T2 Economic Flashcards
1
Q
Context of the economy
A
- Wilson’s government, as well as the Conservative and Labour governments that followed, were all significantly challenged by economic problems.
- From 1950 onwards Britain was undergoing major economic and social changes – in basic terms from an industrial (manufacturing) to a post-industrial (service and finance) economy.
- The transition was not smooth or consistent, and did cause social disruption.
- Central and local government had only a marginal impact on shaping these changes – government was generally forced to respond to rather than direct developments.
- Around the time of 1964 Britain’s difficulties had led to the nickname - ‘The Sick Man of Europe’ as growth rates in the UK lagged behind West Germany, Japan and America, and the Labour government inherited a deeply concerning £800 million balance of payments deficit.
2
Q
The 1964 IMF Loan
A
- Wilson believed that the industrial troubles were a key factor in the increase in Britain’s trade deficit.
- He judged that this trade deficit had grown so considerably that by 1967 he felt he had to approach the International Monetary Fund (IMF) for another large loan having already borrowed £1 billion from it in 1964.
- The International Monetary Fund (IMF) was a scheme intended to prevent countries going bankrupt. It began operations in 1947 and by 1990 had been joined by over 150 countries.
- Each member country deposited money into a central fund, from which it could draw upon, in times of need to avoid country’s bankruptcy.
- The 1964 IMF loan was only a stopgap, which, in Wilson’s eyes was a worrying sign that the government was losing control over its own finances.
- Again, Wilson blamed the trade union troublemakers, claiming that the government had begun to overcome the financial problems only to be ‘blown off course by the 1966 seven-week seamen’s strike.
3
Q
Wilson & The White Heat of Technology
A
- Wilson created a Ministry of Technology & Expand Education (create comprehensive education, increase the number of universities and establish the Open University).
- Would help to fix Britain’s productivity problems and promote economic growth.
- Investing in Science & Technology, as well as, Research and Development is very expensive as shown by Concorde.
4
Q
Wilson & The Department of Economic Affairs (DEA)
A
- Wilson created the Department for Economic Affairs (DEA) to produce long-term plans for economic growth.
- The Treasury would remain as a separate department and would produce the short-term plans for economic growth.
- The Department of Economic Affairs (DEA) was responsible for the National Plan for economic development introduced by George Brown in 1965 which introduced vague ways in which Britain should increase its GDP.
- This policy, however, caused rivalry between Brown at the Department of Economic Affairs (DEA) and Callaghan at the Treasury (supported by old-fashioned and anti-labour civil servants).
- Brown moved to the Foreign Office in 1966 and the Department of Economic Affairs was abandoned by 1967.
5
Q
Harold Wilson’s Prices & Incomes Policy
A
- Prices and Incomes Policy means government intervention to set limits on price rises and to call for wage restraint in negotiations between unions and employers.
- Wilson introduced a Prices and Incomes Policy, implemented by a Prices and Incomes Board to control inflation.
- This would stop inflation caused by the wage-price spiral.
- This would, however, cause trade unions to organise strikes over wages.
- Frank Cousins, the trade unionist, resigned from the government over Incomes Policy.
6
Q
The 1967 Devaluation Background
A
- Harold Wilson invested heavily in the White Heat of Technology and the expansion of higher education.
- Harold Wilson also chose the price and incomes policy as the cornerstone of Labour economic policy as a replacement for the old Tory ‘Stop-Go’ policies, but this would lead to strikes.
- Harold Wilson also created the DEA to solve Britain’s slow economic growth, but it would be closed down in 1967 due to rivalry with the Treasury.
- However, despite Wilson’s Price and Incomes Policy and the creation of the DEA, Britain’s continuing economic problems forced Wilson to devalue the pound in 1967.
7
Q
The 1967 Devaluation
A
- So concerned did Wilson become about Britain’s balance of payments deficit, that late in 1967 he took the step he had been determined to avoid since coming to power – the devaluation of the pound.
