This blog continues the discussion of the British currency crisis in 1976. It traces the growing anti-government influence on key players within the British Labour government as the pressures on the exchange rate were mounting in the early part of 1976. While the Chancellor was clearly influenced by the growing dominance of Monetarist thought, he also fell under the influence of the so-called Bacon-Eltis thesis, which argued that the growth of the public sector in the 1960s and early 1970s in Britain had starved the private sector of resources, which had led, directly, to the declining growth, high inflation and elevated unemployment. The conservative mainstream used this thesis to call for harsh cut backs in public spending and the British Labour government were increasingly cowed into submission by the vehemence of this mounting opposition. The problem is that the ‘thesis’ didn’t stand up to critical scrutiny, although that fact didn’t seem to bother those who used it to advance their anti-government ideological agenda. This blog is longer than usual because I felt it important to put this part of the story into one continuous narrative rather than break it up into two or three separate, shorter blogs.
Today I am in Barcelona, Spain after travelling from Trujillo (in the western part of Spain). Today’s blog continues the analysis I have been providing which aims to advance our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. Yesterday, we analysed the way in which the IMF reinvented itself after its raison d’être was terminated with the collapse of the Bretton Woods fixed exchange rate system. Today’s part of the story, is to trace the growing US influence on the IMF and the way it manipulated that institution to further its ‘free market’ agenda on a global scale. We will consider what Jagdish Bhagwati called the “Wall Street-Treasury complex”, which referred to the way in which financial market interests in the US combined with (pressured) the US Treasury Department to advance the myth that liberalisation of global capital flows would deliver massive benefits in the post-1971 period after the convertible currency, fixed exchange rate system collapsed.
Today I am in Granada, Spain having an interesting time. Nothing public to report. I will be here until Thursday morning upon which I travel back to Madrid and the public events begin (see below). Today’s blog continues the analysis I have been providing which aims to advance our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. The current book I am finalising with my Italian colleague Thomas Fazi, is tracing the way in which the Right exploited the capacities of the ‘state’ to advance their agenda and how they duped the Left into believing that globalisation had rendered the nation state powerless. There were several turning points in this evolution, and one of those key moments in history, was the assertion by British Labour Prime Minster James Callaghan on September 28, 1976 that Britain had to end its ‘Keynesian’ inclinations and pursue widespread market deregulation and fiscal austerity has been taken to reflect a situation where the British government had no other alternative. His words have echoed down through the years and constituted one of the major turning points in ‘Left’ history. Successive, so-called progressive governments and politicians have repeated the words in one way or another. The impact has been that they have forgotten that their were options at the time that the British government rejected, which would have significantly altered the course of history. Today, we consider the role way in which the IMF reinvented itself after its raison d’être was terminated with the collapse of the Bretton Woods fixed exchange rate system. The next part of the story will examine the growing US influence on the IMF and the way it used the IMF to further its ‘free market’ agenda on a global scale.
Today, I take a further step in advancing our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. The assertion by British Labour Prime Minster James Callaghan on September 28, 1976 that Britain had to end its ‘Keynesian’ inclinations and pursue widespread market deregulation and fiscal austerity has been taken to reflect a situation where the British government had no other alternative. His words have echoed down through the years and constituted one of the major turning points in ‘Left’ history. Successive, so-called progressive governments and politicians have repeated the words in one way or another. The impact has been that they have increasingly imbibed the neo-liberal Kool-Aid and have, seemingly forgotten that their were options at the time that the British government rejected, which would have significantly altered the course of history. The rejections were ideological rather than based on substance. For all intents and purposes, the British Labour Party, in government, had become the first practising neo-liberal government in British history. Britain just became a part of the US-led policy move that aimed to tilt the world economy heavily in favour of the profit-seeking aspirations of the corporate sector and the financial market sector (‘Wall Street’), in particular. The US government became the international political conduit for ‘Wall Street’ influence and the growing influence of the ‘City’ in London, also allowed these neo-liberal ideas to permeate the policy making circles in Britain. But it wasn’t just a permeation that was going on. The US used institutions such as the IMF to conduct brute force attacks on the prosperity of nations to undermine the viability of their public sectors and to shift more of the national income and national assets into the hands of capital. It was a brazen and very determined shift in world affairs. The ‘Left’ should never hold the decisions that were taken by the British government at the time as an inevitability of global capitalism.
When the Labour Party resumed minority government in March 1974 after a close victory over the Tories in the February election, which had delivered a hung parliament, the British economy was in recession and inflation was running at 12.9 per cent. To resolve the political impasse, he called a further election on October 10, 1974 and gained a majority. The contraction in real GDP began in the third-quarter 1973 under the Tories as the Dash for Growth ended badly and Britain recorded three consecutive quarters of negative growth. Thus, British Labour was on the back foot from day one as a result of inheriting an economy that was in decline as a result of declining investment in best-practice technology as British capital sought lucrative speculative investments abroad. Productivity was falling and the scope for rising standards of living were becoming limited, thus intensifying the struggle over the distribution of income. Many coalmines, a major source of employment and growth, were also reaching the end of their economic life. However, key figures in the Labour government (such as the Chancellor Denis Healey) had fallen into the sway of the emerging Monetarist thinking, which had the consequence of elevating the fraught Monetarist causality to centre stage at the neglect of policies that might have actually addressed the underlying issues. The IMF entered the fray and made matters worse, as usual. Today, we trace the events leading up to this turning point.
