,
Chapter 1
British industry, state intervention
and Labour politics, 1900–39
The theme of relative industrial and economic decline dominates the historiography of twentieth-century Britain. Whilst there is little agreement on the precise character, scope, timing, let alone causes, of this decline, its central importance in shaping British society seems indisputable.1
Explanations for this process have ranged over almost every feature of the economy and wider society, these interpretations seemingly being themselves subject to cycles of support and disavowal. Indeed, historical explanations have also frequently been linked to contemporary ideological and political concerns. In the 1960s and 1970s, for example, much emphasis was put on low investment rates as a key problem, in turn often related to the alleged focus of British ruling groups on external economic goals (such as foreign investment and a strong currency) at the expense of the interests of industry.2
In the 1980s two kinds of hypothesis tended to dominate. On the one hand ‘cultural’ explanations, especially those associated with the names of Martin Wiener and Corelli Barnett, created a ‘Thatcherite’ history of economic decline, linked to the alleged atrophying of entrepreneurial spirit and an excessive political concern with social welfare at the expense of industry.3 Accompanying this a less politically fashionable but more firmly historically grounded literature emerged, which saw economic failure as a consequence of political blockage, the absence of a state giving priority to industrial modernisation. This view was best summarised by Marquand, who concluded that ‘Unlike its counterparts on the mainland of Europe and in Japan, Britain's political class had never managed — even in its interventionist periods — to create an entrepreneurial or developmental state’,4 though similar views, albeit with varying ideological glosses, appeared in a range of work.5 Some of the themes raised here could be found in earlier investigations, which argued that throughout the twentieth century policy had been excessively either externally oriented or attuned to domestic macro-economic goals. However, the originality and insightfulness of the new writing stemmed from its emphasis on the political conditions for a shift to a potentially more successful industrial policy. Much literature on British decline soon collapses into ‘grand themes’ of cultural malfunction, imperial grandeur and supersession or the dominance of finance capital, with politics read-off as simply a reflection of these over-arching designs or misadventures.6 In contrast, Marquand, Hall, Newton and Porter, and others underlined the specifics of party strategies, ideologies and organisation in explaining the absence of the political will and capacity to create a ‘developmental state’. Such an emphasis on the importance of political parties and their policies is pursued in this book.
It is useful to begin by sketching in the kind of history of British economic decline before 1939 that this approach would suggest. First, it is clear that economic decline begins to emerge as a serious political issue around the turn of the century, mainly linked to worries about Britain's waning relative strength as a Great Power. The threat to this position came from a number of sources including perceived failures in competitiveness, largely registered through the trade figures.7
This initial period of concern saw the emergence of a cross-party alliance of those wanting to address ‘efficiency’ issues, the Co-Efficients. But this group was essentially a small coterie of metropolitan intellectuals whose claim to fame was precisely their novelty and exceptionality, rather than their position as the spearhead of a mass movement. In addition, whilst the Co-Efficients were certainly mindful of industrial efficiency, their focus was in fact very different from that which marked later ‘industrial policy’, except in regard to the issue of technical education. Their central concerns were, on the one hand, governmental efficiency and, on the other, the efficiency of the worker, thought of largely as a question of physical health.8
Above all, the issue of efficiency lost political resonance because it cut across the linked major economic debates of the pre-1914 period -tariff reform and public finance. On tariff reform, the Co-Efficients were divided, though many regarded it as a diversion from the ‘real’ issues. Equally, on the question of whether higher government expenditure should come from tariff revenues or from higher direct taxes, the Co-Efficients’ position did not fit in with the Conservative/Liberal party divide. Consequently, they failed to become major contributors to the economic arguments of the period.9
Of course, and as always, this failure may be traced back to ‘deeper’ forces at work in the British political economy. Undoubtedly one of the difficulties of making industrial efficiency a prime political goal was the strikingly rentier character of the economy, with large parts of the country drawing income as tribute from foreign investment. Perhaps 10 per cent of National Income came from this source immediately before 1914. In addition, Britain depended in its foreign trade to a large extent on earnings from shipping and financial services, which had no direct links with industrial competitiveness.10
These factors in turn may be linked (though not in an over-determinist fashion) to weakness in the organisation of the main industrial producer groups. Crucially, industrial employers had failed to establish a ‘peak association’ to fight for their aims and interests, most of their organisations being oriented to either industrial relations or technical, trade issues. This lack of a unified voice in turn partly reflected the divisions amongst employers on the big political issues of tariffs and public finance.11
But an adequate account of the absence of a developmental state prior to 1914 must refer to more than these structural factors. Politics, it must be insisted, has an independent character and must be discussed in its own terms. On this basis it is clear that neither of the two main parties, the Liberals or the Conservatives, was plausible as a vehicle for policies of industrial modernisation in this period.
