What went wrong? (1983)

From the October 1983 issue of the Socialist Standard

When the Labour Party won the 1945 general election they declared their confidence in their ability to solve the problems of British capitalism, the main plank in their programme being the nationalisation of coal, steel, the railways, the Bank of England and other industries. They promised full employment, stable prices, expanding production and a rising standard of living but soon came into difficulties and adopted the first of the post-war incomes policies. Prices rose sharply, the export of British manufactures lost ground and in 1949 they sought another remedy in devaluing the pound from $4.00 to $2.80. It did not save them and in 1951 the Tories came to power and remained in office until 1964, declared by the Labour Party to be Thirteen Wasted Years.

At the 1963 Labour Party conference, Harold Wilson announced a new cure-all — the technological revolution — spelled out in the Party's 1964 election programme, Let's Go With Labour For The New Britain:

The world wants it and would welcome it. The British people want it, deserve it, and urgently need it.

A new Britain — mobilising the resources of technology under a national plan; harnessing our national wealth in brains, our genius for scientific invention and medical discovery; reversing the decline of thirteen years; affording a new opportunity to equal, and if possible, surpass, the roaring progress of other western powers, while Tory Britain has moved sideways, backwards but seldom forwards.

The country needs fresh and virile leadership. Labour is ready. Poised to bring its plans into instant operation. Impatient to apply the New Thinking that will end the chaos and sterility.

After much consultation with industry and the unions, and collection of information, this heady stuff was embodied in a government publication, the National Plan, running to nearly 500 pages, all of it summarised in a Labour Party pamphlet Target 1970. The trade union leader Prank Cousins was appointed Minister of Technology. According to Target 1970 there was to be a 25 per cent growth in the national income, wages were to rise by 20 per cent, houses would be built at the rate of 500,000 a year, the output of manufactured goods was to go up by about 25 per cent and 800,000 new jobs were to be created. Steel output was to go up from 25,820,000 tons in 1964 to 30,750,000 tons in 1970 (National Plan p. 142).

In 1965, after a year in office, George Brown spoke optimistically at the Party Conference about the National Plan for which he had been responsible:

Even though we are not yet on sound ground, it has been an incredible change in the situation. The prospects now compared with what they were last October, the situation now compared with what it was last October. are almost unbelievably different. (Conference Report, p. 222.)

His excuse for difficulties that had arisen or might arise was that though the Labour government knew the previous Tory government had left a mess behind them, it was much more than they had thought. The Tories had not only left a mess but had concealed from their successors how great it was: “We did not know the full capacity of our predecessors for deception." In 1968, after four years in office, the Labour Party published A Dictionary of Achievement, prefaced with the claim: “Since Labour came to power in 1964, the whole country has been experiencing a quiet revolution. In almost every aspect of government, a ferment of new ideas has been at work". It gave details about aspects of the Plan that had been put into operation but almost nothing about the results.

As it turned out, when 1970 arrived (and the Labour government lost the election) most of the planned targets had not been reached, growth in national production was only 17 per cent against the planned 25 per cent. Wages had indeed gone up but prices had risen not by 35 per cent. The rise in real wages was under 10 per cent. (There was of course nothing in the Plan about putting up prices.) Instead of the 500,000 new houses a year the average number completed in the period 1965-1970 was under 400,000 a year. In 1970 it was 364,000, actually below the number in 1964. The growth in national production under the Plan was less than in preceding years under the Tories and it has continued to grow more slowly under later Labour and Tory governments.

Exports of manufactured goods continued to lose ground in world markets and to remedy it there was another devaluation of the pound from $2.80 to $2.40. (Nothing about this, either, in the Plan). When Labour lost office in June 1970 unemployment was nearly 200,000 higher than when they took power in October 1964.

So why did it all go wrong? Basically it is because the Labour planners do not understand how capitalism operates. They fail to realise that the quantity of goods that a company or industry can go on producing is not determined simply by its productive capacity but by the quantity that can be sold at a profit — that is by market conditions generally. And market conditions cannot be controlled, or even forecast, with any certainty. The quantity that can be sold at a profit not only depends on the completely uncontrolled and unpredictable state of world markets but also the sales of one industry are dependent on what is happening in other industries. It only needs a few industries — steel, motor cars, shipbuilding, textiles — to overproduce for their particular markets and consequently to cut back their investment and output, for other industries to be adversely affected.

In drafting the Plan the Labour government approached companies and organisations asking them to estimate future demand and their capacity to increase production up to the expected level. But how could they know? There are dozens of governmental and private organisations engaged in forecasting. Did any of them in say 1979 forecast that by 1983 there would be over three million unemployed? Or did any of them foresee that in the early 1970s the oil exporting countries would band together to use their monopoly to double and treble oil prices? In anticipation of a growing demand for steel Labour (and Tory) governments doubled the output of the British Steel Corporation, only to find that the world market for steel had slumped and they had to cut production down again.

Because the Labour Government’s National Plan was “national”, it had to be constructed by combining the separate plans of each industry and company and trying to adjust these to the comprehensive whole. This assumes that the companies themselves know what is going to happen. What success did the steel, motor car and shipbuilding industries have at peering into the future? None at all. The fallacies of planning were exposed by Frank S. McFadzean, a managing director of the Royal Dutch Shell group. The group was asked among other things to tell the Labour government in 1964 what would be its future investment in oil tankers, how much it would be and where it would be. It was impossible to answer the question:

Its investment decisions are influenced by the investment decisions of others — British, Norwegian. Swedish, Dutch and Chinese shipowners for example. If these latter decide to charter at low rates Shell may build no tankers at all. (Article on a volume of McFadzean’s lectures. Financial Times 6 April 1969.)

McFadzean was in an exceptionally good poisition to expose the futility of the National Plan because Shell has for years spent millions of pounds on its own attempts to foretell the future of the market for oil and other products of the group. This was his verdict:

Except in the very short period ahead, we are not really very impressed by the detailed results shown by our plans. It will be the sheerest fluke if ever we achieve them. Looking back to 1962 and what we then prognosticated . . .  we were wrong on many counts.

We were wrong on volumes, we were wrong on prices, we were particularly wide of the mark on our estimates of the demand for and price of naptha, we were wrong on our cost projections, we were wrong on the level of investment which we would need to make. We did not fully foresee the increase in the size of tankers, we did not foresee the extent of Libya’s crude oil production; we did not foresee the dominant role that natural gas would play in Holland. . . we did not foresee the closure of the Suez Canal.

If Shell with all their experience could not plan ahead with confidence for one industry what hope was there or is there that a government could do it for a combination of all the industries?

Capitalism is inherently unstable and its periodic descent into depressions is inevitable, as shown by the experience of a couple of centuries. From 1945 to the mid-1970s the Labour and Tory leaders all believed that they had found a way to maintain boom conditions and full employment indefinitely by the use of the fallacious doctrines of J. M. Keynes. With the leadership of Thatcher most of the Tories have now abandoned Keynes and adopted the equally spurious doctrine of monetarism and the “free market”, which are just as incapable as the Keynesian doctrines of maintaining boom conditions and full employment.

Capitalism goes its own way, in accordance with its structure and its own economic laws, with its inevitable cycle of expansion and contraction. Capitalists expand investment and production when it is profitable to do so. and contract both when it is not profitable. Neither National Plans nor free market forces alter the essential conditions under which capitalism operates.

Edgar Hardcastle