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Years of Recovery: British Economic Policy 1945-51 
by Alec Cairncross.
Methuen, 527 pp., £35, April 1985, 0 416 37920 6
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The Politics of Recession 
by R.W. Johnson.
Macmillan, 275 pp., £20, January 1985, 0 333 36786 3
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The Labour Government 1974-79: Political Aims and Economic Reality 
by Martin Holmes.
Macmillan, 206 pp., £25, May 1985, 0 333 36735 9
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New Jerusalems: The Labour Party and the Economics of Democratic Socialism 
by Elizabeth Durbin and Roy Hattersley.
Routledge, 341 pp., £16.95, March 1985, 9780710096500
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As late as 1951, the British economy was the strongest in Western Europe. Only the wartime neutrals, Sweden and Switzerland, surpassed us in income per head. In his magisterial new history of the economic policies of the post-war Labour Government, Sir Alec Cairncross shows that our industrial production was larger than that of France and Germany combined. It was 50 per cent above the 1938 figure, compared with 20 per cent in France and 10 per cent in Germany. France and Germany together exported less than we did. The seeds of our subsequent economic misfortunes were, of course, germinating beneath the surface: they had been doing so since the last quarter of the 19th century. But they were still a long way beneath, and they could not have been detected merely by looking at the statistics.

Much the same applies to the decline of the Labour Party. Britain is the oldest industrial society in the world, with the most mature working class. She has no peasantry, and virtually no religious cleavages. She has (or had until recently) one of the strongest and most united trade-union movements in the world. Her Communist Party is, and always has been, electorally insignificant. By all the laws of political sociology, she ought to be a super-Sweden – as accustomed to Labour governments as Sweden is to Social Democratic ones. In 1945, Labour seemed to have entered its sociological inheritance. In 1951, it polled the biggest popular vote ever polled by any British political party. Yet, despite upward blips in 1964, 1966 and 1974 – despite, for that matter, the prospect of another upward blip in 1987 or 1988 – the curve of Labour support has gone downwards ever since.

R.W. Johnson’s often perverse, sometimes brilliant and always provocative volume of essays provides a splendid point of departure for exploring the connections between these two themes. The best one is a discursive enquiry into the cultural roots of British Conservatism. In it, he argues – I think correctly – that the extraordinary toughness and longevity of the Tory Party derive from the equal toughness and longevity of a Tory culture, radiating outwards from the capital to the rest of the country, and downwards from the monarchy to the rest of the population. This Tory culture is essentially pre-democratic – in an important sense, even pre-modern. Its values are hierarchical and anti-rational. Its endless ceremonies and rituals all rub home the lesson that power and authority are mysteries, not to be grasped by the vulgar or understood by the light of mere reason. Though Johnson does not say this, it is also irredeemably hostile, not to the idea of economic growth – almost everyone likes the idea of growth – but to the social and cultural changes without which growth cannot come.

For growth comes from innovation; and innovation is, by definition, subversive. It comes from outsiders, not from insiders; from the frontier, not from the metropolis. It challenges existing habits and existing values; in this country, it also challenges the existing establishment, which is the chief repository and custodian of the Tory culture. It is possible to have an innovatory establishment, of course: in different ways, the French and the Japanese both have one. But theirs are Napoleonic establishments, based on the principle of the carrière ouverte aux talents, rigorously meritocratic and systematically trained. The British establishment, with its still essentially nepotistic methods of recruitment and its preference for character over brains and experience over training, is profoundly anti-Napoleonic. It has always been willing to assimilate clever outsiders, but only on condition that they conform – that they stop behaving like outsiders and do not innovate. It knows in its bones that potential innovators threaten it, and it does its best to stifle them.

