Problems & Prospects of British Capitalism

[p012] PROBLEMS AND PROSPECTS OF BRITISH CAPITALISM—I Economic thought and economic reality Topay there is need for a thorough discussion among socialists on the character of British capitalism in the fifties and for an attempt to estimate where it is head- ing. This discussion must proceed, not from some pre- conceived thesis, but from a study of facts and trends within the framework of world economic development and against the unfolding process of interaction between Britain’s internal development and the changing inter- national pattern. The present modest contribution starts off from a Marxist standpoint, not however to verify some quotation but to use Marxism as a method and a system. Too much of what in recent years has passed for Marxism in economics has been at the best scholastic and at the worst ill-informed and dogmatic, and has shown that would-be Marxist economic theory can be just as sterile as anything concocted by the marginal utility theorists if it does not root itself in an analysis and understanding of facts and, in the course of its diagnosis, constantly refer to concrete data concerning the real world of capitalism. That it is necessary to say this is in large part attributable to the influence of the Soviet Union on Marxist thought in other countries. The state of theoretical economics in the Soviet Union, as well as of the social sciences in general—especially the trivial stuff which has come from Russia purporting to describe and analyze the course of post-war develop- ment in the capitalist world—should be warning enough that no body of thought is necessarily free from ‘theo- retical blight’. Fortunately these caricatures of Marxist economics do not represent the richness of what a crea- tive application of Marxism to the problems of econo- mic development has to offer the Labour movement. Partly as a consequence of the sterility of so much self-styled Marxist economic thinking there is, in the Labour movement, a theoretical void which thinkers of reformist tendencies, such as Crosland and Strachey, have only recently sought to fill. The contribution of British socialist writers in the economic field within recent years has not been impressive, and to a large extent they have been content to follow ideologically in the train of the leading bourgeois thinkers of our epoch. The tendency among professional economists, under- standably enough, has been to shun broad perspectives and, especially, prognostications. Their views are apt to be coloured by the experience of the immediate past (to which, in some cases, they will probably be applying some particular theory popular a decade or two before) and also by preponderantly ‘liberal-conservative’ views current in their own special milieu. Theoretical fashions in economics change, and the real world is liable to be oddly refracted through the particular prism currently being employed. Since about the early forties the fashion has been set by the Keynesian school. Keynes has in these years provided the major inspiration for econo- mists both of the ‘left’ and of the right. Tom Kemp Keynes was primarily concerned, when all is said and done, with discovering the determinants of the trade cycle and with the practical problem of overcoming the contractionist tendencies which appeared to him to be inherent in a ‘mature’ capitalism. The tools which he fashioned, and those developed later by his disciples, have since been applied chiefly to the problems of economic expansion and inflation. The spectres with which Keynes grappled in the thirties (cyclical defici- ency in demand and chronic unemployment) are now generally held, by reputable economists, to be com- pletely under control because of the timely counter- actions by the State. Thus Professor Meade writes:- There can be no reasonable doubt that all important countries, and not least the United States of America, would react with effective domestic measures of reflation against any heavy fall of demand and rise in employ- ment domestically.! When leading figures in the profession speak with such confidence it is not surprising to find that similar assumptions are made at lower levels, and by socialists like John Strachey. Quotations like this could be multi- plied a hundredfold, the same idea being asserted with varying degrees of certitude. Most professional econo- mists see the major problems of the future, primarily, as those likely to impede balanced growth and so to prevent the realization of that doubling of the stan- dard of living in twenty-five years of which Mr. Butler once spoke. Fabian-minded socialists merely add their riders about inequality, monopoly power and so on. Consequently a great deal of attention is now directed to inflation, its control and the structural distortions which accompany inflation. These were the main theme of the Report of the Economic Commission for Europe (February 1956) and of the First Congress of the Inter- national Economic Association held in the summer of the same year. Summarizing the Commission’s proceed- ings, another leading academic economist wrote: The general view was that we do now understand the maintenance of economic activity and that, given the underlying position, governments would be successful in preventing any major slump.2 Only Professor Lewis, a distinguished reformist connected with Socialist Union, stated a dissident point of view and it is significant that he begins from an em- pirical, rather than a theoretical, standpoint.? There are, of course, other economists who share Professor Lewis’s misgivings, but, if we can judge from their pub- lished writings, most British and American economists face the future with the same kind of optimism, and even the same fears, as would not have been out of place a century ago. (The fact that this year we cele- brate the centenary of the first real international eco- nomic crisis, coming in the midst of mid-Victorian 1Meade, J. L. The Three Banks -Review, Sept. 1955. 2Sayers, R. S. The Three Banks Review, Dec. 1956. 3See the articles which he has contributed to ‘The Manchester School’ in recent years.

