In the first of a week-long series on the impact of the war on British culture, Correlli Barnett suggests that delusions of grandeur led to our industrial decline
In May 1945 the British could celebrate the end of the Second World War with an unalloyed pride denied to their European neighbours. For they had never been defeated and occupied; never subjugated to a brutal Nazi tyranny. Instead of harbouring bitter memories of helplessness and humiliation, they could celebrate their long march through earlier defeats to ultimate triumph. Now Britain alone among European states was one of the "Big Three" victors, deciding the shape of the post-war world.

The British, moreover, did not suffer from the profound social traumas, long to endure, between "collaborators" and members of the Resistance that had resulted in other countries from Nazi occupation. Neither did they suffer from the kind of national guilt at a shameful past that was to haunt post-war Germany. Instead the British in 1945, although very tired after six years of struggle, were buoyed up by a renewed confidence in themselves and their future, taking it for granted that Britain was, and would remain, a first-class world and industrial power.

This confidence sprang not only from victory itself but also from the magnificent record of the British war effort, celebrated in 1945 by politicians, the official propaganda machine and the media. Had not the British people pulled together during the war as a national team? Had not Britain mobilised a greater proportion of her people into the armed forces, civil defence and war work than any other belligerent? Then there was the staggering output of tanks, guns, ships and aircraft. There was the British genius for technology, all exemplified by the Spitfire, radar and the jet aircraft.

But there was a downside to this renewed national self-confidence - self- congratulation, even - and one with calamitous long-term consequences. For victory served as a soporific drug, lulling the British into complacency, not least about their industrial and technological skills.

This smugness was further fostered by the continuity of British life and institutions through all the wrack of war. Once again in Britain's long history a foreign tyrant had come, briefly puffed himself up into menace, and gone, while all the traditional (actually, Victorian) structures and ceremonials of British life and culture survived intact: the monarchy in its imperial pomp, Parliament and the political parties, the courts, the civil service mandarinate, the BBC (Victorian in values at least), the Trades Union Congress, to say nothing of Test matches at Lords and the Cup Final at Wembley.

Too much at ease with themselves amid all these cherished institutional mementoes and arrogant with victory, the British were in no sense ready and willing to remake Britain au fond as an industrial society, with all the consequent pains of adaptation. Instead, the most powerful forces in British society were those of inertial resistance to change - the management hierarchies of industry, the trade unions, the Whitehall mandarinate, the City, the BBC as the voice of the Establishment. All saw the broad pattern of Britain's future as a continuation of her past.

The sole field in which the British were ready and eager for innovation was social - in other words, the fulfilment of the wartime dream of "New Jerusalem", a sunlit land where slums would be replaced by tower blocks standing in green parkland, where sickness would be swept away by a free health service, where no one would be unemployed, and where social insurance would prevent poverty from crib to coffin.

This was what the electorate voted for in 1945 when the Labour Party won power - and what the Conservatives committed themselves to preserve on returning to government between 1951 and 1964. In short, the British after the war were resolved on working a social miracle rather than the industrial miracle that was so desperately needed.

Behind the impressive statistics of wartime production lay a grim reality (fully documented in once-secret Whitehall records) of clapped-out "first industrial revolution" industries, such as coal and ship-building, coupled with a national weakness in advanced technologies such as precision engineering and electronics. Without American supplies of machine-tools and components, the Spitfire and its Merlin engine could never have been manufactured, and the vaunted British inventions in the field of radar would have remained mere laboratory toys for boffins.

Moreover, British industries old and new suffered even in wartime from what later became known as "the British disease" - low productivity due to poor management and trade-union demarcations, overmanning, strikes and go-slows. It is hardly surprising that wartime Whitehall studies took a gloomy view of Britain's post-war export prospects.

