First published in Socialist Review, Vol. 6 No. 7, April 1957, pp. 3–4.
Republished in A Socialist Review, London 1965, pp. 19–27.
The editor’s introductory remarks (indicated by square brackets) were added in the book version.
Transcribed and marked up by Einde O’Callaghan for the Marxists’ Internet Archive
Thanks to Ted Crawford.
One of the major divisions between Left and Right in the British Labour Movement today concerns the future role of nationalization. The Right, armed with its New Thinkers, Rethinkers, Consolidators, etc., are prepared to call a halt. They believe that Socialism consists of a Mixed Economy, a Welfare State in which the Government – even a Tory Government! – tempers the admitted “excesses” of private capitalism, runs a few (bankrupt) industries and, for the rest, allows and even aids private capitalism to get on with its job of profit-making.[
The Left points to the fact that capitalism is by nature chaotic, unstable and ruinous to human lives and feelings. That it cannot be controlled so long as the control of the means of production is in the hands of a small class of people which is not answerable to the whole community for its actions and decisions, although these actions and decisions affect each one of us. The Left sees the solution to this competitive chaos in planning the economy by the community as a whole in its own interests. Essential to such planning is social control of production, that is, the nationalization of heavy industry, the banks, Insurance and the land under democratic control.[
The argument is often conducted without reference to facts or experience. The following article shows that even in the heyday of the Welfare State. between 1945 and 1951 when the Labour Government was in power, capitalism was barely tempered; whatever restraints were imposed on the behaviour of capital and the capitalists were almost always self-imposed. It ought to be useful in the great debate in the Movement. – Editor]
British capitalism came out of the war very much weaker than it went in. Capital at home and abroad was destroyed or worn out. The Labour Movement in the country had strengthened immeasurably. If capitalism was to survive, it had to organize itself more effectively and conic to terms-to sonic terms at least-with the organized workers knocking at the door.
Capitalism in Britain solved its problems for the time being. It gave up, not without a sigh and a struggle, many of the hall-marks of laissez-faire, the old free-for-all. It winced as the Labour Government pulled same of its teeth and filled others, but it had no choice. There was no other dentist available at the time.
On the other hand, it saw to it that it was not going to remain toothless. The big businesses, the monopolies that had always been very much integrated with the State, integrated even further. Business came closer to government, government closer to business – and the mixed economy was horn. Many in the Labour Party gave it their blessing.
In order to satisfy socialists that the Mixed Economy – part nationalized and part private – is a step towards socialism, the mixed economists must prove (a) that the private capitalist is under the control of the community and that evils of capitalism – exploitation, insecurity and everything associated with them – are done away with; (b) that private capital is subordinated to a national plan and; (c) that this national plan is operated in the interests of the community as a whole and not for the benefit of capital.
Nobody would dare to point to Tory Britain and say “there it is, control has passed from the hands of the capitalist class to those of the workers.” But out on the Right of the Labour Movement, the Thinkers are busy piecing together a myth about the post-war Labour Government. It was, they say. steering a mixed economy towards socialism.
What we want to find out is whether the Labour Government ever controlled private capitalism, whether the capitalists were compelled to fit into a broad, economic plan, and whether, if there were such control and such a plan. they were administered in the interests of the community or in those of capital. Afterwards we shall be able to decide whether a mixed economy is really a mixture of the future and the past, with the former gaining at the expense of latter, or merely the same old medicine, “the mixture as before.” Where was the money?
In order to control the use to which the country’s wealth was to be put, the Labour Government should have at least known where that wealth was. However, for as long as the Labour Government was in power there was a constant – and illegal – drain of capital abroad. As Challenge to Britain, the Labour Party’s policy statement published in 1953 stated, “of £645 million of private capital which left Britain during 1947–49 only £300 million represented genuine investment in new projects. Some £350 million was ‘hot’ money quitting Britain because its owners disliked the Labour government’s policy of fair shares or were engaged in currency speculation” (p. 6).
That was until 1949. Export of capital became disastrous in 1951 when, in Conjunction with panic stockpiling of raw materials, it led to the balance of payments crisis which pushed Labour out of office. Not exporting sufficient to cover the rising costs of imports, the country had to pay £344 million out of its precious gold and dollar reserves. (The sum was originally thought to be £521 million). At the time the rise in prices was blamed; nobody thought of paging through the capitalists’ books to see if there was any other reason.
