by Peter Watson
The idea of a welfare state was not new. In Germany in the 1880s Bismarck had obtained provision for accident, sickness, old age, and disability insurance. Austria and Hungary had followed suit. In 1910 and 1911, following agitation by the Webbs, Bernard Shaw, H. G. Wells, and other Fabians, Lloyd George, then chancellor in a Liberal British government, introduced legislation that provided for unemployment and an old age pension insurance. At Cambridge, in the 1920s, the economist Arthur Pigou held that, so long as total production was not reduced, the redistribution of wealth – a welfare economy – was entirely feasible, the first real break with ‘classical economics.’ In America in the 1930s, in the wake of Roosevelt’s New Deal and in light of Keynes’s theories, John Connor, Richard Ely, and Robert La Folette conceived the Wisconsin Plan, which provided for statewide unemployment compensation, with rudimentary federal provision for the old, needy, and dependent children following in 1935.32 But the Beveridge Report was comprehensive and produced in wartime, thus benefiting from and helping to provoke a countrywide change in attitude.33
The report came about inadvertently, when in June 1941 Sir William Beveridge was asked by Arthur Greenwood, Labour minister for reconstruction in the wartime coalition, to chair an interdepartmental committee on the coordination of social insurance. Beveridge was being asked merely to patch up part of Britain’s social machinery but, deeply disappointed (he wanted a more active wartime role), he quickly rethought the situation and saw its radical and far-reaching possibilities.34
Beveridge was a remarkable and well-connected man, and his connections were to play a part in what he achieved. Born the son of a British judge in India in 1879, into a household supported by twenty-six servants, he was educated at Charterhouse and Balliol College, Oxford, where he read mathematics and classics. At Balliol, like Tawney, he fell under the influence of the master, Edward Caird, who used to urge his newly minted graduates ‘to go and discover why, with so much wealth in Britain, there continues to be so much poverty and how poverty can be cured.’ Like Tawney, Beveridge went to Toynbee Hall, where, he said later, he learned the meaning of poverty ‘and saw the consequence of unemployment.’35 In 1907 he visited Germany to inspect the post-Bismarck system of compulsory social insurance for pensions and sickness, and on his return several articles he wrote in the Morning Post about German arrangements came to the attention of Winston Churchill, who invited him to join the Board of Trade as a full-time civil servant. Beveridge therefore played a key role in the Liberal government’s 1911 legislation, which introduced old-age pensions, labour exchanges, and a statutory insurance scheme against unemployment. Churchill himself was so taken with social reform that he declared liberalism to be ‘the cause of the left-out millions.’36 After World War I, Beveridge became director of the LSE, transforming it into a powerhouse for the social sciences. By World War II he was back in Oxford, as Master of University College. His long career had brought him many connections: Tawney was his brother-in-law, Clement Attlee and Hugh Dalton had been hired by him at the LSE, and were now in Parliament and the government. He knew Churchill, Keynes, and Seebohm Rowntree, whose alarming picture of poverty in York in 1899 had been partly responsible for the 1911 legislation and whose follow-up study, in 1936, was to help shape Beveridge’s own document.37 His assistant at Oxford, Harold Wilson, would be a future prime minister of Britain.38
A month after his meeting with Greenwood, in July 1941, Beveridge presented a paper to the committee he chaired, ‘Social Insurance – General Considerations,’ in which there was no mention of patchwork. ‘The time has now come,’ Beveridge wrote, ‘to consider social insurance as a whole, as a contribution to a better new world after the war. How would one plan social insurance now if one had a clear field … without being hampered by vested interests of any kind?’39 Over the ensuing months, in the darkest days of the war, Beveridge’s committee took 127 pieces of written evidence, and held more than 50 sessions where oral evidence was taken from witnesses. But, as Nicholas Timmins reveals in his history of the welfare state, ‘only one piece of written evidence had been received by December 1941 when Beveridge circulated a paper entitled ‘Heads of a Scheme’ which contained the essence of the final report a year later.’40 This influential report was essentially the work of one man.
