Some brief thoughts on why the left lost the twentieth century

The proletarian struggle marches on!

The proletarian struggle marches on?

I recently attended a debate hosted by the New Statesman, the great political and cultural magazine founded by the Webbs in 1913. The motion was “The left won the twentieth century”, and I thought I’d give some brief thoughts on that theme. Defending the motion were Helen Lewis, Deputy Editor of the New Statesman; Simon Heffer, formerly of the Daily Telegraph and now writing for the Daily Mail (but amusing and intelligent despite this); and Mehdi Hasan, political editor of the UK Huffington Post. Opposing were Tim Montgomerie, founder and former editor of ConservativeHome; Ruth Porter of the Institute of Economic Affairs; and Owen Jones of ‘Chavs’ and increasingly ‘This Morning’ fame.

It was an excellent debate, and particularly interesting in that the result changed, with the audience voting against the motion before, and in favour at the end. I originally voted no, and ended up abstaining. Mehdi Hasan moved me slightly: in questions, I picked up on his claim that the left had “won the argument” on the NHS, the welfare state, etc. I pointed out that politics is not just conducted at the level of ideas, but of interests, and the comprehensive defeat of the labour movement since the 1970s was the most important issue of all, because on that movement was based all the achievements he described. He responded that that may be the case, but the fact remains that those institutions still exist. Although it is worth pointing out – contra Mr Heffer, who argued that all the achievements standing were of the left – that the creator of the welfare state was Otto von Bismarck, not exactly a man of the left. Indeed, there is a case to be made that the welfare state is one of the most powerful barriers to an increased radicalism, honeying over as it does the stark divisions that would otherwise come about.

Nonetheless tt was a good answer, and I was almost convinced. Above all, two of the greatest achievements of the twentieth century – decolonisation and the improvement in the condition of women – came from the left. But in the end I still didn’t vote for the motion. And here is why.

A young woman from Romania made a passionate case that the left failed her grandparents and parents because of the horrors of ‘socialism’ in her country. Mehdi Hasan, referring to a comment from Simon Heffer that the Soviet Union no less undermined the left than Hitler undermined the right, said this was not something that was relevant to the experience of the Western left. Owen Jones, when asked what lessons the left should learn from the USSR, said “the lesson to learn from totalitarian regimes is don’t be murderous totalitarian regimes!”

Both of these claims are problematic. Hasan and Jones seem to imply that the left – or rather, leftism – first: bears no responsibility for the Soviet/Eastern bloc experience and second: has nothing to learn from them (beyond the obvious political point that dictatorships aren’t very nice). But neither are obviously true.

We all go through phases...

We all go through phases…

Reference was light-heartedly made at the debate to the fact that Beatrice and Sidney Webb (who founded, as well as the New Statesman, the London School of Economics and the Fabian Society) were sympathisers with Soviet Communism. In 1935 they published the study “Soviet Communism: A New Civilization?” from which the question mark was later notoriously dropped. And yes, that is 1935, not 1925. Stalinism was in full swing and the purges were just around the corner. It just so happens that I was leafing through a copy last week; the section in which they defend Stalin against accusations of dictatorship are particularly hard to stomach.

But this is not a fluke result. Nor is this sort of Soviet apologetics unique to the Webbs and their middle class ilk. Who do you think said this in 1960?

I have not the slightest doubt that the economic measures and the Socialist measures which one will find in countries of Eastern Europe, will become increasingly powerful against the uncoordinated, planless society in which the West is living at present.

Fidel Castro perhaps? Erich Honecker? Nikita Khrushchev?

No. That would be James Callaghan speaking in the House of Commons. And this was not a particular eccentric view at the time: based on growth rates, the economist Paul Samuelson – author of the bestselling economics textbook in the world – predicted that the USSR would overtake the USA by the mid-eighties or late-nineties. Similarly, Noam Chomsky points out that much of the global conflict in the 60s and 70s was an attempt by the United States to suffocate “the Castro model of taking matters into their own hands” – that is, breaking away from the American liberal economic model and following the Soviet model of “modernisation in a single generation”. It’s also true that (until the 1970s, when the Eastern bloc began to stagnate) much of the opposition to Soviet hegemony came from socialist critique (eg. Czechoslovakia, Hungary), and not from Reaganite Cold Warriors.

