by Andy Beckett
‘I don’t think I ever slept overnight in the college buildings,’ said Simon, ‘yet I remember occupying the college offices during the day. It was exciting … There were often police at the college, at the entrances …’ He stopped. ‘It would sometimes get boring after a while. There were no pitched battles.’
But in some ways the very normality of the strikes and occupations and their left-wing participants seemed the most significant thing about them – the sign, it seemed, that a new political world was coming into being. Simon was even able to keep up with his studies. The flexibility of the modular degrees at Middlesex, with their emphasis on coursework and with few compulsory events to attend, meant they could tolerate a great deal of campus disruption. In 1977, he took and passed his finals: exams were never boycotted. Yet before he left the poly there was time for one more radical gesture. ‘I never collected my degree,’ he remembered. ‘There was no ceremony because the students were threatening to disrupt it. The year after, the poly invited me back again to collect my degree. But I boycotted the ceremony.’
By then, the summer of 1978, he had moved seamlessly into another part of the counter-culture: a condemned flat in Notting Hill. It was in Colville Houses, the street where the Gay Liberation Front had had their commune in the early seventies, and the area seemed little changed, still full of squats, swirly-painted vehicles and hippy food stores. Simon’s flatmate was involved in the Chile Committee for Human Rights, and touring anti-Pinochet musicians from Chile slept on their floor. Simon was working as a community volunteer in nearby Kensal, ‘championing the rights of the oppressed people of west London’, he recalled with a self-mocking smile.
How did his revolutionary certainty in the seventies look to him now? There was a long pause. We both looked at our empty plates. Finally, he blew out his cheeks. ‘It looks ludicrous.’ Simon was a senior social worker now. He had a daughter of his own at university, and she wasn’t taking part in any sit-ins. He still had his moustache, but it was trimmed and neat, and his beard and straggly hair were long gone. He was still politically active, but for a more modest goal: arranging practical aid for the Palestinians.
Yet then Simon went on: ‘I was thirteen in ’68. I remember thinking, “There is an irreversible momentum to this.” The revolution was around the corner. It was only a matter of time. That feeling was still around in the mid-seventies. The feeling was that things had quietened down a bit, but the general trend was still towards the overthrow of global capitalism. The feeling was, “We’re still going to win.” At Middlesex, I used to think about my course, “If this is what’s being taught, there’s no way back. These Marxist lecturers are the opinion-formers.” Even the existence of publications like The Little Red Struggler, which I read avidly, created the impression that the movement was building, that it’s not going to go away. It just didn’t make sense that you could go back to’ – and he said the next words with a hint of the old campus venom – ‘a militarist and capitalist system. It didn’t seem to have anything in its favour, morally, and I didn’t understand anything about economics. I thought that ’68 had blown the lid off a Pandora’s box for equality and liberty and human potential …’ He cut short his speech. ‘What I didn’t know in the seventies was that there were plenty of people who were keen to get the lid back down again.’
PART FOUR
The Reckoning
14
William the Terrible
In the summer of 1944, as the Second World War was entering its final phase, the economist and British Treasury adviser and envoy John Maynard Keynes, his health failing, made one of his last and most important visits to the US. At Keynes’s request, the conference he was due to chair was not held in airless, sticky Washington but far to the north-east, in the more bracing summer resort of Bretton Woods in New Hampshire. In late June, he and over 700 other delegates and office staff from forty-four countries travelled there in official trains and were put up at the grand and slightly chaotic Mount Washington Hotel. Over the next three weeks, despite malfunctioning microphones, countless cocktail parties, and committee sessions that did not end until 3.30 a.m. and then resumed at 9.30 the same morning, the delegates negotiated a new set of arrangements for regulating the international economy, intended to rescue it from a decade and a half of deep recession and world war and to minimize the chances of such traumas recurring. They agreed that exchange rates between currencies should be fixed, and they created the International Bank for Reconstruction and Development, or the World Bank for short. They also created the International Monetary Fund, or IMF, to promote global economic growth, prevent global economic crises and lend money to countries on a temporary basis if they encountered serious economic difficulties.
In some ways, the Bretton Woods Agreement was a triumph for Keynes. For years he had been promoting schemes for disciplining capitalism through new international institutions; even the term ‘International Monetary Fund’ was his. Now, such a machinery had been assembled, and the other delegates treated him as a visionary. At the concluding Bretton Woods banquet, the Listener recorded, as the sixty-one-year-old Keynes ‘moved slowly towards the high table, stooping a little more than usual, white with tiredness, but not unpleased at what had been done, the whole meeting spontaneously stood up and waited, silent, until he had taken his place’.