His paper envisaged two things. There were to be a national health service, children’s allowances, and unemployment benefits; and benefits were to be paid at a flat rate, high enough to live on, with contributions to come from the individual, his employer and the state. Beveridge was totally opposed to means tests or sliding scales, since he knew they would create more problems than they solved, not least the bureaucracy needed for administering a more complex system. He was familiar with all the arguments that benefits set too high would stop people from seeking work, but he was also sympathetic to the recent research of Rowntree, which had shown that low wages in large families were the primary cause of poverty.41 This was not what the government had asked for, and Beveridge knew it. But he now began pulling strings with his many connections, calling in favours – in broadcasting, the press, Whitehall – all designed to set up a climate of anticipation ahead of the publication of his report, so that it would be an intellectual-political event of the first importance.
In terms of impact, Beveridge succeeded in everything he set out to achieve. Besides those sensational sales figures in Britain, the report had a notable reception abroad. The Ministry of Information got behind it, and details were broadcast by the BBC from dawn on 1 December in twenty-two languages. All troops received copies of the report, and it sold so well in the United States that the Treasury made a $5,000 profit. Bundles of the report were parachuted into France and other parts of Nazi-occupied Europe, and two even made their way to Hitler’s bunker in Berlin, where they were found at the end of the war, together with commentaries, marked ‘Secret.’ One commentary assessed the plans as ‘a consistent system … of remarkable simplicity … superior to the current German social insurance in almost all points.’42
There were two reasons for the report’s impact. Beveridge’s title may have been dry, but his text certainly was not. This was no governmentese, no civil servant’s deadpan delivery. ‘A revolutionary moment in the world’s history,’ he wrote, ‘is a time for revolutions, not patching.’ War was ‘abolishing landmarks of every kind,’ he said, and so ‘offered the chance of real change,’ for ‘the purpose of victory is to live in a better world than the old world.’ His principle line of attack, he said, was on Want – that was what security of income, social security, was all about. ‘But … Want is only one of five giants on the road of reconstruction, and in some ways the easiest to attack. The others are Disease, Ignorance, Squalor and Idleness…. The State should offer security for service and contribution. The State in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family.’43 But that minimum should be given ‘as of right and without means test, so that individuals may build freely upon it…. [This] is one part of an attack upon five giant evils: upon the physical Want with which it is directly concerned, upon Disease which often causes that Want and brings many other troubles in its train, upon Ignorance which no democracy can afford among its citizens, upon Squalor … and upon Idleness which destroys wealth and corrupts men.’44
Few people in those dark days expected a government report to be moving, still less exalting, but Beveridge seems to have grasped instinctively that because the days were so bleak, because the threat at the moment came so obviously from outside, that now was the time to spark a change in attitude, a change in feeling toward the dangers within British society, dangers that, despite all that had happened, were still there. From his vantage point, Beveridge knew better than most how little Britain had changed in the twentieth century.45 As Beveridge well knew, after the Great War, Britai
n’s share of international trade had shrunk, spoiled still further by Churchill’s insistence on a return to the gold standard at too high a rate, bringing about sizeable cuts in public spending and a return of social divisions in Britain (67 percent unemployment in Jarrow, 3 percent in High Wycombe).46 As R.A. Butler, the Conservative creator of the 1944 Education Act, itself the result of the Beveridge plan, wrote later, ‘It was realised with deepening awareness that the “two nations” still existed in England a century after Disraeli had used the phrase.’47 The success of Beveridge’s plan, as he himself acknowledged, also owed something to Keynes, but the social and intellectual change that hit Britain, and other countries, was deeper than just economics. Mass Observation, the poll organisation run by W. H. Auden’s friend Charles Madge, found in 1941 that 16 percent said the war had changed their political views. In August 1942, four months before the Beveridge Report, one in three had changed their political views.48 More than anything, the Beveridge Report offered hope at a time when that commodity was in short supply.49 A month before, Rommel had retreated in North Africa, British forces had retaken Tobruk, and Eisenhower had landed in Morocco. To celebrate, Churchill had ordered church bells to be rung in Britain for the first time since war was declared (they had been kept in reserve, to signify invasion).