On the one hand, the Liberals, partly under the influences of New Liberalism and partly through straight electoral calculation, were shedding major elements of their Gladstonian heritage and committing themselves to a much more active state in the field of welfare. But this activism was on a clearly limited front. In particular, a commitment to private ownership and competition in industry remained largely unchallenged, with much of the radicalism of the New Liberalism coming from its attacks on the abuses of private ownership and the monopolistic supersession of competition, rather than any questioning of the desirability of these two kinds of institution. Hence the Liberal agenda encompassed higher taxation and greater state expenditure but resisted the idea of seeing the state as pivotal in the strategic and economic rivalry of the period. In economic terms it remained committed to the priority of consumer interests — free trade, cheap food and competition — over those of domestic producers.12
On the Conservative side, concern about threats to Britain's Great Power status led to a sharper break with Victorian orthodoxy. Tariff reform was at least in part about defending domestic producer interests against foreign competition. But the Conservatives, more than the Liberals, were committed to the sanctity of private property and free enterprise. Whilst Conservative concerns with industrial efficiency as an aspect of the general problem of Empire efficiency could encompass better education and more state expenditure on research and development, what was increasingly the party of business was hardly likely to emerge as an initiator of intervention in the private industrial sector.13
By 1914 the traditional laissez-faire state had, therefore, undoubtedly been altered from its Victorian heyday. Public spending was significantly higher than 40 years earlier and tax levels reflected this. The state's role in the labour market was much expanded in the 1906–14 period. But the broad parameters of Britain's political economy had been sustained. The gold standard, free trade and the (relatively) low and balanced budget remained in place, constraining in their different ways the emergence of a state aiming to break with ‘market forces’ in the name of industrial efficiency.
The First World War, like the Boer conflict, put the efficiency of British industry once more on the agenda. Dependence on imported (especially German) war materials exposed some of the weaknesses of Britain's industrial structure, whilst analyses of post-war prospects highlighted the problems of a number of key industries.14 In many areas the exposure of British industry to the glare of state scrutiny during the First World War matched that which was to come with the war of 1939–45. But the key difference was the very limited continuity between wartime and post-war policy on the earlier occasion.
Broadly speaking, the state machine rolled into industrial intervention in the First World War, but was then rolled back afterwards. Some permanent changes survived the ebb and flow. The ‘safeguarding’ of certain key industries against import competition continued and indeed expanded post-war. Employers’ peak associations, drawn into existence by the wartime state, became a permanent feature of the political landscape.15 But these were untypical developments, exceptions to the rule. Post-1918 politics (especially after 1920) saw a concerted attempt to return to the norms of the pre-1914 political economy.
At the core of this policy stance was a continued adherence to economic internationalism — to varieties of a (very mildly qualified) free trade and the gold standard. This in turn was related to an economic analysis which saw post-war economic problems as largely the result of wartime disruption to established financial and trade patterns. The priorities were therefore to restore exchange rates, defeat inflation and secure the conditions for a revival of trade.16 These broad positions, it should be noted, were shared by most Labour politicians as much as by the Liberals and Conservatives — a point returned to in a later section.17
Economic policy in the 1920s was dominated by this desire to restore ‘normalcy’, a factor which underlay the return to gold in 1925. It also fitted in with an emphasis on relieving unemployment, as an acceptable means of dealing with the problem until the ‘real’ solution of expanded world trade arrived. Only slowly did disillusion with this approach emerge. Of course, Keynes and his Liberal allies attacked the priority given to the external value of the pound and the impact of this on the staple export industries. But this was in many ways a marginal as well as an ineffective attack on policy. Whilst Keynes might note the ‘end of laissez-faire', his major concern in the 1920s was with monetary management not industrial modernisation.18
Nevertheless, alongside the dominant orientation, change was beginning to occur. Thus, whilst remaining resistant to the calls for proto-Keynesian public works policies, the overwhelmingly Conservative Governments of the decade did begin to accept that the old staples would not regain their former scale and employment levels, and that some degree of change in industrial structure and organisation was desirable. The change of approach was signalled by the Industrial Transference Act of 1928, which encouraged workers to move from the old staple regions to work elsewhere in the country. In practical terms this achieved little, but symbolically it suggested an acceptance that financial stability, however much it might be secured, would be insufficient to revive significantly the fortunes of coal, steel, shipbuilding and cotton.19 Even more significant for the development of policy on industry was the widespread if inchoate and often inconsistent enthusiasm for ‘rationalisation’ in industry. Like so many economic fashions in Britain, this was imported from Germany, and usually denoted in some general sense the need to reorganise industry into larger units to secure greater efficiency via economies of scale.20
Enthusiasm for such a change went across the political spectrum albeit with different ideological glosses. For many in the late 1920s it seemed obvious that British industry must reorganise or be reorganised in order to revive, and this was supported by much of the material presented to, and reproduced in official form by, the Balfour Committee.21
But widespread support for the principle of rationalisation was insufficient to generate much policy to that end, especially before the slump of 1929–32. The enforced amalgamation of the railways in 1921 might be seen in this context, though it basically made permanent the wartime arrangements. More innovatory was the creation of the Central Electricity Board (CEB) in 1926, which very much reflected the idea that industrial efficiency required cheap large-scale generation of electricity.22 The most active body in the area of rationalising the staples was the Bank of England, drawn in by the problems of its own customers and by the threat posed to the banking system of bad debts arising in the older industries. The Bank had also acted to pre-empt more radical action by an incoming Labour Government in 1929.23
As in the pre-war period, the Conservative Governments of the 1920s were hardly laissez-faire in attitude, and were not averse to expanding the frontiers of state intervention in certain directions (e.g. industrial transference). But rationalisation suggested a direct role in the private sector and its prerogatives which most Conservatives still found anathema. Hence, for example, intervention in the coal industry in the 1920s, a prime industry for rationalisation, allowed for state compulsion in amalgamations, but only if the initiative came from a majority of owners in an area. The impact was quite limited.24 A more radical measure of state intervention was embodied in the cartel and compulsory amalgamation provisions of the Coal Mines Reorganisation Act of 1930, the product of a parliamentary alliance between Labour and the Liberals, but again its results were limited.25
The collapse of the gold standard and the ending of free trade in 1931 mark a kind of watershed in the development of British economic policy. The liberal, cosmopolitan arrangements of the pre-1914 era had rested on three pillars — the gold standard, free trade and low and balanced budgets.26 Two of these were now defunct. At the same time the cause of their demise — the world slump — gravely exacerbated the problems of the staple industries, problems which had largely initiated the tentative movements to state intervention in the 1920s. There was now both an economic and a political ‘space’ for a more dirigistic role from government.