Hence the gap between the rhetoric and the reality of the current Thatcher experiment. Like Disraeli, Mrs Thatcher is by origin an outsider; like Disraeli, she has stormed her way into the establishment. She is ambivalent about establishment habits and assumptions, and she shows her ambivalence by talking the language of innovation. The ghost of Samuel Smiles prowls the corridors of No 10 Downing Street, arm in arm with the ghost of Sir Clive Sinclair. But, despite occasional half-hearted lunges in that direction, she has been unable – perhaps unwilling – to break the chains of the Tory culture which shackle and sustain her party. Napoleonic words have concealed Bourbon deeds. A government which really wanted to promote innovation would shift the bias of the taxation system to favour active property against passive. It would increase the proportion of the population in higher education – above all, by expanding education for adults. It would decentralise government and foster local élites, with the power and will to challenge the South-Eastern establishment. It would recognise that the two biggest pools of untapped talent in this country are women and racial minorities, and it would try to stamp out discrimination against them. In all these spheres, this government has done very nearly the opposite.

If even Mrs Thatcher cannot escape the embrace of the Tory culture, it is not surprising that Conservative governments have failed to engineer economic recovery. Labour’s failure is harder to explain. It is, after all, the party of the outsiders. It has nothing to gain from propping up the Tory culture, and a lot to gain from destroying it. It ought to be the natural home of the potential innovators whom the South-Eastern establishment stifles the carrier of the cultural revolution which is the prerequisite of a more dynamic economy. On a different, but equally important level, Sweden, Austria and Federal Germany all suggest that the best way to manage and promote economic change is through bargaining and consensus between the state and the organised producer groups; and that social-democratic parties, closely linked to the trade unions, find it easier to do this than parties of the right. Where Kreisky, Schmidt and Palme have all trod, Attlee, Wilson and Callaghan should surely have been able to tread.

To some extent, Attlee did. To be sure, his government made appalling mistakes. For the last four of its six years in office it was haunted by the memory of the two great crises of 1947: the fuel crisis of the winter and the convertibility crisis of the summer. Both crises could have been avoided if ministers had been willing to face unpleasant facts before it was too late. The fuel crisis, Cairncross writes,

was a striking example of incompetence in industrial planning by a government dedicated to economic planning. What stood revealed were not the limitations on which the textbooks insist – the problem of decentralising and yet achieving co-ordination, the uncertainties and lack of adequate information. On the contrary, the uncertainties were minimal, the information abundant, the organisation impressive. The lesson was rather that planning depends on planners.

The fault lay, not with the machinery, but with the men who were supposed to drive it – above all, with the negative and complacent Shin well, pathetically out of his depth as minister. Much the same was true of the convertibility crisis. By May 1947, the Treasury knew that import cuts were needed to halt the dollar drain, and warned accordingly. Again and again, ministers dithered, until, in the end, the crisis forced their hands.

After 1947, however, there were no more horror stories of this sort. Taking its six-year term as a whole, the Attlee Government managed the economy more competently than any of its successors.

No doubt there were false starts, concentration on secondary issues, a slowness to react, an unwillingness to act with sufficient firmness, and at the end a serious error over the scale of rearmament that was feasible. There was, too, little success in changing long-standing attitudes in industry that slowed down innovation and expansion. But whether one tries to look forward from 1945 or backward from forty years later, those years appear in retrospect, and rightly so, as years when the government knew where it wanted to go and led the country with an understanding of what was at stake.

Labour’s subsequent record is a different matter. Under the Wilson Government of the Sixties, elected on the ticket of faster growth, growth was slower than it had been during the Conservatives’ ‘13 wasted years’. The National Plan, announced with a fanfare of trumpets in 1965, was torn up in the sterling crisis of 1966. The incomes policy, which might have provided the basis for non-inflationary long-term growth, was perverted into an instrument for short-term demand management, and collapsed under the burdens which this perversion placed upon it. The Wilson-Callaghan Government of the Seventies – the anti-hero of Martin Holmes’s thorough, if rather dead-pan study – performed even less impressively. The social contract was a disaster. The quasi-statutory incomes policy which followed it fell apart in the winter of discontent. The industrial policy became a costly prop for obsolescence and over-manning. Pace the political sociologists, there is no need to look further for the causes of Labour’s decline. Had it managed the British economy as successfully as the Scandinavian and Central European Social Democrats have managed theirs, it would have been as successful politically. The reason it has failed in politics is that it has failed in economics.

