The Atlantic and Its Enemies

by Norman Stone

  British government interventions of this sort were not successful. In the automobile world, they went almost comically wrong. In the 1960s there was the almost inevitable response to competition, the creation of a large corporation, British Leyland, itself after 1974 directed by a National Enterprise Board (under the head of Reed International) and before then vaguely responsible to the Industrial Reorganization Corporation. However, tax again distorted affairs. It became sensible for British businesses to pay their people in ‘perks’, such as motor cars, and a standard, not very interesting range then appeared, which did not match Mercedes or BMW in engineering. To these, the Swedish Volvo offered serious competition, and since the British had a free-trade agreement with Sweden, offsetting the Common Market, Volvos took the top of the market. By 1980 three fifths of the motor cars sold in Britain were imported. Leyland’s management did not deal with the crisis as Arnold Weinstock had done with electricity, that is by cutting management costs and building reserves of cash. Instead, in 1972, they tried to negotiate with trade unions and craftsmen, and the Board refused to bring in outside advisers. The oil crisis of 1973, and then the inflation, brought a financial crisis, and the National Enterprise Board put in a large sum of money; Alan (Lord) Bullock recommended three levels of union co-responsibility (‘partnership’ in the German manner). But it was all pointless. Union troubles rose, to the point of ridiculousness, and by 1980 under a million British cars were produced, one third of them for export, whereas France had 3 million and Germany 3.5 million, between half and two thirds being exported (in Germany Volkswagen had faced a crisis, but Helmut Schmidt had refused to bail it out as Leyland had been bailed out). Japan had already entered the world market, taking a quarter of American sales, and even building factories in the United States.

  Intelligent people did not need statistics to learn about the decline of the country; they only needed to take the boat train to France. By this time, British problems seemed to be falling into a vicious circle, of inflation, of problems with the pound, of problems with the balance of payments, of problems regarding unions and management alike. In 1971 unemployment began to rise, reaching not far from one million, while at the same time inflation stood at 9 per cent — not what was supposed to happen. Heath saw the answer in three directions. After a few weeks of pretending that he would ‘free’ the market, he was soon (February 1972) into the business of subsidizing collapsing industries, and then imposing controls on wages and prices (November: the ‘U Turn’). But he would make up for this. First of all would be government spending. Then would come attempts to deal with the union problem, whether by agreement, or by law. Finally, there was ‘Europe’: the magic that had worked in France and Germany would work in England as well.

  The first two tacks ran into headwinds. Money was splashed around, interest rates were reduced from 7 to 5 per cent, and bank lending was less controlled; taxation was cut by £500m and post-war credits were repaid. At the same time public works were undertaken, particularly in the north — famously, an elaborate concrete bridge with hardly any traffic on it. There was an explosion of bank lending — £1.32bn in 1970, £1.8bn in 1971 and almost £7bn by 1973. Another expansionary budget followed in 1972, with tax cuts of £1.2bn. In 1972 the floating of the pound allowed inflows from abroad, and new credit-giving institutions were allowed to emerge, offering and taking loans in conditions no longer subject to the controls of the past. For a time, this seemed to work. Unemployment did indeed fall to 500,000, but this was classic fool’s gold. The ‘fringe banks’ for a time did well out of property prices, which had a dangerously more important role in England than elsewhere, and unlovely concrete spread and spread and spread.

  But then came the oil shock. Even food prices trebled by 1974 as against 1971, and the bubble burst in November 1973, when the minimum lending rate was pushed up to 13 per cent while public spending was cut back by £12bn. One of the new banks could not obtain credit, and the other banks had to set up a ‘lifeboat’. It was not enough. The Bank of England itself had to move in, in the winter of 1974-5, and a well-connected bucket shop concern, Slater Walker Securities, had to be rescued in 1975. The Stock Exchange collapsed. Heath’s effort to spend his way through the strange ‘stagflation’ had thus come to grief, and inflation by 1976 reached 25 per cent.

