘ideology be defined as actionoriented political theorizing’, as Freeden suggested (1986: 16), the Liberal
governments that took over from the Conservatives in 1905 reformulated some of the
basic assumptions of liberalism in a substantial way. Social insurance, the reduction
of power of the House of Lords, and a different appreciation of the individual and the
social were characteristics of an ideology that was presented as standing up to the
economic and social transformations of the time. As noted by Freeden,
[w]hereas classical liberalism fell neatly into line with Benthamite premises
regarding the isolated and autonomous individual, social activity being the
sum of free choices of rational individuals, new liberal thought operated under
a clearly different set of assumptions. The salient issue in the liberal
transformation was the awareness of the 'social' in addition to, and
qualitatively different from, the 'individual' and hence the coining of the
phrase “social utility” (1986: 13).
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The government was presented as facing the challenges of the socialist ideas of the
time by developing a different perspective to political economy. Such an approach
should be congruent with the social and economic transformations of the industrial
revolution and aim to improve the material conditions of the working classes through
the financial support of the state implementing a principle of solidarity. Discussions
of social reform for the New Liberals, for example through the thought of Hobson and
Robertson, focused on pushing political economy out of the academic world and
engaging in a wider dialogue with the ethics and politics of economic production
(Freeden 1986: 20). As argued by Freeden, ‘Ruskin's famous dictum, “there is no
wealth but life”, became the motto of the transformation’ (1986: 20). Moving the
analysis away from the economics of production, debate began to centre on
understanding the individual as consumer and on this base, re-thinking the wider
problem of distribution. This move was part of approaching economics as ‘an
instrument for realizing human values and social ends’ (Freeden 1986: 20). Issues
such as the redistribution of wealth through social welfare schemes were now to be
supported by a ‘qualitative and integrated approach to man’ (Freeden 1986: 20). In
order to achieve this, a central element of liberal thinking had to be challenged. The
free and self-regulating market that had guided liberal thought in great part of the
nineteenth century was to be re-understood in light of an increased awareness of
‘socio-economic ills’ (Freeden 1986: 20).
Such was the ideological context under which the problem of security of food supply
in time of war was being discussed. However, free trade remained a central element of
New Liberal thought and practice figuring prominently in the debates leading to the
8
War Risks Insurance Scheme. As noted in the following pamphlet entitled ‘Stick to
Free Trade’ used by the Liberals in 1914, free trade remained the preferred option to
seek low food prices in international markets.
The best thing a Government can do is to stick to Free Trade, and the only
Government that can be relied on to do this is a Liberal Government… As
long as we stick to Free Trade, we shall command the world’s food supplies at
the lowest price possible. This is the only thing that can be asked from any
fiscal system, and free trade is the only fiscal system that can give it (Liberal
Party 1914).
Undisturbed free trade, however, was a peacetime luxury. Under the strategic
international environment of 1914, and particularly after Germany had violated
Belgium’s neutrality which Britain had agreed to defend by the Treaty of London of
1839, Britain’s free trade had found a sovereign enemy. Seaborne communications,
both military and civilian, were to become a military objective. The disruption of
maritime trade to Britain was to become a chief strategic German priority. The price
levels of foodstuffs achieved in time of peace were to become a central concern to the
British government.
Seeking to ensure internal support for the war cause, particularly in terms of military
recruitment, the Prime Minister delivered a series of speeches in various British
capitals where he explained the reasons for the declaration of war on Germany. In the
following excerpts of the Edinburgh speech of 8th of September, Prime Minister
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Asquith focused primarily on the moral imperative to defend Belgium’s neutrality as a
matter of principle of civilisation, expressed in European public law.
We are at war for three reasons. In the first place, to vindicate the sanctity of
treaty obligations, and of what is properly called the public law of Europe; in
the second place, to assert and to enforce the independence of free States,
relatively small and weak, against the encroachments and the violence of the
strong; and in the third place, to withstand, as we believe in the best interest
not only of our own Empire but of civilisation at large, the arrogant claim of a
single Power to dominate the development of the destinies of Europe (Asquith
1914: 11-12).
In a separate speech delivered as an appeal to the nation on September 19th in London,
this time by Chancellor of the Exchequer Lloyd George, the British high moral
ground was combined with the relationship between European public law and credit.
What was at stake for the British Empire, in Lloyd George’s speech was the very
foundation of trade and commerce anchored on an international system supported by
European public law. As colourfully put by the Chancellor of the Exchequer, worth
quoting in full below, if European public law failed so would the instruments of credit
that supported the trading capacity of Britain.
It is the interest of Prussia to-day to break the treaty [to defend Belgium’s
neutrality], and she has done it. She avows it with cynical contempt for every
principle of justice. She says: “Treaties only bind you when it is your interest
to keep them.” “What is a treaty?” says the German Chancellor: “A scrap of
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paper.” Have you any £5 notes about you? I am not calling for them. Have you
any of those neat little Treasury £1 notes? If you have, burn them; they are
only scraps of paper. What are they made of? Rags. What are they worth? The
whole credit of the British Empire. Scraps of paper! I have been dealing with
scraps of paper within the last month. One suddenly found the commerce of
the world coming to a standstill. The machine had stopped. Why? I will tell
you. We discovered –many of us for the first time, for I do not pretend that I
do not know much more about the machinery of commerce to-day than I did
six weeks ago, and there are many others like me- we discovered that the
machinery of commerce was moved by bills of exchange. I have seen some of
them –wretched, crinkled, scrawled over, blotched, frowsy, and yet those
wretched little scraps of paper move great ships laden with thousands of tons
of precious cargo from one end of the world to the other. What is the motive
power behind them? The honour of commercial men. Treaties are the currency
of International statesmanship. Let us be fair: German merchants, German
traders, have the reputation of being as upright and straight- [until here page 5]
forward as any traders in the world; but if the currency of German commerce
is to be debased to the level of that of her statesmanship, no trader from
Shanghai to Valparaiso will ever look at a German signature again. This
doctrine of the scrap of paper, this doctrine which is proclaimed by Bernhardi,
that treaties only bind a nation as long as it is to its interest, goes under the
root of all public law. It is as if you were to remove the Magnetic Pole because
it was in the way of a German cruiser. The whole navigation of the seas would
become dangerous, difficult and impossible; and the whole machinery of
civilisation will break down if this doctrine wins in this war. We are fighting
11
against barbarism, and there is only one way of putting it right. If there are
nations that say they will only respect treaties when it is to their interest to do
so, we must make it to their interest to do so for the future (Lloyd George
1914: 4-5).
