Without any adequate theory of the transition, the Labour Party was bound to be defeatist in the circumstances of 1929. Socialism was impossible and capitalism was doomed: there was nothing to do but govern without conviction a system it did not believe in but saw no real prospect of changing
R. Skidelsky, Politicians and the slump, 1967 When it came to power in June 1929 economic fortune looked as if it might smile on the incoming minority Labour government. That year proved the best for exports since 1918; in the spring unemployment was on a downward trend; 1928–
29 saw industrial production and GDP growing at a rate of 5.1 and 2.4 per cent per annum. If such trends had continued the government might have acquitted itself satisfactorily. It might have set about the gradual, piecemeal extension of public ownership and rationalization of industry that it proposed; it might have financed public works on a sufficient scale to accelerate the prevailing tendency for unemployment to fall; and it might, in a climate of growing prosperity, have acquired the increasing revenue necessary to effect a significant increase in social welfare expenditure. All this could also have proceeded in a general climate of growing domestic and international confidence, which would have diminished business anxiety about any adverse impact of such policies on the level of profit- ability and mitigated any City concern over the maintenance of the exchange rate.
In short, even within the policy constraints it had established for itself, there would have been some freedom of manoeuvre and some likelihood of success.
With the collapse of the United States economy and the global economic shockwaves that resulted, these possibilities evaporated. In a situation of rapidly rising unemployment (over two million by July 1930), falling industrial production, squeezed profitability and mounting bankruptcies, social and economic reform of the kind articulated by Labour was increasingly seen by the government, and in particular Snowden, Chancellor of the Exchequer, as a luxury that could not be afforded. Further, the existing scale of public works was now manifestly inadequate in relation to the magnitude of the unemployment problem, while any notions of fundamental industrial restructuring had to be abandoned, in view of the employment consequences of the rationalization of productive capacity that must necessarily eventuate.
What Labour desperately needed in view of the rapidly deteriorating economic circumstances was a set of macroeconomic policies that would tackle the problem of unemployment, impart sufficient forward momentum to the economy to restore business confidence and make possible at least some tentative steps in the direction of ameliorating the material lot of Labour’s constituency. But, as we have seen in the previous chapter, the essential components of such a strategy were exactly what had been ruled out by the triumph of Fabianism.
Of course the absence of a theoretical structure in terms of which such a strategy could be articulated and defended was not the only obstacle in the way of its pursuit.
Even a Labour Party enthusiastically embracing the economic doctrines of liberal socialism would still have had to confront a depression of unparalleled severity and a Treasury implacably wedded to the notion that ‘whatever might be the political and social advantages very little additional employment can, in fact, and as a general rule be created by state borrowing and state expenditure’1– confronted too by a Treasury possessed of an unparalleled intellectual and imaginative capacity when it came to outlining the administrative, practical and theoretical impediments to an expansionary programme of public investment. It was also the case that business and international confidence was fragile and might not have taken kindly to a radical departure from accepted principles of fiscal and economic manage- ment. Even so, the absence of the theoretical constructs and conceptual framework in terms of which a radical economic strategy could be formulated and defended was one important factor condemning the minority Labour government to policies of negation, restriction and inactivity.
Where new ideas are absent the old will hold sway and that meant balanced budgets (which as revenue diminished implied expenditure cuts) and the defla- tionary defence of an overvalued exchange rate. It also meant acceptance of the Treasury view that increased public investment expenditure must necessarily prove ineffective as a means of reducing the level of unemployment and adherence to a Micawberite faith that something, to be specific the economic cycle and world trade, must eventually turn up.
It is true that with the formation of the Economic Advisory Committee in February 1930 MacDonald did enlist the services and trawl the opinions of pro- fessional economists and others – Keynes among them. However the Committee was divided on the most effectual remedies for unemployment. In particular there was a division of opinion between economists such as Keynes and industrialists, such as Sir John Cadman, and also a divergence of views within the ranks of the economists themselves, most notably between Keynes and Lionel Robbins. The Economic Advisory Committee was never likely, therefore, to help the Labour government circumvent the policy impasse in which it found itself.
