The collapse of the Heath Government in February of last year under the impact of the national miners' strike was a watershed in the recent history of the class struggle in Britain.
Far more was involved than a mere tactical defeat for the ruling class. The fall of the Tory Government represented a strategic defeat for the British bourgeoisie, and this event provided the catalyst to unhinge and destabilise the whole economic, political and social situation in Britain.
Over the past year the economic crisis of British capitalism has deepened at an ever-accelerating pace. But now this economic crisis has been joined by a political crisis flowing from the break up of the traditional ruling class bloc organised in the Tory Party. The British bourgeoisie is not only a class facing life-and-death problems — it is a class without any clear perspective for the resolution of those problems, a class which has at present at its disposal no actual or potential 'leadership team' that can begin to carve a way out of the capitalist crisis.
Britain has thus joined the ranks of those European countries where even a temporary restoration of political equilibrium seems highly unlikely. This can only imply that the immediate future will see a period of immense social and political struggle in Britain, the outcome of which will be of major significance for the balance of class forces, not only in this country but throughout Europe.
THE ROOTS OF THE CRISIS
The bases of the specific nature of the British capitalist crisis are to be found in a particular pattern of historical development, starting with the very early development of British capitalism, which has led both to the extreme proletarianisation of the country and to a position where historically the dominant sections of the ruling class have derived, to a degree unequalled in any other major capitalist power, their profits not from the exploitation of the British working class but directly or indirectly from the exploitation of the labouring masses of other countries.
This situation is reflected in a pattern of foreign investment which in accumulated bulk exceeds quantitatively, even today, proportionately to the size of the country's economy, even that of the United States and is qualitatively higher than that of West Germany, France or Japan. This is in turn complemented by a pattern of 'invisible' exports (insurance, banking, shipping for foreign nations, etc.) which is far greater in proportion to the size of the economy than any other major imperialism and to a pattern of trade which has been oriented towards sectors of the world economy, first the Empire and then the Sterling Area, where, for historical, and/or political reasons, British capitalism had a privileged position as a seller and where competition on the same technological level was very weak.
Rarely has the word 'imperialism' had such direct importance in analysing any major economy as it has in the case of British capitalism.
This pattern of insertion in the world economy has had profound historical implications for the whole social and political structure of Britain. Firstly, it has given the bourgeoisie a huge 'buffer' against the need to sharply increase the rate of exploitation of the British proletariat. Secondly, it has allowed the bourgeoisie to make, when under working-class pressure and without creating economic ruin, the great economic concessions to the British working class which are reflected in the great organisational strength, and political backwardness, of the British working class. Thirdly, it allowed the bourgeoisie to avoid having to resort to fascist or military solutions between the two imperialist world wars, and thereby allowed it to maintain the enormously strong ideological weapon of 300 years of uninterrupted parliamentary regimes. Fourthly, however, and this is where the crisis within the bourgeoisie becomes very important, this situation of the British economy has meant that the decisive sections of the home-based British industrial bourgeoisie, in particular of the new industries created in the twentieth century, have not historically been the dominant fraction within the ruling class. Economic pre-eminence was in the hands of finance capital, symbolised and organised in the City of London, and government was in the hands of the remnants of the landowning sections of the ruling class —these latter two forming the dominant section of the main party of the ruling class, the Tory Party, with home-based industrial capital playing a subsidiary role, and with the policy of the whole being dominated by the needs of finance capital.
This relation of forces within the ruling class meant that the policy of the British state was not in general directed towards the interests of the home-based technologically advanced industrial bourgeoisie but to the needs of the foreign operations of British capital. This was shown in dozens of ways —the return to the gold standard after the first world war with the disastrous consequences of a high exchange rate for the British domestic economy; the maintenance after 1945 of absurdly inflated exchange rates which kept the maximum value available for foreign investment but which crippled exports; the maintenance of military forces vastly beyond Britain's financial capacity in East Asia, the Arab Gulf, etc; the concomitant foreign policy alignment not with European capital but with the United States, the only possible military protector, of British investments and operations abroad; the decision not to enter the European Economic Community (EEC — Common Market) at its inception because of its effects on the financial operations of the City and the export and import patterns of British trade, etc.
The historical reasons for the crisis of this economic orientation are well known. They are in particular:
1. This foreign economic orientation was gained, as noted, at the expense of the development of the British economy itself. From the 1860s onwards, the British economy was weakening compared to its rivals. The final nail was driven into its coffin when, unlike its German and Japanese rivals, it missed the benefits of the enormous increase in the rate of exploitation made possible by a totalitarian regime.
2. British imperialism, precisely because of its weakening home base, did not have the political or military capacity to defend its markets against the encroachments of rival imperialisms. Starting with the rise of German imperialism, and ending with the concessions Britain was forced to make to the United States to gain lease-lend during the war, the old political defence of the system of trade and investment began to crumble.
3. After 1945 British imperialism could no longer economically afford to sustain a foreign military system which, with the exception of the United States, far exceeded that of any other capitalist power.
4. Those sections of the world economy towards which British imperialism was oriented were, after 1945, the most stagnant sectors of the world economy.
