The Response to Economic Challenges, 1951-1979

Question 1

What were the main problems Britain’s economy faced after 1951?

Answer 1

• Under-investment in industry -> to low productivity
• Trade deficit -> devaluation of the British £
• Inflation + failure of Stop-go
• Increasingly, days of work due to more strike action
• Economic shocks of the 1970s

Question 2

What was the state of the economy after WW2?

Answer 2

It grew rapidly in the 50s, but between 50s-70s it fell into relative decline compared to others eg Germany and Japan, which experienced post-war economic miracles- difficult to remain competitive.

• Japan: Growth of 12% in ‘60, Britain: Growth of 4% in ‘60

Question 3

What was the issue with the government investment and nationalisation programme?

Answer 3

It followed a policy of ‘picking winners’ which lowered overall productivity and helped fuel problems growing with TUs.

Question 4

What is one interpretation about the government’s economic performance between the 1950s and 70s?

Answer 4

Govt’s failure to embrace supply-side economics led ot a lack of competition in production and labour markets. W/demand-side, there was less incentive for wealth creation.

Could be argued PWC of support of failing companies, nationalisation, + tolerance of militant TUs created a culture of a lack of competition.

Question 5

What was the government’s overall coherent industrial strategy?

Answer 5

Arguably, there wasn’t one- a no. of initiatives (eg setting up og Department of Economic Affairs between 64-70 being dropped). Thus, only some areas of economy benefitted from a long-term plan eg aerospace, pharmaceuticals, which were based in South.

Question 6

How was there relatively low economic growth in Britain despite a domestic boom?

Answer 6

Britain was unable to take advantage of a global demand for British exports and became overly reliant on imports -> balance of payments constraint on growth.

Question 7

Why did Wilson devalue the pound in 1967?

Answer 7

Combined economic pressue of unrest in M. East, closure of Suez Canal + Dock Strikes led to him devaluing the £ by ‘14% or so’

Question 8

How did the PWC commitment to full employment create the balance of payments crisis?

Answer 8

There was more of a need to import raw materials to maximise productivity. Brit products sold to the home market which was booming due to full employment pushed the economy to full capacity as there was a shortage of labour + raw materials, pushing prices up and increasing demand 4 more imports.

Question 9

What was the issue with Stop-Go economics?

Answer 9

Short-term solution that didn’t deal with the central problem causing the balance of payment problems: Brit manufacturers were not being encouraged to boost their export trade.

Question 10

What issues combined with Stop-Go economics set up inflation as an overwhelming problem for the 1970s?

Answer 10

Failure of the National Economic Development Council (united representatives of employers, TUs, govt) + National Incomes Commission (regulate wage demands)

Question 11

Inflation climbed every year from 1967-1975, but worsened after the 1973 economic shock. What was inflation like from 1972-1975?

Answer 11

• 1973: 9.2%
• 1974: 16%
• 1975: 24.2%

Question 12

What was the Yom Kippur War and how did it affect the West?

Answer 12

War between Israel (supported by the West) & a Coalition of Arab states led to reduction of oil supply to the West + raised prices- barrels of oil went from $2 to $35 between ‘73-‘80

Question 13

How did the Yom Kippur War affect Britain specifically?

Answer 13

• Severe shortages of fuel for industry+petrol 4 transport
• Import-dependant economy but imports became more expensive–> £ devalued again, inflation skyrocketed as prices increased, eventually causing stagflation: weak productivity but increasing prices

Question 14

What happened in the elction of 1974?

Answer 14

Heath + Tories lost & Wilson became PM again and once again inherited huge economic problems:

Deficit went on in 1967- value of £ plummmeted: $2.41 in March 1975, $1.63 by Oct 1976. Callaghan, new PM, had to apply for £3B IMF loan, w/the condition that the govt take deflationary measures, incl. public spending cut of 7% in 1978

Question 15

Did Callaghan’s Labour government embrace the conditions of the IMF loan?

Answer 15

Yes, 1st Western economy to break w/post-war Keynesian principles.

• Contemporary chancellor recognised printing more £ would add to the liquidity issue.
• Spending cuts were known as retrenchment (active decisions are taken to reduce the supply of £).

Question 16

Why did the power of the trade unions grow after 1945?

Answer 16

• Ernest Bevin, a trade unionist, was appointed Minister of Labour during WW2- established better relations between the govt & TUs
• Repeal of 1927 Strikes Dispute Act allowed TU power to grow

Question 17

In the 1950s and 60s, what were industrial relations like?