Despite the Great Terror in Russia, Stalin’s regime continued to benefit from its status as a crucial ally. In November 1943 Churchill, Roosevelt, and the Russian dictator met in Tehran to discuss the last phase of the war, in particular the invasion of France. At that meeting Churchill presented Stalin with a sword of honor for the people of Stalingrad. Not everyone thought the Soviet leader a suitable recipient for the honor, among them, as we have seen, Friedrich von Hayek and Karl Popper. But the extent to which Stalin was appeased in the middle of war is shown by George Orwell’s experiences in trying to get another slim volume published.
Subtitled ‘A Fairy Story,’ Animal Farm is about a revolution that goes wrong and loses its innocence when the animals in Mr Jones’s farm, stimulated to rebellion by an old Middle White boar, Major, take over the farm and expel Mr Jones and his wife. The allegory is hardly subtle. Old Major, when he addresses the other animals before he dies, refers to them as Comrades. The rebellion itself is dignified by its leaders (among them the young boar Napoleon) with the name Animalism, and Orwell, although he’d had the idea in 1937, while fighting in Spain, never made any secret of the fact that his satire was directed at Stalin and his apparatchiks. He wrote the book at the end of 1943 and the beginning of 1944, important months when the Russians finally turned back the Germans, ‘and the road to Stalingrad became the road to Berlin.’50 The revolution on the farm is soon corrupted: the pigs, looking after their own, gradually take over; a litter of puppies is conditioned to grow up as a vicious Gestapo-like Praetorian guard; the original commandments of Animalism, painted on the barn wall, are secretly amended in the dead of night (‘All animals are equal/but some are more equal than others’); and finally the pigs start to walk on two legs, after months when the main slogan has been ‘Two-legs bad! Four-legs-good!’
The book appeared in August 1945, the same month that the United States dropped atomic bombs on Hiroshima and Nagasaki, and the delay between completion and release is partly explained by the difficulties Orwell experienced in getting the book published. Victor Gollancz was only one of the publishers who turned Animal Farm down – at Faber & Faber, T. S. Eliot did too.51 As a Christian, Eliot was no friend of communism, and he needed no convincing of Orwell’s abilities. However, in rejecting the book, he wrote, ‘We have no conviction … that this is the right point of view from which to criticise the political situation at the present time.’52 Four publishers rejected the book, and Orwell began to grow angry at the self-censorship he saw in these decisions. He considered publishing the book himself, but then Warburgs took it on, though not immediately, owing to the paper shortage.53 Perhaps the further delay was just as well. When the book finally appeared, the war had just ended, but the terror of the atomic bomb had recently arrived, and following the Potsdam conference in July, the postwar – Cold War – world was emerging. The evidence of the Nazi concentration camps was becoming known, with its bleak confirmation of what man was capable of doing to man.
Animal Farm was no more a fairy story than Stalin was a political role model. Though he might have had sociopolitical aims very similar to those of William Temple, Orwell was more realistic and, like von Hayek and Popper, grasped that though the battle against Hitler had been won, the battle against Stalin was far from over, and so far as twentieth-century thought and ideas were concerned, was much more important. A whole mode of thought – the liberal imagination – was called into question by Stalinism, collectivism, and planning.
