Norman Stone - The Atlantic and Its Enemies

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.

In the early 1950s Moscow had been frightened at the prospect of a Europe headed by a rearmed Germany, and in alliance with the United States. Stalin had tried to bully the Germans; in the early years of Khrushchev there had been fewer crude ploys, but then he too had become a bully, exploding huge experimental bombs and serving ultimatums over Berlin. The West only closed ranks, and NATO became quite sophisticated, with an intelligence network and, in some countries, even a shadowy, underground organization. But by the 1970s matters had changed. Nixon and Kissinger needed to stop the Vietnam War somehow, and had approached Moscow in May 1972 with proposals for détente. They were couched in terms of disarmament — SALT I, the Strategic Arms Limitation Talks — and the American bait was a credit deal over grain shipments, easings of conditions for Soviet visits to the USA, etc. The Americans’ threat was of a deal with China, and the context was a division that had been emerging since Khrushchev’s last years: he had withdrawn help and refused Mao the secrets of the bomb, and Mao responded with a sort of offended nationalism. In 1969-70 there were Chinese-Soviet armed clashes on the river Ussuri, a disputed border, and the Chinese responded to the American opening. But it was not just the Americans who appeared. West Germany launched her own probe, known as Ostpolitik , and she was offering hard-cash concessions. Was this the opening that the Kremlin had been looking for since 1952, and the ‘Stalin Note’ offering German unification in return for neutrality or, as it was called by now, ‘Finlandization’? Germany was after all vulnerable, and official Europe had no teeth.

At the time Europe certainly seemed to the outside world to be a miracle of prosperity, without the concomitant crudities of the United States. However, she remained less than the sum of her parts. The European Community itself (to use the shorthand) was not particularly efficient: quite the contrary, it stumbled along drearily. Its institutions (and its flag) went back to the early fifties, and the Coal and Steel Community: a court, an assembly, and a High Authority to sort out the very technical technicalities of who was to produce what at which price. Jean Monnet himself had become bored with his creation, and its European outcrop was generally used as a parking place for failed politicians whose vanity needed to be salved. The first president of the Commission had been Walter Hallstein, possessed of negative charisma. Later on came heavy-lecturing worthies, the heaviest and longest-lasting a German Widmerpool, Günter Verheugen. It was all desperately uninspiring and even in some ways fraudulent. At the heart of this multinational community was Belgium, subject to the most absurdly provincial nationalisms; even Luxemburg dressed up its dialect, the Dutch equivalent of Liverpudlian, as a national language. In the 1970s, to give the Community some sort of personality and appeal, a parliament was set up, with direct elections. This was again, as with everything touched by the then French president, Valéry Giscard d’Estaing, lifeless and even ridiculous.