The Crisis: Wilson's lame explanation (1975)

From the October 1975 issue of the Socialist Standard

On August 20th Harold Wilson made his long-awaited broadcast to the nation informing us of what his government proposed to do about the economic difficulties in which “our country” finds itself. It was an emotional appeal for us all to accept sacrifices, accompanied by the threat of what would happen if we did not. To be more specific, wage workers were told that they could no longer “get for themselves such a pay increase as to enable them to escape the rigours of inflation” and that “the limit on pay settlements is £6 a week”.

The whole harangue was preceded by what purported to be an explanation of the causes of our economic difficulties — an explanation which appeared to exonerate the government from all blame. No doubt, at the speed of the spoken word, the reasons given sounded plausible enough to most of those who listened.

Let us however examine more closely these “causes” which Wilson claimed to be known to us all. He gave three. First:

The whole industrial world faces the most virulent trade and employment depression since the thirties.

This is like saying that you are going to be out of work because there are not enough jobs to go round — and explains exactly nothing. It has, however, the built-in suggestion that trade depressions and unemployment are like cosmic disturbances, for which politicians cannot be held responsible. In fact later in his speech Wilson likened the situation to “the fact that the world has been knocked off its axis by a universal recession”. The second reason given was:

Industry’s failure over the past 20 years to invest in industry, new plant, machinery, factory buildings, industrial modernisation . . .

Presumably Wilson was referring to British industry : yet in West Germany where, due to war-time destruction of factories and plant, large investment and modernization were essential, there is more unemployment than in Britain. As a reason for our present difficulties this second cause seems suspect, to say the least — apart from the fact that every worker knows that more efficient production is aimed at reducing the labour force. And so we come to the third reason:

. . . the effect of inflation on industry’s ability to provide jobs for those established in industry, jobs for school-leavers . . . this year it has been almost entirely internal prices and costs, including pay, which have aggravated inflation . . .

Here the workers are intended to feel partly to blame for having “aggravated” inflation. But you cannot aggravate something which is not already there. So what causes inflation? We are not told.

So much for explanations which explain nothing. It is distressing that, as far as we can tell, such arguments can be accepted by the majority of the electorate. It is, however, understandable. Politicians have never informed the public of the true nature of the economic system which they try to administer. We do not learn about it at school or from the “mass media”. But at least we can take a hard look at what politicians such as Wilson tell us and see the worthlessness of their so-called explanations. It is then up to the workers to find their own explanations from an understanding of the nature of the capitalist economic system of production.

Let us then go back to Wilson’s three "causes”. Why in fact is there a trade depression in the “whole industrial world”? What is immediately apparent is that these countries have produced more commodities than they can sell at a profit. This is what “trade depression” means. But why should this be so? Capitalists, whether they control private companies or nationalized industries, employ the physical and mental abilities of wage-workers to produce commodities (or processed materials). The primary aim is to sell such commodities at a profit. This profit represents the difference between the value of the work provided by wage-workers and the wages they are paid. Employers know this only too well. The effort to restrain wage increases, the introduction of better machinery, the stream-lining of production methods, are all intended to reduce the “wage bill” and increase the margin of profit.

It follows therefore that the working class as a whole are not paid enough to buy back the goods they have produced. The “export drives” typical of all industrialized countries are evidence of this need to sell abroad the surplus which workers in the country of origin cannot afford to purchase. Likewise, in spite of what Wilson says, the bulk of profits are reinvested in industry — to produce more and more commodities in the hope that by price undercutting such goods can be sold abroad. But, like taking in each other’s washing, it is a futile endeavour when all countries are trying to do the same thing. The surplus car production at the present time is perhaps the most evident example of this. America, Europe and Japan are all fighting to sell their cars to each other — to the extent of “dumping” cars abroad at less than their internal prices.

It is true that, in part, export of commodities is required to provide the money to purchase food and raw materials not sufficiently available in the exporting country. But, globally, there is an excess of commodities, including food, over and above the purchasing power of the working class. This is what shows a world-wide trade depression to have other causes than interference from outer space. It is due to, in Marx’s phrase, “disproportion of production” which is inherent in capitalism.

That is not the end of the story. The “crisis of over-production” leads to a slowing down, or even halting, of production. Capitalists will not for long continue production of what they cannot sell, even at a reduced margin of profit. Reduction of production means unemployment. The ability of workers to buy back what they have produced is further curtailed. Production is reduced still further and unemployment increases.

This is the explanation of the nature of “the virulent trade and employment depression” which Wilson might have given. But then, having promised to administer capitalism better than Heath, he can hardly be expected to tell the electorate that trade depressions are endemic in the capitalist system. The electorate might want to change the system for one which produces commodities for distribution rather than sale at a profit.

What is really behind Mr. Wilson’s second “reason” for our economic difficulties: British industrial inefficiency? The explanation is to be found in what has been written above. British capitalism can only survive if it can export wealth. To do this, foreign competitors must be under-cut, or better value for money offered. By the more efficient processes outlined by Wilson in his speech industrial wage bills can be reduced, goods can be exported at lower prices while still maintaining the previous margin of profit. Some countries can, however, compete more successfully because labour is cheaper, and this is why “wage restraint” is so important to the employer. This leads on to the third of Wilson’s “reasons” in his reference to pay aggravating inflation. Industry’s concern about pay increases is not that they aggravate inflation but because they make it more difficult to sell products at a competitive price while still maintaining the customary margin of profit.

But this still does not explain the inflation which is “aggravated” and which largely caused, in the first place, the demands for higher wages. This kind of inflation — the devaluation of the pound — has been caused by the excessive printing of paper money by the Bank of England on the authority of successive governments since the war. No mention of this was made in Mr. Wilson’s speech. But he is not the only one to keep quiet about the effects of government monetary policy, both here and abroad, on the rate of inflation. In November 1974 Enoch Powell was complaining that:

. . . little attention had been given (in the press) to the epoch-making conclusions of the European Economic Community Countries’ finance ministers on measures to tackle inflation. To restore the general stability in the value of money they agreed that they should follow the principle ‘that increases in the supply of money should be cut back to the same level as the real growth in gross national product’, plus whatever might be accepted for the time being as the permissible rate of inflation, namely 4 per cent next year.

(The Times, 4th November 1974)

Our economic difficulties are not, as Wilson implies, a “bolt from the blue” but a direct result of the operation of a capitalist economy. When the electorate understands this it may seriously examine the case for establishing an alternative economic system based on production for use rather than production for sale, that is, Socialism as we mean it and not as Labour politicians use the word to conceal state capitalism.

John Moore