[p013] prosperity, is purely coincidental.) One is inevitably re- minded of the quasi-unanimity to be observed among economists during the reign of the neo-classicists -.— roughly the first four decades of this century — and the fate of the ‘spurned heretics’ whom Keynes himself restored to some degree of respectability. ; Economists are neither more nor less prone than other people to believe unconsciously what it is com- forting and convenient to believe. A guarded confi- dence in economic stability and progress, given the existence of certain conditions which require no great faith to imagine being realized, is largely characteristic of those who teach or write about economics today. Faith in capitalism has been strengthened by the great expansion and the full employment of this last decade. Perhaps some would prefer the old free market capi- talism, but not many would consider it politically advisable. As for the vast majority of the reformist socialists, they are, today, convinced Keynesians. Nor is this surprising. For success, reformism requires smooth, peaceful development, undisturbed by cataclysms. Re- formist tactics and strategy in the political arena are based upon precisely these expectations, and without them gradualism ‘can hardly hope to succeed. As the reformists see it, Keynesian policies in practice (and it seems in the interest of the capitalists themselves to practise them) smooth out the trade cycle and maintain full employment, so preventing the major cataclysmic factor—slump—from occurring in the future. Keynes- ianism thus provides, at one and the same time, a confirmation of reformist strategy and a confounding of those incorrigible Marxists who still- believe in the inevitability of capitalist crisis. The subjectivist sin of the reformist socialist eco- nomists arises from their pressing need to prove that a certain kind of capitalist development is possible in order to justify their particular political strategy and tactics; they seize upon those theories which fit in with this concept of socialist strategy and unscientifically take for granted what has to be proved. Marxists have sometimes been guilty of similar subjectivist thinking, and there is even less excuse for it in their case. For example, some Marxists have assumed that there will not be a sharpening of class consciousness, nor a pos- sibility of overthrowing capitalism, without a major crisis. Hence they are over-anxious to discern the symp- toms of the impending slump, quote Marx when they should be applying Marxist analysis to the observable facts and trends and, instead of making that ‘creative ‘contribution’ to which they give lip service, only suc- ceed in discrediting themselves and that very Marxism which they claim to be using. To a large extent this approach is to be blamed on the dead hand of Moscow- orientated orthodoxy. If British Communist Party economists had any doubts about Stalin’s views in his now notorious Economic Problems they certainly kept them to themselves. If they have recently eased up on their rigid adherence to certain shibboleths is it not primarily because of the successive changes which have been introduced into the Soviet textbook on political economy? If few translations have been made of Soviet ‘Marxist’ works on economics, it is because the abysmal theoretical level they represent would make it quite impossible for even British Communist economists to accept or defend them. But it is certainly true that Marxists have not yet analyzed carefully enough, nor adequately explained, the present phase of capitalism. Certain observations can be made about it. Capitalism has its ups and downs. Long-period economic upswings such as that which we have been living through are not new pheno- mena in the history of capitalism. New factors, too, have come into the picture, not least the role of govern- ment policy. Very special conditions have been prevail- ing in the recent past and they may yet last for some time. Many professional economists—as we have noted —appear to assume that these conditions will last for ever. The major weakness of contemporary economic thinking is that it is too apt to generalize from the immediate past and to concentrate its attention upon short-term diagnoses. The Keynesian aphorism ‘In the long run we are all dead’ expresses a reluctance to un- dertake long-term analysis, a reluctance which is only slowly being overcome. It may be assumed, too, that the confidence which so many economists have in the future. prospects of British capitalism has insecure psychological foundations. The outspoken confidence may include the sub voce qualification aprés moi le déluge — since ‘in the long run we are all dead’. For Marxists the sustained prosperity of the re- cent period should give no cause for surprise or for defeatism. There is no basis in Marxism for assuming that economic crisis or decline is a necessary basis for vigorous action against an outmoded social and eco- nomic system. The example of the thirties in this and. other countries shows that there is no automatic con- nection between crisis and working class strength. Un- employment drains the trade unions of many of their members and diminishes their fighting power. Insecur- ity and fear demoralizes people and prepares the ground for demagogues to build up mass support for fascism from among the threatened petty bourgeoisie and sec- tions of the working class. Today, on the contrary, we find the trade union movement strong and sensitive to every threat to its newly-won positions. A tremendous capacity to wage struggles has been built up in the Labour movement. This strength gives hope that be- fore