All this said, some commentators have suggested that public adherence to the principles of economic orthodoxy did not prevent a covert, practical deviation from them (by way of increased expenditure on support for the unemployed and, more tentatively, on roads) and that this helped to produce an economic outcome as favourable as could have been expected in the circumstances and better than was achieved by most governments in the 1929–31 period.2But this does not rule out
the likelihood that the Labour government could have done better still had it not been so hamstrung, and therefore conservative, in terms of the macroeconomic policies it pursued. Nor does it deal with the fact that the government simply did not grasp the range of policy options on offer. Adherence to a political economy that ruled out the possibility of expansionary fiscal and/or monetary policies meant, when incremental socialism was no longer feasible, adherence to the economic orthodoxy emanating from the Treasury. In effect, Labour put itself in a position where there was no alternative. It should also be said that, whatever the general economic performance under the second minority Labour government, its conduct of economic policy helped pave the way to political disaster in 1931.
If, though, Fabianism provided no way forward except into the arms of the Treasury, it was also the case that Philip Snowden, in particular, found the resultant embrace anything but uncongenial. Fiscal rectitude, sound money and free trade were fundamental tenets of his economic philosophy. If socialism had to be paid for, that meant budgets had to be balanced. If this could not be achieved then socialist advance must be halted. Socialism could not be built when a nation lived beyond its means. Further, socialist progress must proceed on the basis of a currency the domestic and international value of which was stable, and that meant ensuring that monetary policy remained in the hands of financial experts immune from pernicious, political pressures. As regards free trade, that was a practical expression of the international ‘brotherhood of man’ and, for Snowden and many others, a central article of socialist faith. If, then, to quote Churchill, ‘the Treasury mind and the Snowden mind embraced each other with the fervour of two long- separated kindred lizards’ it was with a passion rooted in a shared economic Weltanschauung.
On matters financial and economic Snowden’s was theauthoritative voice within the Party. As unemployment rose and frustration grew there was a measure of dissent but in terms of constructing a radical, economic alternative, that dissent was largely confined to a small group surrounding Oswald Mosley. An ILP rump, including James Maxton, Archie Kirkwood, John Wheatley, Campbell Stephen and others, fulminated against the ineptitude and the drift of economic policy and the material impoverishment it inflicted upon the working class, but fulmination is where things began and ended and despite such discordant voices the Party retained a remarkable unity. In part this may have been dictated by the exigencies of its minority position but also, surely, by the absence of a non-Fabian theoretical framework in terms of which economic questions and alternative strategies might have been considered.
It was, indeed, only when MacDonald and Snowden moved to implement the recommendations of the May Committee on National Expenditure, 1931, for cuts in unemployment benefit amounting to £66 million, and even then only over the
‘means test’ component of those cuts, that the majority of the Cabinet and the Party parted company with the Prime Minister and his Chancellor. Even at the death the fundamentals of Fabianism went largely unchallenged and indeed it would live on in various guises and mutated forms after 1931.
During the course of the minority Labour government there was, in fact, only one significant challenge to Fabianism and thence to Treasury orthodoxy and this Labour in office, 1929–31 87
originated with Oswald Mosley and John Strachey, who had already confronted its ideological hegemony in the 1920s. As early as March 1930 we find Strachey complaining of the Labour Party showing ‘perceptible Conservative tendencies’
and by October 1930 his frustration had increased to a point where he wrote of Snowden as: ‘determined . . . to prove that a socialist Chancellor of the Exchequer can be the champion of laissez-faire. He stands immovable upon economic principles which Mr. Mill and Mr. Jeavons [sic] would have thought amateurishly inflexible and doctrinaire.’3
Such frustration was shared by Mosley. Indeed matters were made worse for him by the fact that at the outset of the government he had been drafted on to a committee under the chairmanship of the Lord Privy Seal, J. H. ( Jimmy) Thomas, which had responsibility for the co-ordination of Labour’s employment policies.
With its lack of executive powers, the absence of a clear remit and under an inept, ineffectual and sometimes inebriate chairman, the Thomas Committee came, for Mosley, to epitomize the impotence, incompetence and inertia of the government’s response to rapidly deteriorating economic circumstances. And increasingly, therefore, he came to believe that something must be done.