Yet in other ways Bretton Woods marked his and Britain’s defeat. Keynes had long been aware that the burden of the Second World War, the relative decline of the British economy and the cost of the post-war welfare state envisaged by the Labour Party – and a decisive proportion of British voters – made it likely that the country would have to borrow heavily in future decades. He wanted the IMF, therefore, effectively to provide overdraft facilities for Britain and other creaking, left-leaning nations, with the minimum of strings attached. He wanted it to have a small, independent staff and to be based in London. But the Americans had a different vision. They wanted the IMF to be large, based in Washington, close to the US government and tough with the countries to which it lent money. This partly reflected the more free-market mindset of the American government, and partly the changing balance of world power. ‘We are putting in twice as much money [to the IMF] as anybody else, three times as much,’ commented America’s chief negotiator Harry White to one of his colleagues at Bretton Woods. ‘It is preposterous that the head office should be any place else [than America]. We can vote it any place we want … New York has become the financial center of the world. These British are just fighting uphill.’
Over the IMF and much else at Bretton Woods, the Americans got their way. The text of the Agreement hid this to a degree through ambiguous language and sheer length: Keynes did not have time to read all ninety-six pages before he and the other delegates were unceremoniously asked to vacate the hotel within hours of the end of the conference. Back in London, some Bank of England officials, some members of the Cabinet and some Conservative MPs with a particular sensitivity to threats to Britain’s superpower status spotted the implications of what had been agreed. But Keynes and the government, optimistic about Britain’s relationship with the US and watching Britain’s economic position deteriorate almost daily, argued for the Bretton Woods Agreement with conviction. In December 1945, together with a proposed emergency loan from the American government, it was presented to Parliament. The whole package, Keynes told the House of Lords in a string of elegant euphemisms, was ‘a workable compromise between the certainty they [the Americans] wanted and the measure of elasticity we wanted’. The Bretton Woods Agreement was approved by the Lords without a vote, and passed by the Commons with a majority of 243.
Four months later, Keynes died. But the intimate, always potentially problematic, triangular financial relationship between British governments, the IMF and the US endured. As Keynes had anticipated, Britain was a frequent supplicant to the Fund in the post-war decades. Loans were obtained under Labour in 1947, 1948, 1965, 1967 and 1969; and under the Conservatives in 1956, 1957,
1958, 1961, 1962, 1963 and 1964. Between 1947 and 1971, Britain borrowed more from the IMF, in fact, than any other country.
Much of this took place without great controversy in Britain, one indignity among many in the country’s general economic slide. Chancellors became accustomed to the transatlantic, highly technical rituals of IMF negotiations, with loans divided into ‘tranches’ and provided on terms set by the Fund (‘conditionality’), and ‘letters of intent’ written by grateful British governments promising to manage the economy better in future. So regular and intricate were these dealings that some of the British Treasury and Bank of England officials involved went on to work for the IMF. In the mid-sixties, the chancellor Jim Callaghan even helped oversee the creation of a new currency for the Fund to use in its lending operations called the Special Drawing Right, or SDR. In 1973, out of government and, temporarily, tired of British politics, the canny, avuncular Callaghan was a serious candidate to become the IMF’s managing director until he was vetoed by the French. The Fund then approached Callaghan’s successor as chancellor Roy Jenkins to see if he was interested in the position. Jenkins decided not to put his name forward. The job was taken instead by a more austere figure, a former Dutch finance minister and professor of economics, Johannes Witteveen.
Yet by the mid-seventies, the many links between Britain and the IMF could no longer conceal a growing tension in the relationship. In the harsher international climate created by the oil crisis and the financial cost to America of the Vietnam War, the Fund was becoming sterner in its thinking. One aspect of the new economic situation was affecting the IMF directly: the system of fixed currency-exchange rates which had been established at Bretton Woods, and which the Fund had overseen, was now disintegrating. But there was much else worrying the bankers in their white ziggurat of a headquarters in Washington. There was the worldwide surge in inflation; the recessions under way in many wealthy countries; the apparently unstoppable rise of trade unions and public spending in such societies; and, finally, the state of the IMF’s relations with the US itself. Free marketeers in the American government such as the Treasury secretary William Simon and the chairman of the Federal Reserve Arthur Burns were putting strong pressure on the Fund to impose right-wing economic policies on the countries receiving its loans. By the mid-seventies, this pressure had been effective. The IMF had never been exactly sympathetic to socialism, yet now its view of the world economy – pessimistic, verging on the apocalyptic – and what should be done to revive it – crudely, conquering inflation by cutting public spending – had much in common with monetarists such as Milton Friedman and the capitalist counter-revolutionaries of the IEA.
In this context, Britain, with its long-standing dependence on IMF loans and its especially troubled economy, became the object of particular concern and even derision in Washington. ‘Even before the oil price rise … the Fund staff considered the problems of the UK economy basic and in need of resolution over the long term,’ writes the IMF’s official historian Margaret Garritsen de Vries. ‘The United Kingdom highlighted some … increasingly debated questions about the economies of industrial countries. Could governments continue to support the wide range of social welfare programs that had come into being since World War II? Were large government claims on the economy [such as taxes] retarding private investment? … Could government-owned industries be run in the same efficient and profitable way as private industry?’