Many of the Nazi and Japanese wartime atrocities were not fully revealed until hostilities had ended. They set the seal on six grim years. And yet, for the optimistic, there was another silver lining amid the gloom. Almost all the major belligerents in the war, including the remoter areas of the British Empire, such as Australia and New Zealand, had achieved full employment. The curse of the 1930s had been wiped out. In America, where the depression had begun and hit hardest, unemployment by 1944 had shrunk to 1.2 percent.54 Except among his grudging opponents, this was regarded as a triumph for Keynes’s ideas. Wartime governments had everywhere run huge public expenditure programs – weapons manufacture – which consisted entirely of waste (unlike roads, say, which lasted and went on being useful), and combined this with vast deficits. The U.S. national debt, $49 billion in 1941, escalated to $259 billion in 1945.55
Keynes had been fifty-six at the outbreak of World War II, and although he had made his name in the first war, his role was actually more crucial in the second. Within two months of the outbreak of hostilities, he produced three articles for The Times of London, rapidly reprinted as a pamphlet entitled How to Pay for the War. (These actually appeared in the German press first, owing to a leak from a lecture he gave.)56 Keynes’s ideas this time had two crucial elements. He saw immediately that the problem was not, at root, one of money but of raw materials: wars are won or lost by the physical resources capable of being turned rapidly into ships, guns, shells, and so forth. These raw materials are capable of being measured and therefore controlled.57 Keynes also saw that the difference between a peacetime economy and a war economy was that in peace workers spend any extra income on the goods they have themselves worked to produce; in war, extra output – beyond what the workers need to live on – goes to the government. Keynes’s second insight was that war offers the opportunity to stimulate social change, that the ‘equality of effort’ needed in national emergency could be channelled into financial measures that would not only reflect that equality of effort but help ensure greater equality after the war was over. And that, in turn, if widely publicised, would help efficiency. After Winston Churchill became prime minister, and despite the hostility to his ideas by the Beaverbrook press, Keynes was taken on as one of his two economic advisers (Lord Catto was the other).58 Keynes lost no time in putting his ideas into effect. Not all of them became law, but his influence was profound: ‘The British Treasury fought the Second World War according to Keynesian principles.’59
In the United States the situation was similar. There was an early recognition in some influential quarters that wartime was a classic Keynesian situation, and a team of seven economists from Harvard and Tufts argued for a vigorous expansion of the public sector so that, as in Britain, the opportunity could be taken to introduce various measures designed to increase equality after the war.60 The National Resources Planning Board (with planning in its name, be it noted) set down nine principles in a ‘New Bill of Rights’ that sounded suspiciously like William Temple’s Six Christian Principles, and magazines like the New Republic made such declarations as, ‘It had better be recognised at the very start that the old ideal of laissez-faire is no longer possible…. Some sort of planning and control there will have to be,
to an increasing degree.’61 In America, as in Britain, the Keynesians didn’t win everything; traditional business interests successfully resisted many of the more socially equitable ideas. But the achievement of World War II, coming after the gloom of the 1930s, was that governments in most of the Western democracies – Britain, the United States, Canada, New Zealand, Australia, Sweden, and South Africa – all accepted that preserving high levels of employment was a national priority, and it was Keynes and his ideas that had brought about both the knowledge as to how to do this and the recognition that governments should embrace such responsibility.62
If Keynes had won the day in regard to the regulation of domestic economics, his experiences were to be less happy in dealing with the problems facing international trade. This was the issue addressed by the famous conference at Bretton Woods in the summer of 1944.63 Around 750 people attended this conference, in the White Mountains in New Hampshire, which gave birth to the World Bank and the International Monetary Fund – both part of Keynes’s key vision, though their powers were much diluted by the American team. Keynes understood that two problems faced the postwar world, ‘only one of which was new.’ The old problem was to prevent a return to the competitive currency devaluations of the 1930s, which had had the overall effect of reducing international trade and adding to the effects of the depression. The new problem was that the postwar world would be divided into two: debtor nations (such as Britain) and creditor nations (most obviously the United States). So long as this huge imbalance existed, the recovery of international trade would be hampered, affecting everyone. Keynes, who was in brilliant form at the conference, clearly grasped that a system of international currency and an international bank were needed, so as to extend the principles of domestic economics into the international field.64 The chief point of the international bank was that it could extend credit and make loans (provided by creditor countries) in such a way that debtor countries could change their currency ratios without provoking tit-for-tat reprisals from others. The plan also removed the world from the gold standard.65 Keynes didn’t have everything his own way, and the plan eventually adopted was as much the work of Harry Dexter White, in the U.S. Treasury, as it was of Keynes.66 But the intellectual climate in which these problems were thrashed out at Bretton Woods was that created by Keynes in the interwar years. It was not planning as such – Keynes, as we have seen, was a great believer in markets – but he saw that world trade was interlinked, that the greatest prosperity for the greatest number could be achieved only by recognising that wealth needs customers as well as manufacturers and that they are one and the same people. Keynes taught the world that capitalism works on cooperation almost as much as on competition.