But this role took a largely defensive form. The tariff imposition obviously shielded British industries from competition and so reduced the need to reorganise. The Government proved unable to replace such an incentive by any other, so that in iron and steel, for example, official enthusiasm for rationalisation as a quid pro quo for protection in the end achieved very little.27 Overall, the picture of the Conservative Governments and industry in the 1930s is one of support for cartelisation and market sharing within a protectionist framework. This is not to argue either that protectionism is always harmful to industrial efficiency or that cartelisation combined with forced amalgamations might not have yielded some benefits. But in the circumstances of the 1930s it is difficult to escape the conclusion that the administration's role was largely unhelpful to any notion of a state-sponsored industrial modernisation.28
First, these were Conservative Governments which drew substantial support from owners in the private sector, who were not only ideologically an unlikely source of proposals for major state intervention but, perhaps more important, ill-organised to produce any consistent policy positions. The impression that employers presented, even within individual industries, was usually one of fragmentation and disagreement rather than unity. This seems to have led to a persistent ‘lowest common denominator’ attitude of defensiveness and minimal change, with which the politicians went along in the absence of a viable alternative.29
This ‘safety first’ stance was reinforced by the Tories’ conception of overall economic policy. Alan Booth has persuasively argued that the Conservatives had a fairly coherent approach to economic policy in the 1930s, which involved managing the economy in a new way. The party's package revolved around taking advantage of the departure from gold by using a programme of cheap money and maintaining a low exchange rate for the pound. These measures were (eventually) envisaged as means of reviving the economy by raising the price level, and hence profits, but this required, in the Government's eyes, tight fiscal control to prevent any loss of confidence which would threaten the compatibility of the two central policies.30 This strategy not only ruled out Keynesian-style fiscal ‘extravagance’ but also militated against any innovative policy on the economy. The defensiveness and negativism of industrial policy was, therefore, on a par with the general stance as regards economic policy.
As a consequence of these factors, by the outbreak of the Second World War Britain had little more of a ‘developmental state’ than in 1900. The Government had intervened in new ways after the First World War exposed some of the shortcomings of British industry. Certain ‘key’ industries had been given protection, and this was extended to all of manufacturing and some of agriculture in the 1930s. But whilst protection may have been a necessary condition to allow space for the reorganisation of certain of Britain's industries, or the growth of new ones, it was not a sufficient condition. The simple fact was that the Government remained reluctant to intervene directly and systematically in industry. There were examples of such intervention — railways, electricity and coal have been noted above. There were also such cases as the official encouragement given to the creation of ICI, particularly stimulated by the strategic significance of some of its products. But in no sense could this be said to amount to an industrial strategy, and it only added up in the end to a set of ad hoc interventions which failed to address the real magnitude of British manufacturing weakness. Furthermore, though some general ‘supply-side’ initiatives were made, such as the wartime creation of the Department of Scientific and Industrial Research (DSIR), their impact was insubstantial. Typically, the DSIR focused its efforts on prodding the private sector to expand research, rather than acting as a major player itself. It does not seem to have succeeded in shifting the low levels of R. & D. prevalent throughout British industry.31
In sum, whilst by the 1930s there had been a decisive break with the political economy of Victorian liberalism in the sphere of international economic policy (the gold standard and free trade), confidence in the capacity of private industry to deliver efficient production and employment had been replaced not with an aggressive programme of modernisation but with a defensive, even defeatist, alignment, which arguably managed to combine the worst features of private enterprise and state intervention.