So, from the 1930s to the 1960s, there was a strong sense in the Western left that a kind of centralised bureaucratic planning could overcome the messiness of market relations entirely, and that state ownership of industry – coupled with a kind of ‘Keynesian’ demand management – would be the model of the future. There is in this regard something awfully similar about this Fabian approach, and the practice of the Bolsheviks. The Webbs’ fondness for the Soviet model is the direct corollary of Beatrice’s criticism of worker cooperatives. For the Webbs, as for the Fabians and as for the Bolsheviks, socialism was a matter of intricate planning from on high.

"Don't worry comrades! I've got it covered!"

“Don’t worry comrades! I’ve got it covered!”

This sort of approach is now highly discredited. Although it served well to develop poor societies (or redevelop rich ones broken by war), its capacity to meet the increasing complexities of the consumer society was unimpressive. The USSR became over-invested in heavy industry at the expense of consumer goods, and the vested interests of the central state (ie. the military) received a disproportionate share of the benefits of growth. The central planning model became sluggish and stunted, and the experience in the West with nationalisation was not much better.

So does this mean the left is a hopeless cause? Should we all just pack up, embrace David Cameron, and head home?

Please love me :(

Is this all there is?

No!

We must return to first principles. We must distinguish between policies (which are the means) and the vision of society we would like to see (the end). Let us start with the vision, which must begin, in true dialectical fashion, with a critique:

  1. In entering a capitalist production process, workers submit to an unaccountable authority (the capitalist or his agent, the manager)
  2. This means the workers have no say in the process of production, or in what is done with the product once it is made, despite their having been instrumental in its creation
  3. This is undesirable because it distorts economic activity (production and employment become solely a means toward private profit and do not occur in its absence) and causes social harm (the worker becomes dehumanised and increasingly subject to economic forces beyond her control)

This is a diagnosis that I think the whole of the left – from anarchists to democratic socialists, communists to social democrats – could agree with. It is also something the right would vigorously disagree with. And notice what hasn’t been said. No reference has been made to markets, or money, or even to equality. No mention of planning. No mention of surplus value or crisis or effective demand. All these are matters for the left to fight over behind closed doors. The essential critique that all leftists can agree on is this: capitalism is not democratic. That is, in a capitalist society, capital is the determining factor of social organisation, and its decisions are not directly accountable to the people it effects.

Now in an age where industry flees to wherever wages are cheapest and the economy stagnates because capital refuses to invest, this critique seems to me to have lost none of its power. And if the problem in capitalism is the lack of democracy, it follows that the solution is to democratise the economy: to increase the degree of worker control over the process of production. (Incidentally, this is why New Labour was not leftist: it abandoned any aspiration to increase worker control in production, and replaced it with the conservative aim of a ‘property-owning democracy’. The crucial point – which the implosion of the housing bubble has handily shown – is that houses are not productive assets. A working class which owned their own homes – a middle class, in other words – would still have to turn up to work each morning in an autocratic workplace. You can’t eat your conservatory.)

One method of doing this would indeed be for the government to take ownership of all industry and have the workers as a whole determine economic matters through the ballot box. (Note that the fact workers could not do this in the Soviet Union immediately rules out its claim to be a socialist state; state ownership of industry is only socialist insofar as the state is accountable to the working class). This, in microcosmic form, is what happened in post-war Britain. I say microcosmic because even the Attlee Government only nationalised 20% of economic activity; British Coal or British Rail were therefore socialist enterprises, but Britain was not a socialist society.

But this is far from the only method. A workers’ cooperative would meet the same democratic standards. A society of corporations owned by wage-earner funds could arguably do the same. Indeed, some have argued that that is the precise direction in which modern society is moving. Large public providers – such as railways or schools – could be publicly owned and managed by councils of workers and consumers. And there is nothing in this vision which rules out the use of markets per se. Markets are a means of exchange; capitalism is a system of production. A society of worker cooperatives, funded through publicly owned banks and selling goods to market, would be a quite different species to a capitalist society in which investment and production is controlled by an unaccountable elite.

Soviet propaganda; it's better than that crappy 'I'll cut the deficit, not the NHS' poster anyway

An exclusive look at Labour’s next campaign poster

The key theme tying all these different options together (and why couldn’t society mix and match where appropriate?) is increased direct engagement by workers and consumers. The left lost the twentieth century because it limited itself to one model of economic democracy, dizzy with the apparent success of the Soviet Union. When that model – overcentralised, bureaucratic, unresponsive to people’s changing expectations – proved unable to adapt (and, in its own way, as alienating as any capitalist hierarchy) the right declared THE END OF HISTORY!‘, and the left – its ideas hollowed out by decades of nationalisation – did not know how to respond.

