ISJ Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

International Socialism, March 1975


Notes of the Month

One Year of Labour Government


From International Socialism, No.76, March 1975, pp.3-5.
Transcribed & marked up by by Einde O’Callaghan for ETOL.


TWELVE MONTHS ago the Labour Party gained office by default. In spite of the three day week and years of pent-up dissatisfaction, the aggregate Labour vote was lower than in 1970 – the year of Heath’s victory. And in the October re-play, in contrast to the big gains of 1966 over 1964, the Labour vote was only 11,458,704; the lowest in any post-war general election, in spite of the considerable growth of the electorate.

In the February 1973 Notes of the Month it was argued

‘Labour’s record is a millstone round its neck. The miserable by-election record – and especially the ignominious failure at Uxbridge – prove that Labour voters are profoundly sceptical of the Party’s promises. In this they show more political sophistication than certain “marxists” who have argued that as “awareness of the need for political forms of struggle grows, the working class will look to the organisation they know-the Labour Party.” There is no sign of it, nor of the long-promised “influx of workers” into the local parties “when the crisis comes.” The crisis is here.

‘The “lefts” are strongly entrenched on Labour’s NEC. Party Conference passes very radical resolutions. Vet the famous “socialist policies” leave no mark on the conduct of the parliamentary leaders ... None of this alters the fact that if Heath is driven to a general election – and he will be driven to one if Phase Two is wrecked by working class militancy – the Labour Party stands a good chance of winning; if only on the basis of a protest vote against the enormous 25 per cent increase in the price level and the savage welfare cuts since 1970.

‘A Labour government returned under these circumstances would be a government of crisis. On the one hand it would have, for a short time at any rate, a better chance of selling an incomes policy swindle. On the other hand, expectations aroused by an electoral defeat for the Tories will doom such a policy to destruction.’

The point of recalling this assessment of two years ago is to contribute to a clarification of ideas in the discussion on perspectives, now opening up in IS in the pre-conference period. Perspectives are a guide to action based on an economic and political analysis. And a serious revolutionary organisation checks its past assessments against subsequent events so as to better understand present realities and future possibilities. Where, then, were we right and where were we wrong?

We were right, first of all, in our estimation of the continuing decay of the social-democratic organisation and of the appeal of social-democratic ideas. The Labour vote in the elections of 1974 is a most striking confirmation of this. From its peak in 1951 the Labour Party has lost 10 per cent of the electorate – its share of the poll declining from 49 per cent to 39 per cent. The four most recent years of Tory rule failed to reverse or even check the decline. They did not produce any revival of positive enthusiasm for reformist politics.

We were right in arguing that the industrial struggle was the main field of political activity (‘The central immediate political aims of the struggle are clear. Smash the freeze, kick out the Tories’), that here was the real fight against the Tories and that Labour’s much-advertised ‘turn to the left’ was spurious.

We were right in ridiculing the Communist Party-Tribunite line that ‘strengthening the left trends’ in a Labour Party with less and less connection with the working class could produce a ‘left Labour government’ or a ‘Labour government with socialist policies’ (or ‘progressive’ policies in the Communist Party’s latest formulation). And we were correct in rejecting the view that workers could be mobilised by ‘putting demands on the Labour Party’ in a period when cynicism about Labour was general, rather than illusions that it offered a new way forward.

In the event Heath was driven to a general election (not by a wrecking of Phase Two – that was over-optimistic – but by the miners’ fight against Phase Three). Labour won; though it did not collect the protest vote – even we underestimated its lack of appeal. But now, twelve months later, it is clear that we were mistaken in predicting ‘a government of crisis’ in the short run. To avoid misunderstanding: there is, of course, an economic crisis, but, in spite of this, the Wilson government has staggered through its first year, buffeted by events, but without, thus far, being forced into major confrontations with the working class. Contrary to our assumptions, it has not yet attempted to enforce a new statutory pay policy.

At the 1974 conference of IS, the delegates, believing that a sharpening of the political struggle was the immediate prospect, adopted a perspective of rapid and substantial growth for the organisation. There has, indeed, been a qualitative growth but the expected surge forward was predicated on events that still lie in the future. To understand why, we must turn to the underlying economic factors.

