When Clement Met Margaret – the unholy alliance of the 1950s and the 1980s

It’s the worst of both worlds. A glance at 20^th century economic history indicates that the noxious right-wing consensus currently ruling the roost in this country is intent on the nightmarish combination of post-WW2 military Keynesianism (state spending on arms manufacturers) with 1920s/1980s austerity which shuffles the tax burden onto ordinary people and lets the rich get away with murder.

In order to appease Trump, Sir Kier Starmer has promised to spend an extra £32 billion a year on defence (taking spending on weapons to at least 3.5% of GDP) ostensibly on the absurd notion of protecting the country from Vladimir Putin menacing British streets. And absent any willingness to tax the billionaires, this can only come from renewed austerity and increased taxation on most people.

The image of post-war decades in this country (and Europe) is bathed in the sepia-tinted light of the birth of welfare states and health services. Out of the rubble of World War Two, Britain created the National Health Service and instituted a mass council house building programme, two things that clearly cost a lot of money. This can be designated social Keynesianism (state spending that benefits people).

However, this memory is selective. At the same time, after falling immediately after the Second World War, military spending hit 11.2% of GDP around the time of the Korean War in the early ’50s. It subsequently dropped but still remained comparatively high, holding steady at over 5% of the GDP in the 1970s.  This can be designated military Keynesianism (state spending on weapons). Hitler and later Ronald Reagan were quite taken with the concept.

Bear in mind that 5% of GDP is what Trump and Nato want military spending to be.

In truth, the post-war years saw the creation of both a welfare and a warfare state. “After the Second World War, Britons built not only a new Jerusalem but a new Sparta,” writes historian David Edgerton in The Rise and Fall of the British Nation. “Though no longer one of the greatest powers, in the 1950s the United Kingdom was militarized to an unprecedented peacetime degree.”

Into the 1960s and ’70s, he notes, the “warfare state” consumed more than the health or education budget.

Now we are told, in the midst of what is undeniably a much richer country, that we must choose warfare over welfare. Not we have a genuine welfare state nowadays anyway. After years of ever greater conditionality rules being attached to it, it is more properly classed a punishment state.

But what is interesting about the post-war years is not only that a balancing act between welfare and warfare was achieved but that it was done without imposing unbearable levels of taxation on ordinary people. The lower middle class enjoyed an effective tax rate far lower than today (before the increase in military spending hits), whilst large and essential ‘consumer’ items, such as houses, were much more affordable.

How was this possible, let alone actualised? The answer lies in three decades of robust economic growth (the best in the history of capitalism) which permitted rising public spending – part of which was diverted to military purposes – and the paying off of war debts. But this package, benign in certain respects, was enabled by much heavier taxation of the wealthy, encapsulated in the Beatles’ song ‘Taxman’, an embittered two and half minute whinge about paying 92.6% supertax. In fairness to its author, George Harrison objected to paying tax so governments could find new ways to bomb people and in that he was, at least partially, justified.

Socially speaking, however, the post-war years were a conscious repudiation of the policies of the 1920s and ’30s. As shown by Clara Mattei in The Capital Order in many countries, Britain and Italy for example, this involved swingeing cuts to public spending (that had risen in the aftermath of World War One), coupled with reducing direct taxation on the rich and increasing indirect taxation of consumption, especially duties on working class pleasures such as tobacco, beer and spirits. In Britain corporation tax, only created in 1920, was abolished four years later and would only return after 1945.

By then this economic cocktail was thoroughly discredited. It had contributed to and exacerbated the economic depression of the 1930s, laying the foundations for the worst conflict in human history, the Second World War.

But the dawn of the 1980s was long enough for amnesia to have set in. Thatcher in Britain and Reagan in America set about rehabilitating the economic prescriptions of the 1920s. Public spending was held down, mass privatisation inaugurated, and taxation precepts turned upside down. Direct, progressive, taxes on the rich were slashed while consumption taxes – regressive because everyone pays the same – were hiked. For example, corporation tax was 51% in 1981 and it is now at less than half that level (and recently has been even lower). VAT has gone in the opposite direction. It stood at 8% in 1979 and has since nearly trebled.

There is admittedly one significant difference. Whereas the austerity mongers of the 1920s were unconcerned about the effects of their policies on mass consumption, since the 1980s our political overlords have been far less complacent. A four-decades long house price boom, the huge expansion of personal debt, frequently low interest rates, and the introduction of tax credits have attempted to compensate for the fact that wages have not risen as they did in the post-war decades and in recent years have flatlined.