Perhaps most important of all – and here the influence of classical Marxism has been unhelpful – the left fell into the trap of considering markets and capitalism the same thing (a little trick that the right very happily engage in, for talk of ‘the market economy’ very elegantly skips over the autocratic and unequal distribution of power and wealth). But markets are simply a method of exchange: they are neutral as to the content of the transaction (handbags, machines, people) and to the inputs of that transaction (who has market power?) From the perspective of exchange alone, the trade of goods between two farmers of equal wealth is qualitatively no different from the situation of a starving landless peasant who works sixteen hours a day for the lord of the manor in exchange for somewhere to live. From the perspective of exchange, both are acceptable because in both instances, both parties benefit relative to their prior position. The same argument is often made about child sweatshops: ‘Yes’, we are told, ‘it’s obviously horrible that kids have to work. But they do it because it’s better than being even poorer on the farm.’ The person making this case never seems to realise that just because it’s better for a child to work in a horrid factory than on a starving farm, it does not follow that working in a horrid factory is the optimal situation for a child. In a world as rich as our own, maybe we could find the resources to, I don’t know, send that kid to school?

So we must focus on the content of what is exchanged, and this becomes particularly important when talking about capitalism. For capitalism not a method of exchange (per se), but a method of production. When you and I trade Pokemon cards, we are not engaing in capitalism, we are engaging in…trade! Trade is exchanging goods and services for mutual benefit. This happens in all societies – even the USSR had trade. But this tells us nothing about where the goods came from in the first place. For that you need a system of production, not just exchange. If you employed your friends for a wage in the production of Pokemon cards and then sold them to me, then we’re into capitalist territory.

Not capitalism.

Not capitalism.

Capitalism is an economic system where the majority of the population sell their labour to the owners of capital in exchange for a wage. What that means is the worker surrenders control of the production process, and of the product, to the capitalist. Capitalism is characterised therefore by authoritarian relations of production. It is this authoritarian element in the workplace (and not the process of market exchange itself) which creates the most objectionable phenomena of capitalist society: the inequality, the warped investment decisions, the alienation, the use and abuse of the workforce. Indeed it is my contention – contrary to the communists – that the method of production is far more important than the method of exchange. Markets are an effective means of providing information and incentives. In this, Hayek was right and many socialists were wrong. Che Guevara’s attempt to create an economy motivated by ‘moral incentives‘ rather than material ones was a disaster. The point is that human nature is neither as bad nor as good as people like to imagine. It is shaped by its context and institutions. Democratising the workplace – worker control of production – would go a long way towards humanising the economy, and far more than the cold inhumanism of the USSR ever did.

Now, on the other side of the greatest financial crisis since the Great Depression, we can see what fatuous nonsense the ‘End of Hisory’ really was. The central insight of the left – that a society whose priorities are determined by capital is in conflict with the principle of democracy – still holds. The task for the twenty-first century is how to apply that understanding in the light of our failures last time. I will elaborate on this in future posts, but this is an outline of my position.

WORKERS OF THE WORLD UNITE! YOU HAVE NOTHING TO LOSE BUT YOUR DEFUNCT ECONOMIC MODELS!

Workers of the world unite! You have nothing to lose but your defunct economic models!

The silent British jobs crisis

Lazy and workshy

The Jarrow Marchers: feckless and workshy

In 1936, at the height of the Great Depression, unemployed workers from Jarrow marched almost 300 miles to Westminster, led by their Labour MP Ellen Wilkinson, in protest against poverty and unemployment. When they finally got there, their petition was accepted and little more was done. The last marcher died in 2003, though one man who took part in the final leg of the protest held on until 2012 – just long enough to see the same catastrophic mess happen all over again.

The Work and Pensions Secretary Iain Duncan Smith, who has done so little to help the unemployed yet thinks he has done so much, was involved recently in what is usually called a ‘heated debate’ with radio presenter James O’Brien (available here). While there was, as usual, more heat than light, O’Brien was the first interviewer I’ve heard to actually put the concrete figures – not just about unemployment, but about vacancies – to Mr Duncan Smith.