misery and frustration on the scale of the thirties could recur the necessary leadership and sense of pur- pose would be created in the Labour movement to end capitalism itself. It should be clear that the Tories and the employers are playing with fire every time they make an attack on the gains of the last two de- cades. These attacks, of which we have seen the first probings in the last year or so, grow out of the con- temporary problems of British capitalism, of a crisis which is no less real because it does not reproduce the forms of the thirties, but whose origins and potentiali- ties have to be understood if the Labour movement is to take hold of the new opportunities with which it will be presented. However refurbished to meet the increas- ingly severe scrutiny of the working class, capitalism in Britain carries within itself the seeds of crisis. The changed world position of Britain _Any fundamental analysis of Britain’s economic position and prospects must begin with the diminished réle which she now plays in the world, compared with 1900, 1914 or 1939. By 1914, she had lost her world industrial predominance but still retained the leading. position in finance, commerce and shipping — though by then her rivals were creeping up on her. As a result of World War One, great inroads were made into Bri-

[p014] tain’s capacity to shape the nature and course of the world economy. Although her chief continental rival, Germany, had been temporarily vanquished, the old international. division of labour had been shattered in the process and, in the newly-emerging pattern, Britain now operated under less favourable conditions than in the past. The strengthening of the industrial might of the United States and her réle as a major creditor— in direct competition with Britain— made the pecu- liarly ambivalent Anglo-American relationship a major factor in world economics. At this stage, however, the imperialist base of British economy had been broad- ened—although the virus of colonial revolution was spreading. She still held immense foreign investments, but was no longer able to resume the export of capital on the pre-1914 scale. However, Britain retained a strategic position in world trade and finance. The main burden of the readjustment to new in- ternational conditions in the inter-war period fell upon her basic industries: coal, heavy engineering and tex- tiles. Unemployment and stagnation for years held these parts of her industrial structure in their icy grip. The onset of the world economic depression in. 1929 found her economy by no means fully recovered either from the effects of the war or from the over-valuing of the pound sterling after the return to gold in 1925. Structural changes had, however, now begun and con- siderable relief was experienced from the favourable shift in the terms of trade upon which her manufac- tured exports exchanged against imported primary products. The failure of the expansion which took place in the twenties to restore anything like boom conditions in Britain meant that the effects of the economic blizzard which swept the world after 1929 were felt, actually, in a less acute form than in the USA and Germany, serious as these were. The aban- donment of the gold standard and of traditional free- trade policy, as a sequel to the manipulated political crisis of the summer of 1931, which brought the Labour Premier Ramsay MacDonald in as Premier of a Tory Government, gave a certain fillip to the economy and served to cushion it from even more severe shocks. Depression, however, remained endemic, particularly in the older sectors of the economy, with only partial recovery — until the rearmament drive of the late thirties. During these years of depression Keynesian eco- nomic theories remained something of an official heresy, though all the time they were more and more deeply influencing the new generation of. economists. With the outbreak of war unemployment was reduced to the low level from which it has hardly diverged since. It was this simple fact, more than anything else, that established the prestige of the Keynesian analysis. _. Meanwhile, despite the shocks of the war, the de- pression and the plight of the basic industries, British economy remained during all this time immensely powerful. In 1938 overseas capital holdings were back to something like the same volume as those of 1914 and income derived from them covered about one-fifth of the payments which had to be made abroad. America and Britain The Second World War had a much more adverse effect on Britain’s economic position than either the 1914-18 war or the depression. The extent of the ad- 74 verse change that has taken place has to some extent been cushioned and concealed by a variety of factors. The effects are, however, well known. From being a great international creditor, Britain capitalism is now the largest debtor on international account. The terms of exchange of her manufactured exports have greatly worsened. Loss of net income from such sources as shipping freights and heavy overseas military expendi- ture has further burdened her balance of payments. As a result, only foreign aid and a great increase in ex- ports could prevent a disastrous decline in living stan- dards. This has meant that the whole of British eco- nomy has become even more dependent on the world market than ever it was in the past. It is, therefore, more prone to shocks transmitted to it from outside. Parallel to Britain’s decline, which has been shared by that of Europe as a whole, has been the impressive growth in world economic importance of the United States of America, which had been tem- porarily hindered by