The Impact of the Recession

THE WORLD economy slides deeper into recession. In its biggest component – the USA which still accounts for a third or more of total world output – unemployment jumped by nearly a million in the single month of January and now stands at over 8 per cent; seven and a half million out of work plus at least four million on short time, the highest figures since 1941.

‘Suddenly, there is no mistaking that the American economy is in its longest and deepest post-war dive’ notes the Economist (15.2.75). ‘At the end of 1974 real GNP was running 5 per cent below the level a year earlier. The volume of fixed investment was nearly 13 per cent down. And consumer confidence has evaporated. Retail sales last month were only 5 per cent ahead of January 1974. Since prices have been inflated about 12 per cent, the volume of retail buying was down about 7 per cent, despite the big effort to attract spenders by sales bargains. Perhaps most telling of all, the index of leading economic indicators has fallen for four consecutive months and quite sharply.’

And inflation continues in spite of near-slump conditions. The US government estimate is that ‘the average level of consumer prices will be 11.3 per cent higher in 1975 than in 1974’. Slumpflation is now a reality. So too, in varying degrees, is it in the majority of the big industrial economies.

Yet the impact of the recession on Britain has been remarkably mild. Unemployment is still only 790,892 (3.4 per cent). And though inflation surges ahead by at least 20 per cent per year and may even be speeding up, real earnings have more or less kept pace. The government statistics showing a 29 per cent increase in average earnings in 1974 (as compared to a 19 per cent increase in the price level) are misleading for a number of reasons, not least the effect of stoppages which on average take off a third of increases. But the fall in British retail sales over twelve months is only one and a half per cent in real terms, very small by US standards. The Social Contract has clearly not yet succeeded in cutting back average real pay to any great degree, especially after we allow for the effect of unemployment and short-time working.

Of course this is because of the wave of working class militancy discussed in Steve Jefferys’ article in this issue. The government’s reluctance to face a confrontation with the miners will now make it harder to resist the next upward twist in the wage spiral. But this is only half the story. Without militant struggle real pay would have been cut, but what has made it possible for the government to retreat, not indeed without fighting, but certainly without the kind of knockdown, drag-out confrontations that might have been expected?

Not, certainly, any unexpected growth in the economy. Production is down over twelve months by around 2 per cent (also a small drop by US standards but still a drop) and productivity is slightly lower too, as a result of rising unit costs. True, exports are surprisingly buoyant, given the recession, but this is a drop in the bucket compared to the catastrophic £3,700 million balance of payments deficit of 1974. And the investment position is dismal.

The balance of payments deficit is catastrophic but there has been no catastrophe. As we noted last month the deficit has been more or less matched – and the pound kept fairly steady on the international exchanges – by the inflow of Arab oil money (and to some extent by Eurodollar borrowing). This is the unforeseen factor which has enabled the government to vacillate, to avoid either a statutory pay freeze of one kind or another, complete with Heath-style confrontations, or, alternatively the adoption of the Powell-Joseph strategy of knocking the bottom out of the labour market by a squeeze leading to really massive unemployment. The economy obtained, in effect, a massive credit.

The Ruling Class Dilemma

HOW STABLE is the ‘special relationship’ with the oil sheiks that has softened the impact of the crisis on the British economy in the past year? At first sight it appears highly unstable. A mere handful of men, some of them capricious tyrants still mentally living in the middle ages, have it in their power, by merely shifting their assets, to precipitate such a flight from the pound as would require an international rescue operation on a massive scale. The price of such an operation would be, as in 1931, a ‘putting Britain’s house in order’ requiring savage cuts in wages and welfare. Almost certainly it would involve the installation of a right-wing ‘national government’ and a very sharp intensification of the class struggle.

Such a ‘big bang’ political crisis, a new 1931, is entirely possible and could come with very little warning. A marked escalation in wage settlements might possibly trigger it off. So too might the unpredictable reactions of the Arab oil states to a new Middle East conflict; an eventuality which Phil Marfleet argues, elsewhere in these pages, is highly probable.