Subsequently it was shown that in the same year £315 million (£100 million more than was estimated at the time) was shipp abroad in “hot and “cold “ investments and that stocks worth £610 million (a full £370 million more than was estimated at the time) were laid up during the same period (T. Balogh, Pitfalls for a Labour Government, New Statesman and Nation, December 19, 1953). The extra £470 million spent abroad illegally and semi-legally was more than enough to cover the balance of payments deficit.
But the Labour Government did not know. It could not know. It could not know without infringing on capitalist property “rights” by opening the books of the private companies and by using the information to control their activities in detail. At a later date. Gaitskell could do no more than look back in anger and sorrow at “the really deplorable ignorance about stocks and works in progress. I have little doubt myself,” he wrote, “ that our policy in 1950 and 1951 would have been more successful had we had accurate and up to date information on this point (Fabian Journal, No. 4, November 1954).
Private capital that remained in the Country also did very much as it liked. in some cases it willingly accepted Labour’s guidance. in others not, depending on whether guidance was exerted in an acceptable direction.
Probably the best illustration of the conflict between private capital and the Labour Government was in the control of investments, for it is in the control of investment, its size and direction. that the control of the means of production and of society as a whole lies. Here, the conflict was almost permanent although – unlike the case of steel nationalization – it was never spectacularly open.
Of course, apologists for the Labour Government’s policies point out that investment decisions were subject to the approval or veto of the Capital Issues Committee whose main function was to direct investments from inessential to priority industries. But in fact, the Capital Issues Committee, itself a heritage from the Tory-dominated war-time Coalition, was an extremely weak body which had surprisingly little effect on the pattern of investment.
In the first place the Capital Issues Committee dealt with share issues of only £50,000 or above. Anything below that-and there was plenty of it-got through the net of scrutiny. Nor was there anything to prevent a big company from having its subsidiaries each go on the capital market with share issues under the critical sum year after year. As two very competent observers have written, “there can be little doubt that the volume of capital raised below the level of control was substantial” (A.A. Rogow and P. Shore, The Labour Government and British Industry, Oxford, 1955, p. 28).
Secondly, the major share of investments in the country is made from the reserves and internal capital accumulations of the giant firms who need to issue shares on the capital market only to a limited extent. That is how ICI could invest £90 million between 1945 and 1951 and yet raise only £20 million towards it on the market, or Unilever could spend £192 million on new capital investment of which fully £131 million came from internal resources. As Rogow and Shore write, “ internal savings were much the largest component” of investment (ibid., p. 29). The Capital Issues Committee, having thus no control over what was done with the capital accumulations of private business, had little control over the use to which the wealth of the country was put.
Finally, a very important source of investment funds was the private banks that loaned money with very little reference to the memoranda of the Labour Chancellor and none to the Capital Issues Committee. “Contrary to policy,” write the two investigators. “not only was the volume of bank advances extremely high – and in 1951 this must be accounted an important factor in the balance of payments crisis – but the attempt to shift resources in line with Government policy substantially failed” (ibid.).
Of course, We control of capital was not the only form of investment control. Some even believe that it “was far less important than the control by building licences (G.D.N. Worswick, Direct Controls, in Worswick and Ady [eds.] The British Economy, 1945–1951, Oxford 1952, p. 279). And it is true that restrictions on building restrained a lot of unnecessary investments. But heavy investments in machines (less effectively controlled), in re-organizing production, in buying out existing plants, etc., could be. and were, made without the need to set up new buildings. As another contributor to the same book writes, “ the relationship between (physical investment) and a new issue (of capital) is always remote and often non-existent” (P.J.D. Wiles, Pre-war and Wartime Controls, ibid., p. 144).
The result was to be expected. Despite the Capital Issues Committee despite the Government’s recommendations and memoranda and despite the direct investments undertaken by the Government in the nationalized industries the pattern of investment during the period of the Labour Government was only slightly affected and barely different from what it was in pre-war Tory Britain Between 1947 and 1951 those industries awarded priority class by the Labour Government received only 24.8 per cent, of the total amount invested – not very much more than the 19.6 per cent. they received in 1938. In the de-priority groups the figures were 45.8 (1947–51) compared with 54.4 (1938). In the “neutral groups” they were 29.4 (1947–51) and 25.9 (1938). Investment decisions thus hardly bore the marks of social censorship and contro1.