The connection of credit to the security of food supply was further explained by
Norman Hill, a member of the Sub-Committee for Imperial Defence on the Insurance
of British Shipping in Time of War. ‘A steady insurance market was essential in all
forward contracts. Credit was essential in the carrying out of all transportation, and
that could only be obtained on security’ (Hill 1927: 46). If the security afforded by
maritime insurance was restricted, so would the security of credit for the British state.
Based on this connection between European public law as the international legal order
that supported the balance of power theory, and the operability of international credit
instruments such as bills of exchange, the possibility of offering low prices on staple
foods to the British people based on free trade principles was seriously challenged.
The Royal Navy, having enjoyed ‘command of the ocean’ throughout most of the
nineteenth century was now being rivalled by other navies (Halpern 1994). The pax
Britannica was challenged by naval developments of recent decades. The change
from sail to steam, and the development of cable and wireless communications, were
joined by the development of the torpedo and its tactics as well as by new ideas on
commerce warfare against British maritime trade by the French and the German. In
spite of advanced technological and administrative transformations undertaken by the
Royal Navy in terms of capabilities and organization (see Halpern 1994: chapter 1),
the Germans presented a credible and growing threat. Nobody at the beginning of the
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war could anticipate the developments of submarine warfare that were to transform
British naval supremacy, particularly in the Atlantic. Considering that 80 per cent of
British food supplies depended on seaborne trade (Royal Commission 1905), the
Royal Navy was not in a position to guarantee open and undisrupted sea lanes for the
maritime commerce of Britain and its allies. With 36 per cent of the total number of
marine vessels in the world and 42 per cent of the global tonnage (Lloyd's 1915), the
risk of capture or destruction by enemy fleets could no longer be embraced. However,
raids on maritime commerce were an old naval practice. What was new was the
impact they would have on a nation that depended on five sixths of its foodstuffs from
it. As noted by Hill,
[t]he policy of attacking the sea-borne trade of an enemy is no new thing. It
has always played an important part in maritime warfare, and therefore the
problem of the defence of our oversea trade had increased, until from the time
when we as a nation had to maintain that trade that we might prosper, we have
now to maintain day by day that trade to enable us to live (Hill 1927: 11).
The security provided by the Royal Navy had to be combined by a risk management
strategy aimed at compensating for the risks incurred by shipping in time of war, as
the following figures from the end of the war attest. British losses from belligerent
action and other marine risks from the beginning of the war to October 31, 1918,
amounted to ‘a little less than one half the country’s registered total for the year 1914’
(Berglund 1926: 645). According to the 1919 Lloyd’s Register of Shipping, the UK
registered a reduction of 12 per cent of its shipping tonnage compared to 1914
(Lloyd's 1919).
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Tackling uncertainty of food supply through a sovereign marine insurance
scheme
In light of the growing reality of the German threat, the basic political economy
discussion prior to the war centred on the need to adopt or not some form of state
scheme against war risks at sea. The challenge was how to keep the nation trading and
the population fed at acceptable prices whilst the state waged war against its enemies?
In other words, the policy question was how to ensure that the supply chains and
credit of the nation, required for feeding the population and for satisfying the
industrial demand of commercial and military production, suffered as little
interruption as possible during the international hostilities? Not being able to cope
with the German threat solely through traditional military/naval and diplomatic
means, the challenge was to find a mechanism through which maritime losses could
be managed in a sustainable manner.
The process that led towards the adoption of the War Risks Insurance Scheme began
in the late 1890s. On April 6, 1897, under the context of the Conservative government
of Lord Salisbury, the following resolution on the motion of H. Seton-Karr and
seconded by R. Yerburgh, conservative member for Chester, was passed by the
Government:
That, in the opinion of this House, the dependence of the United Kingdom on
foreign imports for the necessaries of life, and the consequences that might
arise therefrom in the event of war, demand the serious attention of Her
Majesty’s government’ (quoted by Seton-Karr 1897: 651).
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Arthur Balfour, as the leader of the house, accepted the resolution on behalf of the
Government by stating,
[i]n the final resort, of course, our security rests upon the navy, and the navy
alone, and if we have a navy adequate to protect our coasts, though the price
of bread might rise to an alarming extent, and there might be difficulties and
embarrassments, and the pinch of want might be felt, we need have no fear
that we shall be starved into submission by continental nations. … I, both on
my own behalf, and on behalf of the government, frankly accept the
responsibility which the resolution throws upon us, and I heartily accept also
the proposition that the strength of our navy shall be equal to the defence of
our commerce as well as of our shores (emphasis added, quoted by Seton-Karr
1897: 651).
Political debate around the issue of security of imports in time of war had already
been a constant concern in the preceding decades and spiralled in the context of the
Boer Wars. The general terms of the resolution, however surprising, were in the
opinion of Seton-Karr ‘intentionally framed… as the main point was to obtain a
government inquiry’ (Seton-Karr 1897: 652). He summarised the problem in the
following way:
The facts of the case on which the resolution is founded are not a matter of
controversy. The dependence of the United Kingdom of Great Britain and
Ireland on foreign imports for the necessaries of life is now a well-known and
15
established fact. In addition to five-sixths of our breadstuffs (wheat and flour),
we import such articles as butter, eggs, cheese, meat, fruit, sugar, vegetables,
milk, lard, as well as oats and barley, in large and increasing quantities each
year, the money value of our yearly imports of food being now put at
£150,000,000 (Seton-Karr 1897: 652).
