The Atlantic and Its Enemies

17. ‘The British Disease’

The overall Atlantic crisis was displayed at its worst in England, where the entire civilization had — with a Dutch contribution — started. The positive sides were enormous: the rule of law, the Industrial Revolution, a habit of non-violence in politics. France, rights of man and all, had not contributed anything like so much to the world and, comparing British experience with French, Edmund Burke had said, ‘We go from light to light; we compromise, we reconcile, we balance.’ In the nineteenth century the British had had to face the problems of the modern world, the organization of what came to be called ‘mass society’. They had done so, preserving and adapting old institutions, using them for new purposes. For instance, local administration was carried out through the vestry, and the Church of England had a social role; the colleges of Oxford and Cambridge, which were originally religious places, of a sort that collapsed on the Continent, made for world-class universities. The oldest and most adaptable of these institutions was of course the monarchy itself, and in 1953, when Queen Elizabeth II was crowned, complete with archbishop, sacred oil, orbs and sceptres, it was an extraordinary spectacle, watched by tens of millions on the relatively new black-and-white television sets. A film-maker of genius, Lindsay Anderson, remarked, later on, that the monarchy was a gold filling in a mouthful of rotten teeth. That fitted the England that emerged, a generation after the coronation. However, the early fifties were a good time. Western Europe was not yet quite competitive, British exports did well, and there were good markets in the old imperial area. Decolonization during the 1950s had been, at least in comparison with French experience, a success, and the new Queen became a considerable expert in it. At home, taxes on income were absurdly high, but there was no tax on fortunes made out of equities, and the banks were generous with overdrafts, charging a low rate of interest. The old England (and Scotland) had an Indian summer, and the great Victorian cities, with Glasgow in the lead, were still the great Victorian cities of industry and empire. But the later fifties showed that this could not last.

Her worldwide troubles in 1947 had led to the creation of an Atlantic system; now, her domestic ones revealed its central weaknesses. The great British economist John Maynard Keynes had somehow lent his name to the Pursuit of Happiness: he could reconcile welfare with progress. Government waved its wand, the poor had money transferred to them from the rich, spenders were encouraged rather than savers, the economy grew accordingly, and unemployment was kept low. ‘Keynesianism’, though no-one could quite pin down the Master, reigned, and dissident economists were unfashionable, or even slightly ridiculous. Their chief argument against Keynesianism was that it would promote inflation: if governments overtaxed then money would go abroad, and an overhang of paper money would translate into higher prices; in the end, when workers, through trade unions, wanted higher wages to defend themselves against a rising of basic prices, then they would expect inflation in the future, and want even higher wages. That would in turn add to the paper money and to the inflation. There were a few bright sparks who suggested that there was a relationship between the amount of paper money and pyramids of credit on the one side, and rising prices on the other. This was called ‘monetarism’. Such bright sparks were not fashionable. In the sixties, the Keynesians made the running, had the answers, were constantly in the newspapers and on television, and then, in the seventies, ran into very choppy waters.

The oil crisis had its worst effects here, and the quadrupling of energy prices pushed England into a trouble that called in question the whole post-war order. Strikes in the seventies meant that the average worker was not working for nearly a fortnight every year (‘average’ is not the right word: large unions alone were involved, and not all of them) whereas in the fifties the figure had been three days. The Prime Minister, Edward Heath, who had the face of a large and angry baby, would harangue the nation on a television that was switched off after 10 p.m. In 1974 he launched an election distinguished by the abstention of 2 million of his natural supporters, lost, and was replaced by a man who pandered to the unions. The Stock Exchange sank to a pitiful level and banks went under. The country was about one third as well-off as Germany, and in parts of the North there were areas that even resembled Communist Poland. In 1970 a rising figure in the political-media world of London, Ferdinand Mount, remembered that, from the capital, ‘the main railway line to the north passed through great swathes of devastation — industrial wastelands with rows of roofless workshops — the roofs had been removed in order to avoid taxes’. Why had this decline come about, in a country which, after the war, had been still the second-greatest exporter in the world? It was partly that the pound had become a very strong currency, and latterly because there was oil in the North Sea, but the fall of exports was really to do with ‘poor quality, late delivery, trade union restrictions, timid and defeatist management’. In fact Keynes himself, towards the end of the war, had bitterly hoped that the Germans would still have enough bombing power to obliterate some of the worst-managed industries. As things were, the obliteration happened painfully a generation later.