the depression of the thirties. This increasing importance of the USA had been acceler- ated by the embarrassments of European capitalism after 1939, the tremendous boost which the war gave to her industrial and financial machine and her enviable position as universal provider in a world ,hungry for both capital and commodities after the war. In the first post-war decade, the British economy alone was underpinned in grants and loans to the extent of 6,500 million dollars. Without dollar assistance on this scale agonizing problems would undoubtedly have had to be faced both in Britain and her dependent territories: for example, any outflow of fresh capital from Britain to the colonies (and to other areas) would hardly have been possible. Likewise, Britain has benefited in- directly by the various loans and aid made to other countries. Certainly this ‘generosity’ implied some ‘strings’; it also represented an important element in American stability. Of this there is no question. The result has been that new economic and political re- lationships between Britain and the United States have been established, relationships which are full of com- plexities and contradictions which cannot be summed up in a simple formula. It will hardly be disputed that as far as a ‘partnership’ exists, its terms are defined in Washington and Wall Street rather than in London. Yet Britain is clearly not a satellite or a potential fiftieth state of the USA. Bitter rivalry in some areas and in certain periods has been followed by apparently harmonious operation in others. Britain has been able to resist complete synchronization of her policies as a result of her entrenched positions in strategic areas of the world, the undoubted prestige and experience of her agents and the blunt fact that it is in the interests of neither to allow the persistent underlying rivalry, which sometimes rises so nakedly to the surface, to up- set the common front against the Russo-Chinese bloc. The full’ extent of the political and economic anta- gonisms inherent in this British-American partnership is therefore concealed. If British and West European stability had not become necessary to American economic and political foreign policy it is doubtful whether capitalism could have survived at all in those countries. It is here that the deliberate policies of Moscow served the same ends as those of Washington: the dupes being those in the working-class movements who supported one or other

[p015] of the two leaderships and thus surrendered their claim to take power into their own hands. The period after 1945 is the period of the great tragedy of lost oppor- tunities. These opportunities — the victories of the Resistance movements in West Europe, the Labour landslide victory of 1945, whose energies were dissi- pated in these tragic years — have now been largely forgotten in the gains in wage levels and social services and higher employment levels of the past decade, much as the revolutionary energies of Chartism were sub- merged beneath the economic upsurge of the mid- Victorian decades. Under these conditions, necessarily complicated by a host of other factors, it appears that a large part of the working class has become reconciled to capitalism, or at least has become less militant. The reasons for the new economic situation, the factors responsible for full employment and the chances of its continuance must therefore be given very careful attention, especially since We are faced with the apparent paradox of ad- verse changes in Britain’s international position and the loss of colonial territory coinciding with improved living standards and greater job security. Full employment since the war Socialists used to be accustomed to thinking of capitalism as inseparably associated with chronic un- employment, except perhaps in wartime and at the peak of a full-scale boom. But this country has now experi- enced twelve years of peacetime ‘full employment’. The indefinite continuance of this state of affairs is now often assumed by reputable economists and by the framers of Labour Party policy documents. But it is necessary to stress that this post-war period has been unique. It may be said that the preservation of high levels of employment in Britain and the USA has been less a result of conscious purpose than of a unique combination of circumstances. The factors making up this full employment economy have operated inter- nationally, though this has not prevented some coun- tries from experiencing periods of unemployment, open and concealed, or chronic depression, as in the case of Italy. It cannot however be clearly established that either the politicians of the capitalist States or the great business magnates have decided to maintain full em- ployment as a matter of self-interest. On the contrary, there is a persistent trickle of half-concealed opinion expressed in such circles that a little unemployment would have a salutary effect upon the workers. What- ever complaints may be made about inflation, it is in- comparably easier to cope with this and other con- comitants of expansion than it is to overcome a de- pression which has already begun. Just because a par- ticular concatenation of influence has kept the whole international capitalist structure at a high level of acti-. vity, little experiment has had to be made to test any of the over-advertised specific remedies for unemploy- ment. It cannot be denied, however, that government activity played an important part in sustaining a high level of employment. The acceptance by capitalist governments of a more direct rdle in investment is one of the wartime practices carried over into the period