We could go on and on showing how the control of private capital by the Labour Government was either not attempted at all or ridd]ed with loopholes, whether in the case of import and export licensing, allocation of raw materials, price and quality controls or anything else. But enough has been said of the key control – control over the use to which capital is put – to show that the Labour Government was far from able to harness the private sector to the carriage of the Mixed Economy unless the former so wished. Of course, where the Labour Government tried in the direction desired by private capital, there were few conflicts (as in the case of the nationalization of the bankrupt coal and transport industries, or the “service industries like electricity, gas, central banking, etc.). But where it tried in another direction – and the control over investments, or the nationalizatioti of steel are good examples – it largely failed.
Generally, however, it did not try. It had no long-terni overall economic plan to which private capital was tied on which it was willing to stake its life.
Despite a number of committees that grew, changed and then grew tired from lack of work, there was no central planning authority with real powers. Planning decisions – and during the post-war period of extreme scarcity it was inevitable that many decisions on priorities of production and raw materials allocation was taken and accepted by the capitalists themselves – were made by a host of unco-ordinated organisations and bodies. That is how so many contradictory instructions could issue from one and the same government.
For example, in January 1951 Sir Hartley Shawcross President of the Board of Trade urged a “dramatic increase” in textile production and exports exactly one week after the Minister of Supply, George Strauss, told the industry that it would have to reduce its labour force in the interests of rearmament The war-time concentrated petrol stations were opened on the very day that petrol supplies to private motorists were suspended because of the convertability crisis. And there were many other cases of the same nature (see T. Balogh, Dollar Crisis, Oxford 1949, p. 246).
The planning decisions that were taken were mainly of a negative nature. Rationing of resources among existing producers and industries: no conscious effort to change the economic map of Britain. Prevention of certain activities without, generally. stimulating others. And these “planning” decisions grew steadily less as war-time scarcities disappeared and the economy took on a more “normal” appearance.
The retreat from planning sometimes looked like a rout. The 1947 Economic Survey at least contained a detailed statement of Britain’s economic problems and a number of “targets” to be attained. The 1948 Survey showed that many of these crucial targets were not reached. But instead of tightening controls in order to realize the targets, the opposite was done-targets were scrapped. In November 1948, Harold Wilson, President of the Board of Trade at that time. presided over the first “bonfire of controls” which did away with some 200,000 licences a year. It was followed by another “bonfire” in March of the following year when 930,000 licences were scrapped and the quota system which had controlled the volume and value of goods produced by individual firms was almost completely abolished. Others followed. By the time the 1950 Survey appeared. the Economist, with its ear close to the ground of Big Business, could call it a “humble document, meek almost to the point of being meaningless. There is nothing here of the notions of “democratic economic planning as proclaimed in earlier Surveys, which presented a working pattern for the year’s economic effort and left all men of good will to work for it. Indeed, the perplexing thing about the Survey for 1950 is its lack of plan” (April 1950).
Without a plan to serve as a yardstick for the allocation of resources amongst competing ends, it is not surprising, as Rogow and Shore show, that “scarce resources were distributed ... among the many claimants according in the main to the skill and tenacity with which their points of view were pressed” (loc. cit., p. 25). And, of course, the plums went to the big monopolies those that, as we have seen, were not very embarrassed by control over their capital expenditure.
It is not only that the Labour Government deprived itself from the beginning of any criterion with which to measure priorities in the administration of the various controls that remained as a hangover from the war engendered scarcity. Probably the most shocking feature of Labour’s administration – to any socialist who retains illusions as to the socialist character of the Labour Government in office – was that Big Business itself administered the controls over business. Even the Civil Service had to make way. The following facts, taken largely from Rogow and Shore’s excellent work, are revealing.
The Chief Planning Officer, 1947–51, was Sir Edwin Plowden, a Director of British Aluminium and two other companies. The Capital Issues Committee consisted of seven bankers, stockbrokers and industrialists plus one Treasury official who, being the Secretary, took no active part in the proceedings. The chief industrial advisor to the Board of Trade was Sir William Palmer, Chairman of the British Rayon Federation. Most of the advisors and commodity directors of the Ministry of Food were representatives of business interests, paid by their firms. Unilever alone filled ninety posts in the Ministry of Food, twelve of them, senior posts. A director of the Iron and Steel Federation headed the Steel Rearmament Panel of the Ministry of Supply and the personnel of the various metals controls was drawn largely from the Non-Ferrous Metals Federaion.
