MIA > Archive > Kidron > Western Capitalism
The case for seeing government activity as the key to post-war stability is simply put. The public sector everywhere is huge. It spends anything between thirty and forty-five per cent of gross national product; it accounts for roughly the same proportions of capital spending; and employs up to a quarter of the total labour force. It can be used effectively to underpin government economic policy. More important, government policy can adjust demand to whatever level seems necessary to ensure full employment; and by direct intervention a government can also adjust the proportions between different sectors of the economy to ease existing or expected bottlenecks.
Taking the last first, there is no denying that state intervention and assistance have done much to change the face of western capitalism since the war. They have resulted in the large modernized public sectors, covering energy, transport, communications and finance, which lie at the foundation of planning in most countries. They have also affected the structure of the private sector. In Britain, the Government sweated the cotton textile industry to three fifths its 1959 size in a matter of six years; the air-frame industry was halved into two major groups at the end of the fifties and is in the process of being halved again. Shipbuilding is waiting for the distribution of £70 million in rationalization money; machine tools, computers, the docks, and more are queueing up for the attention of the new state merchant bank, the Industrial Reorganization Corporation. In Italy, the steel and oil industries are monumental evidence for the success of this type of state intervention, as are chemicals, electrical engineering and almost each of the industries and services that have sustained the ‘economic miracle’. Roughly the same could be said of all western countries – through a mixture of forced rationalization and nationalization, they have done much to modernize their structure, and are continuing to do so.
It is when considering the second, less specific weapon in the state economic armoury – the adjustment of demand to secure full employment – that doubts about the effectiveness of government policy occur. Dow, in what has rapidly become the standard text in Britain, shows that stability and full employment was far from being the sole, or even the main, concern of official policy; that, ‘policy ... must on the contrary be regarded as having been positively destabilizing’ in every important case between 1945 and 1960. [1] For Europe as a whole, it is clear that the two widespread recessions of the fifties were as much caused as cured by official measures. [2] Nearer to our time, it took the British Government a full eighteen months until July 1966 to club business into the depressed state required by international financial and political considerations; while de Gaulle, faced with an opposite problem at that time, took as long to coax French business from its stabilization freeze, and then not too successfully. Finally, there is little evidence that the public sectors have been used consistently and effectively to even out the ups and downs of economic activity.
The economics sophisticate makes light of this sort of evidence. In the contemporary mixed economy, runs the argument, private business is confident that the state would correct any spontaneous tendency towards recession; it is assured, therefore, of emerging unscathed through the normal pay-off period of three years or so; and so willing to invest. In doing so, it sustains production, prices, full employment. After some experience of the resulting boom conditions, business ‘will, in fact, become concerned with the risks of not investing, i.e. lack of capacity to meet expanding demand with consequent loss of market share to competitors, and rising labour costs due to inadequate investment to raise productivity and offset rising wages’. [3] In other words, the fact that business believes in the government’s preparedness to intervene sets off a train of action which by and large obviates the need for such intervention. And if, on the occasions government does intervene, the job is botched, this hardly matters, for the tools it uses are too crude to cope with the fine adjustments needed. However, should the system really lurch towards recession, the correctives would match the task more evenly.
The argument is teleological. It rests on the view, shared by the established Left as well as the established Right, that the economy’s course is determined by policy, that such policy stems ultimately from social and political pressures powerful and determined enough to modify the system, and that a welcome (or irksome) measure of discipline has thus been imposed in the interests of social welfare (Left) or in the furtherance of doctrine (Right). It sees the direction of economic policy as something essentially arbitrary, the state as the instrument of arbitrariness and ‘democracy’ the power to wield it. In its modern accent, and dealing with the established Left only, the argument is that ‘the provision of state assistance to the development of countervailing power has become a major function of government – perhaps the major domestic function of government’ [4], or, in English tones: ‘the transformation of capitalism makes it indispensable that someone should regulate it’ and ‘the operative factor ... has been the growing power of the people’. [5]
It is a persuasive view, and important because it is the political bond between Labour and Conservative parties the world over: for both, arbitrariness defines the area of politics – if regulation can have cut so deep across the grain of the system, it can as surely be pressed further (Left) or pushed back (Right), depending on the relation of forces within the conventional power structure, and on nothing else.