What of Labour's role in this story? Up until 1939 the party never achieved a parliamentary majority. It became the main challenger to the Conservatives after the First World War, but was only able to form two short-lived governments in 1924 and 1929–31. Hence Labour's direct impact on state policy was limited. But the party's views on industry and industrial policy were undergoing significant changes, and these form an important background to its later role in the ‘years of influence’, 1939–45, and years of power from 1945 to 1951. These developments also deserve some detailed consideration as there is currently a striking dearth of material on this important topic.
From its foundation in 1900 (as the Labour Representative Committee) until 1918 the Labour Party was a body whose programmatic and policy-making side continued to be extremely underdeveloped. The basis for the foundation of a distinct Labour Party was a desire to form a body to represent the interests of the working class, where that representation was seen largely in sociological terms (i.e. giving a voice to a class) rather than as involving a distinct set of policy objectives. Initially this situation even precluded political goals beyond working-class representation. In 1908 common ownership of industry became a general objective, but was simultaneously rejected as a programme. The dominant view was that the party consisted of a fragile alliance of trade unionists and socialists, a unity which would not survive detailed statements of intention. The most that should be done was to establish principles, and let the Parliamentary Party turn them into practical activity. Policies that did emerge were largely ad hoc responses to events of the day.32
Alongside this programmatic vacuum there was the development of a definite approach to industry, largely from Fabian sources. Whilst the Independent Labour Party dominated the ‘ethos’ of Labour at this stage, it was the Fabians who seemed to give the most serious consideration to policy issues, on industry as in so many other areas.33
In the first significant Fabian publication, the Fabian Essays of 1889, two chapters were devoted to industry, the most substantial by William Clarke, the other by Annie Besant. Both had a similar line. Above all they shared a highly evolutionary analysis of industry, describing an ineluctable movement from handicraft to machine production, and an ever increasing massing of capital and grouping of workers. This process was now reaching a new stage in which the ‘ring’ and the ‘trust’ more and more replaced previously free competition. Such developments were seen as both inevitable and efficient: Those combinations can be shown to be the most economical and efficient methods of organising production and exchange. They check waste, encourage machinery, dismiss useless labour, facilitate transport, steady prices and raise profits.’ The socialist aim should therefore be not to break up the combinations but to ‘absorb and administer’ them:
Instead … of attempting to undo the work which the capitalists are unconsciously doing for the people, the real reformer will rather prepare the people, educated and organised as a true industrial democracy, to take up the threads when they fall from the weak hands of the possessing class.34
Annie Besant carried the argument a logical step further by noting that the development of industry had separated the industrial population into a proletarian majority and a tiny owning class, and that this laid the basis for a straightforward expropriation of the trusts’ owners. In addition she spelt out a further highly significant practical consequence of the new configuration of industry:
There is no practical difficulty in the way of management of the ordinary productive industries, large or small. The Trusts and Co-operatives have, between them, solved or put us in the way of solving, all problems connected with these.35
These two essays defined a position which was both widespread and long-lived. Other Fabians wrote on similar lines, and the approach seems to have become close to an official Labour position.36 But the perspective employed clearly drew on much wider Left traditions. Besant's essay, especially, employs an almost Leninist tone, whilst on the other hand closely paralleling the views of the most important ‘New Liberal’ economic theorist, J.A. Hobson.37 In other words, this position on industry illustrates the pervasiveness of evolutionary modes of thought across the ideological spectrum at this time, with Fabians and Labour sharing a common intellectual heritage.
Such views remained the bedrock of Labour's thinking on industry up to the First World War. Whilst such an approach, as already noted, was not translated into a programme during these years, it was compatible with the largely ad hoc policies which did emerge at this time. In particular, Labour's accretion of commitments to nationalise particular areas, such as the railways, was fully in line with the judgement that this would represent a further step along the path which industry was already following, rather than a fundamental break in its development. Thus, the case for railway nationalisation (parallel to that for land) was founded upon the belief that the employers in this industry were currently exacting a monopolistic surplus which distorted the distribution of income, rather than any allegations about their supposed inefficiency.38
In other words, nationalisation did relate to efficiency but not in the sense of the efficiency of industrial organisation. The private ownership of land, railways and mining royalties was seen as imposing inefficiency on other sectors by exacting monopoly rents from them. Secondly, the maldistribution of income which resulted from such monopolies, it was argued, lowered the incomes of workers, and so made them inefficient.
This latter sense of efficiency, relating to the physical health of the worker, was a predominant one in discussions of this period, again uniting Labour and the New Liberals. But such a focus highlights the absence of attention to the details of corporate performance, an absence explained by the continuing popularity of the evolutionary view that private ownership, whilst it might be a problem in some respects, did not involve any problems as regards efficiency. This is also evident in the programme of the ‘Co-Efficients’ whose concern with efficiency involved no criticism whatever of current forms of industrial organisation.39
Faith in the productive efficiency of current capitalist forms of industrial organisation remained pervasive until the First World War. Then, like many across the political spectrum, Labour thinkers were shaken by wartime revelations of British incapacity and lack of organisation. In later writing, the Webbs pointed to the Board of Trade Reports as demonstrating ‘the gross inefficiency in processes, mechanical plant and organisation within each of the staple trades’.40 Whilst many were unwilling to give up entirely the idea of the advantages of economies of scale made possible by industrial concentration, the overall view of the capabilities of industry soon became vastly more qualified than pre-war.
