Correlli Barnett argues that Britain failed to reinvent itself after the war partly because of its inept and liberal elite.

When Britain under its new Labour Government made the transition from war to peacetime on V-J Day 1945 it was suffering from profound handicaps - an unbridgeable balance-of-payments deficit; a war-worn and largely out-of-date infrastructure; an industrial machine basically Victorian in anatomy despite the creation of new industries since rearmament began in 1936; an ill-trained workforce from boardroom to shopfloor; trade-unions dedicated to obstructing technological change. In short, Britain stood in urgent need of re-inventing itself as an industrial society.

Unfortunately, it was prevented from so doing in 1945-50 because of another handicap, less obvious than the others but no less crippling: the nature of the British governing elite (including the opinion-forming intelligentsia). Overwhelmingly, this key piece of national equipment was the product of an academic humanist education at public school and Oxbridge. This was true of leading members of the government such as the prime minister (Attlee), and Dalton, Cripps and Gaitskell (successively Chancellors of the Exchequer); true of virtually all the Civil Service permanent secretaries who played Jeeves to their ministerial Bertie Woosters; and true also of opinion-formers like Tom Hopkinson (editor of Picture Post) and Beveridge, who in wartime had successfully sold to the public the idea that victory should be followed by a rich reward in the shape of a "New Jerusalem", somehow to be paid for by a bankrupt country.

This "small liberal" elite was tender-hearted and high-minded, in that order. According to No l Annan in his book Our Age, their cardinal virtue and "most powerful moral principle" was "compassion for the poor and disadvantaged." While before the war they had dreamed of global harmony through the League of Nations, now they dreamed of bringing harmony to British society through New Jerusalem.

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Moreover, they carried forward into the postwar domestic scene the deep instinct for appeasement already demonstrated on the world stage before the war. Again in Annan's own admission: "The will was suspect. Had not two of the sages we read, Shaw and E .M. Forster, told us that imposing our will had disastrous effects? . . . Yes, leadership was needed but it should be exercised through persuasion and example. We did not neglect power. But we made the mistake of thinking that it could always be tamed: surely reconciliation was always possible through trade-offs . . . ."

So they really did put their faith, according to Annan, in "men of good will" sitting down together and working out "sensible solutions to their problems". He might be describing the hapless Chamberlain at Munich. No wonder that this postwar liberal elite fared no better at the hands of the trade union barons than did Chamberlain at Hitler's. Indeed, Annan even goes so far as to admit that Britain's relative decline since the second world war sprang from "our desire to bring harmony to society. It sprang from our desire to conciliate the working class and bring the trade unions into partnership."

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Thus neither beliefs nor temperament equipped this elite to drive through a root-and-branch modernisation of Britain's obsolescent industrial machine. But in any case their education had omitted to teach them anything about wealth creation or indeed Britain's existence as a manufacturing nation. As Annan again admits, "Unfortunately we were more concerned with how wealth should be shared than produced."

Apart from Stafford Cripps, who had served as deputy superintendent of a munitions factory in the great war and minister of aircraft production in the second world war, the Labour Cabinet contained no true technocrats. None of the permanent secretaries in Whitehall responsible for framing industrial policy had hands-on experience in industry; nor were they trained technocrats of the French kind. As for the policy advisers who infested the Whitehall of the late 1940s, these were all academic economists.

In any case, Whitehall was a kind of a collective "Fuhrer-Bunker" for mandarins, the isolating nature of which was disguised by grand historical trappings. Worse, Whitehall's professional culture remained essentially Victorian. The ruling denizens had been originally selected because of their ability to repeat in the entrance examination the dexterity on paper which had already gained them first-class honours degrees. They had since risen to the top by shining as committee men and writers of memoranda (a continuation of the Oxbridge essay by other means) rather than as executive leaders. However, these memoranda demonstrate that despite the vaunted training of the mind by an academic education, the Civil Service mandarinate of 1945-50 lacked the ability, so evident in Field-Marshal Montgomery, to identify the key black-and-white issue at the root of a complex problem, and then choose the appropriate Schwerpunkt for action.

When ministers and civil servants collectively tried to frame industrial strategies, such as in the British tender for Marshall Aid in 1948, the results proved to be wordy academic essays judiciously balancing up all the factors before stating desirable, if obvious, broad objectives. In contrast, the French and German submissions for Marshall Aid read like the corporate development plans of modern big businesses, with emphasis on detailed programmes of national modernisation.

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It was not only the culture of Whitehall (taking ministers and mandarins together) that inhibited it from making a new industrial revolution happen, but also its traditional systems. Instead of clear-cut chains of command delegating executive responsibility as far down as possible, there was a dependence on that British pride and curse (in town halls and universities as well as Whitehall), the committee. Under the Attlee government these proliferated to no fewer than 148 standing Cabinet committees and 306 ad hoc ones. This cumbrous and slow-moving machinery disastrously combined centralisation of final decision with interminable many-mouthed debate both within committees and between them. What a way to run a peace!

All in all, therefore, it should occasion little surprise that by the outbreak of the Korean war in June 1950 and despite five years of huge American loans and handouts, no German-style industrial miracle was under way in Britain, nor even the foundations laid for achieving one in the decade to come.

Today, of course, 50 years on, the nature of the governing elite and the bias of British higher education has entirely changed - hasn't it?

Correlli Barnett's new book, The Lost Victory: British Dreams, British Realities, 1945-1950 will be published by Macmillan on 14 July.

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