There was of course a great British problem, that the old industries had been the very first in the world, and, to a lesser extent, that their old markets were declining. In its way, the London Underground symbolized the entire national problem. It had been the first network in the world and was a triumph of engineering in the 1860s. But back then tunnels had to be extremely deep, whereas a generation later engineering had advanced and the Paris metro, say, was far shallower. London was stuck with a museum piece, and still is (the government at the time of the Millennium opting, quite characteristically for governments of the epoch, to build an entirely pointless structure, the Dome, at great expense instead of appealing to Londoners to put up with trouble for five years in order to have a state-of-the-art transport system). British industry entered upon a decline, and the means selected to stop it only made things worse. The facts were indeed as Ferdinand Mount had said, an awful litany of uncompetitiveness, and it had happened to other country-empires in the past. An economic pundit of the sixties, Thomas Balogh, opined that England was going the way of Spain: she too had run an empire upon which the sun never set, and in the seventeenth century had declined very rapidly, as the contrast, to this day, of North and South America shows. But this was the wrong parallel. There was a much closer one, with Holland. The British Empire had not been, like Spain’s, a military-religious affair, involving wide settlement and the forcible conversion or assimilation of natives: it had been, like Holland’s, a commercial business, and it was abandoned when commercial logic dictated as much. Once India had gone, in 1947, there was little sense in trying to retain the rest in the face of local nationalists who, if given their way, would agree to keep the commercial ties going.

In fact the thirties had seen what amounted to a collapse of prices in the goods that made empire worth the game, and in any case the expense of running empire became prohibitive, especially after the Second World War. In the mid-fifties the imperial trade was still larger than the non-imperial, and there was a last flourishing of old exports and capital investment. But then Europe recovered spectacularly, and these markets counted for more and more, quite soon half of British trade. Governments in the later fifties therefore wanted rid of colonies; a process of decolonization got very rapidly under way. The older colonial hands (and some of the younger officers, who were hard-working and idealistic) knew that problems on the ground were not simple, that decolonization was not a matter to be rushed in case majorities coalesced around expropriation or worse of minorities. That was to be the pattern in many places, from Burma to Cyprus, but by now the British had had enough of these endless insoluble problems, and colonies were abandoned, helter-skelter. There was a formula: identification of least unpalatable power-wielder; minor member of royal family declares country open; Union Jack wobbles down masthead, cock-feathered-hatted governor at the salute; a few tears here and there; old hands stay on, to manage schools; new hands arrive, as advisers; native dances begin; new flag wobbles up; new anthem is sung; parliamentary mace is handed over; mayhem begins. Opinions vary as to why this happened and as to whether the British could have avoided it; but at any rate they were able to walk away with very, very few casualties, and kept bases and markets.

But history was conspiring. As with Holland, the initial and enormous success of industry inspired imitation, competition and overtaking; protected markets did not help, as creativity suffered. The trade unions were in part responsible, but so also was a supine and spoiled management that allowed the unions to get away with it. Then the declining industries were taken over by the State, which turned out to be even worse at management — the story of the sixties and seventies. Economic creativity shifted into banking, to lending abroad, and the City of London on the whole attracted the bright and mobile, not British industry. The same had happened with the Dutch two centuries before: the great yards of Rotterdam, where Peter the Great had worked and learned, rotted, and so did the myriad of small and tiny enterprises in the city’s hinterland, where endless wooden and iron parts had been ingeniously turned out in the past. Much the same now happened to Glasgow and its hinterland, which in 1914 had been responsible for fully one third of all ship-launchings; as Germans, Norwegians, Japanese, Koreans turned out mass-produced shipping of low cost and tolerable quality for the growing trade of the fifties and sixties, the Clyde and the Tyne were no longer able to compete, and the little Coatbridges and Bellshills to the east of Glasgow also went down. Liverpool, one of the grandest Victorian cities, was the worst affected, and its middle classes tended to move out, to Cheshire or the Wirral. These flourished. The comparison with Holland and Zeeland is an interesting one. Curiously enough, Catherine the Great started the extraordinary collection of the Hermitage, in the Winter Palace at St Petersburg, when she bought the collection of the long-term and legendary British Prime Minister Sir Robert Walpole, with Dutch money. She then failed to pay the Dutch back, and Holland went down.

The details of the British performance were overall dismal, at least if compared with Germany and France. The figures were endlessly repeated in gloomy articles in this period, as British commentators recognized what was happening (it was obvious enough just from a train window). In Germany and France, in the period 1960-73, management and workers just produced more per hour every year. Their productivity rose at 5.7 and 6.6 per cent respectively, as against a British figure of 4.1, and in the 1970s the gap grew. By then, on the official figures, Britain was even worse off than East Germany, and West Germans — especially a Hamburg Anglophile like Helmut Schmidt — shook their heads. The British share of world exports declined — one quarter in 1950, 14 per cent in 1964, under 10 in 1973. German exports rose from 7 per cent to one fifth, and then, in 1973, over 22 per cent. France stood at 10 per cent throughout. But the French direction of trade shifted away from colonies, which had accounted for nearly half of trade in 1952 but only one tenth by 1977. The Common Market accounted for the difference. The American share fell from over one quarter in 1950 to one fifth in 1964 and then one sixth in 1973, but of course the smaller share was quantitatively far larger. Japanese trade rose from almost nothing to 8.3 per cent in 1962 and 13 per cent in 1973. There was always an argument that the British decline was not really a decline at all, that the country had started from an artificially inflated position, that it was bound to lose ground as other countries learned, and therefore that there was nothing to worry about. But there was, and the collapse of British industry in the period after 1950 is a dismal story, in which areas that had been well and truly on the map of civilization shrunk into its edges. In the nineteenth century intelligent Germans asked why they were not British. A century later it would (or should: there was not much informed interest in Germany, and in 1989, when the Wall in Berlin came down, there were only eighty-nine passes in higher-level German in the entire London school area) have been the other way about.