Thus, in the Constitution for a Socialist Commonwealth of Great Britain of 1920, the Webbs argued that ‘it was one of the unexpected discoveries of government during the Great War that the system of capitalist profit-making, as a method of producing commodities and services, habitually fell so enormously short of the maximum efficiency of which it was capable’. Accordingly, they came to the conclusion that there was need for a ‘Standing Committee on Productivity’ as part of a new scheme of government, to aid all industries to conduct themselves more efficiently.41
This was not just Fabian eccentricity. A loss of faith in the conduct of industry was part of the whole recasting of the Labour Party's political and ideological orientation at the end of the First World War. As is well known, in 1918 the Labour Party adopted a new constitution, which embodied Clause Four, committing it to a programme of common ownership as the central long-term goal. In some ways the significance of this latter goal can be exaggerated. On the one hand, it was not seen as a major issue in the Labour Party at the time, attention being paid much more to other parts of the constitution. On the other hand, it can be seen as simply a logical development of the pre-war stance, coupled to an invigorated desire to give Labour a distinct political position.42
Perhaps more important than the new constitution and Clause Four was the adoption by Labour of a new programmatic statement, written by Sidney Webb, called Labour and the New Social Order. This included some sections very much following pre-war assumptions, including an argument for nationalisation because private ownership involved a ‘perpetual private mortgage on the annual product of the nation’. But beyond this, and marking a new departure, was a case for public ownership based on the inefficiency of the private sector. Webb put this as follows:
the Labour Party refuses absolutely to believe that the British people will permanently tolerate any reconstruction or perpetuation of the disorganisation, waste and inefficiency involved in the abandonment of British industry to a jostling crowd of separate private employers. … What the nation needs is undoubtedly a great bound onward in its aggregate productivity. But this cannot be secured merely by pressing the manual workers to more strenuous toil, or even by encouraging the Captains of Industry to a less wasteful organisation of their several enterprises on a profit-making basis. What the Labour Party looks to is a genuinely scientific reorganisation of the nation's industry no longer deflected by individual profiteering, on the basis of Common Ownership of the Means of Production.43
This emphasis on the pursuit of efficiency as a basis for nationalisation was carried over into particular cases. For example, the advocacy of railway and electricity nationalisation was related to the importance of efficiency in these industries for the economy as a whole, and the obstacle presented by private ownership to the realisation of the economies of scale available in each of the two cases.44
In sum, the war had significantly shifted Labour's approach to the economy. It had increased belief in the efficacy of government planning, as Oldfìeld emphasises. Conversely, it had reduced the evolutionist faith in general, and especially in relation to industry. Nationalisation was nothing new, but the grounds for its advocacy had significantly shifted, and was coupled to a new ‘productionist’ emphasis in Labour thinking. At the June 1918 Labour Party conference, Ramsay Macdonald put forward what seems to have been the first ever resolution calling for increased production as a priority. This was amended, not to deny the objective but to stress that it was acceptable only in the context of public ownership.45
How did this position develop between 1920 and 1939? Most discussion of Labour's economic policies during these years has been dominated by questions about the party's resistance to adopting wholehearted Keynesianism as a response to the mass unemployment of the period.46 During the post-1945 boom, which was assumed to have been caused by the adoption of such Keynesianism, it was perhaps natural to assume that this might well have been the path to solving the inter-war slump. More recent work has distanced itself a little from such perspectives, though still tending to focus on macroeconomic rather than industrial policy.47
Unemployment did dominate Labour's economic agenda in the interwar period, but overall the record of policy ideas from the party on this issue is not an impressive one. Skidelsky's suggestion that there was an ‘obvious’ solution, which only Labour's combination of Utopian rhetoric and practical conservatism obscured, requires substantial qualification.48 But his point that the Labour Party, especially in the 1920s, was not geared up to formulate a plausible reformist strategy for economic management is surely right. Labour's continued adherence to pre-1914 radical internationalism, involving support for free trade, the gold standard and financial conservatism, was not a framework likely to produce the necessary re-orientation of British economic policy. Equally the leadership of the Labour Party desired neither to overthrow capitalism nor to lose its claims to political responsibility by adopting unorthodox economic doctrine.49
The orthodoxy of the Labour Party was challenged by elements within it. Most importantly, the Independent Labour Party in the 1920s continued to produce impressive initiatives on unemployment. The most detailed of these was the 1925 Revolution by Reason, which embodied neo-Keynesian proposals for an expansion of demand via a nationalised banking system coupled to a floating exchange rate. The following year another group of ILP members published The Living Wage, which drew much on J.A. Hobson's underconsumptionist theories to argue for a minimum wage and large-scale redistribution of income via steeply progressive taxation. Such views were widely debated on the Left, and restated in a weaker form by Oswald Mosley in his famous memorandum of 1930. But their impact on official Labour policy, whether the party was in or out of government, remained minimal.50
During Labour's first period in office in 1924 the watchwords were financial orthodoxy and general economic caution. Labour still looked to the revival of the international economy as the only sure way of guaranteeing trade regeneration and a fall in unemployment.51 But the concern with unemployment was also reflected in Labour's approach to industry. Whilst carefully eschewing any strong commitment to nationalisation in its 1923 Election manifesto, in government Labour did revive the idea of much greater expenditure on and standardisation of electricity generation, with many arguing that this could be secured only by nationalisation. Nothing directly came of this during the period of office, though it gave impetus to the pressures which eventually led to the creation of the Central Electricity Board in 1926. Here was a classic case where private enterprise seemed simply incapable of achieving the potential economies of scale, and where a technical and non-political case for nationalisation could have wide appeal.52
Labour's approach to industry also developed in the context of the debates about rationalisation during the late 1920s. One way of viewing these debates is as signalling a loss of faith in the revival of trade as the only real remedy for unemployment, and a desire to see greater industrial efficiency as a way of expanding Britain's markets.