Of breadstuffs alone, for which a reliable, sufficient and affordable supply was
expected ‘particularly for the wage-earning millions in the great industrial centres of
the United Kingdom’, nearly 68 per cent was being imported by 1897 from the United
States, Russia, and the Argentine Republic and 14 per cent from the rest of the British
Empire (Seton-Karr 1897: 653). Supply, in his words, ‘never exceeds three month’s
… , and frequently sinks as low as one month’s … or less’. As published in official
statistics of that year, reserves that January were less than three weeks (Seton-Karr
1897: 653). According to the report of the Royal Commission on Supply of Food and
Raw Material in Time of War of 1905, breadstuffs stock in the UK would last about
four weeks if supply was to be interrupted (Royal Commission 1905: 13).
It was widely recognised in the informed public opinion of the time that the security
of food supply in time of war was intimately related to the availability of maritime
insurance. As a French report cited in an article of The Daily Graphic of April 15
1897 by Seton-Karr, noted,
[t]he cause of England’s greatness will be a cause of weakness to her in war.
Her daily life, her essential interests, are subordinated to the arrival and
departure of her merchant shipping … At the simple menace of a conflict with
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a great maritime Power the rates of insurance would rise to enormous figures
(Seton-Karr 1897: 657).
The House of Commons resolution of April 6, 1897 expressed the concern as a
problem of price of food in case of a war with continental powers. However, political
worries were wider than this and encompassed the possibility of riots and the
sustainability of trade within market economic principles. Imports of food from the
cheapest markets had been actively promoted during the previous decades. As a
result, domestic agricultural production suffered from cheap labour abroad and the
operation of a trading empire supported by naval supremacy at sea. The reality of war,
the threat to Britain’s international credit, the worry about internal riots, and the new
naval circumstances moved the debate to find a ‘business as usual’ solution to the
problem. However, under the current conservative government there seem to be no
agreements either on facts or on the political urgency for a solution.
However, the Boer War in South Africa had highlighted the dependency of the
Kingdom on overseas food and there was pressure to raise the matter beyond political
affiliations. As noted by Hill, in the statement issued upon the formation of an
association formed to promote an official enquiry into the security of food-supply in
time of war, ‘more than three-fourths of our population was dependent upon food
which was imported from abroad, and therefore liable to capture on its way to our
shores in the event of a war between Great Britain and any of the Great Powers’ (Hill
1927: 13). Ceding to pressure, Lord Salisbury as Prime Minister appointed a Royal
Commission in 1903 to look into the matter. The (Hill 1927: 13).
17
The Royal Commission reported on the dependence of the Kingdom on overseas trade
to provide staple food. At the same time it highlighted the geographical distribution
and diversity of overseas supply which meant that if a source failed another would
take its place. The Commission concluded that ‘not only is there no risk of a total
cessation of our supplies, but no reasonable probability of serious interference with
them, and that, even during a maritime war, there will be no material diminution in
their volume, unless we lost command of the sea’ (Royal Commission 1905: 14).
However, a point was made about the risk of ‘public panic’ arising from a potential
rise in the price of food. This issue was to become a crucial aspect of further
discussions leading to the creation of the War Risks Insurance Scheme. As noted in
the Commission’s report,
We do not […] apprehend that any situation is likely to arise in which there
would be a risk of the actual starvation of our population into submission. But
we do regard with much concern the effect of war upon prices, and especially
therefore on the condition of the poorer classes; for they will be the first to feel
the pinch, and it is on them that the strain of increased prices would chiefly
fall. We do not, however look with any great alarm on the effect of war upon
prices, so far as concerns what we have referred to as the economic rise of
prices, i.e., the increase likely to be produced by the enhanced cost of transport
and insurance in time of war. We consider that the addition to the price of
commodities under this head will be covered by a moderate percentage on
their ordinary cost, and we believe that even this moderate increase might to a
large extent be obviated by the adoption of a scheme of National Indemnity
(Royal Commission 1905: 59, par. 253).
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At the same time it seems to us that it would be unwise to disregard the
dangers that might accrue from what we have described as the ‘panic’ rise of
prices of staple articles of food, which might take place in the excitement sure
to be caused by the outbreak of a great maritime war. No doubt the rapid
spread of accurate information would tend to prevent any considerable
duration of a rise due solely to panic, and we may assume that the greater the
rise of prices the greater would be the exertions made to pour in supplies. But
it can hardly be doubted that much suffering would be caused if the rise in
prices was sudden in its inception, and more especially if it were to continue
over any lengthened period of time; and we cannot disregard the possibility
that it might result in danger to calmness and self-possession, just when those
qualities would be of the greatest importance (Royal Commission 1905: 5960, para. 254).
The report closed with the following paragraph which denotes its preference for a
scheme of national indemnity to protect the availability of credit and insurance in
times of naval warfare.
We look mainly for security to the strength of our Navy; but we rely in only a
less degree upon the widespread resources of our mercantile fleet, and its
power to carry our trade, and reach all possible sources of supply wherever
they exist, and we believe that a guarded and well-considered scheme of
National Indemnity would act as a powerful addition to our resources, because
it would tend to keep down the cost of transport and therefore go far in the
19
direction of preventing high prices in time of war, while at the same time it
would be a stimulus to the enterprise of British Shipowners (quoted by Hill
1927: 16).