Geoffrey Owen’s account of this is the most illuminating, as it examines various industries in turn to look at the problem in detail. There are various long-term and short-term questions. The longer-term ones are of considerable historical interest, and the quality of history written in the past generation in Great Britain is head and shoulders above that found elsewhere: the National Archives are the best in the world, though reaching them on the British transport system is itself a considerable test for scholarship. England had somehow modernized without ‘modernizing’: the political system consisted of living fossils, and there was not even a written constitution.

In the 1960s, as the country slipped, there was much head-shaking, and a small tidal wave of ink was spilled on reform of this or that part of the historical legacy — especially the matter of class. However, there was one recent inheritance that was hardly challenged at all: that of the Labour government in 1945. It was bathed in a golden glow of togetherness. In 1965 A. J. P. Taylor published his English History 1914-1945, a brilliant book, and he (strongly Labour) ended it with the characteristic line, ‘Men no longer sang England, Arise! But England had arisen, just the same.’ Fifteen years later, as he looked out over rubbish-strewn streets in a not very fortunate part of London, his savings eaten by inflation, he was not so sure. Was there one single piece of legislation in that brave-dawn era which he would not have repealed? There had been widespread nationalization of industry and transport. They had a captured state market, and they provided employment — the National Health Service, providing medical attention cost-free, the largest non-military employer in Europe. But the record as the sixties and seventies went on was dismal. Nearly £100bn had been invested in the nationalized concerns and the annual return was −1 per cent. By 1982 nationalized industries had cost over £40bn in write-offs. The automobile-making British Leyland cost, in a ten-year period covering the seventies and early eighties, £3bn, and most of the once great British automobile industry became an international joke. In other countries, the failure of nationalized industry was not taken as self-evident. In England, it was a sort of non-violent protection racket, and to have a telephone installed or a piece of gas equipment repaired took the sort of little black-humour epic that Communist countries knew so well. However, the nationalized industries had not appeared for no reason: private concerns were not an advertisement for the alternative. In fact they themselves often appealed for state money, and became in effect nationalized.

The great British staples had been coal, shipping, textiles. Grand Victorian cities had been built up on that basis, Glasgow, Birmingham, Liverpool, Manchester especially, which Taylor knew so well, and in their great days they had been as much pioneer cities as had been, say, Boston. Even in the 1950s, the staples were holding up, in part because markets in the Empire had been protected. Cotton textiles still amounted to half of exports in 1950, but India and Hong Kong had been allowed to export with an agreement in 1932, and England became a net importer of cotton goods at the end of the decade, for the first time since 1750. The war had at least got shipping going again. But in the 1950s there was also an absolute decline and later in some cases even a collapse; it affected some of the very industries upon which the thirties recovery had been based.

Shipping was a British disaster area. After 1945 there had been a world boom, as trade grew, and by 1975 world shipping output had risen to 36 million tons, as against the pre-war 2 million (at worst) and 7 million (at best). For a time the British went on as before, with 1,324 launchings in 1950 (almost two fifths of the entire world figure). The chief shipping centres, especially Glasgow, flourished: those ranks and ranks of cranes, stretching all along the Clyde estuary, with an entire culture to match, and, at its educational heart, the Royal Technical College, which trained generations of engineers and maritime specialists from all over. In 1950 the British merchant fleet was a quarter of the world’s. But then came decline — 172 launchings in 1985 — by which time the British fleet was only a small fraction of the world’s. Some of this was ‘unfair’ in the sense that strong competition, and a desire to cut costs and to avoid the detailed regulation that was coming up, meant that there was an enormous growth in foreign registrations (e.g. Panama). Some of it had to do with pride in quality: those Clyde-built steamers sometimes had an extraordinary finish, no longer in demand. But a great deal had to do with new technology, at which Norway and Germany became more adept, with oil tankers and container ships: these were ugly, sometimes prefabricated and welded together. Japan, as the Korean War went ahead, boomed. By 1956 she had overtaken Britain, where yards were too small and apparently dominated by skilled men defending their position at the expense of technology that might have been used by people with lesser skills — an old, old problem.

