Andrew Glyn Archive   |   ETOL Main Page

Andrew Glyn

The Brutal Logic of Monetarism

(April 1980)

From Militant, No. 499, 18 April 1980, pp. 8–9.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Andrew Glyn examines the Thatcher government’s monetarist strategy and its consequences for the labour movement

The Tory government’s recent Budget once again slashed public expenditure and imposed a tight monetary squeeze of the economy. This harsh deflationary package will cut deeply into workers’ living standards, send unemployment soaring to unprecedented heights, and throw millions of workers and their children into poverty.

These policies, however, are not simply the result of the Tories’ hard-nosed arrogance and vicious hatred of the working class. They are dictated by the catastrophic crisis of British capitalism, and reflect a calculated economic strategy on the part of the Tory government.

In a recent article in The Times, Professors Hahn and Nield pointed out the fantastical nature of the theory of the “self-regulating economy,” with which monetarism pretends to bolster its policy prescriptions.

It would be mistaken, however, to conclude that monetarism is simply an outdated and irrelevant dogma, with no real connection to the problems faced by British capitalism. On the contrary, the policies of the Thatcher government represent a systematic attempt to deal with the catastrophic decline of British capital’s industrial base.

The decline is summed up in the collapse in profitability. Between 1964 and 1978 the rate of profit earned by industrial and commercial companies declined from 12.5% to 4.7%. Any policy for the successful regeneration of industry on a capitalist basis would depend on the restoration of profitability, and the channelling of higher profits into massive investment in modern capacity which are necessary to restore British industry to a position of competitiveness with its international rivals.

Paradoxical as it may sound, monetarism aims at restoring profitability through precipitating a sustained slump. No sooner had it been revealed that the government’s forecast for unemployment next year was that it would exceed two million, than Chancellor Howe pronounced that “even a decade might be needed before the economy was really strong again.”

The most important way in which a slump is supposed to restore profitability is by allowing the employers to drive up labour productivity. The idea is simply that mass unemployment, and the possibility of redundancy and bankruptcy, acts as a threat to help force through wholesale rationalisation. Older plants are closed down. The gains in working practices achieved by the trade unions can be jettisoned and line speeds intensified if workers’ opposition is weakened by fear of the dole.

The actual bankruptcy of weaker firms allows the concentration of some of their resources in the hands of the more effective bosses and managements. This is why the reduction of state aid to industry is an integral part of monetarism. It is useless driving firms to the edge of bankruptcy, and then stepping in to rescue them from the brink.

The distinctive monetary aspect of a sustained and heavy deflation is aimed in precisely the same direction. Pushing down demand (by tax increases and public spending cuts) would have less effect in precipitating mass redundancies and bankruptcies if the firms most affected could ride out the storm through relatively easy access to additional credit.

The reduced real volume of credit available, and punitive interest rates, inevitably tend to bear hardest on the weaker firms. So the ‘shake-out’ of labour will be more extreme.

The primary role of the deflation is to allow employers to drive up labour productivity. Of course, if that higher productivity was balanced by correspondingly higher wages, not much would be gained. But mass unemployment is a powerful weapon in the hands of the employers when it comes to wage negotiations.

Even with a severe monetary and credit squeeze and rigid cash limits in the public sector, the relationship between wage increases and rising unemployment is not so direct as the Thatcherites assume. Nevertheless, they calculate that a period of sustained mass unemployment at unprecedented levels will weaken the trade unions’ ability to achieve wage increases.

Of course, they are leaving out of account the anger that will be provoked among trade unionists by mass unemployment, and the enormous power of the labour movement once it is aroused into action.

It is nonsense to claim, as the Tories do, that the primary object of monetarism is to reduce inflation. In a situation of low profitability, price increases are required to restore profitability. The problem is that, with strong trade unions determined to protect and improve their members’ living standards, price increases are rapidly cancelled out by higher money wages. The attraction of high unemployment for the capitalists is that it offers the possibility of breaking that link.

While mass unemployment is considered by the Tories to be necessary to weaken the trade unions, they do not think it is enough. So anti-trade union legislation to reduce their power over such questions as the closed shop and ‘secondary’ picketing complements “market pressures”, and can best be introduced when these pressure may reduce trade union resistance.

After all, the monetarists look hopefully to some time in the future when expansion will be possible. By that stage, shop-floor organisation must be permanently weakened, or else the problems of the past will just recur.

The public spending cuts, too, have both a short-term and longer-term objective.

They form part of the deflationary package by cutting demand and forcing up unemployment. The Tory package of cuts is distinguished from those of the Labour government by its intended concentration on state employment (as against state expenditure on goods bought from private industry).

This is aimed at creating a pool on unemployed from among those workers who, from the point of view of private capital, are even less productive than those in weak firms in the private sector.

In the long run, however, (though that is somewhere in the 1990s), the objective of the cuts is to ‘make room’ for the promised investment boom. There is no point driving up profitability if the profits are to be lent back to the government to finance an expansion of public services.

Such expenditure does not add (at least in an immediate and direct way) to the productivity of labour, and interest on the borrowing to finance it just represents a further claim on the pool of profits.

The necessity, from the point of view of private industry, is to ensure that the higher profits are ploughed back into “productive” investment which will increase labour productivity, competitiveness, and thus profitability in the future. Cuts in state spending are a necessary part of such a package.