It is worth noting at this stage that the Commission did not prioritise the effect that a
maritime blockade could have on the availability of credit. As noted by Hill, who was
not a member of the Commission but of the later Sub-Committee of Imperial Defence,
‘[t]his risk was even greater than they foresaw, because they had not clearly before
them the fact that owing to the colossal proportions to which the volume of trade had
grown during a century of unprecedented expansion, the movement of goods in transit
had become dependent on credit provided by banks and discount houses (Hill 1927:
14). The threat to the availability of credit became a primordial concern if the security
of trade was to be ensured during a period of maritime hostilities. As further
explained by Hill,
Under the conditions of modern commerce, by far the greater proportion of the
cargoes at any time afloat belong not to the producers, the merchants, or the
consumers, but to the financial interests who have discounted bills of
exchange representing the purchase price of the goods, and who hold as their
security the bills of lading and policies of marine insurance. Under peace
conditions there is not more attractive opening offered for the employment of
capital. The security against all ordinary trading risks is ample, because the
advance is repaid out of the selling price of the goods on the completion of the
voyage, if the goods be lost, out of the insurance money (Hill 1927: 15)
20
The report of the Royal Commission was received by the new Liberal Government
who took office as a minority government in 1905 and was then confirmed in the
general elections of 1906. A major concern then was to address the problem of public
‘panic’ in food prices referred to in the Commission’s report. In order to explore the
Report’s recommendation that suggested that ‘a small expert committee should be
appointed to investigate the subject to frame a scheme’, a Treasury Committee was
established in 1907 headed by Austen Chamberlain. The Committee showed concern
about the financial responsibilities that such a scheme would entail and the
administrative difficulties of running it. Based on evidence provided by witnesses, the
final report stated that the scheme was not required since the commercial insurance
industry could afford the risks, as it had done in the past, and that the State lacked the
technical experience to differentiate fraud from legitimate claim and therefore did not
have the administrative capacity to run the scheme. They also argued that due to the
unknown financial consequences it was not feasible for the State to contemplate such
a system.
This obstacle was one that would be remedied, by a later recommendation of the SubCommittee of Imperial Defence, through the agency of the existing shipowners
associations. As a result of war losses during the Spanish-American and the RussoJapanese wars, insurers had begun to find it difficult to provide continuous cover for
maritime trade during international hostilities. To compensate for the difficulties of
obtaining insurance cover once war had started, shipowners began to organise
themselves following the example of the North of England Protecting and Indemnity
Association established in 1899. In 1912 the London and Liverpool Shipowners
Associations were established, and together with its older sister provided indemnity
21
cover for ‘nearly three-fourths of the British steamship tonnage employed in our
oversea trade’ (Hill 1927: 18).
Having the Royal Commission in 1905 highlighted concerns about public panic
arising from the rise of food prices at the outbreak of war, and having the Treasury
Committee identified in 1907 the operational difficulties to implement the indemnity
scheme recommended by the Royal Commission, official debate stalled until 1913.
However, informal debate was far from over. On 10th of November, 1909 Douglas
Owen, a recognised barrister and authority in maritime law (see Owen 1889),
addressed the Royal United Services Institute on the issue of ‘our food supplies’. The
lecture was chaired by Sir Gerard Noel, Admiral of the Fleet who had previously
served in the Royal Commission. Owen’s address was intended to explore the issue of
‘whether there are not, in fact, means of securing or increasing food supplies and of
greatly reducing the risk of panic, to which means no reference is found in the [Royal
Commission’s] Report at all’ (Owen 1909: 1553)? His proposition was one of force,
that in case of an emergency, ‘we should seize any neutral wheat passing our shores,
giving notice of our intention and of its justification, and declaring our willingness to
pay a fair price for the food and to compensate the carriers’ (Owen 1909: 1558). He
then quoted Bismarck, speaking in 1886 on the Polish question: ‘Neither in peace nor
in war could a nation, which is fighting for its existence, follow ordinary rules of
conduct. Emergency rights could be asserted by a State when its very existence was
imperilled’ (Owen 1909: 1558).
Such a position, however, was not to be the desired course of action of the Liberal
government who would rather seek an alternative that would preserve the
22
entrepreneurial drive of merchants, bankers, and insurers and reinforce the standing of
European public law. In May 1913 a Sub-Committee of the Committee of Imperial
Defence (CID) was appointed by Prime Minister Asquith, to revisit the debate. The
membership of the Sub-Committee combined political, technical, and administrative
expertise: Huth Jackson (a director of the Bank of England, at the chair); Lord
Inchcape; Sir Norman Hill, Secretary of The Liverpool Steam Ship Owners’
Association; Sir Raymond Beck, deputy Chairman of Lloyd’s of London; and Arthur
Lindley. As part of the CID it had only an advisory role and its recommendations
could only be considered as input for policy-making (see Ason 1926; MacKintosh
1962). Its remit was
to consider without prejudice to the question of a policy, whether an
administratively practical scheme can be devised to secure that, in case of war,
British steamships shall not be generally laid up, and that oversea comer shall
not be interrupted by reason of inability to cover the war risks of ships and
cargoes by insurance, and which will also secure that the insurance rates shall
not be so high as to cause an excessive rise of price. Any scheme prepared
must be on the basis of reasonable contributions being paid by the owners of
ships and cargoes towards the cost of insurance (quoted in Hill 1927: 19).
In its report of April 30, 1914, the Sub-Committee suggested that the problems
identified by the Treasury Committee in the scheme recommended by the Royal
Commission should be compensated by shipowners’ contributions towards a national
insurance scheme. The problem was then to provide some form of metric upon which
such ‘reasonable contributions’ could be made. It was impossible to estimate the
23
possible captures or damage inflicted by the enemy, but it was possible to assess ‘the
extent of the liabilities the scheme would impose on any percentage basis of captures
the Admiralty thought necessary to assume’ (Hill 1927: 20). In the opinion of Norman
Hill, following the discussions of the Sub-Committee,
[the] unknown financial liabilities which had frightened the Treasury
Committee were not of a very formidable character, for even an assumed loss
in six months of five per cent of all British steamships employed in foreign
trade, and of the cargoes carried in those ships, would be covered by a charge
of slightly exceeding one per cent on the total values of such cargoes (Hill
1927: 20).
