The Labour Party and Economic Strategy 1979-1997: The Long Road Back

The Labour Party and Economic Strategy, 1979–97 The Long Road Back

Richard Hill

The Labour Party and Economic Strategy, 1979–97

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The Labour Party and Economic Strategy, 1979–97 The Long Road Back Richard Hill Associate Research Fellow Brunel University

© Richard Hill 2001 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2001 by PALGRAVE Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE is the new global academic imprint of St. Martin’s Press LLC Scholarly and Reference Division and Palgrave Publishers Ltd (formerly Macmillan Press Ltd). ISBN 0–333–92071–6 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Hill, Richard, 1968– The Labour Party and economic strategy, 1979–1997 : the long road back / Richard Hill. p. cm. Includes bibliographical references and index. ISBN 0–333–92071–6 1. Great Britain—Economic policy—1979–1997. 2. Great Britain—Economic conditions—1979–1997. 3. Mixed economy– –Great Britain. 4. Labour party (Great Britain) I. Title. HC256.65 .H55 2001 338.941’009’048—dc21 2001021724 10 10

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Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

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Contents Acknowledgements

vii

List of Abbreviations

viii

1 The Forward March Halted The importance of economic strategy Assessing Labour’s strategy Redesigning Labour’s economic strategy The structure of the argument

1 2 4 8 17

2 The Years of Opposition Labour in 1979 Labour’s crises, 1979–83 Closing the credibility gap (1983–87) Reviewing policy (1987–92) Creating ‘New Labour’ (1992–97)

19 19 21 28 34 41

3

48 48 49

Labour’s Mixed Economy Revisionism and the mixed economy Against the market? (1979–83) Market socialism and the Fabian Socialist Philosophy Group The market: a good servant; a bad master There must be markets (1987–92) Intervention in the labour market: the national minimum wage New Labour and the market (1992–97) The State We’re In Labour’s mixed economy

4 Reversing British Industrial Decline The alternative industrial strategy, 1979–83 The Party of production, 1983–87 The Industrial Strategy Group Supply-side socialism, 1987–89 Incentives for recovery, 1989–92 New Labour and industrial policy (1992–7) Conclusion v

56 60 66 75 81 83 85 88 89 95 102 104 111 114 121

vi

Contents

5

Macroeconomic Policy Macroeconomic failure, 1974–79? ‘Keynesianism in one country’, 1979–83 Cautious reflation, 1983–87 The Kaldor Group Reviewing macroeconomic policy, 1987–92 Macroeconomic policy, 1992–97

124 124 125 135 142 144 155

6 A European Party A policy of withdrawal, 1979–83 The ‘Out of Crisis’ project European action for the real economy, 1983–87 A European Party, 1987–92 Europe and globalisation (1992–97) The European monetary question Conclusion

162 162 167 169 173 177 179 190

7 The Long Road Back Redesigning Labour’s strategy Explaining Labour’s strategy

192 193 195

Notes

204

Bibliography

241

Index

258

Acknowledgements I would like to thank all those who gave up their time to discuss aspects of this book with me, including Paul Anderson, Paul Hirst, Maurice Kogan, Jim McCormick, Paul Webb, Mark Wickham-Jones and staff and students in the Department of Government at Brunel University. In particular, I am indebted to Jim Tomlinson for his guidance and encouragement throughout the project. I am grateful to those who participated in Labour’s economic policymaking process in the 1979 to 1997 period who allowed me to interview them about aspects of this book. They include: Paul Anderson, Cathy Ashley, Tony Benn, Geoff Bish, Bill Callaghan, Charles Clark, Ken Coates, Dan Corry, Keith Cowling, Peter Dawson, Lord Desai, Lord Eatwell, John Edmonds, Saul Estrin, Andrew Grahame, John Hills, Paul Hirst, Stuart Holland, Tom Jenkins, Julian Le Grand, David Lea, Jim McCormick, David Miller, Austin Mitchell, Henry Neuberger, Lord Plant, Ed Richards, Chris Savage, Malcolm Sawyer, Adam Sharples, Nigel Stanley, Roger Sugden, Lord Whitty. I am glad to acknowledge the assistance of Stephen Bird and Andrew Flynn of the National Museum of Labour History and Freddie Harrison of the Labour Party library. I would also like to thank the staff and librarians of Churchill College, the British Library, the British Library of Political and Economic Science, Westminster Central Reference Library and Brunel University Library. For the loan of private papers I am grateful to Cathy Ashley, Keith Cowling, Paul Hirst, Julian Le Grand, Roger Sugden, Jim Tomlinson and Mark Wickham-Jones and to Neil Kinnock for permission to consult his private papers archived at Churchill College, Cambridge. All remaining mistakes are, of course, mine. For their help and encouragement I would like to thank Keith and Valerie Hill. I owe an immense debt to Dilum Jirasinghe. Without her support, encouragement and patience this book would never have reached completion.

vii

List of Abbreviations AES AUEW CAP CEPG CLPD CMT CSC CSE CSJ CSPEC EEC EMS EMU ERM ESOP ETUC EU GMB IPPR ISG JPC LCC LEPG LESG LPCR MSF NEA NEB NEC NEDC NIB NUM NUPE PCC PCE

Alternative Economic Strategy Amalgamated Union of Engineering Workers Common Agricultural Policy Cambridge Economic Policy Group Campaign for Labour Party Democracy Campaign Management Team Campaign Strategy Committee Conference of Socialist Economists Commission for Social Justice Confederation of Socialist Parties of the European Communities European Economic Community European Monetary System European Monetary Union Exchange Rate Mechanism Employee Share Ownership Plan European Trade Union Congress European Union General and Municipal Workers Institute of Public Policy Research Industrial Strategy Group Joint Policy Committee Labour Co-ordinating Committee Labour Economic Policy Group (the ‘Kaldor Group’) Labour Economic Strategy Group Labour Party Conference Report Manufacturing, Science, Finance National Economic Assessment National Enterprise Board National Executive Committee National Economic Development Council National Investment Bank National Union of Mineworkers National Union of Public Employees Policy Co-ordinating Committee Productive and Competitive Economy viii

List of Abbreviations ix

PD PLP PRG RD RFMC SCA SEA SER SPG TGWU TULV TUC UCW

Policy Directorate Parliamentary Labour Party Policy Review Group Research Department Rank and File Mobilising Committee Shadow Communications Agency Single European Act Socialist Economic Review Socialist Philosophy Group Transport and General Workers’ Union Trade Unions for a Labour Victory Trades Union Congress Union of Communication Workers

If we are to explain the stagnation or crisis, we have to look at the Labour Party and the labour movement itself. The workers … were looking to it for a lead and a policy. They did not get it. Eric Hobsbawm, The Forward March of Labour Halted? (1981) The collapse of the last Labour Government in 1979 was not simply the rotation of political parties in government but the end of a particular political epoch. It was the culmination of a period in which, although there were actually Conservative governments in power some of the time, the framework of ideas being drawn on, the dominant ideas, the consensus, was taken precisely from the social democratic repertoire. Those were ideas to which people had become acclimatised: the taken-for-granted welfare state, mixed economy, incomes policy, corporatist bargaining and demand management … . Everyone who mattered was one kind of Keynesian or another. Good ideas belonged to the ‘left’. Stuart Hall, The Hard Road to Renewal (1988) Believe me, Georg, there are moments when I envy the people with a so-called world-view. If I ever want to have a well-ordered world, I’m going to have to develop one for myself first. It’s tiring for anyone who’s not God himself. Arthur Schnitzler, The Road into the Open (1992)

x

1 The Forward March Halted

It is easy to see in retrospect that the 1979 election marked a paradigm shift in British politics, comparable to the Liberal’s landslide victory of 1906 or Attlee’s postwar triumph. It did not seem quite as obvious at the time. A New Statesman editorial immediately after the 1979 election argued that of course there are worse things than an electoral reverse. Another five years of office, of the imposition of half-Tory measures cloaked in half-socialist rhetoric, would most likely have assured the demolition of the Labour coalition (its potential allies alienated and all its potential leaders compromised). That is still a worse prospect for Britain than any damage the Tories are likely to inflict.1 The writer of the editorial was labouring under three assumptions, none of which were to survive for long. The first was that the Thatcher government would prove to be a temporary phenomenon. The Conservatives’ programme could not be expected to work and, though the country would be in a worse state of crisis when Labour returned to office, that return would be swift. It was possible to cling to this view for a period after the election. The state of the economy, and the level of opinion poll support for the Conservatives, pointed clearly in this direction at least into 1981. However, internal divisions in the Labour Party, the creation of the SDP and the Falklands War radically changed the picture. The strength of the Conservatives’ 1983 election victory dispelled any residual complacency. Second, many on the left thought that the full Thatcherite programme would not be implemented: Heath’s U-turns of the early 1970s 1

2 The Labour Party and Economic Strategy, 1979–97

would be repeated as the realities of power forced the Government to re-consider its apparent conviction that a modern economy could be run according to the simplistic, laissez faire nostrums of the Centre for Policy Studies. The 1981 budget, in which Howe cut public expenditure in the midst of a severe recession with unemployment rising toward three million, was a defining political moment, shattering any complacent hope that the new Government was not serious about its programme. There was also the feeling that the trade unions, fresh from bringing down a Labour Government, would offer a belligerent defence against the full rigours of Thatcherism. The trade union movement was, however, already severely weakened before the conclusive defeat of the miners’ strike in the mid-1980s. The third assumption was about the Labour Party in opposition, rather than about the Conservatives in government, and was equally erroneous. This was that a brief period of opposition would prove positive for the Labour Party; the party would take advantage of its escape from government to renew, and return to effectively challenge the Conservatives at the next election. This book looks at the reality of the Labour Party in opposition in the period between 1979 and 1997. The book is an attempt to do three things. First, to provide an account of the redesign of Labour’s economic strategy between 1979 and 1997. This redesign was, I argue, of crucial importance to the Party. Second, I attempt an appraisal of the Party’s economic strategy and policy commitments during the years of opposition. Third, I attempt to locate these developments within a framework of the potential determinants of party policy-making which emphasises the importance of ideological and political renewal within the Party. This includes an assessment of the importance of academics and others in redesigning Labour’s strategy. In the rest of this chapter I set out these arguments in more detail.

The importance of economic strategy This book takes as its focus the redesign of Labour’s economic strategy between 1979 and 1997. There are three reasons why this is important. First, the focus on strategy and Labour’s ideas about economy serves as an antidote to the current stress on political communication. There is an important general point here. Keynes famously argued that the ‘ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else’.2 One does not

The Forward March Halted

3

have to go quite as far as this to accept that, in the long-run at least, the quality of arguments matter. This is not to fall into the ‘rationalist fallacy’ that the best arguments always triumph in political dispute but it is to argue that ideas and argument are more important in politics than is generally admitted. Second, there is a particular reason for focusing on Labour’s economic strategy in this period since, when the Labour government left office in 1979, the general perception was that it had failed economically. While there has recently been a more rounded assessment of the economic performance of the 1974–79 government, the phenomenology of the ‘crisis of the IMF loan’ and the ‘winter of discontent’ – regardless of their actual economic importance – were to be crippling legacies for the Labour Party in the 1980s.3 By 1979, the parlous state of the British economy had become a key focus of public concern and there was a fairly widespread debate around ‘deindustrialisation’ and the modalities of British industrial decline.4 Whiteley, considering Labour’s crises in the early 1980s, argued that Labour’s key problem was a ‘failure of policy performance’ in government including, in particular, a failure to achieve the economic performance which was expected.5 As significantly, by 1979 Labour had lost its reputation as being the Party that understood the economy and economic ideas. Keynesianism, the basis for much of Labour’s postwar macroeconomic policy, had been repudiated in office by Labour’s prime minister and chancellor of the exchequer.6 Labour’s election defeat in 1979 meant that social democracy had been defeated not only electorally and politically but also intellectually. It was under sustained attack from the Labour left’s alternative economic strategy, and from the right, where Friedman’s monetarism was establishing its economic ascendancy, as ‘neo-Marxism and Tory populism bore the fruits of economic decline’.7 As David Marquand has argued, it was clear by 1979, that the Labour Party and ‘the social democrats were losing, or perhaps even failing to fight, the battle of ideas as well as the battle for power’.8 After the 1979 defeat, there was a need to re-think the economic basis on which Labour hoped to govern. Third, a common explanation of Labour’s electoral failures in the 1980s was sociological; a declining working class, combined with voter dealignment away from traditional class loyalties, had meant that Labour could not hope to win elections. Even before Labour’s landslide victory in 1997 it was apparent that this argument was too determinist. As Fielding has argued ‘social influences … do not determine voting

4 The Labour Party and Economic Strategy, 1979–97

patterns. Instead they generate a potential’.9 Labour’s electoral decline was political as much as it was social. Further, there is evidence to suggest that Labour’s economic strategy was a central part of that political failure. Opinion polls taken at the time of the 1992 election, fought in the midst of an economic recession, suggested that the electorate still believed that the Conservatives were the Party most competent to run the economy.10 While it might be impossible to calibrate precisely the relative importance of the reasons for electoral victory and defeat, what is important here is that there is evidence that ‘plausible policies of economic management [were] an unavoidable condition of electoral success’.11 The absence of economic policy credibility was absolutely central to Labour’s failure to regain office until 1997. The Labour Party in opposition has been the focus of considerable academic attention over the last twenty years. The most complete overview is Shaw’s ‘The Labour Party since 1979’ (1994) which takes as its central focus the transformation of Labour’s campaign and communication strategy. Aspects of economic policy are covered in WickhamJones (1994), Thompson (1996), Taylor (1997) and Hay (1999). More critical versions of Labour’s recent history include Panitch and Leys (1997), and Heffernan and Marqusee (1992). There is, however, no one text which focuses on Labour’s economic strategy and which covers the entire period of opposition.

Assessing Labour’s strategy If the importance of economic strategy is allowed, it is worth asking whether devoting attention to the Labour Party during a long period of opposition can be justified. In the British system, the history of opposition is at one level the history of futility. The Westminster model confers all power on the majority party. A centralised political culture means that the efforts of a party in opposition nationally to show initiative locally, or at a European level, must by definition be fairly trivial. However, that is to understand only half the story. The ascent of Thatcher and her domination of the political scene during the 1980s cannot be fully understood without an understanding of the failures of the Labour Party in those years to rebuild a social democratic consensus. Marquand goes as far as to argue that ‘Britain’s electoral history in [the 1980s] is a Labour history rather than a Conservative or a Liberal one … it is a story of enfeebled Labourism’.12 This is perhaps unhelpful to the extent to which it seems to imply that

The Forward March Halted

5

Labour is, in Wilson’s words, the ‘natural party of government’. However, it does serve usefully to emphasise that what the Labour Party did was of crucial importance. Further, looking at a Party in opposition, has some intrinsic advantages. Parties in opposition tend to be (somewhat) more open than governments in their policy-making procedure and, during a long period of opposition, there is the opportunity to examine both policy changes and continuities. In terms of the Labour Party the best model for this sort of history of the development of economic ideas in opposition is Durbin’s account Labour’s re-thinking of policy after the catastrophic events of 1931.13 Cockett has adopted a similar approach and argued that the Conservative Party in the 1970s used its period in opposition to fundamentally reappraise the nature of the ‘free market’ project. However, in what is a thorough account of this process, Cockett does come extremely close to exaggerating both the coherence and the scope of the re-thinking.14 Finally, it is worth reminding ourselves that throughout its history the Labour Party has essentially been an opposition party. An understanding of the Labour Party based only on its limited periods in government would be, at best, partial. Looking at policy-making in opposition may, however, be misleading as a guide to what the Labour Party might have done if elected. A key criticism of Durbin’s work has been that the coherence which she finds in Labour’s policy-making in the 1930s is not reflected in the actual policies pursued by the postwar Labour government.15 However, in opposition ‘policies are not tested for what they actually achieve, but in terms of how the electorate or one’s own supporters are likely to respond’.16 If this is allowed then it is possible to recognise, perhaps somewhat imperfectly, where a General Election victory would have substantially changed the political situation. Two examples of this point will suffice. First, the opposition amongst activists within the Labour Party and the trade union movement to any form of incomes policy precluded the advocacy of such a policy throughout the 1980s. However, senior Labour politicians and TUC officials were much less hostile and a Labour government elected in 1983 or 1987 may well have moved to embrace an incomes policy. It is, however, at least arguable that, having failed to prepare the party and the trade unions in opposition, an incomes policy would have been a failure in government. Second, Labour’s official position up to ‘Black Wednesday’ was to support the pound’s existing parity within the Exchange Rate Mechanism (ERM). To advocate devaluation would have left the Party open to the charge of ‘talking the pound down’. However, there is some evidence, discussed in

6 The Labour Party and Economic Strategy, 1979–97

Chapter 6, that if Labour had won in 1992 serious consideration would have been given to a realignment within the ERM. This is then an examination of Labour’s economic strategy as it was developed and redesigned in opposition. Such a task can be approached, and the development of the strategy evidenced, in a number of ways the most straightforward of which would be to track official party policy through a close textual analysis of Labour’s published policy documents. However, I have adopted a much broader approach than this for a number of reasons. First, in much of the period between 1979 and 1997 what actually constituted ‘official party policy’ was the subject of vigorous debate. This reflects the absence, through much of the period, of a single policy centre within the party. The division was particularly acute in the early 1980s – when disagreement between the National Executive Committee and the Shadow Cabinet was live across the range of party policy – but similar divisions were, as I argue in Chapter 2, in evidence for much of the period. To take a particular policy example, the Labour leadership’s attitude to the European Union changed substantially after the 1983 election. However, this was only fully reflected in policy agreed by the Party’s Conference in 1988. Second, ‘policy discussion published in this form [party policy documents] is often a summary (and frequently a crude one) of discussions elsewhere’.17 Policy documents focus on specifying the set of measures which the Party will introduce when the election is won. They rarely set out in any detail the way in which the Party understands the economy or the full basis of the strategy on which the individual policies are based. For this reason, where there is a clear analytical link between the broader intellectual debate and Labour’s process of policy development, I have tried to capture the main outlines of that wider debate. In trying to look at this wider intellectual debate on economic strategy, I have paid particular attention to the role of a number of groups of academics set up with the conscious aim of influencing the economic policy of the Labour Party. There are a number of examples from the 1979–97 period. In particular, I discuss the work of the Fabian Socialist Philosophy Group on market socialism, the Industrial Strategy Group on industrial policy and the Kaldor Group on macroeconomic policy. The impact of these groups varied widely. However, they were all groups of academics established specifically with the aim of influencing the Labour Party’s economic strategy or particular aspects of policy. Their very success or failure tells us something about Labour’s engagement with economic ideas.

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It has been argued that the failure of the academic community to engage with practical policy concerns led to the creation of a number of left think-tanks; recently described imperiously by Panitch and Leys as ‘pools of what might be called “average” intellectual labour power’.18 I discuss the role of the Institute for Public Policy Research (IPPR) and Demos, as they developed in the later part of Labour’s period in opposition. In particular, this includes looking at where the Labour Party effectively contracted out policy thinking to the IPPR when it established the Commission for Social Justice after the 1992 election. The book also includes discussion of the work of those who acted as policy advisors to senior Labour politicians, or the Labour Party itself during the period. An attempt is made to consider, to take two examples, the influence of Stuart Holland’s ideas on the development of the Alternative Economic Strategy and John Eatwell’s role as Neil Kinnock’s economic advisor from the mid-1980s to 1992. As the formal structures of the NEC and Party Conference became more a part of the party’s dignified constitution through the period, so the role of advisers became more crucial. Casting the net wide captures a much richer debate about Labour’s economic strategy. It is, however, ‘notoriously difficult to trace the genealogy of ideas, their assimilation into political currents and translation into action’.19 Looking at this wider debate is not an attempt to imply that Labour’s economic strategy was determined through a wide-ranging, evidence-based assessment of a range of well-developed policy options. There is an attempt, however, to show where there were links, transmission mechanisms, between left academics and intellectuals and the Labour Party, and where the wider debate influenced the Labour Party. A key danger in this overall approach is, of course, that it leads one to over-estimate the theoretical sophistication of Labour’s approach to economic policy. As Drucker has argued, ‘the Labour Party, and most of those who have written about it, take its intellectual pretensions too seriously’.20 I have tried to avoid this. I do not attempt to make the argument that between 1979 and 1997 Labour invented a new framework for economic policy that was consistent and workable. Rather, Labour Party’s electoral failures between 1979 and 1997 are attributable, at least in part, to the Party’s intellectual failures, particularly in the field of economic strategy. Nor is it argued that Labour’s policy-making process was designed to provide well-thought out policy. Rather, policy-making was short-term, diffuse and chaotic. It was often blown

8 The Labour Party and Economic Strategy, 1979–97

off-course by the shifts of spokesmen between portfolios, or the need to respond to ‘events’. However, I do attempt to make the argument that there are serious debates within the Labour Party – and amongst groups sympathetic to the Labour Party and trying to influence its policy – about economic strategy. Amongst the most important of these are debates around the ideas behind economic strategy; about how the economy should be understood, the role of markets and the state, about British economic decline and the impact of globalisation.

Redesigning Labour’s economic strategy There have been a number of attempts to understand the direction and substance of the Labour Party’s policy change between 1979 and 1997. Three of these can be applied directly in trying to understand Labour’s economic strategy; that the redesign of Labour’s economic strategy was driven by opinion polls and the need to secure electoral support; that the Party followed or sought to accommodate the Thatcherite agenda; and that Labour’s strategy was designed to appease the demands of business. I briefly set out the contours of these three explanations below.21 I then put forward the argument that the redesign of Labour’s economic strategy is best understood as part of a process of renewal driven, at least in part, by a wider intellectual discourse around economic strategy. Market research socialism A popular argument – amongst political commentators as much as academics – has been that Labour’s policy-making in opposition was ‘opinion survey-driven’.22 To take one example amongst many, Hay has argued that after the Policy Review the party would now come to employ and deploy, with ever greater frequency and with ever growing political significance, the services of dedicated market research specialists such as Philip Gould. The latter’s focus groups – conducted with carefully selected (former) Tory voters in marginal middle-England constituencies – became a thing of legend in the run-up to the 1997 election campaign, contributing significantly to Labour’s revision of policy in that period.23 A more sophisticated variant of the argument is that ‘New Labour’s electoral politics might be regarded as Downsian’;24 Labour accepted the

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main tenets of Anthony Downs’ ‘An Economic Theory of Democracy’. The argument is not that Downs’ theory has any validity (and Hay compellingly argues that it does not) but that the Labour Party acted as though it had or, at least, operated on the basis of similar assumptions. The three main assumptions were that voters’ preferences were fixed and therefore had to be accommodated; that voters’ preferences were normally distributed; and that voters on the left had no alternative to voting Labour. Given these assumptions, Labour rational strategy was to aim its policies at the median voter. However, given the need to compensate for the party’s previous reputation, Hay argues that by 1997 Labour had moved to a position to the right of the median voter. The idea that (particularly New) Labour compromised on its principles for electoral gain has become a popular one. It is, however, a difficult argument to evidence. Hay, for example, provides no evidence that Labour’s strategic thinking drew on Downsian assumptions, though this would clearly be a difficult task. However, it should be possible to give examples of where the results of opinion polling and focus groups pushed Labour into particular policy change. I argue in the course of this book that there are not significant examples of this and that, moreover, there are counter-examples of where opinion polling was clearly ignored in the development of policy. This is not to argue, of course, that Labour did not critically review its electoral performance and consider how it might be improved, or that it did not review its economic strategy with a view to its electoral strategy, or that it did not take the task of winning a General Election seriously. To argue that a Party engaged in electoral competition should not be concerned as to its level of popular support is surely be an absurd position to take. Furthermore, throughout its history the Labour Party has sought to appeal to all social classes in order to assemble an electorally successful coalition.25 However, to suggest that Labour’s policy process was determined by electoral considerations is to over-simplify. The process of redesigning Labour’s economic strategy was significantly more complex.

Thatcherite revisionism The argument has been made that Labour followed the Conservatives lead across a range of policy issues. So, Hay argues, Labour’s policy review was an example of ‘Thatcherite revisionism’ during which the Party played the ‘politics of catch up’.26 This is generally linked to an argument that Labour is no longer ‘socialist’ or ‘social democratic’.

10 The Labour Party and Economic Strategy, 1979–97

According to Tony Benn, for example, the changes put through by Kinnock as part of the Policy Review could be described simply as ‘the Thatcherisation of the Labour Party’.27 There are a number of ways in which this argument can be understood. The most obvious is that Labour moved to embrace Thatcherism and accepted that it had lost the economic argument. This would be a difficult argument to sustain on any thorough analysis of Labour’s economic strategy since, throughout the period, there remained substantial policy differences between the parties. Much of Hay’s argument was originally set out in a 1994 article and he has subsequently expressed surprise that some readers of that article thought that he was accusing Labour of an ideological conversion to Thatcherism.28 This is, however, precisely what the term ‘Thatcherite revisionism’ would seem to imply. However, Hay has reformulated the argument to argue that he does not mean that the Party has moved to espouse ‘Thatcherism’ but that Labour came to accept somewhat more enthusiastically the considerable extent of the Thatcherite legacy, which it preferred to attribute to a new stage in the development of capitalism necessitating a new revisionism for new times – in doing so it engaged in an enthusiastic process of downsizing its anticipations in tune with a ‘Thatcherite settlement’ whose basic parameters it came to accept.29 In this version Labour has been through a period of Thatcherite revisionism and has accepted that some of the key changes in the economic policy settlement made by the Thatcher Governments are here to stay. This can be read in two ways. First, it can be read as a recognition by the Labour party that years of neo-liberal government had led to substantial changes which would lead to a policy response different to that which might have been appropriate when Labour left government in 1979. For example, the extensive privatisations of the 1980s meant that the Party came to accept that a process of wholesale renationalisation of the privatised industries would not be viable for fairly straightforward financial reasons. This begs the question of ‘how could modernisers not take into account recent economic, social and political factors, exactly as Crosland had in the 1950s?’.30 At another level, it can be read as an argument that Labour’s understanding of how the economy works, under the influence of factors such as globalisation, has moved closer to that of the Conservatives.

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While there are legitimate arguments around the extent and effects of globalisation, it is rather difficult to sustain the argument that Labour’s response to the internationalisation of the economy in the 1980s and 1990s replicated that of the Conservatives. It is equally difficult to argue that the responses of the parties to globalisation started from the same assumptions or developed with a shared understanding of political or economic priorities.31

Structural dependence It has been argued that Labour shifted policy to accommodate the views of business or, more formally, that economic strategy was structurally determined by the need to ensure continued investment by the private sector. The theory of structural dependence, most closely associated with the work of Przeworski, is based on three sets of propositions: 1. economic performance is significantly determined by the willingness of the owners of capital to invest in productive activities. The role of investment in capitalist democracies is crucial for state policy-makers; for the capacity of the state to finance itself and in maintaining public support. 2. if governments increase taxes directly or indirectly on business this undercuts profits and business confidence and reduces investment and hence growth and employment. 3. capital needs only to calculate rationally that under present policies the rate of return on investment is insufficient and this reduction in investment will lead to a policy response. Capital therefore obtains desired state policies not because of pressure from the collective employers organisations or lobbying, but simply because the individual rational acts of capitalists will impel a social democratic government to change course.32 The implication of the structural dependence theory for economic strategy is fairly straightforward; social democratic parties are structurally dependent on capital in a mixed economy and, therefore, have to accommodate the views of business so as to prevent falls in investment. Swank, for example, has argued that a ‘necessary and effective’ strategy of a left-wing government would be relatively large reduction in the tax burden on business. This, he argues, would act as an incentive for investment and secure employment in the long-term, while in the

12 The Labour Party and Economic Strategy, 1979–97

short-term obviating pressure from business in favour of, for example, retrenchment in welfare spending.33 In later work Przeworski has moved to modify the theory to accept that structural dependence might not work in a static sense. This implies that any distribution of consumption between wage-earners and owners is compatible with continued private investment once the appropriate tax and transfer regime is in place. However, it is argued, structural dependence may be correct in a dynamic sense in that ‘policies that, once in place, redistribute income without decreasing investment do reduce investment during the period in which they are anticipated but not yet implemented’.34 This suggests that it is possible for social democratic government to choose different policies, but that they should not announce more than they intend to do and that they should do what they announce fully and quickly. This modification would, however, seem to reduce the room for manoeuvre which social democratic parties have in opposition at the same time as giving them more space when in government. There are a number of difficulties with structural dependence at the level of theory. First, Przeworski’s structural dependence thesis is rooted in neo-classical economics. In particular, the key notion that investment is directly dependent on profits is simplistic. In a capitalist economy, the investment which a firm wishes to make is dependent on (a) the cost of making the investment; and (b) the expected return on that investment. Both (a) and (b) will be dependent on a number of factors. For example, (a) could include the purchase price of investment goods, the cost of financing the purchase of investment goods (the ‘cost of capital’) which in turn would include such factors as interest rates and tax policy, the relative desirability of using other inputs, such as labour, instead of capital, etc. Profits may be a factor in making it easier to finance investment, and in predicting returns, but it is by no means clear that the privileged position given to profits in the structural dependence theory is justified.35 Second, structural dependence does not rule out all policies that could be described as reformist. Limited reforms are possible, but they are not mutually reinforcing, and they will not lead to socialism. This would appear to imply that only those policies that are functional for capital are permitted to social democratic parties. For example, moderate Keynesian macroeconomic policy might be welcomed by employers if it meant greater economic stability.36 However, if only those policies that are functional for capital are allowed the strident opposition of capitalists to many social democratic proposals is difficult to explain. It is worth

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noting that the evidence of the 1970s was that ‘neither the anticipation of a Labour Government nor a rise in taxes by Labour when in office produced any marked disinvestment’.37 So, does Labour’s economic policy development confirm the structural dependence approach? Wickham-Jones has argued that it does, particular for the 1989–92 period, though the substance of his argument could be extended to include the 1992–97 period. As evidence of Labour’s moderation of policy, Wickham-Jones has pointed to Labour’s embrace of ERM membership and the so-called ‘prawn cocktail’ initiative aimed at convincing the City of the merit of Labour’s policies. Certainly, there is little doubt that between 1989 and 1992 the Labour Party did make a conscious attempt to convince the City of the merits of its policies.38 Wickham-Jones has argued that ‘Labour’s policy-making process … confirms both the relationships at the heart of the modified structural dependence theory. First, Labour did moderate its policies in an attempt to reassure markets. … Second, Labour’s policy modifications had limited impact’.39 Hay has pursued a similar position arguing not that structural dependence possesses any theoretical validity, but that the Labour Party acted as though it did. The argument is not, therefore, that the structural dependence thesis explains the action of the Labour Party; rather that structural dependence appears to provide a good description of Labour’s approach, and that it does so since Labour accepted its basic assumptions. This approach would appear to be rather more compelling since it does not oblige the author to defend the theory itself. However, for structural dependence to function even as a description of Labour’s approach to economic policy there must at least be evidence that Labour shifted policy to accommodate the views of business. I argue that there is little evidence to support the assertion that this was a driver of policy. Renewal I return in the concluding chapter to the arguments that Labour’s economic strategy was redesigned on the basis of market research, to respond to a Thatcherite agenda, and to respond to the demands of business. Much of my counter-argument depends on the detailed examination of Labour’s debate on economic strategy that I undertake in Chapters 2 to 6. However, let me make clear my position on the three arguments as currently set out. First, it is true that opinion polling, and associated techniques such as the use of focus groups, did grow in importance between 1979 and 1997. Key members of Labour’s

14 The Labour Party and Economic Strategy, 1979–97

policy-making and campaign teams have subsequently argued that reports on polling and focus groups, particularly of ‘soft Tory’ voters, were given too much weight in the run-up to the 1992 election.40 Further, it is possible to find isolated examples of where polling did have some impact on policy development. For example, Labour policymakers were considering the US idea of a maximum tax allowance – or a minimum tax percentage – where people would have to pay a certain proportion of their income in tax. However, polling showed that the perception of this policy was that it would hit people who were currently too poor to pay tax, rather than those rich enough to afford good accountants, and the idea was dropped.41 Polling was also done on the question of what people considered to be ‘rich’ and this was used by those working on Labour’s shadow budget in 1992. This would, however, seem to illustrate the imprecise nature of polling rather than anything more fundamental about Labour’s policy approach. There is, however, scant evidence that polling pushed Labour into particular decisions on economic policy. The party’s polling did reinforce the point that voters had concerns about Labour’s credibility on economic policy. However, it did not point unequivocally to a particular strategy. Polling showed support for key Labour policies such as increasing direct tax to pay for expenditure on health and education, but also concern that Labour was a high tax party. Nor is there compelling evidence that Labour’s economic strategy was determined by following the direction of the Conservatives. In many areas where Labour made new strides in developing policy, such as on a national minimum wage, the claim that Labour was adopting Conservative ideas is risible. In areas where policies did converge it is difficult to argue that Labour was a passive follower. For example, Labour developed a policy on ERM entry, for its own strategic concerns and in response to Conservative macroeconomic mistakes under Nigel Lawson, before the Conservatives adopted a similar policy. Further, even in those areas where the point would seem most obvious, such as Labour’s view on privatisation, Labour’s position was changed more by the actual changes in the economy and its practical effects than by any conversion to the ideas behind privatisation. Similarly, for the structural dependence explanation to stand up there must at least be evidence that Labour shifted policy to accommodate the views of business. There are examples of where Labour changed policy in a direction likely to impress business, such as the withdrawal of the proposal for a training levy. There are other areas,

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such as the windfall tax on the profits of the privatised utilities, which cannot be seen in that way. I argue that it is not possible to see Labour’s economic strategy as determined in this way. Many of the criticisms of Labour’s policy development in the period is captured in Hay’s argument that Labour was engaged in ‘preferenceaccommodating’ rather than ‘preference-shaping’. Smith has argued that this ‘is frequently the argument of the left – if people reject socialism, they have to be taught/convinced that socialism is good for them’42 and that such an analysis provides a ‘normative condemnation rather than a contextualised explanation’.43 I hope to demonstrate that, by focusing on the substance of Labour’s debates about economic strategy, including the influence of academics and external groups, it is possible to gain a richer insight into Labour’s direction. Labour’s re-thinking has been influenced by a number of factors. Eatwell, a key adviser for much of the period, has identified five main influences on economic policy. First, changes in the material circumstances of the economy, such as the discovery of oil in the North Sea. Second, changes in the economy brought about by Conservative economic policy, particularly the large-scale privatisation programme. Third, the perceived success or failure of previous Labour governments in terms of economic strategy. Fourth, changes in the accepted parameters of economic debate, over issues such as the level of public borrowing. Fifth, the acceptance and/or absorption of Conservative ideas, a factor which Eatwell argues was of ‘virtually no significance’.44 It is possible to identify the influence of most of these factors in Labour’s policy-making. For example, the reluctance to adopt an incomes policy in the 1980s is clearly attributable to the experience of previous Labour governments. The important point is that Labour’s rethinking has emerged as a result of serious debates on economic strategy, and Labour’s renewal can only be understood through an understanding of these debates. I have chosen the word renewal rather than ‘modernisation’ to describe this process of change. Hay contrasts his approach with what he describes as the ‘modernisation thesis’ which, he argues, ‘suggests that Thatcherism has provided the context within which Labour has begun to undergo a long overdue modernisation’.45 In particular, the thesis argues that Labour in the 1980s and 1990s can be seen, in the context of Labour’s traditions as ‘the overdue modernisation of Labour’s platform previously attempted by the revisionists of the 1950s’.46 I have avoided the term modernisation in describing my approach for two reasons. First, modernisation has become a loaded term within

16 The Labour Party and Economic Strategy, 1979–97

the Labour Party describing a particular view of the Party’s development in the 1980s. In particular, it is a view which ascribes a ‘newness’ to Labour’s development, particularly under Tony Blair, which amounts to a denial of much of the Labour Party’s history. This is clearly not the view of many of the academics who have put forward variants of the modernisation thesis. As Smith has argued, ‘it is important to see new Labour as a specific Labour response to the crises of the Keynesian Welfare State’.47 Labour’s renewal draws on many of the strands of Labour’s history and, at times, the use of the term modernisation serves to obscure this important point. Second, ‘in many usages the term “modernisation” has become infused with a sense of ineluctable progress, and is strongly teleological’.48 The modernisation thesis to an extent, and the modernisers within the Labour Party as a strategy, imply that there was only one route open to Neil Kinnock and Tony Blair. It has sometimes been used to imply that Labour’s policy changes were the inevitable response to changes in the external environment, such as the globalisation of the economy or the fixed views of the electorate. Hay is right to argue that such an approach is ‘both theoretically dubious and politically dangerous’.49 I want to use renewal in a way which says clearly that Labour did revise its economic strategy over the period. However, the Party’s renewal did involve significant choices for the Party to make and, while there are constraints on policy development which need to be recognised, different choices could have been made. As WickhamJones has argued ‘the transformation of the Labour party represents neither a series of concessions to Thatcherism nor a simple process of modernisation [but] … since 1983, while taking account of the changes brought about by Thatcherism, Labour has attempted to recast its social democratic commitments’.50 In the course of renewing its economic strategy, Labour in opposition is interested in policy and ideas. Accounts of the period which stress the importance of Labour’s political marketing, and claim that the Labour Party’s policy-making was driven by opinion polls, focus groups, and the desire for electoral popularity, are wrong both empirically and because they underestimate the importance of economic strategy to a political party. This book is an attempt to redress the balance, to give adequate weight to debates within the Party about economic strategy. There is, I think, an underlying importance to this argument. The immediate reaction to Labour’s failure in government in the 1960s and 1970s was a rash of ‘tendentious histories of the Labour Party as essentially a matter of leadership betrayal of working class interests’.51

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This notion of ‘betrayal’ was, as Sassoon notes, essentially a ‘naive analysis rested on an innocently idealistic view of politics; the belief that once elected, politicians can do as they please so long as they have principles and trust the people who elect them’.52 Though more recent works have placed the performance of these government’s within a much richer context, these immediate accounts fuelled much of the Labour Party’s internal debates in the early 1980s. There is a very similar risk now. The debates on Labour’s communications – the ‘myth of Peter Mandelson’, Phillip Gould’s focus groups, the power of Millbank – obscure real analysis of Labour’s reappraisal in opposition, even in some of the better accounts of the period. Similarly, after 1997, much analysis of the Government’s performance has focused on the role of spindoctors, rather than on the detailed policy work of the Social Exclusion Unit and its Strategy for Neighbourhood Renewal, or the investment in Sure Start (a good example of evidence-based policymaking), or the substance of the New Deal programmes.

The structure of the argument Chapter 2 provides a brief overview of the Labour Party’s policymaking and economic policy between 1979 and 1997. The focus is on changes in the Labour Party’s procedures for making economic policy, the role of groups outside the Labour Party who had some economic policy influence, and key economic policy changes. The aim of the chapter is to provide a chronological and contextual framework within which the detailed discussions of Labour’s economic policy development can be located. The account of Labour’s policy-making makes clear that Labour did not have a single policy centre through most of the period. In Chapters 3 to 6, I consider the four big questions about economic policy which Labour had to address between 1979 and 1997. Each chapter includes an analysis of an academic group which sought to influence Labour Party policy. Chapter 3 focuses on Labour’s attitude to the mixed economy and the question of the appropriate balance between the market and the state. In doing so, I consider the influence of the Fabian Society’s Socialist Philosophy Group and their work on market socialism. Writing in 1978, Mackintosh argued that Labour’s revisionists had ‘no adequate theory of how the mixed economy should work’.53 In the 1950s and 1960s, the absence of a theoretically satisfying position on the appropriate role for markets and the state had been of little importance. However, the events of the 1970s,

18 The Labour Party and Economic Strategy, 1979–97

including the difficulties of the Labour Government, put the issue in sharp focus, as did the development by the Conservatives of a clear view in favour of, as Gamble has described it, a ‘free economy and a strong state’.54 Labour left office at a time when concern about Britain’s economic performance was particularly acute and there were vibrant debates around whether deindustrialisation was inevitable. Chapter 4 considers the issue of British industrial decline and Labour’s plans for industrial intervention and policies on the supply-side. In particular, I consider the role of the Industrial Strategy Group and the input made by the Group to debates around industrial strategy. Chapter 5 considers the development of Labour’s macroeconomic policy. Much of this chapter focuses on Labour’s relationship with Keynesianism after the failures of the 1970s. In particular, the chapter charts Labour’s search for a policy on inflation following the collapse of its incomes policy at the end of the Winter of Discontent. The Kaldor Group of economists made a contribution to this debate in the mid-1980s. Chapter 6 focuses on Labour’s attitude to European cooperation and Britain’s relationship with the European Union. In particular, I consider the role of the ‘Out of Crisis’ project in changing Labour’s attitudes to the EEC after the 1983 election, and the party’s later discussions on the issue of membership of the Exchange Rate Mechanism. In Chapter 7, I return to the overall issues around the renewal of Labour’s economic strategy.

2 The Years of Opposition

The years between 1979 and 1997 were turbulent ones for the Labour Party; it went through four leaders, four post-election inquests, a fullscale Policy Review and several reviews of policy, and innumerable bouts of introspection some resulting in significant constitutional reforms. By 1997, the Party was commonly referred to as ‘New Labour’, was the Party of choice of The Sun newspaper, and had a leader elected to parliament as recently as 1983. This chapter attempts to provide an overview of the politics of the Labour Party and its approach to economic policy-making in the period from 1979 to 1997. This will provide a framework within which to locate the debates on aspects of Labour’s economic strategy considered in subsequent chapters.

Labour in 1979 Taking the temperature of the Labour Party in 1979 cannot be done without considering briefly the Labour governments of the 1960s and 1970s. The perceived failure of their economic and industrial policies was central to the development of the Alternative Economic Strategy (AES) and to the debates within the Labour Party after 1979. Labour had entered office in 1964 promising economic renewal. Particular emphasis was placed on the use of modern planning techniques, modernisation and, famously, the ‘white heat of technology’. In the event the forced devaluation of 1967, the failure of the National Plan, and the furore over ‘In Place of Strife’ meant that the government was widely viewed to have failed to arrest British economic decline.1 In opposition, after 1970, the left achieved control of the National Executive Committee (NEC) and the Party’s policy-making machinery. 19

20 The Labour Party and Economic Strategy, 1979–97

Hatfield has argued that the major policy programme produced in this period – ‘Labour’s Programme 1973’ – ‘signalled the erosion of the reformist social democrat’s hegemony in the Labour Party over party policy’.2 The programme included many of the policies which later came to be closely associated with the AES and promised, in Tony Benn’s phrase, that Labour would achieve ‘a fundamental shift of wealth and power towards working people and their families’.3 A particular feature of the programme was the stress which it placed on widening public ownership which was ‘central to the achievement of a Socialist state’.4 Much of this programme found its way into the General Election manifestos of February and October 1974. However, a specific pledge to nationalise 25 major companies was removed at Wilson’s insistence. The economic and industrial policies of the 1974–79 Labour government have been heavily criticised, particularly from the left.5 Here is not the place to consider in any depth the economic record of the 1974–79 government. However, in understanding the Labour Party’s development after 1979 three points are essential. First, upon achieving office, the 1974–79 Labour government did not implement the policies contained in the ‘1973 Programme’. This failure to put the programme into practice and, in particular, the removal in 1975 of Tony Benn and Eric Heffer from the Department of Industry, was to become a key item on a charge sheet of leadership ‘betrayal’. The lesson drawn by the Labour left from the 1974–79 period was not that a left-wing economic programme was unviable, but that such a programme would be implemented only if the parliamentary leadership was made accountable to the wider Party. Second, criticism of the Labour government’s economic strategy by the Labour Party itself, as expressed through its main policy-making bodies including the NEC and Party Conference, was continuous throughout the 1974–79 period. For example, Labour’s ‘1976 Programme’ made clear criticisms of the government’s public expenditure cuts, refusal to introduce import controls, and failure to implement a radical industrial strategy.6 This did not force the government to reconsider its approach. Rather, government ministers continued to show ‘undisguised contempt … for the economic policies in Labour’s Programme 1973 and Labour’s Programme 1976’.7 Third, this alienation between Party and government was reinforced when the government cut public expenditure and abandoned a full employment objective in the 1975 budget. In short, it can be argued that ‘the Labour government did not behave like a government of the

The Years of Opposition

21

Left. Its number one priority was inflation, and unemployment was sacrificed to bringing down the inflation rate’.8 Labour’s 1979 manifesto defended the government’s economic record by arguing that ‘nothing so undermines a nation as inflation’ and that ‘Labour has brought inflation down from the alarming level caused by the Conservative’s failure to control the supply of money’.9 This defence was unlikely to impress the left of the Party.

Labour’s crises, 1979–83 The period following Labour’s election defeat is commonly held to be the most bitter in the history of the Labour Party.10 Debates on Labour’s constitution were the focus of most controversy. Changing the way the leader was elected, to broaden the electorate out from the Parliamentary Labour Party (PLP), mandatory reselection of MPs, and giving control of the manifesto to the NEC were the main changes proposed. All were attempts ‘to control Labour’s barely trusted elected leaders’.11 The changes would not have opened the decision-making process to all Party members – one member one vote was rejected by the left and only embraced by the right when it was clear that the case for continued PLP supremacy was lost – but to the activists who regularly attended Party meetings. The role of trade unions would be enhanced by giving them an explicit role in the leadership electoral college, and more power to an NEC dominated by trade union representatives. These constitutional debates dominated the Labour Party in 1979 and 1980 as the pressure for change was skilfully built up by the Campaign for Labour Party Democracy (CLPD) and the Rank and File Mobilising Committee (RFMC).12 Vitally the trade unions decided to throw their votes behind some of the changes rather than support the parliamentary leadership.13 This meant that the proposal for mandatory reselection was passed – and that for transferring control of the manifesto only narrowly defeated – at the 1980 Conference. At the same conference it was agreed to establish an electoral college to elect the leader, with a special conference to agree the details of the college scheduled for January 1981. Three key events followed quickly after the 1980 conference. First, Callaghan resigned before the make-up of the new electoral college had been agreed with the clear aim of ensuring a leadership election confined to the PLP and a victory for Healey. However, the PLP, in what the right saw as a ‘wilful act of political abdication’,14 elected

22 The Labour Party and Economic Strategy, 1979–97

Michael Foot. Foot has generally been treated kindly by historians as a leader facing an impossible task. However, his lack of leadership on issues such as the composition of the electoral college, unwillingness to take decisive action against Militant, and his continued emphasis on policies which were clearly unpopular, contributed to the scale of the 1983 defeat.15 Second, immediately following the decision at the Wembley Conference to endorse a formula for the electoral college which gave the PLP only 30 per cent of the vote, a number of MPs split to form the Social Democratic Party (SDP). The defection of these MPs can be attributed to a number of factors: Labour’s policy shifts on Europe, defence and economic policy; Healey’s failure to win the leadership election; and the threat of deselection faced by many of the MPs. In retrospect, those who remained in the Labour Party saw the effect of the SDP split as being to ‘delay the Labour Party’s recovery by nearly ten years’.16 It was clearly a blow to the Party electorally and ideologically, as it was damaging to the Party’s economic policy credibility as the SDP attracted a number of key Keynesian theorists.17 Third, and possibly most damaging in the short term, was Tony Benn’s decision to contest the deputy leadership of the Labour Party with Denis Healey. The contest, which culminated at the 1981 Party Conference created, in Neil Kinnock’s words, ‘six months of bitter and totally unnecessary division’.18 The narrowness of Healey’s margin of victory reflected the extent of the ideological cleavage within the Party.19 The deputy leadership election was, however, the ‘episode [that] provided the occasion for Kinnock to distance himself from the “socialism by prescription” of the Bennite hard left’.20 Kinnock promoted a third candidate – John Silkin – and then led a small but vital group of MPs who abstained on second ballot. Kinnock’s decision was probably a decisive factor in his election as leader in 1983 and an early sign of the tensions which were lead to the realignment of the left in the mid-1980s.21 Benn’s defeat marked the end of an extremely fractious year for Labour in the course of which the Party’s support fell from 38 to 29 per cent.22 The 1981 conference also marked the end of the left ascendancy within the Party as the NEC elections showed a swing to the right, particularly in the trade union and women’s sections. Foot’s view was that an accommodation could be reached and he used his influence to ensure that Benn continued as Chair of the Home Policy Committee (HPC). However, following a subsequent controversy over collective responsibility, Benn was not re-elected to the Shadow

The Years of Opposition

23

Cabinet.23 In early 1982, a two-day meeting involving the NEC, PLP and Trade Unionists for a Labour Victory (TULV), ended with an informal agreement that there would be no more constitutional changes or leadership challenges before the election. David Basnett declared somewhat prematurely that ‘peace had broken out in the Labour Party’.24 Party-led policy-making It is only in this context of virtual civil war that the Party’s economic policy-making between 1979 and 1983 can be understood. A key part of the reaction to Labour’s defeat in 1979, and part of a general hostility to the parliamentary leadership which had betrayed Party policy, was a reassertion of the primacy of the Party in policy-making. It had been possible for the Cabinet to ignore the NEC until 1979. In opposition the Shadow Cabinet could not do so. Much of the development of the Party’s economic policy was dealt with by the Home Policy Committee, chaired by Benn until his removal after the 1982 Conference. Below this there were a number of sub-committees, the most important being those on Finance and Economic Affairs and Industrial Policy, and below them a large number of working groups. There were also a number of Study Groups reporting direct to the HPC. These sub-committees and working groups included a large number of academics and external experts as well as members of the NEC.25 In general, it would appear that the left – who as a matter of principle gave primacy to policy-making within the Party – were more assiduous in attending meetings and producing policy papers. The key role of the NEC and its sub-committees conferred substantial influence on the Party’s Research Department.26 The department provided the draft ‘Programme of Work’ for each committee or group in addition to drafting policy papers. This should not, however, be over-stated. Although they provided the first drafts of most policy documents issued during the period there was a substantial process of amendment. Further, the Research Department’s attempts to promote policy development in areas which were politically sensitive – such as public expenditure and inflation policy – were not always successful. The re-establishment of the supremacy of the Party’s decisionmaking structures should have meant that there was a powerful policy centre which could start the task of re-thinking Labour’s economic strategy. However, there were problems with this NEC-led policymaking. Some were organisational concerning the sheer number of

24 The Labour Party and Economic Strategy, 1979–97

sub-committees and working groups, many with overlapping remits, and the size of the groups, the membership of which was constantly changing. For the Research Department and the academics involved in the process, the calibre of the NEC members and their commitment to policy development was a cause of frustration. However, the main problems with the process were political. First, the divisions between left and right made considered policy-making extremely difficult with debates on issues such as import controls essentially ‘shibbolethic’.27 Second, although parliamentary spokesmen were represented on the main sub-committees their voice did not generally prevail and they were effectively alienated from the Party’s policy process. Third, the distrust of the parliamentary leadership felt by those taking part in the policy-making machine was an important push towards making policy as detailed as possible. There were also other sites of policy-making. The main one was the TUC-Labour Party Liaison Committee.28 Despite the fact that Labour’s 1979 defeat was attributed by some to the fact that the Party was ‘identified with the ill-reputed unions’,29 the period before 1983 remained one in which a close relationship with the trade unions was thought important by both wings of the movement. Policy documents endorsed by the Liaison Committee had a privileged status in that they were virtually guaranteed trade union support at Labour Party conference. A sub-committee of the Liaison Committee was established to produce the 1982 document ‘Economic Planning and Industrial Democracy’ which effectively removed the issues from the ambit of the Party’s Industrial Policy Sub-Committee. The tripartite nature of the Liaison Committee – involving the TUC, NEC and PLP – gave the parliamentary Party some input into policymaking. A further step in this direction was the establishment of the Policy Co-ordination Committee (PCC) which began meeting early in 1981. The aim of the PCC was to tie both the NEC and the PLP to policy decisions. This had only limited success, particularly as the Shadow Cabinet felt that they had received the drafts of ‘Labour’s Programme 1982’ at a very late stage.30 Finally, it would be wrong to ignore the role of the parliamentary leadership, and particularly the Shadow Chancellor, in the policymaking process. After Foot’s victory in the leadership election, Shore became Shadow Chancellor. Shore is an interestingly ambivalent figure. At the time Shore was generally perceived as being on the right of the Party, though he did promote those on what became the ‘soft left’ – such as Gould, Prescott and Cook – who shared his views on

The Years of Opposition

25

Europe. Shore supported EEC withdrawal and was prepared to contemplate more radical economic measures than those of the 1974–79 government. He was not, however, convinced by the economic policies being generated by the Party’s policy-making structure. In particular, he was more forthright on the need for agreement with the trade unions through a National Economic Assessment (NEA) and on the merits of devaluation as against import controls.31 In 1982, Shore and the Treasury team produced ‘Programme for Recovery’ which focused on Labour’s macroeconomic policy. It was produced outside Party structures though there was an informal consultation process. Though the NEC refused to publish ‘Programme for Recovery’, the document nevertheless formed the basis of much of Shore’s approach as Shadow Chancellor. The left of the Party was, then, relatively successful in re-emphasising the lead role of the NEC and Party Conference over Party policy. However, there were competing centres of policymaking – involving the trade unions and the Party leadership – throughout the 1979–83 period. Senior figures within the Labour leadership were unwilling to concede absolutely the principle that policy-making should be led by the institutions of the Party outside of parliament. This lack of consensus on one policy centre both reflected and amplified the disagreements on policy, including those on economic policy.

The alternative economic strategy There were then a number of sites of economic policy-making in the 1979–83 period and this partly reflects the fundamental divisions in the Party between left and right, NEC and Shadow Cabinet, MPs and activists. The economic policies adopted by the Party (through the NEC) came to be grouped together as the AES. While aspects of the AES are discussed in detail in later chapters, it is worth considering briefly the strategy’s overall shape. The theoretical analysis which underpinned the AES was perhaps best expressed in the work of Stuart Holland and, in particular, his contribution, ‘The Socialist Challenge’. The core of Holland’s argument was broadly that the changing nature of capitalism in the late twentieth century meant that the view that it was unnecessary for government to intervene at the microeconomic level, a view characterised by Holland as ‘revisionist’, was obsolete. In particular, he pointed to two developments that necessitated this conclusion.

26 The Labour Party and Economic Strategy, 1979–97

The first was what Holland described as the growth of ‘mesoeconomic’ power. Industrial concentration had created a category of firms that possessed the power to challenge or circumvent government policies. These firms had monopoly power within their own industries and had merged and diversified into others. Holland’s empirical evidence for this claim was that ‘the top one hundred manufacturing firms in Britain now control some half of manufacturing output when in 1950 they had controlled only one fifth’.32 These firms in the ‘mesoeconomic sector’ were able to exercise price leadership and had effectively ended consumer, in favour of producer, sovereignty. Their pricing policies had the power to produce inflation since their market positions were so secure. Further, public subsidy had little power over their internal business decisions in terms of securing policy objectives such as influencing industrial location to achieve regional balance. The second development identified by Holland reinforced the first. This was the increased tendency to multinational status of large firms. The trend to multinational capital posed a challenge to the economic sovereignty of the UK. On the basis of this analysis most versions of the AES were based around a set of policies that can be summarised as: 1. A policy for expansion aimed at restoring full employment and raising living standards, based on a planned reflation of the economy primarily through increases in public spending. 2. Planned controls on foreign trade and international capital movements to protect the balance of payments and prevent flight of capital. 3. An industrial strategy based on extended public ownership (including financial institutions) and planning at the level of the firm through Planning Agreements tied to an extensive network of industrial democracy. 4. A national economic plan coordinating macroeconomic policies with industrial planning. 5. Control of inflation based on price control.33 Most versions of the AES assumed that Britain had to be economically sovereign and included a commitment to withdraw from the EEC. Further, there was usually an explicit commitment to the redistribution of income and wealth. Three general points concerning Labour’s adoption of the AES are worthy of note. First, the AES was not invented after 1979. It had formed a key part of the Party’s policy for much of the 1970s. The

The Years of Opposition

27

priority for the left after 1979 was not to develop the AES as much as to make sure that the next Labour government implemented it. The Party was ‘not looking for new policies’ rather it wanted the ‘old ones carried out’.34 Though the Research Department argued that ‘the central weakness of the NEC’s policy position, during the lifetime of the last Labour government, lay in economic and financial strategy’35 it would be wrong to see economic policy development as the central focus of concern in this period. Second, the AES provided a focus for debate on the left outside of the Labour Party. Versions of the AES were adopted by the TUC, Communist Party and a variety of other organisations. Academic debate was also vigorous particularly through the Conference of Socialist Economists (CSE) and Socialist Economic Review (SER). A number of Party staff, and PLP researchers, particularly Adam Sharples, Henry Neuburger and Roy Green, were actively involved in these debates. Sharples and Neuburger were part of the London Group of the CSE who produced a widely read version of the AES, and Sharples edited the Labour Co-ordinating Committee’s strategy.36 Third, although the economic policies known as the AES commanded widespread support within the Party, as exhibited in votes at Labour Party Conference, key members of the Labour Party leadership, including Foot, Shore and Healey, had reservations about aspects of the strategy. As late as the Clause 5 meeting to agree the manifesto, Shore was keen to amend the Campaign document to reflect the parliamentary leadership’s concerns. However, Golding successfully proposed that the Campaign Document was adopted in toto as the manifesto. It would appear that this was a consequence of a decision of some on the right that if the Party was to lose the 1983 election it should lose on the Bennite policies which had been adopted during the years of opposition.37 The 1983 General Election result represented Labour’s worst electoral performance since 1918. The Party had only just succeeded in gaining a higher vote than the SDP/Liberal Alliance. The campaign itself was a political and organisational shambles and Labour’s poll rating fell from 36 per cent at the start of the four week campaign to an eventual result of 28 per cent. Further, most commentators have accepted the view that many Labour voters had loyally supported the Party ‘in spite of its policies’.38 Hindess, for example, argued after 1983 that ‘versions of the left’s AES [had been] on offer for the best part of a decade, still with little worthwhile popular support’.39 Wickham-Jones has, however, recently argued that ‘the abandonment of the AES owe[d] more to its

28 The Labour Party and Economic Strategy, 1979–97

intimate linkage with the defeat of 1983 than to any inherent electoral (or economic) problems’.40 However, while Wickham-Jones may be correct in arguing that ‘aspects of Labour’s strategy were popular’41 the strategy in aggregate was not.

Closing the credibility gap (1983–87)42 While there was ‘no Walworth Road investigation and no formal NEC or Shadow Cabinet analysis’43 of the 1983 defeat, it would be wrong to conclude that there was no debate. The view of the left, as set out by the Party’s General Secretary Jim Mortimer at the 1983 Conference, was that the defeat was due to disunity – particularly the defection of MPs to the SDP – and to the fact that ‘senior people’ had not defended Party policy during the election.44 This analysis was convenient for the left since it largely ignored the policy limitations which the election had highlighted. The view on the right was equally stark – the defeat had been caused by the civil war on constitutional reform and the leftwing policy platform which led the 1983 manifesto to be famously described by Kaufman as the ‘longest suicide note in history’.45 There was, however, strong resistance to the idea of changing policy. Foot, in his last speech as leader, emphasised that he was ‘not in favour of casting [the 1983 manifesto] aside’.46 Outside the main structures of the Party it was easier to recognise the implications of the scale of the 1983 defeat. A meeting of academics called by the Fabian Society highlighted the need for wholesale re-thinking by Labour and resulted in the creation of the Fabian Socialist Philosophy Group. The Group’s advocacy of the set of ideas known as ‘market socialism’ is discussed in Chapter 3. Labour’s defeat, and the early experience of the Mitterrand government in France, led to wider interest in the ‘Out of Crisis’ project which was based on the premise that coordinated European action was the soundest basis for recovery (see Chapter 6). Within the Party itself, however, the debate as to why Labour had lost so heavily inevitably became part of the leadership contest set in motion when Foot resigned immediately after the 1983 defeat. Benn’s defeat at Bristol meant that he was not able to stand. The new system of election meant that Kinnock, given momentum by the early support of a number of influential trade union leaders, was elected leader with a large majority. Hattersley was elected as deputy leader, surprisingly achieving majority support in all sections of the college including the

The Years of Opposition

29

constituencies. Their election was seen to presage a ‘new yearning for peace and unity within the Party’.47 An understanding of Neil Kinnock is essential to any analysis of Labour’s policy change from 1983–92. At the time of his election as leader in 1983 Kinnock was seen as on the left of the Party, a supporter of unilateralism, EEC withdrawal, and the AES. Campaigning for the leadership Kinnock made clear that he had ‘no quarrel with the policies of the last election’.48 Only on Europe, where he stated that ‘EEC withdrawal was not an option for the late 1980s’,49 was there any indication that Kinnock saw the need for far-reaching policy change. However, during his period as leader, his position was to change on a number of crucial issues leaving both Kinnock and the Labour Party open to the charge of ‘electoralism’.50 It has been argued that the size of Kinnock’s election victory gave him ‘huge authority’51 within the Party. However, he suffered an early defeat at the 1984 Conference when he pushed for a system of voluntary OMOV (one member, one vote) to be adopted for the reselection of MPs. This defeat convinced Kinnock that he could not rely on trade union leaders to deliver their block votes at conference and needed to adopt a carefully ‘calculated approach’52 to changing the Party. Between 1983 and 1985 Kinnock could not rely on a secure majority on the NEC and therefore ‘had no instrument for inaugurating and pursuing change on the scale and in the direction that was needed’.53 The major factors which limited Kinnock’s room for manoeuvre between 1983 and 1985 were the events which were dominating the wider political agenda. The first was the miners’ strike. Scargill’s decision not to have a ballot, the split in the miner’s ranks, and re-emergence of mass picketing (and mass policing) guaranteed that the issue would be a difficult one for any Labour leader. Kinnock’s association with the Labour left and the coal industry made it all the more so. The miners’ strike made it difficult for the Labour Party and the TUC to focus on anything else.54 The second issue was the role of Militant in Liverpool and, more broadly, the campaign by Labour local authorities against ratecapping.55 There was little discussion of economic policy between 1983 and 1985 at Party Conferences or in the Party more generally. This led to the only attempt in the period to establish a grassroots group to discuss economic policy. Neuburger, at this time Kinnock’s economic policy researcher, was a key player in the formation of the Labour Economic Strategy Group (LESG) which he hoped would generate wider internal

30 The Labour Party and Economic Strategy, 1979–97

discussion of economic policy. The LESG’s membership peaked at around 400 and its main activity was to organise an annual fringe meeting at Labour Party Conference. Its influence on Labour’s economic policy was negligible. There were, however, some developments between 1983 and 1985 that are worthy of note. First, there was a greater willingness to learn the lessons of Labour’s poor performance in the campaign than there was to admit problems at a policy level. At the 1983 Conference a GMBATU motion to set up a Campaign Committee to ‘oversee detailed articulation of party policy’56 was approved. In the period before he gained a reliable majority on the NEC, Kinnock was forced to rely on the Campaign Strategy Committee. More significant for long-term policy development – though their importance was not immediately apparent – was the decision to abolish the sub-committees of the NEC Home Policy Committee and establish joint NEC/PLP committees. The left opposed the creation of these Joint Policy Committees (JPCs) and some members of the NEC, including Tony Benn, refused to take part in them. The JPCs were designed to address the key problem of the policy-making structure between 1979 and 1983 – the division between the NEC and the Shadow Cabinet – and create a unified policy centre. However, as Kinnock has acknowledged, the JPCs were ‘far from perfect’.57 Only one of them, the Jobs and Industry JPC, was ‘really active’58 and even this committee, dominated by nominees of the Shadow Chancellor, generally rubber-stamped policy rather than generating it. However, the model of joint committees including representatives from the NEC and Shadow Cabinet was to form the basis of the Policy Review after 1987. In terms of policy development it has been argued that ‘changing Labour’s policies on the economy became a priority for the Party’s leaders after 1983’.59 After his election as leader, Kinnock appointed Hattersley as Shadow Chancellor with a brief to ‘drag [Labour’s] economic policy towards reality’.60 Hattersley’s analysis of the 1983 election was that ‘the people of Britain looked at our economic policy, admired our compassion but doubted our capacity’.61 Hattersley thought that the 1983 policy had made unrealistic and unconvincing promises, particularly on the issue of reducing unemployment. However, while Hattersley made it clear that the solutions proposed in the 1983 manifesto were not sacrosanct, little policy change was effected between 1983 and 1985.