  In this dismal tale came a damp squib: since the later 1950s the importance of the European recovery had been plain for all to see. Germany boomed and boomed, and so, despite 1968, did France. Italy was also picking herself up in a remarkable way, and by 1970 any Englishman could see for himself how far his country was lagging behind. By 1960 British governments appreciated that their might-have-been alternative, the former imperial lands and some of the smaller European countries such as Finland and Austria, did not give them quite the same weight as would membership of the European Economic Community. Besides, the Americans were very keen to have Great Britain as a member, for the obvious reason that she would act as an Atlantic bridge for them, in a hostile view, to walk upon. The British tried in 1962-3 and were told ‘no’ rudely and in public by de Gaulle, who wanted to build up Europe as a sort of ‘third force’. He did it again in 1967. After his resignation, and after the shock of 1968, there were more realistic French governments and de Gaulle’s successor, Pompidou, could see, with the shocks of the world’s financial system in the early seventies, and the American disaster in Vietnam, that the Atlantic system needed buttressing. On the British side the various mishaps of that period caused a good part of opinion to wish that, like Italy, England could be governed by foreign-made rules, since the domestic ones were so demonstrably not working. Besides, on both sides of the political divide, senior politicians believed in big government, erecting concrete blocks of some hideousness in celebration of it. The Europe of Brussels did much the same, and the tourism shops in that city even sold ballpoint pens with a paper-clip as pocket-attacher. In 1972-3 the Heath government pushed British membership, and did so in some desperation. It signed away British fishing rights, condemning picturesque fishing villages to decline as floating fishing factories vacuumed the fish out of the sea. It also had to accept the Common Agricultural Policy, which put up food costs for the poor by £25 per week, and deprived former colonial territories of an appropriate market, all the while getting the ordinary taxpayer to pay. Still, ‘Britain in Europe’ appeared to be the only way out of the troubles of the Heath-Wilson period, and in 1975 a referendum confirmed British membership. Italians had constantly voted with enthusiasm for not being governed by Italians. Now the British did the same. Heath had quite unwittingly done that service to the cause he most believed in. But Europe offered no immediate relief, quite the contrary.

  The attempt to deal with the union problem was farcical. It had split the Labour government in 1969. Heath tried to deal with it by law, and made the law look an ass: jailing dockers, however repellent they might be, in peacetime, was a reductio ad absurdum of Marx’s Eighteenth Brumaire, called for ridicule, and got it. London, at the time, was plastered with government posters explaining an incomes policy of percentages of percentages minus some figure that had been thought up for the lowest-paid, and the face of the Prime Minister on television was an invitation not to bother voting at all. Heath’s incomes policy did not get off the ground; it was sabotaged by the miners in 1972 and fatally in 1973-4. A Prices and Incomes Board was established (under one Aubrey Jones, a marketer of soap powder in the 1960s). Of course, it was absurd for some central body to be controlling such details unless it had the equivalent of wartime powers. But the Atlantic world attempted such things, even under another supposed conservative, Nixon. The whole thing tended to freeze pay as it stood, ‘relativities’ being a minefield, i.e. who was paid more than whom for what. The Cabinet, to its bewilderment, found itself discussing what the secretaries should be paid. With the Coal Board, there were immediate problems, because miners saw themselves as essential, could also discern that the rise in oil prices would make coal very desirable,
had their wages politically determined, and did not see why their daughters should earn more as hairdressers. In 1972 they put in a claim for 27 per cent and 10,000 of them besieged the Saltley Coke Depot outside Birmingham. This was settled. Dockers then wanted their slice.