G.R. White, an official of the United Tanners’ Federation, was leather controller at the Board of Trade. The match controller in 1946 was employed by Bryant and May and even had his offices at that firm’s premises. The paper controller was Sir Ralph Reed, chairman of one of the largest paper manufacturing firms in the country. Major F.J. Stratton, a director of Dolcis, was footwear controller and the hosiery, furniture and tobacco controllers or advisors were trade officials. Employees of Distillers Limited, occupied the top posts in the Molasses and Industrial Alcohol Control of the Board of Trade and Liverpool’s cotton firms supplied the bulk of Cotton Control personnel. Timber Control, the largest of the lot, was almost completely staffed by industry people, working to a large extent on an honorary basis, i.e.. paid by private industry.
Newsprint was allocated by a trade body. the Newsprint Rationing Committee. The Meat Importers’ National Defence Association and the Wholesale Meat Supply Association distributed imported meat. Rationing of clothing was the concern of trade associations, while the controls over the “sweets” trade was in the hands of the cocoa and confectionery trade associations who, by 1950, were allowed to classify and distribute the raw materials without further authority from the Ministry of Food.
The Mond Nickel Co. imported all nickel and rationed it to users through “an unofficial allocation system working between the Mond Nickel Co. and the Ministry of Supply.” Sulphur was purchased by the National Sulphuric Acid Association which consisted of three sulphuric acid producers. When the Ministry of Materials became the sole importer of tungsten ores and concentrates it proposed to form a company whose management would include representatives of three private firms in the trade.
The Ministry of Food worked with private companies in a big way. As the Report of the Comptroller and Auditor General for 1950–51 states:
Importers. brokers, wholesalers and others displaced by the Ministry’s activities were . . . formed into associations to render expert services to the Ministry in the purchase, handling and distribution of foods as Ministry agents. The remuneration of these associations amounts to some 4 million a year and is fixed with the general intention of maintaining the earnings of their members at or about the pre-war level so that the trades will retain the means to resume their functions in due course. (Trading Accounts and Balance Sheets, 1950–1, Vol. I).
It is not at all surprising to hear that business made a good business out of controlling business. The Comptroller and Auditor General’s report shows, for example, that £48,000 a year was paid to the oilseed processing industry for a number of closed plants that were not likely to be reopened. The Ministry of Food paid £2,400,000 a year to sugar refiners, to offset increased costs in producing sugar for internal consumption, although information regarding one huge refining concern showed output and exports greater than in 1939. It was not until February 1951 that the Ministry even started to investigate refining costs and profits!
And when business thought that the time had come to get rid of controls altogether, they were in a good position to do so. As Rogow and Shore write (p. 66), “Pressure to de-control industry, put upon the Government by its advisers, was a factor of importance in the controls ‘bonfire’ of 1948–50. It was an unusual week in 1951 when the newspapers and periodicals did not feature a detailed criticism of the policy.” They go on to cite chapter and verse, how the former controller of meat and livestock in the Ministry of Food attacked the bulk purchase of meat, how the former London Regional Director of the Ministry of Works attacked building controls. The Chairman of the Milk Marketing Board criticised Government milk policy, the Chairman of the Cotton Board did the same in his sphere. On one occasion a member of the Economic Planning Board went so far as to state the need for a “pool of unemployment” in flat defiance of the Government’s full employment policy. They sum up by saying. “Controls ... are not likely to be best administered by hostile or antipathetic controllers.”
On the basis of the Labour Government’s experience in running a so-called mixed economy, a socialist must conclude that it was a mixture in words, not in fact: that, at least so far as the private sector was concerned, there was never any question of subordinating themselves to any government or social control against their will, to a plan or to anything but their own representatives looking after their own interests. Indeed the very concept of a mixed economy – if it pretends to mean a mixture of socialism and capitalism – is a sterile hybrid: how can the two live amicably together when the one entails social control and the other sectional control of the means of production? As used today, the slogan of a mixed economy is nothing other than a rehash of the old system, private capitalism aided by nationalized industries that are run by a capitalist state on capitalist lines in the interests of capitalism – very much the mixture as before.
Last updated on 16 February 2017