of reconversion and reconstruction. In particular, gov- 75 ernment-sponsored investment in constructional work, including housing, has made a substantial addition to the total level of activity. As a resuit Britain has ex- perienced a building boom. In the past such a boom in house construction has been part of a characteristic building cycle, followed, for reasons which need not be discussed here, by a decline. Unless the building cycle is a thing of the past, there will presumably come a time when the boom will exhaust itself and the level of building construction will slacken off. It is conceiv- able, too, that government measures designed to deal primarily with problems in other parts of the economy may provoke contraction in the constructional trades, including building. It is clear that the whole question of the réle of government in modern capitalism needs further analysis. The antagonisms between the two rival world- systems, the Soviet bloc and the Atlantic powers, ex- pressed in the umbrella term ‘Cold War’, has had its own economic reflection in a very high level of arms expenditure. Undoubtedly this high level of arms ex- penditure has, at times, created its own special diffi- culties, and it has often been argued on rational grounds that ‘we’ in Britain should be better off if the resources absorbed by the armaments race had been applied to peaceful production. But is capitalism a rational system? Could consumption and demand have been maintained at a level at which these resources re- leased from armaments would have supplied goods, maintaining full employment in the process? If the an- swer to the first question is ‘No, capitalism is not rational’, it would be unwise to give an unequivocally affirmative reply to the second. In the thirties there was abundant evidence that capitalism had apparently exhausted its potentialities. Everyone was forecasting its early demise. Paradoxic- ally, for a whole series of reasons, the Second World War temporarily gave capitalism a new draught of life. As a result of this, the main danger at present is that we should overestimate its resilience. What the war did, among other things, was to inaugurate a new, intensi- fied phase of technological development. Its new name is automation. Perhaps the economic system itself should not receive much credit for this; in the pre-war period, capitalist society had done much to hold back science and frustrate its best representatives. In recent years it has been able to squander millions on research for war preparations while starving peaceful medical, agricultural and other research of vital funds. Out of wartime scientific industrial research and development, however, came a whole new series of commercially ap- plicable products and processes suitable for post-war markets. Rapid development has taken place in such important fields as electronics, petro-chemistry, nuclear energy and the production of consumer durables, plastics, man-made fibres for textiles, and so on. Fresh technological spurts on this scale have, in ‘the previous history of capitalism, been able, if not to obliterate the cyclical movement, at any rate to bring about sustained upward swings in the long-term pat- tern of development. The new fields for investment and profit-making opened through technological advance have, undoubtedly, been a significant factor in deter- mining the rate of growth of British capitalism in the post-war period.

[p016] Britain and the world market As we have seen, British economy has become more sensitive to the condition of world economy than before the war. An important element in its own high level of activity and employment has been transmitted to it from outside. The relationship between Britain and the world economy is one of interdependence and mutual interaction, with Britain playing a less positive, determining role than in the past. In the recent period, increasing demand for manufactured goods, particu- larly capital equipment and consumer durables, has had favourable consequences for Britain’s vital export trade. Because of better prices, better terms of trade and a higher level of demand for their products, the primary producing countries have been able to increase their imports of industrial goods. Colonial emancipation and capital investment in underdeveloped countries have together operated in the same direction. The expansion of this market has been important in enabling Britain to increase the volume of her exports quickly enough to keep the balance of payments problem within reason- able dimensions. True, this was coupled with less fav- ourable terms of trade for manufactured goods — the obverse of the jacking up of demand on the part of the primary producing countries. This association of less favourable terms of trade with prosperity in the manu- facturing countries is familiar from the experience of the world economy before 1914. In the past, however, sooner or later, the balance has tilted in the opposite direction: terms of trade for industrial commodities have improved, but this has coincided with a dampen- ing down of the rate of growth of industrial production, with falling prices on the export market and, finally, with the onset of depression in both the industrial and the primary-producing countries. Perhaps this picture is also now a thing of the past. Perhaps this particular contradiction has been overcome through commodity control schemes and similar measures. But the practical proof that this is so has yet to be given; as will be shown in the second part of this article, certain symptoms of such a change have already become apparent. + (To be continued in the next issue)