These prospects were worsened by other effects of the war on British industrial and commercial culture, firstly in the form of the wartime "command" economy. Acute shortages of goods and services coupled with allocations and rationing led to the domination of producers over consumers, who had to be grateful for whatever was handed out to them. After the war the Labour government perpetuated this producer-led culture by carrying on the apparatus of controls and rationing.

In the home market this simply meant a dreary scene of shortages and off-hand service, like that of the Soviet Union in the Eighties. But in terms of export markets, vital to Britain's recovery from bankruptcy and dependence on American loans or subsidies, this producer-dominated culture proved positively disastrous.

Contemporary market surveys reveal that during the late Forties and into the Fifties, the British exporter made little attempt to discover and satisfy the special tastes and requirements of foreign customers, but simply dispatched what he thought they ought to want - that is, what his factory happened to produce. In one case a British shirt manufacturer simply ignored the specific design instructions given by an American chain- store, and instead sent old-fashioned British-style shirts with long tails, on the grounds that "they were better like that". The same cavalier arrogance of producer-led industrial culture also led to a general neglect of overseas marketing and promotion.

Wartime "full employment", carried into the post-war era as a matter of priority by the Labour government, supplied yet another reason why the British felt no adrenalin-fired fear in regard to the parlous condition of their industries or the perils of national bankruptcy. In the words of the British tender for funds from the European Recovery Programme in 1948 (called "Marshall Aid", after its architect George C Marshall, the American Secretary of State):

"The difficulties of the economic position do not present themselves in an obvious form to the British public. Unemployment is barely noticeable; jobs are apparently secure; industry is finding it easy to earn profits; wages are relatively high; the necessities of life are fairly distributed; and because they cannot buy many necessaries, many people have money which they can spend on things that they would otherwise regard almost as luxuries ... ." In consequence, "a real and grave crisis in economic affairs seems remote".

Stark was the contrast offered by the post-war mood of other European nations. There, the shock of defeat and occupation, putting all existing national institutions into question, acted as a powerful tonic. There was a willingness to think afresh, to start anew, and in particular to reconstruct or modernise the national infrastructure and industrial system.

The French embarked on "Le Plan", a comprehensive long-term programme to replace backward industries with technologies equal to those of the most advanced countries. The Germans had literally to begin again from scratch on "Day Zero", 8 May 1945, when Germany lay amid the rubble like a gigantic machine switched off.

The contrast between Britain, still swaddled in her "great-power" illusions and industrial complacency, and her European neighbours is clearly shown by how they deployed the Marshall Aid dollars received in 1948-51. Continental countries devoted a much higher proportion of Marshall Aid to reconstructing their industries and infrastructure than Britain, which essentially did with Marshall Aid what it was to do in the Eighties with the proceeds of North Sea oil - stuff it in the Treasury trouser-pocket in order to underwrite current British government expenditure. In the late Forties this meant, above all, expenditure on the new welfare state and on such nostalgic exercises as maintaining the Sterling Area and Britain's role as a world power at the centre of the Commonwealth.

It is oft forgotten that Britain received one third more Marshall Aid than West Germany. The difference lay in the fact that a Marshall-Aid dollar given to Germany led to twice the capital investment of one given to Britain.

The national complacency bequeathed to the British by winning the Second World War blended all too readily with the character of British society at that time - stuffy, stodgy and corseted by convention (as I, an 18- year-old in 1945, remember well). It was not until the late Fifties that a cultural revolution on the part of a younger generation began to smash this mould. In regard to British industrial culture itself, however, the mould was not to be broken until the Eighties.

Even today the war and that distant triumph of 1945 have not entirely ceased to have their impact on British minds, inspiring as they do an absurdly nostalgic nationalism among veterans of the "Vera Lynn Fan Club", such as Norman Tebbit, as well as among such young fogeys as Michael Portillo and the Conservative backbench Euro-sceptics.

Correlli Barnett's new book, 'The Lost Victory; British Dreams, British Realities 1945-1950', will be published by Macmillan on 27 July.

Tomorrow: Fashion after 1945