Based on that assumption, the Sub-Committee’s main discussions centred on deciding
which course of action would be optimum. On the one hand there was the possibility
of having the state assume responsibility for losses at sea without charging for it. This
constituted a form of indemnity. On the other, it was possible to think of the State as
assuming responsibility whilst charging for a premium thereby providing a form of
insurance. Hill argued that ‘both schemes were based on the same principle, and in
application they would both throw, in the one case directly, and in the other indirectly
through the premiums, the burden of the war risks on those dependent on our oversea
trade, that is to say, the nation at large’ (Hill 1927: 12). However, the differences of
both schemes are far from subtle, not least in terms of the moral economies that would
derive from them. An indemnity scheme operates a technology to compensate for
damage whilst an insurance scheme operates an entrepreneurial scheme, that whilst
providing resources to compensate for damage, profits from the collection of
24
premiums to multiply the availability of what could be called ‘reparational capital’.
Whereas both operate a principle of responsibility, the latter has the added advantage
of multiplying capital in the process of managing risks.
In light of the terms given to the Sub-Committee, which established that the proposal
must ‘secure for the State the advantages of the active and interested cooperation of
the Mutual Associations’ (Sub-Committee of Imperial Defence 1914 paragraph 4), it
was decided that any insurance on hulls should be provided by the Mutual
Associations themselves and 80 per cent of all premiums would be automatically
reinsured by the State. In this way various objectives would be achieved. First,
insurance at affordable prices would be provided at the outbreak and for the duration
of the war. Second, since membership of these associations was contingent on the
collective share of losses, underwriting concerns such as moral hazard and adverse
selection would be reduced to a minimum. Third, because the private/public nature of
the insurance scheme meant that a member of the Treasury and of the Admiralty
would sit at the board of the Associations, it would be possible to maintain
communication on the performance of the scheme. Moreover, it would contribute to
the settlement of claims, as noted below:
We make provision for the State to be represented on the Committee of each
Club or Association. Claims will be dealt with and settled by the Committee of
the Club. But if the State’s representative on the Committee should protest
against a proposed settlement, the liability of the State will have to be settled
(failing agreement to refer to arbitration) by the Courts of Law’ (SubCommittee of Imperial Defence 1914: paragraph 35).
25
Fourth, since the State would reinsure 80 per cent of all maritime policies, it could
use strategic intelligence to inform and/or re-direct maritime circulation around the
globe when required, as will be noted in an example below. Fifth, since the
underwriting of hulls would be conducted by the Associations, the State could offer
flat rates for the insurance of cargo reducing administrative burdens and the costs of
underwriting. By controlling the movements and circulation of the ships themselves
allowed the Government to create a State Insurance Office, with the support and
expertise of the maritime insurance industry, to cover freight.
The issue of State control of shipping through this scheme deserves some detailed
analysis because of the moral economies it instantiates. In the report of the SubCommittee it was registered that it was felt,
–not only by us, but also by the Managers of those Mutual Associations who
appeared before us- that as the State, under the arrangements suggested, would
be taking such a large proportion of the risks after the outbreak of a war in
which we were a belligerent, the movements of all ships thus insured should
be subject to the control of the Admiralty. It was therefore agreed that words
should be introduced into the new policies providing a warranty that after the
outbreak of war every ship shall, so far as possible, carry out any orders that
the Admiralty may give in regard to their routes, ports of call, and stoppages.
If, however, they fail to carry out those orders, they will not lose the benefit of
insurance, provided the assured can satisfy the Committee of the Club that the
breach of orders happened without the fault of privity of the assured and of the
26
owners and of the managers of the ship. But, even then, we think the
shipowner should be liable to some penalty, and we suggest that the State
should require that the rules of every approved Club contain provision for an
appropriate penalty. This might take the form of the levy of an extra premium
payable by the Member to the Club on the insured value of the ship in which
the breach has taken place, or it might take the form of a deduction in the
settlement of a claim of an amount to be fixed, within reasonable limits, by the
Committee of the Club, or, in extreme cases, the Committee might have the
power of expelling of a Member from the Club.
It would not be possible for the Club to impose penalties upon the Master of
the ship who deliberately disobeys the orders of the Admiralty, but we are of
opinion that this might be made an offence with an appropriate penalty, under
the Act sanctioning the scheme’ (Sub-Committee of Imperial Defence 1914:
paragraph 20).
The particular issue of insurance of cargo on voyages already under way at the
outbreak of war deserved special attention since it would not be automatically covered
by the 80 per cent State reinsurance on hulls. It was agreed that if shipowners at the
outbreak of war instructed their ship masters to call on the closest neutral port in order
to protect their risks on the value of cargo under shipment, the objective of
maintaining British shipping in circulation at time of war would not be achieved. As a
remedy the Sub-Committee recommended that the State Insurance Office, to be
created under the Scheme, would issue State policies to back those policies that the
private insurance industry would invalidate at the outbreak of war (Sub-Committee of
27
Imperial Defence 1914: paragraph 62). The rationale for this particular move was
mainly financial. The proof of insurance on cargo would be required as a condition
for credit by banks and this was to become a cornerstone of the security apparatus at
stake (Sub-Committee of Imperial Defence 1914: paragraph 69). No insurance, no
security, no credit, no voyage, no trade, no revenue, no economy, no taxes, no
shipping, no possibility of overcoming the war and winning it. If shipments at the
outbreak of war were not protected in their insurance, ships will be laid at neutral
ports without major incentive to continue trade for Britain.
War risks clubs, such as the North of England, the Liverpool and London War Risks
Insurance Association, and the London Group (representing six different shipowners
associations), were central to the operation of the scheme. For voyages already
underway at the outbreak of war, ‘each Club held all its members insured against
King’s enemy risks up to the values at which the vessels were entered, and the State,
as re-insurers, covered the Club up to 80 per cent of the liabilities they so assumed’
(Hill 1927: 26). For voyages starting after the outbreak of war, Clubs offered their
members facilities for insurance against King’s enemy risks ‘up to values and
premiums, approved by the State, and the State as re-insurers covered at the same
rates of premium 80 per cent’ of all insurances effected with the Club (Hill 1927: 26).
Members could opt to insure in the open market or to run the voyage without
insurance, in which case credit would be a problem for them. It was however a
condition of the insurance of cargo under the Scheme ‘that the vessel carrying that
cargo must be insured in one of the Clubs’ (Hill 1927: 26). If the vessel was not
insured its cargo would not be covered by the Government cargo reinsurance scheme.
