H.F.

British economic policy since the war

From International Socialism, No.1, Summer 1958, pp.75-76.
Thanks to Ted Crawford & the late Will Fancy.
Transcribed and marked up by Einde O’Callaghan for ETOL.

British economic policy since the war
by Andrew Shonfield
Penguin, 1958, 3/6

“It is not that British wages have been going up all that much faster than wages in other countries; the crucial fact is that the output of physical goods and services to match the increase in wages has been rising much more slowly. The inevitable consequence is that British prices have been tending to rise faster than elsewhere.” So writes Andrew Shonfield in his book, British Economic Policy Since the War. The slow rate of growth of the British economy is due, he asserts, to the low level of investment in Britain compared with other countries, USA, Japan, West Germany, Norway, Italy, Successive Chancellors have been primarily concerned with maintaining the stability of the pound, the inviolability of the Sterling Area, and with achieving a balance of payments surplus for overseas investment. This policy has involved us in a vicious circle. Attempts to expand at home have led to rises in imports, the payments for which nave not been immediately forthcoming; result: balance of payments crisis and a cut in home investments. This pattern has repeatedly asserted itself, in 1949, in 1951, in 1955, in 1956 and in 1957, and since 1955 the economy has been in a state of morbid stagnation. “The truth is, then,” Shonfield writes, “that British investment has been held back since the war, first because the balance of payments has been weak – our foreign exchange income has barely covered our outgoings – and secondly, because the Government has chosen to regard industrial investment as the first expendable item in an emergency. It has been constantly tempted by the idea that the balance of payments should be strengthened by a deliberate policy of denying capital goods to British industry, so that more of them should be sent abroad. There has also been the more general notion that by reducing the pressure of demand at home, on critical materials like steel and on skilled labour absorbed in investment projects, the balance of trade would tend to improve.” (p.50)

Shonfield’s arguments clearly reveal the shallowness of the Cohen Report. Inflation is no more due to the greediness of the trade unions than is the class struggle due to the nefarious brain of Karl Marx. Prices have risen because output has lagged and because, since the come-back of the Tories in 1951, it has been the Government’s deliberate policy to lift controls, abolish subsidies and to allow the “free market” to function, e.g., rents. But this rise in prices was intended to be disinflationary; it was an attempt to redistribute income in favour of profits, so that more money could be saved and invested. “The issue had no doubt been obscured by the hope that a rapid expansion of production would provide an increase in wealth large enough to allow the redistribution of relative shares to proceed painlessly. Such an expansion did, in fact, cover the first phase of conservative redistribution.”(p.190) But by 1957 expansion had halted. “Now the party platform became converted to the view that stable prices were the first objective of any economic policy.” (p.190) Hence the pay peg, hence the bus strike, hence the railwaymen’s paltry 3 per cent.

Shonfield’s book, then, is a serious and readable assessment of British economic policy. Socialists will not agree with everything he says or leaves unsaid, I have in mind particularly his analysis of the trade union movement and his “Five Year Plan” of recovery and his omission of monopoly policy, they will, nevertheless, find in it helpful information, and food for thought.

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