The net outcome of these developments was that by the early 1960s it was clear to all that the old pattern of British economic development was no longer viable:
On every major index —the rate of profit, rate of investment, rate of growth of productivity, rate of growth of the economy— the position of British imperialism was and is unrelievedly bad. The crisis of the foreign orientation meant that it was no longer capable of compensating for the domestic deficiencies.
But two enormous barriers stood in the way of British imperialism reorienting its policy in the necessary way, i.e. towards integration into the EEC. Firstly, the British economy was so run-down that it was incapable of competing adequately with its rivals in the EEC. Secondly, such a reorientation would shake up, and have to overcome, the whole social and political pattern based on the old economic structure. In particular it would mean:
1. Shifting dominance within the ruling class and the Tory Party from the old finance-capital/landowning nexus to the representatives and interests of big industrial, technologically advanced, British-based capital.
2. In foreign policy, shifting from the old alliance with the United States to an alliance with European capital.
3. Within the economy carrying through an unprecedented series of mergers and rationalisations and greatly increasing the rate of exploitation.
The key to this whole process, which in many ways is analogous to, but much more profound than, the type of restructuring which French capitalism carried through under de Gaulle, is of course the ability of the bourgeoisie to bring about a qualitative shift in the relation of forces between the ruling class and the working class.
On some of these fronts the bourgeoisie has made progress, generally of an empirical stumbling sort, during the last ten years. The big series of economic mergers in the mid and late 1960s, symbolised in the coming into existence of British Leyland and GEC-AEI-English Electric, strengthened, concentrated and gave more cohesion to, the industrial bourgeoisie. The success of Heath in being elected to the leadership of the Tory Party put an end to the political dominance of the old landowning clique of the Salisbury-Baldwin-Churchill-Macmillan-Home line. In foreign policy, an attempt at a decisive break was made by the Heath-Pompidou agreements and the entry of Britain into the EEC. The devaluations of the pound and the tolerance of very high rates of inflation are an expression of the dominance of the exporting industrial bourgeoisie vis-a-vis the old, dominant finance capital. While the task of changing the relation of forces within the ruling class is not completely finished —finance capital succeeded, for example, in thwarting the creation by amalgamation of an industrial-based merchant bank by the Slater-Walker group— nevertheless, real progress has been made on this front by the industrial bourgeoisie.
The political impact of this changed situation within the ruling class can be seen both inside and outside the Tory Party. In the early 1960s something approaching half the Tory Party was opposed to entry into the EEC, while now only a tiny minority retains its opposition —although here this is helped by the fact that the City of London has had to abandon its dreams of ruling the world money market and has concentrated on ruling the finances of Europe instead.
The change is registered in the fact that the last Tory government was prepared to continue the policy of expanding the economy long after all sections of the financial bourgeoisie were calling for it to be halted so as to check the rate of inflation. It is registered in the fact that the Tories, who until the Heath government had never once in their history devalued the pound, were able to float sterling without any significant resistance. Likewise in the abandonment of the British farmers to the tender mercies of the EEC. It is shown even in the fact that the sexual scandals of the old dominant section of the Tory Party, in the Profumo affair, could, in the early 1960s, shake the party to its foundations, while now equally bad scandals against British public bourgeois morality, in the Lambton-Jellicoe affair, are regarded as the aberrations of a relatively isolated clique.
But if the bourgeoisie has made progress in re-equilibrating itself internally, nevertheless this whole operation, and even the cementing of the new relation of forces within the ruling class, depends on success in qualitatively altering the relation of forces between the bourgeoisie and the working class. Unless the historically very low rate of surplus value extracted from the British working class can be increased, then no amount of 'technical' adjustments will allow the British bourgeoisie to compete successfully in the harsh world of the 1970s style of inter-imperialist competition.
THE FAILURES OF BOURGEOIS POLITICAL STRATEGY
The first major attempt to overcome the impasse in which the British industrial bourgeoisie found itself was stimulated by the economic recession of 1962-63. The Tory government, finding itself under pressure from industrial capital, made relatively fumbling attempts at a political turn by 'de-colonising' Africa, by abolishing Retail Price Maintenance, by setting up the National Economic Development Council and the National Incomes Commission, and by opening negotiations for entry into the EEC.
But these moves were not sufficiently radical for the needs of the situation, and the main strategy adopted vis-a-vis the working class, integration of the trade unions, was a very difficult one for a Tory government to carry out. In any case the internal relation of forces of the Tory Party greatly favoured the old politically dominant sections of the ruling class. In the leadership crisis following the illness of Macmillan, the old governing clique —while it could not impose one of its own dominant members— succeeded in thwarting Butler, the candidate of the industrial bourgeoisie; and a buffoon, Home, became Tory leader.
Faced with this situation, decisive sections of the industrial bourgeoisie, in a relatively bold political turn, moved to support a Labour government. Such a government, it was hoped, could achieve three things. Firstly, it could break the dominance of the old governing sections of the ruling class. Secondly, through state intervention it could help the process of the rationalisation of the economy. Thirdly, and most importantly, it was hoped it could— because of its links with the trade unions— hold back the working class and create the conditions for a powerful increase in the rate of exploitation.
