Duncan Hallas

Economic Prospects

(December 1974)

Unsigned editorial from Notes of the month, International Socialism (1st series), No.73, December 1974, pp.3-4.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

IN HIS budget speech Dennis Healey argued that there was an immediate danger of a world slump ‘at least on the scale of the 1930s’. It is not true. There is no such prospect in the immediate future.

It is worth recalling just what did happen in the great slump of the 1930s. In the case of the USA, the gross national product (roughly speaking, total production), fell by one third between 1929 and 1933 and did not reach the 1929 level again until 1937 (in physical terms) or 1941 (in money terms). By 1933 there were 13 million unemployed-25 per cent of the workforce, one worker in every four. Five years later (1938) one worker in five was still out of work.

In Germany the slump hit even harder. Output fell, in physical terms (tons of coal, square metres of cloth and so on), by nearly 40 per cent between 1929 and 1932 and in the same period unemployment leaped from 1.2 million to over six million.

True, the slump was much less severe in Britain – but only because the British economy was already heavily depressed in the 1920s – unemployment stood at around a million for most of that decade. By 1932 it had risen to around three million (one worker in five) and output had fallen by roughly 15 per cent (in money terms) from the already depressed 1929 figure.

Nothing remotely like this is going to happen next year or the year after; not in the USA, Germany, Britain or any major economy. There is a recession and it will deepen next year. In a very few instances, most importantly in the USA, output is actually falling. But the scale of the downturn is modest by the standards of 1930.

Dennis Healey, of course, knows all this very well. Indeed, his own (admittedly fallible) Treasury estimates assume a modest growth in output in Britain over the next 18 months (at a one and a half per cent annual rate).

None of this means that unemployment will not grow. It will, and sharply, in the new year. There will be redundancies. There will be closures. The Treasury estimated growth rate, even if achieved, is well below the rate of growth required to keep unemployment down to the present 653,256 (November returns) and this level, it should be remembered, is itself double the norm for the years from 1945 to 1965.

The estimates of a million or more out of work next year are quite likely to prove correct. The importance of the struggle against redundancy and closures – to which this issue of the Journal is largely devoted – is greater than at any time since the war. It will be one of the two central issues facing workers in 1975-76. But only one of the two.

The other remains inflation. And this is why Dennis Healey and other ministers, not to mention the Tories, conjure up the spectre of 1931. It is an essential part of their propaganda war in support of the social contract fraud and the increasingly right wing economic policies of the Wilson government.

The effect of the budget, as the Economist noted (16.11.74) ‘has rightly been to move about two per cent more of gross national product towards company profits’. It is ironic that the Labour election manifesto declared that ‘taxation must be used to achieve a major redistribution of both wealth and income’.

The government’s central aim in economic policy is to reduce costs in British industry relative to those of its major competitors and so to expand both exports and investment. This requires increased profits and a squeeze on those costs that can be squeezed. And this means, essentially, wage costs. For the cost of imported materials is uncontrollable and the cost of credit (interest rates) cannot be significantly cut without causing a flow of funds abroad and a further worsening of the worst ever balance of payments deficit.

This aim is being fought for in conditions of more or less stagnant output – and so requires actual cuts in real wages – and continuing inflation – which makes it possible to achieve real wage cuts while money wages rise, provided the rise is kept within ‘social contract’ norms (especially the 12 month rule). This is the essence of the ‘social contract’.

There is no doubt at all that inflation will continue throughout the recession. Raw material prices in general have already fallen back, although food prices are still rising. But the built-in inflationary forces are much too strong to be more than moderated, if that, short of a big and prolonged slump.

As far as Britain is concerned, the government’s recent actions, especially the decision to force up nationalised industry prices and relax other price controls, are strongly inflationary. The measures already taken, or soon to be taken, by other governments to counter the recession work the same way.