Before the election of the second Labour Government in 1929 enthusiasm for rationalisation was more apparent in the Trades Union Congress (TUC) than in the Labour Party. For example, in Labour's 1928 statement of policy, Labour and the Nation, rationalisation was urged as a solution to ‘the waste and inefficiency of private ownership in industries which, whether called private or not, are essentially public in character’. But beyond this rhetoric there was little in the way of practical policy proposals, and the extent of the government's role in efficiency remained, to say the least, obscured by the statement that ‘employers … will be well advised to begin by setting their own house in order, to modernise their organisation, improve their technique, eliminate waste, and apply more intelligently the resources which science has revealed’.53
Labour's reply to Lloyd George's We Can Conquer Unemployment in 1929 argued that unemployment necessitated ‘drastic reorganisation’ of the staple export sectors, but it also recognised that unemployment was being caused by rationalisation of other industries. The potential difficulty in advocating a policy which was at once both apparently a cause of, and a panacea for, unemployment was not, however, addressed. Rather, there was just a broad statement emphasising the need for the state to be involved in the necessary industrial reorganisation, ‘not by uniform measures applied to them all, but by a variety of stepsvdesigned to eliminate waste and wasteful competition, to improve and co-ordinate methods of marketing, purchase of materials, and production, and to adapt business structure to the changed economic conditions of the post-war world’.54
The TUC involvement in the debate over rationalisation came about essentially because of its involvement in the Mond-Turner talks, which flowed from a general desire on both sides of industry to move on from the conflict of 1926 and seek a more consensual pattern of industrial relations (Mond was the head of ICI, Turner a Trade Union leader and the TUC president in 1927). A major incentive to talk here was the issue of rationalisation. The employers involved mainly represented ‘progressive’ firms which wanted to rationalise but were worried about union opposition. On the union side there was a significant fear that rationalisation would go ahead without them and at their cost.55 Initially the talks achieved some success, with the participants outlining an agreement which included a ‘deal’ on rationalisation, where the unions would offer to assist the process if they were given a role in designing it. But this agreement ultimately came to nothing, essentially because of opposition from many employers to giving unions an enhanced role either in wage negotiation or, even more, in discussing firms’ policies.56 Nevertheless, it is significant that the unions, as distinct from the Labour Party at this stage, were willing to countenance substantial industrial reorganisation as a way of trying to restore the fortunes of British industry.
The 1929–31 Labour Government is chiefly remembered for its failure to deal with the unemployment problem, and for its ignominious collapse in the face of the counter-claims of financial ‘prudence’ and the living standards of the unemployed.57 Reasonably enough, perhaps, these events have obscured other aspects of the economic policy pursued by the Government. In particular it is important to recognise that the Government did attempt to raise efficiency in both the public and private sectors. In the former case, the major monument that was created was the London Passenger Transport Board (LPTB) which, like the CEB, reflected the view that private competition was inefficient and that significant economies of scale could be achieved by an amalgamation under public ownership.58 The LPTB owed much to Herbert Morrison, whose work on it reflected what were to become the dominant themes in Labour's nationalisation programmes of the 1930s and 1940s. The Morrisonian corporation, as it came to be called, would be largely autonomous of government, run by experts, and bereft of workers in any direct managerial role. This was a model which was grounded on a technocratic belief in the efficacy of large-scale administration and an ethos of public service. In economic terms it represented the belief that efficiency sprang largely from a combination of economies of scale and technical expertise, though Morrison himself also held that public ownership would unleash an enthusiasm for production from the workers.59
A similar set of ideas underlay the Labour Government's support for the rationalisation of coal. Here the ‘rationalisation’ of forced amalgamations with consequent increases in unemployment clashed with the ‘rationalisation’ of allowing the industry to create a cartel and hoping this would protect output and jobs.60 As noted above, the outcome was an amalgamation of both approaches, but one which essentially emphasised the protection of the industry against competitive pressures.