Wilson duly seized this 'opportunity' to fuse working class discontent with ruling class interests; and, once safely elected in 1964, proceeded onto the path of establishing a new Department of Economic Affairs, which was supposed to overrule the traditional mandarins of the Treasury and the Bank of England, put forward the National Plan, set up the Royal Commission on the Trade Unions, support productivity bargaining, and so on.
At first Wilson appeared supremely successful in his integrationist strategy. In April 1965 only the Transport and General Workers' Union (TGWU) opposed the prices and incomes policy when the Trades Union Congress (TUC) discussed it.
But in fact right from the beginning the strains were evident. For Wilson really to have shifted to total subordination to the needs of the industrial bourgeoisie, with all that entailed (early devaluation and rise in food costs, a hard incomes policy, anti-union laws, etc.), would have meant a crisis within the Labour Party involving a more or less complete rupture with its traditional base and the consequent danger of decline of the Labour Party into simply a splinter bourgeois party. Wilson received a taste of what this would mean with the resignation of Cousins from the Cabinet after the July 1966 deflationary measures, and Wilson, for reasons of bureaucratic survival, could not contemplate the consequences of the process. For him, this is what the 'lessons of Ramsey MacDonald' always meant.
In the final analysis, the alliance of Labour and the bourgeoisie broke up because the relation of forces between the trade-union bureaucracy and the masses, as determined by the relation of forces between the classes, did not permit the trade-union bureaucracy to really integrate the working class. The bureaucrats found themselves either outflanked by unofficial strikes, forced to the left against their will, or replaced by bureaucrats standing further to the 'left'. It was this pressure which also finally put an end to Labour's attempt to introduce the 'In Place of Strife' anti-union proposals. From then on the floodgates were open and in 1968-69 a massive strike wave began to unfold.
The dropping of 'In Place of Strife' was the final straw which broke any significant section of the ruling class from support of the Labour government. The ruling class judged, correctly, that the dropping of 'In Place of Strife' signified that there was no possibility of integrating the unions until the relation of forces between the classes had been altered. From 1969 onwards the ruling class turned fundamentally to a policy of confrontation.
Meanwhile the Tory Party, disliking intensely being isolated from sections of the ruling class, had been undergoing a series of internal struggles during the mid and late 1960s which led to the dumping of Home and the emergence of Heath, a clear representative of industrial capitalism, as leader. He understood the necessary changes which had to be made to secure the dominance of his particular section of the ruling class; and he turned to a resolute pro-European, 'anti-American' foreign stance, brought the symbols of the new dominant sections of the ruling class, Peter Walker and John Davies, into the inner circles of the Tory Party, and most importantly, turned resolutely, even aggressively, in the famous 'Selsdon Park' Tory leadership meeting, from integration of the unions to confrontation with them.
In the first year and a half of the Heath government, this turn was extended logically. Attention was focused on entry into the EEC and on the passing of the Industrial Relations Act. Unemployment was allowed to soar to over a million persons. Not once were the trade-union leaders invited to discuss with Heath. A policy of confrontation with successive unions was embarked upon. Although the dockers and then the municipal workers broke through the Tory strategy, Heath claimed his first victim when the power workers were defeated in the winter of 1970. Then, in the spring of 1971, the post office workers were smashed. Heath's policy of 'n—1', that is, that each major pay settlement must be one per cent lower than the preceding one, appeared to succeed. Despite his continual frustrations in the North of Ireland, in the spring and early summer of 1971 Heath appeared to be master of all he surveyed.
But the whole situation of the Tories was in fact illusory. Not one really strong section of the working class had been taken on and defeated. Once the 'heavy battalions' started to move into struggle, things began to take a very different turn. First, in 1971, the Ford workers slugged the company to defeat. Then the UCS work-in took place. Finally, starting with the Plessey occupation in the summer of 1971, a whole series of factory occupations against redundancies started. Trade-union membership, for the first time in a period of high unemployment, was rising. The danger for the government was obvious. Given any movement of the economy out of recession the unions would go on the offensive. To prevent this, the Tories had to defeat a 'core' section of the working class. The one they decided on was the miners.
In the event, the miners' strike was a disaster which exposed the whole weakness of the position of the Tory government and the ruling class. Not only was the government smashed into submission, but with the use of flying pickets and other advanced forms of organisation, a qualitative development in the methods of working-class struggle began. From the miners strike on, things started to go decisively wrong for Heath. During the spring and summer of 1972, the working class scored victory after victory— in a railway drivers strike, in a building workers strike, in the strike to free five imprisoned dockers leaders. In two cases —the rail-drivers and the 'Freeing of the Five'— the Industrial Relations Act was successfully defied. In the only cases where the employers were victorious —in the docks strike and in the Manchester engineering occupations— this was not primarily due to the power of the employers but to extreme sabotage by the union bureaucracy.