- Devaluing the pound would involve reducing the exchange rate of sterling (£) from $2.80 to $2.40.
8
Q
Wilson’s devaluation TV Broadcast
A
- After the Chancellor of Exchequer, James ‘Jim’ Callaghan, had announced the measure in the House of Commons, Wilson made an extraordinary prime ministerial broadcast on television.
- In solemn tones, he informed the nation that he had been forced to reluctantly to devalue the pound.
- In a rather pathetic attempt to save face, for which he was mocked ever after, Wilson assured viewers that devolution did not mean that the pound in their pocket was worth anything less.
9
Q
The 1967 Devaluation Consequences
A
- Perhaps, if devaluation had been introduced earlier and in a less theatrical way it could have been passed as a mere financial readjustment.
- But Wilson, remembering that Attlee had had to devalue sterling (£) in 1949, wanted to avoid the tag that Labour was the party of devaluation.
- By delaying the measure, however, and then unnecessarily turning it into a television drama sceptical, Wilson had unwittingly made devaluation appear as a great political and economic failure by his government.
- That is how the 1967 devaluation crisis was perceived, by many both inside and outside his government, at the time.
- The trade unions were angered by Wilson’s attempt to lay most of the blame for the government’s financial difficulties on the strikers.
10
Q
Britain’s 1967 Second EEC Application
A
- A few weeks later, Britain’s second application to join the EEC in 1967 failed. Britain’s second 1967 EEC application was again vetoed by French President Charles De Gaulle.
- Again, De Gaulle accused Britain of being too close to the United States, but this time also argued that Britain was not ready to join on economic grounds given the devaluation of the pound.
- Having Britain’s second EEC application fail, hard on the heels of the devaluation crisis, made Wilson’s economic policies look like a total failure.
11
Q
Devaluation Historiography
A
- It is now recognised by economic historians, however, that Wilson had overestimated the seriousness of the balance of payments deficit crisis.
- In fact, in the private sector of the economy, there was not balance of payment deficit, but in reality, a positive balance of payment surplus.
12
Q
The Post-Devaluation Jenkins’ Boom (1967 - 1970)
A
- James ‘Jim’ Callaghan was replaced by Roy Jenkins, who had supported devaluation as early as 1964, as Chancellor of the Exchequer.
- Jenkins used deflationary ‘Stop’ policies like raising taxes and cutting government spending to improve Britain’s balance of payments.
- These policies made the government unpopular, especially amongst the trade unions, but by 1969, a balance of payments surplus had been achieved, although between 1969 and 1970 inflation was still running at 12%.
- The improvement in the economic situation overall by 1969, however, was a key factor in making Labour confident in winning the 1969 General Election.
13
Q
Globalisation & Deindustrialisation
A
- Harold Wilson’s government was confronted from the very beginning, as were all Labour and Conservative governments, by Britain’s long term structural economic difficulties.
- These arose from the fact that Britain in the second half of the twentieth century was undergoing a major shift in its economic and social structure.
- It was changing from an industrial economy to a post-industrial economy.
- Britain’s manufacturing industries were shrinking, while its service and financial industries were expanding.
- This was a consequence of globalisation which was causing deindustrialisation.
- The transition to a post-industrial economy was not smooth or consistent and so caused considerable social disruption.
- This indeed, was the root cause of Britain’s post-war difficulties. Regardless of government control of the economy, the truth was that central and local government had only marginal influence in shaping this transition.
- It was a case of responding to developments rather than directing them.
14
Q
‘The sick man of Europe’
A
- Such were Britain’s long-term economic problems that commentators used such terms used such terms as ‘Britain in decline’ and ‘Britain, the sick man of Europe’.
- They meant that Britain had failed to match the economic growth rates, productivity and balance of payment surpluses achieved by the other advanced industrial economies of Western Europe, Japan and the USA.
- This was something that had been evident in the Macmillan’s years and was to worry Wilson’s and later governments into the 1970s.