The Bank of England’s failure in the early 1970s to control the money supply under the Competition and Credit Control (CCC) policy should have discouraged the Monetarist support base. However, while the monetary targets were abandoned, the Monetarist infestation was firmly alive among economists in the British Treasury and the Bank of England and the junior ministers in Edward Heath’s government. The City was also a hotbed of Monetarist support, with the likes of Gordon Pepper, an economist in the private sector who edited the Greenwell Monetary Bulletin prominent. Pepper, was very vocal and very influential within government circles. The ‘Greenwell Monetary Bulletin’ became a vehicle for the monetarist views to penetrate the highest levels of government. The British Labour Party was struggling with its factions. On the one hand, the Left was becoming more powerful within the Party and deeply rejected the attempts to diminish union operations. They formulated a new and far reaching industrial policy, which was light years away from the approach adopted by Harold Wilson’s government in the 1960s. But there was also a significant rump of Labour Monetarists, mostly concentrated in the Parliamentary party who were closer to the Tories on macroeconomic policy than their colleagues on the Left. Major tensions developed and would, ultimately lead to the famous 1976 surrender to Monetarism by James Callaghan at the National Conference. We trace this evolution in this blog so that we can understand the next instalment, which analyses the 1976 IMF loan arrangement that the British government entered into. This arrangement is a significant turning point in the way that social democratic governments have been captured by the neo-liberal myths.
In the previous instalment of this series of blogs I am writing, which will form the input to my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi, I covered the role of trade unions in a capitalist system where class conflict is a major dynamic. One of the characteristics of the post-modern Left is the denial of the role trade unions play in inflationary episodes. However, once we accept that the unions are creatures of capitalism and embody of the conflictual nature of income distribution within that mode of production, then it is clear that as a countervailing force against capital, unions can precipitate economic crisis if they are ‘too successful’. Too successful in this context refers to the use of their power to control the supply of labour which negative impacts on the rate of profit earned by capital and leads to a decline in investment and a rise in unemployment. Trade unions are a problem for capital. Today, we consider the way in which this ‘problem’ manifested in the inflation in Britain in the early to mid-1970s and the failure by the British Labour Party to fully understand the causation involved. By the mid-1970s, the British Labour government had surrendered to the growing dominance of the Monetarist school of thought, which diverted its gaze from the true nature of the economic crisis. They unnecessarily called in the IMF as a result of this blindness.
The mainstream economics (by which I mean neo-classical economics and its siblings in a History of Economic Thought context) constructs trade unions as being market imperfections that interfere with the freedom of supply and demand to determine optimal price (wage) and quantity (employment) outcomes. The textbooks teach students that the supply of and demand for labour without the intrusion of trade unions (and other impositions from the state – minimum wages etc) will deliver optimal outcomes for all in accordance with the respective contributions of each ‘factor of production’ (labour, land, capital etc). The real world isn’t like that at all and the determination of shares in national income is the result of a continuous struggle between labour and capital for supremacy. It is very easy to construct the trade unions has job killers in this context and to blame them for inflationary outbreaks. That certainly is how the British trade unions in the early 1970s were constructed by the conservatives and later the Labour Party itself. By the early 1970s, Monetarism was gaining a dominant hold in the academy and strong adherents in policy circles. Trade unions were considered by the Monetarists to be ‘market imperfections’ that should be destroyed by legislative fiat. Governments came under intense pressure to introduce legislation that would constrain unions. However, once we understand history, we can see the early 1970s in Britain leading up to British Labour Prime Minster James Callaghan’s speech to Labour Party Conference held at Blackpool on September 28, 1976 in a different light. It also allows us to see just what surrender monkeys the British Labour Party became after that period. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016.
The early 1970s brought into relief the internal contradictions of the capitalist system of production and distribution. This was never more evident than in Britain at the time. The trade unions, previously illegal had become more powerful and integrated as they defended the rights of their members. The very existence of the union movement exposed the conflictual nature of capitalism. The trade unions caused havoc in Britain in the early 1970s. But before we consider the role of the trade unions, it is important to understand what was happening on the capital side at the time. After the Monetarist ideas of Milton Friedman and his colleagues at the University of Chicago and beyond had seeped out of the academy into the policy and lobbying circles, it became obvious that capital would mount a major action against the unions and governments that gave them succour. Corporations and big money were far from passive. They didn’t buy the line that the Left has been lured into believing that the state had become increasingly powerless as capitalism became more global. Far from it. They got more organised than ever! The British Labour Party became lambs for the …
This blog provides another excerpt in the unfolding story about Britain and the IMF. We pick up yesterday’s story with Britain mired in inflation and rising unemployment as the OPEC oil price rises impact in late 1973. The Tories under the leadership of Edward Heath were trying to deal with internal divisions between the traditional One Nation Conservatists (Heath) and the emerging, right-wing Monetarists. Edward Heath resisted the Monetarists through his term of office and used very traditional ‘Keynesian’ remedies in an attempt to reduce unemployment (for example, the ‘Dash for Growth’) but maintained the usual Tory hostility towards trade unions. His efforts in stimulating growth were stymied by the oil price rises, which spawned a major inflationary outbreak. The Tories blamed the unions and OPEC for the inflation, which, in part, was correct, but then invoked a period of damaging austerity which left the nation in a sorry state. They lost office in February 1974. In this blog, with Harold Wilson back in charge for the second time and his party becoming increasingly infested with Monetarist thinking, we consider the inflation problem in some detail, the lack of any credible evidence to support the Monetarist causality, as a means to understanding how disappointing Prime Minister James Callaghan’s famous 1976 Black Speech to the Labour Party Conference was in terms of maintaining the credibility of the British Labour Party then – and how it opened the way, not only for Margaret Thatcher to wreak havoc, but also for the emergence of the insidious New Labour, which continues to hobble progressive elements in the Party today. It was a major turning point in Left history and needs careful deconstruction.