Ideas and Economic Crises in Britain from Attlee to Blair (1945-2005)

Matthias Matthijs

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136907890
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

During the period from 1945 to 2005, Britain underwent two deep-seated institutional transformations when political elites successfully challenged the prevailing wisdom on how to govern the economy. Attlee and Thatcher were able to effectively implement most of their political platforms. During this period there were also two opportunities to challenge existing institutional arrangements. Heath's 'U-turn' in 1972 signalled his failure to implement the radical agenda promised upon election in 1970, whilst Tony Blair's New Labour similarly failed to instigate a major break with the 'Thatcherite' settlement.

Rather than simply retell the story of British economic policymaking since World War II, this book offers a theoretically informed version of events, which draws upon the literatures on institutional path dependence, economic constructivism and political economy to explain this puzzle. It will be of great interest to both researchers and postgraduates with an interest in British economic history and the fields of political economy and economic crisis more widely.

1 Continuity and change in British economic policymaking

Let’s go forward into this fight in the spirit of William Blake: “I will not cease from mental fight, nor shall the sword sleep in my hand, until we have built Jerusalem in England’s green and pleasant land.”

Clement Attlee (1951)¹

We will have to embark on a change so radical, a revolution so quiet and yet so total that it will go far beyond the programme for one parliament, far beyond the decade, and way into the 1980s.

Edward Heath (1970)²

I prefer to believe that certain lessons have been learnt from experience, that we are coming, slowly, painfully, to an autumn of understanding. And I hope that it will be followed by a winter of common sense. If it is not, we shall not be diverted from our course. To those waiting with bated breath for that favourite media catchphrase, the “U” turn, I have only one thing to say: “You turn if you want to. The lady’s not for turning.”

Margaret Thatcher (1980)³

You create a settlement that your political opponents have to come to an accommodation with, and at the moment the Conservative Party is not in that position. What we want to create is a situation where the great postwar settlement for welfare, for public services, for the type of country we are, is renewed and modernized thoroughly for today’s world.

Tony Blair (2005)⁴

Introduction

Faced with a crisis, a politician will either turn to established rules of the game for direction or engage in radical reform. When it comes to economic policymaking this choice between continuity and change is fundamental, and yet fundamentally uncertain. While continuity entails using longstanding mechanisms such as existing institutions, ideas, and routines to address current economic problems, change introduces innovative ideas that establish new norms of economic policymaking that subsequent governments are compelled to follow. This book examines continuity and change when the fundamentals of policymaking, and indeed policy purpose, are uncertain. It argues that to understand continuity and change in economic policymaking, we need to analyze both the impact and – crucially – the narration of economic crises in the shaping of a government’s economic policy. As we shall see, in some cases, how the fact is explained is more important than the objective fact itself.

One salient example of the importance of crisis narration occurred in the late 1990s in Great Britain. After almost two decades in opposition, Tony Blair and Gordon Brown resurrected the Labour Party in May 1997 through a decisive election victory that swept them to political power and banished the Conservative Party to the opposition benches for years to come. Blair would go on to lead his party twice more to electoral success in 2001 and 2005, each time with comfortable majorities, giving substance to New Labour’s claim to have replaced the Conservatives as the “natural party of government.”⁵ In an attempt to counter prevailing disillusionment with statist social democracy and unfettered market capitalism, Blair’s so-called “Third Way” promised to achieve the traditional social democratic objectives of social justice and national solidarity, while concurrently ensuring high economic efficiency and market flexibility.⁶

This strong mandate should have given Blair, Brown and New Labour the capacity to accomplish the radical reform of government institutions necessary to fulfill such an ambitious vision. However, while their policy platform had intellectual underpinnings in Third Way thinking,⁷ after more than ten years in power, the New Labour governments could not claim to have lived up to their promise to create a “New Britain.”⁸ Blair’s version of the Third Way established no new norms of economic policymaking that broke with the neoliberal consensus policies of the mid-1990s. Instead, New Labour’s economic policy built directly on the legacies of Conservatives Margaret Thatcher and John Major, whose policies Blair’s party should have reformed were they to accomplish the social democratic objectives of the Third Way. As this book will argue, Blair did not successfully construct or narrate a crisis that would have given him the political capital to implement more radical reforms.