Whilst some of these processes are only just beginning on an economy-wide scale, in one place they are already in full swing. The policies implemented at BL represent monetarism in microcosm, “monetarism in one company” as it were.

The government’s policy of limiting the finance available to Leyland has been used by Michael Edwardes to push through a sweeping programme of plant closures. Plants which have been kept open have been demanned.

The threat of future mass redundancies has been used to attempt to force on the Leyland workers a pay deal involving a 15% cut in their real wages. Less well-known, perhaps, is that the proposed pay deal includes acceptance of a 90-page document on working practices aimed at drastically reducing the power of the shop floor.

Finally, the Leyland management has directly attacked the position of the workers through a number of actions against leaders of the shop-floor trade union organisation. The sacking of Derek Robinson is just the latest and best known example.

In 1953 Japan’s Nissan Company (Datsun) began its meteoric rise from a run-down truck producer to one of the world’s leading car firms by importing technology from Austins.

The way was cleared for introducing the new work practices involved by provoking a long and bitter strike during the course of which one of the strongest shop-floor organisations of workers in Japan was smashed and replaced by a company union. Now Michael Edwardes is attempting to import not only Honda technology and models, but also Japanese style unions.

However, the impeccable ‘logic’ of the Thatcher government’s monetarist policies from the point of view of the central economic problems faced by the employers is one thing. Whether they will actually work in practice is quite another.

The first point is that the government has no means of knowing how deep and how long the depression would have to be for the necessary rationalisation to take place.

The depression, however, has thoroughly contradictory effects. While it may help to pave the way for long-term profitability through rationalisation and wage cuts, in the short term profits are hit as sales fall, competition intensifies, and the weight of fixed costs increases. This is bound to endanger not only the weakest firms but relatively sound ones as well.

No wonder the mechanical engineering working party was reported in The Times (18 February 1980) as believing that “the government is unaware of the impact its economic policies are having on the health of the manufacturing sector.” The employers, of course, want the beneficial effects of the slump, in terms of increasing their power over the shop floor, without its adverse consequences.

As these adverse consequences build up, and especially if the promised beneficial effects of policies fail to materialise, the pressure for a U-turn in economic policy will be irresistible.

But such a U-turn could come too late. A heavy and sustained deflation, especially if the monetary screws are turned tighter and tighter, could break capitalist confidence and lead to a much more precipitate decline than was intended.

If there is a collapse of major firms or even whole industries, and a further weakening of British industries’ vis-à-vis their international rivals, a reversal of the present monetarist policies would be powerless to achieve a recovery at a later stage.

Even if the necessary rationalisation and weakening of the trade unions did take place before such a point, this could only prepare the way for an expansion. It cannot by any means guarantee it.

High productivity is of limited use if you cannot sell what is produced. The world economic depression rules out the prospect of an expansion being led by an export boom. It would almost certainly be necessary for the government to “prime the pump” for expansion.

The West German and other capitalist governments, incidentally, are maintaining high levels of state expenditure in an effort to cushion their economies from the worst effects of recession.

Under the Thatcher government, it is only spending on armaments and also on the forces of ‘law and order’ which is being increased, clearly with the political repercussions of their current economic policies in mind.

The “natural” rate of unemployment, an idea much beloved by the monetarists, really means the rate at which the employers can force on the workforce a sufficiently high level of productivity and low level of real wages. If this ‘natural rate’ is to be reduced, the power of the trade unions has to be smashed.

This is the nub of the question, for the most formidable obstacle to monetarism is the labour and trade union movement.

Their opposition may seem rather slow in developing, particularly in view of the drastic character of the Tories’ attack on working-class living standards and trade union rights. But Thatcher’s government has already aroused greater opposition in its first year of office than the ill-fated Heath government of 1970 to 1974.

One crucial reason for the relative slowness is the lack of a bold lead from the right-wing Labour leaders, who in the last Labour government began many of the policies now being carried to much greater lengths by the Tories.

The government, however, has already underestimated the determination of one group of workers, in the steel industry, which had been singled out beforehand as a relatively weak section. There can be no doubt that this opposition will widen.

Mass pressure from the labour movement will be a key factor in pushing the Tories into a U-turn on economic policies, or even bringing down the government. The resistance of the organised workers, who will not stand back while their living standards are driven down to 19th Century levels and while the ‘welfare state’ is completely destroyed, will undermine the effectiveness of the Tories’ monetarist policies, and this in turn will undermine the employers support for Thatcherite policies.

Already, some representatives of big business, including leading members of the Tory Party, have expressed grave misgivings about the potentially explosive social consequences of the present policies.

This is evidently what Ian Gilmour had in mind when he recently said that “it would be foolish to think we can forget the political consequences of what we do.” For taking this line, Gilmour was labelled by The Times as being among those in the cabinet “who know little or no economics at all.” But clearly the critics of narrow monetarist policies are those who have the clearest view of the class relations in British society, and are fearful of the enormous radicalisation and mass movements of the workers that will be provoked by the Thatcher government’s harsh policies of capitalist crisis.

Andrew Glyn Archive   |   ETOL Main Page

Last updated: 8 August 2016