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Wednesday, 9 November 2011

The End of the Golden Age.

The Last Gasp of Liberalism.
In the late 1960s the Labour government cancelled many of its election promises and moved to cut public spending as it faced rising inflation. The government turned to raising productivity in order to drive growth, a quick way to reorganise British industry was needed. It would end up following a model pioneered by Jim Slater, who set out to strip companies of assets in order to generate a short-term profit. Slater did not profess to hold any concerns at a social level, the only concern he had was to make money and nothing more. So the government put together an industrial reorganisation corporation to supervise a radical experiment in British industry. Under the guidance of Tony Benn the state orchestrated massive takeovers and mergers in British industry, with conglomerates forged out of old companies and thousands of workers made redundant in the process. The Wilson government effectively oversaw the liquidation of industry in order to raise productivity and efficiency to new heights.

Thatcherite before it was Cool.
The Conservative government formed around Ted Heath in 1970 embarked upon a new approach to the economy. Heath rejected the suggestion that the state should or could manage the economy, instead he opted for less intervention in the economy and ultimately to leave the lame subject to the forces of the market. As Rolls Royce went bankrupt and the experiment led to the closure of numerous factories and unemployment began to rise Heath backed away from the approach. The government then went on a "dash for growth" through the liberalisation of credit and a raised public expenditure as the earlier policies seemed to not be working. For a moment it seemed to work, the British economy boomed briefly and then the phenomenon of stagflation emerged as inflation and unemployment began to rise at the same time. The Keynesian orthodoxy was left perplexed.

In 1973 the Conservative government attempted to suppress wages as inflation skyrocketed and in doing so provoked violent strikes. Whatever approach the government took it seemed that the trade unions were a significant obstacle. Ted Heath decided to slam the breaks on the economy, immediate freezes were introduced on wages, prices and even profits. It was a last ditch attempt to control the economy and the stock market panicked at the suggestion of a freeze on profits. Then came the OPEC protest against the Yom Kippur War, in which oil prices were hiked up by 400% and the consequent price shock led to rates of inflation as high as 27% by the mid 70s. The British economy fell into a catastrophic crash as a result, even though the explosion of oil profits flowed to British energy corporations and the rise in price made North Sea Oil increasingly profitable. Finally amidst industrial action, power cuts, a three-day week and out-of-control inflation the Heath government lost power in 1974. But the post-war settlement had been further undermined. The suggestion that the economy could even be managed began to breakdown.

The Science of Money.
None of the traditional methods of Keynesian economics seemed able to resolve the problems in the UK economy in the 1970s. It began to look as though any attempt to pump money into the economy for the purpose of growth was doomed to failure. The proponents of monetarism came on the scene with a theory which seemed to provide technical solutions to the bizarre situation. There was too much money chasing too few goods in the economy. To bring inflation under control it was necessary to slow down the rate of monetary growth. For Milton Friedman the economy was a predictable system governed by laws which were just as objective as the laws of science. The political project of the monetarists went as far as to further challenge the state as a planning apparatus of the economy. The beginning of the end for social democracy was set in motion a few years before as the Bretton-Woods system fell into disarray. The Nixon administration dismantled it as the system was strained by the porous boundaries to capital flows. The US government abandoned a fixed exchange rate in 1971 as gold could no longer serve as the base of international money. The US government retreated from traditional methods of control and the exchange rate was left to float.

Richard Nixon was the last liberal President of the United States, it was the Carter administration who laid the foundations for Reaganomics. Britain soon became enthralled in the same economic theory in the late 70s. Perhaps then we might deem Harold Wilson the last social democrat to stand as Prime Minister of the UK. The country was immersed by desperation as Britain seemed doomed to descend into a gray mediocrity and in 1976 Harold Wilson resigned. The resignation came after a persistent smear campaign against him by a small faction of ultra-rightist MI5 agents - who thought Wilson was a Soviet spy sent to destroy Britain. It was just one of a few plots - which were never followed the logical conclusion - within the Establishment, it went as far as plans to install Lord Mountbatten as Prime Minister and the formation of private armies to fight unions in the event of a General Strike. The resignation opened up a void in government, Tony Benn, Michael Foot and Denis Healey came forward in competition with Jim Callaghan, Anthony Crosland and Roy Jenkins. The right-wing of the Labour Party came on top with Jim Callaghan winning.

A New Game.
That same year Britain fell into the abyss and faced bankruptcy so the government turned to the IMF for  a loan, the catch was a prescription of economic reform. The nature of the economic reforms were clear at the Labour Party Conference that year when Prime Minister James Callaghan stated "We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candour that, that option no longer exists insofar as it ever did exist. It only worked on each occasion, since the War, by injecting a bigger dose of inflation into the economy on every occasion followed by a higher level of unemployment as the next step." The IMF came to the rescue later that year and Milton Friedman was awarded the Nobel Prize in Economics, this demonstrated the shift in paradigm as monetarism came to the forefront of economic theory. By now there was a new leader of the Conservative Party, Margaret Thatcher had surrounded herself with monetarists such as Keith Joseph. The road was clear as the people became increasingly disillusioned with the Labour government.

1 comment:

Anonymous said...

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