After a spell of indecision, Heath drew more or less the correct conclusions from the debacle. The bourgeoisie was able to use a world and British economic upturn in 1972 to give concessions to the working class and bring about a relative restabilisation of the situation. Heath turned to a new policy of preparing a confrontation, but within the clothing and rhetoric of integration. The trade-union leaders were invited in for endless discussions. The role of trade unions in 'the nation' was stressed. All the rhetoric of 'lame duck' industries being allowed to go bankrupt was dropped. A thousand million pounds was pumped into the mining industry.
Meanwhile, a new confrontation was prepared, but this time in the form of an incomes policy. In the late autumn of 1972, Heath felt strong enough to pounce, and he imposed a wage freeze — Phase One of the Incomes Policy. The combination of concessions and political manoeuvres succeeded. The wage freeze was not broken. Further success was gained with Phase Two in the spring of 1973. The miners and Ford workers did not struggle and the health workers and gas workers were defeated. But this was a deceptive victory. The key sections of the working class were not defeated. They merely lacked perspective.
During the spring and summer of 1973 the storm clouds were mounting. Despite partial setbacks in the spring, the number of strikes continued to mount. Attempts by the bourgeoisie to capitalise on the spring successes by an offensive in the factories failed, and only against relatively isolated groups —in the trial of building workers at Shrewsbury and on the question of racism— did the ruling class gain important victories. The summer union conferences showed a particularly militant mood. Finally, despite the 1972-73 boom, the underlying economic crisis began surfacing.
By November 1973, the time the working class, and in particular the miners, were entering into struggle against Phase Three, the ruling class and the government basically had only three options.
The first option was to capitulate to the strongest section of the working class, the miners, and hope to hold back the rest of the working class. But the ruling class and the Tory government correctly assessed that in the given relation of class forces this could not be achieved. Glasgow firemen, power station engineers, and train drivers were already in struggle against the Incomes Policy. Although in November-December, large sections of the working class were not directly involved in the struggle, nevertheless the bourgeoisie calculated that this passivity was only apparent and that very large sections of working class militants were acting on the assumption that if they could help the miners to create a hole in the incomes policy wall then they could follow through the breach later —which is in fact precisely what occurred. In other words, the miners dispute could in no sense be seen as a sectoral struggle which could be handled in isolation but on the contrary was a locus around which the total relation of class forces was lining up.
This was even consciously understood in quite important sections of the working class and among almost all the bourgeoisie. For this reason, until it became clear that the price of even trying to defeat the miners —with no certainty of success— would be [enormous], no significant section of the ruling class favoured capitulation to the miners. In particular, all reports indicate that the economic departments of the state remained on a hard line throughout the crisis and it was those ministers closest to the economic departments of the state machine, notably the Chancellor of the Exchequer Barber, who took the hardest line against the 'special case' throughout the crisis and remained on that line even when individual sections of the bourgeoisie were beginning to crack.
The second option open to the ruling class was to attempt to break any miners' strike by repression. This however was a very dangerous option. Already in 1972 the miners had shown tremendous combativity, with tens of thousands of workers involved in picketing, several fights with the police, and finally the traumatic experience of Saltley where a solidarity strike of 40,000 engineering workers and a picket of 10,000 miners and engineers broke the back of bourgeois attempts to repress the miners. Even against the miners alone it was not certain that a policy of repression could have won. But precisely the alignment of class forces around the miners strike made massive repression an exceedingly dangerous option —one in which Saltleys could have developed not in the fifth week of the strike but in the second or third.
Throughout the run-up leading to the strike, pledges of support flooded in to the National Union of Mineworkers (NUM) from every conceivable trade-union body —from the Scottish TUC to individual unions such as the Transport Workers and the train drivers down to hundreds of individual union branches and shop stewards committees. Any attempt at savage repression of the miners could have led to a serious move towards a general strike.
Certain sections of the bourgeoisie favoured such a risky confrontation, for example, The Economist; and most appeared to have weighed it as a serious option, the Times and Telegraph, for example, doing calculations on whether the army could be relied upon, how strong the police were, etc... while the anti-picket squads of the police were placed on a nationally centralised footing. But in the event, the bourgeoisie, almost certainly correctly, decided that the risks in a policy of repression were too great.
The third option open to the government and the ruling class, the one the impossibility of the other two options forced on it, was to attempt to use their political strength to defeat the organisational and social strength of the working class. The trade-union bureaucracy were continually subjected to manoeuvres and political attacks by the government. The government achieved notable political successes. But these political offensives broke against the rock of the organisational strength of the miners and the support they received from other sections of the working class. Once the miners' strike was actually called for, with an 81 per cent vote for a strike, the bourgeoisie and the government were defeated. Left with no way out but the last gamble of an election, which in the given relation of forces created by the miners struggle was almost certain to, and did, end in a defeat for the Tories' project, the Heath government fell. The colossal organisational strength of the working class had succeeded in defeating the most severe political attack to be launched against it for decades.
PROSPECTS FOR THE CRISIS
The bourgeoisie have been unable to resolve their 'crisis of leadership' which the fall of the Heath Government opened up. The ruling class understands that a party like the Labour Party, whose social base lies in the organised working class and which has close organisational links with the trade union movement, cannot be a reliable instrument for implementing bourgeois political strategy in a period of acute crisis such as the present one. This is true no matter how willing the reformist leaders of the party are to do the bourgeoisie's dirty work.