Steel was another sad story. By 1914 the USA had become the largest producer, but two fifths of British steel was made for export, and in 1939 (despite legend) Germany was not ahead. After 1951 a large European market became the main stimulus, but England had not joined the European Coal and Steel Community and therefore missed much. German steel had not been nationalized, because the Allies had shrunk from relaunching it, and this saved Germany from the formula that did such harm to British steel (which was twice nationalized and denationalized). In the fifties there was a seller’s market: even small plants made money, and when a delegation from Port Talbot in Wales went to Chicago as part of a scheme organized by the Anglo-American Council on Productivity it did not even mention trade unions as part of a problem. Governments attempted to plan, as governments tend to plan where steel is concerned, and placed plants for political reasons, at Ravenscraig and Ebbw Vale, respectively in industrial west-central Scotland and Wales. The ECSC on the Continent, by contrast, forced producers to rationalize, rather than to appease local interests, and an integrated market grew up. French strip mills supplied German car factories, and themselves used German coking coal; and there was an American system of pricing that allowed for more competition than in Britain. When Lorraine lost its advantage to Brazil and Australia, and inland steel became less competitive, plants were shifted towards the sea ports (Bremen, for instance, arose because of Dutch-German collaboration, as did, on a greater scale and for other goods, Rotterdam). The French constructed Usinor at Dunkirk. In Germany, Vestag was broken up in just the right way, with successor firms of appropriate size for specialization and competition — hence Krupp, Mannesmann, Thyssen, Hoesch. Germany had had less Marshall aid than other countries, and the financing for this came from a levy of the steel-users in 1952, with consequent closer attention to what was done with the money. Output then trebled in the early fifties. Japan managed a similar feat later on, her exports rising from 6 per cent of all in 1960 to 23 per cent in 1973, by which time British Steel had become almost comic. The labour force, of 340,000 in 1969, was at least one third too large. Nippon Steel produced 520 tons per man per year, Thyssen 370, Bethlehem Steel 180 and British Steel, in 1975, 122. By 1980 British steel cost a third more than German, and subsidies were far larger — in the latter half of the seventies, the equivalent of DM14bn, to the Belgians’ DM3bn and the Germans’ DM1bn.

The most obvious hammering for the country came from the motor car industry. In 1960 BMC had been comparable in size with Volkswagen; in 1975 it folded. By 1990 Rover was a subsidiary of British Aerospace, and was sold in 1994 to BMW (subsequently being resold). High-level craftsmanship had traditionally been rewarded in the British domestic market, whereas the American was able to use flow methods (as in the celebrated Taylorism) for a less variegated product. In the early 1950s the continental Europeans had not properly started again and British output was simply swallowed up in the export market; there was much flair to the MG sports car, for instance. However, after the Treaty of Rome, intra-European trade started up, and boomed: the Volkswagen became the symbol of the German recovery. The British, without much thought, turned it down. But local British occupation officers decided to support the Volkswagen manager’s efforts to restart the factory; the French had greater foresight, and invited the maker and part of his family to Baden-Baden, in their occupation zone, to see what might be done; they then imprisoned him for alleged war crimes. But the British insight was not followed up (and in similar style the British turned down the offer of Danish Lego). Early on, British production ran at half a million cars, 400,000 of them exported (in 1950), whereas the German figures were 219,000 and 69,000. Then, in 1960, there were 1.35 million British to 1.8 million German — not far from half in both cases being exported. France had re-entered the market, with over a million cars (half ex — ported). Part of this reflected tax levels — the Germans’ tariffs being half the British level (30 per cent). The French and German markets were also simpler, such that the famous Beetle and the Renault 4CV could match it easily, whereas British cars — the Jaguar and the Rover — were more imposing (and sold well in the USA). Ford showed what could be done by proper management, and by recruiting of graduates who would learn in the practical American way. But there were still problems of fractured unionization, of small firms not co-operating in the German style, of an overvalued currency that made British products more expensive than German or French ones.

By the early sixties there was uneasiness about all of this, and it was translated into politics. Fifties England had been run, as far as finance was concerned, in budget-balancing style: the overseas position was too fragile for anything else. The rules were slightly bent in 1958, as the reigning Conservative Prime Minister, Harold Macmillan, bid for popularity in a pre-election year. His three Treasury ministers resigned, but the protest was waved aside, and an election in 1959 was triumphantly won, with the victory slogan (not quite accurately quoted) ‘You’ve never had it so good’. This was true enough, and the wartime generation remembered the vegetable mess of ‘Woolton pie’ and taxation that, from quite a low level, took half of an income. Now, the working classes were earning good money, and often lived in subsidized (‘council’) housing; they were beginning to take holidays abroad, as the pound stood relatively high. Astute middle-class people acquired property, with generous tax relief, for small sums of money, which could be borrowed cheaply. The truly astute ones invested in equities, the rise in the values of which was again not taxed, and if a bank gave you an overdraft, you could be well-rewarded for doing nothing at all. Fifties England was the last gasp of the Victorian era, but acid was running through the system.