Answer 17

• Conflicts between management and labour
• Tory govt didn’t really get involved due to PWC cooperation w/TUs, workers had lots of power due to commitment to full employment

Question 18

How did the Conservative governments of the 1950s and early 60s respond to industrial disputes and pay demands?

Answer 18

Encouraged unions to practise ‘voluntary restraint’, as seen with the setting up of ‘NICKY’ (National Incomes Commission)

Question 19

What types of strikes were most common in the 60s onwards?

Answer 19

Lack of legislation + perceived TU strength meant industrial disputes proliferated at the local level- local shop stewards famous for calling short/no-notice ‘wildcat’ strikes.

• More than 94% of strikes outside coal between 69-73 were unofficial localised disputes

Question 20

How many working days were lost due to strikes in 1960 and 1970?

Answer 20

• 3M working days lost in 1960

- 10M lost in 1970

Question 21

How did the 1966 Seamen’s strike and the subsequent docker’s strike damage the economy?

Answer 21

• Led to a collapse in the value of £.
• Docker’s strike in autumn 1967 halted the loading and transportation of exports.
• Trade deficit grew in this time from £53M to £107M

Question 22

Why did the Heath government set out to challenge unions, especially in coal mining?

Answer 22

Inflation avgd 9%, pay increased avgd 14% and productivity only rose by 5%- workers were being paid more to produce less, fuelling inflation.

Question 23

Did Heath successfully break with the PWC?

Answer 23

Backed down in 1972 due to dispute w/NUM- in 1973, country was facing a 3 day week and Arthur Scargill was refusing to back down, resulting in a 21% pay increase for the miners, all at the time of inflationary shock of Yom Kippur War.

Question 24

Why did the economic damage caused by industrial unrest increase when Jim Callaghan became PM?

Answer 24

Jack Jones, leader of the largest union, the TGWU, retired in 1978 and his successor, Moss Evans, showed no regard for the social contract.

Question 25

What was the ‘Social Contract’?

Answer 25

Installed in 1974 as an alternative to the 1971 Industrial Relations Act. It aimed to avoid the difficulty of former incomes policies, allowing the employers to treat individual groups separately in wage negotiations.

Question 26

What was the main policy of the social contract?

Answer 26

• 12-month interval between wage settlements to prevent repeated wage demands + allow the state some level of predictability in future wage expenses
• Negotiated wage increases should be confined either to compensating for inflation since the last settlement or for anticipated future price increases b4 the next 1.

Question 27

What was corporatism and which PM attempted to use it?

Answer 27

Corporatists believed that by uniting labour, management, and govt, economic goals could be planned and achieved. Macmillan (1957-63) attempted to use it to arrest economic decline w/NEDDY + NICKY

Question 28

What was the National Development Council and Office (NEDDY)?

Answer 28

Institution where management + TUs could co-operate discuss the economy’s development. It was assumed they’d want to co-operate as it would benefit long-term growth

Question 29

How effective was NEDDY?

Answer 29

Limited power- unable to enforce any legal control over industry or unions and the govt hoped both sides would come to voluntary agreements

Question 30

What was the National Incomes Commission (NICKY)?

Answer 30

An advisory council of economists and industry experts who would give guidance to employers and TUs on what the govt deemed reasonable pay increases. It couldn’t enforce any of its decisions.

Question 31

How effective was NICKY?

Answer 31

Unions mostly ignored NICKY’s calls for wage restraints.

Question 32

Economic problems by 1964

Answer 32

• Unemployment at its highest level in 1963 since end of WW2: Around 880,000
• More consumer spending-> more demand for foreign goods–> balance of payments problem–> devalued £
• Aug 1961: Govt refused to devalue £, instead borrowed £714M from IMF to support it

Question 33

What economic problems did the Wilson government of 1964-70 face that were similar to prior governments?

Answer 33

• Recurring balance of payments deficits
• Gradually increasing inflation
• Failure of voluntary wage restraint

Question 34

What did Wilson set up in 1965 to regulate pay settlements?

Answer 34

National Board on Prices and Incomes (NBPI). Accompanied by the Prices and Incomes Act 1966 which forced a statutory wage freeze for 6 months to curb inflation.

Question 35

What was the Prices and Incomes Act of 1967?

Answer 35

Allowed wage increases in companies that could prove they were increasing productivity and output

Question 36

What was the Ministry of Technology?

