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Andrew Glyn

Big business opposes reflation

(September 1977)

From Militant, No. 372, 9 September 1977, p. 2.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Big business helps finance two economic institutes.

The Institute for Economic Affairs [IEA] is the propaganda centre for the ideology of the free market. A stream of pamphlets by the ‘monetarist’ Milton Friedman and his followers blame the state for every aspect of the economic crisis. Few people read them of course, but the arguments are taken up by the Tory press and mass media to try to discredit Labour as “the party of state intervention.”

The Tory Party adopts their arguments for mass unemployment (described as ‘natural’), for legal shackles on the unions (to make collective bargaining ‘free’) and for dismantling the welfare state (to increase ‘choice’).

But capitalists have practical interests as well. They need forecasts of what is likely to happen in the UK and overseas markets, if they are to make profitable investment decisions. So they also help to finance the National Institute for Economic and Social Research [NIESR] which makes these forecasts.

After their August forecast, Patrick Hutber, wrote to the Sunday Telegraph: “Do those British companies and banks, to whose contributions the Review greatly pays tribute, realise the damage they are doing to their own future prospects by giving it their support.” There were also rumours of the City setting up a “‘small committee’ which could have a talk to the economists.”

Has the NIESR suddenly become converted to Militant’s programme for nationalising the major monopolies? Not at all. The NIESR are out and out Keynesians who believe that spending cuts have only made the recession in the economy worse.

Figures they produce show that the government’s borrowing is £1 billion below the limit set by the IMF. They also show that the size of government borrowing (£7–7½ billion per year) is the result of the extent of the recession, for if there was anything approaching full employment, the extra incomes would mean higher taxation and the government would show a surplus (of £2–4 million).

So the reason for the deficit is not overspending by the government, but underspending by the capitalists, who do not find it profitable to invest sufficiently so that all capacity is used.

All that the National Institute suggests is that the government should expand the economy by 3½–4% during 1978. This is not some drastic proposal which would really cut unemployment. On the contrary, all it would do is to prevent unemployment rising by an additional 200,000 or so which the NIESR expects if no expansionary action is taken. Since faster growth would mean more markets, why are the capitalists so hostile?

Fundamentally, they know that without an upsurge in investment, any government-stimulated expansion will collapse in inflation – as happened with Barber’s boom in 1973. And they see mass unemployment as the only way of restoring profitability by holding back wages.

Now that Phase III has collapsed they are not even satisfied with unemployment being maintained at its present level. They actually feel it necessary that it should rise, in order to keep profits rising.

Since Phase II was introduced, profits have shot up. The latest figures show a 25% rise in company figures between the third quarter of 1976 and the first quarter of 1977. But profits had fallen so sharply that even this rate of increase would have to be maintained for another three years if the levels of profits of the mid-60s were to be maintained.

Industrial and Commercial profits % of net output







3rd Quarter

4th Quarter








Bank of England Quarterly Bulletin, June 1977 updated

Moreover, Economic Trends (August 1977) reports that more than half the increase in profits since the summer of 1976 has been in profits from North Sea Oil. This does not mean the higher profitability in industry generally which would be necessary for an investment boom.

Having seen the forecasts of manufacturing investment growth in 1977 scaled down from 20% a year ago to 5% now, NIESR still hope for more improvement in 1978. But without a big increase in profitability, this will not be sustained. Everybody in the labour movement would like to see really fast expansion to bring down unemployment. But without adequate profits for big business, there is no way the government could force the capitalists to invest.

Stark Choices

The latest idea of Tribune (September 2) is that the government should use the same tactics of threatening to blacklist firms not doing enough investment as it has been using against firms breaking the pay code. But there’s all the difference in the world between threatening sanctions (such as withholding government contracts) against a few tinpot firms and attempting to force the major monopolies to do what they regard as unprofitable.

The Labour government would certainly be faced with an intensification of the present strike of capital. If the capitalists regard even the National Institute’s feeble proposals for their expansion as “excessive” – and their representatives are even threatening it with extinction! – what would be the reaction of big business to government intervention in its investment decisions?

As when Labour government threatened any serious moves against big business in the past, they would be faced with a stark choice: either retreat and carry out the policy advocated by the CBI; or tackle the crisis with socialist measures and take over the big monopolies which dominate the economy.

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