28
The conduct of shipowners was constrained by the operation of the scheme to a great
extent. Conditions of membership in the Club depended on the members’ willingness
to accept common liability of losses incurred by fellow members. As noted by Hill,
‘[w]hether the member used the insurance facilities or not he remained liable to pay
any calls the Club might have to make, if the Club’s 20 per cent of the losses
exceeded the Club’s 20 per cent’ (Hill 1927: 26). This, added to the fact that
representatives of the Admiralty and the Board of Trade were made members of the
Club’s committees, and that they did exercise their right to examine the books and
documents of the Clubs, ensured quite a direct control over the movement of ships
and by extension, cargo. For example, as noted by Hill,
Certain risks were, from time to time, excluded by the Government from
insurance under the Scheme, as for example Baltic and Black Sea voyages
throughout the war, and to certain Scandinavian ports at different periods
during the war. The Clubs issued no policies in respect of these excluded
voyages (Hill 1927: 31).
Another example illustrates the case. By February and March 1916 the Mediterranean
had become a much more dangerous area for British shipping as the result of the
success of German U-Boat sinking military and civilian transports. This forced the
Admiralty to issue
a notice through the Liverpool and London War Risks Insurance Association
that on or after 15 March vessels proceeding to or from Atlantic ports and
ports in the Far East or Australia would use the Cape route, whereas ships
29
proceeding to or from ports in India would continue to use the Suez Canal
(Halpern 1994: 237-38).
On the 11th of December that same year,
the Admiralty prohibited insurance from being issued to ships entering the
Mediterranean unless they were provided with a special license that was
normally given only to ships carrying cargo to Mediterranean ports or using
the Suez Canal while proceeding to ports in India west of Colombo. This had
the effect of shifting shipping for Calcutta, Madras, Rangoon, and other Bay
of Bengal ports to the Cape route. Once again, as with earlier measures
shifting the Far East trade to the Cape, the disadvantages of reduced carrying
capacity because of the longer route were offset by the reduced risk (Halpern
1994: 389).
Influence of the Admiralty and the Treasury on global shipping also extended to ships
of neutral countries. Neutral countries shipowners had as a condition to access the
scheme ‘agree to instruct their masters to comply strictly with all orders given by
British authorities regarding sailing, ports of call, routes, etc’ (War Cabinet 1917: 6).
In this way the scheme would become an instrument through which the flow of
neutral shipping could be steered by the British authorities. The conditions excluded
‘any claim arising from capture, seizure, arrest, restraint, or detainment except by the
enemies of Great Britain’ (War Cabinet 1917: 6), ensuring that cargo and hulls were
strictly related to supplying maritime trade to Britain. As the direct insurer, the British
government would collect detailed information on the ships and shipments since
30
applications for the scheme had to be made by the owner’s representative in Britain at
the Commercial Union Assurance Company, at the Royal Exchange in London
providing full details of the cargo to be carried (War Cabinet 1917: 6). It was
suggested at the War Cabinet meeting that the government of France and Italy ‘be
informed of the action taken and asked to share in costs of the insurance scheme and
generally adopt measures similar to those taken by His Majesty’s Government’ (War
Cabinet 1917: 5).
The original idea of the government was to keep premiums as low as possible in order
to stimulate the flow of traffic. However, as a result of wartime inflation on the value
of vessels, valuations were increased by 20 per cent on 10 March 1915 and later by 30
per cent on January 3rd 1916 (Committee for Imperial Defence 1923: para 34; cited in
Doughty, 1982: 118). As a consequence, the Government realised it was not obtaining
sufficient sums in premiums to compensate for losses and the requisitioning of ships
began to erode the financial basis of the Associations (Doughty 1982: 118).
The operation of the scheme in relation to cargo was somewhat different. At the
outbreak of the World War ‘it was found that the Open market was entirely unable to
deal with the cargoes then afloat. Only a small proportion were insured against war
risks, the market was timid and narrow, and such rates as were quoted were
prohibitive’ (Hill 1927: 34). The implications of this shortage were made more acute
with the demands on shipping for war purposes. As narrated by Hill,
[e]ven with credit available, the position was one of extraordinary difficulty.
The sources from which we had obtained from the continent of Europe nearly
31
20 per cent of our imports were closed, and we were left almost entirely
dependent on the supplies which could only be brought in by the larger vessels
on ocean voyages. On the declaration of war, nearly 20 per cent of the British
ocean-going steamship tonnage was taken up for war purposes, and the
tonnage so employed went on increasing until the proportion reached 25 per
cent. The war created conditions on the sea and in the ports under which
voyages were protracted, and the time spent in port was lengthened, with the
result that at least five ships were needed to do the work that had been done by
four under peace conditions (Hill 1927: 46).
As a result, the State Insurance Office provided the insurance of ‘about 27 per cent of
the total value of the cargoes carried on British ships during the war. The balance of
the value, about £5,800,000,000, was insured in the Open Market, and the loss ratio
was probably well under three per cent’ (Hill 1927: 44). The system began working
from the 4th of August 1914 until August 1917.
By February 1917 the German government proclaimed that their new submarine
campaign may have effect on neutral countries. The British government considered
that the proclamation would cause anxiety among shipowners with regards to
insurance as well as cause premium rates to rise excessively. As a consequence, the
British government began to offer direct insurance to neutral countries’ shipowners.
Insurance was provided ‘on the hulls of neutral vessels engaged in carrying essential
cargoes, such as foodstuffs, munitions, material for munitions, and coal, to Allied
ports’ (War Cabinet 1917: 5). Values to be insured were fixed depending on the age
of the hull and based on gross registered tonnage. Premiums for freight were fixed
32
based on the voyage; for example, United Kingdom to north coast of France, two per
cent; America to French Mediterranean and Bay and to the west coast of United
Kingdom, three and half per cent, etc (War Cabinet 1917: 6).