William Ryrie, an IMF director in the mid-seventies who had previously been a senior official in the British Treasury, put it more bluntly to me: ‘The Fund were pretty appalled, really, by the management of the economy. I was ashamed, really. There was a deep-rooted belief in the Treasury and elsewhere in Whitehall that the IMF was there for us to use, as well as poor countries.’ Indeed, in right-wing American circles, Britain was increasingly talked about as if it was a struggling Third World country. On 29 April 1975, the Wall Street Journal carried an influential editorial:
The British economy … is sinking … Britain’s current contribution to the world is to reveal the ultimate result of economic and social policies … [which insist that] the state must fulfill all needs … [and all] income must be redistributed … We learn that The Economist does not think it fair of Margaret Thatcher … to describe the budget as ‘typically socialist’. After all, Mr. Healey did not increase the 52% corporate tax rate. Nor did he increase the 83% marginal tax rate on earned income above $48,000 [then £ 24,000] or the 98% marginal tax rate on ‘unearned income’ – interest and dividends, for example – above $48,000 … The British government is now so clearly headed toward a policy of total confiscation that anyone who has any wealth left is [taking] any chance to get it out of the country … The price can only be still slower economic growth and still lower living standards for all the British, rich and poor. Goodbye, Great Britain, it was nice knowing you.
Less than a year later, on 16 March 1976, with the pound in mid-plunge on the currency markets and the government beginning to face no-confidence motions in the Commons, Harold Wilson abruptly resigned as prime minister. He had been back in office barely two years. He told the Cabinet, most of whose members had had no hint of his intentions, that he wanted to avoid getting stale in the job and to make way for one of his talented colleagues. He also insisted that the worst of Britain’s mid-seventies economic crisis was over, and therefore it was safe for him to go. On television afterwards he looked pale, his eyes even more furtive and half-closed than usual. His voice was flat and perfunctory.
And yet, despite the gloomy consensus about Britain in America, among the currency traders and at the IMF, Wilson’s economic optimism was partly justified. Inflation was falling. The social contract was holding. Share prices were recovering as the City’s worst fears failed to materialize and pension funds, flush with cash thanks to trade unionists’ previous big wage increases, invested in the stock market. ‘The bottomless slump’, writes the historian Keith Middlemas in The End of the Postwar Era: Britain since 1974, ‘had been something of an illusion.’
Some of this recovery was also down to Denis Healey. By 1975, his initial ignorance about economics as chancellor was giving way to a characteristic intellectual efficiency and curiosity. His previous Cabinet position as defence secretary had been dominated by tricky issues connected to Britain’s decline, such as how to end the country’s colonial deployments ‘east of Suez’ in an orderly fashion, and Healey, clever, sure of himself and not personally very constricted by ideology, had approached these dilemmas with something close to relish. ‘I’ve always been a loner,’ he told me in his Sussex study. ‘I saw so much damage done to the party by infighting when I was an official of the party after the war. I was never a member of the Gaitskell group or any other.’ Instead, he valued improvisation and flexibility: ‘One of the things you learned from [serving in] the war was the importance of planning, and of knowing that planning will go wrong, so then you have to be very quick on your feet.’ Above all, he sought to avoid being incompetent. Repeatedly in our interview he used a phrase for this which had the trademark Healey combination of white-collar machismo, calculated vulgarity and suppressed insecurity: ‘making a balls’.
As chancellor, Healey showed diminishing loyalty to the economic creed that had dominated British government thinking since the forties. ‘I’d been very pro-Keynesian before I knew anything about economics,’ he said. He looked from his desk towards one of his many bookcases. ‘I’ve got the first edition of The Economic Consequences of the Peace. Keynes lived at Tilton Manor, five minutes from here …’ Healey quickly turned back to me. ‘But the world changes, dear boy. Keynesianism had really had its day by the seventies.’ Heretically, the chancellor paid attention instead to the rising right-wing economists. ‘I was very hostile to the monetarists at first. But … I believed that keeping control of the money supply was very important. And I believed that the market had a major role to play.’ He arched his caterpillar eyebrows: ‘Milton Friedman said that I was a m
onetarist without knowing it.’
In April 1975, just as the Wall Street Journal was despairing of Britain’s ever-expanding state, Healey cut public spending. Later that year, he effectively cut it again by imposing ‘cash limits’ on his fellow ministers: unlike previously, government departments would now receive an annual sum to spend from the Treasury and, regardless of what happened to the inflation rate that year, no more. In January 1976, Healey reduced public spending again. In July, he repeated the exercise on the largest scale so far. There was substantial opposition in Cabinet, notably from Tony Benn and Tony Crosland, but the chancellor prevailed. That he did so was due not only to his powers of persuasion, but also to a new mood in the less left-wing and more pragmatic parts of the Labour Party. ‘We realized that we couldn’t go on as in 1974,’ remembered one of the most influential pragmatists, Tom McNally. ‘There were going to have to be new things tried.’