15
Q
Wilson & Trade Union Tensions
A
- Matters did not go well for Wilson’s relations with the trade unions from the 1964 General Election onwards. Wilson was committed to the idea that inflation and Britain’s balance of payments deficit were the major threat to Britain’s economic progress and that, consequently, wage and salary increases must be kept in check.
- As early as 1963, Wilson had warned the Labour Party, the trade unions, and the employers that they had to become more realistic in their approach to wage demands and settlements.
- ‘We are redefining our socialism in terms of the scientific revolution. The Britain that is going to be forged in the white heat of this revolution will be no place for restrictive practices or outdated methods on either side of industry.’
16
Q
Wilson’s Price and Incomes Policy
A
- Confirmed in government by his 1966 General Election success, Wilson pressed forward with his ideas for cuts in government spending and a wage ‘freeze’.
- This was known as Wilson’s Prices and Incomes Policy (1966).
- Wilson’s policies disappointed the left-wing of the Labour Party and angered the trade unions who had originally founded and continued to fund the Labour Party as a workers’ party.
- The trade unions had hoped that a Labour government would bring them benefits and not lectures on their need to be responsible and shore up the capitalist system.
- The Trade Union ‘wildcat’ strikes had forced Wilson to abandon his Prices and Incomes policy, which in turn would lead to the 1967 devaluation of sterling.
17
Q
Frank Cousins Resignation
A
- The leader of Britain’s largest trade union, the Transport and General Workers Union (TGWU), Frank Cousins, whom Wilson had made Minister of Technology in 1964, resigned in 1966 over the creation of the Prices and Incomes Board.
18
Q
Trade Union ‘Wildcat’ Strikes (1966 - 1967)
A
- How serious the gap between Wilson’s government and the trade unions became evident in a series of ‘wildcat strikes’ over pay in 1966 and 1967.
- The most disturbing of these ‘wildcat strikes’, was the lengthy strike stoppages by the Seamen’s and Docker’s Union.
- Wilson interpreted these as more than simply industrial disputes; he characterised them as a deliberate attack by a group of Marxist [Communist] extremists, within the trade union movements, on Britain’s industrial wellbeing.
- In 1966, Wilson spoke in the House of Commons of: ‘a tightly knit group of politically-motivated men who are now determined to exercise back-stage pressures endangering the security of industry and the economic welfare of the nation’.
19
Q
In Place of Strife (1969)
A
- The climax of Wilson’s campaign to bring the trade unions into line and to make them accountable
came in 1969 with the publication of the White Paper [proposed law], called In Place of Strife, which was a set of proposals aimed at preventing future strikes. - The central proposal of In Place of Strife was for the introduction of a series of legal restrictions on the right of workers to strike.
- Members of a trade union would have to be balloted [voted upon] and would have to agree by a clear majority on an industrial action before a strike would be recognised as legal.
- Proposals were also included In Place of Strife that forced employers to keep to agreements and to consult with trade unions when major decisions were being contemplated by them.
- However, the trade unions were not fooled; they saw the supposed restrictions on employers as an obvious attempt to make the strike restrictions more palatable to the trade union workers.
- In Place of Strife never got beyond the White Paper [proposed law] stage.
- When it was put to the cabinet by Barbara Castle, the Employment Secretary, it created immediate and deep divisions within Wilson’s government.
- The left-wing of the Labour Party asked bitterly why a Labour government was contemplating a measure that undermined the principles for which the Labour Party was supposed to stand – protection of the trade unions who both originally created and funded the Labour Party.
- The Labour Party had come into existence to resist restrictive laws on the workers’ trade unions and now it was suggested, by a Labour government, that those laws should not be relaxed but tightened.
- There were allusions to the irony of Barbara Castle, a convinced left-wing Bevanite in her younger days, proposing the type of law that one would only expect to come from the Tories.
- It was the moderate James Callaghan, the Labour Party treasurer, as well as, the Chancellor of the Exchequer, who finally killed off any chance of In Place of Strife proceeding by stressing the dangers to the Labour Party of alienating trade unions that still provided the bulk of its funds.