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The realignment of the left 1985 was a key year for the Labour Party. The high profile turning point was the 1985 Labour Party Conference when Kinnock spoke in opposition to a motion which urged the reinstatement of sacked miners and the reimbursement of the NUM for sequestration and fines, and used his leader’s speech to denounce the tactics of Militant in Liverpool. Politically, Kinnock’s position had been bolstered by the realignment of the left, which developed through the year. In January 1985 a leader column by Tribune’s new editor, Nigel Williamson, called for a realignment of the left arguing that there was an opportunity to create a ‘majority centre left coalition around the party leader’.62 The aim was to detach Kinnock from his reliance on right-wing support, particularly on the NEC. The practical outcome of realignment was to harden the division between the ‘soft’ (Tribune and the LCC) and ‘hard’ (Campaign Group) left groupings. It meant that individuals such as Blunkett, Sawyer and Meacher came increasingly to support Kinnock within the NEC, thus securing his majority. This was important in terms of policy development but also in terms of organisational matters; it was soft left support which allowed Kinnock to take action against Militant. A number of developments, some present since 1983, were considerable speeded by the events of 1985. First, the role of parliamentary spokesman, relative to the NEC and the Party’s formal policy-making procedures, grew in importance. Hattersley appointed his own economic researcher and increasingly used speeches to make policy announcements. John Smith at Trade and Industry became the clear driving force behind the reorientation of policy in this area away from intervention at the level of the firm to an emphasis on the three ‘wellsprings’ of the economy; research and development, investment, and education and training. The left was quick to identify and condemn this shift of power from the NEC to parliamentary spokesmen.63 A consequence of this shift was the beginning of a process where influence over Party policy began to pass from the Party’s Research Department to the advisors – official and unofficial – of Labour’s front bench.64 The Research Department’s practice of producing a paper at the start of policy discussions which summarised the current policy position based on Conference decisions was not an approach which appealed to a Party leadership intent on changing policy. Second, the leader’s office became a considerably more important centre for policy-making. Kinnock’s office, with Charles Clark as head of the office and Patricia Hewitt as press officer, was far more extensive

32 The Labour Party and Economic Strategy, 1979–97

than Foot’s had been.65 In terms of economic policy advice, Kinnock continued to employ Foot’s researcher, Henry Neuburger, until he left to work for Bryan Gould after the 1987 election. More significant was the role of John Eatwell who began to work for Kinnock from 1985. Kinnock had read Eatwell’s book Whatever Happened to Britain? and, at an initial meeting, was impressed with Eatwell’s emphasis on the importance of manufacturing and the need for European cooperation. Eatwell worked for Kinnock initially while on secondment, and then on a part-time basis through until the 1992 election.66 These developments in the offices of the Leader and Shadow Chancellor created the scope for further centres of economic policy-making within the Party. Kinnock wished to play a more active role in economic policy than Foot had done. The Kaldor Group was established after Kinnock suggested to Lord Kaldor in 1984 that it would be useful to the Labour Party leadership to have a group of academic economists able to provide expert advice.67 Kinnock developed ideas about the role of the ‘enabling state’ and stressed the importance of ‘positive freedom’ which were to feature in subsequent Labour Party policy discussions.68 In his 1986 book Making Our Way, drafted with Eatwell’s assistance, Kinnock concentrated on economic and industrial policy. Jones has argued that Making Our Way ‘signalled an important shift in Kinnock’s thinking towards qualified support for a managed, reformed capitalism’.69 Third, the Party apparatus at Walworth Road came to be under the control of the Party leadership and an internal restructuring meant that a ‘new emphasis [was placed] on the campaigning function’.70 This was first evident in 1985 with the launch of the ‘Jobs and Industry’ campaign. The campaign was designed to stress the Party’s economic competence and its commitment to tackling unemployment and regenerating the British economy.71 The overall campaign was significant for the prominence given to the success of employment generating schemes developed by Labour local authorities as evidence that ‘Labour’s policies are working now’.72 The ‘Jobs and Industry’ campaign was the beginning of a change in the Party’s presentation of policy that was to have far-reaching consequences. It was run by a campaign committee and tensions began to emerge with some complaints that the committee was interfering in policy development.73 The ‘Jobs and Industry’ campaign still relied on activity by Constituency Labour Parties (CLPs) and individual Party members while later campaigns, such as the ‘Freedom and Fairness’ campaign launched in 1986, were directly focused at the national

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media. These changes went along with other modifications of the Party’s image, best represented by the use of the red rose, the symbol of most European social democracy, in place of the red flag. The period after 1985 also saw a revival in the level of activity of the TUC–Labour Party Liaison Committee and, in 1986, it produced two extremely significant documents on labour law and the national minimum wage.74 However, after the seminal event of the miners’ strike, a number of people on the Labour Party side began to question the value of the close relationship, and particularly its formal expression in joint policy statements. Unions too in the pursuit of ‘new realism’ began to re-consider the value of involvement on wide areas of policy. A joint TUC–Labour Party document did emerge from the Liaison Committee in the run up to the 1987 election.75 However, when there was a prospect of an agreed incomes policy emerging from discussions with trade union leaders prior to the election it was the Labour leadership which was reluctant to pursue the issue.76 As in the earlier period, between 1983 and 1987 there are a number of policy-making centres within the Party. At one level, however, this is not as important since the ideological differences between the Jobs and Industry JPC and the Shadow Chancellor are nothing like those between the NEC and Shadow Cabinet before 1983. However, the process by which policy was developed was ‘haphazard and informal’.77 At its worse policy-making was a confused process based on making commitments and then trying frantically to develop some detailed basis for the policy, such as when Kinnock committed the Party to reduce the level of unemployment by 1 million in advance of any work on how this might be achieved. By the 1987 election, Labour had ‘jettisoned most of the commitments of the 1982 programme because the leadership regarded them as vote losers’.78 In a reaction against the prescription of 1983, Labour’s 1987 manifesto was short on policy detail.79 While this was probably sensible, a lack of clarity in policy was evident during the election campaign when Kinnock and Hattersley provided differing interpretations of Labour’s tax plans.80 The 1987 election result was a disappointment as the Party gained only 3.2 per cent of the vote compared to 1983 and won only three seats in the south of England outside London. In contrast to 1983, the election campaign itself was perceived to have been a success. However, the Party’s decision to stick as far as possible to a social policy agenda during the campaign reflected a lack of confidence in its economic policy.81 In 1987, the electorate still ‘feared that a Labour

34 The Labour Party and Economic Strategy, 1979–97

government would put up taxes, boost inflation rapidly and could not afford its programme’.82

Reviewing policy (1987–92)83 While the 1987 General Election result was a poor one for the Labour Party the success of the campaign, and Kinnock’s strength as a campaigner, reaffirmed Kinnock’s position as leader and his dominance of the Party.84 When there was a challenge to his leadership in 1988 he overwhelmingly defeated Tony Benn, and used his prestige to ensure that Roy Hattersley was confirmed as deputy leader. Subsequent NEC elections confirmed Kinnock’s ability to secure large majorities on Party committees. In part this was because of what Kinnock described as the ‘evaporation of the difference between the so-called soft left and what used to be called the right’.85 However, it became clear by 1992 that Kinnock’s dominance within the Labour Party was not reflected in terms of his popularity within the country. Following the 1987 defeat a number of changes were made which were fundamentally to change the Party’s policy-making process. First, a decision was made to establish an economic sub-committee of the Shadow Cabinet, supported by an Economic Secretariat. The two staff members – Dan Corry and Cathy Ashley – were in the anomalous position of being employed officially as part of the Walworth Road bureaucracy and yet responsible to the Shadow Chief Secretary to the Treasury and based in the House of Commons. Second, after the 1987 election, the TUC–Labour Party Liaison Committee was abandoned and there were to be no more joint statements issued by the TUC and the Labour Party. Meetings between the Labour leadership and the ‘Neddy 6’ group of trade union leaders were renamed the Contact Group and, as the name suggests, the focus changed from the preparation of statements to the exchange of information and a process of dialogue designed to avoid obvious conflict. This does not mean that the TUC ceased to influence the Labour Party’s policy. The invitation to Delors to attend the 1988 Congress set in process a chain of events that confirmed Labour’s reorientation into a pro-European Party. Further, in an unprecedented move, individual trade union general secretaries were involved directly in Party policy-making as part of the policy review process.86 Third, the 1987 defeat gave an extra impetus to the project being promoted by John Eatwell and Lord Hollick to establish a left-leaning

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think-tank. The Institute for Public Policy Research (IPPR) was finally set up in 1988. Patricia Hewitt moved from Kinnock’s office to be its first deputy director, while continuing to play a role in the Party’s policy-making, and links between the Party and the IPPR were close. In policy terms, however, the IPPR was more influential after 1992 particularly when it hosted the Commission for Social Justice. The need for a leftwing think-tank can be seen as evidence of the failure of academics to engage with the Party’s policy-making agenda. The Party policy review The key change, however, was the establishment of a full-scale Party policy review. The first suggestion for such a review was made by Geoff Bish, the Labour Party’s Director of Policy, at the NEC in July 1987. Kinnock initially rejected the suggestion and it was only following later moves by Tom Sawyer of NUPE that Kinnock became convinced that there could be a review which was not under the control of the Party machinery at Walworth Road.87 Clearly, such a review of policy was to be of crucial importance and, even before the 1987 Conference endorsed the review, there was controversy over Gould’s comments that any review should approach policy-making in a new way so that ‘the policy includes its popular appeal from the outset’.88 Gould’s role as the 1987 election coordinator meant that he was seen as close to Kinnock and his remarks were interpreted by many in the Party as presaging a policy review which would be driven by opinion polls rather than principles. Suspicion about the policy review process was also raised by the link with the ‘Labour Listens’ campaign. The idea was innovative but was to have little effect in practice. A series of events were mounted with members of the public invited to input into Labour’s policy-making. This was an attempt to ensure that the policy process was not ‘merely a series of responses and concessions to interest groups, including those inside the party’.89 The ‘Labour Listens’ campaign was a failure partly for organisational reasons and, more fundamentally, because the politicians were not committed to the process.90 The form that the policy review would take was meant to encourage a more open style of policy-making. A small number of Policy Review Groups (PRGs) were established to guide the process in various areas. These groups built on the practice of the JPCs of the previous period. They were made up of NEC and Shadow Cabinet members, with joint chairs, and a small number of co-opted external experts. The PRG’s reports were published well in advance of conference to facilitate

36 The Labour Party and Economic Strategy, 1979–97

debate within the Party as part of a strategy of winning consent for the review. However, the fact that there was no opportunity to amend the reports at Party Conference indicates that the Party leadership were not entirely confident that this strategy would be successful unaided. Part of the policy review process, but separate to it in terms of development, was an attempt to define what the Labour Party stood for. ‘Democratic Socialist Aims and Values’ did not come from the work of any of the PRGs but was presented to the NEC by Kinnock and Hattersley. The document was essentially written by Hattersley and was a reworking of the main themes of his 1987 book, Choose Freedom. The principles set out in the document were meant to underlie the work of the PRGs so as to ensure the policy review resulted in a coherent whole. In reality, the groups do not seem to have made much use of the document in their work. This led to criticisms that ‘what the review lacks … is a core of analysis and a coherent strategy for social change which could explain and inform the policies of a Labour government’.91 The PRGs reported in two stages to the conferences in 1988 and 1989.92 Despite the widely reported intervention of the leaders office, and semi-regular meetings of the PRG convenors, the PRGs were able to work with a considerable degree of autonomy.93 As a result, Gould, though Shadow Trade and Industry Spokesman and not Shadow Chancellor, was able, in his role as joint chair of this PRG on the Productive and Competitive Economy, to play the key role in Labour’s economic policy development during the policy review period.94 The Industrial Strategy Group (ISG), who had begun to work with Gould after the 1987 election, were also enable to secure a significant input, particularly when Keith Cowling, co-convenor of the ISG, was made a co-opted member of the PRG.95 The policies generated by the main economic PRG – on the Productive and Competitive Economy – were, in the main, policies supported by Bryan Gould. There were a number of issues which had produced disagreement within the group between, in particular, Gould and Neuburger on one side and Eatwell and Gordon Brown on the other. For example, Gould, supported by the ISG, favoured an interventionist industrial strategy based on the ‘developmental state’ and a new DTI modelled on the Japanese MITI.96 Further, the PRG’s report’s antipathy to ERM entry reflected Gould’s position as sceptical towards the EEC in general, and his particular position on the importance of the ‘real economy’ and the necessity of Britain having the option of devaluation to maintain a competitive exchange rate. Other policy

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developments – such as the need for a strong competition policy, and regulation rather than renationalisation of the utilities – were based on a consensus within the group. The other main economic PRG – effectively controlled by John Smith – was concerned with Economic Equality and it began by looking at wide-ranging plans for the reform of tax and social security. However, over time, the focus narrowed to finding ways to fund the Party’s pledges on child benefit and pensions which were effectively unquestioned by the Policy Review process. This process was to culminate in the proposals in the Shadow Budget. Beyond the review By the time that the second stage of the policy review had been completed the external political environment had begun to move in Labour’s favour. After a poor result in 1987 the discussions between the SDP and the Liberals on the issue of merger began to founder around the rock of David Owen’s objections, causing their opinion poll ratings to plummet. The Lawson boom – on which Labour’s election hopes in 1987 had been dashed – began to fall apart in a credit boom and rising inflation. Conservative divisions, particularly on Europe, were beginning to emerge and Labour was able to exploit those difficulties winning in a national poll, the 1989 European elections, for the first time since 1974.97 It is difficult to assess the overall success of the policy review process. The view of many in the trade unions, reflected by Larry Whitty, was that the review had seen a significant move to the right and lacked analytical weight.98 Bish was concerned that the push for ‘symbolic policies’ would mean policy detail sacrificed in favour of presentation.99 At the root of both of these concerns was the belief that the review, and Labour’s policy-making generally, had become too reliant on opinion polls. The PRGs received initial presentations from the Shadow Communications Agency (SCA) which reviewed the polling and focus group evidence in their area of work.100 However, there is little evidence that the Productive and Competitive Economy PRG, for example, was much influenced by these presentations. The Policy Review Groups had provided a centre for policy-making in their individual areas. The PRGs were visible within the Party and had a period of time to seek external advice and put together an overall strategy for the economy and so on without having to concentrate on any particular aspect of policy. In theory, the review process itself was as close as the Labour Party got in this period to deliberative

38 The Labour Party and Economic Strategy, 1979–97

policy-making based on evidence. However, the economic policy put together by the Productive and Competitive Economy PRG was not to survive through to the 1992 election. In part this was because economic circumstances had changed by 1992. However, much more important to the subsequent development of economic policy, were the reservations held by the leader’s office concerning the public expenditure implications of the PCE report, its interventionist industrial policy, and its attitude towards Europe.101 This was clearly signalled when, almost immediately after the 1989 conference, the Shadow Cabinet was re-shuffled with Gould replaced by Brown at the DTI.102 After the review there was a shift to policy being made in the economic sub-committee of the Shadow Cabinet.103 By this time the primacy of the Shadow Cabinet had been established, with the NEC acting effectively as a rubber-stamp. The Treasury team of Smith, Brown, Beckett and Blair met regularly and the Party gave them a high media profile, in part due to a desire to emphasise Labour’s collective leadership, especially in areas where Kinnock was perceived as weak. Smith also established an advisory group of academics and businesspeople, chaired by his adviser Andrew Graham, to whom he could turn for advice.104 Between the end of the policy review and the 1992 election, Labour’s economic and industrial policy shifted significantly. The removal of Gould from the DTI portfolio was followed swiftly by a key shift in macroeconomic policy. From late 1989 it became progressively clearer that Labour in office would take the pound into the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). This had major implications for the whole of macroeconomic policy. There was also a clear shift away from the PRG’s criticism of the role of the City in the British economy. Instead, Labour’s Treasury team began a series of meetings in the City to explain Labour’s economic policy.105 This ‘prawn cocktail offensive’ ran directly contrary to Gould’s view that ‘the attempt to gain the confidence of the financial establishment is not only futile but it not even desirable’.106 Brown, in his role as Shadow Spokesman on Trade and Industry, shifted away from the more interventionist focus of Gould’s policy review position, particularly on the issues of the ownership of BT and the commitment to ‘cable up Britain’. The language of the developmental state, introduced by Gould in part as a way of justifying a more interventionist industrial policy, was excised. Two main themes underlie these changes. First, there was a reluctance to commit the

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Party to anything which involved public expenditure and could be costed. This happened across departments with Beckett, as Shadow First Secretary to the Treasury, and Dan Corry, having prominent roles.107 Second, specifically in the area of industrial policy, Brown’s policy mix stressed the role of incentives, such as tax relief on manufacturing investment, rather than the creation of new institutions. Increasingly, the Party emphasised its commitment to consult on issues such as the introduction of a minimum wage and a training levy. During this period, tensions began to emerge within the parliamentary leadership, particularly between the offices of Kinnock and Smith. This was a factor which contributed to disagreements on policy issues such as the removal of the ceiling on National Insurance Contributions. Further, while there was agreement on the need for a Shadow Budget, there was a significant dispute between the two offices as to when Labour should seek to neutralise the Conservatives inevitable attack on the tax issue with Kinnock’s office wanting to go on the issue as early as the end of 1991 rather than waiting until the election was called.108 Labour’s economic policy going into the 1992 election was based on three pillars. First, a commitment to retain the pound’s parity within the ERM at the £1:2.95DM rate at which the Conservative’s had entered. Second, a supply-side strategy based particularly on the importance of education and training. Third, a tax and benefits policy set out in the Shadow budget which spelt out precisely the changes which Labour would make. Why did Labour lose? In 1992, Labour suffered its fourth consecutive General Election defeat, despite the fact that it ‘fought the election in as ideal conditions as an opposition could hope to find’,109 including an economic recession. A number of possible explanations for Labour’s failure – Kinnock’s credibility as a potential prime minister, the damage done to the Party’s image by the entryist left, the role of the tabloid press, and Labour’s inability to respond to the strategic dilemma of the replacement of Mrs Thatcher – fall outside the scope of the present discussion. Within the Party itself the power of the Shadow Communications Agency (SCA) over the election campaign was criticised, particularly by the ‘soft left’.110 However, the question can be reformulated as to why, in the midst of an economic recession, the Conservatives were still perceived as the Party of economic competence.

40 The Labour Party and Economic Strategy, 1979–97

There are perhaps three explanations as to why Labour’s economic strategy failed to achieve sufficient electoral support. First, it was argued that the shadow budget had been a strategic mistake both in the focus that it directed onto the issue of tax, and in that its specific measures were perceived as damaging to voters’ aspirations. Kinnock has indicated his belief that a key factor in the 1992 defeat was the ‘effect in key seats of the Tory “tax bomb” campaign’.111 Kinnock’s office took the view that Labour had not allowed itself long enough to deal with the tax issue. A lesson then might have been for Labour to publish its proposals sooner, though this would have create the danger that the Conservatives would steal the revenue sources identified. However, the lesson learnt by the modernisers after 1992 appears to have been that proposing any increases in direct taxation would not be electorally feasible. Second, it could be argued that Labour’s strategy of returning to a policy mix which could be described as neo-revisionist – an economic policy that represented a recognisable development of Labour’s position in the 1960s and 1970s until the shift to the AES – had failed. Nigel Stanley argued after the election, the ‘trauma of the early 1980s has stopped any analysis of why we lost in 1979’.112 In other words, Kinnock had moved the Party back to a neo-revisionist position, but voters remembered the failure of Labour’s economic strategy in the 1970s. In particular, despite Labour’s mantra of only increasing spending ‘when resources allow’, they were wary of the Party’s reliance on increased public expenditure as a solution to most policy failings. Gould was particularly critical of the timidity of Labour’s macroeconomic strategy at the 1992 election arguing that it cut off space for an attack on the Conservative’s record. The commitment to the ERM parity effectively, Gould argued, precluded the possibility of an alternative macroeconomic strategy. Further, the modesty of Labour’s industrial strategy meant that its claims to be able to generate recovery were not credible. Finally, it was argued that the process of making policy in one macroeconomic situation (the 1988–89 boom) for a completely different one (the 1992 recession) had locked Labour into rigid positions.113 Third, the argument has been made that Labour’s failure had less to do with specific policies, or even the overall economic strategy, than with the fact that Labour had failed to regain the country’s trust. This was particularly manifested in hostility to Neil Kinnock as a potential prime minister but it reflected voters concerns on Labour’s changes in policy – including economic policy – under Kinnock. Attempts to

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promote Smith as the personification of fiscal prudence and the competence of the Treasury team failed to address this issue. The issue of trust is much more amorphous than opposition to concrete policies. However, the response to the shadow budget, which would have marginally benefited nine out of ten families, is easier to explain in terms of voters unwillingness to trust Labour on the tax issue than it is with reference to the particularities of the Party’s proposals. After 1992, the fourth defeat in a row for Labour, the Party ‘was still not in a particularly strong psephological position from which to launch the next election campaign’.114 Labour’s vote had improved by 6.8 per cent under Kinnock’s leadership from 27.6 per cent in 1983 to 34.4 per cent in 1992. It was still below the 37 per cent that Labour had achieved in 1979.

Creating ‘New Labour’ (1992–97) The politics of ‘one more heave’ Neil Kinnock announced his resignation immediately after the election. It soon became clear – again following tactically inept interventions by trade union leaders – that John Smith was the anointed successor. Neither Blair or Brown was prevailed upon to stand and Smith was elected overwhelmingly in all sections of the electoral college with Margaret Beckett installed as Deputy.115 Bryan Gould’s campaign for the leadership (and deputy leadership) never got off the ground. However, it is perhaps surprising that the arguments which Gould was making about economic policy did not achieve a wider resonance within the Party. First, Gould argued that Labour’s public commitment to remain in the ERM at the current parity had effectively prevented Labour from making any sustained attack on Conservative macroeconomic policy during the 1992 election campaign. Gould’s hostility to ERM membership was longstanding and reflected both his anti-Europeanism and his belief that Labour governments should concentrate on the real economy rather than make any particular monetary target a goal of policy. Second, Gould argued that the shadow budget had been a mistake, both tactically and strategically, in that it had effectively served to shine a bright light on Labour’s tax policy. It had enabled the Conservatives to make the economic debate, one that was almost entirely around tax. In part, this was a function of the lack of distinctiveness between the two parties on macroeconomic policy. Further, Gould

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argued that the tax changes in the shadow budget had been pitched at a level which seemed punitive, particularly to voters in the south of England. The argument that ‘our tax policies appeared to place a cap on peoples’ aspirations regardless of their existing levels of earning’116 was one which achieved some resonance on the soft left. In private, it was a view that both Blair and Brown had held for some time.117 During the course of the leadership election. Smith shifted his position slightly to allow some flexibility on both of these areas. First, he proposed the establishment of the Commission for Social Justice, under the auspices of the IPPR. While defending the shadow budget, Smith was able to indicate that he saw the need to re-think the Party’s position on the issues which had caused that budget to come apart. Second, Smith indicated some flexibility on the issue of the ERM parity in June 1992. However, this was a move made in a much more minor key, in interviews with Tribune and the New Statesman.118 In the event, Labour’s position on this did not change until ‘Black Wednesday’; an event which led directly to Gould’s resignation from the shadow cabinet. With Smith installed as leader, Gordon Brown became Shadow Chancellor and, much more than in any other period of opposition, Labour’s economic policy-making became centred almost entirely on the Shadow Chancellor’s office. Robin Cook, shadowing the DTI, made a number of forays into industrial policy. However, it soon became clear that Brown was the man in effective control. Brown maintained the position of not calling for devaluation, or realignment, within the ERM. Privately, Brown’s position was that the political consequences for Labour of calling for a devaluation would have been profound. The Party would have been accused of ‘talking down the pound’ and if devaluation did take place the government would seek to pin blame on the opposition. This was probably right. However, with influential commentators like Will Hutton calling for action to protect British industry from the consequences of an over-valued pound, this was an extremely unpopular position within the Labour Party. In holding to this position, Brown lost considerable popularity within the Party. John Smith’s leadership of the Labour Party has been little analysed. His sudden and premature death meant that there was an overwhelming sense of public mourning for a politician whose overwhelming quality was seen as decency. However, the short period of Smith’s leadership had generated a certain amount of disquiet amongst the modernisers within the Labour Party who were concerned that ‘one more heave’ would not be sufficient to win the next election.

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The point was perhaps best made in Paul Thompson’s article in Renewal, ‘Labour’s year of not living dangerously’. Thompson argued that the ‘Party still suffers from an excess of caution’ and, in particular, ‘needs to be more radical in the areas of full employment and economic intervention’.119 The debate over one member one vote (OMOV) which had culminated in a narrow win for the party leadership at the 1993 conference was seen by many as emblematic of Smith’s approach. The modernisers felt that Smith had not been sufficiently clear with the trade unions as to why he felt that this change was important to the Party, nor sufficiently active in persuading them to support it. The result was a messy compromise, with Smith saved from defeat only by an emotional speech to Conference by John Prescott. However, it was on economic policy that the leadership attracted most criticism. As Thompson noted, ‘economic policy remains the centrepiece and Gordon Brown, perhaps unfairly, has borne the brunt of a more general frustration’.120 As part of trying to secure victory on OMOV, Smith’s speech at the 1993 Trade Union Congress emphasised the importance of full employment. Brown was left looking like the arch-conservative; the man who had defended the ERM parity and was unwilling to do anything radical on macroeconomic policy when unemployment stood at over 3 million. Brown’s response was to publish ‘How we can Conquer Unemployment’ at the 1993 Conference, a pamphlet which took a much more obviously Keynesian approach to macroeconomic policy. Further, he took a much more active interest in proposals around a Eurokeynesian approach to macroeconomic policy, based on the proposals coming from Delors and the European Commission for a European growth strategy. A number of these proposals were being generated by Stuart Holland, the architect of Labour’s AES, who was now working as an adviser to Delors. The election of Blair The election of Tony Blair as Labour Party leader was a victory for those in the Party who were convinced that Labour had to modernise yet further to win the 1997 election. The story of Brown’s decision not to stand against Blair for the Party leadership has been well told, even if the details of the agreement reached over dinner at Granita have not been fully established.121 It has been reported that Blair promised Brown control over Labour’s economic policy and, after Blair’s election, Cook was moved from the shadow DTI portfolio to become Shadow Foreign Secretary.

44 The Labour Party and Economic Strategy, 1979–97

Blair made four interventions which fundamentally affected Labour’s economic strategy before the 1997 election. First, and most significant, was the re-writing of Clause 4. This was an effective attempt to put an end to the debate within the Labour Party about the merits of the market, and the end-goal of public ownership. Victory in the Clause 4 vote was the point at which Blair could convincingly claim to have created ‘New Labour’. Second, Blair was particularly robust in his acceptance that the ‘driving force of economic change today is globalisation’ and that New Labour’s economic philosophy was ‘to accept globalisation and work with it’.122 Labour’s manifesto for the 1997 election emphasised that New Labour ‘accepts the global economy as a reality and reject the isolation and “go-it-alone” policies of the extremes of right and left’.123 Third, Blair launched a debate around stakeholding which, for a time, created a wider resonance on the centre left. It is worth noting, however, that it was Blair who led this debate rather than Brown. Fourth, Blair’s main intervention in macroeconomic policy, the Mais lecture of May 1995, attracted considerable attention for its tough antiinflation line. Drafted by Derek Scott, an economic adviser who had returned from the SDP, the speech was seen as decisive in establishing Labour’s credibility with the City. There is no sense, however, in which Blair and Brown were pulling in different directions on economic policy. Brown tried to establish Labour’s position in a number of ways. The first, and most important, was to establish Labour’s position as sound on macroeconomic policy. In the wake of the Conservative election victory in 1992, Brown had supported sterling’s parity in the ERM. In large part, this had been a way of indicating Labour’s determination to control inflation. Following sterling’s exit from the ERM there was a clear need – for Labour as well as the government – to re-establish a macroeconomic policy which addressed the issue of inflation. Brown stressed the importance of macroeconomic stability and keeping inflation under control in most of his speeches. Importantly, he committed himself in government to the ‘golden rule of borrowing – over the economic cycle, government will only borrow to finance public investment and not to fund public consumption’.124 Granting the Bank of England operational independence in the first week after the 1997 election was the logical conclusion of this policy. Brown also put considerable effort into extending the argument made strongly in the policy review that economic efficiency and social justice went together. The fullest exposition of this position was in

The Years of Opposition

45

Brown’s Fabian pamphlet, ‘Fair is efficient’.125 It was also an argument at the core of the Commission for Social Justice’s report ‘Strategies for National Renewal’. There is no need here to repeat the general argument. However, Brown did oversee the development of a number of policies which reflected this general approach. Many of these related to education and training, and in particular the provision of opportunities for the long-term and young unemployed, through the ‘New Deal’ programme. This policy was given a further populist flavour by being funded through the ‘windfall levy’ on the excess profits of the privatised utilities. Finally, Brown’s major contribution to Labour’s economic policy was in the area of tax and public expenditure. Brown was very clear throughout the period of his Shadow Chancellorship that any new policies should not involve a commitment to additional resources unless the policy was fully costed and the resources identified. He was determined to avoid a repeat of the 1992 election and its focus on tax. This was dealt with in two ways. First, Labour attacked the government consistently over the 1992–97 period when it increased taxes, particularly when the tax increases – such as the imposition of VAT on fuel – were unpopular. Second, early in 1997, Brown committed Labour not to increase the standard rate of taxation from 23 per cent and the top rate from 40 per cent in the lifetime of the next parliament. In fact, Brown went considerably further than this in promising that the new government would stick to the Conservative’s spending limits for its first two years in office. A policy centre? Decision-making around economic policy became concentrated around the offices of the Leader and Shadow Chancellor. Economic advisers, such as Derek Scott and Ed Balls, wielded a significant influence.126 For example, the decisions to go into the election pledged not to increase the basic rate of tax, and to stick with the Conservative spending plans for the first two years in office, were made within an extremely closed circle. Does this mean that Labour had finally created a policy centre capable of making the strategic decisions about economic policy? There is certainly an argument that it had. However, that centre was now extremely small and – being based in two offices accountable to the Leader and Shadow Chancellor – had the built in risk of fracture as political interests diverged. Certainly, there was an argument that such a tight knit group was in danger of cutting itself off from a wider sphere of advice.

46 The Labour Party and Economic Strategy, 1979–97

There was a widespread perception that the role of Party Conference had been substantially reduced. The creation of the national policy forum in 1993 was an innovation designed to bring in various sections of the Party. However, the forum had a limited impact before 1997. In an attempt to compensate for the perception that decision-making within the Party had become concentrated around the Leader, Labour went through a ‘Road to the Manifesto’ exercise where individual Party members were asked to vote on the manifesto. However, the influence of Party members was little more than nugatory.127 The point was endorsed when two days after the general election the new government announced its decision to grant operational independence to the Bank of England, a move not mentioned in the manifesto or the election campaign itself. It is worth briefly considering the fate of other sources of policy advice. After 1992, there was there was no move to repeat the policy review exercise but, during the leadership election campaign John Smith proposed the creation of a Commission for Social Justice (CSJ) – under the auspices of the IPPR – to consider the future development of the welfare state. However, despite the prominent roles of leading ‘modernisers’ such as Patricia Hewitt and David Miliband, and the fact that the report was widely welcomed, the final report, published after John Smith’s death, was effectively disowned by the Labour leadership. This was, at least in part, a reflection of the fact that policy-making was becoming more closed in, and more focused on individual parliamentary spokespeople. Another consequence of this was that Labour’s Policy Directorate ceased to have any importance. This was illustrated when the head of the directorate resigned in October 1995 ‘barely disguising the fact that it was because his job had become pointless’.128 The ‘Commission of Public Policy and British Business’, run like the Commission for Social Justice under the auspices of the IPPR, was established in 1995 and reported early in 1997. The Commission was mostly made up of business representatives and ended by endorsing many ‘New Labour’ policies. Winning the confidence of British business had become an important part of winning the confidence of the British public in Labour’s economic policy. The 1992–97 period was the first in opposition when Labour was able to benefit from the advice of a number of think-tanks. The IPPR, in addition to hosting the CSJ and the CPPBB, was probably the most influential in view of its close links with the Labour leadership. On economic policy, the journal New Economy edited by Dan Corry and published by IPPR from the end of 1993, was an important site for the

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47

development of ‘New Keynesian’ ideas and debates around economic policy. However, Leys is probably right in arguing that the IPPR’s focus was more on detailed policy proposals, than anything that was rather more ‘big picture’.129 Demos, founded in 1993 by Geoff Mulgan, focused rather more on meta-narratives. Mulgan had been associated with Marxism Today, and went on to be a key adviser to Blair. However, although Demos has contributed in a wide range of fields there has been ‘an almost complete lack of any serious attention to political economy’.130 New Labour also engaged with the intellectual community has been through Nexus, a network established by the journal Renewal. Blair has consistently encouraged these think tanks and recognised that New Labour needs to win the battle for ideas as much as the electoral battle.131 However, Hay is convincing when he argues that the left think tanks ‘did not serve the party well in its long period of electoral exile’ and had failed to ‘contribute to a sea change in the “climate of opinion”’.132 The 1997 election The 1997 election was the end of the long road back for Labour; a victory of such a scale that it dwarfed hopes let alone expectations. The scale of the victory led some to argue that a number of Labour’s messages of reassurance, on tax and public expenditure in particular, had been overplayed. The electorate, it was argued, had made up its mind that it was time for a change on Black Wednesday when sterling was forced out of the ERM. It is impossible to tell whether this was the case. However, it is possible to say that Labour won the 1997 election in large part because it had won the economic argument. Table 2.1133 below shows the lead of Labour over the Conservatives (indicated by ;) on economic issues in 1997, and the contrast with 1992.

Table 2.1 Economic indicators showing Labour’s lead over the Conservatives

Inflation Taxation Unemployment

1992

1997

929 920 ;16

;3 ;11 ;41

3 Labour’s Mixed Economy

This chapter charts Labour’s view of the mixed economy, and the respective roles of the state and the market, between 1979 and 1997. It has been generally accepted that between 1979 and 1983 the Labour Party moved towards ‘planning’ and, between 1983 and 1997, moved back to a more positive view of ‘the market’. Debate has centred on whether the position that was developed through the policy review ‘amounted to an acknowledgement of the merits of the market economy to a degree unprecedented in the historical development of the Labour Party’1 or whether it was the revision of Clause 4 that marked Labour’s final acceptance of the ‘market’. As far as it goes this account is accurate. However, it misses much of what is interesting about Labour’s debate about the mixed economy. In particular, it does not explain Labour’s inability to move beyond a debate based on a dichotomy between planning and the market, nor areas, such as the national minimum wage, where moves were made after 1983 toward more intervention in the market.

Revisionism and the mixed economy The Labour Party has never taken the fundamentalist position that ‘socialism and the market are incompatible’.2 Rather, Labour has consistently favoured a mixed economy though there have, of course, been disputes as to where the boundary between market and non-market provision should lie. The revisionist position developed by Crosland, and essentially adopted by the Labour governments of the 1960s and 1970s, was that there was no significant need to extend the public sector. For most industries the revisionists were content to see continuing market provision and to ‘work with the grain of market forces … to 48

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trigger privately-generated economic growth’.3 Further, the revisionist view of the state was positive, the state essentially being seen in a ‘beneficent light, as an instrument of social and economic progress and equality, the embodiment of public, social purpose against private greed’.4 The revisionist view of the mixed economy came under substantial challenge in the late 1970s. Even those working within the revisionist tradition, such as Mackintosh, argued that Labour’s revisionists had ‘no adequate theory of how the mixed economy should work’.5 Marquand argued that Crosland’s premise that social democratic ends ‘could perfectly well be achieved by and through the existing political system’6 was false. In failing to challenge this complacent view, the 1974–79 Labour government had sought to govern through an ‘outdated, bureaucratic form of social democracy’.7 Criticism from the left of the Labour Party focused on the state’s actions in the public sector. Holland, for example, argued that ‘the rethink in theory and policy which followed the 1970 election defeat [had been] transformed [by the Labour government] in to a half-hearted State capitalism, rather than a major challenge to capitalism itself’.8 The social democratic mixed economy also came under attack from the right. In particular, the ‘overload’ thesis, and the argument that the state had over-extended itself and performed poorly in many areas, attracted significant attention.9 The state’s role in the economy also came in for sustained criticism. The core of the Bacon/Eltis argument, which gained some currency following the publication of a series of articles in the Sunday Times in 1975, was that increased public expenditure was crowding out private investment or, more specifically, that resources were being shifted from the production of marketable goods to the provision of unmarketed public services.10 This had detrimental consequences for the balance of payments and growth. Both the contention that the state was ‘overloaded’ and the Bacon/Eltis thesis were attractive to the political right since they fed the Thatcherite view that the state should be limited, and public expenditure restricted. Bacon and Eltis’ work also influenced the thinking of some in the labour movement including that of Labour’s Chancellor of the Exchequer.11

Against the market? (1979–83) After 1979, when Labour moved to the left, its position was portrayed as one that was definitively against ‘the market’. In part, this was because

50 The Labour Party and Economic Strategy, 1979–97

of the contrast with the Conservatives who entered office in 1979 on a manifesto that lauded the virtues of the free market. However, it is not difficult to find examples of Labour’s hostility to markets. ‘Labour’s Programme 1982’ argued that the electorate should ‘reject the view that the operation of the free market – guided only by the forces of profit, self-interest and greed – can ensure that industry meets the needs of the community. Left to itself, the market has never been able to provide adequately for a wide range of public services, utilities and industries’.12 The market was seen as being both inequitable and inefficient not just in the social services but also in the production of consumer goods. The general thrust of the AES was that ‘policies should rely on extending social over market control’.13 Underlying the policy proposals in the AES was an analysis of contemporary capitalism which was deeply critical of the neo-classical view of markets. Stuart Holland’s analysis argued that ‘mesoeconomic firms’ were able to exercise price leadership and had effectively ended consumer, in favour of producer, sovereignty. However, Labour was not committed to the abolition of markets. Most versions of the AES were content, if only by omission, to leave 80 per cent of industry in private hands and rely on the market mechanism for the distribution of most goods and services. Indeed, the assumption was that ‘a decisive suspension of private capital was not possible or desirable’.14 However, one can look in vain through Labour Party literature in the period to find a rationale as to why market provision was necessary. It suited both the Conservatives and the Labour left to portray the party as opposed to market provision in principle. The policies which were developed on the basis of Holland’s analysis, however, illustrate how the AES still left a large role for markets. Holland argued that incentives, such as subsidies to locate in a particular region, would be inadequate to change the behaviour of firms and that direct intervention at the level of the firm was necessary. Planning agreements, or agreed development plans as they came to be called, should therefore be made both compulsory and enforceable. Major firms would have to negotiate with trade unions and government over issues such as investment and employment. Holland also developed the notion of competitive public enterprise where particular firms, rather than complete industries, were to be taken into public ownership. It was envisaged that a State Holding Company, such as the National Enterprise Board, would take a stake in a number of companies, particularly in high growth sectors of the economy. The government, through the NEB, could intervene through these firms to provide leadership within the industry on issues such as investment and research and development, as

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well as helping to secure other policy objectives like regional development. The important point here is that both planning agreements and competitive public enterprise are policies which see extensive intervention by the state at the level of the firm, but implicitly accept that the firm would continue to operate in a market context. Another aspect of the AES’s implicitly ambivalent attitude to markets can be drawn out of a comparison of its proposals for the capital and labour markets. The solution to the problem of lack of investment in the UK economy identified in most versions of the AES was to channel investment through the use of planning agreements. Funds for investment were to be mediated through the newly created National Investment Bank (NIB) while the further step of extending public ownership to include the major clearing banks was considered. There was considerably more reluctance to intervene in the labour market. In particular, this can be seen in the rejection of an incomes policy or any ‘return to the old policies of government-imposed wage restraint’.15 The Labour Party remained committed to free collective bargaining and a free market for labour. As Hattersley noted, it was ‘quite extraordinary that free collective bargaining, which is a product of free market capitalism and embodies most of the disadvantages of that system, has become a canon of socialist belief’.16 Labour’s version of the AES retained a commitment to the mixed economy with a significant role for the private sector and some of its proposals for substantial intervention, through planning agreements and competitive public enterprise, were predicated on a market context. Indeed, Sassoon has argued that the AES can be ‘taken to represent one of the very few attempts by British socialism to develop an industrial strategy aimed at making capitalism more profitable’.17 However, there was a reluctance to consider the regulation of markets. As a consequence the 1983 manifesto does not include any proposals on competition, merger or monopoly policy. Holland’s analysis appeared to imply that the development of mesoeconomic firms, and monopoly, was inevitable and that developing policies which sought to ensure that markets remained competitive would be naive. Labour was certainly against the market in the sense that its rhetoric about the market was almost unremittingly hostile. Planning was intrinsically preferable to market provision, except in the area of the labour market where Labour’s support for free collective bargaining sat uncomfortably with its anti-market stance in other areas. Markets, then, would remain in practice though it was by no means clear from Labour’s rhetoric that this was desirable in theory.

52 The Labour Party and Economic Strategy, 1979–97

The state as saviour If Labour was still committed, at least in practice, to a mixed economy it was one with a greatly enhanced role for the state. In the AES, the failure of markets was generally counterposed to the prospect of planning; planning for jobs, planning for a better environment, planned reflation, planned trade were all elements of Labour’s programme. Much of the debate around the AES was around the issue of how ‘democratic planning’ – as opposed to central or bureaucratic planning – would work.18 The AES envisaged the creation of new institutions to run a system of national planning and the extensions of controls over, for example, credit, exchange and prices; areas in which controls had been abolished by the Conservative government. Further, the state’s role would be enhanced by a major increase in public expenditure. There were economic and social reasons for this. Economically, it was argued that mass unemployment showed the need for a major reflation of the economy and increased public expenditure, rather than reduced taxes, would generate more jobs as less of the extra spending would go on imports. Socially, Labour pointed to the under-funding of social services, particularly health and education, as justification for more spending. The radical industrial strategy that was central to the AES would enhance the state’s role by extending the scope of public ownership. The pledge to nationalise 25 major companies which had caused Wilson such discomfort in the 1970–74 period, was not reintroduced as policy, though attempts were made to force the issue at party conferences.19 The 1983 manifesto did, however, promise that public ownership would be extended in a number of sectors.20 It is worth noting that the 1979–83 period was one where, unusually, the Labour Party tried to push proposals for nationalisation in areas, such as the banking sector, where the relevant trade unions were opposed.21 In opposition, Labour also had to develop a position on the basis upon which companies privatised by the Conservatives would be renationalised. Until 1982, the NEC position was that renationalisation would proceed on the basis of ‘no compensation’. By the election the position was that compensation would be paid on the ‘refund principle’ where a Labour government paid for shares exactly what the government had received when the assets were denationalised.22 As significant as the scale of public ownership was the role that the state was to play. The National Enterprise Board was to take shares in profitable companies, not prop up ‘lame ducks’ as in the 1974–79 period. Through these competitive public enterprises the state, through the NEB,

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would act as an entrepreneur, encouraging investment and research and development by providing leadership within the industry. The idea of competitive public enterprise was initially attractive to revisionists within the Labour Party as an alternative to traditional nationalisation, particularly as the enterprises would operate in a market context.23 In the 1979–83 period, however, the scale of state intervention envisaged was much greater. The proposals for planning agreements also envisaged a role for the state as a participant in the decisions of private business. The role of the state envisaged in the AES, as both owner and entrepreneur, was open to a number of objections, including the ability of the civil service to manage a large-scale programme of industrial intervention. However, the key criticism levelled at Labour’s position was that it was ‘wedded, still, to statist notions of public action’.24 In retrospect, Aaronovitch has acknowledged there was some truth in the argument that ‘the AES carried forward the strong centralising tradition in the labour movement: the people would elect a Labour government; that government would institute a system of central planning and control using the power of the state to make it work; state ownership in the form of nationalisation would be a decisive instrument’.25 There was a failure to recognise the extent to which state provision had become unpopular in many areas. Labour’s opposition to the sale of council houses – a policy which proved to be extremely popular – can be seen as emblematic of Labour’s commitment to state provision and illustrative of the difficulties of maintaining that position in the face of the Thatcherite agenda.26 However, in the 1979–83 period, Labour’s positive view of the state was reinforced as the Conservatives created a set of ‘political circumstances [which] now oblige[d] the Labour Party to defend the state’.27 Put in the position of defending state provision Labour’s opposition to proposed changes too often became a generic campaign ‘against the cuts’ rather than a focused critique of Conservative policy.28 Labour’s reflex reliance on increased public spending to solve almost any social problem was not to prove politically credible in the aggregate. Democratising the state and the Party Given the importance of state action in the AES, and the criticisms of ‘state capitalism’ which the left had made of the 1974–79 Labour government, it is perhaps surprising that the Labour Party between 1979 and 1983 did not pay more attention to constitutional reform and democratising the state. However, Labour’s proposals for constitutional reform were fairly minimal.

54 The Labour Party and Economic Strategy, 1979–97

It was of key importance to advocates of the AES that the state should be sovereign and Labour’s commitment to EEC withdrawal was based, to a large extent, on the argument that the UK would have to re-establish its economic sovereignty so as to be able to introduce a radical industrial policy and import controls. It is important to see Labour’s decision to withdraw within the context of a history where EEC membership proved ‘intractable to Labour because it threatened the autonomy of the British state and the sovereignty of the Westminster parliament, two concepts and institutions to which the Labour Party has been committed emotionally and strategically since its inception’.29 Policies such as import controls led even its advocates to acknowledge that the AES was ‘frankly nationalistic’30 in its focus on economic renewal in one country. However, the increased power of large companies and, in particular the power of multinational companies, in what Holland described as the mesoeconomy posed a second threat to the sovereignty of the state. Labour’s policy was that these major companies should be the subjects of planning agreements agreed by the company, trade unions and government. However, Labour’s position on the key issue of enforcement was inconsistent. On the one hand it was argued strongly, particularly by Holland, that large companies and especially MNCs were able to shift production easily and play off governments against each other. On the other it was assumed that the same companies would cede complete control over their operations in the UK and agree to negotiate with their trade unions and a socialist government. As Tomlinson argued, the left’s focus on the formal threat to the sovereignty of the British state, and the policy of withdrawal from the EEC, removed a significant weapon from the government’s armoury in dealing with MNCs.31 Labour did promise limited reform in the machinery of government. The main proposal was the creation of a Department for Economic and Industrial Planning, a department that would have wide-ranging powers over the government’s economic programme. As the consequence of this would be a major reduction in the powers of the Treasury, this proposal fits into a Labour tradition of institutional reform designed to prioritise industry over finance. However, some of the more ‘radical proposals to dismantle the Treasury’s powers’32 proposed from within the Party were headed off in a rearguard action, led by Peter Shore and John Smith. Labour’s main debate over the issue of the devolution of power was around a plan put forward by Prescott, as Labour’s Regional Spokesman, to devolve power to the regions on a scale that went beyond that envisaged in the Party’s AES. This created real difficulties in part because

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Prescott had developed his ‘Alternative Regional Strategy’ outside the party’s policy-making structures. Prescott’s proposals differed from the party’s official policy in that it gave more power to the regions and favoured directly elected authorities at a regional level, a commitment which had specifically been avoided in joint Labour Party/TUC statements.33 The debate on Prescott’s proposals was inconclusive and, at the 1983 election, ‘Labour’s territorial strategy was in disarray’.34 Neither of these debates, about the machinery of government and the role of regions, resulted in reform proposals which significantly challenged the role of the central state or the British constitutional framework. Both Foot, as Labour leader, and Benn, as unofficial leader of the Labour left, were committed to the sovereignty of parliament. Both were hostile to membership of the EEC for that reason. Benn was prepared to contemplate constitutional change to promote wider democratisation and supported, for example, a written constitution. However, on other issues, such as the need for ministerial accountability for nationalised industries, he was rather more conservative.35 However, if the Labour left did not put forward significant proposals for the reform of the state and constitutional reform, its proposals for reform of the Labour Party’s constitution were far-reaching and controversial. The connection between the two was best set out by Holland. Holland argued that the ‘conventional wisdom … in which parliament should be able to exert a dominant influence on government, and government on the civil service’36 was wrong. In fact, the civil service dominates government and parliament is excluded. However, ‘such a sequence can be reversed if a government comes to office determined to wield power in the interests of the class it represents, and is backed by a sufficient political base to exert what amounts to a hegemonic position’.37 In many cases the submission of Labour Ministers to civil service advice, against Party policy, was ‘suppliant and willing’.38 In essence, Holland’s argument is a variation of that which sees the main problem in Labour ministers ‘betraying’ the Party’s programme. Institutional reform is secondary to the ideological commitment of the ministers and the Cabinet and their willingness to implement the party programme.39 Holland further argued that there was a need for ‘a situation in which the State apparatus, qua apparatus, would have a role in, but not dominate or rule the procedures of government’.40 The political process, meaning the activities of political parties, should dominate the state apparatus. However, Holland does not concentrate here on reforms of the state. Rather, the key consequence of his analysis was that it ‘clearly implies democratisation of decision-making within the Labour Party’.41

56 The Labour Party and Economic Strategy, 1979–97

The implication drawn from both of the key points developed in Holland’s analysis was not that major reform of the state is necessary, but that the constitution of the Labour Party should be radically changed so that the parliamentary leadership was far more accountable to Labour Party activists. These arguments, less rigorously put, were key to the Campaign for Labour Party Democracy’s plans to reform the procedures for selecting MPs and the Party leader, and for producing the manifesto. This view was criticised at the time by Rustin who argued that ‘constitutionalism within the Party is the equivalent of parliamentarism within the state, in its inhibiting effects on political understanding and action’.42 In a recent, sympathetic analysis Panitch and Leys have argued that party reform – democratising the party to extend its representative function – was a prerequisite for the left’s wider mission of democratisation of the state.43 Labour’s position on the mixed economy at the 1983 election was not intellectually compelling. Markets would continue to exist in practice though the Party could find no justification, beyond pure pragmatism, as to why this should be so. The state should be given significant extra power over the economy, but reform of the state, unlike reform of the Labour Party, was an unnecessary distraction. The Party clearly needed to rethink its approach. However, the Party’s structures were particularly ill-suited to a debate around an issue so fundamental. Re-thinking had to begin elsewhere.

Market socialism and the Fabian Socialist Philosophy Group An early example of an attempted intervention in Labour’s redesign of economic strategy is the Fabian Socialist Philosophy Group (SPG) and their work on market socialism. Following the 1983 election the Fabian Society organised a meeting to assess the reasons for the defeat. A number of the academics present, including Julian Le Grand and Raymond Plant, argued that a key problem faced by the left was ‘its loss of an intellectual base’.44 As a result the SPG was established, with Le Grand, Plant and Ian Martin, General Secretary of the Fabian Society, as the initial convenors, to consider ‘the problem of the direction in which the country should go and could be made to go by the Labour Party in power’.45 The first public contribution by a member of the group to the debate after Labour’s defeat was the pamphlet ‘Equality, Markets and the State’ by Raymond Plant. Plant argued for a pursuit of equality through strong state action, accepting that

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‘egalitarians may well be committed to greater use of state power than it is currently fashionable to confess’.46 When Plant’s pamphlet was tabled for discussion at the SPG it produced a reaction within the group against an approach based on a ‘statist pursuit of equality’47 and in favour of a model which offered a greater degree of decentralisation and a reduced role for the state. David Miller produced a paper on market socialism which seemed to a number of members of the SPG to ‘offer elegant solutions consistent with socialist values’.48 The aim was to develop a market socialism which ‘sets itself against nationalisation as much as it repudiates privatisation’.49 Subsequently the main output of the SPG was around the issue of market socialism.50 Before considering the impact of the group it is helpful to consider the set of ideas which can be called market socialist. There were two key sources for the ideas. The first was the ‘calculation debate’ of the 1920s and 1930s which had as its starting point the argument put forward by Mises, supported later by Hayek, that ‘economic calculation was not merely difficult but impossible in an economy without private ownership and a full set of markets’.51 There would be an intractable information problem in any socialist society, which Mises assumed to mean a society without markets. This was not just a problem of scale but, more fundamentally, that the information would not itself be generated without market pricing. The first development of the idea of market socialism came from Lange in response to Mises’ work and involved a socialist planning authority which developed simulated markets. The second source of the 1980s debate on market socialism in the UK was the attempt in Eastern Europe, most notably in Hungary and Yugoslavia, to introduce elements of market reform. In particular, Alec Nove’s work, which dealt primarily with the USSR, has been seen as a key turning point in the theoretical debate on the economic viability of central planning in Communist economies.52 It is against this background that the development of market socialist ideas in the UK in the 1980s can be understood. A number of arguments provide the basis for market socialism. The first set of arguments were concerned to demonstrate the advantages of markets. It was argued that markets were efficient for the production of a large number of goods and services. This was coupled either with an acknowledgement of the Mises/Hayek argument that markets make good use of scattered information or a more straightforward recognition of the sheer complexity and scale of central planning. Markets were not, however, advocated solely on the grounds of efficiency. Nove argued that to carry out central planning ‘requires a hierarchically organised

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bureaucratic structure, which must tend to dominate society’.53 Markets, on the other hand, confer a certain type of freedom, dissolve personal power, reinforce political freedoms such as freedom of expression, and have a ‘qualified neutrality’ between various conceptions of the good life. Finally, it was argued that markets provide the framework for government intervention which is both telling and intelligent. It was better for government to intervene to change the legislative framework, such as the Companies Act, than to intervene directly with the operation of specific companies. Market socialism focuses, therefore, on ‘structural reform of the legal rules and regulations which govern the formation of economic institutions’.54 The second key aspect of market socialism was that while markets remain, the enterprises that operate under market socialism are transformed. In a ‘pure’ market socialist system all firms would be cooperatives since they are democratic and egalitarian, and provide the potential for increased efficiency. However, there are a number of problems with cooperatives such as their restriction of employment and output compared to capitalist enterprises, a lack of entrepreneurship, and the conflict between worker members and broader society. These disadvantages have led some to accept that there are ‘significant limits on the potential scope of a selfmanaged sector’.55 Most models of market socialism, including that developed by the SPG, allow for a variety of different forms of enterprise including cooperatives, capital–labour partnerships, state-owned and, in some cases, small privately owned firms.56 There remains the question of where market socialists see the limit of market provision. The main reasons for intervention – to deal with externalities and market failures – are fairly conventional and similar to those which can be derived from welfare economics. The role of government under market socialism would be in the regulation of ‘natural monopolies’ and enforcing competition on other monopolies; regulating ‘spillover goods’ which damage the environment; the investment and capital markets; preventing short-run price volatility; and in the distribution of income and wealth. Further, while other models of market socialism, such as that of Nove, leave considerable scope for central planning, the Fabian market socialists were content to ‘err on the side of laissez-faire’.57 For example, although in the initial pamphlet it was argued that under market socialism there will be ‘no or well-regulated’ capital and labour markets, under challenge this position was modified so as to accept almost free labour markets.58 Market socialism has been criticised on a number of grounds. Two are important to mention here. First, it has been objected that market

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socialism was not socialism at all. Market socialists have sought to deal with this objection by identifying a number of socialist values. Miller has argued that market socialism offers the best prospect for industrial democracy, a substantial degree of equality, and fairly distributed positive freedom. However, he acknowledges that market socialism ‘sharply retrenches’.59 on the socialist aim of conscious direction for common purposes and also qualifies the commitment to community. Second, it has been argued that market socialism essentialises the market. This ‘essentialisation of the market involves a serious weakness in the shape of a failure to take account of the institutional conditions within which markets operate’.60 Tomlinson has argued that market socialism shares with the liberal approach this essentialisation of the market and that while some contributions, such as that of Nove, are helpful in discussing the relationship of socialism with markets, other advocates of market socialism promote the market as a principle.61 So what impact did the Socialist Philosophy Group have on the Labour Party? Members of the SPG – including those who were the firmest advocates of market socialism – were clear that their primary objective was to influence Labour Party thinking and the issue of how this could be achieved was discussed by the group. There was, however, an acknowledgement that market socialism should be advocated as a ‘guiding ideal, not as a platform for the next election’.62 Further, although there was an attempt to make the group’s publications accessible there is a sense in which the group was writing for an academic audience. There was also a certain complacency that if the ideas proved powerful enough they would filter through to the political process. There was not, for example, a concerted effort to place articles in the left press, or at least not until ‘Market Socialism’ was published in 1989, although sympathetic journalists such as Peter Kellner at the New Statesman did try to promote some of the ideas.63 When members of the SPG did address local Fabian Society meetings on the issue of market socialism they came away acutely aware of how far away the views they had begun to develop were from the rank-and-file Labour Party members. It is difficult, therefore, to provide any evidence of market socialism having made a deep impact within the Party at large. However, this is not to imply that some of the party’s key policy-makers, including Roy Hattersley and Bryan Gould, were not influenced by the debate. Market socialism may have helped to convince some in the Labour Party that ‘markets can be used to achieve socialist ends’64 and to rehabilitate markets in theory.