Some have called this privatised Keynesianism – a third kind of economic policy named after someone who died in 1946.

But the point is that, in conspicuous contrast to their predecessors of the 1920s, Thatcherism and Reaganism had the necessary stickiness. They stayed around. So much so that the current ‘Labour’ government in Britain is, in essential respects, Thatcherite. It is committed to deregulation, not increasing tax on the wealthy and keeping utilities like water and electricity in private hands. Any similarity to the Clement Attlee government of 1945-51 is purely rhetorical.

Except, though, in one respect. It is intent on repeating the trick of post-war military Keynesianism which, in addition to the creation of the NHS and nationalisation, the Attlee government eventually succumbed to, especially with Britain’s involvement in the Korean war in 1950. In response to this, defence spending doubled.

The post-war decision to increase weapons spending was not painless. It involved introducing charges for some NHS services which sparked a bitter controversy and much soul-searching about the meaning of democratic socialism.  But the conversion happened without sacrificing the core of the post-war settlement. The Conservatives – in power from 1951 – continued the huge council house building programme and the welfare state was expanded in the 1960s and ’70s.  Government policies tended towards increasing equality.

However, that was then. Thanks to the incredible shelf-life of Thatcherism, we don’t live in the same country anymore. As a result, something has to give – if you want to spend an extra £32 billion on the military, the money will have to be re-allocated from elsewhere and augmented from increasing taxation even more on moderate earners.

This process is already in the works.  In addition to slashing support for new claimants for disability benefit, the government is merging the Work Capability Assessment (for Universal Credit) into the assessment for Personal Independence Payments.  It is estimated that over 600,000 chronically ill and disabled people will lose their means of support as a result.

Plans to raise the state pension age to 70 are cut from the same cloth.

As socialist economist Michael Burke has said, “the funding for the war drive can only be generated by much harsher austerity, harsher even than in 2010.”

More and more, the decades following World War Two appear a unique aberration in the history of capitalism, precipitated by a uniquely destructive conflagration that was the deadliest in history.

Rather the norm is austerity, low taxation of the rich and corporations, unending hostility towards trade unions, and military aggressiveness.

Politically we are reverting to type too. The Second World War alliance against Nazism of a ‘communist’ country and western capitalist states only came about as a last resort after the latter had exhausted all other possibilities. Previously, and for years, British and French elites had wanted to enlist the Nazis as a “bulwark against Communism”, giving them a “free hand” to attack the Soviet Union. Even after the outbreak of the Second World War (during the seven-month “phoney war”), Britain and France still plotted an attack on the Soviets.

The preference for the far right has clear echoes today. Despite growing public disquiet at the genocide, the British government is still supporting the Fascist Israeli government and the West finds de facto support to Fascist thugs in Ukraine aligns with its geopolitical ambitions.

Is there an alternative to this witches’ brew? I want to explore those possibilities in a later post.

Expert Fascists: The Untold Story of the Spirit of Our Age

“History is a nightmare from which I am trying to escape,” someone said once. In the case of austerity, the nightmare has lasted for more than a century and the alarm isn’t about to jolt us into reality. “Outside, perhaps, of the less than three booming decades that followed World War II," Clara E Mattei notes soberingly in the introduction of her fine book The Capital Order, “austerity has been a mainstay of modern capitalism”.

Even the words are the same. In 1920, upholding the urgent need for countries to “pay their way” through spending cuts and individual abstinence, Lord Robert Chalmers, former permanent secretary at the Treasury, warned of the necessity of “painful” choices. In 2024, as an autumn budget featuring spending cuts of £1bn per department and tax rises looms, Sir Kier Starmer, PM of something called the ‘Labour’ party, has told us to steel ourselves for the “painful” decisions that must be made.

And just as in the 1920s, the promised sunlit uplands – the better times which this perpetual medicine is supposed to give way to – never appear. We must, says Starmer, “accept short-term pain for long-term good”. But we have been hearing that message for 14 years. Britain has been subject to austerity – of the fiscal kind – since 2010. And we (or the governing classes) are still making the same mistake. Maybe, as Mattei suggests, it’s not a mistake.

The Capital Order is about the origins of the creed of austerity. In the aftermath of the First World War, when the public wanted a “land fit for heroes” and the workers’ movement was on the march after decades of subservience, the wise, grey men in the shadows of power realised that something had to be done. The pressure of “excessive” demands on government had to be eased and workers, who were not only pressing for wage rises but questioning the immutability of the rule of capitalists over industry (‘the capital order’ of the book’s title), needed to know their place again.