  In the end it was the inflation that caused much of the trouble, but there was as ever in England an historical element. An extraordinary British anomaly, a tribute to the very high standards of the past, was that the trade unions were subject only to the criminal law: gratuitous mayhem, of a kind that no-one, in the English nineteenth century, would have expected. In 1906 a Liberal government anxious to please labour produced a trade union law that assumed common decency. The matter was not even debated, so that the then worthies could devote their oratorical talents to the Irish Question. The trade unions’ power to ‘picket’, i.e. to deter potential customers and strike-breakers, was unchallenged. That power was not supposed to include violence, but there was nothing to prevent strike pickets from roving around to stop firms that were indirectly involved in the affairs of the struck-against one. A would-be mining revolutionary, Arthur Scargill, sent men with brickbats to raid the power stations and stop the use of coal, and the police stood by, helpless. In the docks, a similar protection-racketeering prevailed. In the event, power was switched off for much of the day, and industry itself went over to a three-day week (during which it produced more than in the previous 5½-day week). In February 1974 Heath narrowly lost an election, and Labour returned, this time producing a ‘social contract’ with the unions which was received with derision. The general idea was that there would be a ‘fairer’ society — i.e. direct taxes on the better off that would reach almost 100 per cent — if the unions restrained wage demands. They could not control their own people and the overall inflation was such that they were required to put in for higher wages in any event.

  The public service unions now started. From 1961 to 1975 central government employment had risen by 27 and local government by 70 per cent. The NUPE (National Union of Public Employees) grew, from 265,000 to 712,000 between 1968 and 1978, and in 1973 came the first National Health strike, which included consultants. Jack Jones became a figure of power, as head of the TGWU, the largest of the unions, pushing for an extension of union power over Labour. It was he who produced the idea of a ‘social contract’, an echo of the ‘social partnership’ of consensus-minded Catholics. There would, he promised, be moderation in wage claims as a consequence. There followed some preposterous calculations as to permitted wage rises. As in the United States, these were soon shown to be imbecilic. Jack Jones apparently dictated academic salaries, and some deluded dons, unable to believe that an enlightened government could do this to them, demonstrated in mortarboard and gown outside Downing Street with the electric slogan, ‘Rectify the Anomaly’. By June 1975 weekly wage rates had risen by up to one third, and by summer 1977 inflation stood at 13 per cent and wages rose by 14 per cent, the better-paid workers now paying marginal rates of income tax. In fact taxation was wicked, in the sense that it was destroying the good. A married man with two children had take-home pay of £70 per week in December 1973, but £63 in 1977; by 1979 the incidence of taxation was growing, such that there were 2.5 million more taxpayers than in 1974, but the government’s own poverty figure was £55 per week for a married man with two children. There was every incentive, therefore, for said married man to abandon his family and sue for ‘benefit’. A million people earned less than £55, the lowest 10 per cent of earners in the National Health Service earning £48, and the overall average itself was now low: £80 in industry generally or, for the 2 million local government workers, less (dustmen earned £56). Anthony Crosland, the ideologist of modernized Labour, became a near alcoholic. His final contribution to the country’s future was to destroy the selective grammar schools that had been a great glory, and a means to inspire and promote bright children from poor backgrounds. This was done in the name of equality: schoolchildren were all now to be brought up in the same huge ‘comprehensive’ schools, and examinations were increasingly rigged to demonstrate that these unlovely places were a success. As ever, in England, when equality was in question, all that happened was the proletarianization of the lower-middle class.

  England had the dearest labour and the cheapest management, and a spiralling down began. The public debt was added to, by over £10bn in 1975-6, and at the same time the GDP fell (by 1 or 2 per cent in the middle seventies). This compared badly with the German or Japanese experience, and even the American, because inflation in those countries was much less (in Germany even in 1975 6 or 7 per cent). England could only compete by selling London property to the new oil money, and was not exporting goods; the ‘pump-priming’ strategies of the era meant that none-too-good manufacturers were able to sell indifferent goods to the domestic market. The balance of payments deficit increased to £1.5bn in 1975 and a sterling crisis broke early in 1976. Healey himself decided boldly on a new programme of cuts in spending, and recognized that wage demands and inflation (plus an exchange rate of $2 to £1) made the country uncompetitive, and the government was divided (Wilson himself resigned in March 1976). In the latter part of 1976 the IMF was called in, to reinforce Healey’s existing strategy, and the cuts went ahead — the first and in some ways the only truly serious cuts made. A humiliating ‘Letter of Intent’ had to be signed by the British government, one of the founders of the IMF. By the autumn, Wilson’s successor, James Callaghan, was publicly warning his own supporters that they would have to give up the idea of spending their way into employment: ‘Higher inflation, followed by higher unemployment. That is the history of the last twenty years.’ By 1976 the Treasury itself was somewhat converted to the idea of monetarism, a limitation of the quantity of money such that inflation could be contained. But the conversion was not enthusiastic. The Bank (and the City) expressed greater enthusiasm.