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The market: a good servant; a bad master65 Ellison argues that between the 1983 and 1987 elections, Labour’s thinking about the need to ‘create a partnership’ with the market was best elaborated not in Party documents but by Roy Hattersley and, ‘at one remove from the heat of immediate debate, by market socialists in the Fabian Philosophy Group’.66 Hattersley and Bryan Gould were the two senior Labour politicians who were most consciously interested in ideas and ideology and both published important accounts of their thinking in the 1983–87 period. Kinnock, though less inclined to such purely philosophical reflection, also made contributions to Labour’s thinking about the role of markets and the state. It is possible to see Hattersley as the Labour politician most interested in furthering the work of Crosland and the revisionist tradition. He was particularly concerned to close the gap between theory and practice and attacked those in the Labour Party who described the theory of markets in ‘wholly pejorative terms’ while accepting that markets were predominant in practice.67 Hattersley’s link with the work of the market socialists was primarily through his friendship with Raymond Plant.68 While Hattersley did not attend any meetings of the SPG, Plant was involved and was cast in the role of constructive critic. Both Plant and Hattersley developed positions which had something in common with the SPG’s market socialism in that they accepted a key role for markets and stressed the importance of positive freedom. However, both continued to stress the traditional social democratic aim of equality and were more sanguine about the role of the state than the market socialists. Hattersley’s ‘Choose Freedom’ included a defence of the role of markets. This started from the traditional social democratic defence of the mixed economy that ‘for a large proportion of the economy, markets must determine price and the allocation of resources’.69 Hattersley quoted Nove on the role of markets and commented that ‘without some market influence the economy will be inefficient and unresponsive to consumers’ needs’.70 However, Hattersley remained critical of David Owen’s description of the market as ‘a continuous referendum’ which he described as ‘metaphysical claptrap’.71 In considering why there was a need for markets Hattersley was concerned to argue that ‘the answer concerns the liberty which is an essential feature of a truly socialist society as much as it relates to … efficiency’.72 While acknowledging that for the Labour Party ‘“planning” has always been a magic word’ Hattersley argued that ‘much of modern socialist planning must also be

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planning for the market, but in addition we must try to make that planning accountable and democratic’.73 Bryan Gould had a clearer connection with the SPG as he was one of the few politicians to attend. Gould operated in the meetings as an academic rather than a politician, keen to exchange ideas. He presented papers to meetings of the SPG which formed the basis of his 1985 book ‘Socialism and Freedom’. Gould too argued that ‘the market remains a substantially more efficient means of allocating resources at the level of the microeconomy than any bureaucratically controlled system of planning’.74 However, Gould was also keen to emphasise that the ‘market was a poor determinant of strategic economic decisions with long-term consequences’.75 Kinnock was not directly involved in the market socialism debate and was more inclined to defend markets on pragmatic grounds arguing, at the 1988 Party conference for example, ‘the day may come when this conference, this movement, is faced with a choice of socialist economies. But until that day comes, … the fact is that the kind of economy that we will be faced with when we win the election will be a market economy’.76 Kinnock was, however, keen to challenge the dichotomy between planning and markets which, as seen previously, was often the basis of Labour’s discourse between 1979 and 1983. This was in part a reflection of the desire to prevent Labour being seen as the party of planning. Kinnock argued that ‘to pose the stark alternatives of the public economy and the market economy is a supreme folly … the one of which Mrs Thatcher is most guilty’77 and that ‘traditional debates concerning markets versus planning are irrelevant’.78 It is worth noting that Kinnock’s economic advisers John Eatwell and Henry Neuburger were considerably less impressed with the ideas of market socialism than Gould or Hattersley. Eatwell’s position in the period before he became Kinnock’s adviser was that the left needed to return to economic theory and develop a critique of the neo-classical position which went further than an acceptance of ‘the economic orthodoxy as a sound theory of the working of the market economy, on top a which a socialist welfare theory may be imposed’.79 Neuburger argued that market socialism was ‘rather ignorant and narrow idea’.80 This might, in part, reflect the fact that, in the main, the SPG was made up of political philosophers and theorists rather than economists. Hattersley, Gould and Kinnock, then, were all promoting a more positive view of markets in the 1983–87 period. Labour’s policy in the 1983–87 period showed some sign of this shift in emphasis. By 1987,

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statements critical of the market were severely qualified; ‘market forces are indispensable elements of modern industrial economies, but the past eight years have provided a graphic demonstration of the inefficiency of unfettered markets in generating national recovery’.81 However, Labour was still critical of markets on a number of grounds. First, it was argued that the task of economic recovery could not be left to markets and that, in particular, the free market would not solve the unemployment problem. Second, there was strong criticism of markets on the grounds of equity with a continued stress on the need for redistribution to correct the inequities of the market mechanism and exclude markets from areas such as health and education. Third, market failures were identified which left a significant role for government intervention in, for example, training. Aside from these general statements there were a number of policy areas that reflect the extent of Labour’s shift on the issue of markets. In particular, the development of competition policy showed a desire to regulate the operation of markets by ensuring that they were competitive. However, there were exceptions to this change in direction. For example, there remained times, demonstrated by Labour’s opposition to the Single European Act and the creation of the single European market, when opposition to markets continued to provide the basis for Labour’s position. An enabling state If Labour’s rethinking of its position on the role of markets was tentative in the 1983–87 period, its reassessment of the role of the state was equally slow. This was despite the fact that the 1983 election defeat was held by many in the party to be evidence of a firm rejection of state action in the form of large-scale nationalisation, planning agreements, and significant increases in public expenditure. Eric Hobsbawm argued that Labour’s political problem of the ‘tarnishing of the image of socialism because of its identification with the centralised bureaucratic state’.82 On the Labour left this point was made strongly by the Labour Co-ordinating Committee (LCC). In 1982, Charles Clark, when he was already Kinnock’s researcher, co-authored a LCC pamphlet which argued that ‘the critical identity between the Labour Party and the unaccountable and inaccessible state is a major part of the Labour Party’s inability to build a commanding opposition to the current government’.83 Kinnock seems to have been convinced by the argument that Labour suffered electorally due to its association with the bureaucratic state and

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began to promote the notion of the ‘enabling state’. Kinnock argued that he wanted to see the state ‘as an enabling power – the idea of collective and purposive action’.84 As Jones points out this notion of the ‘enabling state’ could be traced back to the ‘social liberalism of T.H. Green and the Edwardian New Liberals’.85 However, it was clearer what Kinnock was against – a state which was bureaucratic, unresponsive to individual needs, centralised, unaccountable and arrogant – than what the ‘enabling state’ actually was. Despite Kinnock’s efforts, the notion of the ‘enabling state’ failed to acquire any popular resonance. In particular, the use the notion of the enabling state to link the economic and social aspects of the Party’s programme, promoted by Labour’s campaign strategists was a failure.86 As a consequence in the run up to the 1987 election Labour began to use a different sort of language, that of the ‘servant state’. The Party’s assessment argued that ‘people responded well to this theme during the election campaign’ and that in future campaigning it was important to stress that, for Labour, it was ‘the consumer who comes first – in all our public services’.87 Labour’s view of the role of the state did, however, shift in the 1983– 87 period. First, there was a move away from the notion that the state was qualified to intervene at the level of the firm. Eatwell notes that one of the major changes in Labour’s economic policy between 1979 and 1992 was from an industrial policy which involved government making tactical managerial decisions to one where the role of government was to provide the ‘well springs’ necessary for industrial growth. By 1987, Labour’s supply-side strategy moved from one based on public ownership and planning agreements to one where the role of the state was to provide the basis for industrial success in the areas of education and training, research and development and investment. Second, in the 1983–87 period Labour was keen to emphasise the need for a partnership on a national level between government, industry and the trade unions. Labour’s AES had put restrictions on business but was reluctant to attach responsibilities to trade unions. After 1987, Labour was keen to distance itself from the trade unions and any partnership envisaged was between government and industry. However, had Labour been elected in 1987, it would have been committed to a ‘whole paraphernalia of “tripartite” or “corporatist”-type governing structures’89 such as the National Economic Assessment. Third, Labour reviewed its attitude to public ownership. The 1986 policy paper ‘Social Ownership’ sought to make the case that ‘common ownership’ was not the same as ‘state ownership’.90 This reflected the market socialist case that accepting markets did not mean accepting

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private ownership and there were other forms of ownership such as cooperatives and ESOPs. As Hattersley noted, ‘the idea that markets and socialism are mutually exclusive is clearly nonsense – unless socialism is defined as state ownership rather than social ownership’.91 The public corporation model was right for the public utilities – including BT and British Gas which would be returned to the public sector – but not necessarily for other industries. Shaw has rejected the view that ‘Social Ownership’ was unequivocally a move to the right arguing that the change in policy to ‘full compensation’, rather than the previous line of ‘no speculative gain’, was a compromise with a soft left position which did allow for increased social ownership through the institution of British Enterprise, the successor to the National Enterprise Board.92 This reflects the origin of the paper in a sub-committee of the Jobs and Industry JPC jointly chaired by Blunkett and Smith. However, much of the hard left saw ‘Social Ownership’ as a clear case of the parliamentary leadership betraying socialist principles. The CLPD’s first paper directly on a policy issue argued that ‘public ownership was until recently an article of faith for most Labour Party members’ and that public ownership was a ‘necessary condition of socialism’.93 ‘Social Ownership’, which was addressed as much to party members as to the wider electorate, reflected the fact that ‘the gathering momentum of privatisation in the mid-1980s [had] also fundamentally altered the terrain upon which the debate over public ownership took place’.94 The assumption of the debate within the Labour Party in the 1970s and early 1980s, that public ownership would be extended, was fundamentally changed to a discussion as to ‘whether, how and to what extent there should be a return to the status quo’.95 The debate no longer centred on whether public ownership would increase efficiency in the manufacturing sector and reverse British industrial decline but rather on the role of the utilities. Overall, Labour became more cautious about the effectiveness of state action, and particularly, became more conscious that state provision had, in some respects, become unpopular. As Shadow Chancellor, Hattersley focused on emphasising Labour’s credentials as a party that was responsible in its attitude to public expenditure while, at the same time, also making it a priority to make the case for public spending in the face of the Conservative’s attack on state action. Local and European developments Between 1983 and 1987 Labour did not develop significant proposals for constitutional reform. Smith, as Shadow Trade and Industry

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Minister, was less keen to promote constitutional change to ensure a strong Industry Department than to emphasise that it was a matter more of ‘personalities’ where the power of ministries depended on ‘the calibre and strength of Ministers’.96 The 1987 manifesto contains little beyond proposals for devolution to Scotland and Wales, and strengthened local democracy. However, there was an implicit recognition of the way in which the role of the state was changing in this period in the increased focus on action at local and European levels. In the AES the British state, unencumbered by EEC restraint, was to lead economic renewal and reverse Britain’s economic decline. However, after 1983, it became apparent that faith in a purely British solution to Britain’s economic problems was strictly limited. The lesson that many in the Labour Party drew from the failure of the Mitterrand government in France after 1983 was that ‘Keynesianism in one country’ was no longer possible. Labour’s developing position was that, if reflation was to be successful and not create crippling balance of payments problems, then it needed to be a coordinated at a European level. The acceptance of the importance of European-wide reflation was an implicit recognition of the inability of the British state to achieve economic recovery through unilateral action. Significantly, this argument was accepted by a number of proponents of the AES on the left of the Party such as Aaronovitch and Stuart Holland. An equally important reaction to the 1983 election was the prominence given to local economic strategies. The impetus for these local strategies came from various sources. First, from the early 1980s, ‘there was an increasing concern about the centralist implications of Labour’s programme and, in particular, the AES’.97 A number of writers working within the framework of the AES pushed the case for a more decentralised approach.98 Second, after the 1983 election the issue of unemployment came to be seen as central by many Labour local authorities as changes in national policy appeared increasingly remote. Given the scale of the 1983 defeat many on the left took the view that ‘each successful [local economic strategy] project is a demonstration that there can be an alternative’.99 Councils around the country took various forms of initiatives to promote local economic development almost all of which could boast some success in reducing unemployment.100 However, a local authority initiative could expect to achieve quite limited results when directed against the thrust of government policy. Partly as a result of this the more grandiose elements of the ‘restructuring for labour’ strategies were limited in their success and often abandoned fairly quickly as too

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ambitious. Further, there were a range of tensions between firms and local authorities, on such issues as the provision of collective services, which were not easy to resolve. While initially the Labour Party nationally was keen to be associated with what were seen as successful local economic strategies, this enthusiasm soon waned.101 In 1986, Prescott’s draft jobs strategy gave local authorities a significant role and drew heavily on the model of Southwark’s job creation programme. The draft was rejected by the Shadow Cabinet after being described dismissively by Cunningham, the Environment spokesman, as ‘jobs on the rates’.102 By 1987 Labour’s flirtation with local economic strategies was over. The reluctance of Labour’s national leadership to endorse local economic strategies can be explained in a number of ways. First, many of the local economic strategies were couched in the language of the AES, from which the leadership was trying to move away, and the broader political stances of many of the councils involved in economic initiatives was creating significant negative comment.103 Second, these local authority initiatives were often in opposition to government sponsored regional policies. For example, the GLC encouraged opposition to the plans of the London Docklands Development Corporation (LDDC). While the Labour Party held no brief for the LDDC, it is not difficult to see an affinity between it and the local and regional development agencies which had been part of Labour manifestos at a number of General Elections. It would be wrong, however, to underestimate the importance of localism as a current in left thinking in the mid-1980s. Its advocates saw it as part of a renewed emphasis on the importance of civil society and a reaction to the left’s traditional reliance on state action. However, the thoroughgoing localism, and commitment to ‘popular’ and non-parliamentary politics, embraced by some on the left led them to underestimate the ‘urgent social and economic problems in Britain today that must be tackled at governmental level’.104

There must be markets (1987–92) In the period of the policy review – between 1987 and 1989 – the debates within the Labour Party on the issue of markets developed in a number of places. The first was in the debate on Labour’s values and in particular on the relationship of socialism and freedom. The second was a more specific debate on markets which was central to the policy review. However, the structure of the review meant that by 1989 there

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were two different conceptions of the market, one emerging from Hattersley and Kinnock’s ‘Aims and Values’ and one from the Productive and Competitive Economy PRG chaired by Bryan Gould. Socialism and freedom In this period the debate within the Party on the role of markets was bound up with the issue of the relationship between socialism and freedom which came to be seen as a crucial one for the Labour Party. It is worth considering that debate separately. The New Right’s critique of revisionism included an attack on the idea that freedom and equality were always compatible, and, in particular, on the idea of positive freedom, on the basis that it confused ‘freedom’ and ‘ability’. Through the 1980s the Labour leadership became increasingly concerned that the Conservatives had made the value of ‘freedom’ their own. Kinnock’s socialism, Jones argues, was driven by a belief in the importance of ‘economic as well as political freedom’.105 In his 1985 Fabian lecture he asserted that ‘individual freedom was “the objective, past, present and future of democratic socialism”’.106 The titles of Gould’s Socialism and Freedom (1985) and Hattersley’s Choose Freedom (1987) are indicative of the fact that both saw freedom as a central socialist value which had been hijacked by the Conservatives. They developed arguments which indicated that they had ‘the same view of the basic ideology which should sustain a socialist government’.107 Both used Berlin’s distinction between ‘positive’ and ‘negative freedom’ to argue that liberty was a socialist value. In seeking to argue that market socialism was a socialist project the Fabian market socialists had also stressed that positive freedom was a socialist value. Plant, when stressing the centrality of equality to the social democratic project, had argued for it on the basis that equality helped maximise individual freedom and encourage an increased sense of fraternity.108 The 1986 ‘Freedom and Fairness’ campaign was a conscious attempt to reclaim ‘freedom’ from the Conservatives. Kinnock insisted on the title because he wanted to stress the importance of the concept. The campaign, however, was widely seen to have failed in its objectives. Following the 1987 election the NEC document to Conference – ‘Moving Ahead’ – identified three campaign themes, one of which was that ‘the very essence of democratic socialism is the use of collective provision, of the collective strength of the community, in order to enhance individual freedom’.109 Reclaiming freedom was seen as vital since it was acknowledged that ‘Mrs Thatcher had succeeded to a considerable extent in changing the terms and meaning of the debate so that the emphasis is

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more on freedom and less on equality than it was in the 1960s and 1970s’.110 The 1988 document ‘Aims and Values’ was Labour’s main attempt in the period to reappraise fundamentally the Party’s principles.111 The document, drafted by Hattersley and Kinnock, was essentially a restatement of some of the themes of Hattersley’s ‘Choose Freedom’. The document’s main emphasis was on the importance which democratic socialists attached to freedom. In an extremely short introduction to the document Kinnock used the words ‘free’ or ‘freedom’ nine times. The document proper opened by asserting that ‘the true purpose of democratic socialism and, therefore, the true aim of the Labour Party, is the creation of a genuinely free society’.112 Again, freedom is to be understood as having meaning only if there is the economic ‘power to choose’ alongside the ‘right to choose’. Although in the final version the ‘emphasis on individualism was toned down’113 ‘Aims and Values’ is important for the stress which it lays on positive freedom. This view of democratic socialism is open to criticism. The reasoning of ‘Aims and Values’ had the effect of sidelining the values of fraternity or community which were collapsed into the ‘one godhead of freedom’.114 Tomlinson has argued that ‘liberty may be in conflict with other socialist objectives, and no good ground exists for asserting liberty as a prior aim’.115 Further, it may have appeared to Labour strategists that the Conservatives derived continued electoral benefit from their association with the value freedom. However, by acknowledging freedom as the pre-eminent political value, Labour may have confirmed this advantage. It can be argued that in pursuing the argument about socialism and freedom the Party promoted, rather than challenged, an individualist conception of politics.116 The market in ‘Aims and Values’ The central theme of ‘Aims and Values’ was freedom. However, the most controversial part of ‘Aims and Values’ was the section on the role of markets and the argument that ‘in our pursuit of extended freedom, enhanced liberty and increased choice, there are many areas of the economy where market allocation and competition … is essential to serving the consumer … and promoting efficiency’.117 The document’s discussion of the role of the market was to prove controversial. After the initial NEC debate the section on markets had to be modified to accommodate the criticism that it was rather too enthusiastic. This criticism came not just from the Campaign Group but also members of the soft left, including Cook, Gould and Prescott, and even some of the

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‘stalwart right-wingers’118 in the Shadow Cabinet such as Cunningham and John Smith. It was agreed that enthusiasm for the market should be ‘tempered with a countervailing scepticism about the market’s efficacy in providing long-term investment, equitable distribution and social balance’.119 The resounding last sentence in the section on markets in ‘Aims and Values’ which claimed that ‘democratic socialists believe in market allocation – but market allocation guided by agreement that the competitive system should pursue the objective of greater freedom, greater equality and greater choice’120 indicates the conceptually confused compromise which resulted. The final text of ‘Aims and Values’ focused less on the overarching issues of whether the market is efficient or equitable than on the pragmatic identification of areas of market failure and the need for state provision of public goods. Defending the document Hattersley argued that it told the ‘unheroic truth’ about the market that ‘there are some jobs which markets do very well, and some which they do very badly’.121 However, Foote argued that ‘Aims and Values’ had ‘created widespread unease’ within the Party since ‘the Labour Party has always been extremely cautious to say the least in its approach to the market’.122 The result of the debate left nobody particularly happy. Hattersley thought that the discussion showed the reluctance of even the best Shadow Cabinet members to take ideas seriously.123 Kinnock’s office were concerned that there had been a public row, in which the leadership was perceived to have been defeated, and which left the impression that Labour was not a robustly pro-market party.124 The keenest criticism of ‘Aims and Values’ came from the soft left who argued that the document’s ‘treatment of markets and the state is weak. While the long held fantasy that markets would disappear under socialism is wrong, Labour has to develop a much more radical critique. Markets encourage concentration and monopoly’.125 In particular, the view that markets had no place in public provision but were ‘generally satisfactory’ for most other goods was one which ‘lets the disastrous role of markets off the hook with respect to training, investment and the environment, as the official review group documents makes clear’.126 The market in the policy review This confusion resulted as ‘Aims and Values’ was published only after the PRG on the Productive and Competitive Economy (PCE) was well into its work and had already come to some clear views about markets. This group’s first report in 1988 had included a section on Labour’s

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approach to the market which echoed some of the points made by the soft left in their analysis of ‘Aims and Values’. Here it was argued that while markets might be efficient ‘it is in the nature of markets to undervalue the long-term investment necessary [for] high quality education and training or … research and development programmes’. In these areas ‘the market fails’.127 In particular, the report was critical of the way in which the UK capital market insisted on quick returns. This perspective is included in the group’s final report in 1989. The free market was seen as ‘possessing great strengths which must be utilised’ but alone is ‘incapable of building unaided a strong and modern economy’.128 In particular it was argued that ‘the market will not reverse the short-term bias to favour productive strength in the long-term’.129 While ‘Aims and Values’ highlighted the need for public – nonmarket – provision in particular areas such as education and health it was relatively sanguine about market provision of most goods and services. The policy review, by contrast, was rather more cautious about the role of markets. In particular, it claimed that there were systemic flaws in market provision, particularly in respect of the shorttermist attitudes that the market generated toward, for example, training. This attitude to markets had consequences for the policies which emerged from the PRG. For example, there was an emphasis on the importance of competition policy. However, in the area of the public utilities, responsiveness to consumers was to be achieved by regulation – in particular by creating Public Interest Companies – rather than the introduction of increased competition. The policy review was also significantly more positive about economic democracy and employee share ownership plans (ESOPs) than previous Labour policy documents. When the final PRG report was published commentators noted that ‘on the use of market mechanisms, the report comes within an inch of celebrating their use’.130 Shaw has argued that ‘Meet the Challenge, Make the Change’ contained ‘such fulsome approval for the market [which] was unique in a major Labour policy statement’ and abandoned Labour’s historic position that the ‘market was inherently flawed’.131 However, the policy review was still critical of the role of markets in the long-term and was less enthusiastic about market provision than ‘Aims and Values’. The SPG’s ‘Market Socialism’ was published in 1989 and a number of reviews suggested that the group’s ideas had had some influence over the PRG.132 Subsequent analyses of the policy review have taken

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different views as to the role of market socialist ideas.133 Evidence on this point is mixed. There was no clear institutional link between the SPG and the PRG and advocates of market socialism were not invited to give evidence to the PRG as many other academics were. Responding to articles linking market socialism and the policy review, Neuburger, Gould’s economic advisor, argued that ‘Labour has no debt to “market socialism”’.134 However, Gould, the key influence within the Productive and Competitive Economy PRG, had been the one politician most closely involved with the SPG and his ‘A Future for Socialism’, also published in 1989, provides evidence of a continuing interest in market socialism.135 The policy review and the developmental state If the policy review gave the Labour Party a clearer view of the role of the market, did it give the Party a renewed vision of the state? Kinnock and his advisors continued to use the language of the ‘enabling’ state. However, the Productive and Competitive Economy PRG began to use the term the ‘developmental state’ to describe the role that they thought the state should play in Labour’s economic policy. The reports of the PRG on the Productive and Competitive Economy argued strongly that Britain needed to develop a state which would have ‘a developmental as well as a regulatory role’.136 In the PRG’s proposals this would be achieved by the creation of a new DTI which would ‘have an equal, if not superior, status to that of the Treasury. The new DTI will be strengthened to become a power-house dedicated to raising the quantity and quality of investment in British industry, just as MITI has done so successfully in Japan’.137 The policy was amplified by Cowling who argued that ‘something akin to MITI will have to be constructed in any country seeking a successful, pro-active developmental role for the government’.138 The ‘new DTI’ would be an interventionist department pursuing an active industrial strategy. The idea of a ‘developmental state’ was derived from Marquand’s ‘The Unprincipled Society’ which had impressed Gould when he read it during the policy review process.139 The source for the idea was not flaunted as Marquand had defected to the SDP in the early 1980s. Marquand argued that the British state is ‘regulatory’, in that it intervenes ‘to protect the public from monopoly, or to prevent fraud or adulteration or other abuses of market power’.140 It had not, however, become a developmental state which would intervene ‘explicitly to promote the competitiveness of the nation seen as one actor in a

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cut-throat world economy’.141 Marquand argued that turning Britain into a ‘developmental state’ would involve the establishment of a strong department of industry at the centre of government charged with Britain’s manufacturing renewal.142 The differences between the ‘developmental’ and the ‘enabling’ state as developed in Labour’s policy review essentially concerned the Party’s approach to industrial policy. Gould and the academics in the Industrial Strategy Group, who advised Gould during the Policy Review, used the idea of the ‘developmental state’ as part of their argument for an interventionist industrial strategy based on a ‘new DTI’. After Gould was moved from the DTI, to be replaced by Gordon Brown, the language shifts back to that of the enabling state and the priority given to the DTI diminishes. However, Ellison has argued that the policy review, for all its talk of the enabling state and the developmental state, did not see the need for the state itself to be reformed.143 There was an early suggestion that the work of the main PRGs would be supplemented from 1989 by a group which would consider the implications of Labour’s programme for the machinery of government.144 In the event this did not occur. Marquand has argued that the policy review was the younger brother of Gaitskell revisionism in that it wished to use ‘the machinery of the British state to make British society more productive and more just’ without questioning whether it was able to do so.145 Public ownership The most controversial aspect of the policy review was not, however, its emphasis on the developmental state but the downgrading of public ownership as an objective of the party. Even before the review started it was clear that the issue would be controversial. Soon after the 1987 election, Gould was widely criticised when he sought to promote wider share ownership and ESOPs.146 At the 1988 Party Conference a MSF motion was passed, with the support of the large trade unions such as the TGWU and the GMB, which emphasised the need for public ownership. The official policy review document, approved at that conference, argued that ‘the major utilities … cannot be run solely on the basis of private profit’ whilst leaving open the question of whether public ownership or regulation was proposed.147 In the PRG’s second report the argument shifts slightly so it is argued that the public utilities were vitally important to the national economy and should be owned by the public. However, ‘to return them to the community’ would be expensive since there could be no question of

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re-nationalisation without ‘full compensation’ for investors.148 The only specific pledge therefore concerned British Telecom where the government stake in BT would be increased from 49 per cent to 51 per cent. However, since not all the privatised utilities could be returned to the community at once, the policy in the short term was to designate all the utilities as ‘public interest companies’ and establish a new Regulatory Commission for each of these industries. These Commissions would have greater powers than the existing regulatory organisations and would be required to act in the consumer interest. The argument was made in such a way that regulation appears an interim, second best, solution to taking the utilities back into public ownership. The effect of the policy in practice was, however, likely to be the same. On this basis the policy review was the ‘most explicit rejection of the policy of expanding public ownership which the Party has ever made’.149 Further, it was clear that ownership is no longer considered an issue of great importance in terms of managing the economy or reversing British industrial decline. Labour’s 1992 manifesto proposed only the renationalisation of the water industry.150 A market-friendly message (1989–92) Between the end of the policy review and the 1992 election Labour sought to continue to build its reputation as a Party at ease with the market. Smith was keen to convey a ‘market friendly message’151 and the policy documents which followed the review tended to perceive market defects as ‘imperfections, not deep and endemic flaws’.152 By 1992 the aim of Labour’s economic policy was ‘to use the market economy, with state assistance and intervention where necessary, to provide economic growth, increasing wealth for all and a just society’.153 The role of government was ‘not to replace the market but to ensure that the market works properly’.154 However, there is none of the policy review’s emphasis on the systemic weaknesses of the market in terms of its short-termism. Labour’s position in 1992 ‘amounted to an acknowledgement of the merits of the market economy to a degree unprecedented in the historical development of Labour Policy’.155 It was not, however, an acceptance of market liberalism and the Party firmly rejected ‘the narrow conception of economic freedom and the idea of an unregulated market economy’.156 However, whereas, in the past Labour had, while accepting a role for markets, explicitly supported nationalisation and planning, it did not do so in 1992.

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Economic reform as institutional reform By 1992, Eatwell has argued Labour had shifted to a position which saw economic reform as essentially institutional reform. This fits with his argument, made in 1984, that ‘economic success rests on forging suitable institutions to facilitate the structural transformation of the economy’.157 In this respect Eatwell notes the influence of Shonfield on his, and by implication Labour’s, thinking. In his 1965 classic Modern Capitalism Shonfield argued that British state ‘provides a model of what was probably the most admired piece of political machinery of the age just past, at once most sensitive and most stable, and now stands out as particularly ill-adapted to cope with the problems of the present age’.158 Eatwell uses Shonfield’s models of the Anglo-American and European models to argue that Labour has shifted toward the European and a stress on institutions which reinforce long-termism and sustain accumulation.159 It is possible to identify three sets of arguments about constitutional reform and citizenship which were developing on the left at this time. First, as Thatcher entered her third term, there was increased pressure from a number of groups, including Charter 88, for constitutional reform. The actions of the Thatcher governments had increased demands for protection of civil liberties and some cases, such as the action of the police during the miners’ strike, had become causes célèbres within the Labour Party itself. Partly as a response to this, by 1992 Labour had embraced a number of the reform proposals including those for devolution, regional government and reform of the House of Lords. In areas of uncertainty, such as proportional representation the balance was shifting towards those in favour of reform. Further, Labour’s pro-European stance by 1992 was pushing the party towards reform to create a modern European state.160 Tindale has argued that, by the 1990s, the ‘reverence for traditional Westminster institutions, pace Tony Benn and Peter Shore, is no longer widespread within the labour movement’.161 However, as Shadow Home Secretary from 1987 to 1992, Hattersley opposed a Bill of Rights on the basis that it would ‘simply strengthen the power of judges and further limit a Labour government’162 and Kinnock was hostile to much of the ‘Charter 88’ agenda. Labour’s change in position on constitutional reform was piecemeal. Second, a far more significant change would have been for Labour to adopt to the concept of ‘democratic citizenship’ to tie together the policies of the policy review with Labour’s aims and values. Such a course was advocated by Raymond Plant in his 1988 Fabian pamphlet ‘Citizenship, Rights and Socialism’. Citizenship, he argued was preferable

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to a class-based approach and would be realistic in that it would ‘recognise the individualism of the age’.163 It would also enable a Labour government to take a robust line with the interest groups, including trade unions, that had blown previous Labour governments off course.164 One of Kinnock’s key advisers, Patricia Hewitt, did push the argument that Labour should use ‘the concept of citizenship as a unifying theme’165 for the presentation of the policy review. However, while Plant was using ‘citizenship’ in his work to make an argument about social and economic rights, Kinnock and Hattersley opposed using ‘citizenship’ because of its associations with constitutional reform which they considered a ‘chattering class’ issue. Third, there was Marquand’s argument about the need for a ‘developmental state’. Marquand argued that a developmental state, or any form of corporatist arrangement, could not operate under the current Westminster model of ‘club government’. The constraints imposed by the current government system would prevent the implementation of a radical industrial policy. However, Gould, the leading advocate of the ‘developmental state’ in terms of industrial policy, ‘proceeded to defend the Labour Party’s organisational link with the trade unions, Clause Four, the existing electoral system, and argued against a Bill of Rights’.166 Whereas Marquand’s focus was the political obstacles to a developmental state, Gould’s focus, and that of the ISG, was on the economic arguments for a British MITI.

Intervention in the Labour market: the national minimum wage There is an overall story to tell about Labour’s gradually changing position on the role of markets and the state after 1983 around the gradual embrace of ‘the market’ and a move away from intervention. Before moving on to consider New Labour’s view of the market and the state it is worth pausing to consider a significant policy change which does not fit this overall trend; Labour’s position on a national minimum wage, described by Hattersley as the ‘antithesis of a free market in labour’.168 In 1979 the position of the TUC and most trade unions, with the exception of NUPE, was to oppose minimum wage legislation. There were three main reasons for this. First, as a 1970 TUC report on the issue had noted ‘an important argument against a statutory minimum is that the trade union movement would in effect be inviting the state to intervene on a much bigger scale in the wage fixing process’.169

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Opposition to a minimum wage was linked to the belief that it would be the thin end of the wedge for a statutory incomes policy. Second, the experience of Wage Councils had not been wholly positive and some took the view that they had actually served to hold down wages. Third, a minimum wage would ‘undermine the incentive for low paid workers to join a union to bargain for higher pay’.170 This position did begin to shift with two developments in 1982. An influential intervention was made by David Basnett, General Secretary of the GMWU, which argued for a widened scope for collective bargaining and a recognition of a role for the state. Free collective bargaining was not completely ‘free’ and it had to be recognised that ‘in too many of these areas free collective bargaining has failed adequately to protect the most vulnerable of workers’.171 In addition, the failure of a health service dispute, involving cooperation between several unions, raised the profile of the low pay issue and highlighted the limitations of free collective bargaining. However, at the time of the 1983 election the TUC and the Labour Party were not in favour of a national minimum wage, and the ‘the labour movement was stranded without a clear policy on low pay’.172 It was clear almost immediately after the 1983 election that policy was moving in the direction of a statutory minimum wage. Early in 1984 John Smith stated that ‘an important debate has started within the trade movement and the Labour Party about moving towards the adoption, I hope, of minimum wage provision’.173 Labour finally adopted a prominimum wage policy in 1985 and the TUC in 1986. However, the continuing opposition of the largest union, the TGWU, continued to concern the Labour leadership. Between 1983 and 1987 the debate on a national minimum wage was linked to that on incomes policy. Hattersley, a keen supporter of a minimum wage, argued that ‘to introduce a statutory minimum wage without obtaining an understanding with the trade unions about money and wages in general, would give the lower paid more pound notes in their pay packets, but not increase their purchasing power by a single penny’.174 In July 1986, before the final TUC decision, the TUC/Labour Party Liaison Committee produced the key exposition of the new prominimum wage policy; ‘Low Pay: Policies and Priorities’. Sensitive to the lack of a trade union consensus on the issue, the document argued that ‘an effective fair wages strategy must be based on the twin pillars of collective bargaining and legislative support’.175 The first half of the document concentrated on trade union action and bargaining. However, the second part stated that ‘it is now recognised by the trade

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union and labour movement that an effective national minimum floor needs to be established’.176 Before 1987 Labour’s debate on the minimum wage was one conducted primarily within the confines of the Party and the trade union movement and, as a result, the argument focused on the maintenance of free collective bargaining, the effect on differentials and the incentives for low paid workers to join trade unions. Once agreement on the policy had been reached within the party and the TUC the focus changed to justifying a national minimum wage externally and finding a set of arguments to rebut Conservative attacks on the policy. The PRG on ‘Economic Equality’ set out the three main arguments for a minimum wage. First, low pay was the second major cause of poverty, after unemployment, amongst people of working age. The minimum wage would provide a ‘pathway out of poverty’. Second, that low pay was inefficient creating a situation where the state, in topping-up wages through state benefits, gives a competitive edge to the lowest paying employers. A national minimum wage would encourage employers to compete by investing in skills and training rather than simply by cutting wages. The third argument, used after the policy review, was that ‘every other EC country has a legally enforceable minimum wage’177 and, in particular, the ‘European Social Charter includes a fair wage for every employee’.178 The policy review also added more detail to the minimum wage policy including setting a figure of £2.80 per hour, equivalent to 50 per cent of male median earnings, in 1989. The rate at which the NMW would be introduced is uprated with inflation to reach £3.40 in 1991. From 1991, Labour’s policy was to consult, through the National Economic Assessment, on the introduction of a minimum wage.179 Labour’s policy on a minimum wage was open to criticism by the Conservatives on a number of grounds including its effect on poverty and inequality, efficiency, inflation and employment. First, at issue is the efficacy of a minimum wage in combating poverty. On the basis that a minimum wage increases unemployment Rottenberg has argued that minimum wages ‘have perverse effects – they intensify poverty and diminish the living standards of the poor’.180 A more general argument was that a minimum wage would have a ‘limited impact on the poverty problem in the U.K.’.181 This was an view endorsed by the SDP and led to the ‘popular line of argument … that low pay and its solutions are essentially a matter for social policy, not for wages policy’.182 The SDP took the position, which could be described as classically revisionist, that the best way of dealing with low pay and poverty would be through tax and transfers rather than a minimum wage. A more balanced view would

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be that ‘low paid employment is a significant cause of low family income, but not the only one’.183 The Labour Party argued that, after unemployment, low pay was the major cause of poverty among people of working age and that the minimum wage would provide a key ‘pathway out of poverty’184 especially for women and ethnic minorities. In particular, it pointed to the three-quarters of a million families on means-tested benefits which topped-up poverty wages. It was also argued that a minimum wage would decrease efficiency by introducing coercion, ignoring differences in skills and blunting incentives for the acquisition of new skills, and encouraging inefficient input combinations. In contrast, it was a key part of Labour’s argument that a minimum wage would increase both social justice and economic efficiency. The argument was that low pay promotes inefficiency by encouraging employers to compete by cutting wages and not improving quality and investing in skills. A minimum wage was, therefore, part of Labour’s ‘strategy to create a high skill, high value economy, offering better quality jobs’.185 The effect of a minimum wage on the level of inflation was important in debates within the labour and trade union movement particularly as it was seen to relate directly to questions of differentials and incomes policy. There were few empirical estimates on the effect of a minimum wage on inflation. Neuburger estimated an inflation effect of 0.9 per cent by the third year of a minimum wage of 53 per cent of average earnings.186 Bisset and Weir estimate an effect of 3–5 per cent of the total wage bill if a minimum was introduced at two-thirds of average earnings.187 However, this estimate is based on the vital assumption that there is no ‘knock-on’ effect after a minimum wage is introduced. A key dispute was around the effect of a minimum wage on employment. Those opposed to a minimum wage made much of the fact that unemployment would increase as the lowest paid workers were ‘priced out of their jobs’ implying that those whom the minimum wage was designed to benefit were most likely to be adversely affected by unemployment. Most advocates of the minimum wage argue that there is ‘no simple association between the existence of a minimum wage and unemployment’.188 The empirical evidence on this question is mixed. In the run-up to the 1992 election the Conservatives claimed that the minimum wage would cost two million jobs. Estimates based on the Treasury model, showed anything from negligible employment effects to 900 000 job losses for a minimum wage of half average male earnings. Even some supporters of a national minimum wage accepted that introducing a minimum wage at half or two-thirds of average earnings

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would have employment effects.189 A possible response to the issue of the employment effects of a minimum wage could be phasing in or compensating employers in some way so as to mitigate the effect of the legislation. It was suggested, for example, that it ‘might be necessary to let hard-pressed employers off National Insurance contributions’.190 Later Labour policy documents include a commitment to ‘consult widely with employers and trade unions about whether transitional arrangements are needed in particular sectors’.191 At the 1992 election, Labour appeared uncomfortable defending the minimum wage, the £3.40 level at which it would be introduced, and the position that there would be no effect on employment. Blair, as Labour’s Employment Spokesperson, had to hold the line on the issue and was discomfited on ‘Election Call’ when a day-care nursery owner claimed she would have to close her business if the minimum wage was introduced. Prescott at one point strayed from official policy to admit ‘there may be some shake-out in some of the jobs in certain areas’.192 The aftermath of the 1992 election bought criticism of the minimum wage policy along the same lines as that of tax and social security policy – that figures had been set out as part of the policy review in 1988/9 which appeared unrealistic in the environment of the 1992 recession. After the 1992 election, Corry, a member of the Party’s Economic Secretariat, wrote a review paper in which he argued that ‘of all out micro policies the one that caused the most problems was undoubtedly the minimum wage’.193 There were two reasons for this. First, the policy was unclear at a number of points such as uprating the minimum wage and which workers it would cover. These were essentially decisions that should have been taken before the election. Second, Corry argued, ‘our over strong defence of its impact on inflation and jobs was pretty unbelievable to many and I think undermined our reputation for economic competance’.194 In particular, the argument that there would be no job losses, even in the short-term, was not credible. At the 1997 election, as in 1987, no figure was set for the introduction of a minimum wage. However, there was no attempt by the Labour leadership to abandon the policy, and it was one of the first measures to be introduced by the Blair government. Why then did Labour move to adopt a pro-minimum wage policy in the mid-1980s and continue with the policy through to 1997? It is often assumed that the policy of a national minimum wage was imposed upon the Labour Party by trade union pressure. However, it was trade union reservations which prevented the Labour Party adopting a minimum wage earlier. The failure of the 1982 health dispute and the 1984/5

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miners’ strike did, however, eventually shift the trade unions away from a reliance on their industrial power, through collective bargaining and industrial action, to achieve their objectives. The minimum wage was a function of trade union weakness rather than strength. ‘Low Pay: Policies and Priorities’ identified the growth in unorganised, temporary and casual labour as the main reason for the change in policy on a national minimum wage. In part, the reasons for the growth in ‘insecure’ employment can be found in Conservative employment legislation. Another important factor was undoubtedly Conservative attacks on the rights of low paid workers. The government withdrew from the International Labour Organisation (ILO) convention which required some minimum wage protection and the 1986 Wages Act removed Wage Council protection from those aged under 21. The view of these actions from the left, simply put, was that ‘this government is committed, in principle, to more low pay’.195 Many of the early reforms sharpened criticism of Wages Councils by reducing their effectiveness. It was argued at the time that the ‘change in the climate of opinion has been stimulated by the worsening low pay problem, encouraged by government policy’.196 Finally, it could be argued that policy of a national minimum wage became attractive to Labour because that it required no significant public expenditure and did not rely on taxes and transfers. A Policy Studies Institute paper identified the reduction of cost to the Treasury (compared to, for example, an increase in child benefit), making people less dependent on the state, and the reduction in the problem of high marginal tax rates, as three of the four main advantages of a national minimum wage. For these reasons the national minimum wage has been described as a part of a politics of ‘new welfare’.197 Much of the literature on the Labour Party in the 1980s tells a story of a retreat from left-wing policies and a move to the right. The adoption of a minimum wage would not appear to be amenable to description in this way. If a move to the right generally is taken to mean a greater acceptance of markets and away from state intervention then a minimum wage clearly does not fit. It could be argued that the minimum wage should be seen as part of the ‘new welfare’ policies and was, therefore, was a policy acceptable to the right of the party because it was cost-free. It is not possible, however, to see the adoption of a minimum wage policy simply as a left–right issue. Nor is it easy to argue that the policy on a minimum wage was adopted for electoral gain. Advocates of a minimum wage did indeed argue that the ‘most obvious, and politically popular, form of

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direct intervention available to the Labour government would be to introduce a statutory national minimum wage’.198 However, Labour’s internal polling showed up worries about the employment effects of the minimum wage, particularly by women in part-time employment, that led to some caution in the presentation of the policy.199 It did, however, lead to substantial policy change. Finally, it is worth noting that Labour’s plan to introduce a national minimum wage was based on sparse evidence about the effect of the policy. Writing after the 1992 election, Corry noted that the defence of the policy on the basis that it would have no effect on employment or inflation was ‘over-strong’. However, the Party had little idea of what the effect of the policy would be. Similarly, the Commission for Social Justice’s endorsement of the policy was based on limited evidence about the appropriate level.200 It was only after the 1992 election that evidence which suggested a more positive relationship between employment and the minimum wage did emerge in the work of Card, Katz and Krueger in the US.201

New Labour and the market (1992–97) After Labour’s defeat in 1992 Radice argued that ‘failure to accept the market economy fully has been a major handicap’.202 Shaw has argued that this was to misunderstand the lessons of 1992 and that further promotion of the market by Labour would be self-defeating since it would ‘legitimise the notion that the market is the most effective form of economic and social organisation’.203 Labour would then have to ask the electorate to judge on the issue of economic competence; an area where the Conservatives, with the overwhelming support of industry and finance, had a clear advantage. Both Radice’s argument and Shaw’s response indicate how Labour had, by the mid-1990s, been unable to move the debate on from being for or against ‘the market’ to one which had a more disaggregated view of markets. At the level of principle Labour had very few reservations about the ‘market’ in 1992. The changes in the policy review and thereafter confirmed this to a degree unprecedented in Labour’s history. Nor was Labour committed to widespread public ownership. The 1992 manifesto did not commit Labour to the re-nationalisation of any of the industries, with the exception of water, that had been privatised by the Conservatives. There was no substantial policy change which could be made and, under John Smith, Labour confirmed this position. It was

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only after Tony Blair’s election as leader that an important symbolic change was made. Re-writing Clause 4 The original Clause 4 (part 4) had been drafted by the Webbs as a compromise formula in 1918. The key part of the original clause read to secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange and the best possible obtainable system of administration of each industry or service. While hardly unequivocal, the clause had been read as committing Labour to large-scale public ownership and confirming Labour’s antipathy to a market economy. Tony Blair announced his intention to change Clause 4 at the Labour Party Conference in 1994. It was a decision with a number of dimensions recalling, most obviously, Gaitskell’s failed attempt to recast the Clause in the late 1950s. The text of the new Clause – drafted by Blair and Prescott – committed Labour to a dynamic economy … in which the enterprise of the market and the rigour of competition are joined with the forces of partnership and co-operation to produce the wealth the nation needs. Blair mounted a significant campaign to encourage ordinary Labour party members to vote for the new Clause 4 and, in April 1995, it won a very substantial majority. Only three constituency parties who had balloted their members voted against. The revision of Clause 4 was undoubtedly a significant event in the history of the Labour Party. It confirmed Tony Blair’s position as leader and signified clearly the direction in which he wished to lead the Labour Party. It can also be seen as ‘the culmination of a revisionist project within the party – concerned both with demoting public ownership and endorsing the market economy – that was initiated in the 1950s’.204 However, it is arguable that the change endorsed existing practice rather than extending or changing a policy position. Mandelson and Liddle in setting out the case for New Labour have sought to contrast the commitment to the mixed economy of past

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Labour governments – and by implication Labour’s position preBlair – with New Labour commitment to ‘rigour of the dynamic market’.205 Certainly it is possible to argue that New Labour have been much more enthusiastic in talking up the advantages of market provision. However, across most of the left, there was an acceptance that, as Hutton puts it in The State We’re In, ‘one form of capitalism or another, is now the only game in town’.206

The State We’re In New Labour’s attitude to the state changes substantially in two main respects; it embraces a view of the world economy which substantially accepts the notion of globalisation, and it goes much further in embracing the case for constitutional reform. In 1992 Labour had begun to accept, implicitly at least, that the internationalisation of the economy had limited the sovereignty and autonomy of nation states. In a number of areas of economic policy, for example the viability of controls on exchange, the Labour Party accepted that the power of global financial markets imposed severe constraints on the actions of national governments.207 A number of commentators, including Will Hutton, argued that Labour’s pessimism in 1992 about the ability of national government to manage the economy was unjustified.208 However, New Labour went much further in explicitly acknowledging the limits which globalisation placed upon national governments. Labour’s manifesto for the 1997 election emphasised that New Labour ‘accepts the global economy as a reality and reject the isolation and “go-it-alone” policies of the extremes of right and left’.209 The view that globalisation is a demonstrable fact, and that intervention is severely restricted by the changes that have taken place in the global economy has been convincingly challenged.210 However, it would appear that New Labour accepted what it saw as the dictates of global competition. It is on policies which appear to go with the grain of this competitive environment, such as restrictions on mergers, and policies to improve education and skills that Labour has made most progress. However, as Froud et al. comment ‘new Labour’s commitment to specific policies which accommodate globalisation [will] make stakeholder conflict worse’.211 The impact of globalisation on Labour’s view of the state can be seen clearly in looking at the reaction to Will Hutton’s book, The State We’re In. Hutton’s book is worthy of attention both because of its popularity, unusual for a work of political economy, and because his position as

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the Guardian’s economic correspondent provided a prominent weekly platform for his ideas. Hutton’s work was criticised for its advocacy of Rhenish social market capitalism as a model, or at least an exemplar, for the UK. While Hutton has responded to take into account some of the argument that differences in cultural attitudes make a process of institution borrowing fruitless, his argument has remained, in essence, that ‘moving towards a stakeholder economy means borrowing from the Rhenish model, and adapting it to British circumstances’.212 Mandelson and Liddle’s The Blair Revolution is perhaps the most prominent criticism of Hutton’s work from a New Labour perspective. While acknowledging that the German economy has performed better than that of the UK since 1945, they argued that this was not a sufficient basis on which to advocate reforms to make the UK economy more like that of Germany. In particular, Mandelson and Liddle argued that under the pressure of globalisation Germany was moving to be more like the UK. The German social market, conceived as a set of departures from the free market model, did not appear to be as attractive as it once was and is, in any case, no longer allowable in a global economy. If the world economy is changing in this way it would, indeed, be convenient for the UK. The evidence to support the assertion is, however, at best mixed. Labour’s 1992 manifesto was much more in tune with Hutton’s proposals for institutional change, and a model of Rhenish capitalism, than New Labour’s in 1997. For example, the 1992 manifesto included provision for a National Investment Bank, to lend long-term to industry, and for regional banks, also on a German model. Eatwell, in an overview of Labour’s policy changes between 1979 and 1992, describes how the Labour Party under Kinnock sought to move to a European model of social democracy and away from Anglo-American capitalism.213 Even if, as I argued previously, Labour’s position in 1992 did not reflect this strategy fully, it is still evident that New Labour has moved away from this approach to one which is less focused on creating these economic institutions which are central to Hutton’s model. Finally, Labour’s attitude to globalisation conditioned its view of the European Union. In 1992, cooperation within the EU was seen as a way of defending the UK from the pressures of the international economy, and measures like the Social Chapter as a way of ensuring reasonable rights for British workers within that economy. It has been argued that ‘the German system, with backing from France and other member countries, is now being extended to the rest of Europe’214 through the Social Chapter. New Labour does not see the issue in quite those terms. However, by 1997, the role of the European Union was not to protect us

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from globalisation; rather Britain’s role was to force a conservative Europe to face up to the challenges which globalisation establishes. Labour, though still committed to signing the Social Chapter, had moved to a more sceptical position promising to ‘use our participation to promote employability and flexibility, not high social costs’.215 This is not to argue, however, that New Labour’s 1997 manifesto did not include significant proposals for constitutional reform; devolution to Wales and Scotland, a referendum on proportional representation, reform of the House of Lords, and the creation of regional development agencies. This amounted to a radical programme of constitutional reform. However, these reforms were not directly linked to Labour’s economic proposals. It was only after the election, when the Bank of England was granted operational independence, that Labour began to tackle the issue of the ‘economic constitution’.216

Labour’s mixed economy Labour’s view of the mixed economy changed radically between 1979 and 1997. This can be seen simply as a move away from ‘planning’ after 1983 and towards the ‘market’. Shaw, for example, has argued that, after 1987 particularly, Labour calculated that ‘to free itself from its image as the party of centralised planning and heavy-handed state interference, and for its economic philosophy to have any credibility, a public profession of its belief in the market was vital’.217 This does, indeed, tell some of the story. However, it hides substantial debates within the Labour Party and outside about the role of markets in particular contexts – the idea that Labour developed a wholesale enthusiasm for markets cannot explain developments like Labour’s adoption of the national minimum wage – and does not to justice to Labour’s debate on the appropriate role for the state in a modern economy. It is possible to understand Labour’s debate in a number of ways. It is possible to see some of Labour’s policy changes as pragmatic responses to changes in the wider economic context. For example, Labour’s move away from nationalisation and public ownership – ‘the touchstone of socialist positions in Britain’218 since World War I – can be seen in this way. The typical pattern was to oppose the initial privatisation, but after the sale was complete to accept that the cost of buying the shares back, at the only politically acceptable price of ‘full compensation’, was economically prohibitive and politically unrealistic. Eatwell has

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acknowledged that Labour’s change in policy in this area was essentially driven by the Conservative’s extensive privatisation programme.219 However, it is probably more helpful to think about the overall shape of Labour’s view of the mixed economy in terms of the Party’s understanding of the role of markets and the state. As I have argued in this chapter, Labour’s position in 1983, which allowed for markets in practice, but provided no theoretical justification as to why a mixed economy was desirable, was unsustainable. In addition, ‘the powerful case (argued by market socialists as well as centrists and right-wingers) that the market had great strengths as well as admitted flaws … shook the confidence of many socialists in traditional tenets of belief and hence facilitated the leadership modernisation drive’.220 The gap between Labour’s attitude to markets in theory and in practice was finally closed with the revision of Clause 4. A more critical account of the same debate would argue that market socialism simply ‘reflects the ideological hegemony of the new right’.221 Seen in such a context, Labour’s shift to a pro-market party is evidence that the Labour Party ‘was not so much on the ideological defensive as on the intellectual run’.222 The key driver of Labour’s policy debate, in this view, was the development by the Conservatives of a clear view in favour of, as Gamble has described it, a ‘free economy and a strong state’.223 Labour’s had to change to adjust to these ‘prevailing economic conceptions’.224 However, the view that Labour’s debate was driven by such a neo-liberal view of the market makes it difficult to understand the nuances in Labour’s view of the mixed economy described in this chapter. Labour’s rethinking of the role of the state and the market in the mixed economy was not, of course, without difficulties. Kinnock has subsequently argued that he ‘would have liked to have moved much more quickly on the redefinition of our attitude to nationalisation and the mixed economy’.225 In 1985, Jones and Keating argued compellingly that the shallowness of Labour’s debate on the role of the state meant that ‘the party … failed to appreciate both the strength and weaknesses of the state as an instrument of economic intervention’.226 This argument continues to have some resonance in a context where key figures on both the left and right of the Party, have accepted that there are significant limitations on the sovereignty of the state from the globalisation of the economy without closely examining these claims. Further, it can be argued that the structure of Labour’s debate, determined in part by a desire not to be portrayed as an anti-market

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party by the Conservatives, led it to essentialise the market. Market socialism was similarly trapped in the same debate – based on the notion that ‘adjustment would come through the market’.227 For a long period, Labour was unable to develop a more disaggregated view of markets as a basis from which to justify intervention in fields other than the public services such as health and education leaving it vulnerable to the criticism, from both left and right, that ‘if marketisation is the right direction of change, it must be pursued consistently’.228 As a result, Labour found it difficult to move the issue on to why British ‘markets’ were markedly less successful than, for example, German ‘markets’ in the delivery of economic prosperity, and address the issue of the relative decline of the British economy. This issue is considered in the next chapter.

4 Reversing British Industrial Decline

When Labour left office in 1979, there was growing concern over British economic failure and the deindustrialisation of Britain. A major criticism from the left was around the Labour government’s unwillingness to implement the alternative industrial strategy put forward by Benn and Heffer before their removal from the Department of Industry. This chapter looks at the evolution of the Labour Party’s strategy for industrial intervention between 1979 and 1997, its analysis of the causes of Britain’s industrial and economic decline and its proposals for supply side reforms. There are a number of constants in Labour’s approach. Labour’s economic strategy throughout much of the 1979–97 period emphasised the importance of the supply-side and of industrial strategy which ‘promise[d] the kind of “conscious”, state-based control or at least influence on capital which fits more readily into the left’s general ideological posture’.1 The Party’s concern with decline particularly in manufacturing, and analysis of its causes, was also remarkably consistent. By contrast the way that the Labour Party has viewed Britain’s industrial structure shifted considerably between a concern with the malign and overwhelming influence of multinational companies and a concentration on the potential of small- and medium-sized enterprises. In the context of this analysis, and Labour’s changing views of markets and the role of the state, there have been a number of significant changes in Labour’s strategy for industrial intervention. Broadly, Labour’s policy changed from one based on planning and intervention at the level of the firm to one predicated on a partnership with the private sector where the role of government is seen as being to improve the context for business.

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The alternative industrial strategy, 1979–83 Explaining British economic decline As an issue ‘decline … has great attractions for whatever party is in opposition in the UK’.2 In the 1979–83 period, Labour Party policy documents inevitably concentrated on the record of the Conservative government and Labour’s specific policy proposals. However, there were attempts to place the crisis in industry in the ‘context of the long term decline of manufacturing in Britain’3 and acknowledge that ‘it would be quite wrong to imagine that our economic problems date from May 1979’.4 What, then, were the causes which Labour identified for British industrial decline? Stafford argues that the ‘AES can be seen to include measures consistent with claims about the causes of the decline of the UK economy derived from both Keynesian and Marxist thought’.5 The post-Keynesian analysis of British decline focused on the importance of the foreign trade multiplier and argued that – because of the dominant position of multinationals and their ability to maintain price levels and the power of trade unions to resist cuts in real wages – ‘the level of output and employment in a trading economy with a given propensity to import depends upon the demand for its exports’.6 This implies a shift in focus to the planned level of imports and exports from the more traditional focus on the planned level of savings and investment. Post-Keynesian theory goes on to try and explain why countries are on different growth paths. Within an endogenously determined world level of trade if one country has rising net exports at least one other country must have falling net exports. In the constrained economies ‘slackening demand will depress investment and retard the growth of productivity, which will undermine competitiveness, which will further reduce demand, and so on’.7 This ‘cumulative causation’ explains why countries have widely varying growth paths. For the UK demand has been constrained by the lack of competitiveness of UK manufactures on world markets. This has depressed investment and technical progress, making UK manufactures even less competitive, with detrimental consequences for employment, output and exports. Stafford argues that the postKeynesian thesis is an inadequate explanation for British economic decline pointing to the difficulty in answering the question of ‘what was the origin of the cumulative decline of the UK economy?’.8 Stafford also identifies two distinct Marxist explanations that underpinned versions of the AES. The first, associated particularly with Eric Hobsbawm, has at its core the ‘orientation of powerful sections of the

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capitalist class’9 towards investment overseas. Growth has been retarded in two ways. First, the export of capital and the dislocation between industrial and financial capital has led to a lack of investment finance. Second, the UK economy has been damaged by the deflationary and other policies designed to defend sterling and the overseas interests of UK capital. The second Marxist explanation, centres on the importance of the capital–labour struggle. The argument is based on the peculiarity of the British trade unions, built on the basis of skill differences rather than by industry, whose strong organisation at plant level has ‘thwarted many of capital’s attempts to increase productivity’.10 In this case UK manufacturers turned overseas only because of these difficulties in producing domestically. If we look at Labour Party policy it is possible to follow Stafford in arguing that its policy prescriptions could equally well be based on post-Keynesian or Marxist analyses. A number of the prominent advocates of the post-Keynesian explanation, including Kaldor, Cripps, Eatwell and Godley, were members of the industrial and economic subgroups of the National Executive Committee during this period. Further, Party policy documents make use of a notion of cumulative causation arguing that, ‘Britain has become trapped in a selfreinforcing spiral of decline in which low investment in capital and people makes industry uncompetitive and unprofitable, which in turn confirms the failures of investment, and drives industry overseas’.11 Similarly, the argument that the overseas orientation of the capitalist class was damaging played a part in the Party’s thinking, as part of an overall emphasis on the importance of increasing the level of investment. However, Stafford’s analysis may lead us to over-estimate the theoretical sophistication of Labour’s AES. A more straightforward explanation might suggest that Labour accepted explanations of decline that assigned blame to the behaviour of capital, and responsibility for reversing decline to the state, rejecting explanations which implied restrictions on labour or implied the necessity of cultural change. One can summarise Labour’s alternative industrial strategy as one within which capital is responsible for the decline of British industry. This charge had a number of roots including a concern over the quality of British management, the overseas orientation of British capital, and the over-concentration of British industry in multinational companies. The post-Keynesian thesis is acceptable to the Labour Party since it implies restrictions on capital, particularly foreign capital, rather than on labour. This can be seen in Party discussions about import controls

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that win support within the Party, and the TUC, for straightforward instrumental reasons.12 The Labour Party was clearly less comfortable with explanations which seemed to indicate that trade unions were responsible for blocking industrial modernisation and that restrictions on the power of labour should be considered. This led the party to reject Marxist explanations that pointed to the significance of the declining rate of profit. Holland argued that the rate of profit was not falling but that multinational companies are becoming adept at hiding their true rate of profit through the use of transfer payments. The need, therefore, was for a policy to erode monopolists’ profits. Holland’s view was more congenial to the Labour right since it implied that increased competition was a way of removing these profits. The Labour Party chose to follow Holland into this ‘reformist space’13 and so the issue of the power of labour was avoided. Other explanations of industrial decline which stressed the importance of cultural factors did not figure significantly in Labour’s discourse.14 There was, however, a firm view that the responsibility for industrial policy lay with the state and that industrial decline had been worsened, or even caused, by the lack of an industrial policy. The AES saw the state as the principle mechanism through which industrial decline could be halted and reversed. The mesoeconomy Some explanations of British industrial decline have relied explicitly on an analysis of the UK’s industrial structure. For example, the postKeynesian analysis relied in part on a view of the importance and baleful influence of multinational companies. However, whether or not this is so, an industrial policy must be informed by an understanding of industrial structure for it to be effective. There were two aspects of Labour’s view of British industry in this period which are worth noting. First, Holland’s analysis of the importance of the mesoeconomy provided the basis for Labour’s view of Britain’s industrial structure. The growing concentration of industry and the increased tendency to multinational status of large firms meant that ‘decision-making in the UK economy has become concentrated in fewer and fewer hands’.15 Tomlinson has, however, challenged the statistics upon which Holland based his analysis of the growing concentration of industry. Further, British decline began before multinationals became important, and MNCs also operate in countries which are not experiencing economic decline.16

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Second, Labour’s analysis of Britain’s economic decline started from a position that ascribed considerable importance to manufacturing.17 The term deindustrialisation, which entered the arena of political debate in the late 1970s, was used in Labour Party literature to focus on the decline of UK manufacturing as the prime cause of British economic under-performance. In the alternative industrial strategy concern was focused on the ‘deep-rooted structural weaknesses of industry which [had] resulted in a long-term process of “deindustrialisation”’ .18 If the Labour Party gave a special importance to manufacturing, then, it is worth trying to tease out the reasons for this. In part, it was certainly based on a sensible realisation of the importance of manufacturing exports and imports to the balance of payments which was emphasised in post-Keynesian explanations of decline. However credible these economic reasons, there was also a political aspect connected to the fact that much of Labour’s electoral support came from regions which historically were closely associated with manufacturing industry.19 Labour’s alternative industrial strategy After the 1979 election defeat, industrial policy was not considered a priority area for policy development.20 Memories of Benn’s removal from the Department for Industry in 1975 and the failure of the government to implement the alternative industrial strategy included in the 1974 manifestos were still fresh.21 The most significant policy statement on industrial policy – ‘Economic Planning and Industrial Democracy’ – was developed by a highpowered sub-committee of the TUC–Labour Party Liaison Committee rather than within the Party’s own structures. This was an attempt to combat the ‘widespread scepticism and lack of support, for the planning agreements/industrial powers approach, within the trade union leaderships’.22 The sub-committee’s deliberations began two days after the Wembley Conference and had its work over-shadowed by the Deputy Leadership contest. As a result policy staff at the Labour Party and the TUC had a more significant input than would usually have been the case. While Labour was concerned to reverse British industrial decline as a long-term objective its short-term priority was to create jobs and tackle unemployment. ‘Labour’s Programme 1982’ was explicit that ‘all its measures were to be judged primarily by their contribution to bringing down unemployment’.23 The objective of industrial modernisation,

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though mentioned in some of the policy documents, is clearly a secondary issue since ‘competitiveness is not an end in itself, but a means of securing employment and income, and meeting real needs’.24 However, the concentration on manufacturing industry and the absolute priority given to employment creation do not fit comfortably together. While a thriving manufacturing sector might be vital to the achievement of some economic objectives this is not true for employment creation.25 It is possible to draw together a number of factors to describe how Labour’s industrial strategy was built up. Labour’s rhetorical hostility towards the market and faith in the efficacy of the state intervention combined in an insistence on the importance of its industrial policy as the means for regenerating British industry. Holland’s analysis provided a rationale not just for increased public ownership but also for direct action on the supply-side including an increase in planning. Raising investment was of key importance but mesoeconomic firms were unlikely to be persuaded by incentives. Rather, there was a need to coerce British industry to increase investment. The three key components of Labour’s industrial strategy were, then, competitive public enterprise – discussed in Chapter 3 – planning and in particular planning agreements, and the National Investment Bank. Planning was central to Labour’s supply-side strategy with ‘the planning system’s principal task … to arrest and reverse the process of de-industrialisation’.26 The Liaison Committee looked at the French and Japanese experience of planning and proposed a new national framework built around a Department of Economic and Industrial Planning, which would have status equal to that of the Treasury. A new National Planning Council would provide the means for a ‘major extension of trade union influence into the planning system’.27 Within this national planning framework there was a focus on the use of planning agreements. Holland argued that the growth of the mesoeconomy meant that min–max planning, the maximum effect through effective intervention on a minimal number of large units, was now much more practical.28 The failure of planning agreements in the 1974–79 period was ascribed to the fact that they were voluntary and unenforceable and, consequently, the left was extremely sensitive to any softening of the Party’s commitment to the policy.29 However, in the 1983 manifesto it is not clear how the Agreed Development Plans (as they had then become known) were to be agreed, what role government will play if agreement were not reached, and if they were to be compulsory. The focus on planning agreements is consistent with an analysis that argues that firms are too powerful to respond to

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government incentives. However, the logic of this position was undermined if the agreements were not to be compulsory. It was not consistent to argue, as Labour did, that ‘provision of public aid will be made conditional on companies’ participation in the agreed development plans’30 and that ADPs were necessary because large firms are capable of ignoring government incentives. The planning strategy was predicated on the ability of a Labour government to intervene selectively. It was acknowledged that ‘some attempt … should be made to “pick winners”’, one reason being that ‘our experience in turning round “losers” is disappointing’.31 Planning agreements were, by definition, to be selective and individually negotiated. It was conceded, however, that ‘it is less easy to decide what constitutes a winner or loser and yet more difficult to identify them (especially the winners)’.32 The Research Department raised this issue on a number of occasions, and a study using trade union expertise to examine industrial performance was proposed, though never completed.33 Policy documents tended to include vague statements along the lines that ‘resources must be channelled into those sectors and industries which are given priority, while measures are taken to sustain vital industries and ease the decline of those which have a limited future’.34 Advocates of the AES saw planning, and particularly planning agreements, as the pull to new investment with public enterprise providing the push. A further proposal to raise investment levels was the creation of a National Investment Bank (NIB). The NIB was based on the model of the Italian IRI and was seen as a way to channel investment funds from two sources – North Sea oil revenues and pension and life assurance funds – to industry.35 The National Investment Bank would allow firms to by-pass the institutions of the City, and high street banks reluctant to fund long-term investment, to obtain investment funds. Finally, it is worth noting that Labour’s analysis of industrial structure meant that its industrial strategy focused on large firms, particularly in the use of planning agreements. It was also proposed to establish a Foreign Investment Unit which would monitor the activities of multinational companies and ensure that ‘all UK-based multinationals will have to operate within clearly laid-down guidelines’.36 The stress on the power of mesoeconomic firms led to the Party having no proposals in the area of competition policy. There was no emphasis on small firms, with the exception of cooperatives, and the Thatcher government’s emphasis on the importance of small firms was described by Labour as ‘“Poujadist”

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economics’.37 There was, Labour argued, ‘no basis for the Tories’ claim that the future of industry lies with encouragement to small firms’ and it was wrong to see ‘small firms as the major source of new jobs’.38 Between 1979 and 1983 there was not a significant emphasis on the issues of training and skills. As can be seen from the analysis of decline the tendency is to concentrate on the problems and limitations of capital through, for example, lack of investment rather than on labour and the issues of skills, education and training. Further, as Minkin highlights, this area was one in which the TUC, as an institution, had its own distinct policy agenda.39 The TUC was extremely supportive of the MSC, a tripartite body in which they had a significant stake, which had responsibility for a number of training schemes including the Youth Opportunities Programme and Youth Training Scheme. In 1983, Labour’s industrial strategy was firmly based on the AES, on economic planning, wider public ownership and a fundamental shift towards the interests of labour. The key question was how the proposals for planning agreements and nationalisation would (a) induce investment; and (b) reverse decline. The strategy was based on the assumption that the role of the state would be wholly positive in both these respects. There was no consideration of state failure, as against an overwhelming emphasis on market failure. The AES was based on two assumptions, the growth of industrial concentration and multinational companies, and the futility of adopting an approach based on incentives to shift their behaviour, both of which were contentious. These assumptions were abandoned after 1983, when the electoral failure of the strategy also indicated the need for a re-assessment.