Without drastic change and a remoulding of public opinion, the result would be ‘socialism’ or, in the worst nightmare of all, workers’ control and Bolshevism.

In Britain, the spirit of the age was trending in this catastrophic direction. Strikes were rampant and ‘reconstructionists’ from the elite, inspired by what had been possible during the war after laissez-faire had been discarded, were hatching plans for a free national health service and huge house-building programme (financed in part by local councils through non-profit making building guilds). It is fascinating to discover that the bulk of the reforming programme of the Attlee government after the Second World War was actually drafted in 1918-20 before being brutally scotched.

In Italy, as Mattei elucidates, things were even more serious. The workers’ movement was reaching the peak of its power – factories were seized and occupied during the long hot summer of 1920. The government stood by, helpless, and revolution seemed just a matter of time.

But at this point in both countries economists and bankers decisively entered the stage of history. On their advice, politicians implemented ruthless austerity. In Britain, savage spending cuts (the ‘Geddes Axe’) were forced through, and a policy of high interest rates, which caused a recession and mass unemployment, imposed in the face of protests. By 1922, wage levels were a third of what they had been in 1920, and 20% cuts in government spending were forced through. Confronted with the situation, workers went into survival mode and the strike wave evaporated.

The Italian ‘solution’ was even more extreme – Fascism. Mussolini marched on Rome and the supine Parliament granted full powers to his minister of finance, the liberal economist Alberto de Stefani, and his team of mainly non-Fascist advisors.  Free to follow their hearts’ desires, they implemented drastic reductions in welfare spending, abolished short-lived experiments in progressive taxation on the rich and corporations, and privatised state-run enterprises such as telecommunications. Coupled with Mussolini’s brutal physical destruction of the Left and workers’ organizations, the economy was pacified and profit-making made a safe endeavour again – though at the cost of wage levels, which sank like a stone, and political and economic freedom.

I must quibble here with the subtitle of the book – How Economists Invented Austerity and Paved the Way to Fascism. In Italy, they didn’t pave the way to Fascism; they were Fascism.

But regardless, what Mattei has done here is a wonderful example of historical revisionism (which is usually tainted by being associated with holocaust denial). It tells you things you very likely did not know and corrects the oversights of the historical ‘canon’ – a narrative which views the 1920s as a well-meaning period blind to the pain to come as a result of the Great Depression and the “low, dishonest decade” to follow. This book changes the way you view the past and thus the present.

Based on the experience of the last decade or so in Britain and Europe, most people tend to view austerity in terms of budget cuts and (regressive) tax rises. But, as Mattei points out, this is just one prong of the “austerity trinity”.

Fiscal austerity (1) is often accompanied by (2) monetary austerity which entails large rises in interest rates – the cost of holding debt – ostensibly to combat inflation but at the cost of driving the economy into recession. In the 1920s, this was known as the “dear money” policy – “the queen of all austerity policies in Britain” according to Mattei.  Dear Money was inaugurated in 1921 (when interest rates were raised to 7%) and lasted for more than a decade. It was still the official response to the Wall Street Crash of 1929 and predictably only made things worse. But the most brutal example of monetary austerity in the West took place at the beginning of the 1980s on both sides of the Atlantic, when interest rates were hiked to above 17%. The result was recession, mass unemployment (reaching 4 million for a decade in Britain), and the taming of organized labour. Again these results were not an unfortunate mistake. And the lady wasn’t for turning.

The last leg of austerity is (3) industrial austerity, which involves privatisation and crushing organized labour and the right to strike. Both, as Mattei details, were an integral part of Fascist austerity in 1920s’ Italy which literally destroyed (physically) the workers’ movement, enshrining a period of ‘industrial peace’. Industrial austerity was zealously resuscitated by Margaret Thatcher in the 1980s leading to a world-wide revolution in economic ‘common sense’, shaping the economic landscape we now take for granted. Nowadays in Europe, if you displease the economic overlords of the European Central Bank, you will be compelled to swallow the medicine of both fiscal and industrial austerity – budget cuts, privatisation, and laws against striking.

But if the economic history of the 20^th and 21^st century has, in the main, been one of austerity, the three horsemen of the austerity trinity have not always been paraded at the same time. Depending on the circumstances, different aspects have been stressed while others have been ignored – or in fact seriously transgressed.  This discordant record, dependent on the needs of the time as defined by technocrats shielded from democratic accountability, reveals – as we will see in part two – a lot about our current economic predicament.