At the same time the ruling class's political spokesmen have been unable either to base themselves on the political strategy which failed so abysmally in January of 1974, or to assemble a viable alternative. Thus we have had the spectacle of two electoral victories for Labour in the past year, despite the manifest political bankruptcy of the Labour leadership, the acute internal wranglings within the party, and the virtually unanimous opposition of the ruling class and their principal organs (in sharp contrast to 1964, when the Labour Government was supported by a substantial sector of industrial capital).
The performance of the Tories in both elections reflected this crisis of bourgeois political leadership. The only programmatic banner they could raise was that of 'national unity'. (The depths they had sunk to were indicated when the leader of the 'natural party of government' could think of nothing better to offer the electorate than a pledge that he would be prepared to resign if his presence as Prime Minister obstructed the formation of a 'national coalition'.) This banner, of course, was promptly snatched from their hands by Labour, who were at least able to present it in the slightly more tangible (if equally ephemeral) form of the 'social contract'. Thus the Tory emperor had to proceed to the polls as ill-equipped for political combat as on the day of his birth.
Edward Heath has been ruthlessly ditched by the Tory Party in the February leadership contest. But the election of Margaret Thatcher in no way constitutes a viable alternative at the level of strategy for the party. She is little more than a personal alternative to Heath, a useful frontispiece for the Tory Party should it find itself thrown into a snap election campaign. Thatcher, despite her unorthodox larder-stocking habits, will have a certain appeal to some working class housewives, and a strong moral appeal to the rebellious petty-bourgeois social base of the Tory Party. But the facade of unity she appears to impose on the party is thin, indeed, concealing rather than resolving the policy-vacuum at the heart of the Tory leadership.
This situation gives a figure like Powell a certain ominous credibility as a potential political force. Powell is busy both building a firm base among the Ulster loyalists, and at the same time exploring the possibilities of implementing a political formula that would use the axes of racism and chauvinism to split the working class and create a new political alignment of forces in Britain.
Such a formula could develop into a viable alternative to the past, and lost, combinations on which the Tory Party has based itself. But this would involve a very drastic and very sharp reorientation of political strategy — an historic reorientation on the part of the ruling class. Moreover Powell has yet to demonstrate its practical viability, and the bourgeoisie are certainly not about to buy his model unseen.
The Powellite course is not, therefore, a short-term option for the bourgeoisie. Indeed, there are no short-term options. For the time being the ruling class will continue to remain politically adrift in the midst of the growing crisis of Britain's economic and political structures.
Moreover this crisis is not merely historic, but is an acute conjunctural one. We are on the verge of a precipitate intensification of the economic dimensions of the crisis, which cannot but have dramatic political effects. This prognostication is borne out by all the relevant data, and has been the subject of a growing volume of Cassandra cries from a wide range of bourgeois experts.
The recent report from the prestigious, and semi-official, National Institute for Economic and Social Research (NIESR) flies in the face of the more optimistic Treasury estimates on the future performance of the economy. (In any event, this 'optimism' is obviously a very frail creature, since the Treasury had taken the absolutely unprecedented step of refusing to disclose its estimates beyond the first half of 1974.)
According to NIESR, 1974 will see a virtually stagnant economy from the standpoint of total output, an acceleration of price inflation above the 20% level, and a rise of unemployment to just under the 1 million mark.
However, many bourgeois experts believe NIESR to be over-optimistic. As Alan Day of LSE put it: 'The only major fault in the National Institute's gloomy forecasts for the British economy in 1975 is that they are not gloomy enough. Unless there are major changes in the Government's policies, it is increasingly likely that 1975 will see either an economic and social catastrophe or a rapid slide towards rigidly-controlled Socialist economy.'
Professor Day's jaundiced view of socialism aside, a closer examination of the major economic factors confirms his pessimism about the deep trouble British capitalism is in.
INFLATION. Retail prices are currently more than 18 per cent higher than twelve months ago. After a certain slackening, they are now accelerating, with last month's rise being at the annual rate of 26 per cent. The combined effects of the budget, the inevitable de facto devaluation of the pound, and wage increases stimulated by the present level of price inflation, virtually preclude any easing of the situation.
The Economist, the Sunday Telegraph's economists, and NIESR all expect the rate of inflation next year to be between 20 and 25 per cent. It seems most likely that it will be nearer the upper figure, and it would take very little to push it even higher.
BALANCE OF PAYMENTS. Even before the effects of higher oil prices hit the economy, the British balance of trade and payments was deteriorating rapidly. British imperialism's chronic balance of payments problem has very little to do with the 'oil crisis', and everything to do with British capitalism's totally uncompetitive situation in relation to its main rivals. In the ten years from 1963 to 1973, for example, the West German share of British imports increased from 4.3 per cent to 8.5 per cent, while Britain's share of the German market declined from 4.7 per cent to 3.5 per cent.