As a result, while some reforms in health care, education, and social welfare were instituted, Blair and Brown did not change the overall terms of the economic debate, let alone reach a new settlement for Britain.⁹ The general feeling that Blair’s governments wasted opportunities for reform endures, especially amongst the Labour Party faithful, as does the belief that Blair was not radical enough in the pursuit of his public services agenda, opting for continuity rather than change from the Conservatives’ policies of the 1980s and 1990s.¹⁰

Blair was unable to institute more radical reform in the late 1990s despite the fact that, in many ways, New Labour had a unique opportunity to correct some of Britain’s long-standing economic problems. Politically, Blair was in a strong position to take decisive action. First, New Labour enjoyed a formidable popular mandate that was backed by a large majority in the House of Commons.¹¹ Second, Britain had, and still has, one of the most centralized political systems in Western Europe, with the prime minister possessing comparatively far-reaching powers. Last, after 18 years of often divisive Tory rule – especially given the corruption, infighting and so-called “sleaze” of the final years of the Major government – the general mood of the British electorate was adamant: it was high time for a change.¹² In addition, there were serious economic problems under Thatcher and Major that had become part of the prevailing British economic landscape: the miserable state of public services, the untenable short-term housing and consumer booms, and the chronic underinvestment in the real economy. The recession of 1990–1992 was the most prolonged since the Great Depression, and had revealed deep, structural problems, most of which persisted under Major’s government in the mid-1990s. For these reasons, Blair and Brown had the potential as well as the political strength to make radical reforms. Once in power, they opted nevertheless to continue the policies of their Conservative predecessors. Even more surprising, they ended up formally institutionalizing some of those policies in Britain’s economic paradigm.

Why did Blair turn to already-established mechanisms, rather than to reforming existing economic policies and institutions? Ironically, Blair has often compared his New Labour governments with Britain’s two reforming center-left administrations of the twentieth century – the Liberal governments of 1905–1915 and the Labour governments of 1945–1951 – and also with the drive, impact and determination of the Conservative governments of 1979–1990.¹³ Those three governments, of Herbert Asquith, Clement Attlee, and Margaret Thatcher respectively, all had one thing in common: they challenged the received economic wisdom of the time and created a new economic settlement by redefining the role of the state in the British economy. All three also changed the consensus of what the main goals of economic policy ought to be.

Asquith, inspired by the economic ideas of Alfred Marshall and Arthur Pigou, was the first prime minister to accept state responsibility for assisting the poor through redistributive taxation, contrary to prevailing economic theory at the time. His Liberal governments enacted policies such as old age pensions, a national insurance scheme for the sick, disabled and unemployed, and a (modest) minimum wage for certain industries.¹⁴ Attlee, following the wartime proposals of John Maynard Keynes and William Beveridge, introduced full employment as the main goal of economic policy and made the welfare state universal. Through a program of nationalization of the “commanding heights” of the economy, the creation of a National Health Service and eventually through Keynesian macro economic demand management,¹⁵ he fundamentally shifted the boundaries between the public and private sectors and the consensus on how to run a modern economy.¹⁶ Thatcher was influenced by the ideas of Friedrich von Hayek and Milton Friedman, and changed the terms of the political debate in the late 1970s and early 1980s, often by dogmatically following monetarist macroeconomic policy prescriptions in the pursuit of price stability, significantly reducing the relative power of the trade unions in the decision making process, instituting a process of far-reaching deregulation and liberalization, and all but reversing the nationalizations performed under the Attlee governments.¹⁷

The New Labour legacy cannot be favorably compared to any of those three innovating twentieth century governments Blair himself professed to admire and emulate. In some respects, Tory leader Edward Heath offers a closer analogy to Blair than either Attlee or Thatcher. Just as Blair could have challenged the Thatcherite consensus in Britain in the late 1990s, Heath could have changed the existing postwar settlement when he came to power in 1970. In 1965, Heath had been elected the youngest leader of the Conservative Party, defying the odds against the party favorite Reginald Maudling, and went on to win a surprising general election victory five years later. In an effort to address postwar Britain’s relative economic decline, Heath had campaigned on a platform that embraced fairly radical monetarist and free market policies.¹⁸ As prime minister, Heath initially steered his government on a – for the time – rather radical free market path, but reversed course after less than two years in the face of a national miners’ strike and unemployment nearing the psychologically important one million mark. In 1972, in order to revive the British economy, Heath retreated to the familiar Keynesian policies of old. Many of Thatcher’s later supporters, not least Thatcher herself, would never forgive him for this U-turn, blaming Heath personally for wasting four valuable Conservative years in power due to a lack of courage and conviction.¹⁹

Why were Attlee and Thatcher capable of translating many of their ideas and electoral promises into lasting government policies? And why did Heath and Blair merely consolidate and prolong existing institutional arrangements?