It follows from the argument that the state would tilt most towards labour where labour was politically strongest, notably in Britain compared with the rest of western Europe; or that the great strides towards economic management would be taken when political Labour is in power, say, between 1945 and 1950 or now, in Britain; or that state planning would contribute to an enlargement of democratic control.
Not a bit of it. Official welfare payments in Britain form a smaller proportion of gross national product than in most other countries – 6.4 per cent (1960) compared with 10.4 per cent for West Germany, 9.2 for Austria, 9.1 for Sweden, 8.8 for Belgium, 8.3 for France, 7.9 for Italy, 6.8 for Denmark. [6] They form a smaller part of the average worker’s take home pay – 3.5 per cent (1955) compared with 25.5 per cent in Italy, 20.5 per cent in France, or 14.3 per cent in Germany [7]; and a smaller relative charge on capital – in 1960 British employers were contributing directly twenty-one per cent of social security revenue, compared with seventy-two per cent in Italy, sixty-nine per cent in France and forty-one per cent in Germany [8], and they were not contributing more indirectly through general business taxation than in Germany, say, or Austria. When it comes to specific welfare provisions, the British worker can only wonder how he missed out on the French worker’s legal right to three weeks’ annual holiday with pay (as opposed to his own customary but unenforceable fortnight); or the one month’s notice or payment in lieu after six months at work (compared to his own single week’s notice or pay); or the way many workers in most European countries can lay some legal claim to their job; or the German workers’ inflation-proof retirement pension at three quarters of average earnings during their last three years of employment; or the level of family allowances – between twice and six times higher in the major west European countries than in Britain. Even the much vaunted Health Service is scarcely what it was and certainly nothing like what it was intended to be. Squeezed by the private drug firms and starved of money by the state, it is demonstrably inadequate in every one of its services, and very near breakdown in some, as can be seen in the luxuriant growth of private, personal, and industrial health insurance schemes, the three largest of which multiplied their membership thirteen times between 1948 and 1965. [9]
As for the supposed conjunction of Labour government and planning, nothing could be further from the facts. On the first post-war occasion in Britain no provision was made for long-term forecasting and management, nor, as an American observer reported, with some surprise, was there any ‘evidence of the existence of a national physical plan even for those sectors of the economy which are more or less subject to direct fiscal control’. [10] During the second period of Labour rule, the approach to systematic state intervention – setting up the Department of Economic Affairs (1964), publication of the National Plan (1965) – came only after the Conservatives had assembled the administrative machinery in the Treasury (1961 and 1962), at the National Economic Development Council (1962) and produced the first official exercise, the White Paper on Public Expenditure in 1963-4 and 1967-8. [11] It was an approach, besides, that faltered at the first sign of economic difficulties. Far from state planning being a product of social democracy’s attempt to recast society and the economy in a different mould, the deepest commitment to it and the most long-lived (since 1946) has been the French Government’s no matter what shade of black has been featured on its current political banner.
Nor has planning resulted in an enlargement of popular control over the economy. Shonfield, its current historian had this to say of the recent British effort:
It is ... a matter for concern when the new corporatist organizations by-pass the ordinary democratic process – neither throwing their own deliberations open to the public nor subjecting the bargains struck between the main centres of economic power to regular parliamentary scrutiny. [12]
But if ‘democracy’ or popular pressure is no explanation for the size and variety of state economic intervention (however it might have influenced this or that particular), nor – with the same proviso – is direct business pressure.