The Party of production, 1983–87 As the Labour Party returned to an ideological position closer to that of previous Labour governments the party became less inclined to discuss in detail the long-term decline of the British economy.40 The only detailed argument on long-term industrial decline put forward in the 1983–87 period linked the pre-occupations of manufacturing and investment. It pointed out that Britain’s surplus on manufactured trade had declined since the mid-1950s and was now a growing deficit. This was an indication of a lack of competitiveness though it was argued that ‘this dismal trend was altered, and even reversed, under Labour’.41 The reason for this was that ‘manufacturing investment has consistently fallen under Conservative governments, and consistently risen under Labour’.42 This point was made in ‘New Industrial Strength’, the

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industrial policy document published in 1987 for which much of the analysis was written by John Eatwell. The stress on the importance of manufacturing investment was an argument put strongly in Eatwell’s 1982 book, and BBC TV series, Whatever Happened to Britain? The role of the state in reversing industrial decline was seen as being of continuing importance. During the 1983–87 period senior figures within the Labour Party continued to argue that ‘industrial policy will not just be one part of Labour’s economic strategy. It will be the very core’.43 However, the Party shifted its approach from state-led renewal to one based on partnership with both business and trade unions. Labour’s aim was to build a ‘constructive partnership between public initiative and private enterprise’.44 The importance of manufacturing By 1987, though concern was still expressed at the ‘domination of many sectors of our manufacturing industry by a small number of multinational companies’,45 policy proposals were more modest. Further, the context in which these policies were advocated was a very different one; in ‘New Industrial Strength for Britain’ the proposals were included in the section on ‘Inward Investment’ where Labour committed itself to ‘aim to attract new companies’.46 This is an indication of a very different view of the impact of multinational companies on the British economy to that of the AES. Austin Mitchell, for example, argued that MNCs had ‘cushioned’ rather than caused economic decline, and ‘had brought investment, jobs, better management and innovative ideas to the British economy’.47 In this view the aim was to revitalise the British economy so as to encourage inward investment by MNCS rather than impose restrictions upon them. John Smith admitted privately that the risk of dis-investment was a key factor in Labour’s reluctance to impose restrictions on multinational companies.48 In the 1983–87 period there were some moves to look more sympathetically at the small and medium-sized firms sector. For example, it was suggested that the National Investment Bank would ‘give priority to small and medium-sized enterprises’.49 However, it is possible to read this as a positive way of stressing that the NIB would not be used to prop up large companies, such as British Leyland, for employment reasons. Guiver has argued that ‘small firms policy did not alter between 1983– 87’50 and that it remained focused almost exclusively on cooperatives and municipal enterprise. More innovative thinking about the role of small firms was going on within the local economic strategies of Labour local authorities.

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The stress on the importance of manufacturing becomes if anything stronger in Labour Party literature as the issue became more politically contentious. The move to a deficit on trade in manufactured goods in 1983 is used by the Labour Party to indict the government on the charge of economic incompetence. Comments by the then Chancellor Nigel Lawson that he was ‘at a loss to understand the selective importance attached by the opposition and some Tories to the manufacturing sector’ were quoted in Labour Party policy documents as evidence of wilful neglect.51 Labour’s position was boosted by the much quoted 1985 report of the House of Lords Select Committee on Overseas Trade which expressed deep disquiet at the state of UK manufacturing. However, while manufacturing was seen as being of key importance particularly because of its role in protecting the balance of payments position, this was seen in a wider context that included a more balanced view of the role of services.52 Kinnock, in particular, emphasised the importance of manufacturing to Britain’s economic prosperity. The argument that ‘without a strong manufacturing base, we cannot pay our way in the world, enjoy any real economic independence, or secure social stability’53 was central to Kinnock’s 1986 book Making our Way. Most chapters of Making Our Way were in fact drafted by Eatwell, before being extensively revised by Kinnock, and what emerged was a shared analysis predicated on the view that ‘manufacturing is the key to the modernisation of the economy’.54 This stress on manufacturing also fitted with the Party’s self-image, as the ‘party of production’.55 In internal discussions of the Labour Party’s economic policy it was noted that one of its strengths, in terms of public opinion, was its ‘productive concern’.56

The well-springs of growth Labour’s industrial policy does not change quickly after the 1983 election though an immediate decision was made that ‘jobs and industry’ would be a campaign priority.57 However, joint TUC–Labour Party documents produced in 1984 and 1985 reflect the framework of the earlier period’s ‘Economic Planning and Industrial Democracy’. In 1985, a report from a group chaired by John Prescott, ‘Planning for Full Employment’, described a national strategy with an approach and institutions directly recognisable from the AES.58 The way that policy was made, however, does change with policy development in the hands of a Jobs and Industry JPC. The ‘Jobs and Industry’ campaign is run by a sub-committee of the Campaign Strategy

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Committee. However, there was a considerable overlap between the work of these two groups that led to concern that papers from the ‘Jobs and Industry Campaign’ were embracing policy issues.59 John Smith, who replaced Peter Shore as Shadow Trade and Industry Spokesman in 1984, chaired the campaign committee and it is clear that it was Smith’s approach which eventually came to dominate. In 1986 a sub-committee of the Jobs and Industry JPC, chaired by John Prescott, was tasked to examine the issues of economic planning and industrial democracy. However, the ‘rough draft was promptly killed off by a wide range of forces within Party headquarters and the Shadow Cabinet’60 and, the document which finally went to conference, ‘Party of Production’, was written by Geoff Bish under John Smith’s guidance. Smith asked the Industrial Strategy Group, a group of academics with whom he had begun to work, to comment on this and other policy documents from 1986. The final document on industrial strategy which appeared before the 1987 general election, ‘New Industrial Strength for Britain’, was written in the most part by Eatwell with Smith clearly in political control.61 Smith’s approach to industrial policy differed from that of the AES in a number of respects. First, while the main concern of economic policy overall remained the reduction of unemployment the relation of industrial strategy, and in particular manufacturing industry, to this objective was conceived differently. Manufacturing was not seen as the source of many extra jobs.62 Regenerating manufacturing industry was still seen as being a central pre-condition for Britain’s economic recovery, particularly because of the trade constraints on reflation, but not as central to job creation. Second, Labour moved away from the idea that planning should be used to achieve industrial policy objectives. Planning agreements with individual companies were abandoned and replaced by a vague reference to regular consultations with large companies and multinationals to ensure that their objectives were in line with the government’s strategy. By 1987 the National Planning Council and Department of Planning were dropped and ‘the national planning structure of 1982 was either loosened or abandoned’.63 Labour’s policy focused instead on strengthening existing institutions such as the DTI and the NEDC. Third, this move away from planning was complemented by a new emphasis on the importance of competition and competition policy. Policy documents pointed to the acceleration in mergers and argued that ‘these mergers and takeovers often contribute little to the nation’s

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economy, and they may lead to an undesirable concentration of ownership and market domination, asset stripping and avoidable job losses’.64 Mergers also added to the short-termism of the British economy by forcing managers to ‘focus on short-term profits, either to prepare the next bid or the next defence. Real investment plans are cut back, R&D reduced, and long-term planning neglected’.65 The tightening of policy involved including a public interest clause in the Monopolies and Mergers Commission’s criteria and changing the burden of proof so firms were required to demonstrate the benefits of merger to themselves and to their employees. This chimed with trade union concerns that mergers were causing job losses. Fourth, the most important change effected by Smith was his emphasis on the idea that ‘there are three engines of recovery for the British economy. The first is investment, the second is education and training and the third is research and development’.66 The aim was to avoid ‘the old Department of Industry approach which attempted to “pick winners” ’ .67 Rather than intervention at the level of the firm through planning agreements, the role of government was to provide the wellsprings of investment, research and development, and education and training. Investment The AES had also emphasised the importance of investment in Britain’s economic decline and a number of the same arguments are repeated. For example, it was argued that ‘in Britain key investment decisions are taken by just a handful of industrial companies and financial institutions. Because of their overseas interests, they often fail to put Britain’s needs first’.68 In particular, the City and financial institutions were focused on overseas activities and ‘failed to provide industry in Britain with the long-term finance it needs on the right terms and conditions’.69 However, Labour also developed other arguments, including that firms failed to invest because of the risk of takeover if short-term profits fell below expectations, to account for under-investment. Overall Smith identified two aspects of the investment issue; ‘the first problem is … how to raise the volume and quality of investment that producers are willing to undertake. The second is how to ensure that sufficient financial, human and other resources of the right amount and quality are available for the programme of investment and innovative activity required’.70 Smith argued that the principle means of dealing with the first problem was to raise the level of effective demand, thus raising capacity utilisation and profit margins, through a

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reflationary programme. Thus firms would be encouraged to invest because of the macroeconomic framework rather than through any direct intervention at the level of the firm. The second problem could only be met by ‘far-reaching socialist changes … in the supply-side’, principally the creation of a National Investment Bank.71 The key Party document on investment was ‘Investing in Britain’. The path to the production of the document was not smooth. Dissatisfaction with the Office draft meant that the latter parts of the paper were re-drafted by Hattersley with assistance from Williams and Currie. The document focused overwhelmingly on the National Investment Bank despite objections from Geoff Bish that this was only part of the Party’s investment strategy.72 The NIB was to be different to other banks in that; first, often loans would be at an interest rate subsidised by government; second, it would lend long-term; and, third, it would have industrial expertise provided by staff seconded by industry. The issue of industrial expertise was thought to be particularly important and this meant that there was still likely to be a need for the bank even if it charged market interest rates. It was sometimes suggested that the NIB would be based on the ‘nationalisation of an existing institution’.73 Funding would come from ‘the phased repatriation of overseas assets, with institutional tax privileges being made conditional on meeting specified asset portfolio, or net investment flow guidelines’.74 The criteria for the NIB lending to a company would be a ‘business plan which is agreed between government, management and workforce’.75 This requirement for a business plan was dropped by the time of the 1987 election. Research and development The focus on investment was extended after 1983 to a renewed emphasis on the importance of research and development, a key element of Labour’s industrial policy in the 1960s. Under-performance in research and development was related to the reluctance of British industry to think long term and the emphasis on the importance of the quality of investment. The stress on research and development involved a more sophisticated view of what factors were necessary for British firms to compete internationally including a recognition that the ‘conventional attitude in Britain has been to concentrate on price competition to the neglect of non-price competition’.76 There was a need to stress non-price competition in order to compete with the Newly Industrialising Countries (NICs) and their lower wage costs. After 1983, Labour’s industrial strategy became far less equivocal in its view of new technology arguing that ‘we will need up-to-date, efficient

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technologies so that Britain can produce the goods and services of the future’.77 The promise was for ‘a national strategy for innovation that brings public support for research and development into line with our key competitors’.78 The major policy proposal in this respect was the creation of British Enterprise as a state-holding company with a role to encourage research and development particularly in new technology areas. British Enterprise was to have three major tasks: to assist in product development (the expensive part of R&D), to accelerate technology transfer, and to secure a British presence in research intensive sectors. This role for British Enterprise was different to that assigned to its predecessor the National Enterprise Board in two ways. First, it was not envisaged that British Enterprise would head up a large programme of nationalisation. Its aims were more modest in this respect, though stakes in private companies would be taken. Second, it was more focused, in that the stress was on new technology areas rather than manufacturing industries in general.79 Education and training After Smith moved to the Department of Industry, the Labour Party also began to stress the importance of education and training as a way of increasing the skills of the workforce and creating economic prosperity. The 1986 policy document ‘Investing in People’ made clear that this approach would be central to economic strategy. The key pledge made was for a ‘high quality Foundation Programme that will guarantee for all 16 year olds at least two years of education, training and work experience’.80 This policy was seen as being likely to be politically popular though the ‘Investing in People’ campaign fell flat.81 The making of policy in this area was not, however, unproblematic. The TUC wished to defend the role of the tripartite MSC while both left and right of the party, for different reasons, were critical of the institution. The TUC–Labour Party Liaison Committee had a number of difficulties in producing the 1984 document ‘A Plan for Training’. It was not until 1986 that the issue was re-opened by the JPC on Education and Training. However, ‘discussions became deadlocked over reconciling education and training’82 and the JPC stopped meeting for a time. Eventually, ‘Investing in People’ was produced, followed in 1987 by ‘New Skills for Britain’. ‘New Skills for Britain’ included proposals for a National Training Fund, partly funded by a training levy on employers. The basis for this was the view that ‘experience has shown that employers left to themselves will not invest enough in training’.83 The policy

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provided for a right for workers to establish joint training committees with their employers. Policy documents throughout this period continued to refer to the ‘key role [of the] MSC’.84 The TUC’s defence of the MSC illustrates its commitment to tripartite institutions that formed a key part of its role as an institution. Similarly, when, in 1986, Labour came up with proposals to change the format of the NEDC to include local and regional authorities the TUC resisted these changes. The TUC was particularly concerned that it had not been consulted about the changes at an early stage and the relationship between John Eatwell, who had drafted the proposals, and TUC officials was damaged. A compromise was finally agreed at a meeting between the Labour leadership and the Neddy Six.

The Industrial Strategy Group The Industrial Strategy Group was set up in 1986 as a group of about 12 academics interested in industrial policy and sympathetic to the Labour Party.85 From the beginning, the aim of the group was to establish a dialogue with the Labour front bench on industrial policy. Through David Metcalfe, who had worked as an adviser to the 1974–79 Labour government, Keith Cowling contacted John Smith, then Labour’s Trade and Industry Spokesman, and offered the group’s services. Smith agreed to chair the group and a number of other ministers on the industry team – including Gordon Brown, Lord Gregson and Geoffrey Robinson – attended regular meetings in the period before the 1987 election. Discussions were generally based around papers written by the academics in the group, though there was a conscious effort to focus these papers on policy concerns. Smith also invited the group to comment on drafts of Labour policy documents. From the beginning, then, the ISG was an academic group which aimed to influence Labour Party policy. It had no role outside of this dialogue with the Labour front bench. This link was a strength in terms of the group’s access to key Labour policy-makers. However, its reliance on the patronage of whomever was appointed to the role of Shadow Spokesperson at the DTI was ultimately to prove a weakness. After the 1987 election, Smith became Shadow Chancellor and Bryan Gould replaced him shadowing the DTI. Although Smith invited Cowling and Sugden to join an advisory group at the Treasury they decided to continue to work within the ISG framework. Smith recommended the ISG to Gould and the group moved over to work with Gould during the period that he was at the DTI. Most members of the

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group considered that the period 1987–89 was the group’s most productive. Gould was comfortable dealing with academics and his advisers – Henry Neuburger and Nigel Stanley – actively participated in the group’s meetings. The ISG was particularly influential due to its role in the policy review. Cowling was co-opted as an advisor to the Policy Review Group on the Productive and Competitive Economy and was able to ensure that members of the group were able to input into the review process. The group claimed that ‘the Policy Review came to rely heavily on the work of the Industrial Strategy Group’.86 This was ‘hardly surprising’ as even before the review ‘already the Group had explored many of the themes the Policy Review would have to tackle and work was underway on others’.87 The good relationship which the ISG developed with Gould gave them access to the policy review. However, it also meant that the ISG’s public statements were seen as indicating a Labour Party view. To coincide with the 1989 Labour Party conference the ISG published ‘Beyond the Review’, much of which was based on papers originally written for the PRG. The papers were generally supportive of the review though in some areas they argued for policies that were somewhat more radical. Gould wrote an introduction to the collection and it included contributions from both Neuburger and Stanley. The press picked up on a paper by Malcolm Sawyer and Henry Neuburger on macroeconomic policy – which was not one of the group’s central concerns – which argued that ‘there is the danger of hyperinflation … but when inflation is relatively low (say below 10 per cent per annum), these dangers do not exist, and the control of inflation should receive relatively low priority’.88 This caused some consternation amongst the Labour leadership and Smith was forced into issuing a statement disassociating Labour from this view. When the group planned to publish the collection as a book in 1990 there was significant pressure from the Labour Party leadership to avoid anything that might embarrass the Party.89 This illustrates the difficulty that could arise when a group of academics was identified with an aspect of the Party’s policy. Soon after the 1989 Conference, Gould was moved to the Department of the Environment. This eventually was to signal the end of the ISG’s influence. There were some meetings with Gordon Brown but there was not the same process of engagement that had existed with Smith and Gould and the ISG was quickly was relegated to meetings with junior ministers such as Doug Henderson. In part this may have

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been due to the controversy over ‘Beyond the Review’, although it is also true that Brown’s working style was different and relied more on a small group of directly employed advisers.90 Brown also shifted the Party away from Gould’s, and the ISG’s, view of industrial policy. An illustration of the shift in view can be seen in an attempt by Geoff Bish to try and force the front bench to re-consider a more radical industrial policy. In March 1990, Bish organised a special meeting at Walworth Road on industrial policy. Billed as a meeting of the PRG it included only a small number of key players; John Evans, Brown, Beckett, Hewitt, representing Kinnock’s office, Bish and Cowling. The only thing on the agenda was a paper on industrial policy, written by Cowling and reflecting the view of the ISG, that argued that the Party was proposing a non-controversial commitment to modern infrastructure, but had not yet adopted more controversial policies for strategic intervention and a developmental state.91 At the meeting Brown argued that the policy that he was developing at the DTI took into account the main thrust of Cowling’s approach. It was, however, clear to Cowling, and other members of the ISG, that the approach developed by Brown after 1989 was significantly less interventionist than that proposed in the policy review.

Supply-side socialism, 1987–89 After the 1987 election policy-making in the sphere of industrial policy can be split into two distinct phases. Immediately after the 1987 election defeat industrial policy was made the responsibility of the PRG on the Productive and Competitive Economy. Its final report included an industrial policy that was promoted as ‘supply-side socialism’.92 After 1989, under Gordon Brown, policy shifted to a greater focus on the use of incentives and tax breaks. Shaw characterises the debate in this period as between ‘interventionists’, including Gould and the ISG, and ‘functional interventionists’, including Brown and Eatwell.93 British short-termism Written during the high point of the Lawson boom the policy review documents do not explicitly focus on British industrial decline. However, a number of ‘past mistakes’ are identified including ‘the emphasis on immediate consumption; the failure to invest; the absence of any industrial strategy; the failure to integrate macro- and micro-economic policy; and the exclusion of so many from involvement in the rewards

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of wealth-creation’.94 It is argued that these long-term failures have been temporarily hidden but that ‘while North Sea oil has come and gone Britain’s basic problems remain’.95 In short, the key problem of the British economy was short-termism. This connects with the policy review’s argument that the market is fine in the short run, but incapable of securing a successful economy in the medium to long term. To secure long-term economic prosperity there is a need for a developmental state similar to that of Japan. It is for this reason that supply-side policy is seen as being of continuing importance in the policy review. The policy review’s analysis was also extremely critical of the role of the City in Britain’s industrial decline. The PRG report argued that ‘the dominance of financial interests, inherited from the past’ was largely responsible for short termism in industry, through the terms on which they provided investment finance, and was a bias which ‘must be reversed’.96 It was in the context of wrenching power away from the nexus of the Treasury, the City and the Bank of England that the policy review promoted the idea of a powerful department of industry, based on the model of MITI in Japan. A post-Fordist future? The ISG’s strategic approach to industrial policy argued that there was a need to recognise that ‘the growth in dominance of the transnational corporation poses a significant threat for any national market economy’.97 The power of transnational corporations to shift production and investment meant that ‘any nation can be deindustrialised by the actions of transnational corporations’.98 However, this argument figures rather more prominently in the work of the ISG than it did in the published policy review documents. More importantly, there was a serious re-evaluation of the importance of small firms after 1987. The first Policy Review document, ‘A Productive and Competitive Economy’, began with a short analysis of changes in the economy. It is worth quoting the document at length on this point the British economy we want to help build will be one transformed by a technological revolution creating new industries and using electronic and information technology to make fundamental changes in old industries. The variety of ‘just in time’ production methods will have replaced, in many cases, the uniformity of repetitive mass production. New patterns of work and new demands for skill will need to be met by a workforce of men and women, highly trained for new

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tasks. Such a successful economy will rely increasingly on companies and processes that are smaller in scale and more flexible in adapting quickly to new conditions. That economy will be an efficient instrument of wealth creation drawing upon the resources and talents, and meeting the needs and interests, of everyone in society.99 Clearly, this is fundamentally different to the AES’s vision of the future in terms of the growth of multinational companies and the concentration of manufacturing industry in fewer and fewer hands. It has rather more in common with the development of theories of flexible specialisation and post-Fordism, both of which recognise that flexibility and change are increasingly important to modern industry and that the role of small- and medium-sized enterprises (SMEs) is vital.100 PostFordism in particular was popularised in Marxism Today and formed the basis for the Communist Party’s policy review published as its ‘Manifesto for New Times’.101 While rejecting the post-Fordism thesis as overblown Gould was convinced that there was a ‘natural process of change’ in the direction which post-Fordism suggested.102 Post-Fordism, particularly in its Marxism Today manifestation, has been characterised as being ‘not a rigorous concept but a loose sociological metaphor’.103 Certainly flexible specialisation is rather more serious in its focus on industrial policy, and less determinist in its view of structural change, than post-Fordism. It focused on the ‘manufacture of a wide and changing array of customised products using flexible, general purpose machinery and skilled, adaptable workers’.104 Flexible specialisation was particularly concerned with the creation and fostering of industrial districts where firms balance competition and co-operation. Hirst and Zeitlin were the most prominent advocates of flexible specialisation in the UK and they were asked to submit some work to the policy review.105 The concept also had some influence on the work of GLEB in London primarily through Zeitlin’s work as an adviser. In the policy review one might imagine that Labour would choose to downplay the importance of manufacturing industry; that it might decide that to stress the need to rebuild manufacturing industry was to risk alienating the voters which it needed to win over, particularly in the south of England. However, an examination of policy documents shows this to be incorrect. Although the Party does not use the term deindustrialisation as it had earlier it continues to stress the need for ‘productive strength’106 to compete in world markets. There was also a continuing emphasis on the importance of the manufacturing sector

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and, in particular, on manufacturing investment. A particular concern was that the CBI was an inadequate representative of the manufacturing interest and that Chambers of Commerce should be built up to play this role. A medium-term industrial strategy Labour’s policy review claimed to have developed a Medium Term Industrial Strategy (MTIS).107 While there were disputes within the Party over industrial strategy all of the key players within the Party leadership ‘rejected the dirigiste system of planning espoused earlier in the decade and accepted the continuation of a market-based economy’.108 Further, while there was a continuing stress on partnership in the policy review, this partnership was increasingly conceived as one between public–private, government and industry, rather than a move toward tripartism.109 In this sense the policy review acknowledged ‘the importance of private firms in initiating recovery’.110 However, the policy review also argued that there was a clear case for a developmental state and an active policy of industrial intervention. This followed on from the core argument that while the market might function well in the short-term it was the responsibility of government to act to ensure long-term growth and prosperity. Success, therefore, ‘follows only if society as a whole, with government playing a major enabling role, creates the conditions and accepts the responsibilities to enable everyone to make their full contribution to the production of goods and services’.111 The responsibility for the MTIS was to be with the Department for Trade and Industry which would be given increased powers. Further, the aim was not to tackle unemployment. Rather, it was stated that ‘the single most important requirement of economic policy is to make Britain internationally competitive’.112 The policy argued that the job of the DTI and the MTIS would ‘not be to pick winners but to create the conditions in which winners can come through, an environment that nurtures wealth-creation in all its stages. Those winners will include not only new industries which develop from the new technology, but also industries, like textiles or shipbuilding, which can exploit technology to improve their performance in world markets’.113 This apparently clear statement against picking winners, i.e. particular firms, hides a dispute within the policy review group as to the importance of sectors. Gould argued within the group that ‘a central feature of the most successful industrial policies has been the concentration on certain sectors. It seems to matter less what sectors are selected; what matters is that all the efforts of government and industry should be

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concentrated rather than dispersed’.114 Gould’s view was shared by most members of the ISG who saw the role of the DTI as being one which was based on ‘strategic interventions in key sectors’.115 However, this emphasis on the importance of sectors was not shared by all the members of the PRG and Eatwell, in particular, ‘argued that the economy is made up of firms, not sectors’.116 The industrial strategy developed by the policy review extended Labour’s policy as it stood in 1987 in a number of areas. The major objective of the MTIS would be ‘raising the quantity and quality of investment’.117 The main imbalance in Britain’s economic growth was highlighted as being ‘in favour of short-term consumption and against medium and long-term investment’.118 Finance for industry was the key to industrial regeneration since ‘the problem lies in the criteria by which the City judges investment opportunities. If short-termism is the disease, then it is the City which is the source of the infection’.119 The key proposal for redressing this investment shortfall, which involved a significant degree of decentralisation, was ‘to establish a range of regional and, where appropriate, local investment banks for Britain’s nations and regions’.120 The role of the National Investment Bank would be to coordinate these regional banks as well as to provide long-term investment capital on unspecified ‘alternative commercial criteria’121 as an investor in its own right. A significant investment project to emerge from the review was a proposal for ‘cabling up Britain’. The policy went under the name of ‘Communications 2000’ and was essentially a pledge to use government investment to create a modern telecommunications network based on the latest fibre-optic technology. It was promised that ‘Labour will give Britain one of the most modern telecommunications systems in the world’.122 The idea for ‘cabling up Britain’ came not from the ISG but from Gould’s researcher, Nigel Stanley. Stanley, an electronics graduate, saw the proposal as a good example of where government encouragement to invest over a longer timescale that the market could justify would lead to longer-term growth. The proposal was controversial within the PRG where it was supported by Stanley, Gould and Ken Livingstone who saw it as a creative, modern-sounding idea. Other members of the PRG, including Eatwell and Edmonds, were much more sceptical about the viability, and particularly about the public expenditure implications, of such a large infrastructure project. There was particular concern that early drafts of the PRG’s report gave overwhelming prominence to ‘cabling up Britain’ as the group’s ‘big idea’.123 The review also proposed to create British Technology Enterprise – the institutional successor of the National Enterprise Board and British

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Enterprise – to support research and development. The Party promised to work with industry and universities to establish Technology Trusts that would help with technology transfer. The Policy Review took care to emphasise that industrial policy could not concentrate only on new technology industries. Rather the argument made was that new technology, and research and development, could be applied to all industries. The PRG emphasised the need for a strong competition policy and this too reflected the work of the ISG. Analysts saw that ‘it is in the area of mergers and takeovers where Labour is likely to make the most decisive break with the Conservatives. The aim is to make hostile takeovers virtually impossible’.124 Gould argued that ‘the overwhelming weight of academic evidence throughout Europe suggests that takeover activity does not, on balance, benefit either of the parties’.125 The tough anti-merger policy – including reversing the burden of proof so a merger had to be demonstrated to be in the public interest, mandatory pre-notification of bids, and right for information and consultation for workers – remained in place up to the 1992 election. However, the policy review remained cautious on developing policy for the regulation of Transnational corporations (TNCs). The ISG’s overall analysis of the strategic approach to industrial policy paid significant attention to the power of transnationals and, in evidence to the PRG, Sugden argued that the government should bargain with the TNCs.126 However, this was seen by the PRG as too ambitious. Sugden’s contribution to ‘Beyond the Review’ stressed the need for monitoring transnationals. This was an attempt at producing a policy of minimal ambition that was still a step in the right direction. Even this, however, was seen as ‘more bold than the comments of the Policy Review’.127 The Policy Review was much more successful in developing policy on SMEs. The review stressed the role of small firms in developing high-tech products and the need to concentrate on this sector. Small firms were integrated into the ‘supply-side’ approach, whereas previous documents had tended to focus on cooperatives. It is possible to identify four innovative components to this small firms strategy; long-term finance, advice, training, and technology transfer.128 There was also to be an enhanced role for local authorities in that ‘they will be encouraged to create centres of innovation and technology development, involving collaboration between both public and private bodies, and trade unions and higher education institutions in their locality’.129 Labour’s industrial policy as developed in the policy review is perhaps the most interesting of the 1979–97 period. It would appear that it owed a great deal to the analysis of the ISG in terms of its overall

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approach; interventionist in its stress on a positive role for the developmental state, but without the emphasis on planning of the AES. There are a number of areas where the ISG was instrumental in pushing for particular policies. For example, the need for a powerful DTI, the importance of sector strategies, the need for institutions to encourage investment, and a strong competition policy were all issues pushed by the ISG which formed part of the PRG’s thinking. There were, however, a number of areas where the ISG was willing to go further than the PRG, such as in the regulation of TNCs. More subtly there were also elements of flexible specialisation in Labour’s approach. The overall stress on a British MITI was not in accord with the policy implications of flexible specialisation. However, there was enough in the policy review for flexible specialisation theorists to consider it a positive change, though there was still a need for Labour ‘to go beyond its recent commitments to a new economic outlook and see the need for a new overall political outlook to complement it’.130 The stress on small firms in the policy review can be seen as part of an emphasis on flexibility and changes in the production process which, Guiver argues ‘has a certain resonance with those who advocate “flexible specialisation” and ‘post-Fordism’ as a way forward for modern society’.131 Proposals for a decentralised network of regional investment banks were also a step in this direction. The theme of education and training emerges very strongly from the policy review. The goal is said to be the creation of a ‘talent-based economy’, an aim which formed the title of the ‘People at Work’ PRG’s second report. It was argued that ‘compared to our major competitors, Britain’s labour force seriously lacks access to training that is both genuine and relevant, up-to-date and thorough’.132 To deliver quality training an organisation, Skills UK, essentially a re-established MSC, would be set up to take forward training provision on the basis of the ‘shared responsibility of government, trade unions, employers, local education authorities, the unemployed, training and voluntary organisations’.133 On the Productive and Competitive Economy PRG, John Edmonds was particularly keen to push the argument that training should be central to Labour’s economic policy.134 The area of training is one of the last in which it is possible to see a ‘tripartite’ approach to policy. Since the People at Work PRG had a majority of trade union members, one of only two groups to do so, it is perhaps no coincidence that it retained this corporatist slant on policy. However, by the time of the 1992 election, while the increased focus on training remained, the mechanism for the delivery of this training

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had shifted. Labour was committed to the retention of Training and Enterprise Councils (TECs) which reflected an employer-dominated approach to training, although Labour promised that TECs would be ‘reformed and made more broadly representative of their communities’135 it was unclear how thoroughgoing these changes would be. The National Training Fund, with an employer contribution of 0.5 per cent of payroll, was retained by the policy review.

Incentives for recovery, 1989–92 Labour’s analysis of industrial policy continued to be that ‘the objective of any industrial policy for the 1990s must be to modernise our manufacturing base’.136 In a number of documents specifically focused on manufacturing it was argued that ‘if we fail in manufacturing we fail as a nation. And we cannot prosper unless we make things – as the Japanese and Germans do’.137 There are two reasons why the stress on manufacturing is stronger in the period after the policy review. First, between 1989 and 1992, the macroeconomic differences between Labour and the Conservatives diminished. This meant that towards the end of the period the Labour Party was arguing that the party was sound on macroeconomic policy, and particularly on inflation, and that the significant differences on supply-side policy, on training, investment and research and development, were in Labour’s favour. Second, the policy review was completed at a time of relative prosperity in the economic cycle. However, the economy entered its second major recession of the decade soon afterwards. Given the similarity between the parties’ macroeconomic policies this meant that Labour had to stress areas where its policies were distinctive. This led to a renewed emphasis on manufacturing and the supply-side. A key shift after 1989 was a move away from any stress on the importance of sectors and they played no part in Labour’s strategy at the 1992 election. Reviewing this shift Cathy Ashley, the Labour Party researcher responsible for industry policy, noted that ‘the notion of sectors per se came under attack, particularly from those arguing that increasingly industry operated on the basis of flexible specialisation’.138 Certainly, Zeitlin welcomed the fact that ‘John Smith and Gordon Brown have wisely moved away from the MITI-style promotion of high-tech sectors which still attracted Bryan Gould as Shadow Industry Minister’.139 However, Ashley argued that sector specific policies are necessary because people identify with measures aimed at helping their local industries. In setting out an argument for changes in industrial

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policy Ashley relies on Geroski and Knight’s ‘Targeting Competitive Industries’ which argued that ‘non-discretionary support systems such as tax incentives, whilst easy to administer are not targeted at firms who need the support most and instead money often goes to those who don’t need help’.140 Incentives not institutions Under Gordon Brown’s direction between 1989 and 1992 Labour abandoned substantial parts of the industrial strategy developed by Gould and the PRG supported by the ISG. First, the two policy review commitments that required substantial extra public spending – the commitment to take back a majority share in British Telecom and the proposals to ‘cable up Britain’ – did not feature in Labour’s 1992 manifesto. In part this was because Brown considered the public expenditure implications of ‘cabling up Britain’ to be much greater than that estimated by advocates on the scheme. However, it was also because it appeared to be an example of an old-fashioned type of industrial policy reliant on state intervention rather than the encouragement of the private sector. Symbolically, these changes were of key importance. Second, it was clear that there would be no British MITI intervening in targeted sectors, and the language of the ‘developmental state’ is dropped from Labour’s policy documents. An examination of the shifts in Labour’s position on planning and strategic intervention provides a dramatic illustration of Eatwell’s point that Labour had moved away from an industrial policy with government making tactical managerial decisions.141 In fact, it would appear that the shift had been far more thoroughgoing then this might indicate. Government had not only withdrawn from making tactical managerial decisions at the level of the firm, but also strategic decisions about which sectors needed specific support. Third, while it was still promised that ‘Labour’s National Investment Bank, operating on strictly commercial lines, will bring public and private sectors together to invest in long-term regional and national infrastructure projects’142 there were a number of changes in the proposal. Importantly, the policy review proposal for regional banks was lost. It was also proposed that the NIB will operate on ‘strictly commercial lines’ as at the 1987 election. While there is not one set of criteria for lending which is obviously ‘commercial’, financial institutions clearly having different policies, this was different to previous proposals for an NIB which would lend at reduced rates of interest. Further, the focus was

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not now on lending to private firms so as to encourage investment, but on mobilising public–private partnerships to fund infrastructure projects, traditionally a function of government. Fourth, after the policy review had been completed the emphasis shifted towards winning support from the City, financial institutions, and industry for Labour’s economic and industrial policy. Proposals to use Chamber of Commerce to challenge the CBI were dropped and criticism of the City were toned down. The Party’s Economic Secretariat produced briefings boasting that ‘the general message from the new City studies, is that the City is no longer frightened of a Labour government’.143 The most visible part of this initiative was the socalled ‘prawn cocktail offensive’ undertaken by John Smith and Labour’s economic team where a considerable period of time was spent trying to explain Labour’s economic policy to City institutions. The Party ceased to be as ‘critical of the City’ and ‘after 1990, Labour made no distinction between industry and the City in its analysis of the UK economy’.144 This ran directly counter to the policy review analysis and Gould’s own view that ‘the attempt to gain the confidence of the financial establishment is not only futile but is not even desirable’.145 Finally, by 1992 Labour saw education and training as central to its economic policy. Promoting spending on education, an investment in the future, is politically easier than justifying, say, spending on industrial policy. Further, Labour’s acceptance of the internationalisation of the economy led it to see education and training as a way of gaining competitive advantage for Britain, and as a way of avoiding having to compete on price with low-cost producers in the Far East. Labour makes much of the argument that a focus on education and training is both socially just and economically efficient. By 1992, then, Labour’s industrial strategy was based on a partnership with the private sector and the proposed measures for industrial intervention are relatively modest. For example, the proposals in the Manufacturing Manifesto are based for the most part on tax incentives to encourage firms to increase investment.146 This shift is not just based on the primary role given to private industry, but also on a recognition of the importance of small- and medium-sized enterprises. These were sensible measures, likely to attract wide support, in the context of helping industry out of the recession it was experiencing in 1992. However, the key issue was whether the modesty of the measures proposed would be adequate to address the long-term issue of industrial decline. Zeitlin comments that there were ‘few definite public expenditure commitments’147 for Labour’s industrial strategy. Nor was

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there any ‘real sense of urgency’ and it was, therefore, ‘hard to see how most of the proposed initiatives could have a major impact on British economic performance during the life of a single parliament’.148 Politically this was difficult since, as Shaw has argued, ‘although both the scope and magnitude of Labour’s industrial policy were scaled down, the claims made for it were not’.149

New Labour and industrial policy (1992–97) Looking at the period between 1979 and 1992 it is possible to see a number of continuities in Labour’s industrial policy and its view of British economic decline. After 1992, however, there was a significant difference in emphasis and industrial policy ceases to be seen as a preeminent instrument of policy. Rather, the route to renewed prosperity is seen to be through a reliance on education and training. Labour’s final debate in this area centres around the issue of stakeholding. The eclipse of industrial policy Commenting on Labour’s 1992 manifesto’s industrial policy, Williams et al. write that it relied more on ‘bright, shining phrases more than hard, sharp instruments and objectives’.150 The criticism could be more fairly applied to Labour’s 1997 manifesto which included little of what could be described as traditional industrial policy. During the recession which continued after the 1992 election, Labour did re-introduce a number of proposals which it had abandoned before the 1992 election, including a proposals for a national investment bank and regional development banks. However, these were all abandoned before the 1997 election. Hay has argued that ‘this left New Labour with no proposals to address what it still identified as the principal structural weakness of the British economy – its investment shortfall’.151 The proposal to create regional development agencies did, however, still form part of the 1997 election manifesto. A further development was the changed relationship between the Shadow Treasury and Shadow DTI teams. Before 1994, Labour’s policy in opposition had consistently been that, in government, a primary aim of policy would be to boost the role of the DTI at the expense of the Treasury. This supported Labour’s long-term view that there was a need to boost ‘industry’ over ‘finance’. Following Blair’s election as leader, Cook was removed from the DTI and made Shadow Foreign Secretary. From this point on Brown, as Shadow Chancellor, dominated the whole of Labour’s economic policy. Between 1994 and 1997 Labour’s proposals

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for reforming the economic constitution were based on increasing, rather than reducing, the power of the Treasury.

Globalisation and skills As part of his leadership election campaign, John Smith set up the Commission for Social Justice (CSJ) to consider the future of the welfare state. Its recommendations for welfare state reform need not detain us here. However, the CSJ also set out a view of the economy and of how the UK could ensure economic prosperity. The CSJ built on the argument that had been put forward in the policy review; that it was possible to combine social justice and economic efficiency. Indeed, much of the report was based on the ‘virtuous marriage of equality and efficiency’.152 The CSJ claimed to be seeking to create an ‘Investors’ Britain’, as opposed to a ‘Deregulators’ Britain’ or a ‘Levellers’ Britain’. The single most important proposal was for increased investment in education and training. Education and training is the key area in which social justice and economic efficiency can be linked. Spending on education is popular, ‘radical’ in as far as it creates increased equality of opportunity, and can be justified as aiding industrial modernisation. As Budge argues ‘the more an extension of health care, education and social provisions in general can be tied in with planning for economic reconstruction, the more Labour’s key projects can be justified on the grounds of general national concern’.153 As a result Labour ‘identified education as the key infrastructure supporting future growth, a diagnosis that fits well with their other social reforms’.154 There is a danger here that Labour has fallen into what Hirschman describes as ‘synergy illusion’; the classic liberal fallacy that ‘all good things go together’.155 In terms of policy-making, the risk is that the policy instrument of education and training becomes overloaded with a range of policy objectives. To a large extent Labour accepted the argument set out in Richard Reich’s ‘The Work of Nations’ that the role of government was to provide a low cost and highly skilled labour force. This was the way to ensure a thriving market economy. However, as Tomlinson has argued, the Lawson boom in the late 1980s was driven by macroeconomic factors. The boom was cut short by traditional macroeconomic constraints (including rising inflation and capacity constraints) rather than widespread skill shortages. Neither the nature of the link between the quality of training and economic performance, nor the argument that it increases equality of opportunity, are as clear cut has Labour claimed.156

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Stakeholding The debate around stakeholding was the last of New Labour’s debates to address directly the question of the performance of British industry. Stakeholding became a widely used term following the success of Will Hutton’s 1995 book, The State We’re In. Hutton’s central argument was that explanations for Britain’s decline can be found in the way that Britain’s social, economic and governmental structures lock together. Britain’s economic weakness originates in the financial system and was intimately connected to the crisis in the British state. In particular, the way which the British financial system provides investment capital was inadequate to meet the needs of industry. Hutton argued that the rise of British finance has been based on ‘gentlemanly virtues’ rather than a concern for industrial production, and that by World War I the banking system was disengaged from production. British industry, therefore, was only able to obtain finance on onerous terms. In the central chapter of The State We’re In Hutton argued that the British economic predicament could only be understood by considering the British financial system as a system. The British financial system has a desire for liquidity which is almost fetishistic leading to a preoccupation with short-term returns and a lack of commitment in lending. Further, the overseas orientation of the City has set the ‘highest possible benchmark’ for domestic industry.157 This argument is not particularly original. The focus on the overseas orientation of the City is familiar from the work of Hobsbawm and a number of accounts of British economic decline focus on the role of the institutional nexus of the City, Bank of England and Treasury. However, Hutton does go further in seeking to link this economic and financial failure to the failures of the British state. It is in this focus on the ‘economic constitution’ that his work is most distinctive. Britain’s decline then can be explained in the peculiarities of British capitalism and the British state. Much of the debate on stakeholding has focused on the issue of stakeholding within firms. Hutton considered this argument relatively briefly making the standard argument that all stakeholders in a firm are affected by the actions of shareholders – who are disproportionately highly rewarded in the British system – and that share values do not reflect cooperative stakeholder relationships. Further, his admiration for the German system extends to the system of mitbestimmung (co-decision) within firms. In Britain, by contrast, there is no recognition of the role of stakeholders such as banks, works councils or trade unions. However, it

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would be wrong to stress too strongly Hutton’s treatment of the need to develop the concept of stakeholding within the firm. Hutton’s analysis of British decline does not suggest that the constitution of the firm is of great significance. If the main reason for low investment is the structure of the financial sector and its relationship with industrial firms, then allowing workers rights of co-decision is unlikely to make a significant difference. However, what might make a difference is the incorporation of banks into firm’s decision-making, on the German model, and methods to develop long-term engaged shareholding by other financial institutions and, less importantly, by individuals. However, returning to the issue of stakeholding in 1996 Hutton placed more emphasis on the need to change corporate governance arrangements, referring to the influence of John Kay’s work.158 Kay’s thinking on stakeholding comes from a different perspective, one which begins from the idea that companies can be made more efficient by adopting a stakeholder approach.159 Kay argues that the firm is not just the property of shareholders but a collection of relationships between various stakeholders: employees, customers, suppliers, shareholders. The firm is seen as a social institution as well as an economic one. Firms acquire comparative advantage in recognising these relationships and seeking to manage them effectively. In this approach the adoption of stakeholding by firms is a way of increasing efficiency. Kay was one of the leading members of the Commission on Public Policy and British Business set up by the IPPR. There are clear differences in whether stakeholding is seen primarily to operate at the level of the economy or the level of the firm. In Hutton’s conception clearly the overall economy, and particularly the institutional framework of the British economy, is the focus of concern. In Kay’s work the firm is the focus of analysis. Success is corporate rather than national. Clearly, this fault-line is of key importance when it comes to specific policy choices. Stakeholding, particularly in Hutton’s work, provides a framework for packaging a critique of British capitalism, an explanation of British economic decline, and proposals for reform. As such it is less open to the criticism made of previous attempts to re-think left political economy. Market socialism is perhaps the best example here. It was theroetically difficult for market socialism to address the issue of British particularity bound up in the question, ‘if one takes as the central issue the long-run decline in relative efficiency of the British economy (with its effects on employment), what does market socialism have to offer?’.160 Stakeholding was able to address this agenda.

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New Labour and stakeholding Stakeholding became a feature of New Labour’s lexicon following Tony Blair’s speech to the Singapore business community in early 1996.161 In his speech Blair focused on the fact that the best firms both invested and treated their employees well. Just over a week later Blair returned to the theme in a second speech designed to clarify the stakeholding concept. In response to Conservative criticism Blair sought to emphasise that power would not be given to corporations or trade unions but to individuals. Stakeholding in firms can be conceived as being to improve economic performance or as a step towards economic democracy. Labour’s version of stakeholding has tended to focus on the first of these, while implicitly assuming that there is no tension between the two. A parallel can be drawn here to ‘old’ Labour’s attitude to industrial democracy. The argument made was that industrial democracy promoted industrial efficiency. However, the problem with instrumental arguments of this kind is, of course, that they are open to the question as to why employers do not make these arrangements with their employees voluntarily and the argument that industrial democracy doesn’t always increase efficiency.162 It can be argued that New Labour’s failed to recognise the tensions within the notion of stakeholding. Since the early 1980s Labour’s approach to policy-making has been predicated on the assumption that it was possible to have ‘social justice and economic efficiency’, or that ‘fair is efficient’. Froud et al. mount a strong critique of the Party’s view of stakeholding arguing that New Labour’s ‘economic analysis does not confront the structural reality of redistributive conflict between stakeholders’.163 They argue that ‘the centre left of the ’90s does however recapitulate the form of the right’s ’80s political rhetoric about emancipation without losers, and does so … by rejecting any identification of stakeholders as claimants’.164 Peter Metcalf, a Labour adviser, has taken this argument a step further, arguing that stakeholding, as defined by Hutton, would generate conflict and is therefore to be eschewed. Stakeholding, he argues, is in danger of reinventing corporatism by reforming corporate governance structures which ‘institutionalise the presence of different interest groups within the firm’.165 The danger was in ‘superimposing a fundamentally antagonistic decision-making structure upon what were not necessarily antagonistic relationships’.166 If stakeholding is in any case to the benefit of enlightened firms and one accepts Metcalf’s argument that one does not want to institutionalise conflict within firms then it is a short step to the

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argument that ‘in the debate as to the appropriate mix between regulation and cultural commitment as the “stakeholding” policy tools, we must place stakeholding firmly in terms of cultural policy outcomes’.167 Blair made it clear that in his view such trust relationships within a firm could not be guaranteed by legislation but there was a need to assess how a firm’s ethos could be shifted towards a vision of the corporation as a community or partnership. Froud et al. argue that this is part of New Labour’s belief in ‘transforming power of management to deliver more for less’168 and to act rationally in adopting a stakeholder approach. There were two main difficulties with this position. First, some of the Party’s policies belied its reliance on voluntary cultural change. An example of this was the position on union recognition. Despite attempts to distance the party from the trade unions, and the rhetoric of ‘fairness not favours’, Labour still had a fairly strong position on trade union recognition where over 50 per cent of the workforce want it. Yet the logic of the Party’s position on stakeholding would be that (a) employers should encourage worker participation anyway as a rational strategy; and (b) imposing such recognition would not in any case generate the trust relationships within firms which the Party wishes to see develop. Second, if stakeholding was a reasonable strategy for firms to adopt there should be at least some evidence that firms were moving in this direction. Blair offered a number of examples of stakeholder firms such as Rover, the John Lewis Partnership and Marks and Spencers. However, there was little to suggest significant developments in this direction. In fact, the most recent reforms in company structure – that of the Building Societies away from mutuality to a straightforward shareholder position – would seem to indicate that expecting firms to move towards stakeholding without changing the legislative framework of company law was likely to be misguided. It has been argued that ‘the heart of all stakeholder models are obligatory and enforceable’.169 However, in Blair’s version there was ‘little evidence that New Labour is prepared to do this. It seems stuck in the traditional British rut of piecemeal, voluntary incrementalism, buttressed by a traditional unwillingness to learn for continental Europe’.170 New Labour’s conception of stakeholding was one which is concerned with the level of the firm, was cautious about the ‘social market’ model of Rhenish capitalism, aimed at economic efficiency and social equity assuming tensions will not arise between the two, and relied on cultural change rather than government action. In a 1996 contribution assessing the prospects for the stakeholding idea Hutton noted that Blair ‘is by no means a consistent follower of

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the entire [stakeholding] agenda, and has made it known that his espousal of stakeholding is not the same as buying the programme of The State We’re In’.171 However, Hutton claimed to be encouraged that Blair ‘uses the same language and concepts, and setting the agenda is the first battle in politics’.172 Hay has commented that ‘the clear danger is that Hutton’s ostensibly radical agenda may become denuded of all substantive content, though no doubt rhetorically-enriched, as New Labour co-opts the language of stakeholder capitalism and corporate governance to re-present its politics of appeasement to capitalism and the legacy of capitalism’.173 Why was New Labour attracted to this particular conception of stakeholding rather the more radical conceptions of Hutton or Gamble and Kelly? There are two main reasons. First, Blair was unwilling to embrace the stakeholder proposals for extensive legislative reform of corporate governance which were unlikely to be welcomed by business. In particular New Labour has been sensitive to the principal Conservative charge that stakeholding is merely reinvented corporatism.174 A similar point can be made in view of Labour’s relations with the City and the financial institutions. Hutton concentrates on reforms necessary to check ‘ruleless finance’. The pressure to maintain credibility with the financial markets has turned the Labour Party away from such proposals. New Labour in 1997 does not want the financial press it received in 1992; ‘if UK investors so much as sniff the chance of a Labour victory, they will not wait around in UK financial markets until the votes are counted. They will push their funds abroad as fast as they can’.175 However, this does little to explain Labour’s position on the privatised utilities. In the course of the 1992–97 parliament Labour has gained much political credit from its attacks on the excess profits of these utilities and, even more so, from attacks on the pay of senior executives. If there is no prospect of re-nationalisation it is significant that New Labour’s thinking on the utilities has not been influenced by its rhetoric on stakeholding. Labour’s policy review floated the idea of designating such companies as ‘public interest companies’ so obliging them to take into account the interests of consumers and employees. In 1997, Labour has no such proposals beyond a vague commitment to stronger regulation. However, a strong argument could be made for such a proposal being electorally popular and, significantly, no less unpopular with the financial markets than the proposal for a windfall or excess profits tax. Second, Hutton’s view of the British economy is ‘declinist’. While Labour has in the past used the notion of economic decline as a

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weapon to attack the government of the day it has moved away from this since 1992. In part this was due to the relative strength of the British economy going into the 1997 election. It could also be argued that Labour’s positioning on this issue owed something to a desire not to be a Party associated with the issue of decline, and those declining parts of the country where Labour’s support was already strong. When Blair made his Singapore speech most commentators recognised he was consciously using the language of Hutton’s The State We’re In. However, it soon became clear that Labour’s version of stakeholding was very different. This has led to the absurd position where Labour Party advisors ended up arguing that ‘the danger for the Labour Party is that the concept [of stakeholding] gets irreversibly infected by conceptualisations not intended by Tony Blair, and thus becomes a vehicle for all sorts of differing political viewpoints to hijack the Labour agenda’.176 In opposition, New Labour enjoyed a certain amount of success in repackaging the notion of a partnership between a Labour government and industry, which has been Labour’s policy since it abandoned the Alternative Economic Strategy, through the use of the language of stakeholding, in a way which had credibility. This in itself was no small achievement. However, as Hutton has pointed out, Blair’s attempt ‘to build a wider consensus around the progressive pole in British politics’ pushed New Labour away from the more radical, interventionist forms of stakeholding.177 Even before the 1997 election, however, Labour had moved away from using stakeholding as a defining idea and, significantly, the Shadow Chancellor had never been engaged directly in the debate. Gould has argued that Brown had never been enthusiastic about the stakeholding debate feeling that it opened up Labour to attack on the grounds that it would increase costs for business.178 In ‘The Road to the Manifesto’ New Labour’s economic approach is said to be one ‘based on partnership, on stakeholding, not an old-fashioned war between bosses and workers. It recognises the value of co-operation, as well as competition; but it is hard-headed, practical and geared to making us more successful in the global marketplace. It differs from the old left, it differs from the new right. It is a new agenda, and it is a full one’.179 This was the only mention of stakeholding within the text on economic policy.

Conclusion John Eatwell has highlighted three major developments in supply-side policy between 1979 and 1992 that are worth examining.180 The first, a

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change from nationalisation towards regulation is relatively clear and the reasons for this have been discussed previously. Second, a shift from industrial policy based on government making tactical management decision to providing the ‘well-springs’ necessary for industry to prosper. There was a clear shift away from proposals for government intervention in a firm’s internal management. The key proposal for such intervention, planning agreements, was dropped soon after the 1983 general election defeat. However, while the move away from intervention in a firm’s internal management was one that won wide consensus within the Party, a complete shift away from discretionary intervention did not. The policy review, while advocating a move away from industrial policy based on ‘picking winners’, did allow for sectorbased intervention. This emphasis was lost by the 1992 election and, after 1992, Labour moved further away from an industrial policy aimed at particular firms or sectors. The third change identified by Eatwell, from an industrial policy based on discretion to one based on rules, where ‘economic reform should be essentially institutional reform’, is less clear-cut. There was a clear shift away from discretionary intervention. However, the proposals for institutional reform put forward in 1992 were not as significant as one might expect from Eatwell’s assertion. By 1992, there was not a significant emphasis on a strengthened role for the DTI. Further, the new institutions of the National Investment Bank and British Enterprise were not as central to Labour’s programme as previously and the policy review proposal for regional investment banks had been lost. Rather the emphasis was on tax incentives rather than institutional reform. This shift away from institutional reform was confirmed in the period after 1992 and particularly in the run-up to the 1997 election where, in particular, it was clear that the Treasury was the locus of economic strategy. While Eatwell stresses what he sees as the key changes in Labour’s strategy in industrial intervention it is also possible to identify continuities. First, in the period of the AES and under Kinnock the Party ‘enthusiastically adopted the decline thesis and pledged Labour to securing growth’.181 There are shades of emphasis with the issue of decline more prominent in periods of recession but, overall, Labour is remarkably consistent in the importance it attaches to the issue. Even in periods of relative prosperity, when an emphasis on decline would be difficult, there remains a concern with Britain’s productive strength. Second, Labour stresses the importance of the supply-side throughout the period. Both the AES and Labour’s policies after 1987 were

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predicated on the need for supply-side measures to improve the performance of the British economy rather than a reliance on macroeconomic policy. As Wickham-Jones notes ‘Labour’s strategy remains orientated at the supply-side of the economy: policy has not been marked by a return to the kind of Keynesian social democracy which dominated the party until the early 1970s’.182 Even when Labour moved away from an active industrial policy after 1992, the renewed emphasis on education and training maintained the supply-side focus. In terms of supply-side policy, Labour’s firm focus on the importance of manufacturing industry is shared by all of the major policy-makers including Kinnock, Eatwell, Smith, Gould, Brown and also the ISG. Reviewing the period, Gamble has argued that ‘the main difference [between Labour and the Conservatives] results from a different estimation of the importance of manufacturing to future prosperity’.183 Labour is consistently committed to increasing the level of investment in British industry. This central part of Labour’s strategy has rarely been questioned. However, Tomlinson in considering whether the overall focus on lack of investment as a cause of British industrial decline is justified has argued that ‘the simple answer … would seem to be that low investment has played a role, but that it is far from clear that it has been crucial’.184 In a paper after the 1992 election Corry acknowledged that ‘we do not really know what works in increasing investment’.185 The way of generating extra investment shifts from a focus on creating institutions (such as the National Investment Bank) to providing incentives to generate private sector investment. Finally, Labour’s strategy for reversing UK industrial decline increasingly stressed the importance of education, training and the acquisition of skills. In the period from the policy review onwards the emphasis on this policy area has grown, particularly as Labour has seen investment in education as a way of ensuring social justice and economic efficiency. The Party’s acceptance of much of the globalisation thesis – and particularly the argument that countries compete on the basis of the skills of their populations to attract capital – has been an important push in this direction.

5 Macroeconomic Policy

Macroeconomic policy is a particularly difficult area for a party in opposition. Public attention is focused on macroeconomic policy primarily through the publication of economic statistics such as the inflation rate and level of unemployment. It is inevitable therefore that most public comment by opposition parties is led by these variables and is of the rather mundane, ‘interest rates should be lower’, variety. Regardless of the merits of these comments in the particular context they are of limited value in assessing an opposition’s macroeconomic strategy. To gain a more rounded picture of the changes in Labour’s policy it is necessary to concentrate on the party’s overall macroeconomic policy stance, the macroeconomic priorities set and principle instruments identified.