Rationalisation figured quite largely in the rhetoric of the 1929–31 Government, but the obvious difficulty with such an approach, given the unemployment prevailing, was that it had to be an essentially long-run measure. In the short-run rationalisation could only exacerbate unemployment, and such a prospect was hardly attractive as the unemployed grew month by month in 1930 and 1931. But apart from this compelling short-run political problem, Labour did little to involve itself actively in policies of rationalisation except in the coal industry. By and large it abdicated its role to the Bank of England whose priorities remained essentially financial rather than those connected with industrial modernisation.61
Labour was out of power from August 1931 until the Second World War. Its impact on economic and other policy areas in the 1930s was minimal, perhaps less than might have been the case even given the lack of a parliamentary majority.62 This long absence from power led to a major shift in thinking amongst many Labour supporters, and to some degree this was reflected in the Party's programmatic development.
One area of change involved the Morrisonian corporation. After fierce debates in the early years of the decade this became unchallenged as Labour's approach to public ownership.63 The model outlined here was linked to a clear identification of priorities as regards the sectors to be nationalised, creating a ‘shopping list’ which was close to the industries actually taken over in 1945–51.64 In the current context what is striking about the discussion of nationalisation in this period is the emphasis on efficiency. In the key document, For Socialism and Peace, the case for public ownership is grounded on the fact that it was to enable industrial reorganisation to take place. ‘Reorganisation from the point of view of productive efficiency’ was in turn to aim at six objectives:
(a) The introduction of efficient methods of production;
(b) The organised purchase of raw materials;
(c) The establishment of effective selling agencies;
(d) The elimination of all unnecessary charges;
(e) Reasonable wages and conditions for the producers;
(f) Reasonable prices for the consumers.65
Booth and Pack66 are critical of this focus on efficiency, as inappropriate to the immediate unemployment problem, but nevertheless it does demonstrate the extent to which nationalisation was seen as a pragmatic, quasi-technical response to the failings of the private sector, rather than as an ‘ideological’ objective linked to control over industry. Finally, For Socialism and Peace can be seen to have accepted that the need for reorganisation went beyond those industries that were likely to come quickly into the public sector, and there was some talk of the need to ‘enforce’ such a policy. But no details of what this might involve were given.67 Here, perhaps, we can see the development of an attitude that the private sector need not be seriously addressed as in need of reform because nationalisation would eventually be appropriate for almost all industries — though this remained implicit in Labour's discussions rather than explicit.
Amongst Labour's economic intelligentsia, three strands of opinion became evident in the 1930s. Many of the party's thinkers became converted to versions of Keynesianism, which gave a priority to demand management in economic policy, but they also argued for significant measures of nationalisation in the name of efficiency where there existed natural monopoly. The most important of such thinkers was James Meade.68 A second group, including G.D.H. Cole, were not hostile to Keynesianism but were keen to distinguish it from socialism, and to assert the political importance of social ownership. They tended also to make planning a central feature of their socialism, though the content of this planning was ill-defined.69 Finally there were those, especially Evan Durbin, who were much keener on the orthodox tools of economic analysis than Cole and his supporters, but who were sceptical of Keynesianism. Above all, they saw the key socialist objective as equality and believed that economic policies should be subordinated to such inescapably political objectives.70
All of these approaches were influential when Labour came to address seriously economic policy issues from inside government during the 1940s. They represented a major step forward in the sophistication of Labour's economic thinking. But this had its limits. Broadly speaking, economics as a discipline focuses its attention on the efficiency of resource allocation, not the efficiency of production. Labour's economists of the 1930s tended to accept this traditional demarcation: hence, for example, the discussion on the need to nationalise natural monopolies, which hinged on the argument that in such industries the realisation of economies of scale led to monopolistic units and the misallocation of resources; hence, too, the discussion on the applicability of marginal cost pricing rules to public sector industries.71
The point about these debates is not that they were irrelevant, but that they largely ‘crowded-out’ thinking about the determinants of productive efficiency. Indeed, they rested on the orthodox economists' usual assumption, that productive efficiency will be assured as long as firms have to compete. In terms of Labour's priorities, the economists tended to have the effect of switching attention away from the examination of how efficiency is attained, except in so far as this was linked to the existence of competition or monopoly.
To a degree the new economic thinking of the 1930s was in fact compatible with the ‘old’ emphasis on public ownership. Most of the industries that were listed as to be nationalised in For Socialism and Peace could be characterised as natural monopolies or as sectors having other characteristics which limited competition. Hence quite orthodox economic arguments might be advanced for their nationalisation, though this necessarily contradicted the idea that beyond this list the scope of nationalisation was more or less unlimited.72
Some escaped this framework. In particular Durbin, despite a great attachment to economic orthodoxy, appears to have set the agenda of efficiency in much wider terms. He saw that agenda embracing issues of motivation, training, personnel selection, production organisation, forms of accountancy, and investment levels.73 In this way he may be seen as at least recognising many of the issues which were to come to the fore in the 1940s.