The scheme operated under the assumption that there would be an effective command
of the sea: ‘not an absolute command, because it was recognized that that was an
impossibility, but such a command as would assure a reasonable probability of the
trading ship being able to complete its voyage’ (Hill 1927: 25). The scheme operated
successfully between August 1914 and early 1917. However, German submarine
warfare ignoring traditionally accepted prize rules (see Owen 1905), transformed the
security context under which the state reinsurance and insurance scheme operated.
The Royal Navy had by then lost control of under-water-warfare around the coasts of
the United Kingdom. The first six months of 1917 therefore forced a transition from
commercial to State control of international shipping and trade where the stateinsurance industry partnership of the Scheme was transformed into a state-led war
economy (Hill 1927: 25).
The government entered the war with a clear policy of non-intervention in
commercial affairs for as long as it could, and of doing so only inasmuch as was
strictly necessary. The policy proved difficult to sustain during the war. As Doughty
describes, the problem of restricted provision of shipping for certain routes began to
affect the import of specific products which were necessary for the subsistence of the
nation and for supporting the war effort. To enable state intervention in commercial
affairs, for example through the requisitioning of ships to cover certain routes, and
also as seen in the case of the War risks scheme, the government included the
33
participation of very influential industrial names in its cabinet. This fact is particularly
important for understanding the shift in the imaginary of managing collective
uncertainties, a shift from a very well-engrained principle of mutuality, for one of
solidarity.
By January 1916 the state policy of non-intervention in the commercial
direction of merchant ships stood in tatters, and there can be little doubt that it
should have been abandoned entirely at this ministerial talent from swamping
the decision-making process, since ministerial rank no longer entitled the
holder to a role in that process. A further vital advantage of the adoption of the
War Cabinet system was that it allowed the new ministers to be chosen
without regard to political experience. Therefore, they were large drawn from
industry – Maclay (shipping) was a shipowner, Devonport (Food) was a
wholesale manager, Neville Chamberlain came to National Service from
Birmingham, and there were Geddes, Northcliffe, and, at Information,
Beaverbook. Such appointment not only provided government with a wealth
of practical experience it could have obtained in no other way, but they
smoothed the introduction of state control by reducing commercial distrust of
the stat’s competence. It would be no exaggeration to say that most of the
success of state intervention in 1917-18 derived from the enlistment of
industrial leadership and cooperation, of which these appointments were the
most striking example (Doughty 1982: 28).
Biopolitical Effects of the War Risks Insurance Scheme
34
This chapter narrates and analyses a process whereby a traditional rationality of
security that proceeds through the identification of threats, their management, and
eventual destruction, begins to be taken over by a rationality of security premised on
its capacity to understand threats as risks. By means of applying an imaginary of
uncertainty to the management of a problem of food supply in times of war, the
Alsquith government generated a scheme that allowed the government to embark on
the war effort as a strategic business enterprise. The details through which such an
approach was possible have been documented in the previous sections of this chapter,
in particular revealing the processes through which the threat was transformed into a
risk by developing the metrics and adopting the forms of knowledge required to treat
it as an insurance issue. Making the maritime war risk insurable was then a technical
matter that brought together the state apparatus with that of the private insurance
sector.
The very fact that the scheme came into existence, however, should not be taken
lightly. The introduction of the War Risks Scheme was not a simple issue. The
scheme itself contradicted decades of political economic policy and the very ethos of
the shipping industry, an industry characterised by its independence from the state, as
the following paragraph by Doughty describes.
If it is possible for a complex industry to be described in a single phrase, the
shipping industry in 1914 was characterised by the concept of the traditional
freedom of the shipowner to employ his tonnage in whatever trade and to
whatever purpose he wished. In so far as this freedom was curtailed it was
through the operations of commercially controlled regulating bodies, such as
35
the system of liner conferences, but the state had no part in this. So far as the
state was concerned, the owner could use the ship as he pleased, providing he
conformed to the regulations concerning the vessel and her crew. The accepted
view in 1914 was that the industry was self-regulating – that the importance of
the demand for a particular commodity could be measured by its ability to pay
for its transport, and that, in the constant competition for transport of the
capitalist market place, those commodities which would not receive transport,
(because of their inability to pay for it and still sell at an economic price),
would be those least required by the nation. In such circumstances there was
not only no need for the state to concern itself in the direction of ships to
cargo, but such intervention would have unbalanced the system had it occurred
(Doughty 1982: 18).
World War One and in particular the naval threat posed by the German Empire to the
security of supply of the United Kingdom through its doctrine of submarine warfare
against commercial seaborne trade changed the trading environment for the nation.
Against the alternative of resorting to a war economy model whereby the state would
requisition the necessary ships and centralise the supply and distribution of vital
goods –as the following Lloyd George government did-, the Asquith government
opted for a business-as-usual approach. As an extension of a new liberal ideology that
sought to promote the entrepreneurial spirit of the private sector the public/private
partnership of the War Risks Insurance Scheme was presented as a novel way of
waging war in a liberal manner. Although the scheme was modified after the new
government took office in December 1916, the experiment highlights various aspects
36
that help understand a very clear relationship between insurance as an instrument of
government in times of war.
First, the scheme enabled the operation of the private entrepreneurial spirit in times of
war. Through an ideology premised on free trade, the problem of security of food
supply in times of war was initially imagined by the New Liberals as a problem of
efficient and economic allocation of resources for which free trade was seen as
offering the best of models. The problem was then how to enable such a rationality of
exchange when the context of international war, in which the Royal Navy could not
guarantee secure sea lanes, constrained the free circulation of goods and services. The
solution was found in combining the capital, forms of knowledge, know-how, and
expertise of the private sector –in this particular case of merchants, underwriters, and
bankers-, with the financial and intelligence capacities of the state. The resources of
the private sector were seen as ideally-suited for dealing with the logistical challenge
of supply and distribution of goods under a context of international war. It was
believed that by enabling the operation of private entrepreneurship in supplying the
goods for the nation, acceptable prices of basic foodstuffs would be ensured. By
allying the financial capacity and the intelligence resources of the state with the
entrepreneurial spirit of the merchant it should be possible to overcome the economic
emergency of the state of war through liberal means. However, as noted in the debates
leading to the scheme, this understanding of free trade and faith in free trade was far
from unanimous. The process indicates the transition from an overwhelming trust on
the capacity of the Royal Navy based on its uncontested command of the ocean of
almost a century, to one in which free trade could be enabled through sovereign
37
support and guarantees as a solution to the domestic economic challenge posed by the
war.