Drag Me to Hell – Why are we so right-wing?

 

Margaret Thatcher is known for many things – declaring war on trade unions, initiating the mass privatisation of publicly-owned utilities, selling off council houses, deregulating the City of London, cutting taxes on the rich, to name a few. But one thing she is not famous for is being on the Left.

Nonetheless, in 1982, she did something which, in today’s climate, would be seen as left-wing, even ‘far left’. She suspended arms sales to Israel. This was in response to the Israeli invasion of Lebanon, which was prompted by the fact that the Palestinian Liberation Organisation had relocated there.

Many civilians were killed and Thatcher’s government took immediate action. An invitation to Israel to attend the British Army Equipment Exhibition was withdrawn and arms sales were stopped. One Foreign Office memo stated, “It would be odd if we were now to conduct bilateral business with the Israelis as though nothing had happened”.

Contrast this with the current British government’s reaction to the genocidal Israeli attack on Gaza, which has already killed far more civilians than the Lebanon War did. In fact, the official number of dead – 30,000 – will be swelled by so far unreported deaths – those dying at home and missing because they are buried under rubble.

Atrocities definitely happened in the 1982 war, most famously in refugee camp massacres. But, as far as I’m aware, deaths from malnutrition did not occur, as they are now. Nor were starving people deliberately massacred by the Israel Defense Force.

Nonetheless, this time Britain is definitely conducting business as though nothing had happened. Arms sales continue, and indeed the “defense relationship” and “growing Israel-UK partnership” is celebrated by the IDF.

Virtually the only person in the UK Parliament to object to this state of affairs is a propagator of ‘far left’ ‘socialism’ who has been cast into out darkness on the patently ridiculous grounds that he enabled antisemitism to flourish when he was leader of the Labour party.

I doubt somehow though that Thatcher is turning in her grave.  She regarded her greatest victory as compelling the Labour party to renounce its mixed economy, social democratic ideology in favour of her right-wing, corporate friendly, anti-worker economic world-view. Something Corbyn, all too briefly, reversed.

The Ultimate Compliment

Present leader Sir Keir Starmer is the perfect compliment to Thatcher’s legacy.  Despite being elected on a promise of upholding Corbyn’s economic policy, he has jettisoned every element of it, leaving a husk of Thatcherite nostrums impeccably attuned to the political and economic establishment which has grown to such dominance in her wake.

For example, in throwing overboard a pledge to spend £28 billion a year on green energy projects, Starmer and de facto deputy Rachel Reeves consciously aped the language of the Cameron-Osborne government employed to justify austerity. They accused the government of “maxing out on the nation’s credit card”. The same mind-numbing phrase cropped up in Starmer’s response to the Budget.

Reeves has, in redoubtably conservative fashion, promised to balance the nation’s books, despite, somewhat hilariously, having her own Parliamentary credit card taken away in 2015 for over-spending on expenses.  She has also promised not to reintroduce a cap on bankers’ bonuses abolished by the Conservatives, as this would mar the charm offensive with the City of London that she and Starmer have methodically deployed over the last few years.

A Different Country

The question that should then be asked is how did British politics get so sclerotically right-wing, especially when, in terms of social attitudes, the diametrically opposite trend has occurred?

Last autumn, for example, the researchers behind British Social Attitudes Survey (BSA) proclaimed that Britain had undergone “a near revolution” in terms of social attitudes over the last four decades:

One clear theme emerges. On many social issues, such as sexual relations or whether women with young children should go out to work, there has been a long-run secular change trend towards a more liberal climate of opinion. In what might be thought a near-revolution in the country’s cultural outlook and social norms, Britain has increasingly come to believe that what people do in the bedroom, what kinds of family they live in, and how they combine family life and paid work should be up to them. The job of government is to respect and facilitate the decisions they make rather than try and take those decision[s] for them. 

In 1983, half of all respondents said that same sex relationships were “always wrong” compared to just 9% two years ago. Over three quarters of people support a woman’s right to have an abortion, compared to just 37% 40 years ago.

Other seismic changes can be found in attitudes toward premarital sex, having children outside wedlock, and gender roles in the workplace and the home. In 1987, for example, 48% agreed that ‘a man’s job is to earn money, a woman’s job is to look after the home and family’. Now only 9% of people do.  Britain “now looks and feels like a different country from 40 years ago”, the BSA says.

These are all welcome changes but in terms of politics, and the attitudes underpinning it, Britain doesn’t “feel like a different country from 40 years ago”. It feels like a worse country.