As a result, the balance of payments crisis broke with a vengeance in 1973 —before the increase in oil prices had really begun to bite. That year the British economy recorded an all-time record breaking deficit on current account of £1,210 million. This was as much due to the declining trade surplus in manufactured goods as to the rising deficit in raw materials trade.
The situation has continued to deteriorate throughout 1974, exacerbated by the three-day week and the full impact of increased oil costs. The deficit on current account for 1974 is approaching the £4,000 million mark. In absolute terms such a figure is totally unprecedented in the history of British imperialism. But even in relative terms —at around 6% of the GNP— it is unprecedented during peacetime.
Nor is the picture for 1975 very heartening. NIESR predicts an improvement in the situation: a current account deficit of 'only' £2,700 million, with the non-oil element accounting for one-third of this. But both these figures remain of crisis proportions.
STERLING. A certain complacency has entered into government pronouncements about the balance of payments situation, due to its confidence that the dominant 'oil element' in the deficit must eventually make its way back to Britain through the international capital market.
It is this thinking which underlay the huge borrowing requirement of the last budget —it was assumed that the immense budgetary deficit could be funded by money flowing back from the oil producers.
However the oil producers are nobody's fairy godmother —least of all British imperialism's. The grave danger [was signalled by the] decision of Saudi Arabia to ask for tax and royalty payments in dollars only (as opposed to three-quarters in dollars and one-quarter in sterling). Even this relatively minor move put great pressure on the pound, forcing its devaluation by 0.4 per cent in a few days, despite efforts by the Bank of England to support the existing exchange rate.
As a result, the pound has been, as of 8 December, effectively devalued by 21.4 per cent against other major currencies in the space of three years. The 4 per cent devaluation which NIESR predicted for sterling in the course of next year has already occurred in the space of months.
Whatever benefits this may bring British capitalism in terms of the improved competitiveness of exports, they will be more than outweighed by the increased pressure of import costs and the extra twist to the inflationary spiral that comes with it.
PROFITABILITY. British capitalist industry has suffered a steady decline in its profitability for the past two decades. [In ... there was an apparent] increase during in the profits [of the UK] operations of commercial and industrial companies. But this improvement is due to the totally illusory effect of 'stock appreciation' —the increase in the cost of raw materials, semi-finished goods, and unsold products in stock, due to inflation.
Once this is discounted, it is evident that the crisis of profitability of British capitalism is continuing. As one recent study put it: '...company net-of-tax profits —the only type of profit that matters to a company— have dropped by 42.5 per cent in money terms during 1973, and are now running around 37 per cent of their 1973 level despite an increase in real fixed investment during this period of over 50 per cent...Deflating by the retail price index, 1973 net-of-tax profits are 47.5 per cent down in real terms on 1972 and 79 per cent down on 1963.'
According to NIESR, profits, net of stock appreciation, amounted to only 5.5 per cent of total output in the first half of 1974, compared with 10-15 per cent from 1963-1972.
The study quoted adds that 'there is, moreover, good reason to fear that the position is further deteriorating in 1974.'
While Labour's budget measures may provide some relief, the underlying problem will persist. Some 44 per cent of business economists expect the profits of their firms to decline in 1975, compared with only 23 per cent expecting a rise. This view is echoed by The Economist, which warns that 'If there is another squeeze on profits in early 1975, and most business forecasters now expect one, this may give the final push into real slump.'
It is hardly surprising that this has had a devastating effect on business confidence. The Financial Times Monthly Survey of Business Opinion for November shows that of the businesses surveyed in the four month period August-November, 45% were 'less optimistic' about their company's prospects than they were four months before, 33% were 'neutral' and only 22% 'more optimistic'; this compares with 31% 'less optimistic', 30% 'neutral' and 39% 'more optimistic' in the midst of the post-three day week euphoria from March to June.
The Confederation of British Industry paint an even blacker picture, with their four-monthly survey in November revealing 60% of their respondents 'less optimistic' and only 4% 'more optimistic'.
This is confirmed by that most reliable barometer of business confidence —the stock exchange. From their high-point in May 1972 share prices have plummeted to the lowest point in more than 20 years —a fall of more than 70%.
The stock exchange is so shaky that in the wake of the [state's rescue plans, British] Leyland found its shares trading at less than 7p. (about a quarter of their par value, and less than 10% of the value per share of the company's assets), despite the obvious importance of the company to the national economy and pledges of government support.
INVESTMENT. With all these problems accumulating, investment is also seriously depressed. Investment in manufacturing fell in 1971 and 1972 and rose only slightly during 1973. Original projections by the Department of Trade and Industry for an increase of 12-14% during 1974 were revised downwards to 5% in June. The most recent figures show that in the third quarter of 1974 investment in manufacturing fell by 4%. If this trend continues the June FT prediction will be borne out, and the total 1974 figure will remain well below the 1970 level.
Indications are that the present downward trend will continue well into 1975. The Financial Times survey shows (with answer weighted by capital expenditure) that of businesses surveyed during August to November 53% planned to decrease capital investment in the next twelve months, with only 18% planning an increase. (The CBI survey gives [an even bleaker picture.]) Of those industries surveyed in November itself, 66% of construction firms planned to cut capital spending (only 9% are planning an increase), 93% of food and tobacco companies were cutting (7% increasing); and 68% of textiles and clothing were cutting (1% increasing).
