Norman Stone - The Atlantic and Its Enemies

There followed almost two decades of self-consciously big government, in the spirit of H. G. Wells. In the Edwardian period he had been the very archangel of Progress — a career of extraordinary diligence and doggedness, triumphing over illness, divorce, lowly social origins to become a major novelist and a commentator with a deep knowledge of the natural sciences. He spoke for a world of classless technicians, by preference scientists, and condemned the older world of monarchs, horses, Latin and peasants. From 1964 to 1979 there was a dismal descant on H. G. Wells and even, in the form of C. P. (Lord) Snow, a caricature of him. This was the era of Wilson (Labour) and Heath (Conservative), which for historical purposes can be regarded as a seamless web. The initial Labour government in 1964 was led by Harold Wilson, a scholarship boy from Leeds (itself one of the grand Victorian cities, but the southernmost of them) who had taught Economics at Oxford. He recruited a team that was the brightest, in terms of education, that the country had ever produced, except perhaps for the Liberal Cabinet of 1914. One or two of their autobiographies were of very high quality, Denis Healey’s especially (he was an excellent German-speaker and knew music properly). They also instinctively believed for the most part in the virtues of planning, in Snow’s case making silly remarks about the Soviet Union; they greatly expanded education, putting up new universities and expanding old ones in a manner that now looks foolish.

However, they fell foul of twin problems: the balance of payments and the trade unions. In England inflation stood generally somewhat higher than elsewhere, and the trade unions were blamed for being greedy. In Germany the unions were ‘responsible’ and had their own stake in the system. The British ones were much less controlled and there were vastly more of them, competing with each other as much as with the alleged bosses. Wages rose, without much reference to productivity, and since the pound was overvalued, exports suffered because they were too expensive — quite apart from the problems of quality and delivery that were coming up. The French had had a great problem with large Communist-controlled unions, but they ruthlessly devalued to keep down export costs and to deter importers. But the Wilson government opposed devaluation, partly because London was reconstituting foreign investment quite cheaply, partly because they had foreign debts to pay, and partly because the overvaluing of the pound meant that running military enterprises, whether ‘east of Suez’ or in Germany, was cheaper; besides, a third of world trade was conducted in pounds sterling, which meant a great deal of money for the City of London. The Americans, with a very large stake in the system, would give support. However, trade was more or less free, foreign goods were cheap and of decent quality, and there were constant alarms as to the British balance of trade. Governments were reluctant to cut spending (and in any case the deficit of the balance of payments came about through military expenditure abroad). They were severely criticized for not spending more, and foreigners speculated again and again against sterling. In November 1967 it was devalued (from $2.80 to $2.40) but the pressure did not really go away, because the British problem was too great: attempts to play a world role and at the same time to spend money on various domestic temptations. An attempt in that direction even cost Labour an election. In 1971 a new Conservative government came in, under Edward Heath. He was a hapless and virginal figure, who to begin with talked the language of private business, and soon ended up adopting the same policies as Wilson: big government, the saving of industries such as shipping that were in trouble. A National Enterprise Board, an Industrial Reorganization Corporation, ruled the roost: meetings of these included civil servants and trade union officials, as well as businessmen to whom titles were awarded (the businessman’s definition of a knight was ‘a man who failed to say no when he should have done’). There had even been an absurd parody of a National Plan, the offices of which contained a lavatory without a lock or paper, and its head, deliberately put there by Wilson so that he would discredit himself, drank too much.

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.