Where did Thatcher and Attlee succeed; and where did Blair and Heath fail?

Ideas and crises in postwar British economic policymaking

The purpose of this book is to outline theoretically informed answers as to why Attlee and Thatcher, once elected, proved to be so successful at drawing up new institutional “rules of the game” that subsequent governments felt so compelled to follow when concerned with the proper conduct of economic policy. In so doing, this book also explains why Heath and Blair avoided or failed to achieve more radical change even though they had the opportunity to do so at the time they came to power.

Of particular interest to political scientists are broader questions about the causes of continuity and change in a country’s political economy. In this regard, this book addresses the following: are there certain structural factors that create the conditions for radical reform of government institutions? How do new ideas rise to political prominence? When do ideas matter in explaining economic policy change, as opposed to mere political expediency? How do ideas become embedded in organizations and patterns of discourse? When existing institutions lose their legitimacy during periods of crisis, what factors determine the future path of institutional development? And, which factors explain the often long periods of institutional stability over time?

To focus on those particular moments in time when radical change is more likely to occur, and the conditions under which institutional transformations become most likely, it is necessary to reexamine the concept of economic “crisis.” The key argument of this book is that, in order to understand continuity and change in economic policymaking, we need to comprehend and clearly define the impact of economic crises in shaping a government’s economic policy.²⁰ When moments of financial turmoil or severe economic downturns are perceived both by the political establishment and the general electorate as a real “crisis,” new ideas will suddenly matter since they give a clear, though often simplified, explanation of “what went wrong, and how to fix it.”²¹ Perception is critical.

This book argues that a crisis is not a self-evident state of affairs, but a perception – shared by elites – of a situation that requires action and needs to be explained in a convincing narrative to the public at large.²² During a crisis, ideas function as a roadmap for any emerging institutional structure. If there is, on the other hand, no real perception of crisis, because of a lack of a convincing crisis narrative, then there is limited incentive to radically change the state’s institutional setup. As a result, at most there will be incremental change. In the latter case, new ideas only play a marginal role and are only implemented insofar as they fit within the existing institutional framework. This leads to future institutional development that is largely path dependent with the old ideas.²³ Instead of changing the status quo, these marginal changes in fact end up strengthening existing institutions by correcting their minor weaknesses. This makes future radical reform all the more difficult.²⁴

Great Britain provides an able case for the examination of ideas, crises, and economic policymaking. The state of the economy has preoccupied and constrained the British political class with a regularity and potency unmatched by any other issue throughout the entire postwar period.²⁵ That there has been quite significant social and political change in postwar Britain is merely stating the obvious. Yet whether such change is interpreted primarily in terms of continuity or discontinuity is dependent upon the context and timeframe under which that change is assessed.²⁶ This book emphasizes the discontinuities in British economic policy overtime, treating 1945, 1970, 1979 and 1997 in particular, as key moments of potential policy realignment. Each date marks the point at which a new generation of politicians took office by challenging the dominant understanding of how best to revive the British economy’s flagging fortunes. During all four of these moments, strong and, maybe with the exception of Attlee, very charismatic opposition leaders were in a position to provide a credible alternative on how to run the econo...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of Illustrations
• Acknowledgments
• 1 Continuity and change in British economic policymaking
• 2 Crisis, ideas, and path dependence: Theoretical framework and postwar Britain’s changing political economy
• 3 Clement Attlee’s postwar “settlement” (1945–1970): Depression, war, Keynes, Beveridge, and a new consensus
• 4 Relative decline and the unraveling of consensus (1959–1979): From “having it so good” to the “winter of discontent”
• 5 Margaret Thatcher’s triumph (1975–1990): Inflation, Hayek, and the overhaul of the British state
• 6 Thatcherism’s flaws and Tony Blair’s consolidation (1987–2005): From the Lawson boom to New Labour’s “New Britain”
• 7 Conclusion: Made in Britain
• Postscript: Gordon Brown, the “Great Recession,” and the future of neoliberalism
• Appendix: List of interviewees
• Notes
• Bibliography
• Index