To go back to the example that introduced this article, in 1982 – when dinosaurian attitudes on social issues held sway – Margaret Thatcher could, with minimal opposition it seems, suspend arms sales to Israel. It is inconceivable that such a policy would be enacted today and if, by some miracle it was, it would be instantly accompanied by howls of antisemitism. 

It may justifiably be pointed out that these changes in social attitudes did not just happen. According to journalist Ian Sinclair, reporting on the BSA survey curiously neglected mentioning the role of “groups like the Women’s Liberation Movement, Stonewall, the Gay Liberation Front and Outrage dealing with violence, threats and abuse in their struggle to win equal rights, changes in the law and shift public opinion.”

But there is no shortage of activist groups – on anti-austerity, public ownership, the rights of disabled claimants, inequality, and corporate taxation for example – trying to shift Britain’s economic policy and politics marginally to the Left. But in this case, barring minor victories on things like the municipalisation of bus services, they have just been banging their heads against a brick wall.

Why is this? Why did activists, admittedly after years of struggle, succeed in prising the door open on gender issues, gay rights, and sexual choice but in terms of politics and economics meet a defiant ‘No Pasaran!” from the elite?

1983 will never die!

I can’t give a definitive answer but one notable feature of British politics over the past four decades has been an innate conservatism in the worst sense of the word. Instead of taking on vested interests, it has opted to protect and preserve them.

In party political terms, we have one side fixated on a perpetual emulation of Thatcher’s epoch-changing 1983 victory facing off against the 1997 Reenactment Society. Rather than changing, as social attitudes obviously have, politics is frozen in aspic, like some endless rerun of Yes Minister (which for those who don’t know was a ‘comedic’ representation of the right-wing Public Choice Theory and obsessed with cutting government waste).

In 2008, our necrophile political system bailed out, with public money, a financial system that had imploded entirely due to its own inner workings. Not only was this an enormous transfer of wealth from poor to rich, it also rescued and further entrenched a sector of the economy that feeds off debt and thus loves conservative economics.  

Finance wants austerity because, as a result, wages are held down and people become even more susceptible to getting into debt and having to make interest payments. For the same reason, it has an aversion to trade unions. Finance is also a prime mover behind the privatisation of public assets, funding the Private Equity groups that often take over public services, like water or health, thus benefitting from the rising user fees that people are compelled to pay to gain access to basic services.

If ‘market failures’ exist and they aren’t being dealt with, you can bet that for some people, invariably extremely well-off, these aren’t failures at all but successes and the source of their wealth.

Hysterical Billionaires

And when the billionaires who run Britain’s mass media organisations ran into some turbulence after revelations of phone hacking, the obedient political class was on hold to limit the fall out. The initial enquiry into unlawful conduct by the newspapers, led by the judge Brian Leveson, was meant to be followed by a second part (‘Leveson 2’) that would have looked into “corporate governance issues”. But this was scrapped by Matt Hancock because of the “significant progress” that had apparently been made.

As a result, rather than clipping their wings, moguls like Rupert Murdoch were emboldened. His News UK launched the right-wing Talk TV station in 2022, emulating the hysterical Fox News in the US despite laws against broadcasting bias in the UK which didn’t seem to make much difference. The fact that Talk TV is soon to become a streaming only service does not denude from its intention to further lock British politics into a right-wing direction.

Its ‘rival’ GB News plays a similar role. The co-owner of the channel is hedge fund billionaire Sir Paul Marshall. In a previous incarnation he funded and edited the 2004 ‘Orange Book’, a collection of free market espousing essays by leading Liberal Democrats which set the tone for their role in the Cameron coalition after 2010.

Marshall, who has been outed for seeming endorsement of far right conspiracy theories, has previously lamented the fact that financiers like him ‘made out like bandits’ as a result of the government’s decade-long Quantitative Easing programme. But despite this honesty, he hasn’t been deterred from putting the money to effective use.

If you create a large coterie of billionaires, as our political system has, you shouldn’t be surprised when they use that enormous wealth to mould public opinion and protect their interests. 

Liberal and progressive opinion in this country has been profoundly shaped by the Whig theory of history, which is convinced that the British story exhibits a steady, if slow, progress towards more liberty and rights. However, the experience of the last 40 years does not bear this out. Progress and reaction can co-exist, each in their own separate sphere of influence. Reality, as opposed to the idealised narrative that exists in our heads, is frequently messy and may point in two contradictory directions at the same time.