Martin Seale
The liberalism of the late 19th century was characterized by the view that the role of the state should be limited. The state would protect the nation from external enemies, enforce the rule of law (much around property) and provide some limited form of education. British capitalism seemed to function reasonably well up to the 2nd half of 1920 on the basis of this view on the limited role of the state.
But in 1929 the great depression occurred. Before 1914, British capitalism had experienced its ups and downs and recessions. It had always recovered from these recessions. It was assumed that it would recover from the crash of 1929. But it didn’t. For the first time, economists and politicians were forced to consider the possibility that capitalism could settle into a condition of permanently high unemployment. William Beveridge, in his 1943 book ‘Full Employment in a Free Society’, summarizes this realization:
“The central problem of unemployment between the wars in Britain was not what it had appeared to be before the first World War. It was not a problem of cyclical fluctuation reducing demand for a time, or of disorganization of the labour market, wasting men’s lives in drifting and waiting. It was a problem of general and persistent weakness of demand for labour.” Paragraph 114.
Economic theory suggested this could not happen. Beveridge writes:
“…long before, in 1913, Professor Pigou had carried the argument about wages to the point of saying that it was theoretically possible for wage-rates at any moment to be so adjusted in every part of the industrial field ‘that no unemployment whatever can exist.’ …’In other words, it has been shown that unemployment is wholly caused by maladjustment between wages and demand.’ “Ibid paragraph 119.
In 1936 the economist John Maynard Keynes questioned existing economic theory in his book ‘The General Theory of Employment, Interest and Money’. Keynes argued that capitalism could indeed settle into a condition of high unemployment. Beveridge summarized Keynes’ argument as follows:
“Employment depends on spending, which is of two kinds — for consumption and for investment; what people spend on consumption gives employment. What they save, i.e. do not spend on consumption, gives employment only if it is invested, which means not the buying of bonds or shares but expenditure in adding to capital equipment, such as factories, machinery, or ships, or in increasing stock of raw material. There is not in the unplanned market economy anything that automatically keeps the total of spending of both kinds at the point of full employment, that is to say, high enough to employ all the available labour. Adequate total demand for labour in an unplanned market economy cannot be taken for granted.” Ibid paragraph 120.
Keynes further argued that the only institution that could get capitalism out of a condition of persistent high unemployment was a strongly interventionist state. Basically the state could and should employ everyone whom the private sector did not want to employ.
The incomeless unemployed would become the money spending employed. This would give the private sector the confidence to start hiring again. In this way a recession was avoided. The intervention of the state was seen by Keynes as being only a temporary requirement until private capital recovered its confidence.
The question arose over where the state would find the money to pay the workers it was hiring. Beveridge did not see that as a problem because the state was not financially constrained:
“During peace the bulk of the outlay can, and in a free society will, continue to be private. But the ultimate responsibility for seeing that outlay as a whole, taking public and private outlay together, is sufficient to set up a demand for labour seeking employment, must be taken by the State, because no other authority or person has the requisite powers. No private enterprise can survey the whole field of industry or ensure at all times a demand for all that industry can produce at a price covering its costs. No private enterprise can make finance its servant rather than its master. The outlay of every person or authority other than the State is limited rigidly by the financial resources of that person or authority. The central proposition of this Report is that the responsibility of ensuring at all times outlay sufficient in total to employ all the available man-power in Britain should formally be placed by the people of Britain upon the State. That first and foremost is what is meant by adopting a national policy of full employment.” Ibid paragraph 120.
Keynes preferred that the workers hired by the state would engage in productive employment. But he understood that this was not the essential part of his solution. If the hired workers dug holes and filled them in again, the increase in demand when they spent their wages would induce the private sector to hire workers to meet that increased demand. The initial increase in spending by the state would either directly or indirectly lead to the production of goods or services that were useful to the society.
The first outcome of Keynes’ theory of economics was that the direct intervention of the state might be needed to end a recession. However, there was a second important outcome. Before Keynes it was assumed that workers were unemployed because they were lazy or unprepared to work at a lower wage. Keynes’ analysis showed that this was not the case. Workers were unemployed through no fault of their own. This being so, the case for providing them with welfare, while unemployed, became very strong. It would result in the production of Beveridge’s design of a welfare state in 1942.
Liberalism could have accepted the implications of Keynes’ theories but would have limited the role of the state to ending unemployment and providing some form of temporary welfare. However, the specter of socialism was on the march after the Russian communist revolution in 1917. In Russia, the state took a much more active role in deciding what goods and services were produced. Keynes would have had little sympathy with these ideas though he would probably have supported the creation of an institution like the NHS.
Either way, by the late 1940s the fundamental liberal idea of a small state was well and truly ended. For the next 30 years it was assumed that the state in a capitalist society should have responsibility for guaranteeing full employment and also for managing key services and industries.
This arrangement led to significant improvements in the condition of the working class over the next 30 years. But the arrangement had its own internal contradictions which would lead to its demise in the late 1970s. Beveridge identified two such contradictions: ‘Industrial Discipline’ and ‘Determination of Wages’.
Beveridge was fairly certain that industrial discipline would not be a big problem. But of the second contradiction he has this to say
“The problem of how wages should be determined under conditions of full employment is more important and more difficult … Irresponsible sectional wage bargaining may lead to inflationary developments which bestow no benefits upon the working class; which spell expropriation for the old-age pensioner and the small rentier; and which endanger the very policy of full employment whose maintenance is a vital common interest of all wage-earners. How real is this possibility cannot be decided on theoretical grounds… “ ibid paragraph 283.