This survey, in conclusion, allows two major observations about the broad position prior to 1939. It is apparent, firstly, that industrial modernisation and efficiency had never been the primary goal of any British government before this date. Equally, it is quite clear that Labour had been by no means indifferent to such issues, contrary to those accounts which characterise the party as having been only ever interested in distributive questions.74 Labour did not have, of course, well developed plans, only some fairly general ideas; but the important point is that it had generated at least an aspiration to intervene at a micro level in the economy.
The aim of this book is to explain what happened after 1939, and in particular how the whole efficiency issue was handled when Labour was in power between 1945 and 1951. There is already a body of literature on this subject and it will be as well to conclude this introduction by reviewing what others have argued, in order to indicate how the following text differs from the existing interpretations.
Historians, it should be noted at once, have not judged the Attlee Governments’ policies on industrial modernisation very highly. Labour, the consensus would have it, came to office essentially determined to pursue welfare reform, an object that shaped macroeconomic policies and fuelled the nationalisation programme. Trading and financial difficulties subsequently necessitated a closer relationship with the private sector, but there was little attempt by the Government to force reform here or to pursue modernisation because of the overwhelming need to obtain exports at all costs. Industrial policy as a whole thus remained, as even the otherwise sympathetic Morgan has to admit, ‘half-hearted, indirect, and in many ways unsuccessful’.75 What makes this particularly irritating for many is that, as they claim, it all could and indeed should have been so very different. The ‘audit of war’ had revealed, to anyone willing to see, the true extent of Britain's industrial weakness. Labour, at least early on, had distinct advantages, inheriting a coherent set of wartime controls, and basking in an unprecedented degree of political superiority both inside and outside Parliament. Intervention, perhaps on the French model, to induce the kinds of technical and managerial innovation that were needed to arrest Britain's long-term economic decline, seemed a real option. As it was, the possibilities were not even explored, largely, the argument runs, because of Labour's hazy thinking on industrial subjects and general lack of political will. In Marquand's words, which find echo in the works of historians as diverse as Miliband, Middlemas and Barnett, ‘the chance for a radical reconstruction of the supply side of the economy was lost’.76
This looks, at first sight, to be a highly impressive case, but on closer examination much of it turns out to be assertion rather than real argument. Many historians have been interested in the Attlee Governments, but most have concentrated on welfare reforms or foreign policy, for example, at the expense of any real consideration of industrial issues. Those who do examine economic policy and performance generally adopt a macro perspective.77 As a result, whole areas of government activity have tended to remain unexamined, largely imagined rather than established. A measure of the bias that exists here is the confusion to be found in many accounts about even the more obvious of Labour's initiatives on industry. The creation of the British Institute of Management was an important achievement of these years by any standards, yet it is largely ignored in almost all of the literature.78 Lack of precision also clouds evaluations of Cripps's Working Parties, with one prominent authority confusing these with the very different Development Councils.79
In fact, a detailed and rigorous review of the evidence shows that many historians have simply got it wrong. The Attlee Governments were very interested in industrial modernisation and did develop appropriate policies to pursue this goal. There is room for legitimate argument about what this package achieved, and it seems very likely that gains were not as great as was expected. However, blame for any relative failure cannot simply be placed with Labour. In fact, as this book will show, the blunting of industrial modernisation policies occurred largely at the hands of British industrialists themselves.
It remains only to indicate how the argument that follows will unfold. The starting point is the production crisis of 1941–2, when Labour, having entered the Coalition, found itself involved in the battle to raise output for the war effort (Chapter 2). This episode, and the industrial deficiencies that it revealed, led to the whole issue of industrial efficiency being opened up in an unprecedented way. A particular focus was on the quality of British management, but towards the war's end almost every facet of industry was discussed in depth, with each of the interested parties formulating policies for the peace (Chapter 3).
Once the Labour Government was in power the opportunity and the strong incentive to devise a strategy were present, and 1945–7 saw the development of a wide range of initiatives and policies (Chapter 4). In the later years of the Government three broad areas emerged as especially important in the battle to ameliorate efficiency. Good ‘human relations’ at the workplace were seen as vital because of the belief that the coming of full employment meant a new era in the labour market, and because the shortage of investment meant that ‘the human factor’ appeared to be one of the most obvious short-run routes to increased productivity (Chapter 5). Management efficiency, raised as a problem in the early 1940s, was also regarded as crucial in this period (Chapter 6). Finally, the coming of the Anglo-American Council on Productivity promoted the whole issue of the relevance and applicability of American models of industrial organisation to Britain (Chapter 7).
Industrial efficiency is an enormous and complex issue. It is almost impossible to give an exhaustive list of the factors which may affect it. This book does not pretend to cover every aspect of the issue as it presented itself in the 1940s. Rather, the focus is on the most important areas of ideas and policies as they impacted upon manufacturing industry, importance being measured by the weight of activity but also by the influence of Labour's approaches on the evolution of the economy. To a significant extent Labour made itself into a ‘party of industrial modernisation’ over this period, and this represented a major shift. The conclusion (Chapter 8) therefore attempts to assess both the political and economic significance of what had happened.