Macroeconomic failure, 1974–79? Despite more recent sympathetic accounts, which have emphasised the appalling world economic situation in the 1970s and the difficult legacy left by the Heath government, it has commonly been held that macroeconomic failure was a central part of the 1974–79 government’s record. It was also alleged, particularly by those on the left of the Party, that the 1974–79 Labour government had abandoned Keynesianism for monetarism. Allsopp rejects the charge arguing that the setting of monetary targets by the Labour government did not imply an acceptance of monetarist theory.1 In Labour’s policy package, control of inflation was to be through an incomes policy agreed with the trade unions rather than by restricting the money supply. It was the turbulent ending of Labour’s incomes policy during the ‘winter of discontent’ which meant that immediately after 1979 there was a need for macroeconomic policy 124

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to be recast2. Much of Labour’s difficulty on macroeconomic policy after 1979 was attributable to the need to find a credible policy on inflation. If Labour’s macroeconomic policy was not monetarist in the 1974– 79 period, the government’s policy stance did shift during the period to give more priority to inflation, and less weight to its full employment target. This, at least in part, explains why the government’s macroeconomic record was unpopular with its supporters and gives more substance to the claim made by the left that the government had embraced monetarist and Conservative priorities. The oft-quoted speech made by Callaghan at the 1976 Labour Party Conference, with its explicit rejection of Keynesian reflation, did much to reinforce this impressio.3 Regardless of the objective success or otherwise of Labour’s macroeconomic policy in this period it is undoubtedly true that Labour’s credibility in terms of economic competence was damaged by the time it left office in 1979. Aside from the ‘Winter of Discontent’, the episode which crystallised this was the government’s recourse, following severe pressure on sterling, to an IMF loan in 1976. It presented a powerful image of macroeconomic incompetence.4

‘Keynesianism in one country’, 1979–83 Following the general election defeat the Labour Party had a number of difficulties to face in terms of macroeconomic policy much of which centred on internal party discontent with the record on the 1974–79 government.5 First, there was a strong feeling within the Party that the Labour government had abandoned the objective of full employment. There was clear pressure within the party to return to a macroeconomic strategy within which full employment was the overriding objective. The key question was how this was to be achieved given the inability of the 1974–79 Labour government to follow through on a policy of Keynesian reflation. Second, the breakdown of the government’s incomes policy in the winter of 1978–79 was the culmination of the trade unions’, and much of the Labour Party’s, discontent with the policy of wage restraint. However, incomes policy had been the core of Labour’s strategy and, if they were to be abandoned, Labour had to develop a new anti-inflationary policy. Labour’s macroeconomic policy, developed as part of its alternative economic strategy, can be described as neo-Keynesian.6 There was common agreement between most versions of the AES that a reduction in unemployment could only be achieved through the reflation of the

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economy. It was stressed that the reflation was to be ‘structured’ or ‘planned’ which would seem to indicate that it was somehow different from simple Keynesian reflation though in a way which was often not clear. It was clear, however, that major reflation of a national economy would create difficulties in terms of financing the reflationary package, and have implications for the balance of payments and inflation. Unemployment When Labour left office in 1979 the mood of the Party was to reassert the importance of achieving full employment. As unemployment increased through the 1979–83 period, with the Conservative government prioritising inflation and seemingly indifferent to the rise of unemployment to over three million, it came to be the key economic priority for the Labour Party.7 For Labour this became a moral as well as an economic issue. As Foot wrote in the 1983 manifesto, ‘the most glaring example of this evil [Thatcherism] at work in our midst is the acceptance of mass unemployment’.8 The target that the Party agreed upon was to reduce unemployment to less than a million over the lifetime of a Labour government.9 This was a perverse target in that the credibility of the pledge suffered as unemployment increased to reach 3.2 million at the time of the 1983 election. The task anyway was huge as the Labour Party admitted stating that ‘to get back to full employment we will need a million new jobs a year for five years.10 As Whiteley noted, ‘historically a reduction in unemployment of 500,000 in a year has only been achieved twice this century’.11 Financing the reflation Labour argued that the reflation of the economy should, in the main, be through increased public expenditure – rather than tax cuts – for two main reasons. First, there was proven need for public expenditure increases particularly in the areas of health and education and, second, increased public expenditure was likely to increase employment more rapidly as less spending would leak out on imports. However, Labour’s emphasis on the need for massive reflation through increased public spending, and its desire for increased spending on public services per se, created the impression of a party committed to high levels of public spending, and taxation, regardless of the macroeconomic context. The estimates of the degree of reflation necessary to reduce unemployment to Labour’s target varied, as was inevitable given that the target changed as unemployment increased. In 1982, Foot’s economic advisor, Henry Neuburger estimated that reducing unemployment to below one

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million would mean creating over 500 000 jobs per year. Using the Treasury model he estimated that after two years, £1 billion of public expenditure would create between 25 000 and 70 000 jobs. If, therefore, half of the job creation was financed through increased public expenditure the total cost would be between £20 and £30 billion, with the effect on public borrowing less.12 Internal party papers considered the effects of a reflationary package rising from £6 billion in year 1 to £20 billion in year 4 noting that this would necessitate annual GDP growth of more than 4 per cent, ‘well above the performance achieved at any time in the past 30 years’.13 Two issues arise. First, whether increased public expenditure on the scale envisaged would have had the effect of achieving a reduction in unemployment sufficient to meet the manifesto pledge is open to question. Econometric analyses suggested that the employment target would not be achieved though Huhne argues that it would have been possible if it was assumed that the Labour government could agree an incomes policy with the trade unions.14 Part of the difficulty of estimating the effect of the reflation on unemployment were the consequences that the policy would have on the balance of payments and inflation, which required a judgement about the likely effectiveness of Labour’s policy in these areas. Second, how would it be possible to finance the reflation? Clearly, spending increases would not have been sufficiently reflationary had they been matched by a corresponding increase in taxation. However, this does not make the question meaningless. The argument most often used to explain how the reflationary package was to be financed was that growth would pay for itself in the long run. In the short run the funding of increased public expenditure would be through borrowing or, euphemistically, by ‘tapping … the savings in the economy’.15 This was backed up by the argument that the PSBR was not high by international standards. However, the difficulty of retaining the confidence of the financial markets committed to monetary targets and a low PSBR was an issue given only cursory consideration.16 Further, the party did not consider that the political unpopularity of increased public spending was a significant constraint. Although Labour planned significantly increased public expenditure it did not develop corresponding ideas as to how to improve the efficiency or accountability of such spending. Import and exchange controls The second problem of the reflationary option would have been the propensity of the expanding economy to ‘suck in’ imports on a scale

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which would severely harm the balance of payments position. To deal with this the party came to favour import controls, a solution which was energetically promoted by the Cambridge Economic Policy Group. By the early 1980s the CEPG had been promoting a strategy of imports controls to deal with ‘the growing lack of competitiveness of UK industry and … the balance of payments problems to which this gives rise’17 for ten years. A number of prominent members of the ‘New Cambridge School’ including Wynne Godley, Francis Cripps and Nicolas Kaldor were active within Labour’s policy-making machinery and import controls became an important part of Labour’s economic strategy.18 However, there were differences within the Labour movement as to the reasons for supporting import controls. The CEPG were clear that the rationale was ‘not primarily to protect particular industries from foreign competition but to enable a sustained expansion of domestic output to be achieved so as ultimately to secure full employment’.19 As such the CEPG sometimes argued for such controls as a second best to devaluation which, they argued, was no longer possible. By contrast, some trade unions favoured import controls to protect ‘their’ industries from foreign competition. Joint Labour Party–TUC documents highlighted the need to link action on imports to strategic policy to modernise ‘core’ industries.20 In April 1980, the HPC followed a similar line in relation to the car industry calling for urgent action to restrict car imports arguing that by 1982 ‘all cars sold here should be assembled here’.21 Labour’s proposals for import controls usually centred on manufactured products with food and raw materials remaining ‘free’.22 The preference on the left for ‘planned’ or ‘managed trade’ was defended by arguing that it is a false dichotomy to assert that trade is now ‘free’. However, the AES proposals do imply that such controls would be dramatically extended. Within the Party, Neuburger has argued that the issue of import controls became an ‘shibbolethic test of radicalism’23 regardless of the merit of the economic argument. There were significant arguments against import controls. The traditional economic argument against was that the result would be retaliation and a decrease in the volume of UK exports. Advocates of the AES tried to neutralise this argument by stating that if controls, plus reflation, were to prove successful in expanding the British economy this would lead to more imports. In the long run, controls would reduce the proportion, but not the volume, of imports into the British economy. Conceivably, therefore, import controls would not just benefit Britain but those countries who imported to this country. However, this

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is a ‘purely abstract rational argument’,24 which assumed that the economic strategy would prove to be a success, and also, probably wrongly, that foreign governments could be persuaded to see the move to controls in such a rational way. An economy previously as open as the British would be likely to meet with some response if import controls had been introduced. The second major objection to import controls as proposed in the AES was that what was essentially a technical measure was presented as a panacea. Further, there is an assumption – particularly in trade union versions of the AES – that the protection of British manufacturing from international competition would automatically lead to a regeneration and recovery of British industry. However, the experience of Japan after 1945 was unlikely to repeated in the Britain of the 1970s. In particular, there was little recognition in the AES that import controls did not mean that the prioritisation between industries could be avoided. Finally, it was rarely acknowledged that import controls would lead to a reduction in consumer choice. Purdy argues that the desire on the left to cut off the external influences which had plunged Labour government into crisis in 1931, 1947, and 1966 meant that the AES aimed at a level of independent control which was unrealistic. It has been described as the ‘classic Left-Labour reflex of attempting to limit links with the world market’.25 The AES was a ‘nationalist protectionist’26 strategy which also called for withdrawal from the EEC. However, as Cutler et al. argue, ‘limiting contact with the EEC cannot easily be reconciled with reducing dependence on world markets, and reducing dependence on world markets cannot easily be combined with a strategy of “industrial regeneration”’.27 There was an alternative way of dealing with the balance of payments constraint on growth based around action to control the exchange rate and, in particular, devaluation. The appreciation in the exchange rate between 1979 and 1981 had caused significant problems for British manufacturers. A number of policy documents from 1980 onwards called for a reduction in the exchange rate to help British exports and it is clear that Callaghan, Healey and Shore, as Shadow Chancellor, were sceptical of the possibility of large-scale import controls. Shore, in particular, was keen to emphasise the damage being caused to the British economy by the over-valued exchange rate. Shore’s ‘competitiveness strategy’ was focused on reducing the value of the pound significantly to boost British exports and reduce foreign imports. Gould et al.’s ‘Monetarism or Prosperity’ is perhaps the best example of this line of thinking.28 However, all Labour Party economic policy documents of this period

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included a pledge to reintroduce exchange controls to prevent the export of capital. If these controls had worked the effect would have been to raise the exchange rate. For proponents of import controls a reliance on devaluation alone to restore Britain’s competitive position was flawed for three reasons. First, in a system of floating exchange rate it was difficult to ensure a controlled devaluation. The problems of managing the devaluation were significant enough to ‘arguably rule it out as a feasible policy option’29 particularly when the need was for a massive reduction in the exchange rate. Second, devaluation had significant inflationary consequences that had to be dealt with. Devaluation would only be a successful strategy for recovering competitiveness if, and only if, it meant a reduction in real wages which could be maintained over a significant period. However, as Ward argued, British experience was that government would find it difficult to effect such a strategy and would be unable to maintain a strategy of devaluation if it resulted in high levels of inflation. Third, devaluation was ineffective when British exports performed poorly for reasons which were less to do with price than other factors such as quality and after-sales service. It was, of course, entirely possible to have an economic strategy that included both devaluation and some measures of import controls. Econometric evidence indicated that import controls were likely to create more jobs than devaluation though this was heavily dependent on an assumption of only moderate retaliation.30 However, there was a clear preference on the left of the party for import controls as a means of being able to ‘limit the growth in manufacturing imports directly’31 and in a planned way. As such the commitment to import controls was ideological. Shore’s preference for devaluation, a more market-based solution, found more support on the right. Inflation Tackling inflation was undoubtedly the most difficult issue for Labour in this period. The breakdown of the Labour government’s incomes policy at the end of the 1974–79 period meant that there was widespread hostility within the party to this method of controlling inflation. Most versions of the AES declared their opposition to incomes policies.32 For the Labour left support for free collective bargaining was the ‘lynch-pin’ for an alliance with the trade unions.33 The SDP’s support for an incomes policy reinforced this identification and Labour Conferences overwhelmingly endorsed motions opposing ‘wages restraint’.34 However, while conference resolutions consistently

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opposed any form of incomes policy that is not to say that the issue was completely off the agenda. Indeed, within the Party’s decision-making structure there were three significant discussions about inflation and incomes policy; within the HPC, within Labour’s parliamentary leadership and particularly the Treasury team, and in joint discussions with the TUC through the Liaison Committee. Soon after the election the HPC agreed a programme of work which included the observation that at the 1979 election ‘we had almost nothing of value to say, as an NEC, on inflation’.35 It was recognised that ‘we would certainly be ill-advised to develop policy [on inflation] without the widest possible consultation within the Party and the Labour movement’36 and, rather then set up a working group, it was decided that the issue would have to be discussed directly by the HPC. The initiative for this discussion was coming from the Research Department, where opinion favoured a ‘radical socialist incomes policy’.37 Adam Sharples produced a paper which argued that ‘inflation is at heart a process of conflict over distribution’.38 It considered the various approaches to dealing with inflation including deflation, monetary control, price control and incomes policy arguing that price controls represented the best chance of gaining real control over inflation. However, the paper also recognised that there was a ‘need to confront the question of intervention in incomes determination’.39 The paper was poorly received at a special HPC, though it gained some support from academics involved in Labour’s economic policy-making, including that of John Eatwell.40 The original paper went through a number of re-drafts where changes were made to stress the need for effective price controls and put the policy on inflation in the context of Labour’s aims and wider policy.41 However, all of this failed to convince the HPC that the document should be published. Here the refusal to countenance a discussion of incomes policy effectively precluded a serious debate on inflation. However, if the HPC failed to make significant progress in the discussion on inflation it is clear that senior members of Labour’s parliamentary leadership did not share the Party Conference’s hostility to an incomes policy. Callaghan is perhaps clearest when he argued that ‘we must secure an agreement and understanding to keep growth in money incomes … and the growth in productivity in line in order to avoid inflation’.42 Other senior party figures contented themselves publicly with commenting approvingly on the Scandinavian and Austrian experience of wage agreement, while being more explicit in the privacy of the Liaison Committee.43 However, as Shadow Chancellor,

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it was Shore’s position that was of key importance. The document issued by Shore and the Labour Treasury team in 1982, ‘Programme for Recovery’, has been seen as having the ‘covert function [of bringing] the issue of incomes policy once more into the open in the context of the “hard economic choices” indicated by the “Treasury model”’.44 In the run-up to the 1983 election Shore made clear in a series of interviews that he thought an incomes policy vital to Labour’s aim of reducing unemployment.45 Labour’s eventual position at the 1983 election was essentially based on a compromise hammered out within the TUC–Labour Party Liaison Committee. The 1981 document ‘Economic Issues facing the Next Labour government’ noted the ‘need for a national economic assessment of the prospects for the growth of the economy, involving such issues as the use of resources between personal consumption, public and private investment, public services and the balance of trade. Such an assessment, to be comprehensive, has to embrace such issues as the share of national income going to profits, to earnings from employment, to rents, to social benefits and to other incomes’.46 The idea for the NEA came from TUC and Labour Party staff and it was essentially an attempt to create a new language for proposals for a dialogue between the TUC and the Labour Party on a number of issues, including pay.47 However, the proposal for a NEA was left open to a variety of interpretations. Foot, for example, went as far as to describe the NEA as a new social contract.48 Benn, on the other hand, recommended the joint TUC–Labour Party document to the 1981 Conference while at the same time asserting that the Labour Party was ‘never ever going back to the old policies of wage restraint as a means of saving capitalism’.49 By 1983 the NEA had grown in importance to the point where it was to be ‘the culmination of a yearly cycle of discussions and collective bargaining and the centrepiece of the planning process’.50 However, when Shore tried to amend the manifesto at the Clause V meeting to include an explicit commitment to an incomes policy he was defeated by opposition from both left and right.51 If Labour had won the 1983 election Kavanagh is probably correct that in office Labour ministers would have acted on their belief that ‘free collective bargaining was incompatible with full employment or the attack on inflation’.52 However, this was not the party’s position going into the 1983 election, following four years in which Labour was not able to have an open debate on the merits of incomes policy. There are two general points which can be made about Labour’s view of inflation. First, it is clear from all the policy documents that inflation was not the priority issue, and certainly not the over-riding priority, that

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it was for the Conservatives. Low inflation was a secondary objective to achieving full employment. Aaronovitch, for example, argued in 1981 that the ‘economy can live and live quite well with some degree of inflation providing it is not allowed to accelerate’.53 Second, there were a number of measures which most variants of the AES, including those promoted by the Labour Party, included as part of an anti-inflation strategy. These included price controls – though it was never clear whether these were to be a short-term expedient or to remain in place on a longer-term basis – withdrawal from the Common Agricultural Policy which would cut food prices, a change in nationalised industry pricing policy,54 and the argument that ‘as the economy expands and capacity is used more fully, costs in industry will fall, making it easier to contain prices’.55 These measures were uncontroversial within the Party and given a low priority in most expositions of the AES. However, a number of the measures in Labour’s strategy, in particular large-scale reflation combined with devaluation, or with import controls, would have created significant inflationary pressures. In the absence of an incomes policy, it is by no means clear that Labour’s strategy would have been sufficient to deal with these. Shore’s programme for recovery In macroeconomic policy, perhaps more than in any other area of government, the Cabinet and in particular the Chancellor, have very considerable autonomy from parliament and party. It is worth considering then the extent to which Labour’s leadership shared the macroeconomic outlook of party policy. Healey, for example, opened the economic debate at the 1981 Conference by stating that ‘the alternative economic strategy … is one thing on which the whole of our movement is united’56 before giving a speech which emphasised the Keynesian aspect of the policy based around reflation but which was decidedly unenthusiastic about the policies on import controls and inflation. The key figure in terms of macroeconomic policy had Labour been elected in 1983 would have been Peter Shore who took over from Healey as Shadow Chancellor following Foot’s election as leader. Shore’s approach to macroeconomic policy was different to that developed by the Party’s policy-making procedure in two respects. While Shore was committed to large-scale reflation to deal with the unemployment problem, he was sceptical of the AES position on inflation and favoured the development of an incomes policy. Second, he was unconvinced of the need for import controls to protect the balance of payments

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position. Shore was, however, prepared to depart from financial orthodoxy to advocate large-scale devaluation as part of a strategy of restoring Britain’s competitiveness. In 1982, Shore’s Treasury team produced two documents – a ‘PreBudget Economic Statement’ in March and a more detailed ‘Programme for Recovery’ in November – which indicated his macroeconomic approach. The Statement provided for a reflationary package of £9 billion, resulting in an increase of public borrowing of £5.5. billion. The package was tested on the Treasury model of the economy and produced a fall in unemployment of 500 000 at the cost of 2.5 per cent on the rate of inflation and a £1 billion cost to the balance of payments. There are three significant points to note about this statement. First, considerable emphasis was given to the importance of obtaining a ‘more realistic level of exchange rate’.57 It was clear that for Shore restoring competitiveness could in large part be achieved by reversing the considerable rise in the exchange rate in the first two years of Conservative government. Implicitly, this was clearly seen as preferable to large-scale, long-term import controls. Second, in Shore’s strategy there was a key role for the NEA. It was argued that unemployment can only be reduced ‘if industry, trade unions and the people, as well as government, are prepared to place employment and output as their top priorities and to be ready to accept all the measures that will be required to achieve it’.58 Clearly, Shore was implying that an incomes policy was inevitable if Labour was elected. Third, although referring to a number of AES measures, Shore’s statement implied that he did not consider them to be central to Labour’s economic strategy. In November, Shore presented a slightly developed outline of these proposals as a ‘Programme of Recovery’. Again the document was concerned with how Labour would get unemployment down and, within the context of the Treasury model, the analysis pointed to the need for an incomes policy. ‘Programme for Recovery’ had been put together by the Treasury team – with those most involved Shore, Jack Straw and Robin Cook – with most of the modelling work done by Henry Neuburger. There were informal consultations with Bish and Sharples in the Party’s research department, and David Lea at the TUC, but the document was clearly produced outside the Party’s policymaking structures. The NEC and its sub-committees had not had any formal involvement in the preparation of the document which was launched to the media directly by Shore. The NEC reacted against the way the document was put together, and its emphasis on incomes policy, and decided not to publish ‘Programme for Recovery’ as an

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official Party document or to distribute it to CLPs.59 Roy Green, a member of staff in the Research Department, wrote a scathing attack on the document in Tribune to which Cook and Straw, members of Shore’s Treasury team, were moved to respond.60 As the election approached senior Cabinet figures, with Shore prominent, sought to stress reflation, the need for a competitive exchange rate, and an agreement with the trade unions as the main components of Labour’s macroeconomic strategy. Shore attempted to secure amendments to ‘Labour’s programme 1982’ to argue that competitiveness could be restored through devaluation and that this obviated the need for general import controls. The manifesto itself was a compromise between Shore’s macroeconomic policy and that of the AES. Labour’s macroeconomic policy at the 1983 election had a number of flaws that were highlighted during the campaign. First, there was the problem of scale. Labour’s targets for reducing unemployment, requiring the generation of over 500 000 jobs and a growth rate of over 4 per cent per year, were perceived as unrealistic. Indeed, overall Labour’s proposals were seen to lack credibility despite the fact that individual policies, including import controls, were popular. Second, the proposals for import controls or devaluation were likely to provoke hostile responses from international competitors or international financial markets which were not convincingly dealt with. These proposals, designed to enable reflation and ‘Keynesianism in one country’, were problematic. Third, the most obvious gap in Labour’s programme was the absence of a credible policy against inflation.

Cautious reflation, 1983–87 At a Campaign Strategy Committee in late 1984 a paper was discussed which set out the objectives of the ‘Jobs and Industry’ campaign as being to increase Labour’s credibility on economic policy and increase public awareness of the underlying weakness of the economy.61 In order to succeed, it argued, Labour needed to learn the lessons of the previous year’s general election. It had to be frankly admitted that Labour had lost the economic argument to a Conservative government which put their economic principles in common sense language. Further, the Conservatives had convinced people that mass unemployment was here to stay; Labour had to yet to convince the electorate that mass unemployment was caused by Conservative policy or that an alternative policy was possible.

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When Hattersley became Shadow Chancellor and Deputy Leader after the 1983 general election, he saw his task as repairing Labour’s credibility on economic policy. While policies for the supply-side was developed through the Jobs and Industry JPC, macroeconomic policy tended to fall into Hattersley’s remit as Shadow Chancellor and most policy shifts were announced in speeches. Hattersley, unlike Shore, employed his own economic adviser, Doug Jones, and used an informal group of economists for advice.62 Between 1983 and 1987 macroeconomic policy shifted away from the reflation plus protection stance of the AES to a more cautious emphasis on gradual reflation, ideally coordinated on an European level. The result of these changes, Shaw argues, was to put a ‘cautious and “realistic” gloss’63 on the established revisionist approach. Indeed, it would be difficult to point to major differences between Hattersley’s approach and that adopted in the 1970s. Those areas in which there were distinctions – such as in the new advocacy of a coordinated European reflation – were also those in which policy carried least credibility. Unemployment Unemployment remained high during the 1983–87 period and this continued to be Labour’s key economic charge against the Thatcher government. Labour’s position did not waver through this period as it continued to maintain that ‘creating jobs for all is Labour’s central priority’.64 However, while unemployment remained the key economic priority the Labour Party did become less sanguine about the ease with which it could be achieved. The phrase ‘full employment’ was not included in the draft for the 1987 manifesto until this was amended at the Clause V meeting.65 As in the previous period, the way to achieve a reduction in unemployment was seen as being, primarily, by reflating the economy. However, it should be clear that the reflation envisaged was of a much more modest nature than that planned in 1983. There would be no ‘dash for growth’ as Hattersley pointed to the lessons of France to highlight the dangers of an over-ambitious expansion.66 Keane and Owens highlight the limit of ambition in contrasting the £9 billion reflation proposed in the Labour’s 1983 alternative budget with the £3.5 billion in that of 1985, and both of these with the TUC’s estimate that a £24 billion reflation over 5 years would create 500 000 jobs.67 Setting a target for the reduction in unemployment was in fact an issue in itself. The target was changed to a reduction of unemployment by one million in the first two years of a Labour government.

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This target does appear to be both clearer and more readily achievable. However, Hughes and Wintour’s account of the development of the target casts doubt on its rationality. Kinnock made the new pledge in April 1985 at the launch of the ‘Jobs and Industry’ campaign without any preparatory work having been done.68 Only in May 1986 was it agreed by Hattersley and Prescott (Employment Spokesperson) that the aim would be to reduce registered unemployment by 1 million in 2 years rather than to create 1 million jobs – two very different figures. Working out how the target was to be achieved did not receive attention until close to the election. Prescott, helped by Meghnad Desai, produced a set of proposals based on local employment projects, particularly those developed by Southwark Council, which was rejected. Following this, Bryan Gould was tasked with coming up with a plan to meet the target at a cost of less than £6 billion.69 Gould’s package proposed to create 1.16 million jobs to cut the dole queues by 1 million. The accuracy of this is open to doubt; the National Institute for Economic and Social Research (NIESR) suggested 2 million would be closer to the mark. The package did not propose any job increases in private services or tourism which most analysts suggested would be growth areas. Further, Labour’s ‘economic spokesmen had been arguing that manufacturing could not be expected to produce a net gain in jobs – but the campaign policy contradicted that, by claiming that Labour could create 250 000 manufacturing jobs’.70 As much as anything Labour’s difficulties in this area arose from the Conservatives change in economic direction under Nigel Lawson. The 1986 Autumn statement was aggressively Keynesian and included a reflationary package of around £4.7 billion.71 To Neuburger it seemed that Lawson ‘more or less took our policies wholesale’.72 However, in terms of Labour’s policy, even a limited reflation raised familiar problems in terms of public expenditure and tax, the control of inflation and import growth.

The ‘tax and spend’ issue The funding of the jobs programme was costed at £6 billion. Earlier policy documents highlighted four sources for extra resources; a reduction in the overall cost of unemployment benefit as unemployment fell; increased taxes on the top 5 per cent of society; schemes for attracting and retaining British investment capital; and, in the longterm, economic recovery which would itself generate further tax

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revenues.73 The 1987 manifesto stated that the £6 billion would be generated in two major ways; first, reversing the 2p income tax cut which had been promised in the Conservatives pre-election budget and, second, ‘prudently borrowing £3 billion for useful wealth generating national investment’.74 In addition, the manifesto promised to reverse the tax cuts for the richest 5 per cent of the population, a change which was expected to net £3.6 billion. However, Butler and Kavanagh argue that there was ‘no authoritative guidance about the Party’s tax and benefit plans which were in confusion at the end of the campaign’.75 In the election campaign itself confusion arose as to how the increase in child benefit pledge in the manifesto was to be funded. In initial discussions the proposal had been to abolish the married man’s tax allowance and use this to fund an increase in child benefit. However, due to TUC pressure, and reservations in Hattersley’s office as to the electoral impact, the abolition of the tax allowance did not feature in the 1987 manifesto while the increase in child benefit remained.76 The abolition of the national insurance ceiling, previously trailed as party policy, similarly did not figure in the manifesto. This led to confusion during the election campaign particularly over Labour’s pledge that no-one earning less than £25,000 would pay more in tax.77 On expenditure, Labour’s attitude was more rigorous in 1987 than it had been in 1983. The 1987 manifesto identified three priorities: the jobs programme, the anti-poverty programme, and the anti-crime programme which were to receive public funding for a set of specific measures. Otherwise it was made clear that ‘all other programme that require substantial public finance must take lower priority in terms of timescale and public resources’.78 Hattersley had worked particularly hard to ensure that Labour was seen to be committed to the control of public expenditure. He put forward a number of proposals including zero-based budgeting, efficiency measures for government spending and cash limits. He also advocated replacing the PSBR with a public sector balance sheet and a government debt: national income ratio, and splitting out capital and current expenditure.79 Of more direct political importance was that after 1985 policy documents no longer included references to large increases in spending on health and education and public expenditure commitments were avoided in the run up to the election.80 However, Butler and Kavanagh argue that, in 1987, ‘people feared that a Labour government would put up taxes, boost inflation rapidly and could not afford its programme’.81

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The problem of external balance There was a continued realisation that the balance of payments position would present a problem for a government committed to reflation. However, the solution to this problem was seen in very different terms to the previous period. Hattersley moved the Party away from the controls on trade and imports that were previously advocated strongly. Rather, he argued that ‘action on imports is certainly a second best solution’.82 There was some unease over the policy shift. When the Jobs and Industry Joint Policy Committee discussed industry and trade policy in late 1985, there was disagreement over whether the trade problem was a symptom of industrial weakness to be dealt with through industrial policy, or whether this should run hand-in-hand with some protectionist measures.83 Devaluation was also ruled out as a policy option. Hattersley used three arguments against the measure; that the problem of selling British goods abroad was not primarily a price problem, that devaluation would feed through into prices and wages causing inflationary pressure, and that overseas governments could quickly take similar measures.84 Clearly, the political argument that the Labour Party could not go into an election advocating devaluation without creating a run on the pound and a crisis of confidence in the incoming government was also a significant factor. The solution favoured was rather an expansion of the world economy in an internationally coordinated manner. The argument was that the balance of payments deficit would be reduced ‘if Britain is able to participate in a coordinated approach to expansion both in Europe and more widely’.85 While the AES specifically eschewed economic coordination within the EEC, by 1985 the TUC and the Labour Party saw their role as ‘leading and pressing for coordinated recovery in Europe’.86 Labour’s position had shifted in favour of continued EEC membership and the Party was prepared to advocate using the European dimension as a means of alleviating the jobs crisis in the UK. Having said this the possibility of a coordinated reflation being agreed must be thought of as questionable. Perhaps as important as the policy shift before 1985 away from devaluation/import controls and towards the idea of a coordinated European reflation was the fate of this policy subsequently. Clearly, the issue of the balance of payments position had not gone away and newspaper reports continue to highlight the fact that ‘Labour is worried that the UK is heading for a balance of payments crisis’.87 However, the 1987 manifesto did not mention either the problem or the proposed solutions. In terms of presentation it appeared that a decision has been

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made to emphasise positive measures as in the pre-election ‘New Industrial Strength for Britain’ which dealt with the problem only in terms of ‘better export promotion’.88 Useful as they may be in the longterm, export promotion measures would have been unlikely to be sufficient to deal satisfactorily with a balance of payments crisis. The Party appeared to have had more confidence in the policy which it developed to deal with the issues of exchange and capital mobility. The 1983 position was to re-impose the exchange controls which operated until abolished by the Conservatives in 1979. However, the policy of statutory exchange controls was gradually abandoned. Hattersley argued that government no longer had the ability to introduce such controls and make them effective; that the threat by a Labour government to impose such controls would lead to an exchange rate crisis; and that, in any event, exchange controls would damage the earnings of the City which were vital to the balance of payments.89 The alternative which the Labour Party proposed was to ‘establish a capital repatriation scheme using the tax system to attract and retain British savings and investment in Britain’.90 The idea was basically a simple one under which managed funds (pension, investment, etc.) would lose valuable tax concessions if more than a specified portion of their investment portfolio was held overseas. The advantages of this proposal, it was argued, would be to boost the exchange rate (though whether this was an advantage is open to question), lower the interest rate, and provide valuable funds for investment in the UK. The policy was linked to the argument that the revenue created would be used by the government to finance the National Investment Bank. The left argued that such a scheme would be full of loopholes and therefore impossible to implement and would, in any case, be illegal under EEC rules.91 However, the policy change was generally accepted and featured in the 1987 manifesto. A further development on exchange rate policy was in Labour’s position on the EMS. This is discussed later in the section on Europe. However, while Labour was not committed to EMS membership by 1987 it is worth noting that both Kinnock and Hattersley pushed to open discussion on the issue, and Kinnock even went as far as setting out the conditions on which Labour would consider entry.92 Inflation As Labour moved back to a more centrist political position it might have been expected that Labour would again have adopted an incomes

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policy as a principle mechanism for the control of inflation. After his appointment as Shadow Chancellor it seemed clear that Hattersley was prepared to push the issue. He argued that it was ‘quite extraordinary that free collective bargaining, which is a product of free market capitalism and embodies most of the disadvantages of that system, has become a canon of socialist belief’.93 In a 1984 lecture entitled ‘A socialist wages policy’ Hattersley argued that ‘if we are to move at anything like reasonable speed to full employment, some agreement on incomes is necessary’.94 In the context of the shifting power within the Labour Party – and particularly the shift of power back to Labour’s front bench – Hattersley’s advocacy of incomes policy is significant. However, there were tensions within the Labour Party leadership over incomes policy and the role of the NEA. The report of the Kaldor Group of economists was clear that ‘some form of planned growth of incomes … is central to the success of Labour’s economic programme and inescapable in practice’.95 The report advocated annual discussions between government, the CBI and the TUC to set the large company settlement rate, a requirement that large companies all settle in one month, and the reintroduction of a Price Commission. Controversially, the report advocated a strengthening of employer organisation, particularly the CBI, to try and ensure that this proposal was feasible. However, there was disagreement within Hattersley’s group of economic advisers over the issue. Hattersley’s permanent adviser, Doug Jones, was firmly in favour wholesale agreement on pay while Gavyn Davies argued for a pay freeze followed by a complex pay policy based on profit sharing. However, Paul Ormerod did not see the need for a pay policy and was particularly critical of ‘ingenious wheezes’ proposed in the City – Davies worked at Goldman Sachs – for linking pay and profits.96 Hattersley did have some success in persuading the trade unions towards accepting the need for an agreed approach to wage increases. In adopting a minimum wage policy it was acknowledged that ‘it is impossible to eradicate low pay without destructive inflationary consequences, unless there is a redistribution of income in which high earners … receive smaller increases than the low paid’.97 In addition, Hattersley proposed a series of priorities for the use of resources at the 1985 TUC Conference – first, the unemployed; second, the low paid and the poor; and, third, everyone else – which became policy.98 The solution to tensions within the party over incomes policies was again to play upon the different understandings of the NEA which were generated by the ambiguous phrasing of the proposal. In the 1987

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manifesto the NEA – now broadened to include employers as well as the trade unions and government – featured prominently. It was stated that the NEA would ‘identify the concerted action that will need to be taken by government, employers … and trade unions to increase investment, contain inflation and achieve sustained recovery’.99 This, however, fell someway short of an explicit commitment to an incomes policy which had appeared to be Hattersley’s objective in 1983. There are a number of reasons for this. First, incomes policy remained unpopular in the party as a whole with conference consistently supporting resolutions along the lines that the ‘next Labour government will not introduce wage control either directly or indirectly nor seek to reach an agreement over incomes which has the effect of reducing living standards’.100 Second, the terms of trade between trade unions and the Labour Party had changed. In the early 1980s the fact that an agreement could be reached between the Labour Party and the trade unions was seen unquestionably as positive. In the aftermath of the miners’ strike this was no longer the case. Shaw argues that ‘Labour’s new strategic advisers warned of the electoral perils of a commitment to erect [the] corporatist structures’101 necessary for an incomes policy. These factors combined when, in the run-up to the 1987 election, ‘both before and during the private meetings with the Neddy Six union leaders in early 1987, the Party leadership was offered a formula which implied an incomes policy’.102 As Minkin comments ‘ironically, the party leadership turned it down as undeliverable’.103 While the NEA remains a factor in policy Labour does not succeed in developing the incomes policy which had appeared to be Hattersley’s aim on becoming Shadow Chancellor. As a result, at the time of the 1987 election, Labour was ‘still a party in search of a policy on inflation’.104

The Kaldor Group In terms of macroeconomic policy the development of Labour’s position between 1983 and 1987 was mostly steered by Hattersley as Shadow Chancellor and an informal group of advisers. A more formal group of economists – the Labour Economic Policy Group or Kaldor Group – operated through 1985 and 1986. In considering the relationship between Labour and academic advice the fate of the Kaldor Group’s report is instructive. In late 1984 Kinnock suggested to Lord Kaldor that it would be useful if there was a group of economists thinking about Labour economic policy and providing a critique of Conservative proposals.

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While Kinnock may well have envisaged a loose network of economists whose prime purpose was campaigning, Kaldor was more concerned that such a group should be focused rather more on thinking about economic ideas. After informal consultations with Andrew Graham and Wilfred Beckerman, the Labour Economic Policy Group or Kaldor Group was established in February 1985. The Kaldor Group was effectively run by Andrew Graham who chaired the meetings and drafted the group’s report.105 The group consisted of about 20 economists and those particularly active included Allsopp, Beckerman, Desai, Jones (Hattersley’s economic advisor), Lord Kaldor, Metcalf, Neuburger (Kinnock’s advisor), Piachaud, Soskice, Stern and Thirlwall. Eatwell and Ward also attended, though less regularly. Although the group was fairly large it did manage to produce a consensus report in July 1986 and, while some members thought it rather too academic, it did address a number of Labour’s macroeconomic concerns. The report set itself the same objectives as Hattersley had set for the Party: the maximum possible sustainable reduction in unemployment, the alleviation of poverty, raising economic output, and, in the longterm, increasing the incomes of those in work. The same constraints, on the balance of payments and inflation, were also recognised. However, the recommendations of the groups were somewhat more thoroughgoing than those which Hattersley and Kinnock had managed to get the Labour Party to accept. This is particularly true in two areas. First, the group advocated a policy immediately after the election of a ‘lower exchange rate combined with entry to the EMS’.106 Politically, Hattersley had recognised the difficulty of going into an election advocating the devaluation of the pound. A private report had no such need for caution and the Kaldor report saw depreciation as a key weapon in protecting the balance of payments position. EMS entry was advocated as the prime means by which Labour’s credibility with the financial markets might be established. It was argued that the expectations of the financial markets would have to be managed to avoid a post-election run on the pound. The best way to do this was to enter the EMS – in the wider 6 per cent band – and to enter at a low rate which would appear sustainable. Entry, it was also felt, would provide an opportunity to argue for the coordinated European expansion by which Labour had begun to set much store. It was some time after the 1987 election that the Labour Party itself was convinced of the need for ERM entry. Second, the report clearly recommended that Labour move towards developing an incomes policy. Again, this was further than the Labour Party was willing, or able, to go.

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Almost as significant, however, was what the Kaldor Report did not say. The report did not include any recommendations for trade or import controls. The group included a number of economists – including Kaldor, Beckerman and Eatwell – who had been involved in the CEPG in the early 1980s and had pressed the case for import controls. However, by the time of the Kaldor Group’s report only a very small minority, including Kaldor, felt that there was still a case for the planning of trade.107 The Kaldor Report is significant in that it is a rigorous consideration of Labour’s macroeconomic options produced by a group of economists of international standing. The group’s thinking, particularly on EMS membership but also on other issues such as education and training, shows the direction in which Labour’s policy was to develop after 1987. However, most of the group’s members considered that their efforts had been wasted. A meeting with Kinnock to discuss the report was cancelled and never rearranged. There was never any contact with Hattersley. While the involvement of advisers to Labour’s front-bench, including Eatwell, Jones, and Neuburger, ensured that the group’s thinking received some attention it is difficult to argue that the group’s work received a wide circulation, or significant discussion, amongst the Labour leadership. In part the problem was structural; without a central site for the discussion of macroeconomic policy there was no focus for initiatives like the Kaldor Report. However, the main problem was political; when it became clear that Kinnock had other priorities there was nowhere that the Kaldor Group could go and it ceased to meet after its report was completed. The group needed to report to a Shadow Cabinet member to ensure it had an impact. Some members of the group, including Andrew Graham, were consulted by Gould when he was tasked with drawing up a strategy for achieving Labour’s jobs target. However, the influence of the Kaldor Group, as a group, was minimal.108

Reviewing macroeconomic policy, 1987–92 Although there were changes in macroeconomic policy between 1979 and 1987, the main changes in Labour’s macroeconomic strategy were effected after 1987. This was the period when there was most dispute about macroeconomic policy, though it was a dispute which was for the most part conducted behind closed doors inside the PRGs and then in the newly-established Economic Sub-committee of the Shadow Cabinet. Controversy was centred on two questions. First, the role of

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macroeconomic policy, and particularly the efficacy of reflation, in bringing down unemployment, and even more fundamentally the commitment to full employment itself. Second, the role of ERM membership in providing a monetary anchor for the economy and the consequences of such a move for the real economy. These questions were central to both the policy review and subsequent policy debate.

Macroeconomic policy and the policy review The period between 1987 and 1989 is an atypical one for Labour’s macroeconomic policy. The policy review structure meant that questions of macroeconomic policy tended to fall into the remit of the PRG on the Productive and Competitive Economy. This meant that macroeconomic policy was effectively determined by a group co-chaired by Bryan Gould, rather than by the Shadow Chancellor, John Smith. There were clearly macroeconomic issues that needed to be addressed. The first meeting of the Economic Sub-committee of the Shadow Cabinet received a paper on ‘Economic Prospects’ which sought to identify the limitations of Labour’s economic approach at the 1987 election. On unemployment it argued that the ‘Jobs Programme’ was seen as a social rather than an economic programme, and that it was not obvious why an employment target should be set again. A number of areas were identified as needing attention; the EMS, monetary policy in the face of the credit boom, an approach to public expenditure which emphasised differences in priorities rather than just increases, the problems of external balance and sterling, and an approach to inflation which was more credible.109 The PRG tended to avoid the issues of macroeconomic policy and, indeed, one of the key arguments put forward in the policy review was that the main faults of the British economy were on the supply side. However, the policy review did commit the Party very strongly to the goal of full employment stating that this objective had to be ‘at the heart of a rational economic policy’.110 In fact, this policy was extended slightly in that the quality of jobs was also highlighted. It was argued that ‘merely setting a target for the reduction of unemployment is not, however, enough’.111 While full employment remained the objective, it was recognised that a traditional Keynesian reflation of the economy would not only run into a balance of payments constraint but, more seriously, a lack of the industrial capacity that would be needed to cope with any such increase in demand and so generate employment. The document states that steady

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macroeconomic expansion, with low inflation is necessary, but the need is for a ‘new focus on the encouragement of structural change, building up from the needs of flexibility and adaptability at the level of the firm and the industry’.112 Achieving full employment is not to be by the traditional remedy of reflation, although demand will be raised at a ‘sustainable and predictable rate’,113 but through ‘supply-side’ measures such as training. Overall, the goal of macroeconomic policy was to aim at ‘restoring balance to the economy’,114 in particular that between consumption and investment, in order to support the industrial strategy. To provide the basis of its discussion of inflation the PRG commissioned papers from a number of academics including Paul Hare, Malcolm Sawyer and Jim Tomlinson.115 The papers differed in a number of respects, including the importance of inflation and the need to fix an exchange rate target. However, while it was accepted that a ‘full-blown corporatist arrangement’116 was no longer feasible all three papers put forward the need to have some form of policy on incomes as part of an anti-inflationary strategy. The policy review, however, stated that Labour ‘reject[ed] a pay policy or any form of pay norm as being unhelpful and unworkable’.117 The idea of a NEA is dropped from policy. There is a line in the policy review – inserted at the initiative of John Edmonds who wanted the review to be clear that Labour, and the trade unions, could take a hard-headed view of pay negotiation – that public sector management would be given a financial framework and have to ‘negotiate wage settlements within that framework’.118 The PRG report emphasised that ‘inflation is of special concern to socialists’ and that ‘the control of inflation must be a major priority’.119 However, ERM membership is rejected on the basis that ‘there is no solution … in an over-valued exchange rate which in the long run damages both the real economy and the inflation rate’.120 The policy review also went on to ‘reject a pay policy or any form of pay norm as being unhelpful and unworkable’.121 It was not clear what Labour would do except that ‘policy will be aimed at specific inflationary pressures as they arise’.122 The result was that ‘the major weakness of this policy, as Labour economic advisers admit, is the lack of any weapon against inflation’123 particularly as the commitments to lower interest rates, hints of devaluation, and a minimum wage might well cause inflation to rise. This lack of an anti-inflation policy was to be a key issue in the reorientation of economic policy after 1989. Therefore, although macroeconomic policy received little attention in the final report of the PRG, a number of commitments were made;

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to balanced growth based on investment not consumption, to ending the reliance on high interest rates and an uncompetitive exchange rate, and to control over public expenditure combined with the assertion that Labour was not a high tax party. It was clear that the expectation was for continually increasing demand to boost employment and growth. As such macroeconomic policy could be said to have had a Keynesian orientation. The common criticism of the Policy Review, that it neglected macreoeconomic policy, was not well-founded. However, as Graham highlighted in an internal document, it was possible to mount a plausible attack on the macroeconomic policy contained in the review.124 Lower interest rates and a competitive exchange rate implied a ‘looser’ monetary policy the corollary of which was the need for a tighter fiscal policy. This implied that if there were not to be high taxes there was then little scope for increased public expenditure, and that a balance of payments crisis would present the government with unpalatable macroeconomic decisions. This attack could only be defended by avoiding new commitments, particularly for public expenditure, and by focusing on the medium-term supply-side strategy. In part, it was the realisation of these difficulties which led to Labour’s change in macroeconomic policy before 1992. Emphasising stability After the policy review was concluded control of macroeconomic policy returned to the Shadow Chancellor and the economic sub-committee of the Shadow Cabinet. Smith appointed Andrew Graham as his economic adviser in mid-1988.125 From 1989, Graham ran an advisory group of economists that worked with Smith through to the 1992 election mainly on issues of macroeconomic policy.126 The macroeconomic policy developed by Smith was fundamentally different to that put forward in the policy review. Between 1979 and the end of the policy review macroeconomic policy had been based on the traditional Keynesian use of macroeconomic instruments to expand or contract the economy. Labour was generally pledged to expand the economy, by increasing public expenditure and/or reducing interest rates, in order to combat unemployment. The exchange rate was then used to influence the balance of payments position. However, economists such as Graham and Eatwell were arguing by the end of the 1980s that the economy had changed significantly enough for this traditional model to be no longer applicable. Four main changes were identified. First, the British economy was more open which affected the use of all macroeconomic instruments. Second, inflationary expectations

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had been generated in the 1970s and 1980s which increased the need to stabilise inflation. The monetarists were right in arguing that the economy needed some kind of nominal anchor. This particular issue had been the cause of some dispute between Eatwell and Gould in the PRG. Third, the credibility of fine-tuning had been reduced, partly by an increased awareness of the complexity of the time lags involved, which argued for a focus on the medium to long term. Fourth, the liberalisation of markets had increased the interaction between economic policy instruments.127 These changes implied a number of major changes in Labour’s approach to macroeconomic policy in the period after the policy review. First, there had to be less fine-tuning and a focus on stabilisation of inflation and inflationary expectations. Smith’s public image lent itself to a policy which stressed the importance of macroeconomic stability. In this respect, Labour’s thinking was also deeply influenced by the effects of the Lawson boom in the late 1980s. During 1988 the boom meant that the balance of payments deficit was growing rapidly and inflation was heading for double figures with house price inflation a particular problem. Anderson and Mann argue that ‘for Smith, Brown and Eatwell and for the overwhelming majority of economists advising Labour, the persistence of mass unemployment even when the economy was over-heating was definitive proof that increased demand would not on its own cut the dole queues substantially except at an unacceptable cost’.128 Gould, and his economic adviser Henry Neuburger, took a different view which was basically that the economy was not ‘over-heating’ as much as it was ‘unbalanced’ and the need was for credit controls to allow continued expansion.129 Second, there was a need for a nominal anchor, a monetary target, to guarantee short- and medium-term stability. Of those available it was argued that the best was the exchange rate, particularly as part of an internationally coordinated system such as the ERM. The debate on whether there was a need for a nominal anchor surfaced both in the PRG and the Economic Sub-Committee. Gould’s position was essentially that the economic policies of a future Labour government should not be based on a monetary target and that economic policy objectives should be set in real terms. To support this position he argued that previous Labour governments had had to abandon their long term economic strategies to defend unrealistic exchange rates, for example, between 1964 and 1966. Gould’s position in this respect had remained remarkably consistent throughout his political career and was reflected in his support for Shore’s ‘competitiveness strategy’ in the early 1980s.

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In the PRG Eatwell argued that that there was a difference between having unrealistic monetary targets and no monetary targets at all. His key theoretical argument was that in an open economy it was impossible to ignore the impact of nominal variables on real outcomes and, further, that ratios of nominal variables defined competitiveness. It was economically impossible therefore to ignore monetary variables such as inflation even if such a course was politically feasible. The second stage of the argument concerned the desirability of fixing the exchange rate. It was agreed that for an open economy to remain competitive there must be no long-term significant trend change in the real (i.e. nominal adjusted for inflation) exchange rate. This could be achieved in two ways. Gould argued that this could be achieved by allowing the exchange rate to adjust to take into account national differences in inflation. In the British case this would imply allowing the exchange rate to depreciate against, for example, the Deutschmark to compensate for British inflation being higher than that of Germany. Eatwell employed two main arguments against this position. First, he argued that the rate of inflation was not independent of the exchange rate pointing to empirical evidence showing that the main impact of monetary policy on inflation was transmitted via the exchange rate. The implication was that inflation and devaluation were reinforcing. Second, Eatwell pointed to the instability created by the floating exchange rate system since the 1970s. It should be recognised, however, that Eatwell’s position had uncomfortable consequences if domestic inflation was high enough to establish a trend increase in the real exchange rate. This would cause strains on the domestic economy that could only be alleviated by domestic antiinflation policy or periodic deflation. Eatwell’s hostility to devaluation can be traced back to his involvement in the CEPG in the late 1970s and early 1980s. This was the theoretical background to Labour’s change in macroeconomic policy. Already by the time of ‘Looking to the Future’ (1990) the objective of macroeconomic policy was ‘a monetary framework which will provide long term exchange rate and interest rate stability’.130 No mention was made of achieving full employment and the only reference to growth was to say that it must be balanced. Smith emphasised the macroeconomic policy aims at the 1990 Conference arguing that ‘it is important to achieve a stable exchange rate, to bring down interest rates and to secure an economic climate which encourages both sustained investment and growth’.131 The move away from full employment as the main macroeconomic objective is a key change in Labour Party policy.132

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The changes in macroeconomic objectives and policy are most clearly shown on the issue of membership of the Exchange Rate Mechanism. The particular route to that decision is discussed in the next chapter. Here it is enough to note that the policy review had, in line with Gould’s Eurosceptical view, set a stringent list of conditions for Britain to enter the ERM. By 1990, the tone, if not the conditions themselves, had changed substantially with the new document stating that Britain would enter the ERM at ‘the earliest possible opportunity’133 after the conditions were met. The argument was that the ERM ‘would create a new framework for wages and other costs’134 indicating that membership was seen as providing a counter-inflationary discipline. When the Conservatives entered the ERM in October 1990 at an exchange rate of £1 : DM2.95 Labour was left in the difficult position of deciding whether to argue that the rate was too high or promise that the rate would be maintained. Wary of being accused of being pro-devaluation the party remained committed itself to maintaining the rate. ERM membership would not, however, be enough on its own; the ERM would provide the target but not the means to achieve it. It is in this context that the idea of a NEA returns to Labour’s policy armoury in ‘Opportunity Britain’.135 However, in private meetings of the Contact Group in the run-up to the 1992 election it became clear to the TUC that the Labour leadership regarded the NEA as a forecasting activity rather than as a forum for real negotiation. During this period there was some serious thinking about incomes policies within the trade union movement. The most significant was ‘A New Agenda’, a joint document by John Edmonds (GMB) and Alan Tuffin (UCW). The new agenda included proposals for ‘synchronised’ and coordinated pay bargaining. It looked at a number of models, including the Japanese spring offensive and the German system of coordinated bargaining, where ‘free collective bargaining continues but a consensus view is reached about the overall scope for pay rises which conditions negotiations and influences settlements’.136 Edmonds and Tuffin proposed that major negotiations be ‘concentrated in the first three months of the year following a public discussion between the government, CBI and TUC of Britain’s economic prospects’.137 This would lead to pay negotiations being informed by the overall economic situation, reduce the danger of leapfrogging, allow the Chancellor to frame the budget after the pay round, and to include an adjustment in the national minimum wage without inflationary consequences. ‘A New Agenda’ was a significant attempt by two influential trade union leaders to say something positive about incomes policy and it had some impact

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within the trade union movement. A subsequent TUC paper on ‘Collective Bargaining’ reflected some of the ideas in the Edmonds and Tuffin document in its analysis of the impact of the minimum wage and the need for a position on public sector pay. A number of academics began to put the case for an incomes policy more firmly in the late 1980s and early 1990s. John Grieve Smith, in particular, published papers under the imprimatur of the IPPR.138 Hirst and Zeitlin produced a paper that argued against ERM membership as an inflationary discipline and that there was a case for an incomes policy which recognised the changes in bargaining structure which had taken place.139 The paper was presented to Labour policy-makers at a private seminar at the IPPR. Eatwell argued that Labour’s strategy for ERM entry would drive inflation down. Hewitt was particularly concerned lest the paper leak and predicted a hostile reaction from the Daily Mail. Hirst and Zeitlin were dismayed by the reaction and argued that, though the political concomitants of the strategy would have been hard to sell, policy-making should not be pre-censored by the tabloids.140 One must conclude then that by 1992 it was the Labour leadership, rather than the trade unions, which were unwilling to consider some form of policy on incomes. Indeed, the TUC view was that an incomes policy would be necessary, and would have welcomed it as a way of gaining an input into macroeconomic policy.141 However, the experience of 1974–79, and the perceived political unpopularity of incomes policy pushed the Labour leadership away from the idea. There was interest in the concept of synchronisation of wage bargaining but there was no explicit commitment in Labour’s published policy.142 This was despite the fact that several commentators argued that a policy on incomes could transform the prospect of Labour’s economic policy. Without an incomes policy, Labour would still have to operate a policy for public sector pay which, as Hare has argued, would be likely to be ‘derived directly from views about acceptable inflation’.143 Given that would be likely to mean private sector wages growing considerably faster than those in the public sector, and hence recruitment and industrial relations problems in the public sector, this was, Hare concluded, ‘a situation to be avoided if at all possible’.144 In a piece on Labour’s economic policy in 1992, Hutton asked ‘is Labour’s intention really to leave the institutions of wage bargaining unreformed and continue with the policy of pay decentralisation?’.145 It was, although this would have had serious consequences in terms of the differential between public and private sector pay, and the government’s

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ability to deal with inflationary pressure. Labour’s attitude to incomes policy has been conditioned by their perceived failure in the 1970s and, particularly, the political costs of the ‘winter of discontent’. This has made both left and right reluctant to even discuss policies of this kind regardless of their economic merit. However, it is also true that changes in the labour market, caused by both external factors and Conservative policy, combined to make an incomes policy less viable. Labour’s failure to address the incomes policy issue left a hole in its macroeconomic strategy in terms of its ability to deal with inflation. Between 1989 and 1992, then, there was a re-orientation of macroeconomic policy aimed at creating stability in the exchange rate, through ERM entry, low and stable interest rates, and low inflation. A consequence of this was that the objective of achieving full employment was quietly dropped and did not feature in the 1992 election manifesto. Two main criticisms have been made of this policy. First, it has been argued that Labour’s macroeconomic priorities were now no different to those of the Conservatives and were unworthy of a left party. In particular, the jettisoning of the full employment objective was harshly criticised. By the 1992 election Labour’s macroeconomic policy had effectively boxed the party into a position where it had little to offer in the way of an alternative. A second criticism that was made was that the Party’s macroeconomic position had been established in late 1989/early 1990 when the tail end of the Lawson boom meant that inflation was the key macroeconomic problem. However, by the time that the election was fought in mid1992 the economy was in deep recession and unemployment was seen as a more pressing priority. However, Labour’s commitment to the ERM, and to sustaining the Conservative’s rate of entry of £1 : $2.95 meant that Labour was severely limited in the macroeconomic remedies it could offer. Certainly it was ironic that Labour’s remained a committed to credit controls in 1992 at a time when they were clearly irrelevant to the economic situation. Gould was to make this point strongly after the 1992 election.146 It was a criticism which could also be made of Labour’s tax policy. Labour’s tax bombshell The second aspect of Labour’s policy at the 1992 election which has subsequently been heavily criticised was the Shadow Budget. Most criticism has focused on the proposals for tax changes though, as should be clear, these proposals were dependent on Labour’s proposals for public expenditure. The story of the Shadow budget essentially

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starts with the 1987 election campaign when a lack of precision on the detail of Labour’s tax and spending proposals meant that Labour’s campaign was marred by uncertainty and confusion. This was one part of the argument for a Shadow budget which set out precisely the tax changes which Labour would make. One of the reasons why Kinnock was initially reluctant to establish the policy review was a concern that the PRG’s would come up with a ‘wish-list’ of policy proposals which would have considerable public expenditure implications. A number of steps were taken to try and prevent this and the meetings of policy review group convenors were constantly reminded of the need to restrain public spending.147 However, this had a limited impact on the groups. When Brown, as Shadow Chief Secretary to the Treasury, asked Dan Corry to cost the Party’s programme on the same basis that the Treasury would he came up with a figure of around £60 billion.148 This was despite the fact that many of the changes in the policy review, including that on social ownership, had been made on the basis of limiting public expenditure. The policy review was viewed as unsatisfactory in this respect and the documents that followed can be seen as attempts to remove the more obvious commitments to large-scale public expenditure. For example, after his move to the DTI, Brown removed the commitments to ‘cable up Britain’ and to renationalise British Telecom from Labour’s industrial policy. In this process of restricting public expenditure commitments first Brown and then Beckett as Labour’s Shadow Chief Secretary to the Treasury played the key role, with Dan Corry the official responsible for vetting policy documents for their public expenditure implications. Beckett became famously associated with adding the rider ‘as resources allow’ to Labour’s spending pledges. While to a large extent this was successful it was a difficult process with Party members, and Shadow Ministers, inclined to view an increase in resources as the prerequisite for progress in a number of areas. It also meant that at the 1992 election the status of policies included in the final policy review document ‘Meet the Challenge, Make the Change’ was uncertain. If the line on public expenditure was controversial within the Party before the election, Labour’s position on tax was to be controversial after. Labour’s tax proposals were, however, conceived to fund two specific pledges – to increase pensions by £8 for a couple and £5 for a single person and to increase child benefit to £9.95. The decision to make these pledges was made soon after the 1987 election outside of the review. The pledge on pensions was exactly the same, in money

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terms, as had been made in the 1987 election while the child benefit pledge would have had the same effect in real terms as that made in 1987.149 Once these decisions were made, however, the principle issue for the Economic Equality PRG became how to fund these pledges. Further, these discussions were taking place in the context of reaction against Lawson’s 1988 budget which had abolished higher rates of tax. John Smith, in particular, retained a strong commitment to changing the system in a redistributive way. The desire for clarity in Labour’s tax and spending proposals and the decision that there would be pledges to increase spending on pensions and child benefit meant that there had to be some tax changes to fund these increases. There was a general agreement within the Party that there needed to be a definitive statement of Labour’s plans to deal with these two issues. Out of that, and the need to avoid making proposals too early and allowing the Conservatives to steal Labour’s revenue sources, came the idea for a shadow budget near to the election which played on Smith’s image as a responsible custodian of the nation’s finances. All of this was agreed across the Party leadership. There was, however, a significant disagreement between Smith’s office and Kinnock’s office on when Labour should begin to campaign on tax. Eatwell and Charles Clark argued strongly that the Party campaign early, in late 1991, in an attempt to neutralise the tax issue. Smith disagreed, in part because he felt that he had the government on the run on the issue of the Maastricht Treaty. As a result the issue of tax did not emerge as the major issue until the campaign proper.150 Knowing Labour was to produce a Shadow budget, Lamont framed the Conservative’s 1992 budget to maximise Labour’s difficulties. The Conservative budget introduced a 20p band that significantly benefited the poor. Labour was faced with the difficult task of producing a shadow budget which outbid the Conservatives on tax while at the same time paying for the Party’s proposals on pensions and child benefit. A small team including Dan Corry and the LSE academic John Hills managed to hone the details of Labour’s Shadow budget while Eatwell and Graham’s text sought to play up Smith’s image as the next Chancellor. Backbench pressure on Smith and Beckett meant that money was shifted at the last to ensure that Labour was doing more for the poor – even if in some cases it was only by 1p – than the Conservatives. As an economic exercise the shadow budget stood up as a set of proposals. However, politically although the initial reception of the Shadow budget was positive – with an IFS analysis showing that nine out of ten voters would be better off under Labour’s plans – the

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Conservative’s campaign on ‘Labour’s Tax Bombshell’ was subsequently felt by most observers to have had a significant effect. There are a number of reasons why this might have been the case. For example, after the election a number of MPs from the south of England – including Ken Livingstone and Brian Gould – made the point that Labour’s pledge that no-one earning under £22,000 would lose out did not sound like a great deal of money in the south.151 It was also be argued that in the campaign Labour did not actively promote its pledged increases in child benefit and pensions leaving the impression that Labour was increasing taxes for the sake of doing so. Butler and Kavanagh make the point that ‘Labour critics complained that the Smith budget had hurt the Party by putting tax at the centre of the election’.152 However, the over-riding issue was trust; it was clear that the electorate did not trust Labour not to put up taxes.

Macroeconomic policy, 1992–97 In the aftermath of the 1992 election, Labour’s macroeconomic policy was heavily criticised by Brian Gould as part of his campaign for the Party leadership. Essentially, Gould argued that the emphasis on staying in the ERM at the current parity had closed off any possibility to attack the Conservative’s macroeconomic record. Gould also mounted an argument that the Shadow Budget had been extremely costly to the Labour Party. The return of Euro-Keynesianism While the pound had been in the ERM Brown had firmly opposed critics within the Labour Party who had called for devaluation, even though Smith, as Party leader, had indicated that he was willing to consider realignment. The defining moment in the 1992–97 parliament was the pound’s exit from the ERM in September of 1992. This was, of course, extremely damaging to the Conservatives’ reputation for economic competence. The pound’s exit from the ERM set a problem for Labour’s macroeconomic policy as much as for the Conservatives. At the same time there was considerable pressure on Brown to respond to concerns within the Party about the recession and the level of unemployment. Following his resignation from the Labour front bench in the wake of ‘Black Wednesday’, Brian Gould set up the Full Employment Forum with a number of Cambridge academics including Mills, Harrison and Michie to apply pressure for a change in economic direction. The Full

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Employment Forum attracted support in particular from John Edmonds at the GMB. Peter Hain and Roger Berry used the Tribune Group to publish two pamphlets which made the argument for a Keynesian macroeconomic policy. Ed Balls, who was later to become Brown’s key economic adviser, published a Fabian pamphlet which was critical of the position Brown had taken during the ERM period. However, the key push on Brown came from John Smith as Party leader. At the 1993 Trade Union Congress, Smith reaffirmed Labour’s commitment to full employment in unequivocal terms. It had been Smith, as Shadow Chancellor in 1990, who had removed this commitment from Labour’s policy. Now, as much as anything to secure victory for his OMOV proposals, Smith changed his position. There were also a number of developments at a European level to consider again the possibility of European cooperation. Proposals from the European Commission emerged as a spin-off from the Maastricht negotiations. Much of the work on the proposals was done by Stuart Holland, a key figure in the emergence of Labour’s AES in the 1970s and early 1980s, who had by this time moved through a spell on Labour’s front bench, to become one of Delors, advisers. Within the Labour Party this work formed the basis of a ‘European Recovery Programme’ which attracted significant support from Labour MEPs, including Ken Coates. From the end of 1992, through 1993, Brown responded to this tide of opinion in two main ways. First, following Smith’s TUC speech, Brown published a pamphlet called ‘How we can conquer unemployment’ at the 1993 Labour Party conference. The pamphlet insisted that Labour will ‘not renege on the commitment’153 to full employment. Brown proposed a ‘combination of immediate measures to attack unemployment now and medium-term policies to increase investment in capacity and skills’.154 There was a renewed emphasis on a ‘enhanced Keynesian approach, which treats demand management as an integral part of a structural policy’.155 However, Brown was equally keen to stress that repeated exchange rate devaluations are ‘inappropriate and counterproductive’ since devaluation would do nothing to tackle ‘the real problem of productive capacity’ and would therefore be ‘incapable of conquering unemployment’.156 The pamphlet also made considerable play of the scope for a European response to the issue of unemployment. Brown argued that ‘a co-ordinated reflation strategy, taking into account the particular circumstances of individual countries, is therefore in the best interests of the entire Community’.157 For Brown, these ‘particular interests’

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encompassed the key concern that the structural problems present in the UK were much less severe in other European countries. Labour’s formal submission to the Commission on the Delors proposals endorsed this line and emphasised Labour’s support for a countercyclical European Recovery Fund.158 In early 1994, Dan Corry, now working at the IPPR and editing the journal New Economy wrote an article reflecting on Labour’s macroeconomic policy. Corry commented that ‘rightly, [macroeconomic] policy has shifted back a little, particularly since the 1993 Party Conference, towards a more Keynesian feel with concepts of full employment and investment for growth now mentioned much more often’.159 As this was the high point of Labour’s return to a Keynesian macroeconomic policy it is useful to note Corry’s comment that Keynesian-style policies ‘were largely ignored’160 at the 1992 election. Corry argued that that might have been a sensible position in 1992, for political rather than economic reasons, but that to focus entirely on the supplyside was problematic for a number of reasons. First, in a recession, where there was no supply constraint and little risk of inflation, using macroeconomic policy to increase demand would be effective. Second, supply-side and demand-side policies interact, so that, for example, if a recession leads to reduced capacity this will have long-term effects on the supply-side. Third, supply-side policies take a long time whereas ‘the Lawson boom of the 1980s showed just how quickly a surge in demand can effect employment and growth’.161 However, from 1994 to 1997 Labour’s macroeconomic policy returned to focus on stability, and Labour’s emphasis returned to the supply-side.