  It was an unhappy time, the country winding down, and a slow crisis started. In 1976-7 the world economy did pick up, as the oil-shock money was recycled back to the industrial and exporting countries (which grew overall at 5 per cent). But the British economy was by now too fragile to gain much more than a respite, and inflation still ran high — 25 per cent in 1975, 16 per cent in 1976 and in 1977 (earnings keeping apace until 1977). As the pound was now a petrol currency, it naturally rose; keeping it down meant selling it, and that made for inflationary pressures, compounded by the inrush of Arab money. Still, there was a respite, unemployment not much above a million, and inflation down below 8 per cent in 1978. The respite did not last long.

  Seventies England finally fell apart over an absurd wrangle about Scotland. The vagaries of the electoral system had made the government dependent upon a few Scottish Nationalists. Theirs was a cause not worth discussion: careerist soft-profession mediocrities with no sense of their own country’s considerable history. They had to be placated, and a referendum was staged as to independence. It failed, and, without the votes of the few Nationalists, the Labour government collapsed. It did so as the economic strategy also collapsed: the comic arithmetic of the pay policy anyway fell apart because in far-away Teheran the Shah lost his Peacock Throne, and in the ensuing panic oil prices doubled. Iran was the second-largest oil producer, and revolution there affected 5 million barrels per day. Production was suspended for ten weeks after 27 December 1978, and then recovered only to 2 million. By June 1979 the price of Saudi Light Crude had risen from $12.98 to $35.40, and there was a very harsh winter in the USA and Europe; the spot price affected marginal, non-contracted oil, and some crude-oil prices — Nigeria’s for instance — even reached $40 per barrel. In Britain, with inflation rising, the barriers broke. The TUC wanted 22 per cent, not the 5 per cent they were supposed to accept, and various strikes began in the winter of 1978-9. Callaghan, who himself said that if he were younger he would emigrate, confessed that there was a strange new tide a-flowing, and he was right.

  By this time, the government’s policies were spreading
havoc. The headmaster of an infants’ school in a small Berkshire town wrote to parents whose children usually had school dinners that they would have to go home because of a strike. He added: ‘we cannot allow you to provide packed meals instead, as this could be regarded as a form of strike breaking’. The heart of the whole wretched problem was expounded by a valiant economist of the Right, Walter Eltis, who said that if at Oxford in 1965 the question had been asked as to whether an absence of growth, inflation, unemployment and a balance of payments crisis could coexist, the answer would have been yes, but only in an underdeveloped country. The Bank of England noted in 1975-6 that the real return on investment was now zero. By then taxation of salaries had reached 83 per cent and on interest or dividends, 98 per cent. The government was in no condition to face trouble from the unions again, and there was more panic; the City refused to buy government stock, mistrusting it; interest rates rose above 10 per cent again, to 14 per cent by May 1979, when the next election happened. The annual debt — ‘public sector borrowing requirement’ — almost doubled, to some £10bn, but even then some effort had to be made to control public sector wages at a time when the government was taking three fifths of the entire national income for itself. In the summer of 1978 the unions rebelled against the system, the Ford workers leading the way, and by the winter there were surreal strikes, including dustmen and even body-buriers. But England, messy as she was, was not without creativity, or even tissue regeneration. There was to be a reaction against all of this. Edward Heath had been dismissed as leader of the Conservative Party, to his own and his supporters’ great surprise. Margaret Thatcher replaced him, to his disbelief. She meant business, at last.