Second, the main driver for the scheme, as evident in the early discussion on the need
for such a strategy, was to prevent panic in the population around the prices of basic
foodstuffs. Although this chapter only touches on the issue of panic, once governance
relies on biopolitical strategies that take as their object of power the life of individuals
and populations, panic becomes a direct threat to an order that depends on the success
of such strategies on conducting behaviour. Panic represents irrational behaviour, a
return to ‘raw’ selfishness and therefore a state in which the individual precedes over
the social, a direct challenge to biopolitical governance. Moreover, panic represents
the absolute short-sightedness of decisions, individuals reacting to information
without taking into account the collective consequences of their actions which
constitutes a challenge to the very idea of liberal governance which seeks to
accumulate capital as investment towards a future productive capacity of the
population. However, what appears to be a simple concern with public panic begins to
profile an understanding of the relationship between liberalism and war in the
twentieth and later twentieth century where it has been widely argued that liberalism
and war are deeply implicated. This implication, however, is not as simple as the
extrapolation of a rationality of threats and its economies of fear, as has been
traditionally argued by realist scholars within the discipline of International Relations.
As the case analysed in this chapter illustrates, a relationship between liberalism and
war in the twentieth century begins with a radical transformation of the rationality that
wages industrial war in the name of free trade and commerce. The liberal way of war,
to borrow the phrase that gives name to the book of Dillon and Reid (Dillon & Reid
38
2009), is one that adopts a rationality of risk as a governmentality of governance in
early twentieth century Britain. It is a rationality which is not restricted to armed
international conflict but that is also employed to control ‘the home front’ and prevent
the dissatisfaction of the industrial classes in the form of revolution. It materialises as
well in the liberal reforms that give rise to what we know as the welfare state in
Britain, an approach to understanding the security of an industrial society that
employs risk management as its ethos. This is not the liberalism of Kantian pacifism;
it is the enterprising liberalism for which war is a means to maintain markets open to
trade. But markets are not in this case insatiable monsters that devour resources but a
spaces of production and consumption where consumers, as citizens, demand supply
of basic goods at affordable prices, where the state assumes a role of market regulator
for the security of its own existence and stability. The rationality through which such
an endeavour is enabled is that of risk management, a rationality that had permeated
the deep biopolitical function of private enterprise in the form of life insurance since
the emergence of a landless middle-class in eighteenth-century Britain, that which had
developed as a form to compensate for the social impact of the economic
‘externalities’ of the liberal economies of the industrial revolution in the nineteenth
century in various parts of Britain and the United States, but that had not been
developed yet as the governmentality for supporting an international industrial war
effort until the Great War. The practice of liberal rule in early twentieth-century
Britain, as the case of the War Risks Insurance scheme denotes, is one which allies a
liberal tradition of war waged in this case in the name of the very possibility of
biopolitical governance within the United Kingdom, with a risk-based approach to the
management of uncertainty as a technology of security. Concerns with public panic
were therefore the manifestation of a rationality of rule forced to satisfy the conditions
39
of possibility of industrial consumer classes that depended on free trade for the
satisfaction of their basic economic needs.
In this respect a declaration of war which had traditionally known as an act of state, a
sovereign decision to engage in armed conflict with other states, is read as a
biopolitical necessity when the basic conditions of possibility for a form of life, both
expressed in the form of industrial livelihoods and industrial lifestyles, is threatened.
Declaring war on the German Empire is not simply a matter of honour or the need to
safeguard the values upon which European public law as the international order that
safeguards peace is supported. It is more pragmatic than that, although the
preservation of European public law is but a manifestation of an order of governance
of free trade. When Britain declares war on Germany it is stating its commitment to
preserve its open markets at whatever price it takes in order to guarantee the way of
life of the Kingdom.
This element leads to a third one by way of conclusions to the analysis of the war
risks insurance scheme explored in this chapter. There is a growing discussion in the
literature of what could be termed the socio-legal studies of insurance around two
distinct principles upon which insurantial technologies operate. On the one hand the
principle of mutuality groups together clients with similar levels of risk constituting a
scheme where only those who contribute would benefit. It is the basis for private
insurance. On the other hand the principle of solidarity serves a whole population
where every individual is eligible to claim compensation regardless of having made
contributions to the scheme. This is the basis for welfare state systems orchestrated by
national states (e.g. Ewald 1986). The war insurance scheme, however, does not fit
40
clearly into any of these two principles. It actually represents the operation of what
could be called a form of ‘state-backed mutuality’ where the successful operation of
mutualist insurance schemes are seen as necessary for the operation of a national
political economy. However, where the scheme escapes the differentiation between
mutual and solidary insurance is that its implementation is expected to generate a
common good to support the security of lifestyles and livelihoods. As such, the war
risks insurance scheme studied in this chapter generates a biopolitical outcome that
can only be understood in relation to the ideology-turned governmentality upon which
the New Liberal political economy is supported, the idea of free trade and the
prioritisation of the individual as a consumer whose demands are to be satisfied.
Treating the citizen as a consumer poses the political relationship in logistical terms.
Providing goods and services at the right time, the right place, under the right
conditions is the challenge that New Liberals assumed when the Great War started.
Dealing with this challenge through a business-as-usual approach based on the
promotion and protection of free trade was the immediate reaction. However, when
the state becomes the insurer and re-insurer of first and last resort in order to enable
the operation of the private insurance industry to provide the securities required for
the sustainable running of the economy, what results is a sovereign form of private
insurance. This new form of insurance was a novel creation of the moment, it will
become a fundamental aspect for liberal governance in the 21st century (see LoboGuerrero 2010).
41
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