The government have

identified two key problems with the current system:

  • work incentives are poor, and
  • the system is too complex.

We are reforming the system to help people to move into and progress in work, while supporting the most vulnerable.

Reforming the benefit system aims to make it fairer, more affordable and better able to tackle poverty, worklessness and welfare dependency. We are committed to overhaul the benefit system to promote work and personal responsibility.

So the problem, in their estimation, is that there aren’t enough incentives to get into work. The welfare system has trapped people, and the most effective way of tackling the problem is by changing the psychology and incentives of the unemployed.

That’s what the government say. It’s also what the Daily Mail – owned by the 45-year old Viscount Rothermere, a friend of David Cameron who inherited his £1.02 billion fortune from his dad – would have you believe. But what are the actual facts?

According to the Office of National Statistics, there are 2.5 million people unemployed in the UK. That is 7.8% of the working population. The government will constantly tell you that this is down on last year, and indeed it is – by 0.6%. But before you pop out the champagne, it’d be wise to dig a little further.

A sudden burst of laziness?

A sudden burst of laziness?

The first thing to notice about this chart is that unemployment rather mysteriously correlates with the wider economic crisis. How strange! What stood at 5.3% in 2007 reached a peak of 8.5% in 2011. This seems to put into question the claim of the government that the problem is the welfare system, rather than the wider economy…

The second thing to notice is that, after the sudden rise in 2007/8, the unemployment rate was ever-so-slightly beginning to trend down by  2010. This is in keeping with the very tepid growth that stood when Gordon Brown left office. But then, under the Coalition, we see unemployment dramatically sharpen upwards again, to 8.5%. So the boasts of the government that unemployment is falling essentially amount to “We made it worse, and now we made it better again.” Except even ‘better again’ is a stretch: unemployment now is essentially exactly where it was when the Coalition came to power, with a hell of a lot of added misery in between.

So next time you hear a Tory (or a Lib Dem, if they even still exist) boasting that unemployment is falling, remember that.

Now how do these figures break down?

Oops!

Oops!

More than half have been unemployed for over six months. And a third have been unemployed for over a year. It is this final category that is known as the “long term unemployed”. Of those 879,000 long-term unemployed, 442,000 have been unemployed for more than two years. And for all the boasts of IDS and Co, this number has decreased by only 1000 since the summer.

So in Britain today there are: 2.5 million unemployed, of which 879,000 have been unemployed for more than a year. But I’m afraid it gets worse.

There are 974,000 unemployed people under 25, and this is up 11,000 since the summer. The youth unemployment rate in Britain is 20.8%. All that talk of a ‘lost generation’ is no exaggeration. And unfortunately, one of the first acts of the new coalition was to scrap Labour’s Future Jobs Fund, which it subsequently discovered was actually quite a success.

But no! Don’t let out a breath yet! It gets even worse.

The number of people underemployed – that is, people who are working part-time but would like (and in fact probably need) to work full-time – has risen by one million since the crisis began, now standing at 3.05 million people. This is 10.5% of the entire workforce.

ffs.

ffs.

So when you add it all together, there are 2.5 million people unemployed – without work at all – and 3.05 million people underemployed. In other words, there are 5.55 million people in the UK today who want full time work but do not have it.

So let’s recap for the final time before the cherry on the cake.

Unemployed: 2,500,000

Underemployed: 3,050,000

of which

Youth unemployed: 974,000

Long-term unemployed: 879,000

And how many vacancies are there in the UK? How many jobs have these lazy scroungers rejected?

Drum roll please!

“There were 487,000 job vacancies for November 2012 to January 2013…”

Oh.

Oh bollocks.

So there you have it. For the 2.5 million jobless in the UK today, there are just 487,000 vacancies. In other words, less than half the number of youth unemployed alone.

These are the facts you will rarely hear a government minister or apologist refer to. But they are there in black and white. And when they are raised in the IDS interview, his only response is to say ‘Well I didn’t say there was a magic wand’. Great, thanks!

There is a silent jobs crisis in Britain today, and all the government has done thus far is fiddle the statistics and make it worse. So the next time you hear a government minister say they are on the right track, remember what they choose to ignore.

Oh, and by the way Mr Cameron: there is an alternative.