Answer 36

• Created in 1964, headed by Tony Benn from 1966 to create a national effort to bring advanced tech+new processes into industry
• 1 of largest bodies of govt
• 1 of its main achievements: aviation industry w/creation of supersonic passenger plane Concorde

Question 37

What was the Industrial Reorganisation Corporation (IRC), set up in 1966?

Answer 37

• Promoted efficient industry practices industry + offered loans to companies who wanted to implement new efficiency measures
• Promoted mergers where it was thought there could be gr8r economic efficiency through combining them, but many mergers it proposed ended in failure

Question 38

What is the most prominent failed merger of the IRC?

Answer 38

Leyland Motors + British Motors Corporation. £25M loan offered to fund cost of the merger, but new company was unable to compete w/Euro and later Japanese imports. Synonymous w/poor quality in the 1970s, and the company was constantly at a loss

Question 39

Both Wilson and Heath (1970-74) believed modern techniques and practices could revive the country’s fortunes, but how did their beliefs differ?

Answer 39

Unlike Wilson, Heath argued it was the rokle of private bsuinesses to provide that modernisation and that it couldn’t be effectively imposed by the state.

Question 40

What economic changes did Heath implement following the election?

Answer 40

Cuts to state spending in:

• Subsidies to council houses
• Free school milk for children
• Raising charges on prescriptions

Question 41

Heath believed spending cuts and lower taxes would stimulate economic growth. How high were the cuts made in the first budget and what else did he do?

Answer 41

£330M. Heath assumed a natural entrepreneurship would result from the cuts. He abolished the NBPI set up by Wilson, ending the govt’s ability to control or influence prices + incomes

Question 42

Despite his actions to stimulate economic growth, what problems had Heath not considered?

Answer 42

• Mounting global inflation as the global economic boom slowed down
• Britain’s own inflation issue- 15% after 18mths of Heath’s govt
• Unemployment: 2% at end of 50s-> 6% in early 70s

Question 43

What happened in the Chancellor of the Exchequer Barber’s budget of 1972?

Answer 43

Massive tax cuts + forecasts of low borrowing–> huge spike in inflation, followed soon after by the oil crisis. Barber tried to calm things down w/public sector pay cuts which resulted in union unrest

Question 44

What was the most significant economic problem facing the Labour government from 1974-1979?

Answer 44

Inflation. By the mid 70s prices were rising faster than wages- reached over 30% by 1975.

Govt appeals for restraints in wage demands were ignored by TUs who saw standards of living of their members eroded by constantly increasing prices

Question 45

Who was Labour’s Chancellor from 1974-1979?

Answer 45

Denis Healey- had begun to challenge Labour’s commtiment to full employment. Believed pumping £ into the economy to stiumulate employment was pointless- only led to greater inflation.

Question 46

How much did the IMF loan to Britain and what was its conditions?

Answer 46

~£4B with the condition of £3B of spending cuts. Healey announced the deal at the Labour Party conferecnce and was denounced as a ‘traitor’ by the left of the party.

Question 47

After Healey announced the IMF deal, what did the left of the party led by Tony Benn propose?

Answer 47

Alternative Economic Strategy - argued welfare state needed to be protected from IMF cuts by:

• Using trade barriers to keep out foreign imports
• Making Britain economically self-sufficient by govt investment in industry+more nationalisation
• Withdrawal from EEC

(Benn called his proposals a ‘siege economy’)

Question 48

Callaghan dismissed Benn’s proposals as unworkable and unrealistic. Why was this significant?

Answer 48

In supporting Healey, Callaghan indicated Labour had movd away from the Keynesian consensus and had embraced monetarist thinking

Question 49

What was monetarism?

Answer 49

Philosophy stated a tight reign on money supply would eventually prevent inflation, even tho it might cause unemployment. This trade-off was worth it as inflation eventually led to unemployment anyway (as seen in 70s).

Question 50

In addition to monetarism, what economics did the Centre for Policy Studies (CPS) led by Keith Joseph propose?

Answer 50

Free market or neo-liberal economics:

• Dramatic reduction of the state’s role in the economy
• Privatisation of all state-owned industries and utilities
• Deregulation of industries that struggled with excessive bureaucracy (esp in financial sector)
• Promotion of free trade

Question 51

Which PM implemented monetarism as an economic policy?

Answer 51

Thatcher. CPS was co-founded by her economic guru Keith Joseph. Both believed scaling back state’s role would allow the free market to flourish.

Heath had proposed most of CPS’ proposals in Selsdon Manifesto, but had to abandon them due to TU opposition