This might seem surprising in view of the evidence of affinity in interest and personnel between business and the state. In Britain, ‘the situation is quite clear: the intermixing between outsiders and the civil servants has now reached a point where the distinction between “administrative decisions” and “decisions taken by private individuals” is more and more difficult and more useless to make.’ [13] In the US, ‘no sharp line separates government from the private firm ... Each organization is important to the other; members are intermingled in daily work; each organization comes to accept the other’s goals; each adapts the goals of the other to its own. Each organization, accordingly, is an extension of the other’. [14] In France, ‘the development of ... planning in the 1950s can be viewed as an act of voluntary collusion between senior civil servants and the senior managers of big business’ [15], and pantouflage – the interchange of civil servants and business executives for short periods – is well entrenched. In Germany, the collusion has been even greater – until very recently planning of a sort was very much a private matter conducted by the big three private banks. And so it is in every country – the public domain is policed by private gamekeepers.
Yet, all is not quite what it seems. Beyond the obvious interest that business has in the State-as-pork-barrel and the State-as-planner, both of which are positive inducements to get as close to it as possible; there is a real fear of the general powers of government – the state is so much bigger and richer in resources than even the mightiest private firms. In practice individual capitals will oppose any extension of government power that is not deemed to be of direct benefit to themselves. A recent witness is Sir Paul Chambers, then Chairman of ICI, and as such no small beneficiary of government intervention. After informing shareholders of the extent to which his firm cooperates with the British Government and how willing it was to have thirty or forty senior men on government committees, he continued:
On the other hand, your Directors would regard the giving of assistance to the government in schemes for the further control of sections of British industry, whether by nationalization or by some other means, as inconsistent with their duties to their stockholders. [16]
It is this general mistrust that has prevented the very considerable inter-business planning in the US from evolving into state planning; that inhibited the Conservatives in Britain from bringing their planning initiatives to fruition; or that persuaded the German Government until early 1967 both to conceal its firm economic control behind the cavernous platitudes of laissez-faire phraseology and to devolve much of the day-to-day management to the three big banks. To put the point negatively, it is only because the number of big firms in France was small enough for their particular interest to overlap extensively with the general interests of French big capital, that planning was so easily accepted and has been so long-lived. As Shonfield writes of the Commissariat du Plan:
These men talk among themselves in a kind of shorthand about the ‘80-20 ratio’. This expresses their view that to make effective planning possible the distribution of output in industry ought preferably to be such that something close to eighty per cent of production comes from about twenty per cent of the firms. [17]
So while it is true, as Galbraith says, that ‘the shortcomings of the large corporation, as a planning instrument, define the role of the modern state in economic policy’ [18] the state normally assumes this role despite business and to the accompaniment of a great drumming of corporation heels.
It is difficult not to conclude that the state’s growth in size and economic effect has not been a direct result of pressure from either business or labour. While organized labour has, on balance, favoured state involvement and capital opposed it, nothing suggests that either attitude has had much effect on the actual course of events since the war. On the contrary, the state’s growth has been in a series of disjointed steps that bear every sign of not representing a coherent attitude working itself out in institutional form, but rather a series of ad hoc responses to short-term problems which could not be dealt with in any other way. Since the problems were shared more or less by all western capitalist countries and their institutional arrangements were similar at the outset, it is not surprising that they adopted similar approaches and went through a similar course.
The first post-war problem in western Europe was to repair the devastation. There had been enormous physical destruction throughout the Continent and little net investment in Britain. At the same time, there had been such an advance in industrial techniques and products during the war, especially in North America, that merely to revert to pre-war patterns would have left Europe at the mercy of the US in traditional economic terms, and of the new Russian giant in military ones. It was particularly important – and expensive – to modernize the basic transport and energy services on which recovery depended (and which had featured in pre-war debates on public ownership), and to coordinate them nationally. These provided the first post-war wave of nationalizations: in Britain, coal, gas, electricity, railways, air transport and the Bank of England were all taken over by 1948; in France, where the list was longer by the addition of insurance and a large part of commercial banking, the process was completed two years earlier; in Austria, the legal framework for nationalizing coal, steel, the banks and much else was completed by 1947; in Italy the need to catch up provided belated impetus to the state-run ENI (Ente Nazionale Idrocarburi, founded in 1953) without whose cheap fuel the phenomenal growth of private industry since then would probably not have taken place.