Stability and inflation Commenting on the report of the Commission for Social Justice in early 1995, Pierson commented that ‘enormous weight seems to fall on the belief that a new form of international macroeconomic coordination can be generated, probably at EU level’.162 However, by this time, Labour’s overall policy had moved away from the idea of coordinated European expansion. Three factors drove this change in macroeconomic policy. First, at an European Union level ‘for all the rhetoric about a “European Recovery Programme” at the time of the Edinburgh Summit in 1992, precious little … happened’.163 Second, the British economy began to recover and, as it did so, the issues became inflation and macroeconomic stability rather than the level of unemployment. Third, the election of Blair as leader changed the context in which

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macroeconomic policy was made within the Labour Party, giving considerably more autonomy to Brown as Shadow Chancellor. Brown moved then to emphasise the importance of macroeconomic stability and the control of inflation. This was reinforced by Blair in his 1995 Mais lecture when he argued that low inflation was more important than even the Conservatives had allowed. Blair argued that ‘low inflation … is the essential prerequisite both of ensuring that business can invest and that supply side measures can work to raise the capacity of the economy to grow’.164 This was Blair’s most substantial intervention into macroeconomic policy during Labour’s period of opposition and was designed to promote the Shadow Chancellor’s position. Most of Brown’s work in the period between 1994 and 1997 was designed to give this policy a degree of credibility; designing a set of rules that would ensure the level of macroeconomic stability which was necessary. In 1995, Brown committed Labour to the so-called golden rule of borrowing. This meant that, over the economic cycle, ‘government will only borrow to finance public investment and not to fund public consumption’ and that the government would ‘keep the ratio of government debt to GDP stable on average over the economic cycle and at a prudent and sensible level’.165 Setting out these rules on government spending was designed to reassure business, the City and voters that Labour would not rock the macroeconomic boat. A parallel development in policy terms was the joint work by Gordon Brown, Robin Cook and John Prescott on proposals for public private finance (PPF). These proposals were meant to be an important signal of Labour’s willingness to work with the private sector. However, PPF could also have the positive side effect of allowing the government to get round the PSBR constraints it had set itself. However, if PPF took off on any scale the markets would discount for this when considering the government’s fiscal position. A further move which was considered was to give some greater independence to the Bank of England. Kenneth Clarke, as Chancellor, in trying to repair the Conservative’s reputation for economic competence after ‘Black Wednesday’, had gone some way down this road in publishing the Minutes of his meetings with the Governor of the Bank of England, Eddie George. The 1995 policy document ‘A New Economic Future for Britain’ indicated that Labour was prepared to go further down this road. However, there was still widespread opposition to such a move. Opponents argued that independence was an institutional quick-fix. Independence, and the insulation of

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monetary policy from ‘political pressures’, was only sensible if one believed that low inflation was a pre-condition for growth. However, Blair’s Mais lecture did seem to imply that New Labour did believe that this was the case and not that there might be a trade off between inflation and growth.166 In the 1997 manifesto Labour did not commit itself to any change for the Bank of England. However, four days after the election, allowing the Bank operational independence was the first key economic change made by the new Labour government. No new taxes Philip Gould has stated that 1996 was a year in which Labour’s message to the electorate was ‘reassurance, reassurance, reassurance’.167 Brown’s macroeconomic policy was designed to emphasise stability and responsibility. However, the key area of policy where reassurance was thought to be necessary was in terms of tax. The lessons that the Labour leadership had drawn from the Shadow Budget was that the Labour Party could not go into an election with a plan to increase taxes without coming under tremendous attack from the Conservatives and the media. Brown and Blair had both privately advised Smith against the Shadow Budget in 1992, and were concerned not to go down the same route in 1997. However, before Labour made any decisions on its own tax proposals it made two decisive interventions in the wider debate on tax. First, during the 1992–97 parliament, Labour was much more effective in attacking tax increases made by the Conservatives, particularly rises in indirect tax such as that on domestic fuel, which served to damage the Conservatives’ credibility on the tax issue. Second, Brown attacked the excess profits, and the ‘fat cat’ executive pay, of the privatised utilities. This hit a popular nerve and Brown’s proposal for a Windfall Tax on the privatised utilities to fund a new deal programme for the young unemployed found a wider public resonance. The decisive moment was, however, when Brown announced in early 1997 when Labour pledged not to raise the 40p top rate of tax and the 23p basic rate. This effectively neutralised the putative Conservative’s attack on Labour as a high tax party. In fact, however, Brown went much further to reassure voters. He committed the new government to the Conservative’s spending plans for their first two years in office. Most economic commentators had viewed the figures for public expenditure in the Conservative’s red book with a fair degree of scepticism, and did not expect the Conservatives to stick to those

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levels had they won the election. This commitment would severely limit the scope for public expenditure by a new Labour government. Macroeconomic change Eatwell, in assessing the overall changes in economic policy between 1979 and 1992, argues that the main change in macroeconomic policy was that Labour had abandoned the idea that short-term macroeconomic management was the key to maintaining full employment. Rather, this sort of ‘fine-tuning’ had been replaced by the goal of ensuring macroeconomic stability for long-term investment. This implies that the main goals of macroeconomic policy were a stable exchange rate, stable interest rates no higher than competitor countries, and low inflation.168 This change was confirmed by the 1997 election. Hutton, in reviewing Eatwell’s article, goes as far as to complain that Labour’s ‘retreat from macroeconomic policy has surely gone too far’.169 Shaw has argued that the abandonment of full employment was a key weakness of Labour’s post-revisionism.170 Hutton, in his book, The State We’re In and through his Guardian columns, and journals such as New Economy was keen to promote ‘New Keynesian’ thinking. For a short period in 1993 and 1994 it looked as though these arguments had met with some success. Reviewing Brown’s ‘How can we conquer unemployment’ pamphlet, Hutton had written that ‘Labour is developing a disciplined Keynesianism and a commitment to change radically Britain’s institutional structures’.171 By 1997, however, Labour had moved back to a position which emphasised economic stability. There were a number of reasons for this re-thinking of macroeconomic policy. First, the effects of the Lawson boom made a macroeconomic policy which emphasised stability attractive. It confirmed the policy shift within the party away from Keynesian fine-tuning. Second, there was a clear need to address Labour’s key macroeconomic policy weakness on inflation. A commitment to ERM membership addressed, for a while at least, Labour’s key weakness on inflation. Without a plausible incomes policy – which Labour found impossible to develop after the ‘winter of discontent’ – developing a policy on inflation became increasingly important for Labour’s economic credibility. Hedging a Labour Chancellor in with a series of macroeconomic rules was the 1997 solution. A commitment to ERM membership also boosted Labour’s credibility with the City and the financial markets. It was felt that Labour’s difficulties on the issue of economic competence were to some extent

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caused by the fact that the City and business – to the public the groups that understood the economy – were so dismissive of Labour’s proposals. The so-called ‘prawn cocktail offensive’ of City lunches was a conscious attempt by Labour to limit the extent of negative comment. The commitment to the ‘golden rule’ served a similar purpose in 1997. While Eatwell argues that Labour’s policy changes have not been influenced by the absorption of Conservative ideas he does acknowledge that the ‘presentation of Labour’s policy has been affected by the extreme conservatism (with a small ‘c’) of economic debate in Britain today’.172 The area in which Eatwell cites this as a major influence is public expenditure where the symbolic importance of the PSBR has been out of proportion with its economic significance. It is certainly clear that Hattersley’s aim in the mid-1980s – to make the case for public expenditure – has not been achieved. This had implications for policy in Labour’s key area of weakness, tax. The very structure of the policy review made clear that Labour’s tax policy was semi-detached from its macroeconomic policy. The logical outcome of this was finally reached at the 1997 election when Labour pledged to maintain the Conservative levels of direct tax for the duration of the parliament and their public expenditure plans for the first two years thereby all but eschewing fiscal policy. These were clearly political rather than economic decisions. Finally, in looking at Labour’s development of macroeconomic policy it is evident that, with the exception of the policy review period, the Shadow Chancellor has controlled policy development. This is particularly true of Hattersley between 1983 and 1987, Smith after 1989, and Brown particularly after 1994. In this context it was the advisers working directly for the economic spokespeople or the leader – such as John Eatwell and Andrew Graham – who were able to directly influence policy change.

6 A European Party

This chapter considers Labour’s attitudes towards the European Union and European monetary cooperation as they developed between 1979 and 1997. An alternative approach would have been to consider the European aspect of industrial intervention, macroeconomic policy and so on. However, I have chosen to deal with the question of Europe separately for two reasons. First, it recognises the significance of Labour’s change in policy on the European Union. The change from hostility to enthusiasm for the EU is one of Labour’s major policy shifts in the 1979–97 period.1 Second, considering Europe separately allows a fuller consideration of the European context within which policy changes were effected. This perspective is often lost in treatments that begin from an analysis of Labour’s internal policy making.

A policy of withdrawal, 1979–83 There was not a sudden hostile shift in policy towards the EEC after 1979.2 Between 1974 and 1979 while the Labour government was generally positive towards the EEC the Party was becoming more hostile. When the Treaty re-negotiation was completed the TUC, and large sections of the Labour Party itself, urged a ‘No’ vote in the 1975 referendum. This hostility was affirmed as it became clear that the government was unable to deal with the issues of Common Agricultural Policy (CAP) reform and the UK’s budget contribution.3 Given this background, it was no great surprise when the issue of EEC membership became the subject of renewed debate when Labour went into opposition. Labour’s 1979 general election manifesto stressed the need for EEC reform and the need to preserve national independence on economic and industrial policy. However, it soon 162

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became clear that this line was not going to hold for long after the election defeat with members of the Shadow Cabinet, such as John Silkin, openly promoting EEC withdrawal. In fact, the policy change on Europe to one of outright withdrawal came relatively quickly. A policy was passed, by a large majority, at the 1980 Conference calling on a future Labour government to ‘disengage Britain from the EEC institutions’.4 Politically the policy shift was immediately significant as it was one of the main factors that led to the formation of the SDP in early 1981.5 There were, of course, immediate political reasons for Labour’s decision to withdraw including the level of the UK’s budget contribution and the iniquities of the CAP. More fundamentally, however, Grahl and Teague have argued that the two major themes in Labour’s history of hostility to the EEC, visible again in the early 1980s, are those of socialism and sovereignty. First, a number of senior figures within the Party had come to distrust of the EEC as a supranational authority. This was manifested, in particular, in a concern with the sovereignty of parliament. This was a strong current within the Party and included figures from both left and right including, for example, Benn, Foot and Shore. Benn expressed the concern that ‘continued membership of the Community would … mean the end of Britain as a completely self-governing nation and of our elected Parliament as the supreme law-making body of the United Kingdom’.6 The second reason for the policy shift was in the area where socialism and sovereignty coalesced to form an argument for withdrawal attractive in particular to the left of the Party. Proponents of the socialist AES argued that it could only be implemented if Britain was economically sovereign. EEC withdrawal was, therefore, intimately connected to the party’s adoption of an economic policy based on the AES.7 This was based on the argument that two of the key components of the AES, the introduction of import controls and of an industrial strategy based on planning agreements and public ownership, would be incompatible with EEC membership. The proposal for import controls was often connected with Britain’s growing trade deficit with the EEC. It was argued, by Kaldor most convincingly, that EEC membership and the growth of this deficit was exacerbating Britain’s industrial weakness. By 1979 Britain’s visible trade deficit with the EEC was £2.7 billion, double its 1973 level, and three-quarters of the total deficit. Clearly, in this context, a policy of import controls had to include the imposition of controls against the imports of other EEC countries. This would have provoked a clear clash with the EEC since at this point ‘the one

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major achievement of the EEC was the removal of tariff barriers to intra-EEC trade’.8 The argument that continued EEC membership would rule out the introduction of import controls was certainly an influence on trade union policy. The relationship between Labour’s industrial strategy and EEC rules was less clear. Labour’s policy of significantly widened public ownership and public investment in industry, it was thought, might well come into conflict with the Community’s rules on state aid. In 1971 an EEC directive had restricted state aid to industries and this had ‘raised fears that [Community rules] might subsequently be used to outlaw key aspects of the industrial and regional programmes of a prospective Labour government’.9 Indeed, there had been instances where the EEC Commission had intervened to prevent the 1974–79 government from giving aid to certain industries, such as shipbuilding.10 Most analyses of Labour’s policy of withdrawal note the mismatch between the policy measures in the AES and EEC membership. However, there were two areas where EEC membership might have reinforced Labour’s economic policy. First, central to the AES was a concern with unemployment. It is possible to imagine a proposal for joint European action on jobs or for joint reflation. Indeed, such a proposal became a key part of left debate and of Labour’s programme after 1983. Why then did the AES advocate British reflation plus import controls to protect the economy against balance of payments problems? The main reason would appear to be the view of AES advocates that the EEC was ‘irredeemably liberal capitalist’.11 As such its institutions were incapable of reform to achieve socialist objectives. As Teague notes ‘the underlying assumption in this approach is that labour can best challenge the dominance of capital within the confines of the nation-state’.12 Further, it was ironic given the argument that EEC membership would prevent Labour carrying out its AES, that many of the institutions proposed in the AES were based on European models; for example, the National Investment Bank was based on the model of the Italian IRI. Similarly, the Labour Party/TUC document on ‘Economic Planning and Industrial Democracy’ drew from the example of the French planning system.13 Second, a key concern of Holland’s analysis on which the AES was based concerned the consequences for the economy of the growing power of multinational companies. Here surely there was a case for joint EEC action to combat the power of MNCs. A 1981 Labour Party statement on the EEC recognised that ‘there is increasing interdependence between nations, and if the labour movement is not to stand on the sidelines, while the multinationals and their political allies gain

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control, we must cooperate to survive’.14 However, the statement went on to argue, rather implausibly, that cooperation would be unaffected by EEC withdrawal. From Holland’s work it is possible to adduce two main reasons why EEC cooperation to combat multi-nationals would be unsuccessful. First, Holland argued that ‘big business in Community Europe is now big enough to dominate macroeconomic activity’ and that the MNCs were the ‘new commanding heights in the EEC sector’.15 The implication is that little is gained in having a strategy to combat the MNCs at Community level. Second, Holland argued that the EEC has proved successful at ‘negative’ integration, preventing activities, but has failed to secure ‘positive’ integration, such as the joint transport policy included in the Treaty of Rome. A positive strategy against multinationals would, therefore, be beyond the EEC. However, as Tomlinson points out, Holland’s arguments only imply that ‘so far the capacity of the EEC to control multinationals has been disappointing’.16 Although Labour moved to a policy of withdrawal from the EEC at its 1980 Conference it was not until after the decision was made that the party began to attempt to assess its implications. The Party’s EEC Study Group began to meet only in June 1980 and did not really begin to work until after the conference decision, at which point the relevant NEC subcommittees discussed papers on the effects of EEC withdrawal.17 The papers insisted on the net benefits of leaving the EEC, focusing on the conflict between the AES and EEC membership. The analysis concluded that EEC withdrawal would ‘at worst … have a neutral effect on jobs and investment’.18 Within the TUC, analysis of the effects of EEC withdrawal was more controversial when, again in 1982, the Secretariat produced a paper which argued that the benefits of withdrawal were ‘at best negligible’ and that the EEC had ‘no effective sanctions’ to block an active industrial policy.19 The clear implication was that withdrawal was misguided. The General Council was critical of the paper, which was out of step with TUC policy, and any serious analysis of the policy at officer level was effectively stopped. The 1983 General Election was a clear defeat for Labour’s European policy. The policy presented in the manifesto was for negotiated withdrawal over the lifetime of a Parliament. This gradualist policy, intended to be reassuring, was criticised by those who argued that there was a need for a ‘quick divorce’.20 However, the position of negotiated withdrawal lacked logical consistency as protracted negotiations would involve the loss of economic sovereignty that was the main reason for leaving the EEC in the first place. Labour’s policy on Europe was

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unpopular since it ‘seemed to increase voter’s doubts as to the viability of the Party’s programme’.21 It did not contrast well with Mrs Thatcher’s ‘vigorous approach’ of ‘getting her money back’ by demanding reform of Britain’s contribution to the EEC budget.22 Negotiating for concrete benefits seemed considerably more effective than negotiating for withdrawal. French lessons Doubts about the viability of Labour’s economic strategy and, in particular, its approach to the EEC began to appear even before the 1983 election. Many of these doubts concerned the lessons drawn from the perceived failure of the Mitterrand experiment in France. In retrospect it has been argued that ‘the collapse of the “Mitterrand experiment” of 1981–83 was the final nail in the coffin of go-it-alone “reflation in one country” economic strategies’.23 The socialist–communist government came to power in France in May 1981 with an agreed economic programme, based on reflation and increased public ownership, which was similar to the AES. After the election the new government tried to reflate the French economy at a time when the international economic environment was strongly deflationary. The reflation was to be ‘spurred by higher consumption, itself fostered by selective social transfers’ such as an increase in the minimum wage.24 The result was that growth increased by 2 per cent and the level of unemployment stabilised. However, the current account trade deficit tripled and inflation increased rapidly. These problems on the current account led to devaluations amounting to 18 per cent, within the ERM, in 1982 and a freeze on prices and wages in an attempt to control inflation. In 1983 the Franc was devalued again and fiscal and monetary policies again tightened. In short, there had been a retreat from the reflationary strategy of 1981. The second strand to the Mitterrand Experiment was the socialist government’s wider industrial strategy that involved a substantial enlargement of the public sector. In 1982, for example, 12 industrial companies, employing 800 000 workers, were nationalised. These companies accounted for 20 per cent of industrial output. Even after the retrenchment in the reflationary programme the French government ‘persisted with plans for a massive investment programme to restructure and modernise French industry, using the nationalised sector as a base’.25 Labour drew two main lessons from the failure of the ‘Mitterrand experiment’. First, that a programme of industrial intervention and substantial increases in public ownership could be effected within the

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framework of EEC membership. Second, the most obvious lesson was that the international environment was crucial in determining whether a reflationary strategy was to be successful. As Aaronovitch, a prominent advocate of the AES, commented in 1986, ‘the experience of the Mitterrand government since 1982 seemed to confirm the view that no second-rate state could go it alone in implementing such a strategy; or, if it did, major sacrifices would be required from working people’.26 It was possible to draw a third conclusion; that it was ‘a mistake to defend an overvalued exchange rate’.27 A recent analysis concluded that the Mitterrand government decision to defend the Franc’s parity within the ERM in 1981 was the main reason that the ‘left was forced to abandon most of its industrial dreams’.28 However, in the Labour Party of the early 1980s the debate about the exchange rate level and the ERM was not of the intensity it was to be ten years later. On the French defence of the overvalued Franc, Ormerod noted that ‘the signs are that Peter Shore … does not intend to repeat [this] mistake’.29 The other lessons were of more immediate relevance to Labour’s policy-making in the early 1980s. In 1982, Barbara Castle wrote an influential article in the New Statesman in which she argued that ‘instead of arguing that we know we couldn’t carry out socialist policies within the Community, let us announce that we are going ahead with our polices and make the European authorities react to us’.30 She thought that there was ‘no doubt at all that the Treaty of Rome, if rigorously applied, would make it impossible for a Labour government to carry out is alternative economic strategy’.31 However, Castle’s argument was that tactically it was important to put the onus for any breach on the EEC. Although the whole article is based on this tactical aspect it might also be read as having more strategic implications, particularly in the light of the recent experience in France. Implicit in the article is an acceptance that withdrawal was not inevitable. Labour should not compromise on its economic programme, but the EEC might cooperate in order to stall British withdrawal. Castle, a long-term opponent of the EEC, was essentially arguing that the Party’s focus should be on the economic strategy rather than the totem of EEC withdrawal. It was a position which opened the door to the argument that ‘a determined national government can play the EEC game much as it likes’.32

The ‘Out of Crisis’ project A development which was to have more immediate effect than Castle’s intervention was the ‘Out of Crisis’ project of the Forum for

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International Political and Social Economy. The project involved members from various European socialist parties but was heavily influenced by economists closely associated with the British Labour Party. The project was coordinated by Stuart Holland with Francis Cripps acting as an economic advisor. Further advice was sought from Ward, Begg and Rowthorn at the Department of Applied Economics at Cambridge. ‘Out of the Crisis’ claimed to be a ‘Project for European Recovery’ its main strategic aims being to reflate, re-structure and re-distribute. It relied on an economic model that showed that joint reflation, by the European countries and the OECD, could generate several million jobs over a ten-year period. Unlike the Castle intervention, the ‘Out of Crisis’ project commented directly on the failure of the ‘Mitterrand experiment’. It acknowledged that unilateral reflation could ‘impose debilitating costs on the countries directly concerned’33 and that this failure helped make the case for coordinated reflation. However, the ‘Out of Crisis’ project was not only concerned with reflation. It also aimed to re-structure the European economy based on planning, planning agreements and wider public ownership, and to re-distribute both between and within countries. Significant emphasis is also given to the need for controls on trade. This programme, similar to many aspects of the AES, was to be based on ‘a move to the left in several European countries and the convergence between key aspects of the programmes of the left across Europe’.34 However, while the ‘Out of Crisis’ project was built on the idea of European cooperation for a coordinated reflation it was still hostile to the EEC which, it argued, ‘offers no hope of reversing the slump syndrome’.35 Instead, ‘the Project aims to create a political initiative that transcends the existing organisational structure within Europe’.36 This hostility to the EEC was perhaps the central weakness of the project since, as Teague and Grahl note, this meant that in ‘Out of Crisis’ ‘policies [have to be] put forward in complete abstraction from institutions, because the EC was excluded as the agency for policy implementation’.37 This lack of clarity meant that, for example, it was ‘uncertain whether [Out of Crisis] is recommending that the British left urge its opposition to the EMS, or that it should support an alternative monetary agency at the European level’.38 However, Holland’s argument was that the purpose of ‘Out of Crisis’ was not to comment on Commission proposals but an opportunity for the European left to set its own agenda. Tactically, he also felt that in convincing the Labour party of the need for European cooperation it was best to avoid specific references to the EEC.39

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Teague and Grahl argue that the ‘Out of Crisis’ project was a failed attempt ‘to rescue the policy of fiscal reflation in Britain which had become increasingly difficult to apply because of international constraints’.40 They continue that this was more important to the British Labour Party since reflation was more central to its strategy and to the British situation than to that of the other European economies. Teague and Grahl also argue that the collapse of the French strategy for reflation meant that the project was irrelevant. However, the collapse of the ‘Mitterrand experiment’ of reflation in one country made proposals for cooperation at a European, or international, level decidedly relevant to the Labour Party and the British left. However, Tindale has argued that the failure of Mitterrand experiment ‘dealt a fatal blow to the belief, held in particular by Stuart Holland, the left-wing economist, that informal contact between like-minded leftists would be a sufficient international ingredient’41 for a recovery programme.

European action for the real economy, 1983–87 The failure of the Mitterrand experiment and the 1983 General Election result ‘helped convince a broad section of progressive opinion that independent national alternatives were no longer viable technical or political options’.42 However, any reassessment of Labour’s policy towards the EEC and European cooperation was ‘grudging’.43 It looked initially, however, that policy would change quickly. In his leadership campaign, the only Party policy from which Kinnock moved to distance himself was that on the EEC. He stated that withdrawal would be a ‘last resort’ if re-negotiation of the CAP failed.44 The policy document adopted at Labour’s 1983 conference stated that Labour would ‘retain the option of withdrawal’45 clearly implying that other options existed. Even those continuing to advocate the AES began to question whether EEC withdrawal was a priority.46 Kinnock’s position was a difficult one in that before he became leader he had been firmly identified as hostile to the EEC. However, he saw that Labour’s electoral prospects were, at least in part, dependent on a more positive attitude towards Europe. Charles Clark was familiar with the ‘Out of Crisis’ project and set up a meeting between Kinnock and Holland. Holland, who agreed to take the job of Shadow Spokesman on Overseas Development, found that Kinnock warmed towards the project as a way in which Labour could be seen as having a more realistic European policy whilst maintaining a distinct agenda. It also

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meant that Kinnock could avoid the politically contentious issues around Labour’s engagement with the EEC institutions. The outcome of the discussion was an article in New Socialist, entitled ‘A New Deal for Europe’, in which Kinnock to set out his position on Europe. The article had been drafted by Stuart Holland and reflected many of the priorities of the ‘Out of Crisis’ project. The article opened with the line ‘Britain’s future, like our past and our present, lies with Europe’.47 However, Kinnock made clear that Europe is not the same as the EEC and that the EEC needs radical reform if it is to be acceptable to the Labour Party. It is significant, however, that Kinnock is stating that Britain’s future ‘will only lie with the EEC if the Common Market can be a source of tangible value’.48 This was a development of the Castle position and a move towards an approach which gave ‘less emphasis to matters of national sovereignty per se and more attention to the material costs and benefits to the domestic economy’.49 Now the EEC would be judged on what it could deliver economically to the UK, and the option of remaining a member, while not explicit, is clearly there. Kinnock went on to call for a ‘European Bretton Woods’ to aid European recovery. This was necessary because ‘no progress has been made on joint economic policies to counter the economic crisis of the last ten years’.50 It was promised that ‘even from opposition, Labour must actively promote policies throughout the Europe which make sustained recovery possible’.51 Clearly there were echoes of the ‘Out of Crisis’ project here, particularly when Kinnock discusses the need for planned trade within the context of European recovery. The second commonality between the ‘Out of Crisis’ project and Kinnock’s position was the approach adopted towards the EEC institutions. While the ‘Out of Crisis’ project had simply ignored this uncomfortable question, Kinnock proposed a ‘new Messina conference’ to recreate the EEC without the supranational elements. Teague and Grahl argue that such reforms would, in effect, have meant the dissolution of the EEC and that ‘to hold in this way to the logic of British rejection of the EC while being unable to espouse the act of departure from it makes for a certain incoherence in policy’.52 However, this verdict is too harsh. In terms of Labour’s evolving position on Europe, Kinnock would not have been able to move the Party to a rapid engagement with unreformed EEC institutions. The call for a ‘New Messina’ enabled progress to be made.53 The change in Labour’s approach can be seen at the 1984 elections for the European Parliament. Cook, Labour’s spokesman on the EEC, argued in strategy paper to the NEC that the campaign had to be ‘based on a recognition that withdrawal was out of the question for the

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next few years’ and should be positive and ‘emphasise Labour’s desire to coordinate a collective response to European problems such as jobs’.54 This strategy was endorsed by the NEC and the Shadow Cabinet ‘despite some unhappiness expressed about the change of line on withdrawal’.55 However, Labour’s position remained ambivalent. Unlike in 1979, it endorsed the Confederation of the Socialist Parties of the EC (CSPEC) manifesto, though it entered a number of reservations where the manifesto seemed to imply any enthusiasm for the supranational institutions of the EEC.56 Labour’s manifesto focused more on domestic issues, but also particularly on the need for a European crusade for jobs. The election results were a considerable improvement on the 1983 General Election so this slightly more positive approach to the EEC was felt to have been justified.57 Parallel to these developments, a number of writers on the left began to argue that there was a need to respond to ‘growing economic interdependence’.58 Radice argued recognition of this interdependence was an ‘essential precondition of an effective strategy’.59 Teague considered the variety of strategies proposed for economic renewal and argued that ‘the left should recognise extranational industrial policies which are not alternatives to, but supports for, national strategies’ and that it was ‘insufficient to concentrate on solely national policies’.60 The significance of these proposals lies in the stance which they take on the issue of the EEC as an institution. Radice argued that ‘the left should unconditionally drop its opposition to the EEC’61 while Teague was highly critical of attempts to side-step the issue of the EEC institutions which ‘make strategic discussion abstract and unconvincing’.62 A realistic approach had to recognise that ‘the space for European-wide programme of positive policies is occupied by the institutions and operations of the EEC. The potential to abolish that entity and rebuild a more favourable body is remote’.63 Teague’s argument was that if European-wide action on employment and for economic growth was desired as a policy objective than this involved a positive engagement with the institutions of the EEC was a powerful one. Support for this approach came from many who had previously been strong supporters of the AES. Frances Morrell, for example, came to accept that the isolationist AES was out of date and that there was a need to engage with the EEC as an institution and ‘devise new strategies with other European countries who share the same objectives and face the same problems’.64 Within the Labour Party itself coordinated action on jobs became the leitmotif of Labour’s policy towards Europe. As Shadow Chancellor

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Hattersley embraced the concept of coordinated European reflation which fitted with his priority of job creation and was preferable to controls on trade. Eatwell was also a strong advocate of the need for European cooperation. However, there was little or no development of the idea of a coordinated European reflation by the party’s policymaking machinery. For example, the Labour Party had a number of meetings with the German SPD in 1986. It was claimed that these meetings included discussions on the need for ‘international agreement to promote economic expansion’.65 However, the policy statement produced included only a vague acknowledgement of the need for ‘coordinated and controlled expansion of the European economy’.66 Teague, though an advocate of coordinated European expansion, raised a number of questions about the viability of the strategy. In particular, he noted the political difficulty of persuading several European governments away from their neo-liberal economic policies and the more technical economic problem of achieving the high degree of coordination such a strategy would require. In 1985 the Council of Ministers did agree a ‘Co-operative Strategy for Growth and Development’ which was an attempt to coordinate growth rates and reduce unemployment. However, it could be written in 1989 that, ‘precisely nothing has been done to implement it’.67 Further, because of the UK’s trading deficit, Teague noted that ‘Britain would benefit least out of all European countries from a reflationary programme’.68 One can search in vain for a Labour Party recognition of these difficulties. Rather, Labour continued to emphasise the need for joint reflation and European action for jobs when confronted by new proposals from the European Commission such as that to create a single market. The single market Completing the internal market was the Commission’s project to ‘revitalise the Community’.69 The legislation for the Single European Act and the subsequent push towards the creation of a single European market by 1992 were of great significance for the EEC and for Labour’s attitude to it. Labour’s initial response to the proposals was to declare that they were ‘wholly irrelevant’ and a ‘diversion from the real task before us’.70 The Single European Act was ‘constitutional tinkering’ which ignored the fundamental problems. As Robertson, Labour’s European spokesman, argued ‘we want to see the European nations dealing with the problems of growth, unemployment, the recession and the challenge of technology; and we will use any institutions which exist at the moment to make sure it happens’.71 However, by arguing that the completion of the internal

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market was irrelevant, the question as to whether Labour supported the change was left open. Labour sometimes used the argument that while not opposed to a ‘genuine single market’, the specific constitution of the 1992 project would be damaging to British industry.72 Kinnock did, however, acknowledge that ‘many of the ideas … for completing the internal market by 1992 are sensible and useful’.73 Other writers on the left were much more critical of the single market project particularly after 1988 when it began to attract increasing attention. Neuburger argued in a report for the Labour Group of MEPs that ‘on balance 1992 will destroy jobs in every region of the country for the rest of century’.74 In particular, Neuburger mounted a strong critique of the Cecchini studies which preported to show the benefits of 1992, and their methodology of calculating the ‘costs of non-Europe’, which he described as a ‘disgrace to the economics profession’.75 Neuburger described the 1992 project as one based on a ‘profoundly unsocialist analysis’.76 A key criticism was that the financial liberalisation, including the freeing up of capital movements, would make it increasingly difficult for governments to manage their own monetary, and indeed fiscal, policies. Certainly the SEA would have made ‘the kinds of measures envisaged in the AES … even more unthinkable’.77 Labour’s official position on the single market project was never as hostile; its attitude is perhaps best summed up as one of ‘indifference rather than outright hostility’.78 Further, as the discussion switched to the need for a ‘social Europe’ to counter the single market, Labour shifted to a more positive position. This then was broadly the position of the Labour Party towards the European Union at the time of the 1987 election. Europe was not debated by Conference in 1985 or 1986 and Kinnock’s approach to the issue appeared to be ‘delicate [and] low key’.79 Even by 1987 the Party had not officially changed the policy of withdrawal though the general election manifesto stated that ‘Labour’s aim is to work constructively with our EEC partners to promote economic expansion and combat unemployment’.80 However, the ambivalence of Labour’s approach was present also in the manifesto which promised to ‘reject EEC interference with our policy for national recovery and renewal’.81

A European Party, 1987–92 Europe in the policy review There was a significant continuity between the Labour Party’s position towards the EC from the period before 1987 and that embraced by the

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policy review in the 1987–89 period. While Labour’s policy officially changed away from withdrawal in 1988 the continuity was in the concentration on the issues of unemployment and the real economy. The first policy review report was particularly critical of the 1992 project arguing that ‘what is intended is an uncontrolled “free” market on a Europe-wide scale, supported by the free movement of capital, fiscal harmonisation and a severely reduced scope for national industrial policies. These measures will reinforce the current imbalances in the European economy’.82 The second report, following Labour’s change in policy, was more explicit that ‘Britain’s future is in the EC as it develops’.83 However, the Policy Review Group clearly believed that ‘the core of the British economic problem is of a perceived deficiency in national economic institutions and, correlatively, involves a national response’.84 The problems of the British economy were seen to be primarily on the supply-side and the proposed reforms were ones which can be effected in a national context. The idea of a European-wide reflation is not mentioned in the report proper.85 The PRG report then continued in the tradition where ‘the whole emphasis of Labour policy was that the EC was a framework within which Member States pursued national interests’.86 As a result the PRG’s focus on Europe was almost entirely on the Community’s social agenda. Social agenda If Labour’s turn towards a more positive policy on the EEC was grudging then that of the TUC was some way even short of that. In the early 1980s ‘the TUC once again became firmly anti-European’.87 In 1979 the TUC had opposed a proposed European directive on working time and successfully got it reduced to the status of a recommendation even though it was a measure which would have benefited British workers. In this case ‘the desire to reject EC authority was combined with a traditional faith in free collective bargaining’.88 After 1983, while Labour ‘was starting to take a more constructive and conciliatory stance’ towards Europe, the TUC remained ‘firmly opposed to Britain’s membership of the Community’.89 However, after 1984, though there had been no official policy change, the Secretariat were given more space to push policies more positive to the EEC within the European Trades Union Congress (ETUC). In the mid-1980s though the TUC supported the Vredeling Directive which would have given workers the rights of representation, consultation and information it was noticeable

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that ‘the trade union response has been somewhat muted, and no effective campaign in support of the proposals has been launched’.90 The attitude of the TUC was to change quickly after the 1987 general election. Hostility to the single European market, in both the TUC and the Labour Party, had in part been due to the success of the British government in ensuring that the Single European Act included the provision that decisions on the rights of employees still had to be unanimous. However, after the SEA was successfully passed, the Commission began to promote the idea of a ‘social Europe’ which would be a ‘balancing programme of measures which redress the consequences of the market’.91 The key moment was when Delors (President of the European Commission) spoke to the 1988 TUC Congress and set out his plans for a social Europe. Coming after the Conservatives’ third election victory the effect of the speech was electric. Haahr notes that ‘at a symbolic level the TUC’s reception of Delors undoubtedly marked a turning point in the British labour movement’s relations to the EEC’.92 Clearly the effect of one speech should not be exaggerated. The TUC had been working at an officer level within the ETUC to press for a position where support for 1992 was contingent on measures for workers’ rights and employment creation. However, the effect of the Delors speech on the Conservative government was devastating. It pushed Thatcher to make her famous Bruges speech to the College of Europe in September 1988, and a robustly Eurosceptic speech to the Conservative Party conference later that year when she vowed not to allow Europe to impose ‘socialism through the back door’.93 The Labour leadership was quick to take advantage of the change of mood within the Party to effect policy change. In February 1988 Kinnock had already said that the likelihood of withdrawal from the EEC was ‘nil’.94 At the 1988 Conference, when the policy of withdrawal was officially abandoned, Kinnock spoke in support of a ‘social Europe’ arguing that ‘we want Europe to be a community as well as a market’.95 This theme was developed by Kinnock in speech to the Labour Group of MEPs in 1989 when he argued that the desired outcomes of a ‘social Europe’ should be coordinated reflation, expansion with balanced trade, upward harmonisation of workers’ rights, economic democracy, and balanced regional development.96 The Social Charter was first published in May 1989 and agreed, with the exception of the British government, in the December of that year. It included a number of provisions including a minimum wage. Labour’s platform at the 1989 European elections stressed Labour’s support for ‘social Europe’ and the Social Charter and the issue became, and was to remain, a key distinction between the parties with respect to their policies on Europe.97

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In the period after 1987 the promotion by Delors and the European Commission of ‘social Europe’ had a decisive effect on Labour’s attitude to Europe. There are a number of points which can be made. First, the proposals being made for a ‘social Europe’ fitted comfortably with the economic and social policies that were emerging from Labour’s policy review. They appeared to provide a European seal of approval for Labour’s contention that ‘social justice and economic efficiency’ went together rather than being at opposite poles. Conservative opposition to the Social Charter could be attacked as a denial of rights to British workers and as evidence that the government’s aim was a ‘low skill, low wage, low tech’ economy. Being in favour of the Social Chapter also enabled Labour to avoid the difficulties of making, and defending, detailed policy in this area. Second, the Social Chapter could be used to make the argument that far from being ‘irredeemably liberal capitalist’ the EC was far more friendly to workers’ rights than the British government. This was a key argument within the Labour Party for the change towards a positive policy on Europe. Certainly, the Social Charter could be used as evidence against the Conservative contention that the forces of the international economy would inevitably force down wages and led to the need for increased labour market flexibility. At its most crude Labour spokespeople were able to argue that ‘Labour has converted to Europe because Europe has converted to socialism’.98 Thatcher’s overbearing hostility to the Social Chapter helped pro-Europeans make this argument within the Party. It can be argued that the conversion of the TUC and the Labour Party to enthusiasm for the European Commission’s vision of a Social Europe was as much a sign of weakness as of strength. It was an implicit acknowledgement that the TUC and the Labour Party were weaker, industrially and electorally, than trade unions and socialist parties in other European countries. During the 1980s the Thatcher government had ‘been constrained by the EC in its pursuit of policies repugnant to Labour, but which the latter was unable to check at the domestic level because of its lack of influence’.99 Third, Labour’s adoption of Europe’s ‘social agenda’ allowed the Party to go on the political offensive. In the 1989 European Parliament Election Labour promoted its support for the Social Charter, published during the campaign, and this contrasted effectively with the Conservative’s negative approach. The NEC Report to the 1989 Conference argued that the European Election result was ‘a clear endorsement of Labour’s positive approach to the EC and its attitude to the social dimension of the internal market. The Labour Party has shown itself to

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be party of Europe’.100 Labour’s success in this election reinforced a more positive attitude towards Europe.

Europe and globalisation (1992–97) The substance of Labour’s position on the European Union had been determined by 1992. The exception to this was in the area of the European monetary question, dealt with later, where the issue of Economic and Monetary Union were still live. On the other major European questions – including a commitment to continued membership of the European Union, to sign the Social Chapter, and to EU enlargement – Labour’s position remained unchanged. However, New Labour’s attitude to the role of the European Union in a globalised world had changed. This is perhaps best illustrated by looking at New Labour’s view of Rhenish capitalism and the German economy. Will Hutton’s The State We’re In made clear that the author was impressed by the German, and Scandinavian, social market model where, he argued, the industrial structure allowed cooperation, longterm investment and high productivity. Hutton’s analysis focused on the system of mitbestimmung (co-decision), the powerful banking system including the regional banks and the Bundesbank, the success of the Mittelstand (medium-sized business sector), and the social structure based on a strong socialstaat and education and training system. Finally, the German state was based on regional government, proportional representation, and independent government agencies, of which the Bundesbank is one.101 However, Hutton’s praise for the social market model has proved to be perhaps the most controversial aspect of his work. In particular, Hutton’s critics have sought to argue that, in the 1990s, failings began to emerge in the German model which necessitated a reassessment of this view of Rhenish capitalism. In particular, it was argued that levels of unemployment in Germany compare badly to those in Britain. Mandelson and Liddle, for example, argued that there is no alternative to the new global market and enthuse about New Labour’s ‘commitment to the rigour of the dynamic market’.102 From this perspective, the German model was seen as a set of departures from competitive practices and, therefore, no longer allowable in a global economy. Mandelson and Liddle argued that under the pressure of globalisation Germany is moving to be more like the UK. The model of Rhenish capitalism did come under strain in the 1990s. First, ‘product market performance has deteriorated relatively to that of

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non-Rhenish economies’.103 In a period of slow growth, German companies had difficulty in reducing their labour force, and, because of the stress on stability, were been slow at coming forward with innovations. Second, Rhenish corporations performed poorly in the capital markets as financial profitability has fallen. This raised the possibility of making funds for investment more difficult to raise as well as raising the required rates of return on this investment, and also increasing the risks of capital flowing out from the Rhenish economies. Albert and Gonenc acknowledge therefore that ‘the future performance of the Rhenish model will depend on its capacity to sustain its microeconomic efficiency in the new environment of product and capital market integration, while developing its twin contribution to microeconomic contracting and macro-social consensus’.104 Hutton recognised that some of the strength of his argument depended on the vitality of the Rhenish model and returned a number of times to the issue. First, Hutton attempted to distance his position from that of wholescale advocacy of the Rhenish model. The paperback edition of The State We’re In included a new foreword and afterword which were more circumspect in their analysis of the German economy.105 Hutton also has argued that ‘each capitalist model stands and falls as a whole and the institutional framework is interlinked and embedded in a wider value system which makes such cherry-picking an impossible exercise – one of the core arguments made by my own The State We’re In – but which yet is still held by critics to be a classic text of unthinking praise of Germany and Japan, along with a desire to copy them wholesale’.106 However, Hutton did make a series of policy proposals in The State We’re In – including the creation of long-term banking institutions, a republican central bank, shareholders on company boards, a split between an executive and supervisory board, tighter controls on mergers – which were clearly drawn from the German model. If models stand as a whole then this would seem to rather limit the scope for any immediate reform. Hay has drawn attention to this weakness in Hutton; that ‘at times Hutton seems to jump from a highly generalised and undifferentiated description of the degenerative dynamics of British capitalism to an equally abstract and all-encompassing snap-shot of a rather distant utopia’.107 However, while acknowledging some of the current difficulties of the German model, Hutton has argued that these are exaggerated. In this respect he makes a number of points including the comparability of unemployment statistics between Germany and the UK, the continuing high level of capital-stock per worker in Germany, and the inevitable consequences of German reunification.

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This debate around the continued viability of the Rhenish model in the face of globalisation has had important consequences for Labour’s engagement for the European Union. In particular, it has been argued that the Social Chapter would effectively mean that ‘the German system, with backing from France and other member countries, is now being extended to the rest of Europe’.109 This is certainly an overstatement. However, New Labour’s reservations about the German model did mean a change in Labour’s policy emphasis. By 1997, Labour, though still committed to signing the Social Chapter, moved to a more sceptical position promising to ‘use our participation to promote employability and flexibility, not high social costs’.110

The European monetary question The key aspect of European policy for the Labour Party as the 1992 election approached was the European monetary question. The issue was a complicated one involving judgements about macroeconomic policy, national sovereignty, and political advantage. Its origins went back to the period when Labour was still in government when renewed proposals for European monetary co-operation came from Schmidt and D’Estaing. Their proposals were for a European Monetary System (EMS) to create a ‘zone of monetary stability’ in Europe. Central to the EMS was the Exchange Rate Mechanism (ERM) which would fix the exchange rates of member countries within bands. There was considerable opposition to the scheme within the Labour Party. While Callaghan was sceptical, but prepared to join the negotiations, Benn led the opposition in Cabinet with Gould campaigning against from the backbenches. At the 1978 Party Conference an emergency motion on the EMS was avoided but there was clearly largescale opposition among activists and MPs. In December 1978 the government published a Green Paper on the issue setting out their reservations about the system. The British government also insisted that ERM entry was conditional on a change in Britain’s budget contribution. When this was not forthcoming Britain chose to join the EMS, and partially pool currency reserves to create the European Currency Unit (ECU), but not to participate in the ERM. Labour’s manifesto for the 1979 European Parliament elections rejected ERM membership and argued that the exchange rate was an essential instrument of national economic policy. In opposition Labour moved to a position hostile to EEC membership in general. Clearly, in this context it would be unlikely if ERM membership was given serious consideration. However, Labour’s opposition to

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the ERM was not only a result of its general hostility to the EEC. First, when Thatcher was elected in 1979 the expectation was that the Conservatives would take sterling into the ERM relatively quickly. It made political sense, therefore, to remain opposed. Second, many of the problems of the British economy in 1980 and 1981 were caused by an overvalued exchange rate. This could, of course, be used to criticise the Conservative’s approach of allowing the exchange rate to float freely to levels at which British manufacturers could not compete. However, this did not disguise the fact that it would present a problem for a Labour Chancellor of the Exchequer should an election be won. A common position, and importantly that of the Shadow Chancellor, was that there was a need for a devaluation of sterling.111 However, a significant devaluation was hardly consistent with immediate ERM membership. After the 1983 General Election the issue of ERM membership became a more difficult one. As Shadow Chancellor, Hattersley argued that ‘entry into the EMS has at least to be considered’.112 This was part of a strategy to avoid associating Labour with the option of devaluation which Hattersley felt had damaged Labour’s credibility in the 1983 election. Labour’s position as it evolved was that membership of the EMS could be considered, when there was no exchange rate crisis. However, three fairly stringent pre-conditions were set before a Labour government would put the pound in the EMS. These were; that entry would be at a sustainable level which encouraged British exports, that European policy coordination to promote expansion and reduce unemployment had been agreed, and that there was an increase in monetary cooperation including an increased use of pooled reserves rather than a reliance on high interest rates in the less competitive countries. Clearly, the two final conditions would require a European agreement. Hattersley was also careful to emphasise that in his view that, while ERM membership might be helpful, ‘its supporters have grotesquely exaggerated the general contribution it would make to our economic welfare’.113 Hattersley’s economic adviser, Doug Jones, did, however, suggest on a number of occasions that Labour would have no objections in principle to the pound entering the ERM at the ‘appropriate’ pound/DM rate.114 If anything, Kinnock was more wary of putting the pound into the ERM. In Making our Way Kinnock argued that for Britain the ERM would ‘be not a support, but a straightjacket’.115 The logic of the position was that the ERM worked as the Deutschmark was the only currency traded to a substantial degree on the international money markets. If the pound sterling were to join then ‘the presence of two [such] currencies, linked at fixed rate, would provide the opportunity

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to speculators to make one-way bets should one of the currencies come under stress’.116 The unwritten assumption was that that currency would be the pound sterling. The costs of stabilising the system would be high interest rates or ‘massive currency purchases’.117 While Kinnock acknowledges that ‘if the ERM were backed up with large, sophisticated packages of mutual currency support then it would be a different proposition’118 it is clear that this is considered unlikely. On the day which Making Our Way was published Kinnock contributed an New Statesman article which focused on the ERM.119 Here the emphasis is more positive and Kinnock states that ‘the EMS exchange rate mechanism would be a useful, but small, part of a rational European strategy for recovery in which Britain could take part’.120 The article sets out four criteria for ERM entry, the three put forward by Hattersley and an additional one that ‘the Community developed a rational approach to internal trade’.121 Also in 1986 the Kaldor Group considered the issue of ERM membership. Their report acknowledged that because sterling remained a major international currency it would be more difficult to stabilise within the ERM, and might destabilise the ERM system itself for the reasons that Kinnock had spelt out. However, the report was much more positive about the ERM because the economists involved were convinced of the need to manage the expectations of the international currency markets to avoid dangerous runs on the pound. The report goes on to argue that ‘the credibility of the commitment [to a stable exchange rate] would look much greater if sterling were to enter the EMS and if this entry were at a “low” rate which, as a result, would appear that it could be sustained’.122 The main currents of Labour’s debate on Britain’s membership of the ERM were then set by the 1987 election. The key arguments concerned the stability of the ERM system which included both the German DM and the pound sterling, the need for a Labour government to maintain credibility with the international markets to prevent a run on the pound, and whether it was prudent to give up the exchange rate as an instrument of national policy. This debate became more important, and more divisive, after the 1987 election. Labour’s position after the 1987 election was formally in the hands of the PRG on the Productive and Competitive Economy. In its final report the PRG argued that the solution to Britain’s economic problems did not lie ‘in an over-valued exchange rate which in the long run damages both the real economy and the inflation rate’.123 When the document does deal with the ERM it does so negatively setting out the ‘substantial changes’124 which would be necessary before Labour would

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consider joining. While these changes were not substantially different to those set out before the 1987 election the tone of the report was clearly hostile to ERM entry. It is instructive to look behind the final decisions at the debate as it developed within the Policy Review Group. It is possible to do this by looking at two papers which went to the group. The first, written by Henry Neuburger, argued that ‘the present EMS lies at the antiinflationary extreme of the spectrum of possible adjustment mechanisms’.125 He goes on that Labour had previously opposed the ERM on anti-European grounds, but that now opposition should focus on the basis of the monetarist nature of its adjustment mechanism. He concludes that there is a need for ‘a mechanism which represents a compromise between the present EMS system and one which focuses entirely on output’.126 Neuburger’s position, reprised in his 1989 report for Labour MEPs, is that the ERM is deflationary and ignores the needs of the real economy. Essentially this was Gould’s view which became the basis of the PRG’s recommendations. However, a paper commissioned by the PRG from Charles Williams and Christopher Allsopp takes a different and essentially much more pragmatic view of ERM entry. In short, they assume that the system will remain fundamentally unaltered and then consider what Labour’s attitude to membership should then be. The argument is then ‘if we are not going to leave the EEC, we must recognise that an “independent” monetary policy for the UK will no longer be viable, and we must look positively towards Europe. This is the major political shift from which the central policy move (joining the ERM, assuming it is still there and has absorbed the effect of capital liberalisation) automatically flows’.127 Here there is no mention of criteria, rather a recognition that ERM entry had to be considered on the terms of the existing members, and an argument that these were acceptable. The PRG, however, was not the only place where Labour’s position on the ERM was being debated. In January 1989 an unsigned paper to an IPPR seminar for Labour strategists and leadership had argued that ‘on inflation we could solve a large number of our problems at a stroke by declaring that it is our intention to join the EMS … it would transform the perception of how serious our economic policy really is’.128 On the 27 June 1989, at a meeting of the Economic Committee of the Shadow Cabinet, Eatwell, supported by Smith and Brown, had argued that ERM membership could solve the problem of Labour’s lack of a coherent antiinflationary policy. Also in June, prior to the Madrid summit that was to debate the Delors Report, Kinnock stated that Labour was ‘eager’ to join

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the ERM when Labour’s conditions were met. Clearly, when the PRG report was published in May 1989 the scepticism expressed in its report was already being jettisoned in favour of a more positive attitude to ERM membership. The context in which the decision on ERM entry was to be made was changing. First, the 1992 project to complete the internal market included provisions for the liberalisation of capital movements. After July 1990 it was no longer to be possible to use capital controls as the EC became a fully-integrated capital area. Further, the Second Banking Directive and the Investment Services Directive, due to come into effect at the end of 1992, would enable financial institutions to operate in one EU country while being regulated by a central bank in another. Thus the link between a central bank and ‘its’ banking system would be ended. As Davies argued these provisions meant that it would ‘become more difficult for individual countries to run a genuinely independent monetary policy’.129 Second, proposals for Economic and Monetary Union (EMU) were resurrected. The Delors Report of April 1989 took the issue of EMU out of mothballs and set out a three stage plan for its achievement. The impetus towards EMU was an additional factor in increasing the urgency of the debate on ERM membership since member countries were required to join as part of Delors’ stage one on the path to EMU. Labour’s move towards advocating ERM membership quickened in the Autumn of 1989. In September the IPPR published a paper by Gavyn Davies entitled ‘Britain and the European Monetary Question’. Davies, Chief Economist at Goldman Sachs, had acted as an advisor to Hattersley when he was Shadow Chancellor and continued to advise the Labour leadership on economic policy.130 Davies’ argument for Labour to firmly commit to ERM membership had three strands. First he argued that while the benefits of the ERM to member countries were not unequivocal, the system was providing increased benefits and, with decreased monetary autonomy, there was no convincing monetary policy alternative to the ERM in the medium-term. Second, for Labour, ‘an unequivocal commitment to join the system would undoubtedly lessen the aversion of financial markets to a change of government, and this would make market disruption much less likely during or before an election campaign’.131 Third, the system had gone some way to fulfilling the conditions set out by Kinnock in 1986. Increased central bank cooperation was a key part of the 1987 Basle–Nyborg agreement; the need for a growth strategy and for expanded regional and structural funds had been included in the Delors report; and the pound sterling

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was currently at a competitive exchange rate with the Deutschmark and French Franc. Labour was clearly moving towards advocating British membership of the ERM. When Gould was replaced by Brown as the spokesman on Trade and Industry the remaining obstacle to a shift in policy was removed. The TUC had shown their flexibility in September when Bickerstaffe, Chair of the TUC Economic Committee, advocated early ERM entry at a competitive rate. MacSmith suggests that two of the key players – Smith and Brown – were ‘finally converted’ to ERM membership in October 1989 when they toured Europe meeting Rocard, the Prime Minister, and Beregovoy, the Finance Minister, in France, Roth, the SPD Finance Spokesman, and Pohl at the Bundesbank in Germany and Delors in Brussels.132 All were firmly pro-ERM and all, with the exception of Pohl, were social democrats. In a speech to Socialist MEPs Smith stated that Labour was ‘keen to play a full and constructive part in the debate on progress towards monetary union’.133 October 1989 also saw the resignation of Lawson as the Conservatives difficulties on Europe in general, and the European monetary question in particular, began to erupt. Labour continued to have a set of conditions for ERM entry.134 However, in April 1990, Smith felt able to argue that the case for membership of the ERM was overwhelming as Labour’s conditions were close to being met.135 By ‘Looking to the Future’, published in May 1990, the tone in terms of the EC generally was much more positive. In the section of the document on inflation it was argued that the ERM ‘would create a new framework for wages and other costs’136 indicating that membership was seen as providing a counter-inflationary discipline. A Labour government would take Britain into the ERM at ‘the earliest possible opportunity’137 after the conditions were met. Shaw argues that in effect the conditions had already been dropped and that Labour was in favour of speedy ERM entry.138 It is certainly clear from this point on that the criteria ceased to be a key factor in Labour’s thinking and the general assumption was that a Labour government would have quickly put sterling into the ERM. The policy change on ERM membership was, then, swift from the sceptical position of ‘Meet the Challenge, Make the Change’ to a far more positive, almost unequivocal, acceptance of the advantages of membership in late 1989. Further, it seems clear that the key decisions were taken outside the policy review process itself by a small group including Kinnock, Smith, Brown and their advisors of whom Eatwell and Graham were key figures. As Shaw notes, the major policy change

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was made ‘with minimal discussion and once the decision was made, critics like Gould and Prescott came under considerable pressure to desist from any questioning of the official line’.139 The question is then, why did Labour find membership of the ERM an attractive policy option? There are a number of answers to this question. First, the focus of Party’s macroeconomic strategy shifted in the late 1980s. By the time of ‘Looking to the Future’ the objective of macroeconomic policy was ‘a monetary framework which will provide long term exchange rate and interest rate stability’.140 No mention is made of achieving full employment and the only reference to growth is to say that it must be balanced. Smith emphasised the macroeconomic policy aims at the 1990 Conference arguing that ‘it is important to achieve a stable exchange rate, to bring down interest rates and to secure an economic climate which encourages both sustained investment and growth’.141 In this context the ERM then was clearly perceived by Smith and the Party’s economic policy makers, particularly Eatwell, as a way of providing a counter-inflationary discipline by restricting wage and price rises to an external constraint; German levels of wage and price rises. This went some way to convincing the City that ‘given the constraints of the ERM it is unlikely that a Labour government would be more inflationary than the Conservative alternative’.142 Second, ERM membership would ‘give a Labour government an effective defence for sterling against loss of confidence in the financial markets’.143 Clearly, given Labour’s historical relationship with the financial markets, this guarantee of exchange rate stability, was seen to be important. ERM membership would also provide a new Labour government with some credibility by ‘reassuring the money markets of Labour’s fiscal rectitude’.144 As Kinnock argued, the ERM would ‘provide a monetary sheet anchor for the British economy with the potential for greater exchange rate and interest rate stability which are the vital ingredients of sustainable growth’.145 This was received positively in the City where financial analysts acknowledged that ‘John Smith and Margaret Beckett have done a superb job in convincing parts of the financial community that they will defend sterling’s rate within the ERM’.146 Third, the argument that asserted that there was a need to preserve sovereignty over the exchange rate had lost some of its force as it became clear that the amount of sovereignty governments had to set their exchange rates, in a context of liberalised capital markets, was in fact very small. Smith went as far as to argue that ‘independent sovereignty

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in economic matters is an illusion for countries in Europe’.147 Fourth, Labour’s final conversion to the idea of ERM membership put the party into a position where it is more pro-European than the Conservative Party, a position unusual in the recent history of the two parties. It enabled Labour to focus on the Conservative Party’s political malaise over Europe; an issue that led to the resignation of Lawson and Howe and was crucial to Thatcher’s loss of the Conservative Party leadership. In late 1990, the Conservative’s did take Britain into the ERM at a rate of £1 : 2.95DM. This was considered by most observers to be too high, as was to be proved by ‘Black Wednesday’ when the pound crashed out of the ERM. Smith’s only criticisms of the government’s move were to argue that they had not secured an increase in regional funding, and that the government had timed entry for political reasons for the eve of Conservative Party Conference. Significantly, Kinnock denied at House of Commons questions that Labour had seen coordinated reflation as a pre-condition for entry into the ERM.148 Labour was put in a position where it felt obliged to support the rate at which Britain had entered in order to avoid being accused of ‘talking the pound down’. This decision has been much criticised. However, it would be wrong to ignore the political pressure to accept the rate of £1 to 2.95DM after the government had entered the ERM. Had Labour not done so they would have been portrayed as the ‘party of devaluation’. However, crude political pressures aside, it should be clear that the issue of the rate of entry into the ERM was crucial. Edmonds had argued at the 1990 Labour Party conference that if Labour was to contemplate entry it ‘should be at a sustainable rate, not a suicide rate’.149 Williams and Allsopp in their paper to the policy review had considered the issue of what Labour’s position should be if the government had entered the ERM before an election in 1991 or 1992. They had argued that continued membership of the ERM should be accepted though it should be made clear that the rates were not ‘immutable’.150 Privately a number of Shadow Cabinet ministers, such as Prescott, Gould, Blunkett and Meacher, were proponents of a realignment to make the pound more competitive. This was in line with Labour’s stance through much of the 1980s that the pound had to be at a ‘competitive’ rate which ‘encouraged British exports’.151 However, Gould reports that Kinnock launched an attack on Meacher at Shadow Cabinet in January 1992 for attempting to raise the question of a devaluation after the election.152 Gould was subsequently to argue that the decision to support ERM membership at a rate of £1 : 2.95DM was a critical mistake which lost

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Labour the 1992 election. His basic argument was that ‘mainly because we supported entry into the ERM at an obviously overvalued exchange rate we appeared to concede that the whole of macroeconomic policy was beyond debate … we thereby cut ourselves off from what should have been the heart of our assault on the Tory record’.153 This charge formed the basis of Gould’s 1992 leadership campaign. In all Gould made three fundamental criticisms of Britain’s ERM membership. First, that ERM entry had been at an over-valued rate in an attempt to bear down on inflation. The result, he argued, ‘was to so enfeeble our productive economy’154 that the ERM dictated exchange rate became unsustainable. Second, the ERM was asymmetrical in that the burden of staying at the correct rate fell on the weaker currencies, including the pound. Third, that the ERM had changed from being a ‘crawling peg’ as it became a pre-condition for EMU and a situation arose where ‘the parities had to be set in concrete’.155 A key question, then, is whether, had Labour won the election they would have considered realignment within the ERM and avoided the events of ‘Black Wednesday’. Publicly there was no indication that it was a possibility. In the run-up to the 1992 general election, Eatwell attacked the ‘proponents of devaluation’.156 He argued that an approach which focused on macroeconomic variables had damaged the British economy and that the competitive benefits of devaluation were short-term and led to higher interest rates. The Party leadership appeared to accept the argument that Davies had made in his 1989 paper that a rate of £1 : 3DM was a sensible compromise between a competitive currency and a rate which would put downward pressure on inflation. Further, Davies had argued that ‘calling for a “competitive” exchange rate at present is simply code for a policy which would be soft on UK inflation’.157 Party spokespeople had subsequently begun to stress the need for an ‘effective’ rather than a “competitive” rate. In 1990 a rate of £1 : 2.95DM could be accepted as one that would bear down on inflation. This, it has been argued, ‘completed [the Party’s] conversion to financial orthodoxy’.158 Finally, immediately before the election, Eatwell agreed a statement with Terence Burns at the Treasury stating that Labour would defend the pound’s parity within the ERM.159 However, there is an alternative view. Anderson and Mann, using Desai as a source, argued that the Labour leadership would have raised interest rates by 3 per cent immediately after the election and entered realignment negotiations.160 It is not clear that there was any such specific plan though Desai thought that the pound was over-valued and such an interest rate rise would be necessary to reassure the markets.161 There had been discussion, restricted to the offices of Smith and Kinnock, about whether

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the £1 : 2.95DM rate was sustainable and it is likely that had there been a general realignment, particularly if it had included the Franc, then a new Labour government would have been content to use the opportunity to lower the exchange rate. Further, Kinnock, in a decision known only to a small group within the Labour leadership, had decided that the Party would press for such a realignment quickly after the election.162 As such the statement agreed with Burns was a ‘false trail’.163 Finally, in the period before 1992 Labour also had to clarify its attitude to Economic and Monetary Union following Delors’ proposals. In considering the European monetary question, Davies, while clearly in favour of ERM entry, had expressed reservations on the move to EMU. It should, he argued be accepted as a long-term objective with time allowed for the single market to ‘bed in’. By long-term it was implied that there would not be completely fixed exchange rates before the end of the century. Davies also argued that the way to get to EMU was not the way recommended by the Delors Committee. Instead of the establishment of a European Central Bank the ERM should be developed with the Bundesbank continuing to play the key role. The German dominance implied by this approach would be mitigated by the development of the European Currency Unit (ECU) as a parallel currency. However, when Davies collaborated on a follow up paper for the IPPR on ‘Economic and Monetary Union – The Issues’ the debate had shifted. On ERM membership it was noted that there was now ‘a broad political consensus now favouring early membership’.164 On EMU, the paper repeated the arguments of Davies earlier paper against a premature attempt to move to EMU and for an alternative route based on a ‘hard ERM’ rather than through the route set out by the Delors committee report. This plan had similarities with the government’s proposals for a ‘hard ECU’. As Shadow Chancellor, Smith was to condemn the government’s plan when it became clear that the ‘hard ECU’ proposal was winning no support from other European countries.165 Davies et al. also considered what Britain’s, and Labour’s, attitude to EMU should be if it went ahead. It considered that there were three possible scenarios. First, it was argued that if Britain remained outside of the EMU this would have severe political and economic costs. Second, a position of ERM membership but non-participation in EMU. This was unlikely to be tenable in the long-term. This was based on the view that if EMU was established by the other EC countries then the ERM system would change fundamentally and its credibility would be undermined. Third, it was argued that if EMU went ahead British entry was the only viable long-term position.

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In November 1990, after sterling’s entry into the ERM, the NEC agreed a statement on Economic and Monetary Union. The statement had originated with the Shadow Cabinet Economic Sub-committee and had argued that ‘even before ERM entry it was clear that monetary “sovereignty” was constrained by the relationship between the pound and the DM’.166 However, the wording was ambiguous enough to give rise to a dispute between Kinnock and Smith as to whether Labour was committed to EMU. Kinnock was more enthusiastic for a commitment to a single currency while Smith was cautious. The compromise was a commitment in principle if there was ‘real economic convergence’ including low unemployment. The statement also set out Labour’s reservations on the creation of an independent European Central Bank beyond political control. Labour’s position was, however, consistently more enthusiastic than the Conservatives. In 1991, for example, the Party argued that ‘the EC is working towards EMU. Given the effect of the Single Market and Britain’s membership of the ERM, closer cooperation on monetary policy is both inevitable and desirable. But the Conservatives are divided on this major question. … We are determined to uphold Britain’s interests and will not allow Britain to be left out of the move towards monetary union’.167 When Major secured the British opt-out from EMU, and from the Social Chapter to which Labour was committed, at the Maastricht negotiations this reinforced Labour’s position as the most pro-European of the two parties. Labour continued to emphasise the threat of Britain’s national exclusion from Europe. This line on Economic and Monetary Union was held through the 1992 election. The events surrounding the ERM in late 1992 made the issue appear much less critically important. It seemed, in effect, as though the Delors timescale for EMU had been shattered. The need to put the ERM back together (it was not only the pound which had suffered in the currency shake-outs) was likely to over-shadow any move to create the Euro. However, the assumption that the Euro would never happen, an assumption widely shared across the political spectrum, was but another example of Britain misreading European developments. Brown and Cook agreed a line in the early period of the Blair leadership which emphasised that Labour was supportive of EU in principle but wished to see ‘real economic convergence’ before the conditions for the pound sterling’s entry could be thought of as met. A further proviso was added that the new European Central Bank should be politically accountable and forced to recognise the effects of its decisions on growth

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and unemployment. This was a compromise in which ‘those of a sceptical disposition could take comfort in the qualifications; enthusiasts could point to the backing in principle for the creation of the euro’.168 The single currency did, however, become a bigger issue as the 1997 election approached, not least because of the struggle over policy within the Conservative Party. This led once again to discussions within the Labour leadership with Blair, Brown, Cook and Prescott holding different positions.169 Brown was the most enthusiastic for early entry, Prescott the most reluctant. The compromise that was reached was not to rule out British membership in the first wave (but acknowledging that there were real difficulties in early entry) and, significantly, to guarantee a referendum if a Labour government decided to recommend British entry. This compromise effectively moved the difficult decision about EMU and the Euro to a point well beyond the general election.

