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John Palmer

The Notebook


(Winter 1966/67)

From International Socialism (1st series), No.27, Winter 1966/67, pp.4-5.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

John Palmer writes: As was possible at any time in the last two years, the economy has now dipped into a period of stagnation/recession which may last as long as two years. At the time of writing unemployment is nudging 500,000 and shows every sign of topping 650,000 by the end of the winter – assuming reasonably clement weather. More ominously – for Wilson and the Government – are the growing indications that capital investment is falling. Although there is some dispute – between the employers’ organisation, the Confederation of British Industries, and the Treasury – about the extent of the threatened shortfall in capital expenditure, a drop of about 10 per cent in 1967 looks unavoidable. The heaviest falls appear to be taking place in chemicals, electronics and other sectors of the economy where growth is central to the whole of the Government’s strategy of modernising British capitalism.

The next quarter will see an acceleration of these trends with the resultant threat of a fairly steady level of unemployment – about 500,000 to 600,000 – throughout the summer, and the prospect of a further rise in worklessness in the winter of 1967/68. A great deal depends on how soon Wilson feels confident enough to relax the credit squeeze and deflation – although the early effects of any resumed expansion will for a time be cancelled out by the depressing effects of the fall in capital investment next year.

How soon the Government will feel free to reduce the Bank Rate and relax hire purchase and other credit restrictions depends on the outturn of the balance of payments in the second half of 1966 and the likely prospects for achieving a balance in 1967. The figures for the first half of 1966 can only give Mr Callaghan an odds-on chance of achieving balance by the end of next year. The outflow of investment capital does not appear to have been appreciably reduced, and Government expenditure is as high as ever (any defence ‘economies’ are not likely to have an effect before 1968). Much therefore depends on the commercial account, particularly the foreign trade balance. So far the Government’s measures have been slow in achieving the primary object: a reduction in the import bill. A slow reduction is now taking place but two factors mitigate against any dramatic improvement. The first is the big proportion of imports now occupied by capital equipment items not produced in Britain at all – and therefore not vulnerable to squeeze policies – and the second, the imponderable effect on the Government’s intention to remove the import surcharge at the end of the year.

The improvement in exports has been even less manifest. While the prospects for increased exports still remain – for as long as the boom in the USA is not undermined by the ‘overheating’ effect of the Vietnam war – the slowdown in the growth rate of most European economies and the consolidation of Common Market tariffs is making further improvement on this score painful.

It is unlikely then that Mr Wilson’s creditors (who are still owed more than £1,000 millions) will permit any general reflation before balance is clearly seen to have been achieved. This situation is unlikely to be reached before the end of next year. At the same time Wilson has his own capitalist class to think of and his perspectives of a resumption of growth and a renewal of the long-term plans of modernisation. As a result he is almost certain to select capital investment as the first target for stimulation.

Increased cash grants or a faster rate of depreciation on new investments for tax purposes are being considered. These are another form of concealed subsidies to capital accumulation and are vital if Wilson is to prevent stagnation developing into outright recession. The wherewithal for a bigger handout to the investors will come from the iron freeze on wages. This will continue (with a few minor exceptions) throughout 1967, backed by the full force of the law.

However the very few exceptions will provide the opportunity for the labour movement to expand the cracks which are appearing in the wages freeze (or more accurately ‘cut’) policy. Actions such as those planned by the unofficial building workers’ organisations will be decisive in this period. The job of converting these struggles into a general offensive against the whole anti-working class and corporatist trend of Government policy remains the most urgent task awaiting socialists at the year end.

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Last updated: 24 April 2010