A subsidiary wave was the nationalization of abandoned ‘collaborators’’ or ‘war criminals’’ property. This brought Renault, the largest car firm, and Gnôme-Rhone, the largest air-engine producer, into the state’s hands in France: Volkswagen in Germany; the major chemical, vehicle- and machine-building, and electrical engineering units in Austria. In Italy, it meant that the vast IRI (Instituto per la Reconstruzione Industriale) was taken over intact from the Fascist regime and added to, so that now it accounts for somewhere between 10 and 15 per cent of total industrial output. Parallel to nationalization went a spate of welfare legislation, concerned with concentrating uncoordinated schemes into state hands, and aimed at stemming the Left tide of the immediate post-war period. Significantly, most of it was foreshadowed during the war, as part quid pro quo for mass support. As Quintin Hogg put it to the House of Commons, early in 1943,
if you do not give the people reform, they are going to give you social revolution. Let anyone consider the possibility of a series of dangerous industrial strikes, following the present hostilities, and the effect it would have on our industrial recovery ... [19]
By the fifties the early wave had spent itself. Vast investments which private capital was unable or unwilling to make were being undertaken by governments in social and physical infrastructures, and to some extent in industry. At the same time the economies had recovered, and new problems were emerging. The very size of the state sectors demanded some coherence in the governments’ view of economic developments: freezing hundreds of millions of pounds in rationalizing British coalmining or railways, for example, could only be justified in terms of a demand for fuel or traffic projected well in advance. In the event, the necessary exercises were undertaken so halfheartedly that they were bound to fail and the programmes needed to be substantially revamped: in the last few years alone, the British coal industry has had £400 million written off (1965); half the rail track mileage has been condemned (1963); the nationalized airways have had £110 million written off. Nor was there any way of avoiding repetitions without conducting a more comprehensive planning operation. This slowly sunk in during the fifties.
It was not only in the state sector that size demanded planning. The rapid growth of immense private groupings has paradoxically had the same effect. Only the largest firms can afford the techniques of modern production and research or commit resources for years in advance and still have enough in hand to respond quickly to fast-changing circumstances; or straddle a range of activities and countries wide enough to provide insurance against calamity in any one; or contain the variety of experience to sponsor organizational and technical advance. Only the largest can moderate change to suit their own convenience, or afford the loss of capital and skills that goes with the failure to do so. And only the largest can meet the largest in an increasingly open and integrated international market
Naturally it is they that grow fastest and have everywhere become critically important in the national economy. In the United States, the five top industrial corporations held one eighth of all manufacturing assets in 1962; the fifty largest, over one third; the top 500, well over two thirds. Four companies were responsible for more than a fifth of all research expenditure in 1960; 400 companies for nine tenths. Forty-five firms accounted for three fifths of direct foreign investment in 1957; 300 for nine tenths. And where the 100 biggest corporations held forty-four per cent of fixed assets in manufacturing in 1929, by 1962 the proportion had risen to 58 per cent. In Britain, 180 firms employing one third of the labour force in manufacturing accounted for one half of net capital expenditure in 1963; seventy-four of these, with 10,000 or more workers each, for two fifths. Two hundred firms produce half manufacturing exports; a dozen as much as a fifth. So it is in Germany where the hundred biggest firms were responsible for nearly two fifths of industrial turnover, employed one third of the labour force and shipped one half of manufacturing exports in 1960; and where the top fifty had increased their share of sales to 29 per cent from under 18 per cent in 1954. And so it is almost everywhere, the only major exception being France, the traditional home of small units; but even there mergers are changing the scene fast.
These giants are independent, and the more powerful because of it. In most countries they provide directly out of profits between 70 and 80 per cent of the funds they use; in some industries, oil for example, between 95 and 100 per cent; sometimes, especially in Britain and the US, they are net lenders to the rest of the economy. They conduct their own research and development; their products have each a fairly distinct market; and they are highly mobile internationally. To a degree that is wholly new in capitalism they are immune from outside pressure, whether from banks or governments. And this they know. ‘It would be wrong to say that Budgets are of no interest,’ Lord Fleck of ICI told the (Radcliffe) Committee on the Working of the Monetary System in 1959, ‘but I cannot recall any of them that made any significant change in our approach to what we were thinking of doing’; and Lords Godber of Shell and Heyworth of Unilever gave evidence in much the same vein. And in the US, only one in eight of the firms asked to curtail their spending abroad in 1964, actually did so – and then by not very much.