The economic outlook can be summed up as follows: a quite serious recession now underway and likely to continue through 1975 and at least part of 1976 and a continuance of inflation at roughly the present levels or possibly a little lower. Then, perhaps from the second half of 1976 (though there can be no certainty about timing), a new and much more inflationary boom on a world scale, a boom that will make present inflation rates look moderate. After that, who knows? Perhaps the ‘at least on the scale of the 1930s’ slump.

One thing is certain. The world’s ruling classes themselves can see no way of restoring the stability of capitalism in the long term. They are reacting from hand to mouth, responding to immediate problems without any clear view of what lies beyond the next boom. The Labour government is calling on workers to make sacrifices for a system that is rapidly becoming more and more irrational and more and more unstable and unpredictable.

The Contract is Creaking

THE BASIC economic policy aims of Wilson and Healey are exactly the same as those pursued by Heath and Barber. Indeed, any government attempting to make British capitalism work must adopt them. The methods, and to some extent, the social policy aims are different – for the time being.

There is no reason to doubt that the Labour ministers would sincerely like to ease the housing problem, to halt the rundown of the health service, to improve educational facilities, even to redistribute income away from the rich. Even on the most cynical view of their motives, it is in their electoral interest to do these things.

They will not, in fact, be able to do any of them. Having accepted, as their basic political objective, the strengthening of the competitive position of British capitalism, they are compelled to accept the priorities and values of capitalist society. Profits must come first. Just as after 1966, they will preside over a further rundown of social services.

The promises of their election manifesto, the argument that ‘the social contract is not just about wages’ (Harold Wilson); all this will melt like snow in summer. The government will prove to be a very right-wing government, and much more quickly than on the last occasion.

It is still possible for Michael Foot to offer ‘non-economic’ (or not immediately economic) inducements to help the trade union leaderships to control their members. The Employment Protection Bill, now under fierce Tory and CBI attack, is a case in point. The repeal of the Housing Finance Act is another. But there are narrow limits to this kind of thing. The government has put its money on co-operation with big business. The pressure of big business and the civil service is growing and will meet with less and less resistance from the cabinet.

Already, the wretched compromise over the Clay Cross councillors and the scandalous failure to release Des Warren and Eric Tomlinson, victims of a Tory conspiracy, show the way the wind is blowing. Roy Jenkins’ prompt action to increase police powers, allegedly to deal with bombing attacks, in reality as much or more directed against the left and trade union militants, is another indicator.

The judges, reactionary as always, can be counted upon to add their contribution. The infamous decision, in the Prebbles’ case, that picketing for political ends is a crime, is the latest judicial atrocity. Further attacks from this quarter are certain.

And so the ‘social contract’ is more and more markedly ‘just about wages’. It is creaking badly. Aside from the most spectacular cases like the Scottish lorry drivers, the settlements for bank employees, electrical contracting workers. Ford and Vauxhall workers, London transport, nurses, postal workers, rail-waymen and Rolls Royce workers, all break the 12 month rule. Hourly wage rates were up by 23 per cent from October 1973 to October 1974 and up 16 per cent from May to October.

These increases are nothing like sufficient to maintain real income over the next 12 months but to the employers and the Labour government they are ‘extortionate’. The conclusion is irresistible. Sooner rather than later, a new statutory incomes policy will be introduced.

It will be linked to some kind of ‘indexation’ scheme. Notwithstanding the employers’ dislike of Heath’s threshold scheme, which finished with a spectacular ‘triple bang’ (three 40p increments) in October, some type of ‘sliding scale of wages’ is the only possible scheme that any government can hope to enforce under present conditions. It will be tougher than Heath’s Phase Three.

The prospect for 1975, then, is a combination of rising unemployment, continued inflation, legally enforced wage curbs, accelerated rundown of social services and stepped-up attacks on civil liberties and workers’ rights. These are the battlefields. As it becomes increasingly obvious to militants that the Labour government leads the capitalist offensive, the opportunities for revolutionary socialists to fight for leadership in the working class movement are growing fast. So are our responsibilities.


Last updated on 19.10.2006