Why the economic failures? Part of the answer is to be found between the lines of Elizabeth Durbin’s important and absorbing study of the ‘New’ Fabian economists of the Thirties, who tried to hammer out an intellectually respectable economic strategy for a future Labour government, in place of the mish-mash of Utopian aspirations and conservative assumptions which had served the Party so badly between 1929 and 1931. Her father, Evan Durbin – a friend and mentor of Hugh Gaitskell and a junior minister in the post-war Labour Government, who was drowned in a bathing accident while still in his early forties – was one of the outstanding members of the group. But New Jerusalems is not a pious memoir, written in the spirit of ‘nil nisi bunkum’. It is a scholarly and astringent piece of intellectual history, a major contribution to the historiography both of British socialism and of British economic thought.

It throws most light on the relationship between Fabian ‘revisionism’ and Keynesian economics. With varying degrees of enthusiasm, the New Fabians all assimilated the Keynesian Revolution into their economic thinking. But Elizabeth Durbin shows that there were two important differences between Keynesianism and New Fabianism. The New Fabians were socialist egalitarians, in search of distributive justice. For all his economic radicalism, Keynes was a social conservative. He wanted to save capitalism, inequalities and all, not to supersede it. In the class war, as he said himself, he sided with the ‘educated bourgeoisie’ against the proletariat. He looked forward to the ‘euthanasia of the rentier’ and wanted a more equal distribution of income than existed in inter-war Britain: but he was not an egalitarian on principle and showed no interest in distributional questions.

The second difference was logically independent of the first, but almost certainly related to it. The Keynesian Revolution was limited as well as profound. It focused exclusively on demand; it had nothing to say about supply. For Keynes, as much as for his classical predecessors, supply was a matter for the market; state intervention to improve the supply side of the economy would do more harm than good. Though a few New Fabians shared that focus, most did not. Most saw the Keynesian management of demand as a supplement to the socialist planning of supply – valuable, perhaps even indispensable, but still only a supplement. They differed over the techniques which future socialist planners would use, some favouring a Soviet-style command economy and some seeking to reconcile planning with the price mechanism. But these differences were less important than the similarities. For almost all of them planning was, as Elizabeth Durbin puts it, ‘the essential ingredient in the socialist economic alternative’.

Yet there was a paradox in these enthusiasms. As Cairncross points out, planning is bound to have a political as well as an economic dimension. The object of the exercise is to politicise decisions which would otherwise be taken by economic agents independently of politics. But although the New Fabians devoted large quantities of time and energy to the economics of planning, they devoted much less to the politics. Despite its title, even Evan Durbin’s The Politics of Democratic Socialism – one of the most ambitious statements of the revisionist socialist position between the wars, much of the argument of which presupposes the need for planning – does not tackle the questions of consent, representation and accountability which the establishment of a planned economy would be bound to raise. The underlying assumption is that the traditional Westminster Model of parliamentary government will survive unchanged: that the relationships between ministers, civil servants, Members of Parliament and voters will be what they always have been; that in spite of its new powers and responsibilities, the state will still be governed and administered by the same kind of people, in the same kind of way.

It is easy to see why. Durbin and his friends were fighting the Marxist Left. They wanted to show that Revolution was a blind alley: that economic and social change could come without political upheaval. It is not surprising that they were slow to examine the political implications of the changes they wanted. Unfortunately, the questions they did not ask turned out to be more important than the ones they did. The 1945 Government talked a lot about planning, but Cairncross shows that it never seriously practised it. The detailed controls which it had inherited from the wartime coalition were inappropriate in a peacetime economy, and it gradually abandoned them. Instead of turning to the supply-side planning which Durbin and his New Fabian friends had discussed in the Thirties, however, it relied more and more on Keynesian demand management, leaving supply to Crippsian moral exhortation. It did so partly because its economic advisers had no sympathy for supply-side intervention, but even more because it lacked the political and administrative machinery to carry out such interventions, and did not know how to create it. The Labour governments of the Sixties and Seventies reached an even bleaker destination by a different route. Both saw that Britain’s economic decline was essentially a supply-side problem; and both supplemented Keynesian demand management with supply-side interventionism. For their pains, both had to watch their chosen instruments disintegrate in their hands – in both cases because the political problems had not been solved. It would be wrong to imply that they would have been solved if more thought had been given to them beforehand. But at least there would have been a better chance.

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