Conclusion Labour’s shifts to a far more positive attitude on Europe in the period between 1979 and 1997. There are a number of reasons for this. First, it is possible to conclude that Labour’s attitude to the EU has been driven by whether the policies of the EU have been perceived as an obstacle or as a support for Labour’s policies for the domestic economy. Two examples of this will suffice. First, when the Party was convinced that its Alternative Economic Strategy was fundamentally in conflict with the operation of the EEC and the Treaty of Rome its policy turned towards withdrawal. Second, the Party’s move towards a positive policy towards the ERM was based on a shift in macroeconomic policy objectives towards interest rate and exchange rate stability, and a commitment to low inflation, and away from full employment. However, this first conclusion has to be slightly obviated by the second. This is that the distinction that it had been possible to make domestic and European economic policy has become increasingly futile. Labour to a large extent accepted the view that the internationalisation of the world economy made action by one country largely ineffective. The need for cooperation to combat these trends, and the pragmatic realisation that this was only likely to be done through the existing institution of the EEC, go some way to explaining Labour’s change of position. In other words the Party realised that ‘EC membership can moderate international pressures even though it excludes thoroughgoing national protectionism’.170 The best example here has been

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Labour’s attitude to the ERM. As noted above, enthusiasm for the ERM has stemmed from its perceived compatibility with Labour’s macroeconomic policy objectives. However, this is to ignore the extent to which European monetary cooperation had become perhaps the only way of maintaining some semblance of monetary sovereignty. Third, the development of the EC itself has been a primary factor in Labour’s policy development. The policy of withdrawal was one that had some credibility in a period when the EEC was largely moribund. However, the development of the EC from the mid-1980s through the Single European Act, the 1992 project, the agenda for ‘social Europe’, and the current moves to EMU have made engagement with the EU an essential part of modern political life. The adoption by the EC of an agenda for a ‘social Europe’ and the promotion of the Social Charter fundamentally changed the view of British trade unions and the Labour Party towards the EC. Fourth, Labour has attempted through the period to use the issue of Britain’s relations with the EC to its electoral advantage. At the beginning of the period, withdrawal from the EEC was seen as a policy that was likely to be electorally popular. The 1983 general election result proved that this was not the case. Grahl and Teague argue that political competition with the SDP is a key factor in Labour’s change of position in the mid-1980s.171 In the late 1980s and early 1990s Labour focused increasingly on European issues as a way of highlighting the deep splits in the Conservative Party, particularly of the issues of Britain’s membership of the ERM and EMU.

7 The Long Road Back

This book has charted Labour’s 18 long years in opposition and its attempts to re-invent its economic strategy in those years. I have tried to show that Labour did seriously re-think economic strategy between 1979 and 1997, and that this re-thinking had far-reaching implications for the Party’s views of the mixed economy, British economic decline, macroeconomic policy and relations with the European Union. I have also tried to demonstrate that Labour’s renewal was not an easy process (nor is it an easy process to track). Labour’s re-thinking did not stem from a single source or come in response to a single driver. It was a chaotic, diffuse, and slow process. In her account of the development of Labour’s economic strategy in the 1930s, Elizabeth Durbin focuses on a number of key individuals (Evan Durbin, Hugh Gaitskell, Hugh Dalton) who participated in a small number of key fora (the New Fabian Research Bureau, the XYZ Club, etc). The policy community being described is small and the impact of the key players in the debate fairly direct. Two of the main contributors to Labour’s rethinking (Dalton and Gaitskell) went on to be Chancellors of the Exchequer in the postwar Labour government. Durbin’s thesis has, nonetheless, been criticised for over-estimating the coherence of Labour’s economic thought in the 1930s and for failing to predict the economic policies of the postwar Labour government.1 Durbin’s book is a classic of its kind and I have seen it as a loose model for what I have attempted to do for the Labour Party of the 1980s and 1990s. However, its applicability is clearly limited by the chasm which separates the Labour Party of the 1930s and the Labour Party of today, and, equally significantly, the political environment of the prewar period and the modern context of policy development. Modern politics works to different rules – where a politician’s every 192

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word is scrutinised for some nuance of difference, perceived or real, between his or her view and the party line – and a different, more immediate, timescale. Few of these changes increase the chances for an opposition party to engage in open, deliberative policy-making.

Redesigning Labour’s strategy In surveying the development of Labour’s economic strategy, I have also tried to include the outlines of the wider intellectual debates on the left. In the opening chapter I argued that there were two main reasons for choosing this approach. First, the assumption that party policy is always reflected in the latest policy document was too narrow when the party had various policy centres and policy was, almost continually, changing and evolving. Party policy documents are a key form of evidence, but a wider focus is necessary to understand fully the Party’s debate. Second, that Party policy documents, and speeches by leading politicians, were often little more than summaries of much wider discussions which took place either within the party or, equally as often, outside the Party’s official structures. What then can be said about Labour’s engagement with the wider intellectual debate on the left about economic strategy? First, there was a significant degree of interaction between key Labour Party policy-makers and the academic community. Between 1979 and 1983 the Party’s policy-making included many academics, through their involvement in the NEC sub-structure. This model survived through much of the period as the JPCs and PRGs also co-opted academics and experts to advise the elected politicians charged with policy-making. However, as the extent to which policy was made through these formal routes declined, so did the influence of the advisers who sat on them. By contrast, the importance of the advisers to the individual politicians charged with economic portfolios increased. John Eatwell, as Neil Kinnock’s economic adviser from the mid-1980s to 1992, played a key role in the Party’s re-thinking of economic strategy. There are instances, such as when Stuart Holland advised Neil Kinnock on Labour’s European strategy after 1983, where the adviser’s role, though important, was rather more short term. A number of groups of academics and others were established to contribute to Labour’s thinking on economic strategy. The extent to which they managed to do so, their influence and importance, depended in large part on their links into Labour’s policy-making process. The Kaldor Group, probably the most distinguished group of economists to attempt to advise the Labour Party in this period, failed

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to establish these links effectively and, when Kinnock lost interest in the project, its report had little impact. On the other hand, the Industrial Strategy Group through its links with Bryan Gould, and hence with the PRG on the Productive and Competitive Economy, was able to heavily influence the party’s industrial strategy as it emerged from the policy review. The Fabian Society’s Socialist Philosophy Group’s work on market socialism was never an influence on the Party as a whole, but did provide some of the impetus for some in the Party to push forward a different view of markets after 1983. Finally, the ‘Out of Crisis’ project had some influence on the Party’s thinking on Europe, in the particular context of the Party’s search for a way of engaging more positively with the European agenda after 1983. All of these groups experienced some difficulty in influencing the Party leadership. In part this was because they were not generally, with the possible exception of the ISG, geared to work to the Party’s immediate policy agenda. The SPG’s work on market socialism, for example, was never going to fit comfortably into a Party policy document. This does not, of course, mean that the work was without importance. There were also occasions where the perception that a group of academics was close to the Party led to difficulties. When the ISG published a set of papers, ‘Beyond the Review’, which included a comment on inflation which appeared to reflect a more relaxed approach than that of the Party leadership, the Party leadership was forced to distance itself from the group.2 This pressure limited both the Party’s ability to engage with new ideas and the freedom of the academic groups advising the Party to publish their work openly. In the later part of the period, in part because of the difficulties of more freelance attempts at policy thinking, a number of think tanks played a more active role in the Party’s re-thinking. The IPPR, set up at the impetus of Eatwell and others close to the Party leadership, was probably the most important. The model of policy-making which started with the Plant Commission on electoral reform, where policy thinking on a particular issue, in this case proportional representation, was contracted out became important after 1992. The Commission for Social Justice and the Commission on Public Policy and British Business, both set up under the auspices of the IPPR, made important contributions to Labour’s economic strategy. However, apart from these interventions, the contributions made by the think tanks to Labour’s economic re-thinking was limited. The development of the model where policy-making was contracted out to other organisations does illustrate something of the difficulty

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which the Party had in developing genuinely new thinking within its own structures. In the early 1980s, for example, the Party established New Socialist to act as the Party’s theoretical journal. The enterprise was bedevilled by financial and organisational problems. However, leaving them aside, as Marquand has argued, original thinking was far more likely to be found in the Communist Party’s Marxism Today than in New Socialist.3

Explaining Labour’s strategy Having looked at the outlines of Labour’s debates on economic strategy we are in a much better position to return to the issue of what drove Labour’s policy change in the 1979–97 period. The main criticisms of Labour’s policy process have been impressively put by Colin Hay in his recent book, ‘The political economy of New Labour: Labouring under false pretences’ (1999). Hay’s argument is in three parts. First, Hay argues that Labour accepts a (Downsian) model of electoral competition which leads it to focus on the median voter and rely on the techniques of market research to determine its political strategy. Second, Hay describes Labour’s revisionism as ‘Thatcherite’. Third, Hay argues that Labour accepts that the constraints of the modified structural dependence theory are real and, therefore, the need to appease business demands determines its approach to economic strategy. Hay brings these three arguments together in the charge that Labour pursued a strategy of ‘preference accommodation’ rather than attempting one of ‘preference shaping’. Market research socialism Hay has argued that New Labour’s electoral politics were Downsian and that its policy-making was conditioned by a focus on the median voter. This argument, less rigorously put, has been a constant source of criticism of the Labour Party for much of the period in opposition. As Labour gradually shifted away from the policies in the 1983 manifesto the Party in general, and Kinnock in particular, was regularly accused of ‘electoralism’.4 Under Blair, the same point has been made with reference to the power of spindoctors and the importance given to Philip Gould’s focus groups. The evidence does not, however, provide much support for the argument that Labour behaved in this way. Hay provides no evidence that Labour’s strategic thinking was based on Downsian assumptions, though this would clearly be a difficult task. It is worth noting, however, that

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there are other plausible views of the factors which determined Labour’s overall political strategy. For example, an influential argument about Labour’s intellectual and political failures in the 1980s, particularly associated with David Marquand, has been that Labour’s preoccupation with class and ‘inability to transcend labourism has condemned it to electoral failure’.5 For Marquand, this was a matter of Labour’s ethos rather than doctrine. The point has also been made that Neil Kinnock was able to bring about an ‘ideological revision’ specifically because of ‘his immersion in the ethos of the Labour Party’.6 However, as Shaw argues, between 1983 and 1992, ‘the vocabulary, imagery and cognitive patterns of class analysis, far from being accorded “primacy” were quite alien to Labour’s strategic community’.7 For the argument that Labour’s was a ‘market research socialism’ to be sustained, even if it is not possible to provide compelling evidence that Labour’s strategic assumptions were Downsian, it should, nevertheless, be possible to give examples of where the results of opinion polling and focus groups pushed Labour into rethinking particular policy commitments. It is, however, extremely difficult to find specific examples of where economic policy was influenced in this way. There are some relatively minor instances, such as when the idea of a minimum tax allowance was rejected after polling showed that voters found the idea difficult to understand, where this did happen. However, Philip Gould’s account of the period, which covers in painstaking detail the results of his many focus groups and his memoranda to Neil Kinnock, Tony Blair and others, fails to provide any substantive evidence of policy being determined by the results of polling.8 Moreover, there are significant counter-examples of where opinion polling was clearly ignored in the development of policy. The national minimum wage caused concern in focus groups that low paid workers would lose jobs. This insight was used to inform the presentation of the policy. It did not, however, result in substantial policy change. The introduction of a national minimum wage remained Labour’s policy until the 1997 election. Further, key decisions, like that to support the pound’s entry into the Exchange Rate Mechanism, were made without extensive opinion poll research.9 The most significant area in which Labour has been accused of responding to market research has been in the area of taxation. Polling was carried out in advance of Labour’s shadow budget around the question of what people considered to be ‘rich’. However, the political fallout from decisions made in the shadow budget at the 1992 illustrates the difficulty of this sort of polling. This was recognised when the

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Commission for Social Justice, established by Labour after the 1992 election, decided not to use polling in its work. Patricia Hewitt, a key Labour strategist before 1992, took the view that any polling would show people’s willingness to pay extra tax to fund additional spending on health and education. However, for Hewitt, and most of the Labour modernisers, a key message of the 1992 election result was that whatever people might say, they were unwilling to vote for tax increases. This is illustrative of the difficulty of translating polling into policy. As part of its communication and campaign strategy from the mid1980s Labour did use, extensively, a variety of ways of assessing voters’ views of the Party. These polls and focus groups certainly changed the way the Party operated and campaigned. There was also an attempt, as Bryan Gould had advocated at the time of the policy review, to approach policy-making in a way so that ‘policy includes its popular appeal at the outset’.10 It would be surprising, given the ‘severe impact that Labour’s electoral failure had on the party’,11 if there had not been, after 1983, an attempt to consider the electoral consequences of key decisions. However, ‘while Labour took account of the electorate’s preferences, the party did not surrender its agenda’.12 It is not possible to develop a viable economic strategy on the basis of opinion poll research and focus groups. The evidence would appear to show that the effect of opinion polling and focus groups on Labour’s economic strategy was marginal.

‘Thatcherite revisionism’ Hay has also argued that Labour went through a process of ‘Thatcherite revisionism’. This argument can be understood in two ways. First, it can be taken to mean that Labour followed the Conservatives in terms of policy; that the Party played the politics of ‘catch-up’. Second, it can be read as implying that the Party internalised Thatcherite views of how the economy worked and what was practical in modern economies. Again, I would argue that neither of these positions is compelling. It is clearly true that there are a number of examples of economic policy areas where there were clear differences between the two parties throughout the period. The national minimum wage would not have been introduced by a Thatcherite government and the stress on positive government intervention on the supply side – whether through a National Investment Bank or regional development agencies or government investment in education and training – was not a substantial feature of the Conservative agenda. Labour’s emphasis on the need for

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government to take measures to combat unemployment, from the AES to the New Deal programmes, similarly cannot be seen as Thatcherite. That said there were a number of areas where the policies of the two parties did converge through the period. Even here, however, there is not convincing evidence of a Labour conversion to policies which were distinctively Thatcherite. At the 1992 election both Labour and the Conservatives made continued membership of the ERM a cornerstone of their macroeconomic policy. However, it was the Labour Party that which had adopted this position first in response to its own strategic priorities which included, economically, establishing a credible antiinflationary policy and, politically, exposing Conservative division over Europe. As a sidebar, it is probably also worth noting that there is some evidence (discussed in Chapter 6) that Labour would have adopted a more pragmatic stance on the scope for a realignment of the value of the pound than the Major government did after the 1992 election. A similar point could be made in relation to privatisation where Labour’s gradual policy shift away from renationalisation was in response to overwhelming practical reasons, rather than any sudden ideological conversion. In this narrow sense, that changes to the economy made by Conservative governments over eighteen years in power, had changed the economic landscape, however, it is true that ‘the Thatcherite inheritance has constrained the direction of New Labour’.13 Finally, Hay’s chapter focuses on the policy review period (1987–89) when, he argues, that much of this ‘Thatcherite revisionism’ took place. However, he argues later, when setting out proposals for Labour’s future agenda that Labour should return to its previous proposals for industrial and regional reform; these proposals, Hay notes, ‘originat[ed] in the Policy Review itself, they were associated in particular with the shadow DTI under the tutelage of Brian Gould and, subsequently, Robin Cook’.14 If the Policy Review did represent ‘Thatcherite revisionism’ then it was, in Hay’s own terms, partial. However, Hay’s argument that Labour engaged in ‘Thatcherite revisionism’ can, and in Hay’s own terms should, be read as a wider point; that Labour accepted the Thatcherite legacy which it preferred to ascribe to a ‘new stage in the development of capitalism’. In particular, Hay refers to New Labour’s wholesale acceptance of the ‘globalisation’ thesis. I agree with much of the argument which Hay makes about globalisation. As Hirst and Thompson have compelling argued, the ‘strong version’ of the globalised economy has been much over-played and under-theorised.15

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New Labour has been, perhaps, too quick to accept the ‘fact’ of globalisation though, as Hay himself notes, it has become common currency in the US and Europe as well as in the UK. This is, however, clearly a matter of considerable debate both in terms of the phenomenon of globalisation itself and the appropriate policy response. Hirst and Thompson have, for example, acknowledged that the trend towards greater internationalisation has ruled out the possibility of ‘Keynesianism in one country’; a point which Hay himself also makes.16 The debate within the Labour Party on the nature of the international environment – from Holland’s notion of the mesoeconomy through to globalisation – and the appropriate response to these changes, has been of key importance to Labour’s economic strategy during the 1979–97 period. To reduce this to a notion of ‘Thatcherite revisionism’ does not do that debate justice. There have been several books recently criticising New Labour from the left. A number of the points made have some validity particularly around Labour’s industrial strategy. However, the notion of ‘Thatcherite revisionism’ – particularly where Hay argues that this is made ‘somewhat more enthusiastically’ than a reluctant bowing to the inevitable – would appear to imply that Labour was rejecting a range of (socialist) alternative strategies. However, as Hay himself acknowledges, ‘there is precious little in the way of coherently and consistently developed social democratic (far less socialist) alternatives to which a government such as Blair’s might turn’.17 In the concluding chapter of his book, Hay puts forward a set of proposals for increased regional industrial investment. The proposals are carefully worked out and worthy of support. However, what is striking about the proposals is their modesty.18 Hay is probably right in arguing that New Labour should be doing rather more in terms of industrial policy, and particularly in encouraging indigenous investment. However, it is misleading to write as if Labour has completely cut itself off from this stream of its thinking, as the establishment and continuing development of the Regional Development Agencies testifies. The notion of Thatcherite revisionism is deeply misleading in its implication that the Labour Party has cut itself off from such debates on economic strategy which are a key part of its tradition. Structural dependence In Chapter 1, I discussed extensively the theoretical weaknesses of the structural dependence thesis. I will not repeat that discussion here. However, it is worth noting that the theory is extremely useful in that

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it points to the constraints, internal and external, which social democrat parties face, though it is misleading in that it implies that the constraints are simple and absolute. This is a valuable antidote to much writing on social democratic parties which inevitably attributes ‘failure’ in government to ‘betrayal’ by party leaders.19 Wickham-Jones has argued that Labour’s economic policy development confirms the structural dependence approach, particularly in the period from 1989 to 1992. Wickham-Jones draws a contrast with the period of the policy review (1987–89) when, he argues, Labour’s economic strategy was developed on the basis of considerations about the electoral popularity. By contrast, after 1989 the objective of reassuring capitalists was ‘the dominant feature of the party’s economic strategy’ with ‘electoral considerations … secondary’.20 This objective led Labour to change a number of its key policies, including embracing membership of the ERM, and to Labour’s so-called ‘prawn cocktail’ initiative aimed at convincing the City of the merit of Labour’s policies. Certainly, between 1989 and 1992, the Labour Party did make a conscious attempt to convince the City of the merits of its policies. There were a number of meetings in the City involving Labour’s Treasury team and senior advisers and Labour’s Economic Secretariat also produced a number of documents citing the support of economists and City analysts for Labour’s policies.21 The point that Labour shifted its strategy to focus on reassuring capitalists of its moderation is central to the argument that structural dependence can explain Labour’s economic strategy in 1992. However, it is more plausible to argue that the Party’s approach was about trying to make the City sound more positive about Labour’s programme precisely because of the impact this had on voters. Labour Party strategists were of the opinion that voters’ views as to the Party’s economic competence were based partly on an assessment of Labour’s past performance, and partly on the whether they perceived Labour as a ‘party of business’.22 A key factor in this was what the ‘City expert’ said on the ‘Nine O’clock News’ about Labour’s policies; the ‘prawn cocktail offensive’ was an initiative aimed at neutralising negative City comment for electoral reasons, rather than ‘pre-empting capitalist expectations’.23 Hay argues more explicitly that structural dependence does not possess any validity at the level of theory, rather that the Labour Party acted as though it did. The argument is not, therefore, that the structural dependence thesis explains the action of the Labour Party; rather that structural dependence appears to provide a good description of

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Labour’s approach, and that it does so since Labour accepted its basic assumptions. This is somewhat more compelling in that it allows Hay to robustly challenge the theoretical basis of structural dependence. However, for structural dependence to function even as a description of Labour’s approach to economic policy there must be evidence that Labour shifted policy to accommodate the views of business. This, however, would be a caricature. There are examples of where Labour changed policy in a direction likely to impress business, such as the withdrawal of the proposal for a training levy.24 There are other areas, such as the windfall tax on the profits of the privatised utilities which cannot be seen in that way. Wickham-Jones uses Labour’s commitment to ERM membership as the key example of the Party acting in a way that accommodated business preferences. However, as argued previously, it is more credible to see Labour’s commitment to ERM entry as a response to a number of factors than as simply a desire to reassure the City. Labour did, particularly after Blair’s became leader, seek to re-establish positive relations with business and business leaders. The Commission for Public Policy and British Business, run by the IPPR, was an important part of this process. However, much of this was about selling existing Labour policy to the business sector. There is little evidence that this engagement led to significant policy change. Labour’s renewal The core of Hay’s argument is that the Labour Party pursued a strategy of ‘preference accommodation’ rather than ‘preference shaping’. This brings together the points that Labour sought to follow public opinion (as expressed in focus groups) rather than lead it, that it came to accept Thatcher’s legacy and went through a process of Thatcherite revisionism, and that it sought to accommodate the demands of the business sector. Taken together, these arguments can only mean that Labour ceased to be a social democratic party and became a party without principle or intellectual foundation, responding to virtually every opinion shift. The opposition between ‘shaping’ and ‘accommodation’ is, however, not one that can carry very much weight. Looking at the period as a whole, and across Labour’s strategy, it is possible to identify a series of areas where Labour has clearly been engaged in a process of preference shaping (or argument to use a less ugly expression). In some areas – the national minimum wage, devolution to Wales and Scotland – these arguments have clearly been won. In government, Labour has put

202 The Labour Party and Economic Strategy, 1979–97

these policies in place and the Conservatives have pledged not to reverse them should they win the next general election. In other areas, such as the New Deal interventions aimed at reducing unemployment, a Conservative election victory would see programmes drastically scaled back. In other areas, shaping preferences has clearly been more difficult. During Labour’s period of opposition, at least until the 1992 Shadow Budget which ‘reached back to Crosland’,25 Labour advocated redistribution through the tax system. The party moved away from this position after 1992. This was an area where developing more radical proposals, and winning public support for them, was clearly more problematic. Two years into the New Labour government a Fabian pamphlet argued that Just as in the Tory years, the government presents itself as taxcutting, praising the virtues of low taxation and boasting of its reductions to both the basic and starting rates of income tax. Just as in the Tory years … the twin assumptions that cutting taxes is by definition desirable, and that in terms of public opinion only ‘headline’ rates of income tax count, remain largely the same as they were ten years ago.26 However, this misses both the tax credits aimed at the working poor, particularly the Working Families Tax Credit, which, with the national minimum wage, is transforming the payment of tax for low earners, and the debate on public expenditure. In committing itself in the year 2000 Comprehensive Spending Review to spending £40 billion on health and education, the government is transforming the debate on tax. A tax cut offered by the Conservatives now begs the question of what public spending will be cut. Preferences are, slowly perhaps, being shaped. It is of course, ‘easier for governments than opposition parties to shape preferences’.27 Labour, by 1997, had not produced an economic strategy which was beyond criticism. Substantial criticisms of the Party’s programme could be made; that it accepted too readily the strong version of globalisation, that it relied too heavily on education and training as a solution to every supply-side ill, or that its industrial strategy was likely to prove inadequate to raise manufacturing investment to European levels. The Party had, however, produced a strategy that was viable enough to win the 1997 election, and to run the economy successfully in its first years of office. The modernisers’

The Long Road Back

203

teleological narrative of the creation of New Labour is too perfect to be true. However, as I have tried to show, on the long road between 1979 and 1997 Labour did renew its economic strategy. With Labour now back in government it is apparent, however, that this was the start rather than the end of a process.

Notes 1

The Forward March Halted

1. ‘The choice Labour faces: learn, or die’ (New Statesman, Editorial, 11.5.79). 2. Hall (1989), p. 3. 3. See Artis and Cobham (1991) for a balanced assessment of the record of the 1974–79 government. Brivati (in Brivati and Bale ed., 1997) describes the IMF episode as a ‘defining crisis’ (p. 190) for Labour. Ormerod (in Artis and Cobham ed., 1991) states that the ‘winter of discontent’ ‘did enormous damage to Labour’s political image’ (p. 71). John O’Farrell (1998), p. 14 makes this point rather more humorously. 4. See Singh (1977) and Blackaby (1978) on deindustrialisation; Bacon and Eltis (1978) on why Britain had ‘too few producers’; and Jenkins (1995) for a collection of journalism on British decline. 5. Whiteley (1983). 6. Most famously in Callaghan’s speech at the 1976 Labour Party Conference where he argued that ‘we used to think that you could spend your way out of a recession and boost employment by cutting taxation and boosting public expenditure. I tell you in all candour that this option no longer exists and insofar as it did ever exist, it injected a higher dose of inflation’ (Labour Party Conference Report, 1976). Healey stopped considering himself a Keynesian as early as 1975 (Healey, 1989). 7. Marquand in Mackintosh (1982), p. 22. 8. Ibid., p. 14. 9. Fielding (1995), p. 30. Kinnock, however, seemed to accept the dealignment thesis (p. 75). 10. In April 1992, the Conservatives led Labour as the party best equipped to deal with the country’s economic problems by 52 per cent to 31 per cent. Smith (1994). 11. Tomlinson (1986), p. 3; Wickham-Jones (1995). This need for rethinking was not unique to the British Labour Party. In a history of West European social democracy, Padgett and Paterson (1991, p. 257) note that ‘in the 1980s social democracy lost the intellectual and political ascendancy which it had exercised since the Second World War’. See also Sassoon (1996). 12. Marquand (1992), p. 192. 13. Durbin (1985). 14. Cockett (1995). See also Desai (1994). 15. Booth (1996). 16. Sassoon (1996), p. 691. 17. Tomlinson (1986), p. 2. 18. Panitch and Leys (1997), p. 242. 19. Padgett and Paterson (1991), p. 9. 20. Drucker (1979), p. vii. 204

Notes

205

21. All are included in Hay (1999) which sets out the arguments in a compelling way. 22. Marquand (1992), p. 201. See also Leys (1990) for the phrase ‘market research socialism’. 23. Hay (1999), p. 96. 24. Hay (1999), p. 102. 25. Fielding (1997), pp. 4–5. 26. See Hay (1994); Hay (1999). 27. Benn (1992), p. 546. 28. See Hay (1994) and Hay (1999), p. 72 n. 8. 29. Hay (1999), p. 53. 30. Ludlum in Ludlum and Smith, eds (2001), p. 27. 31. See Hay (1994), Smith (1994) and Wickham-Jones (1995) for an outline of the debate on Thatcherite revisionism. 32. See Swank (1992). See also Przeworski (1985). It should be noted that all parties, social democratic or otherwise, are structurally dependent on capital. 33. Ibid., p. 50. 34. Przeworski and Wallerstein (1988), p. 11. 35. Przeworski (1985), p. 212 himself notes that the German and Swedish economies have been able to maintain investment levels despite relatively low levels of profits, partly because the state has restructured the incentives to invest and therefore the calculations of entrepreneurs. 36. Przeworski (1985), pp. 33–7 argues that social democratic parties did not have a distinctive economic policy until Keynesianism. He argues that socialism’s distributional bias towards their own constituency was given a technical economic justification by Keynes’ argument for redistribution to increase consumption and therefore stimulate production and employment. See Durbin (1985) for an account of Labour’s economic policy preKeynes. 37. King and Wickham-Jones (1990), p. 406. 38. There were a number of meetings in the City involving Labour’s Treasury team and senior advisers. Labour’s Economic Secretariat also produced a number of documents citing the support of economists and City analysts for Labour’s policies. See, for example, ‘Recent City analyses of Labour’s policies’ (Economic Secretariat, 17.6.91) which argued that ‘the general message from the new City studies, is that the City is no longer frightened of a Labour Government’. 39. Wickham-Jones (1995), p. 487. 40. Interviews with Geoff Bish (17.2.98) and Larry Whitty (27.11.97). 41. Interview with Dan Corry (15.12.97). 42. Smith (1994), p. 711. 43. Ibid., p. 709. 44. Eatwell (1992), p. 336. 45. Hay (1994), p. 700. 46. Ludlum in Ludlum and Smith eds (2001). In particular, see Smith in Smith and Spear eds (1992), Hughes and Wintour (1990), Smith (1994b) and Tudor Jones (1996). 47. Smith in Ludlum and Smith eds (2001), p. 261.

206 Notes 48. Kenny and Smith in Ludlum and Smith eds (2001), p. 238. 49. Hay (1994), p. 703. 50. Wickham-Jones (1995b), p. 701. See also Ludlum in Ludlum and Smith eds (2001), p. 27. 51. Hindess (1983), p. 5. 52. Sassoon (1996), p. 343. 53. Mackintosh (1982), p. 203. 54. Gamble (1988).

2 1. 2. 3. 4. 5. 6. 7.

8. 9. 10.

11. 12.

13. 14. 15.

16. 17.

The Years of Opposition See Beckerman ed. (1972), Ponting (1989), Pimlott (1992). Hatfield (1978), p. 7. Labour Party (1973), p. 7. Ibid., p. 30. See D. Coates (1980); K. Coates ed. (1979); Hodgson (1981). Labour Party (1976), pp. 13, 14 and 21. Hindess (1983), p. 110. Holmes (1985) details the development of the AES by the Tribune group of MPs and notes Kinnock’s comment that ‘when Bryan Sedgemore saw Healey to put the alternative strategy, Healey just fell about laughing’ (p. 96). Whiteley (1983), p. 160. Labour Party (1979). Whiteley (1983) describes Labour’s crises in this period as being electoral, ideological and in terms of membership. See also Kogan and Kogan (1982), Hodgson (1981), and Panitch and Leys (1997). Drucker (1980), p. 93. The RFMC grouped together a number intra-party groups on the left including the CLPD, Socialist Campaign for a Labour Victory, Labour Co-ordinating Committee, Institute for Workers’ Control, Independent Labour Party, Clause 4, National Organisation of Labour Students, Labour Party Young Socialists and Militant. Healey (1989), p. 468 is particularly critical of the trade unions in this respect. Hattersley (1995), p. 225. Foot’s own account of his leadership and the 1983 election, ‘Another Heart and Other Pulses’ (1984) would seem to bear out the assertion that ‘right to the end, Mr Foot seemed to refuse any recognition that perhaps he had got the strategy wrong’ (Fox, ‘Mr Foot’s nemesis’, The Listener, 16.6.83). Healey (1989) p. 480. The SDP’s Economic Policy Group included Robin Matthews, Joan Mitchell, Marcus Miller, and Richard Layard, and papers were contributed by Alan Budd, Sir Alec Cairncross and Sir Bryan Hopkin (Crewe and King, 1995, p. 234 n. 34). Some supporters of the AES saw it as ‘an advantage … that the SDP has syphoned off many of those who would have opposed the [AES] policies and would have supported the discredited policies of the past’ (Sherman B. and Gilhespey D. ‘Question: why do we need an AES?’, Tribune, 19.3.82). The influence of Keynesianism was, in any case, declining.

Notes

207

18. Kinnock ‘Personality, Politics and Democratic Socialism’ (Tribune, 18.9.81). 19. The actual result of the deputy leadership contest was Healey 50.426 per cent, Benn 49.574 per cent in the second ballot. On first ballot, Benn won 78 per cent of the constituency vote to 17 per cent for Healey. 20. Jones (1994b), p. 571. 21. After the failure of the deputy leadership campaign the RFMC began to break up as the ILP, LCC, Clause 4 and NOLS left. 22. Crewe and King (1995), p. 522. 23. See Benn (1992), p. 166. 24. Benn (1992), p. 189. 25. There was no systematic way of determining the advisers who would sit on these sub-committees and working groups. Names were canvassed informally by politicians and Research Department staff. In practice, if a name was proposed the person concerned was usually asked to present a paper to the appropriate group and subsequently might be asked to join. There was no procedure for removing people from committees (interviews with party research staff). 26. The Research Director, Geoff Bish, who at this time was a key figure in Benn’s unofficial group of advisers, and the researcher Adam Sharples drafted many of the economic policy documents. Roy Green was important in the drafting of joint TUC–Labour Party documents. 27. Interview with Henry Neuburger, 28.10.97. 28. The Liaison Committee had been established after the 1970 election defeat. It was a key part of the dense network of contacts between the Labour Party and the TUC which included the exchange of observers between the Labour Party’s Home Policy Committee and the TUC’s Economic Committee. 29. Wardle (1982), p. 161. 30. Shaw (1996), p. 165. Benn (1992), pp. 86−7 gives an account of the first meeting of the PCC on 11th February 1981 which focuses on the acrimonious atmosphere that existed between the NEC and PLP representatives. 31. See Shore in Kaufman, ed. (1983); Shaw (1994), pp. 7−9. 32. Holland (1975). To highlight the theoretical contribution of Holland is not to imply that his arguments were unchallenged even by those who accepted a form of the AES. See Sharples (1981). 33. CSE (1980), p. 6 34. Frank Allaun’s speech opening speech as Party Chairman at Labour’s 1979 Conference (LPCR, 1979). 35. ‘Party Policy: Some Gaps in Labour’s Programme’, RD148, November 1979. 36. This was probably the root of the complaint that ‘two or three economists appear to write Labour left programmes, while hundreds gather in the CSE and have no visible influence on political discussion’ (Rustin, New Left Review, May/June 1980, p. 81). See Sharples (1981), Williams et al. (1992) for an overview. 37. Hattersley (1995), p. 238. 38. Butler and Kavanagh (1984), p. 46. 39. Hindess (1983), p. 151. Tony Benn’s comment that ‘28% of the British people have voted for a truly socialist programme’ (Kinnock, 1994, p. 535) indicates that not all recognised the extent of the crisis.

208 Notes 40. Ibid., p. 192. 41. Wickham-Jones, (1996), p. 190. 42. Much of the literature treats the 1983–87 period as a uninteresting staging post in the Labour Party’s change of direction under Kinnock before the key events of 1987–92 (see Hughes and Wintour, 1990; Fielding, 1995; and Spears and Smith ed., 1992). Wickham-Jones (nda) stresses that important policy changes were made in the 1985–87 period. 43. Heffernan and Marqusee (1992), p. 34. 44. LPCR (1983). Tribune’s analysis of the defeat placed the blame on the ‘guilty men’ of the right particularly Healey, Shore and Callaghan (Tribune, 3.6.83; 10.6.83). A more thoughtful left analysis of the defeat was put forward in the LCC’s ‘After the Landslide’ (1983). 45. Anderson and Mann (1997), p. 17. Some on the left sought to argue that ‘the difference between our manifesto and that of the SDP was only a matter of degree, especially on the economic policies needed to pull out of the present crisis’ (Livingstone, 1983, p. 26). 46. LPCR (1983). 47. Shaw (1994), p. 29. 48. Heffernan and Marqusee (1992), p. 39. In his campaign, Hattersley was rather more critical of the policies on which the 1983 election had been fought (Tribune, 22.7.83). 49. Tribune (1.7.83). 50. See Fielding (1994), p. 596. Jones (1994b) is perhaps the best account of Kinnock’s ‘socialist journey’. 51. Hughes and Wintour (1990), p. 6. 52. Kinnock (1994), p. 538. 53. Kinnock (1994), p. 536. ‘Kinnock’s predicament was that his command over the Party was insufficient to accomplish his goals’ (Shaw, 1996, p. 169). 54. For example, at a meeting between Labour’s Head Office and Regional Organisers ‘concern was expressed that it would be difficult to interest party members in the [Jobs and Industry] campaign until after the miners’ dispute is over’ (Note of Meeting, Head Office and Regional Organisation Staff, 12.12.84). 55. See Shaw (1989). 56. LPCR (1983). During the leadership campaign Hewitt, who was to become Kinnock’s press secretary, had written a pamphlet for the LCC which called for a campaign and strategy committee which was not just a NEC subcommittee but in effect a ‘leader’s committee’ (Heffernan and Marqusee, 1992, p. 45). 57. Kinnock (1994), p. 539. 58. Heffernan and Marqusee (1992), p. 47. The best example of policy being made through the JPC structure is the 1986 policy paper ‘Social Ownership’. The paper was produced by a sub-group of the Jobs and Industry JPC where Smith and Blunkett developed a soft left/right compromise (see Shaw, 1994, pp. 47−8). 59. Gamble, Smith and Spears ed. (1992), p. 61. 60. Hattersley (1995), p. 261. Hattersley was reluctant to accept the appointment and pleased to move to another post after the 1987 election (Hattersley, 1995, pp. 285−6).

Notes

209

61. Hattersley (1987a), p. 1. 62. ‘Working to Win’ (Tribune, 4.1.85). A number of articles followed in the same vein including Patrick Seyd’s ‘Bennism without Benn’ (New Socialist, May 1985). All argued that there was a need to move away from the ‘oppositionalist’ politics into which Benn had led the left. In late 1986 Willliamson acknowledged that the realignment of the left had failed to detach Kinnock from the right (Tribune, 26.9.86). 63. See Benn and Heffer, ‘Planning for a Labour Victory’ (1.5.1985) published in Benn and Heffer (1986). Hattersley’s practice of announcing policy changes in speeches also attracted considerable criticism from the ‘soft left’ (see A. Wilson, Tribune, 24.10.86). 64. Hattersley had an extensive network of advisors including his researcher Doug Jones, Maurice Peston, Paul Ormerod, Gavyn Davies, Charles Williams and Chris Allsopp. After 1986, Smith began to use a group of academics that came to be called the Industrial Strategy Group. 65. By October 1989 Kinnock’s office employed twelve people with six on policy and liaison (Minkin, 1991, p. 417 n. 19). The amount of ‘Short money’, established in 1974 to support the opposition, rose from £290,00 in 1979, to £440,000 in 1983 and £839,000 in 1987 (Leys, 1996, p. 10). This money was in the control of the Party leader and this meant that there was ‘for the first time in Party history, resources for a sizeable alternative policy advisory staff were available to the PLP leadership’ (Minkin, 1991, p. 400). 66. Eatwell was encouraged to offer his services to the Labour Party by his PhD student, Roy Green, a member of the Party’s Research Department. Hattersley was initially unhappy about Eatwell’s appointment. Interview with Lord Eatwell, 28.11.97. 67. See Chapter 5. 68. Kinnock (1985). 69. Jones (1994b), p. 577. 70. Minkin (1991), p. 602. Larry Whitty’s appointment as the Party’s General Secretary was an important part of this process. Internal restructuring also led to the appointment of Peter Mandelson as Director of Communications and Geoff Bish’s post was re-named Director of Policy. 71. The campaign produced two main documents, ‘A New Partnership, A New Britain’ (with the TUC) and ‘Investing in Britain’ both of which were presented to the 1985 Conference. Other documents sought to highlight Labour’s position on particular industries (‘Labour and the Motor Industry’, 1985) and in particular regions (‘The West Midlands Can Make It’, 1985). 72. Labour Party (1985c). 73. See NEC Minutes 23.5.84. 74. ‘People at Work: New Rights, New Responsibilities’ (1986) and ‘Low Pay: Policies and Priorities’ (1986). 75. ‘Work to Win’ (1987). 76. Minkin (1991). Interviews with TUC officials. 77. McSmith (1993), p. 106. 78. Gamble in Smith and Spears eds (1992), p. 63. 79. See ‘Home Policy Committee – Programme of Work 1983–84’ (RD2889) written by Geoff Bish for this point. Hattersley claims that one of the few

210 Notes

80. 81. 82.

83.

84. 85. 86.

87.

88. 89. 90. 91. 92.

93.

94.

95.

things which his advisers agreed upon was the need to avoid too much policy detail (Hattersley, 1995, p. 261). See Hughes and Wintour (1990), pp. 31−5; Butler and Kavanagh (1988), p. 257. Hughes and Wintour (1990), p. 34. Butler and Kavanagh (1988), p. 258. A pre-election poll showed that Labour was thought likely to perform better than the Conservatives on unemployment (+11 per cent) but significantly worse on the issues of inflation (−31 per cent) and relations with the EEC (−21 per cent). Hughes and Wintour (1989) is the most immediate account of the policy review. More considered analyses of the economic aspects of the review are given in Smith and Spear eds (1992), Shaw (1994) and Taylor (1997). Butler and Kavanagh (1988), p. 252. Kinnock (1994), p. 549. John Edmonds (GMB) and Rodney Bickerstaffe (NUPE) were members of the Policy Review Group on the Productive and Competitive Economy despite not being NEC members. Sawyer’s proposal was drafted by Adam Sharples who had left the Labour Party to become Head of Research at NUPE. See Hughes and Wintour (1990), p. 37. Hughes and Wintour (1990), p. 38. Labour Party (1987c). Interview with Larry Whitty, 27.11.97. Hattersley described ‘Labour Listens’ as an ‘organised farce’ (Hattersley, 1995, pp. 284−5). Labour Activist, ‘Consumers’ Guide to the Policy review’ (LCC, Summer 1989). See also Taylor (1997). The policy review documents were ‘Social Justice and Economic Efficiency’ (1988) and ‘Meet the Challenge, Make the Change’ (1989). There is some disagreement in the literature as to when the policy review process ends. Shaw (1994) includes ‘Looking to the Future’ (1990) as the third stage of the review, and Taylor (1997) includes ‘Opportunity Britain’ (1991) as the fourth. In my view it is easier to see the policy review as ending in 1989 when the alternative policy−making procedures of the PRGs cease to be fully effective. The most famous intervention was when Eatwell, supported by Brown and Blair, made an unsuccessful attempt to convince Bryan Gould, at a private meeting, to tone down the sections of the policy review on social ownership. However, Eatwell did not attend all the PRG meetings and was not as interventionist on behalf of the leader’s office as Hewitt was on the social policy PRGs. Interview with Lord Eatwell, 28.11.97. Hattersley had, it is alleged, vetoed Gould as his successor as Shadow Chancellor though his account of the meeting with Kinnock is more nuanced (Hattersley, 1995, pp. 288−9). Gould’s researchers, Henry Neuburger and Nigel Stanley, acted as joint secretaries to the PRG while also attending ISG meetings. The PRG also commissioned papers from a large number of academics as part of its work (See ‘Commissioned papers and Seminars’, PCE PRG, PD1592, July 1988).

Notes

211

96. These differences led to the report of the PCE PRG being described as the ‘left’s policy review’ which didn’t the show ‘new faith in market economics’ of most of the Labour leadership (Tribune, 12.5.89). 97. The 1989 policy review document was released during the European election campaign. Taylor (1997) argues that this shows the electoral focus of the review process. 98. Larry Whitty, Memorandum to Geoff Bish and Peter Mandelson, 6.5.88. 99. Interview with Geoff Bish, 17.2.98. 100. The SCA, established by Peter Mandelson following his appointment as Director of Communications, comprised public relations professionals who volunteered to help the Labour Party. Phillip Gould was the key member of SCA. 101. Interviews with John Eatwell 28.11.97; Charles Clark 10.12.97. 102. The change was welcomed by Smith who ‘felt that Mr Gould’s work on industrial policy too often strayed into economic policy and contradicted the market friendly message he was trying to convey’ (Butler and Kavanagh, 1992, pp. 49−50). 103. A group was established of the convenors of the three economic policy review groups but this was of limited importance. 104. Both Eatwell, as Kinnock’s economic adviser, and Grahame, as John Smith’s, worked on the basis of drafting speeches which would be revised by the politicians. Policy was developed in this way rather than through a more deliberative process, though there were exceptions like the decision to enter the ERM and how to respond to the Conservative’s entry at a high rate. Interviews with Lord Eatwell (28.11.97) and Andrew Grahame (26.11.97). 105. The Economic Secretariat also began to produce a series of briefings that highlighted where there had been positive responses by the City to Labour’s policies. 106. Gould (1989), p. 85. 107. Corry had been at the Treasury in 1987 and had been part of the team that costed Labour’s 1987 manifesto. 108. Interviews with John Eatwell, 28.11.97; Charles Clark, 10.12.97. See also Gould P. (1998), pp. 125−30. 109. Crewe (1992), p. 3. 110. Shaw (1994) pp. 146−8; Gould P. (1998), pp. 155−60. 111. Kinnock (1994), p. 553. 112. Stanley, ‘Addressing what went wrong’, Labour Activist, June 1992. 113. Cook argued that ‘we drafted our policies in 1989 then froze them in aspic three years before the election’ (Tribune, 3.7.92). 114. Thorpe (1997) p. 226. 115. Alderman and Carter (1993). 116. Thompson, ‘Dangers in Safety First’ (Chartist, Summer 1992). 117. Gould, P (1998), p. 124. 118. Anderson and Mann (1997), p. 86. 119. Thompson (Renewal, January 1994). The year in question was not Smith’s first year as leader but the first anniversary of Renewal. 120. Ibid. 121. There were ‘allegations that, as a quid pro quo, [Brown] had been guaranteed the right to shape the Party’s economic policy’ (Alderman and Carter, 1995).

212 Notes 122. 123. 124. 125. 126.

127.

128. 129. 130. 131. 132. 133.

Blair, Speech in Tokyo 5.1.96; quoted in Froud et al. (1996). Labour Party (1997). Labour Party (1995). Brown (1994). Balls became Brown’s adviser a year after the publication of ‘EuroMonetarism: Why Britain Was Ensnared and How It Should Escape’ (Balls, 1992) which was extremely critical of Brown’s approach to the ERM. See Seyd (1999) on the move to direct member ballots and Labour’s ‘abandonment of delegatory democracy’. See also Seyd and Whiteley in Ludlum and Smith eds (2001). Leys (1996), p. 13 n. 14. Leys (1996), p. 23. Leys (1996), p. 24. See, for example, Blair (1996), ‘Ideological Blurring’, Prospect (June 1996), pp. 10−11. Hay (1999), p. 168. Gavin and Sanders (1997). Source: Gallup post-election polls 2−3.4.92 and 11.5.97. See also Wichham-Jones in Geddes and Tonge eds (1997).

3

Labour’s Mixed Economy

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Jones (1994b), p. 125. Nove (1983), p. 253. Coates (1996), p. 67. Jones and Keating (1985), p. 6. Mackintosh (1982), p. 203. Marquand (1992), p. 214. Marquand (1979). Holland (Tribune 14.11.75) quoted in Jones (1996), p. 101. See MacKintosh (1982), p. 209; Panitch and Leys (1997), p. 5. Published in an extended form as Bacon and Eltis (1976). Wickham-Jones (1996), p. 99. It also influenced the views of prominent trade unionists such as Scanlan (Minkin, 1991, p. 170). Labour Party (1982), pp. 8–9. Sharples (1981), p. 71. Sharples (1981), p. 73. This is connected to the question of whether the AES was a ‘radical’ or a ‘socialist’ programme, an issue over which there was some confusion (cf. Aaronovitch, 1982 and CSE, 1980). There were those who advocated the AES not on the basis of the policies as such but because it created the opportunity for further socialist advance (see, for example, Hodgson, 1979). Labour Party (1983), p. 9. Hattersley (1987a), p. 15. Sassoon (1996), p. 525. Sassoon goes on to argue that the fact that ‘it should have been supported by the Labour Left, and not by the Labour Right, is a demonstration of the extent to which the political reform of capitalism, and not its abolition, had become part of socialist thinking’. See, for example, Devine (1981), Purdy (1980).

12. 13. 14.

15. 16. 17.

18.

Notes

213

19. The proposal was passed as the 1982 Conference though it failed to achieve the two-thirds majority on a card vote which would have guaranteed inclusion in the manifesto. 20. The 1983 manifesto promised a ‘significant public stake in electronics, pharmaceuticals, health equipment and building materials’ (Labour Party, 1983, p. 11). 21. The trade unions representing bank workers were, in the main, opposed to nationalisation and this was reflected in the 1981 report of the Financial Institutions Study Group (RE2006). However, the Home Policy Committee still wanted a commitment to nationalise the four major clearing banks (HPC, Minutes, 12.6.82). The compromise position included in the 1983 manifesto was to say that if the major clearing banks did not co-operate with Labour’s programme the party ‘was ready to take one or more of them into public ownership’ (Labour Party, 1983, p. 12). 22. The ‘no compensation’ position was originally taken by the HPC despite a background paper which pointed out the ‘severe political problems involved in a ‘no compensation’ policy given, for example, that nearly half of all shares are now owned by such institutions as pension funds and insurance companies’ (RD34 ‘Public Ownership and Compensation’). In 1982, however, the TUC–Labour Party Liaison Committee reached a ‘consensus that the no compensation approach was impractical’ (TUC–Labour Party Liaison Committee Minutes, 22.3.82). 23. See Seyd (1987), p. 27. The proposals were included in Jenkins (1973). The relevant section was drafted for Roy Jenkins by Stuart Holland. 24. Drucker, ‘A, but not forgetting B, and including C’ (New Statesman, 3.9.82). 25. Aaronovitch in Coates and Hilliard eds (1986), p. 310. At the time this criticism of the AES was made in CSE London Edinburgh Weekend Return Group (979) and, in a LCC pamphlet, Clarke and Griffiths (1982). See also P. Wintour, ‘Divorcing Labour from the State’ (New Statesman, 11.6.82). 26. Labour’s opposition to council house sales was quickly reversed after the 1983 election. 27. Jones and Keating (1985), p. 198. 28. The Conservative’s belief that control of the PSBR was linked to control of the money supply, combined with their commitment to cut taxes, led them to stress the need for public expenditure cuts (See Ormerod, ‘the attack on the public sector’, New Statesman, 9.11.79). In 1979, Marquand had argued that for Labour it was a ‘fatal assumption’ in relation to the public services that ‘the more money was spent, the more welfare would result’ (Marquand, 1979). 29. Jones and Keating (1985), p. 182. 30. Cripps (1981). After the AES had ceased to be Labour Party policy it was possible to argue that ‘the nationalist protectionist strategy was pushed once more to the margins of British politics’ (Gamble, 1990, p. 216). 31. Tomlinson (1986), p. 95. 32. P. Wintour, ‘Labour Leaves the Treasury well alone’ (New Statesman, 17.9.82, p. 3). See also P. Wintour, ‘End of the Treasury?’ (New Statesman 9.4.82, p. 8). 33. See ‘Regional Policy: an office note’ (RD2584, December 1982). This note to the Home Policy Committee considers the differences between ‘Economic Planning and Industrial Democracy’ and Prescott’s ‘Alternative Regional

214 Notes

34. 35.

36. 37. 38. 39.

40. 41. 42. 43.

44. 45. 46. 47. 48. 49. 50.

51. 52.

53.

54. 55. 56.

Strategy’. It is critical of the failure of the Prescott document to integrate its proposals with official Labour party policy and claims that it is ‘preoccupied with obtaining a “fair distribution of resources”, especially of public spending, between the regions’ (p. 5). Jones andKeating (1985), p. 134. See Sassoon (1996), p. 702. When Labour’s Public Ownership Working Group considered the issue of the accountability of the nationalised industries one proposal was that the public corporation model should be considered as a first stage towards workers control (Cripps, ‘Public Ownership: Organisation and Structure’, RD645). However, Benn was instrumental in arguing for the importance of parliamentary accountability (Benn, ‘The Public Sector: the Case for Ministerial Accountability’, RD182). Holland (1979), p. 222. Ibid., p. 224. Ibid., p. 230. For example, ‘the policies [of the AES] require a high degree of socialist commitment and it will be a problem of political will rather than technicalities if they are to succeed’ (B. Sherman and D. Gilhespy, ‘Question: why do we need an AES?’, Tribune, 19.3.82). Holland (1979), p. 234. Ibid., p. 236. Rustin (1980). Panitch and Leys (1997), p. 12 make the argument that Benn saw the need for ‘a different type of state’. The phrase is from P. Anderson’s ‘The Antimonies of Antonio Gramsci’ (NLR 100, Nov 1976–Jan 1977) where Anderson argues that the very existence of ‘bourgeois democracy … deprives the working class of the idea of socialism as a different type of state’. Le Grand and Estrin (1989), p. i. Forbes (1986), p. 1. Plant (1984). Forbes (1986), p. 2. Ibid., p. 2. Ibid., p. 2. Forbes (1986) and Le Grand and Estrin eds (1989). Miller, Le Grand, Winter and Estrin were the members of the SPG most active in developing the market socialist agenda. Belkin in Roosevelt and Belkin (1994), p. 5. Blackburn (1991) provides a left reassessment of the calculation debate. The key evaluations of the East European experience are by Brus (1972) and Nove (1983). Scott Arnold (1994) argues that from the mid-1980s the view that central planning could be economically successful was ‘no longer intellectually viable’ (p. 35). Nove in Paine and Nolan (1985). See also Miller (1991), Miller and Estrin in Forbes (1986) for the point about the use of information and Nove (1983) for the issue of scale. Winter in Le Grand and Estrin (1989), p. 140. Miller and Estrin in Roosevelt and Belkin (1994), p. 230. Most advocates of market socialism rule out ‘large-scale private ownership’ (Nove, 1983, p. 245).

Notes

215

57. Le Grand and Estrin (1989), p. 1. Blackburn (1991) notes this difference. 58. Compare Forbes (1986) with Miller and Estrin in Roosevelt and Belkin (1994). The Miller and Estrin article was originally published in Dissent in 1987. 59. Miller in Roosevelt and Belkin (1994), p. 250. 60. Hindess (1987), p. 9. 61. Tomlinson in Hindess (1990). 62. Miller in Roosevelt and Belkin (1994), p. 262. Nove acknowledged that his market socialism proposals involved a nationalisation programme for which there was ‘no electoral mileage’ (Nove in Nolan and Paine, 1985). 63. See Kellner ‘Can markets be socialist?’ (New Statesman 2.11.84; An extended version is included in Pimlott, 1984). Kellner also favourably reviewed the SPG’s pamphlet (New Statesman, 21.11.86 and 28.11.86). John Lloyd in his period as editor of the New Statesman was also keen to promote the work of the SPG. 64. Le Grand and Estrin (1989), p. 1. 65. Eatwell (1982) uses this as a chapter title and the phrase is used by Kinnock to sum up his approach to the market (see, for example, Kinnock, 1986, p. 42). As Barwick notes the phrase is ‘almost a direct lift’ from Thatcher in 1979 when she spoke of ‘the state as servant, not as master’ (‘Marketing Labour’, The Spectator, 2.6.90). 66. Ellison (1994), p. 207. 67. Hattersley, ‘Socialism and Markets’, Fabian lecture, 19.11.85. 68. Hattersley and Plant became friends after meeting at the launch of a set of Fabian essays published in memory of Crosland (The Socialist Agenda: Crosland’s Legacy eds D. Lipsey and D. Leonard). Subsequently there was a regular exchange of papers and ideas and Hattersley asked Plant to comment on the proofs of his 1987 book Choose Freedom. Interview with Raymond Plant, 31.10.97. See also Ellison (1994), p. 209. 69. Hattersley (1987b), p. 149. 70. Ibid., p. 163. 71. Hattersley (1987b), p. 152. 72. Hattersley, ‘Socialism and Markets’, Fabian lecture, 19.11.85. 73. Ibid., p. 209. 74. Gould (1986), p. 53. 75. Thompson (1996), p. 260. 76. LPCR (1988). 77. E. Hobsbawm, ‘The Face of Labour’s Future: Eric Hobsbawm interviews Neil Kinnock’, Marxism Today, Oct. 1984. 78. Kinnock (1986), p. 104. 79. Eatwell and Green in Pimlott ed. (1984), p. 189. Eatwell and Green argued that Sraffa’s attack on the neoclassical theory of the rate of profit provided a starting point for such a review of socialist economic theory. Green had been the Labour Party researcher most closely involved with ‘Partners in Rebuilding Britain’ (TUC–Labour Party, 1984) which, Eatwell and Green claimed, was an example of a new approach to economic policy-making. 80. Neuburger, ‘Labour has no debt to “market socialism”‘, Tribune 23.6.89. 81. Labour Party (1987a), p. 6. This was part of what some on the left saw as an ‘acceptance – if not cult – of the market which strikes at the very heart of the socialist cause’ (Mandel, 1986, p. 9).

216 Notes 82. Held and Keane (1984), p. 170. 83. Clarke and Griffiths, (1982). See also P. Hain and N. Stanley, ‘The Modernising of the Labour Party’ (Tribune, 7.10.83) for an LCC view of Labour’s statism. 84. Kinnock (1985). 85. Jones (1996), p. 118. Marquand (1979) had argued that the New Liberal influence on Labour’s thinking – a libertarian, decentralist one – had been sidelined, and that ‘the pervasive Fabian impact on social democracy had in practice degenerated into a centralist, bureaucratic form of social engineering’. 86. ‘Developing a Communications Strategy’ (nda). David Owen had also used the language of the enabling society soon after the formation of the SDP. See Owen, ‘The Enabling Society’ in Kennet ed., The Rebirth of Britain (1982). 87. Labour Party (1987d), p. 6. 88. Eatwell (1992), p. 335. 89. Keane and Owens (1986), p. 150. As Jones and Keating (1985) argue, because of Labour’s links with the trade unions, ‘in government, there is an ambiguity about whether the unions are an external interest group or part of the governing coalition’ (p. 5). 90. M. Jones, ‘Killing the sacred cow’ (New Statesman, 2.9.83). 91. Hattersley (1987b), p. 151. In 1984 even Hattersley was arguing that traditional revisionist ideas were inadequate and that ‘ownership and control are indivisible … the notion of control without ownership was part of the socialist sentimentality of the 1950s and 1960s’ (Kellner, New Statesman, 7.10.84). 92. Shaw (1994). See also D. Blunkett and P. Hain, ‘Social ownership: Labour’s most radical policy in a long time’ (Tribune, 26.9.86). 93. Costello (1986), pp. 1, 10. 94. Thompson (1996), p. 252. 95. Ibid., p. 253. 96. H. Wainwright, ‘Labour scratches around for new life: Interview with John Smith’ (New Statesman, 13.6.86). 97. Jones and Keating (1985), p. 129. 98. The work of Meacher (1980) and Hodgson (1984) has been described as part of ‘an efflorescence of creative economic thinking on the Left of the Party in the early 1980s – the kind of flaring up of a candle that often precedes its extinction’ (Thompson, 1996, p. 242). 99. Livingstone (Marxism Today, Dec 1983). Plant (1984) recognised that it was ‘natural enough that a decentralised approach to socialism seems appealing in the aftermath of an election defeat when the only paths open to genuine socialist advance seem to be in the local field’ (p. 14). 100. The most prominent initiatives were in London but there were also developments in the West Midlands, Sheffield, Leeds, Manchester, Newcastle and Barnsley. A degree of cooperation was maintained through such initiatives as the Local Action for Textile and Clothing, and Motor Industries Local Authority Network groups. A Centre for Local Economic Strategies was founded in 1985. 101. See Labour Party (1985c).

Notes

217

102. Hughes and Wintour (1990), p. 17. The reason why ‘jobs on the rates’ are inherently bad, any more than jobs created by central government reflation, is open to conjecture. 103. See Livingstone (1987); Crick (1986); Blunkett and Jackson (1987). The portrayal of the GLC and other councils as dominated by the ‘loony left’ did not make it easy for the Party nationally to endorse initiatives coming from that direction. 104. Hirst (1985), p. 150. 105. Jones (1994b), p. 568. 106. Kinnock (1985), p. 3. 107. Hattersley (1995), p. 289. See also Gould (1995), p. 104. Despite this, however, Gould and Hattersley were never political allies mainly due to their differences over Europe. 108. Plant (1984) was keen to emphasise after Labour’s 1983 defeat that the Party needed to renew its identity on the basis of values which could appeal beyond class. See also A. Grahame, ‘Socialism’s Litmus Test’ (Guardian, 28.3.88). 109. Labour Party (1987), p. 5. 110. Gould (1986), p. 65. 111. There were various motivations for ‘Aims and Values’ including the need for a theoretical underpinning for the policy review, an implicit distancing from Clause 4 and a desire to head off an alternative draft being prepared by Blunkett and Crick (see Hattersley, 1995, p. 292). 112. Labour Party (1988), p. 3. 113. Ellison (1994), p. 214. A common argument after the 1987 election defeat had been that ‘Labour had been left behind by this culture of individualism and consumerism … [and] paralysed in the face of the economics, which underpins it’ (Leadbetter ‘How have-nots can share working class triumphalism’, New Statesman, 21.8.87). 114. Thompson (1996), p. 262. 115. Tomlinson in Hindess (1990), p. 43. 116. Hindess (1990). 117. Labour Party (1988a), p. 10. It has been argued that the shift in Labour’s emphasis from workers to consumers was ‘perhaps the single most important shift under Neil Kinnock’ (Market Access, 1989, p. 39). 118. Hughes and Wintour (1990), pp. 69–70. 119. Ibid., p. 70. Gould was later to write that it was hard to see why the recognition in ‘Aims and Values’ that the ‘market might be a valuable instrument’ had caused such a ‘storm of protest’ (Gould, 1989, p. 94). 120. Labour Party (1988a), p. 11. 121. Hattersley, ‘The unheroic truth about the market’ (New Socialist, May/June 1988). 122. Foote (New Socialist, May/June 1988). Foote argued that ‘Aims and Values’ was rooted in the work of Nove. 123. Hattersley says that the most of the shadow cabinet thought that ‘having removed what they regarded as fashionable nonsense about competition, there was nothing to be gained in spending time on theoretical discussions’ (Hattersley, 1995, p. 293).

218 Notes 124. Heffernan and Marqusee (1992), p. 102. As a result of the changes to ‘Aims and Values’, Hewitt drafted Kinnock’s introduction to ‘Social Justice and Economic Efficiency’ to be more positive about the role of markets. 125. LCC, ‘Reviewing Policy – Renewing the Party’ (Labour Activist, Summer 1988). 126. LCC (nda) Evidence to the Policy Review. The LCC argued that ‘Aims and Values’ was ‘deeply flawed by the narrow concerns set out in Hattersley’s “Choose Freedom”‘. 127. Labour Party (1988b), p. 4. 128. Labour Party (1989), p. 9. 129. Ibid., p. 9. The policy review’s analysis of markets was set out in more detail by Cowling in ISG (1989). 130. P.Kellner, ‘Labour Learns to Love the Market’ (The Independent, 8th May 1989). 131. Shaw (1994), p. 85. 132. See, for example, Barwick, ‘Marketing Labour’ (Spectator, 2.6.90) and Desai ‘In defence of selling out’ (Tribune, 9.6.89). 133. Taylor (1997) refers to its importance whereas Thompson (1996) in a significant account of Labour’s political economy does not mention market socialism. A number of left critiques of Labour’s policy review process refer to labour being taken over by a market socialism which became ‘almost a new orthodoxy on the non-dogmatic left’ (Devine, 1988, p. 83). 134. Neuberger, ‘Labour has no debt to “market socialism”‘, Tribune, 23.6.89. 135. Gould (1989), p. 96 refers to the Estrin and Le Grand volume in his analysis of the role of markets. 136. Labour Party (1989b), p. 10. 137. Ibid., p. 10. 138. Cowling (1989), p. 14. 139. Interview with Nigel Stanley, 23.1.98. Gould does acknowledge the provenance of the idea in his introduction to ISG (1989), p. 7. 140. Marquand (1987), p. 103. 141. Ibid., p. 103. 142. Ibid., p. 105. 143. Ellison (1994) pp. 212–15. 144. Interview with Geoff Bish, 17.2.98. 145. Marquand (1992), p. 202. 146. Pimlott (New Statesman, 11.12.87). 147. Labour Party (1988b), p. 5. 148. Labour Party (1989), p. 15. 149. Gamble in Smith and Spear (1992), p. 65. One of the architects of the 1986 ‘Social Ownership’ position, David Blunkett, was critical of the further shift in policy away from public ownership (Blunkett, Tribune, 28.4.89). 150. By the end of the election campaign it was not clear that Labour would renationalise the water companies (Ashley, ‘Industrial Policy – Key areas for thought’, 28.7.92). 151. Butler and Kavanagh (1992), p. 49. 152. Shaw (1994), p. 92. It has been argued that Labour Party (1990) was the decisive ‘break with interventionism’ (Leadbetter, Marxism Today, July 1990).