Relatively free of external constraints, they can pursue growth purposefully. They do this as a normal consequence of their steady and high rate of re-investment. They also do it through merger and takeover, which have been on a sharply rising curve since the war, more than quadrupling in annual value during the fifties in Britain, and quadrupling again during the first half of the sixties; doubling in number in Sweden during the same five years; reaching a crescendo in France in 1966 (two years before the final disappearance of Common Market internal tariffs) when 1,600 regroupings, amongst them true giants in steel, aluminium and vehicles, took place in the first eight months compared with 450 in the whole of 1957; and in Italy, with the formation of the gigantic Montedison, amongst others. They also do it by carrying these processes of accretion and absorption into other product markets – diversification – and other countries – by becoming ‘multinational’; by spending more and more on advertising – most of the £600 million total outlay in Britain in 1965 ($20 billion in the US) and growing twice as fast as national income; and by bending the vast sums they spend under the head of research and development towards product differentiation rather than product design.
Size, diversity, long production cycles and international spread bring problems of internal coordination that need sophisticated treatment – planning in fact. Some of the handful of writers who have tried to seize capitalism as a whole -Galbraith in his New Industrial State, for example, or Shonfield in Modern Capitalism – have gone as far as to see in planning the system’s ‘most characteristic expression’, and in the big corporation its most significant exponent. There is no need to go that far; but there is no denying that systematic business planning is both very important and very recent. By the early sixties, nine tenths of the firms responsible for one half of US factory investments were undertaking four-year projections of their activities. These are the large firms, yet even amongst these a majority – about three fifths – had done nothing at all on these lines in the late forties. Increasingly, they are shifting ‘from the conventional financial framework for analysing a company’s policy and operations to their analysis in terms of the flow of physical resources – raw materials, equipment, buildings, manpower’. [20] In Europe the trend is even more recent but, partly through American example and competition, it is catching on fast
Planning is not easy, not even for the biggest. One element in particular is intractable – labour. It has a will of its own and more or less independent organizations. It can, and does, take advantage of its own scarcity. Its behaviour, and therefore cost, is fundamentally unpredictable. Yet the big corporation has not given up. It cannot. As is shown more fully in the last chapter, it has taken to long-term wage contracts complete with regular, determinate wages rises or ‘improvement factors’; it has done something to shift labour costs from the conflict-charged wage packet to more neutral fringe benefits; it has widened the area of agreement for increasingly narrow local bargaining; it has located new plants where labour is weakest. None of this has exorcized labour’s independence. Some of it has created new threats to the determinacy of wage costs which the big corporations cannot handle at all. For this reason alone, big capital would need to rely for its continued operation on the state and state planning. The same is more or less true of their relations inter se. Their great relative size and independence means that their activities and plans are vitally significant to one another. A single, local compromise in wage bargaining can quickly spread; a detail of financing can have disproportionate consequences – as when ICI’s loan issue in London in September 1966 triggered off bankruptcy for the Lebanon’s biggest bank. Single decisions over investments have changed whole industries out of recognition (chemicals are important here) and precipitated international payment crises (oil companies feature largely here). The big firms need to take account of these factors in their own planning, to know more about each other’s intentions than can be gained from even the most ambitious industrial espionage operation. Increasingly they need to relate their own plans to a shared, general framework.
Given the long production cycles in some key industries – it takes a decade or more to produce a nuclear power station or a new piece of military equipment; up to four years for a product as rehearsed and conventional as a ‘new’ motor car; and as much as eighteen months, if the US motor manufacturers are to be believed, to effect a small part of the marginal safety modifications newly required by Federal law – that general framework must be durable. It must be, in the words of Sir Paul Chambers, then Chairman of ICI, ‘a sound, long-term, and comprehensive economic policy which the whole of industry, workers and management alike, can be reasonably confident will be adhered to by the Government or a succession of Governments’.