There followed almost two decades of self-consciously big government, in the spirit of H. G. Wells. In the Edwardian period he had been the very archangel of Progress — a career of extraordinary diligence and doggedness, triumphing over illness, divorce, lowly social origins to become a major novelist and a commentator with a deep knowledge of the natural sciences. He spoke for a world of classless technicians, by preference scientists, and condemned the older world of monarchs, horses, Latin and peasants. From 1964 to 1979 there was a dismal descant on H. G. Wells and even, in the form of C. P. (Lord) Snow, a caricature of him. This was the era of Wilson (Labour) and Heath (Conservative), which for historical purposes can be regarded as a seamless web. The initial Labour government in 1964 was led by Harold Wilson, a scholarship boy from Leeds (itself one of the grand Victorian cities, but the southernmost of them) who had taught Economics at Oxford. He recruited a team that was the brightest, in terms of education, that the country had ever produced, except perhaps for the Liberal Cabinet of 1914. One or two of their autobiographies were of very high quality, Denis Healey’s especially (he was an excellent German-speaker and knew music properly). They also instinctively believed for the most part in the virtues of planning, in Snow’s case making silly remarks about the Soviet Union; they greatly expanded education, putting up new universities and expanding old ones in a manner that now looks foolish.

However, they fell foul of twin problems: the balance of payments and the trade unions. In England inflation stood generally somewhat higher than elsewhere, and the trade unions were blamed for being greedy. In Germany the unions were ‘responsible’ and had their own stake in the system. The British ones were much less controlled and there were vastly more of them, competing with each other as much as with the alleged bosses. Wages rose, without much reference to productivity, and since the pound was overvalued, exports suffered because they were too expensive — quite apart from the problems of quality and delivery that were coming up. The French had had a great problem with large Communist-controlled unions, but they ruthlessly devalued to keep down export costs and to deter importers. But the Wilson government opposed devaluation, partly because London was reconstituting foreign investment quite cheaply, partly because they had foreign debts to pay, and partly because the overvaluing of the pound meant that running military enterprises, whether ‘east of Suez’ or in Germany, was cheaper; besides, a third of world trade was conducted in pounds sterling, which meant a great deal of money for the City of London. The Americans, with a very large stake in the system, would give support. However, trade was more or less free, foreign goods were cheap and of decent quality, and there were constant alarms as to the British balance of trade. Governments were reluctant to cut spending (and in any case the deficit of the balance of payments came about through military expenditure abroad). They were severely criticized for not spending more, and foreigners speculated again and again against sterling. In November 1967 it was devalued (from $2.80 to $2.40) but the pressure did not really go away, because the British problem was too great: attempts to play a world role and at the same time to spend money on various domestic temptations. An attempt in that direction even cost Labour an election. In 1971 a new Conservative government came in, under Edward Heath. He was a hapless and virginal figure, who to begin with talked the language of private business, and soon ended up adopting the same policies as Wilson: big government, the saving of industries such as shipping that were in trouble. A National Enterprise Board, an Industrial Reorganization Corporation, ruled the roost: meetings of these included civil servants and trade union officials, as well as businessmen to whom titles were awarded (the businessman’s definition of a knight was ‘a man who failed to say no when he should have done’). There had even been an absurd parody of a National Plan, the offices of which contained a lavatory without a lock or paper, and its head, deliberately put there by Wilson so that he would discredit himself, drank too much.

British government interventions of this sort were not successful. In the automobile world, they went almost comically wrong. In the 1960s there was the almost inevitable response to competition, the creation of a large corporation, British Leyland, itself after 1974 directed by a National Enterprise Board (under the head of Reed International) and before then vaguely responsible to the Industrial Reorganization Corporation. However, tax again distorted affairs. It became sensible for British businesses to pay their people in ‘perks’, such as motor cars, and a standard, not very interesting range then appeared, which did not match Mercedes or BMW in engineering. To these, the Swedish Volvo offered serious competition, and since the British had a free-trade agreement with Sweden, offsetting the Common Market, Volvos took the top of the market. By 1980 three fifths of the motor cars sold in Britain were imported. Leyland’s management did not deal with the crisis as Arnold Weinstock had done with electricity, that is by cutting management costs and building reserves of cash. Instead, in 1972, they tried to negotiate with trade unions and craftsmen, and the Board refused to bring in outside advisers. The oil crisis of 1973, and then the inflation, brought a financial crisis, and the National Enterprise Board put in a large sum of money; Alan (Lord) Bullock recommended three levels of union co-responsibility (‘partnership’ in the German manner). But it was all pointless. Union troubles rose, to the point of ridiculousness, and by 1980 under a million British cars were produced, one third of them for export, whereas France had 3 million and Germany 3.5 million, between half and two thirds being exported (in Germany Volkswagen had faced a crisis, but Helmut Schmidt had refused to bail it out as Leyland had been bailed out). Japan had already entered the world market, taking a quarter of American sales, and even building factories in the United States.