GROWTH. Despite the attempts of the Labour Government to avoid sharp deflation and its inevitable concomitant of mass unemployment, this huge accumulation of economic difficulties is bound to have a deleterious effect on growth of total output. Due to the combined effects of deflationary economic policies and the three-day week (itself a deflationary mechanism), output as a whole fell during 1974 —probably by something just under 1%.
Predictions for 1975 are conflicting. The Treasury has said that the economy will grow at the rate of 2% during the first half of 1975, and have tried to hint that this rate will be maintained during the second half, but without any clear commitment of figures to back it up.
The NIESR suggest that the average level of output in 1975 will be up by 2% on the depressed average level for 1974, but that the economy will only grow by 0.5% during 1975 itself. A similar rate is projected by the Sunday Telegraph.
But others doubt that 1975 will see any growth at all in real terms. A study by the Society of Business Economists predicts a 0.7% decline in real output, and declining output is also projected by stockbrokers Phillips and Drew.
The recession is obviously hitting certain sections particularly hard —notably cars and construction.
The decline in the car industry is particularly serious, as 10% of British industrial production is tied up directly or indirectly in motor manufacturing. Car sales have been seriously hit by the general economic recession, the increase in oil prices, and the greater penetration of the British market by foreign competition. Even after substantial recovery from the catastrophic slump at the beginning of 1974 (January sales were only 64% of what they had been a year earlier), total car sales in the first 10 months of 1974 were still 99% below sales for the equivalent period in 1973.
The worst hit of the car firms is British Leyland. They account for 40% of car sales, are Britain's largest exporter, and 3-400,000 workers producing 3-4% of total national output are directly or indirectly tied up with this firm. It now seems certain that they will ring up virtually no profit at all for 1974. Acute liquidity problems are threatening their investment plans and driving them to the very edge of collapse, hence their urgent pleas for state aid.
The construction industry is experiencing an even worse downturn, reflecting the impact of inflation on costs, land prices, and interest rates, on the one hand, and prospective home buyers incomes on the other. As of November 1974 the number of new housing starts was down 50% on 1973, itself a year in which the number of housing completions was the lowest in 14 years.
UNEMPLOYMENT. No one doubts that Britain is once more on the road to mass unemployment —this time under a Labour Government. As of October 1974 the number of unemployed (seasonally adjusted and excluding school leavers) in Great Britain stood at 606,000. This is far short of the 770,000 recorded in the same month in 1972, but also well above the 511,000 in 1973. Moreover the Labour government is still attempting to avoid any deflationary measures —a policy it is unlikely to be able to sustain much longer.
Again it is almost universally agreed that the crunch will come in the winter of 1975-76, although there are widely differing estimates of how serious this will be. NIESR expects it to be below 900,000. But again others think this is an underestimation: Phillips and Drew are plumping for [more] and the Sunday Telegraph is talking about 1.5 million.
Obviously there is a certain trade-off between unemployment and inflation, but a package 'guesstimate' of '25% inflation—1 million unemployed' would certainly not err on the side of catastrophism.
The present Labour Government's solution to this dire situation —as to every other problem— is the 'social contract'. But it is now self-evident that the 'social contract' was effectively strangled at birth by the economic crisis.
It will not be possible to sell to the British working class —the most highly organised and socially powerful in the capitalist world— the idea of wage restraint in the midst of mass unemployment and a rate of inflation that will double prices every three years. Nor can the Labour government, under present economic conditions, deliver any substantial improvements in the social services to sweeten the pill. On the contrary, one of the most obvious effects of the crisis of British capitalism is a corresponding crisis of social expenditure which threatens every sector of the 'welfare state'.
Even if the Labour government and the trade union bureaucracy should succeed in a temporary restriction of the level of wage demands they will simply be postponing an inevitable showdown and ensuring that it occurs in an even more explosive and (from the standpoint of the bureaucracy) uncontrollable fashion. Nor will such partial restraint satisfy the bourgeoisie. As the main spokesmen of the bourgeoisie are beginning to state with ever greater frequency (if still in veiled terms) nothing short of a major redistribution of income from the working class to the bourgeoisie —that is a major erosion of working class living standards— can even begin to tackle British capitalism's economic crisis.
But such a redistribution can only be carried out through a state-enforced incomes policy. That is why the bourgeoisie is now both unanimous and vociferous in its demands for such a policy. The Labour Government will try to avoid such a step, most likely by a deflationary budgetary package in the Spring. But this will only make the situation worse. It is virtually certain that the Labour government —caught in the vice of its own deep commitment to the capitalist system and the far-reaching crisis which that system is now in— will be forced to grant the bourgeoisie their wish.
But at what price will it pay [—it] is unthinkable that the working class, which fought the Tory government to a standstill and destroyed it on precisely this question, could accept such a move from a Labour government.
Nor is this like 1931 —the working class is far more powerful than it was forty years ago, and has yet to suffer a single major defeat in the post-war period.