Update: Since the time of writing – that is, in just sixteen hours – the unemployment rate has gone upIt now stands at 2.52 million. Most stark has been the case of under 25s: youth unemployment has risen from 974,000 to 993,000 – now standing at 21.2%. The total number of people wanting full-time work but unable to get it therefore stands at 5.57 million, with youth unemployment just under one million. Great job guys! Keep it up!

The Spirit of ’45 and the Spectre of ’79

The people made tremendous efforts to win the last war also. But when they had won it they lacked a lively interest in the social and economic problems of peace, and accepted the election promises of the leaders of the anti-Labour parties at their face value. So the “hard-faced men who had done well out of the war” were able to get the kind of peace that suited themselves. The people lost that peace. And when we say “peace” we mean not only the Treaty, but the social and economic policy which followed the fighting.

In the years that followed, the “hard-faced men” and their political friends kept control of the Government. They controlled the banks, the mines, the big industries, largely the press and the cinema. They controlled the means by which the people got their living. They controlled the ways by which most of the people learned about the world outside. This happened in all the big industrialised countries.

Great economic blizzards swept the world in those years. The great inter-war slumps were not acts of God or of blind forces. They were the sure and certain result of the concentration of too much economic power in the hands of too few men. These men had only learned how to act in the interest of their own bureaucratically-run private monopolies which may be likened to totalitarian oligarchies within our democratic State. They had and they felt no responsibility to the nation.

So reads the preface to ‘Let Us Face The Future‘, the 1945 Labour Party manifesto, which ushered in the most radical government in British history. In just six years, Clement Attlee’s leadership saw: the implementation of the Beveridge Report – including child benefit, universal pensions and sick pay; the nationalisation of the railways, water supply, electricity, gas, telecom and the mines; significant improvements in the conditions, hours and pay of workers; a deliberate policy of full employment; over a million new homes built, most of them council houses; and universal health coverage for the whole population in the form of the NHS. This is a remarkable record, especially when set against the misery that followed the First World War. It is this new political programme that Ken Loach’s documentary ‘The Spirit of ’45’ seeks to understand.

The film consists of interviews with ordinary people today (some who remember the Attlee Government, some who are experts in various fields), supplemented by archival footage of the ’45 election and the subsequent government. Sadly there was only one speech by Nye Bevan (I am constantly searching for audio of him speaking…), but there was an amusing party political broadcast by Clement Attlee, and fascinating footage of Winston Churchill being booed on the campaign trial by a crowd shouting “We want Labour! We want Labour!” Some of the stories of the people looking back were dreadful: one man whose mother died giving birth “for want of a pint of blood”; another who slept in a bed with hundreds of bugs and fleas. This was all very moving. But what of the political substance?

In a live question and answer session broadcast after the film, Loach explained that the title is very deliberate. In his account, the key factor was the new consciousness – the ‘spirit’ – that had developed during the war. Tony Benn, reliably appearing as always, gives expression to this new consciousness: “People began to say, if we can have full employment to kill Germans during the war, why can’t we have full employment to build homes after it?” This is undoubtedly correct. The ease with which the unemployment of the Great Depression had been abolished by the war, and the leading role suddenly taken by the state in the organisation of the economy (including temporary nationalisation of the mines and central planning of the railways), opened people’s eyes to the possibilities of a new economic model. Particularly interestingly, this was not merely a passive phenomenon, but was actively encouraged by the wartime coalition: copies of the Beveridge Report were distributed amongst the troops abroad, and they were ordered to form weekly political discussion groups. All rather Red Army!

So the film covers and articulates this new political spirit well. Following this general overview, we are treated to small histories of the major reforms: a section on health, a section on the railways, a section on housing, etc. I felt these sections were somewhat overreliant on personal anecdotes; actual facts and figures would have been helpful (ie. how many new houses were built; how and who did the government pay for the railways and mines?) But the personal stories did bring an important human element to it, with comedy and tragedy often together.

And it is on this note that we are listening to a cute little old man extol the greatness of these reforms, saying “Anybody who tried to attack all that, we should fight”, and then, suddenly, we cut to…

Satan in a skirt?

Satan in a skirt?

And this is where the problems start.

The arrival of Thatcher on screen was greeted with an amusing array of hissing and booing from the audience, and very little else from the film. No context for her rise to power is given. That she won three general elections comfortably is not even shown, let alone explained. No Winter of Discontent, no inflation or strikes, no problems whatsoever. In a mirror of the list of industries nationalised at the start of the film, at the end we are treated to a list of privatisations. Mrs Thatcher apparently swooped into the New Jerusalem, Satan in a skirt, and single-handedly destroyed all that the war generation had achieved.