Intelligent people did not need statistics to learn about the decline of the country; they only needed to take the boat train to France. By this time, British problems seemed to be falling into a vicious circle, of inflation, of problems with the pound, of problems with the balance of payments, of problems regarding unions and management alike. In 1971 unemployment began to rise, reaching not far from one million, while at the same time inflation stood at 9 per cent — not what was supposed to happen. Heath saw the answer in three directions. After a few weeks of pretending that he would ‘free’ the market, he was soon (February 1972) into the business of subsidizing collapsing industries, and then imposing controls on wages and prices (November: the ‘U Turn’). But he would make up for this. First of all would be government spending. Then would come attempts to deal with the union problem, whether by agreement, or by law. Finally, there was ‘Europe’: the magic that had worked in France and Germany would work in England as well.

The first two tacks ran into headwinds. Money was splashed around, interest rates were reduced from 7 to 5 per cent, and bank lending was less controlled; taxation was cut by £500m and post-war credits were repaid. At the same time public works were undertaken, particularly in the north — famously, an elaborate concrete bridge with hardly any traffic on it. There was an explosion of bank lending — £1.32bn in 1970, £1.8bn in 1971 and almost £7bn by 1973. Another expansionary budget followed in 1972, with tax cuts of £1.2bn. In 1972 the floating of the pound allowed inflows from abroad, and new credit-giving institutions were allowed to emerge, offering and taking loans in conditions no longer subject to the controls of the past. For a time, this seemed to work. Unemployment did indeed fall to 500,000, but this was classic fool’s gold. The ‘fringe banks’ for a time did well out of property prices, which had a dangerously more important role in England than elsewhere, and unlovely concrete spread and spread and spread.

But then came the oil shock. Even food prices trebled by 1974 as against 1971, and the bubble burst in November 1973, when the minimum lending rate was pushed up to 13 per cent while public spending was cut back by £12bn. One of the new banks could not obtain credit, and the other banks had to set up a ‘lifeboat’. It was not enough. The Bank of England itself had to move in, in the winter of 1974-5, and a well-connected bucket shop concern, Slater Walker Securities, had to be rescued in 1975. The Stock Exchange collapsed. Heath’s effort to spend his way through the strange ‘stagflation’ had thus come to grief, and inflation by 1976 reached 25 per cent.

In this dismal tale came a damp squib: since the later 1950s the importance of the European recovery had been plain for all to see. Germany boomed and boomed, and so, despite 1968, did France. Italy was also picking herself up in a remarkable way, and by 1970 any Englishman could see for himself how far his country was lagging behind. By 1960 British governments appreciated that their might-have-been alternative, the former imperial lands and some of the smaller European countries such as Finland and Austria, did not give them quite the same weight as would membership of the European Economic Community. Besides, the Americans were very keen to have Great Britain as a member, for the obvious reason that she would act as an Atlantic bridge for them, in a hostile view, to walk upon. The British tried in 1962-3 and were told ‘no’ rudely and in public by de Gaulle, who wanted to build up Europe as a sort of ‘third force’. He did it again in 1967. After his resignation, and after the shock of 1968, there were more realistic French governments and de Gaulle’s successor, Pompidou, could see, with the shocks of the world’s financial system in the early seventies, and the American disaster in Vietnam, that the Atlantic system needed buttressing. On the British side the various mishaps of that period caused a good part of opinion to wish that, like Italy, England could be governed by foreign-made rules, since the domestic ones were so demonstrably not working. Besides, on both sides of the political divide, senior politicians believed in big government, erecting concrete blocks of some hideousness in celebration of it. The Europe of Brussels did much the same, and the tourism shops in that city even sold ballpoint pens with a paper-clip as pocket-attacher. In 1972-3 the Heath government pushed British membership, and did so in some desperation. It signed away British fishing rights, condemning picturesque fishing villages to decline as floating fishing factories vacuumed the fish out of the sea. It also had to accept the Common Agricultural Policy, which put up food costs for the poor by £25 per week, and deprived former colonial territories of an appropriate market, all the while getting the ordinary taxpayer to pay. Still, ‘Britain in Europe’ appeared to be the only way out of the troubles of the Heath-Wilson period, and in 1975 a referendum confirmed British membership. Italians had constantly voted with enthusiasm for not being governed by Italians. Now the British did the same. Heath had quite unwittingly done that service to the cause he most believed in. But Europe offered no immediate relief, quite the contrary.