It is these factors which set the scene for the next stage in the class struggle —a stage which will unfold not in a period of years but of months. They put on the agenda an immense upheaval in the whole structure of British politics —both in the camp of the ruling class and the camp of the working class.
FOOTNOTES:
1. In the years 1870-1913 Sweezy and Magdoff calculate, on the basis of Cairncross's figures, that the foreign investment was over $40 billion in the same terms. (Sweezy and Magdoff, The Dynamics of U.S. Capitalism, p.33) But even more amazing than the size, which is vast when considered in terms of the far smaller economy of that period, is that fact that by 1870 annual British capital investment abroad exceeded net capital formation at home [and total investment abroad was] double that in Britain. (Hobsbawm, Industry and Empire p.192.) Even as late as 1968, on a far smaller Gross National Product (GNP) than its main imperialist rivals, apart from the United States, Britain still invested over twice as much abroad ($890 million) as West Germany ($390 million) and four times as much as Japan ($220 million). (Rowthorn, 'Imperialism in the Seventies —Unity or Rivalry?' New Left Review, No.69 p.42). This compares to a rate of home [investment] which, as a percentage of GNP, is twice as high in Japan (30-35%) as in Britain (16-18%) and which is two-thirds higher in West Germany (23-27%) than in Britain ('Survey on Japan', The Economist, 31 March, 1973). The situation on accumulated foreign investment is still more striking even in relation to the United States. In 1971, accumulated stocks of West German capital abroad were worth 4% of GNP. For the United States the figure was 8.2%. For Britain, however, it was 16.7% (Financial Times, 15 April, 1974).
2. In the whole period from 1796, when records start, to 1973, there have been only nine years in which the Balance of Trade [ratio] of visible exports to visible imports) was in Britain's favour. In 73 years in the twentieth century [illegible] Britain is the greatest 'exporter' per head in the world. (Manser, Britain in Balance, p.23)
3. As late [illegible] trade with [illegible] (Prest and Coppock, eds., The British Economy.)
4. The ideological effects of this economic, social and political situation have been analysed in a series of articles by Anderson and Nairn in New Left Review, and a brilliant sketch is given in Trotsky's 'Through What Stage Are We Passing?'
5. Take for example foreign investment. The pattern we [described] above still [holds] as [shown] by the fact that [although] the total stock of British foreign investment was still 80% that of exports in 1971, compared to 18% for Japan and West Germany (Financial Times, 25 April, 1974), nevertheless, returns as a proportion of GNP had fallen from 10% in 1914 to only about 2% even by 1960. (Cited by Kidron, 'Imperialism: Highest Stage but one', International Socialism, No. 61.)
6. See the tables following this article.
7. In the years between the mid-1950s and 1970s, Britain's pattern of trade was of necessity, in view of the world market changes, transformed. For example in 1955, 22% of British exports went to the developing countries of the Sterling Area and only 15% to the countries which formed the EEC. By 1971, only 13% of exports went to the developing countries of the Sterling Area and 21% went to the EEC. In 1955, 45% of British exports went to the Sterling Area as a whole and only 41% went to Western Europe and North America. (Prest and Coppock, The British Economy, p.119). But in the new markets Britain couldn't compete [with] its main rivals. To take just one example: between 1963 and 1973 the West German share of British imports increased from 4.3% to 8.3%, while the British share of the German market fell from 4.7% to 3.5%. (Financial Times, 23 April, 1974.)
8. As a big [illegible] series of books stressed [the] need to [illegible] the old ruling [illegible] Tory leader, fitted perfectly into [illegible].
9. A good account of the further ramifications of this process can be found in 'The Heath Government, a New Course for British Capitalism' by Robin Blackburn in New Left Review, No. 70.
10. In the 1964 election, Labour was supported by, among others, Stokes —the head of Leyland Motors; Lord Kearton —the head of Courtaulds, and The Economist magazine, i.e. by representatives of the most dynamic and central sectors of British industrial capital.
11. As The Banker, November 1971, put it: 'More demand, faster growth, and less unemployment would surely intensify the militant [illegible] income [illegible].'
12. This was a perfectly conscious choice. The City of London Newspaper reported on 1 February, 1972: 'Months before the coal strike started, ministers were saying in private that the government would establish their "anti-inflation" policy through a resounding victory over the [miners].'
13. See 'Cassandra sounds too cheerful', The Economist, 3-13 December, 1974.
14. [illegible]
15. The Economist, op. cit.
16. Financial Times, 23 April, 1974.
17. Financial Times, 12 December, 1974.
18. 'The real crisis now facing Britain's industry', Financial Times, 30 September, 1974.
19. The Economist, op. cit.
20. Financial Times, 7 December, 1974, 7 October, 1974.
21. Financial Times, 23 November [1974].
22. Financial Times, 3 December, 1974.
23. Financial Times, 7 December, 1974.
24. The Economist, op. cit.
25. 'All systems stop', The Economist, 30 November-[6] December, 1974; Financial Times, 1 February, 1974.
26. The Economist, 7-13 December, 1974, op. cit.