Wednesday, 9 November 2011

How did we get here?

A Safe Pair of Hands?

For over 30 years the post-war settlement has been systematically eroded and it looks as though we may see the end of the welfare state in our life times. The austerity measures David Cameron has delivered unto us have come with the promises of the "Big Society". Perhaps the political class has a Victorian model in mind, the philanthropic capitalism that prevailed throughout the 19th Century. The welfare state constructed under the Labour government of 1945 to 1951 never pleased everyone and it was met with strong criticism from the right-wing media with The Financial Times in the lead. But the criticism of the welfare state took on a much more mainstream character in the 1960s and became increasingly emphatic throughout the 70s. Even though the social democratic era which lasted for 30 years has been likened to a "golden age" of capitalism as a significant growth and development was achieved by historical standards. It culminated in the rise of the Thatcherites and the subsequent 30 years of neoliberalism.

Second-Hand Ideas.
The transition did not simply come about out the growing criticism of the welfare state in the 1960s and 70s, there was a propagation of neoliberal ideas throughout this period and it began with the Institute of Economic Affairs. It was a right-wing businessman Anthony Fisher who founded the Institute in 1955, it was the first of 150 think-tanks which he would set up to disseminate "second-hand ideas". In the early 50s when Anthony Fisher was an isolated figure working with Major Oliver Smedley after they met at the Society for Individualists. Both of them were opposed to the state planning involved in the reconstruction of Britain after the Second World War. Smedley and Fisher were convinced that the increasing power of the state would lead to the end of democracy. For them even the Milk Marketing Board and the Egg Marketing Board were enemies of liberty. Importantly, it was Friedrich Hayek who talked Anthony Fisher into setting up think-tanks in order to the shape the dominant discourse and ultimately influence public opinion to achieve political change.

By then the British Empire was falling apart with the rising tide of revolutionary nationalism in the Third World. The political class was determined to see to it that the UK could be invigorated to the level of an economic powerhouse in spite of the collapse of the Empire. With the achievements of the 1940s came a state apparatus of economic planning in which technocrats worked to secure prosperity in Britain. The National Economic Development Council was set up in 1961 with the growth target of 4% between 1961 and 1966. At the time NEDC was dominated by Keynesian economists who were convinced that it was possible to control an economic boom, so that the rise of aggregate demand would not necessarily lead to the economy being flooded with imports and wage rising leading to inflation. There was no new theory, just a new use of old methods. NEDC pledged to plan investment in industry as the government would hold down inflation. The Conservative government poured money into the economy and by 1963 it looked as though the economy was on track with the plan as a boom was underway.

A Soviet Spy?
In opposition the Labour Party responded with a national plan which would be run by the Department of Economic Affairs, that would aim to deliver a great deal of growth in 6 years as well as the expansion of British industry would be stable insofar as it is controlled. If Labour could succeed in doing this then there would be little need to redistribute wealth because there would be more for everyone. Harold Wilson came to power just as the economic boom initiated under the Conservative Party began to overheat, imports were flooding the country and wages were rising. It looked as though the Labour government had to devalue the pound in order to make British exports cheaper abroad. It was in part the inability of the political class to accept British decline which led to a refusal under Wilson to devalue the currency. Instead the Labour government opted to pin down wages and prices, as well as initiate spending cuts and cancel election promises. There were repeated runs on the pound as foreign investors lost confidence in the Labour government before finally Labour conceded the devaluation of sterling, but by then it was too late and the economy grinded to a halt.

In doing so the Labour government under Harold Wilson had unwittingly undermined the notion of the planning apparatus as a unique and certain method to secure significant economic development at a faster pace. During this time that the City of London became increasingly important as the government acted to protect and enhance the powers of finance with respect to the global flow of finance capital. The protection of finance capital through the manipulation of interest rates conflicted with the needs and interests of domestic manufacturing capital. A structural division within the ruling class emerged as the conflict held back the expansion of the domestic market via the restriction of credit. The commitment to a strong pound had undermined the export position of British industry, this laid the ground for the balance of payments crises of the 70s. These contradictions played a fundamental role in the breakdown and regeneration of the British state-corporate nexus which composed the transition from social democracy to neoliberalism.

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