Notes 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164.

165. 166.

168. 169. 170. 171. 172. 173. 174. 175. 176. 177. 178. 179.

180. 181. 182. 183. 184. 185. 186. 187. 188. 189. 190.

219

Smith (1994), p. 559. Labour Party (1992), p. 11. Jones (1994b), p. 125. Ibid., p. 126. Eatwell and Green (1984), p. 202. Shonfield (1965), p. 387. Eatwell (1992), p. 338. Eatwell is careful to point out that there was not a ‘single conscious decision to shift towards the European model’ (p. 339). Gamble (1990), p. 221. Tindale, ‘How Labour Went European’ (Tribune, 13.9.91). Sassoon (1996), p. 702. Plant (1988), p. 2. Hirst has argued that linking reform of the state with a commitment to economic renewal the strengthening – and the democratising – of institutions between the citizen and the state, precisely the interest groups which Plant wished to limit, in a form of corporatist democracy (Hirst, 1989). However, after the policy review there is no mention of corporatist institutions such as the NEDC. Hughes and Wintour (1990), p. 174. Sassoon (1996), p. 735. Gould was , however, much more convinced of the need for decentralisation than, for example, Hattersley or Plant (see Foote, 1997, pp. 332–3). Hattersley, LSE/New Statesman debate, 1.3.88. Wintour (New Statesman, 17–24.12.82); see also Pond and Winyard (1983). Bissett and Weir (New Socialist, May/June 1983). Basnett (1982). Basnett was General Secretary of the General and Municipal Workers Union (GMWU) and Chair of the TUC Economic Committee. Pearson (1985), p. 109. Hansard (15.2.84). LPCR (1984), p. 211. TUC/Labour Party (1986b), p. 5. Ibid., p. 10. Labour Party (1990) p. 37. Labour Party (1991), p. 37. Ibid., p. 37. It was rumoured that the agreement to set a rate for the minimum wage during the policy review was part of a deal with NUPE, whereby NUPE supported the abandonment of Labour’s policy for unilateral nuclear disarmament. I can provide no evidence that this was the case. Rottenberg (1981), p. 1. Hemming (1984), p. 92. Pond and Winyard (1983). Bazen (1985), p. 34. Labour Party (1989), p. 30. Labour Party (1990), p. 37. Neuberger (1983). Bisset and Weir (New Socialist, May/June 1983). Pond and Winyard (1983). See Field (1983), Wilkinson (1991). Weir (New Society, 9.9.82).

220 Notes 191. 192. 193. 194.

Labour Party (1991), p. 37. Rentoul (1995), p. 244. Corry D. (nda) ‘Economic Policy and Presentation: Some Thoughts’. Ibid. Defending his comments during the campaign Prescott also subsequently argued that to pretend the minimum wage would have no effect would be to ‘lack credibility’ (Tribune, 5.6.92). 195. Weir (New Society, 9.9.82). 196. Low Pay Review No. 23 (Autumn 1985). 197. Trinder in Field, ed. (1983). 198. Pond (New Socialist, May 1986). 199. Interview with Dan Corry (15.12.97). 200. Interview with Jim McCormack (16.10.97). 201. See Dickens et al. (1994). The research, in the US, suggested that minimum wages could lead to an increase in employment even in low skill industries such as fast food or, at the very least, that moderate minimum wage increases would not have a dramatic effect on employment. 202. Radice (1992), p. 91. 203. Shaw (1994), p. 188. 204. Jones (1996), p. 149. 205. Mandelson and Liddle (1996), pp. vii–viii. 206. Hutton (1996), p. 291. 207. Some of the earliest articles on globalisation appeared in Marxism Today. See Hall and Jacques (1989). 208. Hutton in Michie (1992), p. 341. See also Tomlinson (1988). 209. Labour Party (1997). 210. See, for example, Hirst and Thompson (1996). 211. Froud et al. (1996), p. 133. 212. Hutton (1996), Political Quarterly Commentary. 213. Eatwell in Michie (1992), pp. 334–42. 214. Perkin (1996), p. 205. 215. Labour Party (1997). 216. Hutton had argued that the discussions about whether the Bank of England should be independent fail on a peculiarly British conception of ‘accountability’ and ‘end up with a quasi-privatised Bank of England reporting to the House of Commons via the Treasury and Civil Service Select Committee and made accountable only to the Chancellor of the Exchequer’ (Hutton, 1995; p. 290). 217. Shaw (1994), p. 87. Shaw argues that the significance of Labour’s ideological conversion to markets in the policy review was over-played but ‘what was significant was that the leadership felt obliged to publicly declare its faith in the market’ (p. 87). 218. Tomlinson (1982), p. 63. 219. Eatwell (1992), p. 335. 220. Shaw (1996), p. 220. 221. Devine, ‘Market mania of the left’ (Marxism Today, June 1988). 222. Thompson (1996), p. 260. 223. Gamble (1988). 224. Shaw (1994), p. 206. 225. Kinnock (1994), p. 547.

Notes

221

226. Jones and Keating (1985), p. 69. 227. Marquand (1988), p. 6; See also Tomlinson (1990b), pp. 44–45 for this point. 228. MacNally (1993), p. 173.

4

Reversing British Industrial Decline

1. Tomlinson in Hirst and Zeitlin eds (1989), p. 251. By contrast ‘orthodox economists have always looked askance at the discretionary characteristics of industrial policy and have preferred macroeconomic policies precisely because of their generality’ (p. 250). 2. Budge (1993), p. 14. 3. TUC/Labour Party (1980), p. 6. 4. Labour Party (1981), p. 8. This obviously meant acknowledging the failures of previous Labour Governments – a not unwelcome prospect for the left majority on the NEC. 5. Stafford (1983), p. 1. See Dintenfass (1992) for an overview of the issue of British industrial decline. 6. Ibid., p. 5. See also Eatwell (1982) and Singh (1977). 7. Ibid., p. 6. 8. Ibid., p. 7. Stafford is particularly critical of Eatwell’s work in this respect. However, Ward (1981) argues that it is not necessary to identify a ‘first cause’ for decline but to recognise the cumulative causation of decline and take steps to address the problem. 9. Ibid., p. 8. 10. Glyn and Harrison (1980). 11. Labour Party (1981c), p. 8. 12. For example, at one point the NEC called for ‘urgent action to restrict foreign car imports which reached 58% of total sales in January and also for all foreign cars to have a minimum percentage, say 40%, of British content. After January 1982, all cars sold here should be assembled here’ (NEC Minutes, 30.4.80). As the Home Policy Committee noted this resolution would ‘clearly conflict with any reasonable interpretation of the Labour Party’s policy on imports’ (HPC, Minutes, 22.4.80). 13. Coates (1981). Only the CSE version of the AES allows that working class power may have had a causal impact on the British crisis. The CSE argue that the crisis could be resolved in two ways – one which favoured capital and one which favoured the working class. However, Coates (1981) argues that ‘a capitalists crisis “resolved” in favour of the working class would be a capitalism in greater crisis, not a capitalism restabilised’. 14. See, for example, Weiner (1981). cc Rubenstein (1993). 15. Labour Party/TUC (1982), p. 7. The measure of concentration usually quoted was that three firms controlled 40 per cent of the output of a typical manufacturing industry. See Tomlinson (1982) on these statistics. 16. See Hodgson (1981) and Tomlinson (1982). Both accept that there are sound political reasons to check the activities of multinationals but contest the claim that MNCs are responsible for Britain’s poor economic performance.

222 Notes 17. In most versions of the AES it was ‘usual to ascribe a special importance to the manufacturing sector’. (Sharples, 1981, p. 78). 18. Sharples (1981), p. 78. See Singh (1977), Blackaby (1978) for analyses of British deindustrialisation. 19. In government, Labour has tended to stress the importance of manufacturing industry. In the 1960s, for example, the Selective Employment Tax, proposed by Kaldor, had been designed to boost manufacturing employment. Tomlinson (1982) has argued that Labour’s emphasis on the importance of manufacturing has something to do with the ‘Marxist privileging of industrial workers as productive’ (p. 57). 20. In considering gaps in Labour’s programme a 1979 Office paper does not mention any aspect of industrial policy, compared with a number of areas of macroeconomic policy (‘Party Policy: Some Gaps in Labour’s Programme’, RD148, November 1979). 21. See Sawyer in Artis and Cobham eds (1979). The 1979 manifesto omitted most of the industrial policy measures associated with the AES, such as increased public enterprise and planning agreements (‘The Manifesto’, RE2142, April 1979). See Coates K. ed. (1979). 22. ‘Economic Planning Section, Labour’s Programme 1983: Comment on RD2228’, Research Secretary (RD2238, March 1982). The Labour Party’s Research Secretary hoped that the joint document would improve the relationship with the TUC’s Economic Department which had been damaged during the 1974–79 government. The PLP was also content to see industrial policy removed from the ambit of the Industrial Policy Sub-Committee which was chaired by Judith Hart and much influenced by Stuart Holland. 23. Gamble (1992), p. 67. 24. Labour Party/TUC (1982), p. 11. Rebuilding the manufacturing base is quite clearly a secondary objective to restoring and maintaining full employment (See, for example, Labour Party, 1980, p. 6). 25. In the early 1980s, manufacturing employed a slightly smaller share of the labour force than its share in output (Tomlinson, 1982). As such the direct employment effects of a focus on manufacturing were likely to be more limited than for a focus on other areas. 26. ‘Planning Aims and Priorities’ (RD322, March 1980). 27. ‘Regional Policy: An Office Note’ (RD2584, December, 1982). See also ‘National Planning: Note by Joint Secretaries’ (RD1046, September 1981). 28. ‘Comments on RD322’ – Stuart Holland (RD336, April 1980). 29. For example, changing the name of planning agreements to development contracts was controversial (TUC–Labour Party Liaison Committee, Minutes 23.2.82). 30. TUC/Labour Party (1982). It was indicated that there would be powers for ‘discretionary price controls, financial support and access to credit’ (Labour Party, 1983a, p. 10) to encourage firms to make and comply with ADPs. The right’s key criticisms of planning agreements were that ‘a compulsory agreement is a contradiction in terms [and] as an answer to the problem of our industrial weakness it begs the question of what we should be agreeing to do’ (Cartwright, ‘The Labour Manifesto: Right and Left’, New Statesman, 16.3.79).

Notes

223

31. ‘Industrial Planning: Some basic assumptions and questions’ (RD725, February, 1981). 32. ‘Planning Aims and Priorities’ (RD322, March 1980). See also ‘Selecting Industries to back’ – K. Chesterton (RD790, March 1981). 33. ‘Labour Movement Study of Industry’ (RD1096, October 1981). 34. Labour Party (1981c), p. 20. 35. TUC/Labour Party (1980). See also ‘A National Investment Bank’ (RD1195, December 1981). 36. Labour Party (1983a), p. 11. 37. ‘Jobs and the Small Firm – Beyond Mythology’. Labour Party Economic Review (March 1980), p. 24. 38. Ibid., p. 27. 39. Minkin (1991). The Employment Sub-committee, established by the NEC in 1981, put manpower policy at the top of its agenda (ESC Minutes, 22.9.81). It did not, however, produce anything significant by the time of the 1983 election. 40. There is an occasional acknowledgement that the problems of British industry run back further than 1979. See, for example, Labour Party (1987c). 41. Labour Party (1987a), p. 4. 42. Ibid., p. 4. 43. Kinnock (1986), p. 4. Thompson (1996) has argued that in the 1983–87 period important figures in the Labour leadership, particularly Hattersley, downplayed the importance of industrial policy. Hattersley, as Shadow Chancellor, did focus on macroeconomic policy. However, he also argued that ‘a socialist economic policy is about the structure of the economy and the power within it. It is not about demand management of the economy’ (Hattersley, 1987a, p. 23). 44. Labour Party (1987a). 45. Ibid., p. 11. 46. Ibid., p. 12. 47. Thompson (1996), p. 264. 48. Smith expressed this view at a meeting of the ISG. Interview with Roger Sugden, 29.10.97. 49. Labour Party (1985d). 50. Guiver (1992), p. 79. 51. See, for example, Labour Party (1985e). 52. It was argued that ‘manufacturing and services, new and traditional industries, can only grow if they grow together’ (Labour Party, 1984, p. 13). 53. Kinnock (1986). In Chapter 4 ‘Why manufacturing?’ Kinnock opens by quoting Lawson (see note 64) and uses much of the analysis of the House of Lords Select Committee on Overseas Trade. 54. Eatwell (1982), p. 127. A couple of chapters, including the concluding chapter, were written exclusively by Kinnock. Throughout the period when Eatwell worked for Kinnock, this way of working, with Eatwell drafting speeches, etc. which Kinnock would revise fairly extensively, was standard practice. Interview with John Eatwell (28.11.97). 55. Labour Party (1986c). 56. ‘Labour’s Jobs and Industry Campaign, 1985’ (CSC 1/11/84).

224 Notes 57. Labour Party (1983b). The ‘Jobs and Industry’ campaign aimed to focus public concern on the economy and re-establish Labour’s credibility. See ‘Proposed Campaign on Jobs and Industry’, Note from Geoff Bish and Tony Manwaring (RD3000). 58. See Prescott in Coates and Hilliard eds (1987). The group was established by Prescott, at this point Employment Spokesman, and operated outside of the Party’s policy-making process. 59. NEC Minutes, 23.5.84. A paper by Benn and Heffer to the NEC complained about the replacement of the AES by a more general ‘Jobs and Industry’ campaign from which some of the clear socialist commitments on public ownership, economic planning and exchange controls had been omitted (‘Planning for a Labour Victory’, Sec 22/5/85). 60. Minkin (1991), p. 434. 61. The analysis of Britain’s industrial policy in ‘New Industrial Strength’ reflected Eatwell’s earlier work and Kinnock’s ‘Making Our Way’. The document was trailed in the press as being ‘pragmatic in tone, reflecting the approach of John Smith, Labour’s spokesman on trade and industry, and stressing the party’s wish to work in partnership with manufacturing industry’ (Thomas D. ‘Labour plans strategy for industry’, Financial Times, 2.3.87). 62. See ‘The Attack on Unemployment’, D. Currie and D. Metcalf (RD3190). Labour explicitly acknowledged that a revival in the manufacturing sector would have a limited direct effect on jobs (Labour Party, 1985e). The preelection document ‘New Jobs for Britain’, produced quickly and haphazardly, did envisage an additional 250 000 full-time jobs in manufacturing (Hughes and Wintour, 1990). However, the documents on industrial policy were far more realistic in this respect (see, for example, Labour Party 1986c). 63. Minkin (1991), p. 434. 64. TUC/Labour Party (1986a), p. 7. 65. Labour Party (1987a), p. 22. 66. LPCR (1985). 67. Hattersley (1987a), p. 36. 68. Labour Party (1985d), p. 6. 69. Ibid., p. 11. 70. Smith, ‘An Industrial Strategy for Britain’ (Speech to University of Sussex 10.2.86). 71. Labour Party (1985d), p. 6. In some policy document in this period this is referred to as the British Investment Bank, in others as the British Industrial Investment Bank. 72. ‘Investing in Britain: Note for Research Secretary’ (RD3587, July 1985). However, with other policy commitments quietly dropped, it was clear that the NIB was the Party’s investment strategy. 73. Hattersley (1987a), p. 138. 74. Smith, ‘An Industrial Strategy for Britain’ (Speech to University of Sussex, 10.2.86). 75. Labour Party (1985d), p. 14. 76. Labour Party (1987a). 77. Labour Party (1984a), p. 10. 78. TUC/Labour Party (1985), p. 23.

Notes

225

79. Alongside BE, Labour also developed proposals to increase the level of civil research and development particularly in the universities but also through the use of public procurement policy. A new Ministry of Science and Technology would be created which would, along with the DTI, be charged with stimulating research and development. 80. Labour Party (1987b), p. 6. For Labour’s emerging policy on training from 1983 to 1997 see King and Wickham-Jones (1998). 81. Butler and Kavanagh (1988). 82. Minkin (1991), p. 445. 83. TUC/Labour Party (1985), p. 13. 84. Labour Party (1987a), p. 19. 85. The main participants in the ISG included Keith Cowling (the Group’s initial convenor), Roger Sugden, Malcolm Sawyer, Paul Geroski, Richard Minns, Mary Rogers, Ben Knight, Peter Totterdill and Michael Waterson. A number of the academics had previously been involved in the Socialist Economic Review in the early 1980s. 86. Industrial Strategy Group (1989), p. 5. 87. Ibid., p. 5. 88. Ibid., p. 49. 89. When the papers were published as Cowling and Sugden eds (1990) the offending sentence on inflation did not appear. 90. Cowling and Sugden had some meetings with Cook when he moved to the DTI after 1992. 91. Cowling ‘A Modern Approach to Economic and Industrial Policy’ (PD2423, February 1990). 92. This was by way of a response to the Conservative’s ‘supply-side miracle’. 93. Shaw (1994), pp. 90–4. 94. Labour Party (1988b), p. 4. 95. Ibid., p. 3. Peter Mandelson was privately critical of the report of the PCE PRG because it failed to take account of the country’s economic optimism (P. Mandelson, Memorandum to John Eatwell and Geoff Bish, 6.4.88). 96. Ibid., p. 4. The draft report of the PRG, ‘Supply-side Socialism’, was even more critical of the role of the City. 97. Cowling in ISG (1989), p. 10. 98. Ibid., p. 11; cc Labour Party (1989), p. 14. 99. Labour Party (1988b), p. 3. 100. For an overview of the claims of flexible specialisation and post-Fordism, see Hirst and Zeitlin (1989b) and Hirst and Zeitlin (1991). 101. Communist Party (1989). 102. Gould (1989), p. 17. 103. Hirst and Zeitlin (1991), p. 10. 104. Ibid., p. 2. 105. Interview with Paul Hirst, 15.12.97. Hirst and Zeitlin submitted a paper that was re-produced as ‘Crisis, What Crisis?’ (New Statesman, 18.3.88) and the introduction to Hirst and Zeitlin (1989b). An expanded version of the New Statesman article was published as Hirst and Zeitlin (1989a). 106. Labour Party (1988b), p. 3. 107. The intention was to draw a contrast with the Government’s Medium Term Financial Strategy.

226 Notes 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119.

120. 121. 122. 123. 124.

125. 126. 127. 128. 129. 130.

131. 132. 133. 134. 135. 136. 137. 138.

139. 140. 141. 142. 143.

Shaw (1994), p. 89. Market Access (1989), p. 8. Wickham-Jones (nda). Labour Party (1988b), p. 4. Labour Party (1989), p. 9. Ibid., p. 11. Gould, B., Speech to Labour Finance and Industry Group (1988). Cowling in ISG (1989), p. 14. Market Access (1989), p. 21. Labour Party (1989), p. 11. Ibid., p. 3. Ibid., p. 13. It was argued that ‘British industry does not have the same access to long-term finance, particularly in the early stages of developing an enterprise, which comparable firms have in other countries’ (p. 13). Ibid., p. 13. Ibid., p. 12. Ibid., p. 13. Interview with John Edmonds, 16.2.98. Market Access (1989), p. 21. See Cowling and Sawyer (1989) where Cowling argues for an outright ban on mergers involving the one hundred largest corporations. Ibid., p. 22. Sugden, ‘A Strategy for Controlling Transnationals’ (PD1771, November 1988). Sugden (1989), p. 60. Guiver (1992), p. 80. Guiver argued that policy may be too ‘biased towards high-tech small firms’, p. 87. Labour Party (1989), p. 15. See Hirst (1989), p. 185. Hirst and Zeitlin (1991) sets out flexible specialisation’s objections to even ‘limited forms of interventionist planning’ (p. 42) such as MITI. Guiver (1992), p. 87. Labour Party (1989), p. 17. Ibid., p. 18. Interview with John Edmonds, 16.2.98. Labour Party (1992a), p. 13. Labour Party (1991c). Labour Party (1992d). Ashley, ‘Industrial Policy – Key Areas for Thought’, 28.7.92. For example, Hirst and Zeitlin (1991) argue that ‘flexible specialisation theory assumes that a wide variety of sectors can be successful components of an advanced economy’ (p. 46). Zeitlin (nda), p. 5. Geroski and Knight (1992) Both Geroski and Knight had previously been active in the ISG. Eatwell (1992), p. 334. Labour Party (1992a). ‘Recent City Analysis of Labour’s Policies’, Labour Party Economic Secretariat 17.6.91.

Notes

227

144. Wickham-Jones (1995), p. 479. 145. Gould (1989), p. 85. 146. These included an enhanced capital allowance for manufacturing of 40 per cent, a New Investment Scheme offering 25 per cent finance for investment on machine tools and production processes by small- and medium-sized enterprises (SMEs), an Engineering Investment Scheme with £20 million set aside for investment, a Growing Business Scheme offering incentives for individuals to invest in manufacturing and technology firms, and a Manufacturing Quality Initiative (Labour Party, 1992d). 147. Zeitlin (nda), p. 6. 148. Ibid., p. 7. 149. Shaw (1994), p. 94. 150. Williams et al. (1993). 151. Hay (1999), p. 126. 152. Pierson (1995), p. 51. See also Brown (1994). 153. Budge (1993), p. 19. 154. Ibid., p. 20. 155. Hirschman (1991). 156. See Tomlinson, ‘Full employment and national economic management in the 1990s’ (Renewal, April 1993); Taylor (1997). 157. Hutton (1995), p. 135. 158. See Hutton (1996). 159. See Kay (1993). 160. Tomlinson (1990). 161. See Blair (1996). 162. See Tomlinson (1982). 163. Froud et al. (1996), p. 120. 164. Ibid., p. 132. 165. Metcalf (1996), p. 77. 166. Ibid., p. 77. 167. Ibid., p. 78. 168. Froud et al. (1996), p. 132. 169. Political Quarterly Commentary (1996). 170. Ibid. 171. Hutton (1996), p. 307. 172. Ibid., p. 307. 173. Hay (1996), p. 48. 174. See Lang (Observer, 26.2.97). 175. Lewis (Investors Chronicle, 31.1.92). 176. Metcalf (1996), p. 75. 177. Hutton (1996), p 307. 178. Gould P. (1998), p. 255. 179. Labour Party (1997). 180. Eatwell in Michie (1992). 181. Budge (1993), p. 19. 182. Wickham-Jones (nda), p. 19. 183. Gamble (1992), p. 68. 184. Tomlinson (1986), p. 107. 185. Corry, ‘Investment: Some Causes’ (8.12.92).

228 Notes

5 Macroeconomic Policy 1. Allsopp in Artis and Cobham (1991) This is similar to the view held by Labour’s then Chancellor (see Healey, 1989). 2. Ormerod argues that it was the decision to honour the threshold payments in 1974–75 which was ‘perhaps the biggest single mistake in the whole of post-war economic policy’ (in Artis and Cobham, 1991, p. 71). The use of incomes policy between 1975 and 1977 reduced inflation by 20 per cent, without a significant increase in unemployment. Nonetheless, the subsequent events of the ‘winter of discontent’ were to prove extremely damaging to Labour both electorally and politically. 3. Callaghan’s speech was reputedly written by his son-in-law, Peter Jay, an early British proponent of monetarism. The legacy of the speech was a long one. See, for example, P. Kellner, ‘The economic consequences of Jim’ (New Statesman, 17.10.80); Neuberger H., ‘Why Uncle Jim Makes Me Scream’ (Tribune 11–18.8.89). 4. Brivati in Brivati and Bale eds (1997) describes the IMF episode as Labour’s ‘defining crisis’ (p. 190). 5. There was not, however, a sense of crisis. Even in quarters where it was recognised that ‘Labour’s great problem is to find a new and convincing basis for economic management’ it was felt that ‘there need be nothing impossible in that task’ as ‘since Labour last went shopping for ideas, the resources of economic science and econometrics have made formidable progress’ (New Statesman editorial, 11.5.79). 6. As against the neo-socialism of the industrial strategy (see Lipsey, 1982). 7. The Conservative’s experiment with monetarism was severely criticised at this time from within the economics profession. Famously, in 1981, 364 economists wrote to The Times to protest at the Government’s strategy (see Wickham-Jones, 1992). 8. Labour Party (1983a), p. 5. 9. Labour Party (1982a), p. 7. 10. Labour Party (1982c), p. 12. 11. Whiteley (1983), p. 200. 12. Neuburger, ‘Public Spending and Jobs’ (Briefing for Labour Students, 1982). In October 1981, Neuberger had estimated more optimistically that £1 billion of expenditure would produce 100 000 jobs (Neuberger, ‘The AES: Public Expenditure’, RD1111, October 1981). 13. ‘Fiscal Policy Simulations’ (RD2022, January 1982). 14. Huhne (Guardian, 20.4.82). See also Ormerod and Blake (1980). 15. TUC/Labour Party (1981), p. 8. Only in a Party discussion document on the issue of tax was there the assumption that ‘most of the increase in public spending under the next Labour Government will have to be matched by higher taxation revenue’ (Labour Party, 1981b, p. 4). 16. The issue was raised in internal discussions (see, for example, TUC–Labour Party Liaison Committee Minutes, January 1980). However, the Research department found it difficult to convince the NEC to discuss the control of public expenditure (Interview with Geoff Bish, 17.2.98). 17. Ward (1981), p. 93. 18. See Thompson (1996); Eatwell (1982).

Notes 19. 20. 21. 22.

23. 24. 25. 26. 27. 28.

29. 30. 31. 32.

33.

34. 35. 36. 37. 38. 39. 40.

41. 42. 43. 44.

229

Ward (1981), p. 93. See, for example, TUC/Labour Party (1980). Home Policy Committee Minutes 23.4.80. The 1983 manifesto refers to ‘back-up import controls, using tariffs and quotas, if these prove necessary, to achieve our objective of trade balance’ (Labour Party, 1983a, p. 9). Neuberger ‘Labour must strive to set the agenda on the economic debate’ (Tribune, 10.7.87). Purdy (1980). See also Ward (1981). Cutler et al. (1978), p. 281. Gamble (1992), p. 62. Cutler et al. (1978), p. 282. Gould, Mills and Stewart (1981). For a flavour of the debate, see Beckerman ‘Devaluation or Import Control?’ (New Statesman, 6.4.79) and the response by Gould, Mills and Stewart ‘Devaluing Import Controls’ (New Statesman, 8.6.79). Ward (1981), p. 100. Ormerod ‘Where devaluation fits into the protectionist strategy’ (Guardian 29.9.81). TUC/Labour Party (1981), p. 6. See also Sharples (1981). Sharples states that ‘in crude terms the debate within the labour movement has hinged on the question “Do Trade Unions Cause Inflation?” with those who answer “yes” supporting incomes policy and those who answer “no” committing themselves to free collective bargaining’ (Sharples, 1981, p. 87). See also Purdy (1980), Finn and Devine (1983). Crouch in Kavanagh ed. (1982) notes that free collective bargaining was the basis of ‘relatively recent association of the socialist left with trade unionism’ (p. 186). That the ‘way to socialism was not a “wages free for all”‘ (Hodgson, 1981, p. 212) was a minority view on the left. Labour, for example, ‘declares its opposition to incomes policies’ (LPCR, 1981, p. 68). ‘Party Policy: Some Gaps in Labour’s Programme’ (RD148, November 1979), p. 1. Ibid., p. 2. Minkin (1991), p. 426. ‘Inflation: A Socialist Approach’ (RD 726, February 1981). Ibid. See Eatwell, ‘Notes on Inflation – towards a Socialist Approach (RD869, May 1981). Eatwell also discusses the ‘conflict theory of inflation’ in Eatwell (1982, Ch. 6). At the Finance and Economic Affairs sub-committee the Research Department paper was welcomed by Ormerod and Opie (Minutes, 9.4.81). See ‘Inflation – towards a Socialist Approach’ (RD1165, December 1981). LPCR (1981). See Healey, LPCR (1982), p. 205. Hattersley argued for an incomes policy in a Liaison Committee discussion (See Benn Diary, 21.1.80). Minkin (1991), p. 427. Other econometric analyses would appear to bear out Shore’s point on the difficulty of implementing Labour’s programme

230 Notes without some form of incomes policy. See, for example, Blake and Ormerod (1980). 45. On ‘Weekend World’ Shore admitted ‘that his strategy for economic recovery, including a large devaluation of the pound would work only if there was income restraint’ (Tribune, 28.1.83). 46. TUC/Labour Party (1981), p. 13. In the document’s last sentence the NEA is moved up into upper case. 47. Minkin (1991). Throughout the period TUC officers were far more positive about incomes policy than individual trade unions. An incomes policy would have given the TUC a way into a debate with government on the division of national income. 48. See Foot (1984) Appendix C, ‘A Contract for the 1980s’, the text of a lecture delivered by Foot in November 1982. 49. LPCR (1981), p. 75. 50. Minkin (1991), p. 426. 51. The two main opponents were John Golding and Michael Foot. Golding’s position was that the trade unions could not deliver on an incomes policy (see Tribune, 25.2.83). 52. Kavanagh (1982), p. 6. 53. Aaronovitch (1981). 54. Labour’s commitment was to ‘reverse the Tory Government’s policy of forcing up nationalised industry prices’ (Labour Party, 1981a, p. 3). However, given that many of these industries were making large losses, it is difficult to see how this would be financed. 55. Labour Party (1981a). 56. LPCR (1981), p. 57. 57. Shore ‘Pre-Budget Economic Statement’ (2.3.82). 58. Ibid. The figures produced in the ‘Pre-budget statement’ implicitly assumed a functioning incomes policy even though this was not spelt out in the text (See Huhne, ‘Mr Shore’s big secret’, The Guardian, 20.4.82). 59. Bish used this episode as an example of the problems of Labour’s policymaking between 1979 and 1983. See ‘Policy Development: a further note’ (RD2902, November 1983). 60. Green argued that ‘Programme for Recovery’ was ‘traditional Keynesian reflation programme with a strong dose of economic nationalism’, which included an incomes policy, but was not dependent on a proper planning machinery (Green, ‘The economy: how Labour bought the Treasury line’, Tribune, 31.12.82). Cook and Straw responded that the Programme was not an attack on industrial planning but intended to complement ‘Economic Planning and Industrial Democracy’, on which Green had been a key researcher. Further, the NEA, criticised by Green as an incomes policy, was Party policy (Cook and Straw, ‘Of course we believe in planning’, Tribune, 14.1.83). 61. ‘ Labour’s Jobs and Industry Campaign, 1985’, CSC, 1.11.84. 62. These included Maurice Peston – who had been Hattersley’s adviser between 1974 and 1979 – Chris Allsopp, Paul Ormerod, Charles Williams and Gavyn Davies. 63. Shaw (1994), p. 42. 64. Labour Party (1984a), p. 3.

Notes

231

65. Benn (1992), p. 505. Hattersley argued that at the 1983 election the Party had given the false impression that full employment could be easily achieved (Hattersley, 1987a, p. 29). 66. Hattersley (1987a), p. 47. 67. Keane and Owens (1986), p. 156. 68. Hughes and Wintour (1990). See also Butler and Kavanagh (1988). 69. Gould was not at this point a member of the NEC and the NEC exerted no control over the production of the ‘New Jobs for Britain’ document. Eatwell was involved in the development of the document and Gould also discussed the issue with some members of the Kaldor Group. Later Gould was to comment that the ‘pledge was always a ridiculous one’ and was an example of the ‘mechanistic approach to economic issues … which has dogged the Labour Party’s economic policy-making for so long’ (Gould, 1995, p. 182). 70. Hughes and Wintour (1990), p. 19; see also ‘The Attack on Unemployment’ – D. Currie and D. Metcalf, RD 3190 which highlights the limited possibilities of increasing manufacturing employment. 71. See Smith (1993), p. 79. 72. Neuberger (Tribune, 2.10.87). Commenting on targets for the reduction of unemployment a paper for the policy review notes that ‘in the 1987 case, the Tories have achieved – albeit partly by fiddling the figures – the target we set’ (‘Macroeconomic policy for the Policy Review’, PD2021, February 1989). 73. Labour Party (1986b). 74. Labour Party (1987b), p. 5. 75. Butler and Kavanagh (1988), p. 257. 76. See Minkin (1991), p. 425. 77. See Hattersley (1995), p. 282–3. 78. Labour Party (1987b), p. 4. 79. Hattersley (1987a). 80. See Shaw (1994), Butler and Kavanagh (1988). See Jones ‘Labour’s spending plans – why the right is wrong’ (New Statesman, 22.8.86) for a rebuttal of the Conservatives claims that Labour’s programme would cost up to £35 billion. 81. Butler and Kavanagh (1988), p. 258. 82. Hattersley (1987a), p. 82. 83. Jobs and Industry JPC Minutes (17.12.85). 84. Hattersley (1987a). 85. TUC/Labour Party (1985), p. 25. 86. Ibid., p. 25. The ‘Out of Crisis’ project had argued for such a coordinated reflation (see Chapter 6). Eatwell was also, at this time, convinced of the merits of this ‘Eurokeynesianism’. Between 1983 and 1987, however, Eatwell played little part in the development of Labour’s macroeconomic policy. 87. Financial Times (2.3.87). 88. Labour Party (1987a), p. 10. 89. Hattersley (1987a), pp. 82–3. 90. Labour Party (1987b), p. 6. 91. Costello (1986).

232 Notes 92. See Kinnock ‘Is there a European route to recovery?’ (New Statesman, 7.11.86). 93. Hattersley (1987a), p. 15. 94. Hattersley, ‘A Socialist Wages Policy’ (Aneurin Bevan memorial lecture – Redditch Town Hall, printed in Tribune, 19.10.84). 95. Kaldor Group (1986), p. 62. The report is considered in detail in the next section. 96. See Jones (New Statesman, 7.12.84) and Tribune (5.9.86) for an account of the tensions between Hattersley’s advisers. 97. TUC/Labour Party (1986b), p. 16. 98. Hattersley (1987a), p. 15. 99. Labour Party (1987b), p. 4. 100. LPCR (1985), p. 210. 101. Shaw (1994), p. 44. See also Minkin (1991), pp. 428–9. 102. Minkin (1991), p. 431. 103. Ibid., p. 431. 104. Shaw (1994), p. 44. 105. Grahame had been an adviser to Labour Governments in the 1960s and 1970s. He later acted as John Smith’s economic adviser during his period as Shadow Chancellor. 106. Kaldor Report (1986), p. 61. 107. Grahame did mention the possibility of controls on trade in the letter sent to Neil Kinnock with the final report. This was to compensate Kaldor for the fact that such controls were not recommended in the report (Interview with Andrew Grahame, 26.11.97). 108. After the 1987 election there was some discussion involving John Eatwell, Henry Neuberger and Brian Gould about reconvening the Kaldor Group, or a smaller version of it, to provide economic advice. This did not happen. However, after Andrew Grahame began to work with John Smith he established an informal advisory group that included a number of economists who had been active in the Kaldor Group. 109. ‘Economic Prospects’ (Paper to Economic Sub-committee of Shadow Cabinet, 17.9.87). 110. Labour Party (1988b), p. 4. 111. Labour Party (1989), p. 9. After the 1987 election no target for the reduction of unemployment is set. 112. Ibid. 113. Ibid., p. 14. 114. Ibid., p. 13. 115. See Hare ‘Inflation’ (PD1697, Oct 1988), Sawyer, ‘Some Notes on Inflation’ (PD1739, Oct 1988), and Tomlinson ‘Labour and Policy on Inflation’ (PD1699, Oct 1988). 116. Tomlinson, (1989) ‘Labour and Policy on Inflation’, p. 9. 117. Labour Party (1989), p. 14. 118. Ibid., p. 14. 119. Labour Party (1989), p. 14. 120. Ibid., p. 14. 121. Ibid., p. 14. 122. Ibid, p. 14.

Notes

233

123. Huhne ‘Labour makes peace with the real world’ (Guardian, 24.5.89). 124. Grahame, ‘Updating the Policy Review: Macroeconomic Policy’ (20.2.90). 125. Smith’s main political adviser was David Ward who was not, however, an economist. Initially Grahame worked with Gordon Brown following Smith’s heart attack in late 1988. 126. Grahame chaired the group and John Eatwell was a key contributor. Other participants included Dan Corry, Meghnad Desai, Gerald Holtham, Gavyn Davies, David Currie, David Soskice, Neil Mackinnon and John Hills. 127. See Grahame, ‘Updating the Policy Review: Macroeconomic Policy’ (20.2.90). 128. Anderson and Mann (1997), p. 83. 129. See, for example, ‘Not overheated but just unbalanced’ (Tribune, 15.7.88) in which Neuberger argued that ‘events have vindicated Labour’s argument that expansion need not lead to mounting inflation’. 130. Labour Party (1990), p. 7. 131. LPCR (1990), p. 29. 132. See ‘Interview with John Smith’ (The Independent on Sunday, 16.5.90). 133. Labour Party (1990), p. 7. 134. Ibid., p. 10. 135. Labour Party (1991). 136. GMB/UCW (1990). 137. Ibid. Gould has written that Edmonds in PRG discussions was ‘particularly concerned to resist any hint that a pay policy might be necessary’ (Gould, 1995, p. 203). Given Edmonds’ amendment to the review on pay and the proposals in ‘A New Agenda’ this is perhaps an over-simplification of Edmonds’ position. 138. See Smith (1991 and 1992). 139. The paper was published as Hirst and Zeitlin (1993). 140. Interview with Paul Hirst, 15.12.97. 141. Interview with TUC officials. Publicly, Norman Willis (TUC General Secretary) argued that ‘Britain needs to move away from its traditional short-term approach to collective bargaining’ (Speech to Foreign Exchange Association reported in Tribune, 9.3.90). 142. See Economic Policy Sub-Committee (Minutes, 26.5.90) and TUCLabour Party Contact Group (Minutes, 25.2.91). See also Keegan, W., ‘Elixir which could transform Labour’s economic policy’ (Guardian, 6.4.92). 143. Hare (1989) ‘Inflation’, p. 5. 144. Ibid., p. 5. 145. Hutton (in Michie, 1992), p. 342. 146. See Tribune (8.5.92). Gould argued that he did not ‘accept the monetarist line, which I think has been accepted by the party by implication, that the only function of economic policy is to establish monetary stability’. 147. Neuberger, ‘Guidelines on Public Spending Implications of the Policy Review’ (PD1708, Oct 1988). 148. Interview with Dan Corry, 15.12.97. 149. In turn the 1987 commitments were framed to be no less generous than Labour’s promises in 1983. The 1983 figures had been based on uprating pensions and child benefit in line with the increase in earnings between 1979 and 1983.

234 Notes 150. Kinnock subsequently attributed the 1992 defeat, in part, to the fact that ‘we had not had long enough to be very categorical and convincing about the real impact of our tax policy’ (Kinnock, 1994, p. 553). The Conservative’s ‘Tax Bombshell’ campaign was well under way before Labour’s Shadow Budget. 151. Gould argued that he was ‘not opposed to tax redistribution: no socialist could be. But a cleverer package could have been put together which had the same objectives but was not so crude in the way that it resolved the anomaly on NICs’ (Gould, Tribune, 8.5.92). 152. Butler and Kavanagh (1992), p. 255. 153. Brown (1994), p. 2. 154. Ibid., p. 1. 155. Ibid., p. 14. 156. Ibid., p. 13. 157. Ibid., p. 21. 158. Labour Party (1993). 159. Corry, ‘Living with Capitalism: The macro-economic alternatives’ (Renewal, January 1994), p. 58. 160. Ibid., p. 56. 161. Ibid., p. 56. 162. Pierson (1995), p. 55. 163. Tomlinson, ‘Full employment and national economic management in the 1990s’ (Renewal, April 1993). 164. Tony Blair, Mais Lecture, 22.5.95. 165. Labour Party (1995). 166. See Bainbridge and Burkitt, ‘Central Bank Independence’ (Renewal, April 1995). 167. Gould (1998), Ch. 8. 168. Eatwell (1992), p. 334. 169. Hutton in Michie (1992), p. 341. 170. Shaw (1994). 171. Anderson and Mann (1997), p. 92. 172. Eatwell (1992), p. 336.

6 A European Party 1. Eatwell (1992), p. 334. 2. See Haahr (1993) and Scott (1991). 3. Thatcher’s subsequent success on the budget issue could be seen as confirming the 1974–79 Labour government’s failure though Scott argues that Labour in the 1970s operated in a narrower ‘policy space’ due to the international economic crisis (see Scott, 1991). 4. LPCR (1980). 5. Crewe and King (1995) argue that ‘the European issue was not quite so crucial to the subsequent emergence of the SDP as is usually supposed’ (p. 10). Within the Labour Party, however, the loss of many of the Party’s prominent pro-European MPs may well have been a factor in entrenching

Notes

6. 7.

8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

18.

19. 20. 21. 22.

23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

235

the anti-EEC policy in the short-term. Teague and Grahl (1988) argue that political rivalry with an EEC-friendly SDP was an important medium-term factor in moving Labour to a more positive policy. Benn (1980), p. 95. While most versions of the AES did call for withdrawal from the EEC some did not. The CSE version, for example, called for a discussion on joint action by the European left and considered the possibility of ‘internationalising the AES’ (CSE, 1980, p. 115). Williams et al. (1992), p. 12. Scott (1991), p. 124. Meacher ‘Europe’s “free trade” tangle’ (New Statesman, 8.6.79). Holland (1980). Teague (1989), p. 39. TUC/Labour Party (1982). Labour Party (1981d), p. 5. Holland (1980), p. 72. Tomlinson (1981), p. 116. For example, ‘Withdrawal from the EEC: Fiscal and Financial Policy Implications’ (RD880, May 1981) was discussed by the Finance and Economic Affairs Sub-Committee. Labour Party (1982a). Developments at an EEC level had little impact on Labour’s position, except negatively in terms of the failure to reform the CAP and the position over Britain’s budget contribution. Teague (1989), p. 36. See, for example, Mitchell (Tribune, 8.4.83). Featherstone (1988), p. 64. George (1990), p. 163. Polling data showed that the Conservatives lead on the issue of Europe was greater than on any other issue (Tindale, Tribune, 13.9.91). Halami, Michie and Milne (1994), p. 98. Singer (New Statesman, 14.5.82). Ormerod (New Statesman, 30.7.82). Aarnovitch in Coates and Hilliard eds (1987), p. 311. Ormerod (New Statesman, 30.7.82). Halimi, Michie and Milne (1994), p. 105. Ormerod (New Statesman, 30.7.82). Castle, ‘Let Them Throw Us Out’ (New Statesman, 17.9.82). Ibid. (my emphasis). Holland (1975), p. 319. Holland ed. (1983). Ibid., p. 144. Ibid., p. 26. Ibid., p. 164. Teague and Grahl (1988), p. 78. Teague (1985), p. 56. Interview with Stuart Holland, 29.10.97. Teague and Grahl (1988), p. 77. Tindale (Tribune, 13.9.91). Halimi, Michie and Milne (1994), p. 98.

236 Notes 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56.

57. 58. 59. 60. 61. 62. 63. 64.

65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82.

Gamble (1992), p. 64. The Economist (1.10.83). Labour Party (1983b), p. 13. See, for example, Hain (1984). Kinnock (1984), p. 231. Ibid., p. 240. Featherstone (1988), p. 66. Kinnock (1984), p. 232. Ibid., p. 239. Grahl and Teague (1988), p. 79. At the time both Papandreou and Mitterrand had expressed interest in the idea of a ‘new Mesinna’. (Interview with Stuart Holland, 29.10.97.) Butler and Jowett (1985), p. 60. Ibid., p. 60. The 1984 CSPEC manifesto was essentially a reprise of the arguments of the ‘Out of Crisis’ project with the significant change that mention of managed trade was lost. Gould, however, argued that the 1984 result was indicative of anti-EEC feeling (Gould, ‘Labour and the Common Market’, Tribune, 26.7.85). Smith in Nolan and Paine (1986), p. 103. Radice (1984), p. 136. Teague (1985), p. 61. Radice (1984), p. 136. Teague (1985), p. 59. Ibid., p. 59. Morrell (New Statesman, 6.3.87). Teague and Grahl (1988) argue that those involved in local government became progressively more pro-EEC given their experience of structural funds. Hattersley, ‘Exchange Rates and the EMS’ (Speech at the Conference of the General Federation of Trade Unions, 15.10.86). Joint Commission of the Labour Party/SPD, 20.11.86. Neuburger (1989), p. 3. Teague (1985), p. 63. Williams et al. (1992), p. 19. Robertson (Hansard, 23.4.86). Grahl and Teague (1988), p. 80. Haahr (1993). It was not clear how the two conceptions of the single market differed. Kinnock (New Statesman, 7.11.86). Neuburger (1989), p. 1. Ibid., p. 12. See also Cutler et al. (1989). Ibid., p. 57. Williams et al. (1992), p. 20. Haahr (1993), p. 124. Featherstone (1988), p. 69. Labour Party (1987b), p. 15. Ibid., p. 15. Sections of the Party, including the Labour group of MEPs, remained extremely hostile to the EEC. Labour Party (1988b), p. 6.

Notes

237

83. Labour Party (1989), p. 7. 84. Williams et al. (1992), p. 27. 85. In a paper to the PRG Neuburger had argued that ‘1992 can … provide socialist parties with a great opportunity to underline the arguments for expansionary policy’ (Neuburger in Cowling and Sugden, 1989, p. 57). Two options are discussed. The first, ‘EC wide plans for co-ordinated reflation’ is familiar. The second was a more modest proposal designed to prevent ‘fiscal paralysis’ punishing countries if they expanded their economies and other did not. To prevent balance of payments problems, it was argued, countries should be allowed to take direct action on the balance of payments, or the international financial system should allow countries to finance sustained balance of payments difficulties. 86. Williams et al. (1992), p. 26. 87. Teague (1989), p. 35. 88. Grahl and Teague (1989), p. 73. 89. Teague (1989), p. 35. 90. Teague (1985), p. 69. 91. Williams et al. (1992). 92. Haahr (1993), p. 133. 93. Hughes (1991). 94. Tribune (4.3.88). Later, Kinnock described withdrawal as ‘politically and economically unreal’ (Tribune, 29.4.88). 95. LPCR (1988). 96. Cutler et al. (1989). 97. In November 1989 a new draft of the Social Charter included a provision giving workers the right to join, or not to join, a trade union. Blair was embarrassed in the parliamentary debates on the issue. However, this enabled Blair to insist that ‘the unions and the party had to chose between the Social Charter and the closed shop’ (Rentoul, 1995). 98. Hattersley (Sunday Times, 9.8.92). 99. Grahl and Teague (1988), p. 75. 100. LPCR (1989). The European election result was a convincing victory for Labour by 46 seats to 32. It was the first time that Labour had won a national poll since 1974. 101. Hutton (1995). 102. Mandelson and Liddle (1996), pp. vii–viii. 103. Albert and Gonenc (1996), p. 188. 104. Ibid., p. 190. 105. Hutton (1996). See also Barratt Brown (1996). 106. Hutton (Observer, 26.1.97). 107. Hay (1996), p. 44. 109. Perkin (1996), p. 205. 110. Labour Party (1997). 111. See, for example, Gould et al. (1980) and Shore’s ‘Programme for Recovery’ (1982). The ‘Out of Crisis’ project’s position on the ERM was ambiguous arguing for significant reforms of the ERM system but also a common campaign to widen the ERM to non-EEC entrants. 112. Hattersley (1987a). 113. Hattersley (1987a), p. 88.

238 Notes 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124.

125. 126. 127. 128. 129. 130. 131. 132. 133. 134.

135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151.

Grahl and Teague (1988), p. 80. Kinnock (1986), p. 166. Ibid., p. 166. Ibid., p. 166. Ibid., p. 166. Kinnock, ‘Is there a European route to economic recovery?’ (New Statesman, 1.11.86). Ibid. Ibid. Kaldor Report (1986), p. 15. Labour Party (1989), p. 14. Ibid., p. 14. The PRG report set the following conditions; that the ERM became part of a strategy for economic growth; that the adjustment mechanisms relied less on interest rates and more on arrangements between central banks; that there is scope for individual countries/regions to tackle their economic problems; and that the pound entered at the right level. Neuburger ‘A Useful Exchange Rate Mechanism’ (1988), p. 1. Ibid., p. 2. Williams and Allsopp ‘Monetary Policy for 1991/92’ (1988), p. 2. Shaw (1994), p. 97. Davies (1989), p. 18. Davies was a member of the Smith Advisory Group convened by Andrew Grahame. Davies (1989), p. 6. See McSmith (1993), p. 153. Smith (Speech to Socialist MEPs 18.10.89). In November 1989 Smith set out the conditions as ‘entry at an effective rate, adequate central bank swap arrangements to tackle speculative attacks, increased support for regional policy, and arrangement on a strategy for growth’ (Sunday Correspondent, 5.11.89). Smith (Guardian, 3.4.90). Labour Party (1990), p. 10. Ibid., p. 7. Shaw (1994), p. 97. Ibid., p. 114. Labour Party (1990), p. 7. LPCR (1990), p. 29. Morgan Stanley (Summer 1990). Grahl and Teague (1988). Shaw (1994), p. 98. Haahr (1993), p. 148. James Capel (August 1991). Today (27.6.89) quoted in Haahr (1993), p. 150. Hahhr (1993). John Edmonds (LPCR, 1990), p. 30. Williams and Allsopp (1988), p. 13. Hattersley (1987a), p. 89. The Kaldor Group (1986) proposed entry at a ‘low’ rate.

Notes 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171.

239

Gould (1995), p. 243. Gould (1992). Gould in preface to Kitson and Michie (1993), p. iii. Ibid., p. iii. Observer (8.3.92). Davies (1989), p. 6. Shaw (1994), p. 208. Stephens (1997), p. 262. Anderson and Mann (1997), p. 87. Interview with Meghnad Desai, 8.12.97. Interview with John Eatwell, 28.11.97. Stephens (1997), p. 262. Davies et al. (1990), p. 9. Smith (press release 20.5.91). Labour Party statement, ‘Labour and Europe’ (1991). Labour Party (1991b), p. 14. Anderson and Mann (1997), p. 105. These are charted in Anderson and Mann (1997), p. 106. Grahl and Teague (1988), p. 74. Ibid., p. 75.

7 The Long Road Back 1. 2. 3. 4.

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

See Durbin (1985), Booth (1996). See Chapter 4. Marquand (1992), p. 202. Heffernan and Marqusee (1992), p. 47. The charge probably had more resonance under Kinnock than under Blair, as policy changed more substantively, as did Kinnock’s personal position. See Marquand, ‘Labour must break with labourism to provide a socialist alternative for Britain’ (The Guardian, 29.3.88). Jones (1994), p. 585. The distinction between Labour’s doctrine and ethos was famously made by Drucker (1979). Shaw (1994), p. 212. Gould, P. (1988). Interview with Dan Corry, 15.12.97. Hughes and Wintour (1990), p. 38. Smith in Ludlum and Smith eds (2001), p. 262. Wickham-Jones (1995b), p. 700. Smith in Ludlum and Smith eds (2001), p. 257. Hay (1999), p. 183. Hirst and Thompson (1996). Hirst and Thompson (1996), p. 143. See also Hay (1999), p. 75, n. 24. Hay (1999), p. 135. Hutton (1996) argued the left needs to accept that ‘one form of capitalism or another, is now the only game in town’ (p. 291). See Hay (1999). Wickham-Jones (1995a) makes a similar point about Hay’s (1994) article arguing that ‘what is remarkable about … the policy proposals

240 Notes

19. 20. 21.

22. 23. 24. 25. 26. 27.

which Hay produces, but their similarity to those that Labour has been putting forward for the last decade (p. 701). See Kenny and Smith in Ludlum and Smith eds (2001) on the constraints faced by New Labour. Wickham-Jones (1995a), p. 487. See, for example, ‘Recent City analyses of Labour’s policies’ (Economic Secretariat, 17.6.91) which argued that ‘the general message from the new City studies, is that the City is no longer frightened of a Labour Government’. Interview with Dan Corry, 15.12.97. Wickham-Jones (1995b), p. 487. See King and Wickham-Jones (1998). Stanley, ‘Addressing what went wrong’, Labour Activist (June 1992). Chen (1999), p. 3. Smith (1994), p. 711.

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Index ‘Aims and Values’ 36, 67, 68 Allsopp, Christopher 182 Alternative Economic Strategy 19, 25–8, 50 Alternative Regional Strategy 55 Ashley, Cathy 34, 111 Bacon and Eltis thesis 49 Balls, Ed 45, 156 Bank of England, The 44, 46, 158 Basnett, David 23, 76 Beckett, Margaret 38, 39, 41, 153, 185 Benn, Tony 10, 20, 22, 28, 34, 55, 58, 132, 163, 179 Berry, Roger 156 Bickerstaffe, Rodney 184 Bish, Geoff 35, 37, 98, 100, 134 Black Wednesday 5, 42, 47, 155, 158 Blair, Tony 8, 41, 42, 43, 79, 82, 118, 157, 158, 159, 190, 194 British Enterprise 101, 108 see also National Enterprise Board Brown, Gordon 36, 38, 39, 41–5, 102, 104, 112, 114, 121, 153, 156, 158, 159, 182, 184, 189, 190 Burns, Terry 187 Cabling up Britain 108, 112 Callaghan, James 21, 125, 131 Cambridge Economic Policy Group 128, 144, 149 Campaign for Labour Party Democracy 21, 56, 64 Campaign Strategy Committee 30, 135 Castle, Barbara 167 Centre for Policy Studies 2 Charter 88 74 Citizenship 74–5 Clark, Charles 31, 62, 154, 169 Clarke, Kenneth 158

Clause 4 44, 82–3, 86 Coates, Ken 156 Commission for Social Justice 6, 35, 42, 45, 46, 81, 115, 157, 194, 197, 201 Commission on Public Policy and British Business 46, 117, 194 Common Agricultural Policy 133 Competition policy 98 Confederation of the Socialist Parties of the EC 171 Constitutional change (Labour Party) 21, 53–6 Conference of Socialist Economists 27 Constitutional reform 85 Contact Group 34 Cook, Robin 24, 42, 68, 114, 134, 158, 170, 189, 190 Corry, Dan 34, 39, 46, 79, 153, 157 Cowling, Keith 36, 102 Cripps, Francis 128, 168 Crosland, Anthony 48, 49 Davies, Gavyn 141, 183, 187, 188 Dealignment 3 Deindustrialisation 3, 88 Delors, Jacques 34, 156, 175 Demos 6, 47 Desai, Meghnad 137, 187 Devaluation 129, 139 Developmental state 36, 38, 71–2, 75, 107 Downs, Anthony 9 Eatwell, John 7, 15, 32, 34, 36, 61, 74, 90, 96, 102, 108, 121, 131, 147, 148, 149, 151, 154, 161, 172, 182, 184, 187, 193 Edmonds, John 108, 110, 150, 186 Education and training 101–2 Enabling state 62

258

Index 259 European Community see European Union European Monetary System see Exchange rate mechanism European Monetary Union 188 European Union 29, 54, 84, 139, 162–6 Exchange controls 127, 140 Exchange Rate Mechanism 5, 14, 39, 41, 140, 143, 146, 150, 155, 179–90 Fabian Society 28 see also Socialist Philosophy Group Fair is Efficient 45 Flexible specialisation 106, 110 Foot, Michael 21, 28, 55, 126, 163 ‘Freedom and Fairness’ 32, 67 Freedom (as a socialist value) 67–8 Full Employment Forum 156 General and Municipal Workers Union 76 George, Eddie 158 Globalisation 44, 83, 115, 177, 198 Godley, Wynne 126 Golding, John 27 Gould, Bryan 24, 32, 35, 36, 38, 40, 41, 59, 61, 68, 71, 72, 75, 102, 137, 145, 148, 149, 152, 155, 179, 184, 185, 186, 194, 197 Gould, Philip 8, 159, 194, 196 Graham, Andrew 38, 143, 144, 147, 154, 161, 184 Greater London Council 66 Green, Roy 27, 135 Grieve Smith, John 151 Hain, Peter 156 Hare, Paul 146 Hattersley, Roy 28, 30, 31, 33, 34, 59, 60, 69, 74, 136, 137, 138, 140, 141, 142, 143, 172, 180 Hay, Colin 9, 10, 15, 195 Hayek, Friedrich von 56 Healey, Dennis 21, 22, 133 Hewitt, Patricia 31, 35, 46, 75, 151, 197 Hills, John 154 Hirst, Paul 106, 151

Hobsbawm, Eric 62, 89, 116 Holland, Stuart 7, 25, 43, 50, 55, 65, 156, 164, 165, 168, 169, 170, 193 Hollick, Clive 34 Home Policy Committee 22 Hutton, Will 42, 83, 116, 160, 177, 178 Import controls 24, 127, 143 Incomes policy 5, 33, 76, 130, 140, 143, 146 Industrial Strategy Group 6, 36, 72, 102–4, 110, 194 Inflation 103, 130, 140 Institute for Public Policy Research 7, 35, 42, 46, 117, 182, 188 International Monetary Fund 3, 125 Investment 99–100, 123 Joint Policy Committees 30 Jobs and Industry Campaign 32, 97 Jones, Doug 136, 141, 179 Kaldor Group 6, 32, 141, 142–4, 181, 193 Kaldor, Nicolas 128, 142, 163 Kaufman, Gerald 28 Kay, John 117 Kellner, Peter 59 Keynes, John Maynard 2 Keynesianism 3, 125 Kinnock, Neil 7, 22, 28, 29, 31, 32, 33, 34, 35, 39, 40, 41, 61, 63, 67, 74, 97, 137, 142, 143, 144, 153, 169, 170, 173, 175, 180, 181, 184, 185, 188, 189 Labour Coordinating Committee 27, 31, 62 Labour Economic Policy Group see Kaldor Group Labour Economic Strategy Group 29 Labour Listens 35 Lawson boom 104, 148, 152, 160 Lawson, Nigel 97, 137 Lea, David 134 Le Grand, Julian 56 Livingstone, Ken 153 Local authorities 65

260 Index Making Our Way 32, 181 Mandelson, Peter 82 Manpower Services Commission 101 Manufacturing industry 92, 106, 111, 123 Market socialism 6, 56–9, 86 Marquand, David 71, 75, 194 Marxism Today 106, 194 Meacher, Michael 186 Mesoeconomy 91 Miliband, David 46 Militant 22, 29, 31 Miller, David 57 Miner’s strike 29 Mitchell, Austin 96 Mitterrand Government 28, 65, 166–7, 169 Monetarism 124 Morrell, Frances 171 Mortimer, Jim 28 Mulgan, Geoff 47 Multinational companies 54, 91, 94, 96, 109, 164 National Economic Assessment 25, 63, 77, 132, 134, 141, 146, 150 National Enterprise Board 50, 52 see also British Enterprise National Executive Committee 19 National Investment Bank 51, 84, 94, 96, 100, 108, 112, 123, 140 National minimum wage 14, 33, 75–81, 196 Neuburger, Henry 27, 29, 32, 36, 61, 71, 77, 103, 126, 134, 148, 173, 182 New Statesman 1, 56, 181 New Socialist 170, 194 Nexus 47 Nove, Alec 57 One member, one vote (Omov) 29, 43, 156 Ormerod, Paul ‘Out of Crisis’ project 28, 167–9, 170, 194 Overload thesis 29 Parliamentary Labour Party 21 Planning 93 Planning agreements 54, 93, 98

Plant, Raymond 56, 60, 67, 74 Policy Coordination Committee 24 Policy Forum 46 Policy Review 35–7 Policy Review Groups 35 Post-fordism 105 Prescott, John 24, 43, 54, 66, 68, 79, 97, 98, 137, 158, 185, 190 ‘Programme for Recovery’ 132, 133–5 Przeworski, Adam 11 Public ownership 52, 72–3, 85 see also social ownership Public sector borrowing requirement 127, 138 Realignment of the left 30 Reflation 126 Regional Development Agencies 114, 199 Reich, Richard 115 Renewal 43, 47 Research and development 100–1 Robertson, George 172 Sawyer, Malcolm 103, 146 Sawyer, Tom 35 Scargill, Arthur 29 Scott, Derek 44, 45 Shadow budget 37, 152–5 Shadow Communications Agency 37, 39 Sharples, Adam 27, 131, 134 Shonfield, Andrew 74 Shore, Peter 24, 54, 129, 132, 133–5, 163 Silkin, John 163 Single European Act 172, 175 Smith, John 31, 37, 38, 39, 41, 42, 54, 64, 69, 73, 76, 96, 98, 99, 102, 145, 147, 149, 154, 156, 182, 184, 185, 187, 188, 189 Social Charter 175 Social Democratic Party 22, 77, 163 ‘Social Ownership’ 63 see also public ownership Socialist Economic Review 27 Socialist Philosophy Group 6, 28, 56–9, 70, 194

Index 261 Stakeholding 44, 116–21 Stanley, Nigel 103, 108 Straw, Jack 134 Structural dependence 11 Sugden, Roger 102, 109

Tribune 31 TUC/Labour Party Liaison Committee 24, 33, 34, 76, 92, 101, 132 Tuffin, Alan 150 Unemployment

Taxation 137, 202 The State We’re In 83–5, 116 Thompson, Paul 43 Tomlinson, Jim 146 Trade Union Congress 95, 101, 151, 162, 165, 174 Trade Unions for a Labour Victory 23 Training and Enterprise Councils 111 Transnational corporations see Multinational companies Transport and General Workers Union 76

126, 136

Vredeling Directive

174

Whatever Happened to Britain? 32 Whitty, Larry 37 Williams, Charles 182 Williamson, Nigel 31 Windfall tax 120, 159 Wilson, Harold 5, 20 Winter of discontent 3, 124 Zeitlin, Jonathon

106, 151