The attempt to deal with the union problem was farcical. It had split the Labour government in 1969. Heath tried to deal with it by law, and made the law look an ass: jailing dockers, however repellent they might be, in peacetime, was a reductio ad absurdum of Marx’s Eighteenth Brumaire, called for ridicule, and got it. London, at the time, was plastered with government posters explaining an incomes policy of percentages of percentages minus some figure that had been thought up for the lowest-paid, and the face of the Prime Minister on television was an invitation not to bother voting at all. Heath’s incomes policy did not get off the ground; it was sabotaged by the miners in 1972 and fatally in 1973-4. A Prices and Incomes Board was established (under one Aubrey Jones, a marketer of soap powder in the 1960s). Of course, it was absurd for some central body to be controlling such details unless it had the equivalent of wartime powers. But the Atlantic world attempted such things, even under another supposed conservative, Nixon. The whole thing tended to freeze pay as it stood, ‘relativities’ being a minefield, i.e. who was paid more than whom for what. The Cabinet, to its bewilderment, found itself discussing what the secretaries should be paid. With the Coal Board, there were immediate problems, because miners saw themselves as essential, could also discern that the rise in oil prices would make coal very desirable, had their wages politically determined, and did not see why their daughters should earn more as hairdressers. In 1972 they put in a claim for 27 per cent and 10,000 of them besieged the Saltley Coke Depot outside Birmingham. This was settled. Dockers then wanted their slice.

In the end it was the inflation that caused much of the trouble, but there was as ever in England an historical element. An extraordinary British anomaly, a tribute to the very high standards of the past, was that the trade unions were subject only to the criminal law: gratuitous mayhem, of a kind that no-one, in the English nineteenth century, would have expected. In 1906 a Liberal government anxious to please labour produced a trade union law that assumed common decency. The matter was not even debated, so that the then worthies could devote their oratorical talents to the Irish Question. The trade unions’ power to ‘picket’, i.e. to deter potential customers and strike-breakers, was unchallenged. That power was not supposed to include violence, but there was nothing to prevent strike pickets from roving around to stop firms that were indirectly involved in the affairs of the struck-against one. A would-be mining revolutionary, Arthur Scargill, sent men with brickbats to raid the power stations and stop the use of coal, and the police stood by, helpless. In the docks, a similar protection-racketeering prevailed. In the event, power was switched off for much of the day, and industry itself went over to a three-day week (during which it produced more than in the previous 5½-day week). In February 1974 Heath narrowly lost an election, and Labour returned, this time producing a ‘social contract’ with the unions which was received with derision. The general idea was that there would be a ‘fairer’ society — i.e. direct taxes on the better off that would reach almost 100 per cent — if the unions restrained wage demands. They could not control their own people and the overall inflation was such that they were required to put in for higher wages in any event.

The public service unions now started. From 1961 to 1975 central government employment had risen by 27 and local government by 70 per cent. The NUPE (National Union of Public Employees) grew, from 265,000 to 712,000 between 1968 and 1978, and in 1973 came the first National Health strike, which included consultants. Jack Jones became a figure of power, as head of the TGWU, the largest of the unions, pushing for an extension of union power over Labour. It was he who produced the idea of a ‘social contract’, an echo of the ‘social partnership’ of consensus-minded Catholics. There would, he promised, be moderation in wage claims as a consequence. There followed some preposterous calculations as to permitted wage rises. As in the United States, these were soon shown to be imbecilic. Jack Jones apparently dictated academic salaries, and some deluded dons, unable to believe that an enlightened government could do this to them, demonstrated in mortarboard and gown outside Downing Street with the electric slogan, ‘Rectify the Anomaly’. By June 1975 weekly wage rates had risen by up to one third, and by summer 1977 inflation stood at 13 per cent and wages rose by 14 per cent, the better-paid workers now paying marginal rates of income tax. In fact taxation was wicked, in the sense that it was destroying the good. A married man with two children had take-home pay of £70 per week in December 1973, but £63 in 1977; by 1979 the incidence of taxation was growing, such that there were 2.5 million more taxpayers than in 1974, but the government’s own poverty figure was £55 per week for a married man with two children. There was every incentive, therefore, for said married man to abandon his family and sue for ‘benefit’. A million people earned less than £55, the lowest 10 per cent of earners in the National Health Service earning £48, and the overall average itself was now low: £80 in industry generally or, for the 2 million local government workers, less (dustmen earned £56). Anthony Crosland, the ideologist of modernized Labour, became a near alcoholic. His final contribution to the country’s future was to destroy the selective grammar schools that had been a great glory, and a means to inspire and promote bright children from poor backgrounds. This was done in the name of equality: schoolchildren were all now to be brought up in the same huge ‘comprehensive’ schools, and examinations were increasingly rigged to demonstrate that these unlovely places were a success. As ever, in England, when equality was in question, all that happened was the proletarianization of the lower-middle class.