It was the impetus of this acute and growing frustration that led Mosley, with Strachey’s help and support, to set out his ideas for a radical alternative to existing economic policies. This was done first, in a ‘Memorandum’, January 1930 (rejected by the Cabinet in May 1930 and subsequently by the Party at its annual confer- ence in October 1930), and then, in a ‘Manifesto’ (signed by 17 Labour MPs and the miners’ leader A. J. Cook), which was published in December of that year. However, as a result of the Party’s rejection of his ideas, Mosley resigned from the Cabinet in May and, shortly after the conference, abandoned Labour altogether, establishing the New Party (February 1931) and then the British Union of Fascists.
What the ‘Memorandum’ and the ‘Manifesto’ sought was an employment- creating programme of home development based upon substantial restructuring and modernization of the British economy. The proposals had both a short-term and a long-run dimension. In the long run, the objective was a fundamental rationalization and reorganization of the nation’s industrial base both to satisfy more fully the needs of the domestic market and to enable British industry to compete more effectively in those markets where competition was still a possibility.
For the most part, though, Mosley assumed that international markets would, for the future, be less important and that British industry was destined to become less export-oriented. This would result, first, from the growth of protectionism, secondly, from the generally depressed state of world trade in the aftermath of 1929, and thirdly, from the rise of low-cost (labour) producers, particularly in East Asia, with whom British industrialists could not hope to compete while maintaining the living standards of their labour force. Mosley therefore mounted a fundamental challenge to the notion, underpinning the government’s stance on economic policy, that Britain’s economic fortunes would be restored and unemployment alleviated by an eventual revival of the export trades. For that reason his strategy of industrial regeneration was focused on the home market and was geared to greater national
self-sufficiency. To that end it sought to raise and maintain the level of purchasing power in the domestic economy.
To implement this programme of rationalization, restructuring and redirection, Mosley proposed a number of measures. First, there should be a fundamental re- organization of the machinery of government to provide the strong central planning and control that his strategy required; though it is important to note that in terms of his own work the period 1930–31 was to see a ‘crucial shift in terminology’ from ‘socialist’ to ‘national planning’.4 Specifically, in the Memorandum, Mosley proposed the creation of a small executive committee under the chairmanship of the Prime Minister. This would include ministers with substantial economic responsibilities, advised by a ‘body of experts employed on a full-time basis by the state’ and serviced by an independent secretariat of 12 senior civil servants.5Also, to be able to act swiftly and decisively, there would need to be a reform of parliamentary procedures to remove the traditional checks and balances that could so easily be used to obstruct the effective implementation of a radical strategy.6
In terms of institutional changes, Mosley also proposed the creation of a development bank to fund the reorganization, re-equipment and modernization of British industry, rejecting the idea that the existing banking system could be relied upon to provide the necessary finance. As he saw it, the current tentative and ineffectual approach to rationalization on the part of the Bank of England and the clearing banks was proof positive of the need for this. What Mosley had in mind, therefore, was something along the lines of a state finance corporation that would use substantial capital assets to fund and facilitate the process of restructuring.
Crucial to the whole strategy of modernization and expansion was the regulation of trade and the insulation of the domestic market from, among other things, the exogenous shocks of world price fluctuations, organized ‘dumping’ and competition from ‘slave labour . . . in oriental countries’.7Such regulation could also be used to provide a captive or near-captive domestic market that a rationalized and re- structured manufacturing sector would service. For Mosley, in the Memorandum, trade should be regulated and planned by means of an import board, which would use its bulk purchasing powers to conclude favourable trading deals with Britain’s trading partners. In addition, while he saw tariffs as largely ineffective in insulating the domestic market against currency fluctuations, they nevertheless had a place in the economic proposals put forward in the Manifesto. Thus commodity boards, representing producers and consumers, would grant the protection of tariffs on certain conditions related to pricing, efficiency improvements and the remuneration of workers in the industry concerned. In general terms what he sought, therefore, was ‘an organisation planning, allocating and regulating . . . trade rather than leaving these great things to the blind forces of world capitalistic competition’.8
Internationally, free trade no longer existed. Adherence to it would be likely to promote a precipitate, forcible and unplanned restructuring of Britain’s indus- trial base, exacerbating the problem of unemployment and causing long-term economic weakness. Conversely, protection would allow the country ‘consciously to choose the forms of production best suited to it and to see those industries were Labour in office, 1929–31 89
permanently established here, protected from the interference of quite arbitrary external factors’.9
Imperial preference was also to form an important part of this commercial policy and of national economic planning in general. As the authors of a pamphlet written in support of the Mosley Manifesto put it, ‘the Dominions have, for the most part, foodstuffs and raw materials to sell and we have manufactured goods to sell.