“…But the fact remains that there is no inherent mechanism in our present system, which can with certainty prevent competitive sectional bargaining for wages from setting up a vicious spiral of rising prices under full employment.” ibid paragraph 285.
It took some time before the internal contradictions that Beveridge had identified began to reveal themselves. In fact, as Beveridge expected, free collective bargaining worked reasonably well until the mid-1960s.
In the mid-1960s and early 1970s the Vietnam war and the increase in oil prices led to a dramatic increase in the cost of living. Under these pressures the collective bargaining process broke down as sections of the working class attempted to defend their living standards. What Beveridge had highlighted and feared 30 years previously came to pass. Beveridge wrote:
“So long as freedom of collective bargaining is maintained, the primary responsibility of preventing a full employment policy from coming to grief in a vicious spiral of wages and prices will rest on those who conduct the bargaining on behalf of labour. The more explicitly that responsibility is stated, the greater can be the confidence that it will be accepted. “ ibid paragraph 288
It was a prophetic observation since this ‘primary responsibility’ of the trade union movement was increasingly abandoned from the late 1960s in the face of growing inflation. Much of the politics of the period from the late 1960s was taken up with how to deal with the exercise of power by the British trade union movement. One sees that first with Barbara Castle’s ‘In Place of Strife’ white paper in 1969, Heath’s tripartite talks in 1971, the Bullock commission on industrial democracy in 1976. But the British trade union movement refused to present a coherent view about how incomes should be distributed in British society. In the ensuing chaos Margaret Thatcher emerged. She decided that the only solution was to severely limit the power of the British trade union movement. She and her successors continued that task for the 18 years from 1979 until 1997. More importantly, the 1997 Labour Government under Tony Blair and Gordon Brown, which would govern Britain until 2010, made no attempt to reverse Thatcher’s destruction of the trade union movement.
The destruction of the Trade Union Movement is perhaps the main way in which neoliberalism is different to liberalism. A small state and minimal welfare are features of neoliberalism as they were of original liberalism.
Neoliberalism abandoned first the commitment to full employment. If the private sector did not want to hire all those who wanted to work, it was not automatically the responsibility of the state to employ them. Indeed, the state might not be able to employ them because it did not have the money to employ them.
This idea that the state might not have the money to employ the unemployed was first given strong credence when the Labour chancellor, Denis Healy, claimed that the British state was bankrupt and would need to take out a loan from the IMF. Healy made such a statement, not because he believed it, but because he could think of no other way to end the wage-price spiral inflation caused by the shortsighted sectional behaviour of the trade union movement in the 1970s.
The election of the Thatcher government in 1979 is usually described as representing a move to the right by British society but that is an over-simplification that doesn’t really help us understand the actual dynamics of what Thatcher represented. It also avoids the culpability of the labour movement in creating the conditions in which someone like Thatcher could thrive[MD1] . A more accurate description would be that she represented the reaction of the electorate to the political and economic future that the labour movement had threatened to create through its myopic behaviour in the 1970s. At that time, the trade union movement had shown by its actions that it was in control of most aspects of civil society from the disposal of the dead to the people’s access to energy and light. The question that dominated the concerns of civil society was how that power was to be used in the future. Up to then that power had been seen to assert itself as a disruptive power used in a sectional interest. What remained to be seen was whether it could be used responsibly by putting it to a more constructive use in the wider society.
In many ways the answer was given in the rejection of the 1977 Bullock Report on industrial democracy. That rejection came about through the dominant influence of a narrow sectional mindset among most of the trade union leadership and an ideologically constrained left-wing in politics. The electorate was confronted with a Labour leadership that was unable to influence the way in which the enormous power of the trade union movement was being used. Consequently, the Labour Party was seen to offer no alternative to the ongoing prospect of continued industrial strife and anarchy. An incompetent trades union movement enabled the arrival of Thatcher into British politics.
Has the trade union movement progressed beyond the limited view of the world that dominated its thinking in the late 1970s? Sadly the answer to that question is in the negative. There were some trade unionists who understood there was a bigger problem. Jack Jones, the leader of the Transport and General Workers Movement had perhaps the best grasp of the issue. The TUC leader Frances O’Grady had some feeling for the problem. Len McCluskey also had some recognition that there was a bigger problem.
But in general the trade unions have largely confined themselves to pursuing the interests of their members rather than attempting to work in concert with other unions to progress the interests of the working class as a whole. In short, we cannot look to the current trade union leaders for leadership in opposing the neoliberal policies being pursued by the Starmer Labour government. As long as that state of affairs continues, the working class will be unable to win in the struggle with Capital and the state shall remain what it became under Thatcher, a state that advanced the interests of Capital.
There is one interesting light on the horizon in the form of a very rich ex trader called Gary Stevenson. Stevenson believes that, until inequality is dramatically reduced, there is no hope for British society. His remedy for reducing inequality is to tax the rich, though his proposals on the form of that taxation is yet to be decided. Will it be a wealth tax or an income tax or possibly a mixture? His YouTube channel advocating taxing the rich has some 1.5 million subscribers. Trade unions would be generally supportive of higher taxes on the rich. But it’s not an idea that they put at the top of their agenda. In contrast, Stevenson has just one policy, to reduce inequality by significantly increasing taxation of the rich. It will be interesting to see how Stevenson develops his campaign over the next few years and whether the trade unions support it with equal vigour.
Labour Affairs 