The film from this point on becomes laced with simplicities. ‘Greed’ replaced ‘working together’. Thatcher ‘made it all about the individual’. No doubt Thatcher brought in (and/or was the product of?) a more individualistic age. But the binary distinction drawn between the selfless post-war era and the selfish Thatcher one is simply untenable. In fact, weren’t we told in this very same film that the only way Bevin was able to create the NHS was by “stuffing [the doctors’] mouths with gold”?

And it is in this contradiction that the film’s problems lie. Although Tony Benn does make passing comment that in many of the nationalised industries, “all that happened was you replaced the corporate manager with a bureaucratic manager”, this is generally glossed over. In fact, even at its peak the Attlee Government only nationalised 20% of the overall economy. The rest was left in private hands, as before (albeit, facing a far more powerful labour movement – to which we will come). In other words, contrary to the claims of some rabid Tories, Britain under Labour was never a socialist country. At best, it was an island of (particularly bureaucratic and state-centred) socialism in a sea of traditional capitalism. What new political consciousness had been birthed by depression and war found precious little room in which it could breathe. And while the railways and the mines – starved of investment for decades – did get the support they needed, the nationalisations set a pattern that became all too familiar in the post-war years: public ownership for failing companies, private ownership for successful ones (including, most crucially, the banks – Alistair Darling was to their left on this one…)

Perhaps it is worth considering the words of James Connolly, writing in 1899:

One of the most significant signs of our times is the readiness with which our struggling middle class turns to schemes of State or Municipal ownership and control, for relief from the economic pressure under which it is struggling. Thus we find in England demands for the nationalisation of the telephone system, for the extension of municipal enterprise in the use of electricity, for the extension of the parcel system in the Post Office, for the nationalisation of railways and canals…

But all this notwithstanding, we would, without undue desire to carp or cavil, point out that to call such demands ‘Socialistic’ is in the highest degree misleading. Socialism properly implies above all things the co-operative control by the workers of the machinery of production; without this co-operative control the public ownership by the State is not Socialism – it is only State capitalism…

Therefore, we repeat, state ownership and control is not necessarily Socialism – if it were, then the Army, the Navy, the Police, the Judges, the Gaolers, the Informers, and the Hangmen, all would all be Socialist functionaries, as they are State officials – but the ownership by the State of all the land and materials for labour, combined with the co-operative control by the workers of such land and materials, would be Socialism.

The great nationalisations of 1945 are certainly impressive. But the idealistic tint given them by the film does not accord with the complex reality. Other failures are also ignored: the House of Lords remained pretty much untouched; so did the monarchy, and the landowning aristocracy. The public schools were not addressed, and nor were the concentrations of press power that soon set about a propaganda campaign against the government.  Social matters, such as women’s rights or gay rights, were left for future generations. (And if it seems unfair to expect such enlightenment in 1945, it’s worth remembering that the Bolshevik Revolution had legalised homosexuality, abortion and divorce nearly thirty years before). Although, to be fair, it wasn’t just negatives; other great achievements – such as independence for India – were also left out.

Loach defended his film in the Q&A (alongside wunderkind Owen Jones and the awesome Dot Gibson from the National Pensioners Convention) by appealing to limited timing, and that’s a fair point (though at only ninety minutes long, it did go by very quickly). But by not even touching on the 1970s – to my mind, as important as the 1930s for the lessons it provides – the strength of analysis is lost, and the documentary can be fairly accused of at least mild nostalgia.

So what happened in the 1970s? Why did the post-war consensus break down? It’s a crucial question. Just as the spirit of ’45 did not come out of nowhere, the spirit of ’79  (or perhaps, more accurately, the spectre of ’79) was shaped by the struggles that preceded it. In the case of the 1970s, these were the precise opposite of the struggles of the 1930s. Not deflation, but inflation. Not mass unemployment, but a labour shortage. When Ted Heath held the 1974 election on the slogan ‘Who governs?’, the answer was pretty clearly ‘Not you mate’. Difficulties had begun around the world in 1968/69 as inflationary pressures rose, and economic and political militancy increased. The ‘Siouxante-Huitards’ – ’68ers – had not experienced war or depression. The new prosperity of the ‘Golden Age of Capitalism’ created new consumer and wage expectations, and these came to a head in the late 60s. As labour militancy increased, Barbara Castle – then Employment Secretary – offered a white paper called In Place of Strife as an attempt to curb strikes. But this was considered an unacceptable intrusion by the union leadership, and with the support of some in the Labour cabinet – including, ironically, James Callaghan – the bulk of the proposal was dropped and a voluntary concordat formed with the unions instead. Additional factors in the inflation rise may include increased American armaments spending as the Vietnam War escalated, and the devaluation of sterling in 1967. But it was in the following decade that the monster really took off.