Yet, at the same time, the ‘special relationship’ may be less precarious than it seems on the surface; at any rate for the year or so ahead. The reasons for the inflow of oil money are political. The effective choice for the oil kings is between two financial centres, London and New York. London seems far safer than giving the US government a handle it could possibly use to lever down oil prices. There is no danger of the British, weak and, in any case, potential oil exporters themselves, trying any such manoeuvre. It is reckoned that most North Sea oil would become unprofitable if the going price dropped much below about 7 dollars a barrel.

This flimsy safeguard notwithstanding, the British ruling class faces intractable problems. It must shift further resources from consumption to investment (i.e., from wages to profits) if it is to have any hope of repairing the damage done to its competitive position by the years of under-investment. And in conditions of declining output and world recession this must mean cutting working class living standards. The question is – how?

No doubt a Labour government, with its direct links with the trade union bureaucracy, is particularly prone to hesitate, to shrink from grasping the nettle of policies that must inevitably bring it into violent collision with its political base. But Labour’s hesitation also reflects the uncertainties of the ruling class itself. Sooner rather than later, if it is to achieve its economic ends, it must break the power of shop floor organisation and shackle the unions.

The Heath government burned its fingers in the attempt and was ultimately driven from office. Another such failure could have disastrous consequences. The alternative, the strategy of the indirect approach via mass unemployment, looks even more risky. For, along with incalculable political hazards it carries within itself one certainty. In the short term it will kill any hope of increased investment stone dead and it is a matter of faith and hope, rather than rational calculation, that in the end an investment boom will roll over a prostrate working class.

And so the ruling class hesitates over method and timing, a hesitation that reinforces ‘the least bad government’ view of Labour and a toleration of the social contract method, inadequate as it has proved.

The Tories, indeed, appear to have opted for a return to Selsdon, no lame ducks and the weakest to the wall; a policy guaranteed in this recession or the next slump to produce mass unemployment. ‘I think that in the past (i.e., under Heath from 1972 onwards) the message became obscured and people felt we were becoming just a pale version of the Socialist Party. That won’t do,’ says their new leader.

How far this represents a real shift and how much a manoeuvre to recapture the disaffected middle class voters who have drifted rightwards into ‘Liberalism’ remains to be seen. The Heath government’s attempt to apply Selsdonism quickly broke down in the face of working class opposition and the realisation of the economic costs of such a course. Would a new Tory government really let British Leyland and Ferranti go to the wall?

In any case, even if this does become the predominant ruling class strategy-and that is highly doubtful – a political transformation is necessary before it could be attempted.

The Outlook is Stormy

LABOUR HAS one more economic option, the use of budgetary measures to cut consumption, and it is an option that will be taken, perhaps in conjunction with steps to further lower the exchange value of sterling to stimulate exports.

On past form such steps can be expected to have only a temporary effect. Increased wage pressure to offset the effects of higher taxation is the usual response and the various clever schemes being proposed to penalise wage gains (incomes gains tax or its equivalent on the employers who concede increases) bristle with difficulties. Any further devaluation will increase import prices again and feed inflation and import controls invite retaliation.

Yet if such measures are ineffective – and it is a question of effect on quite a big scale-Labour must resort to statutory incomes policy or mass unemployment or to some combination of these.

The government has also to get over the hurdle of the Common Market referendum, an operation which could seriously, perhaps even fatally, damage its cohesion. And, in spite of the petrodollar cushion, the impact of the world recession on Britain must become more severe in the months ahead. Even if we leave aside the possibility of a ‘big bang’ crisis, the class struggle will intensify and the opportunities for the growth of the revolutionary movement will expand.

The precise course of development cannot, of course, be foreseen. In 1973 and 1974 we advanced economic perspectives that were essentially correct but the political conclusions we drew from them were ‘telescoped’. Now the chickens are coming home to roost. There is still some danger of ‘telescoping’ but the opposite danger may be greater still.

Top of page

ISJ Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

Last updated on 30.1.2008