England had the dearest labour and the cheapest management, and a spiralling down began. The public debt was added to, by over £10bn in 1975-6, and at the same time the GDP fell (by 1 or 2 per cent in the middle seventies). This compared badly with the German or Japanese experience, and even the American, because inflation in those countries was much less (in Germany even in 1975 6 or 7 per cent). England could only compete by selling London property to the new oil money, and was not exporting goods; the ‘pump-priming’ strategies of the era meant that none-too-good manufacturers were able to sell indifferent goods to the domestic market. The balance of payments deficit increased to £1.5bn in 1975 and a sterling crisis broke early in 1976. Healey himself decided boldly on a new programme of cuts in spending, and recognized that wage demands and inflation (plus an exchange rate of $2 to £1) made the country uncompetitive, and the government was divided (Wilson himself resigned in March 1976). In the latter part of 1976 the IMF was called in, to reinforce Healey’s existing strategy, and the cuts went ahead — the first and in some ways the only truly serious cuts made. A humiliating ‘Letter of Intent’ had to be signed by the British government, one of the founders of the IMF. By the autumn, Wilson’s successor, James Callaghan, was publicly warning his own supporters that they would have to give up the idea of spending their way into employment: ‘Higher inflation, followed by higher unemployment. That is the history of the last twenty years.’ By 1976 the Treasury itself was somewhat converted to the idea of monetarism, a limitation of the quantity of money such that inflation could be contained. But the conversion was not enthusiastic. The Bank (and the City) expressed greater enthusiasm.

It was an unhappy time, the country winding down, and a slow crisis started. In 1976-7 the world economy did pick up, as the oil-shock money was recycled back to the industrial and exporting countries (which grew overall at 5 per cent). But the British economy was by now too fragile to gain much more than a respite, and inflation still ran high — 25 per cent in 1975, 16 per cent in 1976 and in 1977 (earnings keeping apace until 1977). As the pound was now a petrol currency, it naturally rose; keeping it down meant selling it, and that made for inflationary pressures, compounded by the inrush of Arab money. Still, there was a respite, unemployment not much above a million, and inflation down below 8 per cent in 1978. The respite did not last long.

Seventies England finally fell apart over an absurd wrangle about Scotland. The vagaries of the electoral system had made the government dependent upon a few Scottish Nationalists. Theirs was a cause not worth discussion: careerist soft-profession mediocrities with no sense of their own country’s considerable history. They had to be placated, and a referendum was staged as to independence. It failed, and, without the votes of the few Nationalists, the Labour government collapsed. It did so as the economic strategy also collapsed: the comic arithmetic of the pay policy anyway fell apart because in far-away Teheran the Shah lost his Peacock Throne, and in the ensuing panic oil prices doubled. Iran was the second-largest oil producer, and revolution there affected 5 million barrels per day. Production was suspended for ten weeks after 27 December 1978, and then recovered only to 2 million. By June 1979 the price of Saudi Light Crude had risen from $12.98 to $35.40, and there was a very harsh winter in the USA and Europe; the spot price affected marginal, non-contracted oil, and some crude-oil prices — Nigeria’s for instance — even reached $40 per barrel. In Britain, with inflation rising, the barriers broke. The TUC wanted 22 per cent, not the 5 per cent they were supposed to accept, and various strikes began in the winter of 1978-9. Callaghan, who himself said that if he were younger he would emigrate, confessed that there was a strange new tide a-flowing, and he was right.

By this time, the government’s policies were spreading havoc. The headmaster of an infants’ school in a small Berkshire town wrote to parents whose children usually had school dinners that they would have to go home because of a strike. He added: ‘we cannot allow you to provide packed meals instead, as this could be regarded as a form of strike breaking’. The heart of the whole wretched problem was expounded by a valiant economist of the Right, Walter Eltis, who said that if at Oxford in 1965 the question had been asked as to whether an absence of growth, inflation, unemployment and a balance of payments crisis could coexist, the answer would have been yes, but only in an underdeveloped country. The Bank of England noted in 1975-6 that the real return on investment was now zero. By then taxation of salaries had reached 83 per cent and on interest or dividends, 98 per cent. The government was in no condition to face trouble from the unions again, and there was more panic; the City refused to buy government stock, mistrusting it; interest rates rose above 10 per cent again, to 14 per cent by May 1979, when the next election happened. The annual debt — ‘public sector borrowing requirement’ — almost doubled, to some £10bn, but even then some effort had to be made to control public sector wages at a time when the government was taking three fifths of the entire national income for itself. In the summer of 1978 the unions rebelled against the system, the Ford workers leading the way, and by the winter there were surreal strikes, including dustmen and even body-buriers. But England, messy as she was, was not without creativity, or even tissue regeneration. There was to be a reaction against all of this. Edward Heath had been dismissed as leader of the Conservative Party, to his own and his supporters’ great surprise. Margaret Thatcher replaced him, to his disbelief. She meant business, at last.