This natural balance of trade should be developed under a commonwealth plan of mutual advantage.’10So a restructured, rejuvenated and essentially industrial British economy would be complemented and serviced by a colonial periphery providing, for the most part, primary products: shades here of the social imperialism of an earlier century.
Such were the essentials of the long-term strategy. In the short run, though, it would be necessary to tackle the problem of unemployment more directly. Indeed, as Mosley recognized, the rationalization and restructuring that he proposed would, in the short term, merely make it more acute. What he put forward, therefore, after consulting with Keynes, was a £100 million road development programme and an additional £100 million programme of capital expenditure financed by government borrowing in the form of a development loan. This, together with a retirement pensions scheme and the raising of the school leaving age, would reduce unemployment by 700,000 within a year. Further, these measures would dovetail with the long-term dimension of the strategy by upgrading the nation’s social and infrastructure, thereby helping to lay the basis of a more modern, advanced, competitive industrial economy – albeit one now geared to the servicing of domestic and empire markets to a greater extent than previously. In addition the rise, or at least maintenance, of working-class purchasing power that these measures would effect, would create a general economic climate more conducive to restructuring and ensure that it occurred with particular reference to the domestic market.
Economic planning, increased government investment expenditure, protection, imperial preference and greater national self-sufficiency in manufactured goods:
these were the essentials of a strategy that would raise working-class living standards and, ultimately, guarantee a level of aggregate demand sufficient to eliminate and prevent the re-emergence of mass unemployment. It was essentially a defensive strategy based on the pessimistic premise that there could be no return to the level of exports that Britain had enjoyed in the nineteenth century. Yet it was too a strategy that sought to provide a radical alternative to the policy inertia induced by the melding of the Treasury and the Fabian mind. It is true that it was not manifestly socialist but, as Strachey and Mosley made clear, it did not in any sense involve the abandonment of socialist objectives. It was simply a temporary suspension of their pursuit or, more accurately, un reculer pour mieux sauter. For example, as regards the extension of public ownership, Strachey wrote that ‘the immediate question is not a question of the ownership but of the survival of British industry. Let us put through an emergency programme to meet the national danger; afterwards political debate on fundamental principles can be resumed.’11 In effect, a rejuvenated capitalism was seen as a necessary prerequisite for future socialist advance, not least because it was a prerequisite for Labour’s retention
of political power. That said, Mosley was clear that, for the immediate future, socialism must be kept on the back burner; a position that was to alienate many members of the ILP.12
In some, superficial respects these proposals echoed those of mid-1920s liberal socialism, but the echoes are faint and distorted. For example, it is clear that the market was to play a less central role than that which Strachey and Mosley had previously ascribed to it in 1925. Admittedly a prime objective was to raise working- class purchasing power and secure the salutary macroeconomic consequences that would result, but that rise was to be a consequence of what was proposed, not the agent of change. Central to the strategy was the idea of a preconceived national economic plan and a small, powerful, economic committee that would play a highly interventionist and directive role in implementing it. In the mid-1920s, market- mediated working-class demand would determine planning priorities; by 1930, these priorities were to be predetermined by the ‘economic overlords’. In the mid- 1920s planning was conceived of as reactive; in the Mosley proposals it was to be directive.
What was proposed also contrasts with the emphasis on the dispersal of economic power implied by the role given to the working-class consumer in Revolution by reason. For, in the 1930 proposals, economic policy-making was to be concentrated in a few, competent and powerful hands, while, in addition, existing parliamentary constraints on the exercise of that power were to be considerably loosened.
The Mosley Manifesto and Revolution by reasondid, however, have this in common.
Both were rejected by the Labour Party, and with that rejection in October 1930 went the last effective challenge to the dominance of economic orthodoxy.
Thereafter there was a straight and untrammelled road to the fiscal retrenchment proposed by the May Committee Report and to the demise of the Labour govern- ment that was to follow the attempt by MacDonald and Snowden to implement its recommendations.13
Labour in office, 1929–31 91