Babs > Maggie

Babs > Maggie

Three factors came together in the 1970s to produce explosive rates of inflation. The first was the sharp rise in the oil price in 1973 (following the Yom Kippur War and the subsequent OPEC embargo) and 1979 (following the Iranian Revolution). The second was the liberalisation of monetary policy around the world: most importantly the final destruction of the Bretton Woods system when Richard Nixon closed the gold window in 1971 (and the inflationary expectations that arose thereafter), but also through more specific deregulation. In Britain for example, the Heath Government introduced ‘Competition and Credit Control’, a new policy whereby the Bank of England no longer directly regulated the creation and allocation of credit. The shocking result was a large increase in the money supply.

But most important of all was the historically unprecedented bargaining power of labour. Here is a chart showing crude oil prices since 1970 set against inflation in the United States…

https://i0.wp.com/static.seekingalpha.com/uploads/2011/3/8/saupload_oil_inflation.png

Here is the inflation rate in Britain…

The inflationary parallels (both between Britain and America, and between inflation and the price of oil) are remarkable. But notice something else: there have been steep rises in the oil price since. Yet these have not led to similar bursts of inflation. One of the major explanatory differences must be the following:

The bargaining position of the working class grew dramatically in the period following the Second World War. (In fact, it was growing during the Depression and the war itself, but unemployment and price controls respectively kept wage demands in check). But it was precisely in that militant period of 1968-79 that trade union membership peaked. This empowered the workers to demand wage increases to meet the price increases, and this in turn set off an inflationary spiral. The initial crisis of ’73-75 came to an end with the end of the OPEC embargo, slightly more restrictive monetary policy, and the election of a Labour government. But as Hegel famously said, all historical events must happen twice. The return of the inflationary crisis in the late 1970s made it clear that this was a systemic problem. And the new Conservative leader was the only one in Britain who showed an understanding of what this meant.

The distribution of income between wages and profits – between labour and capital – is a political phenomenon. It occurs according to the balance of economic power in society. In the post-war era, and particularly from 1968 onwards, the balance of power was significantly in the hands of the workers. This power allowed them to acquire an ever-greater share of revenue:

http://duncanseconomicblog.files.wordpress.com/2011/04/wage-share.jpg

But this presents an almost insurmountable problem for a capitalist economy. For just as growth depends on investment, under capitalism investment depends on profit. It is the profitability of a company, and of an economy more generally, which provides both the funds and the motive for new investment. But when the pool of revenue accruing to the capitalist begins to dry up, so too does the basic mechanism of the capitalist economic system. If capitalism is to be preserved, the barriers to its profitability must be smashed.

It's the class war, stupid!

It’s the class war, stupid!

As you can see, this is precisely what occured. The great Marxian economist Michal Kalecki not only created the Keynesian solution to unemployment three years before Keynes, he also identified the limitations to the liberal-Keynesian model in 1944 – before it was even implemented:

We have considered the political reasons for the opposition to the policy of creating employment by government spending.  But even if this opposition were overcome — as it may well be under the pressure of the masses — the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders.  Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a ‘disciplinary measure.  The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow.  Strikes for wage increases and improvements in conditions of work would create political tension.  It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests.  But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders.  Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.

Neoclassical economists refer today, without a hint of irony, to the ‘natural rate of unemployment’. As in so many things, Marx pre-empted them by a century, in discussing the ‘reserve army of the unemployed.

This then is the explanation for Thatcherism, and this was what was lacking in Ken Loach’s film. Thatcherism was not the product of one woman, nor was it the product of ideas alone. Thatcherism was the only logical solution to the crisis short of moving beyond capitalism itself – something that obviously wasn’t on her radar. While most of the left were woefully ill-equipped to understand the historic question before them, some did. But that is a topic for another day.