Given the explosive nature of their growth and the danger from massive and impotent confrontations between them at home, the framework also needs to allow for the adjustment of firms’ relative sizes. This has been happening since the war as government-engineered amalgamations spread simultaneously with the hardening of anti-monopoly legislation (new anti-monopoly measures having been enacted since 1951 in Austria, Belgium, Britain, Denmark, France, Germany, Norway, Sweden and Switzerland, as well as for the Common Market and the European Coal and Steel Community as such).
Size in both the private and public sectors has invoked planning in yet another way. End users are sometimes so large, and the products they require so complex and costly, that many of these have ceased to be commodities in the true sense of goods produced for an unknown buyer, and have turned into utilities or goods made to a known buyer’s specifications. In Marx’s terminology, where the distinction is clearer because it is crucial to his analysis, they have changed from values to use-values. This is clearly the case with most war goods, where the state as purchaser takes the major initiative, where specifications derive from desired performance, and output, methods and everything else follow from there. Indeed the arms sector as a whole is more easily conceived in terms of economic logistics than in those of production for markets. Significantly, in so far as planning exists in the US it dates from ‘the beginning of the “Sputnik” era’ [21], and its most sophisticated practitioner is the Department of Defense whose methods have long since abandoned any pretence at tendering on large contracts in favour of strict physical controls over quality and quantities. Though this is less true of the private sector, the adman’s jargon whereby GEC or any other firm conceives itself ‘to be essentially a marketing rather than a production organization’ in which ‘marketing needs reach back and dictate the arrangement and grouping of production facilities’ [22] conceals more than a shadow of production for predetermined use – or planning.
All of this – the size and efficiency of the state sector, the relations between big capitals, the regard for detail in performance, the need to control labour – would matter less were it not vital for economic growth, and were growth itself not considered so important. But it is. Growth has become the substance of modern macro-economics, the conventional virtue, the key to national pride as measured in international league tables. It is the declared aim of government economic measures, and the justification for official indecency: if pensioners were ignored in Britain’s National Plan, it is because ‘an income guarantee would not contribute towards faster economic growth’ [23]; if napalm is blessed – literally – it is ultimately because it figures in the growth of the US gross national product Growth has even succeeded in ousting restrictiveness in the demonology of the Left. Before the war, a socialist’s library in Britain was incomplete without titles like The Problem of the Distressed Areas or Ten Lean Years or The Town that Was Murdered or The Means to Full Employment – some of the better known in the Left Book Club list. Today it is inconceivable without The Affluent Society and its chapter on The Paramount Position of Production in which Galbraith upbraids the conventional view of production as a good thing for being ‘buttressed by a highly dubious but widely accepted ... interpretation of national interest; and by powerful vested interests’. [24]
The big corporations have particular reasons for pressing growth policies on their governments. Increasingly, their opera tions are international in scope, and their entry into foreign markets conditional on reciprocal liberalism at home. This would be difficult in the absence of rising domestic demand. Increasingly their ability to maintain competitiveness rests on freedom to shift resources across frontiers, which demands a fairly healthy balance of payments in the home country, which in turn depends on good growth performance from the economy as a whole. Again, their competitiveness increasingly depends on a massive, open-ended commitment to research and development, well beyond the resources of the mightiest corporation; and beyond that on an educational substructure which no private firm could dream of duplicating. And since new techniques are easier to introduce when production is expanding and workers confident that their jobs will hold, and big business is increasingly organized around a constant stream of such new techniques with all that that means in organizational upheaval and uncertainty, their commitment to overall economic growth on a scale that only a government can begin to tackle is pretty strong.
Their need for sustained growth would be less imperative were it not for the growing interdependence of the developed countries, and the indeterminate nature of this interdependence. It might take the form, as in part of western Europe, of tentative integration; it might take one of ‘mutual watchfulness and sensitivity to security’ as, say, between East and West. [25] It might be anything in between. Whichever the case, the fact that the final authority in economic matters is dispersed over a number of independent governments, each important enough for its decisions to be crucial to those of all the others yet each taking its decisions independently and privately, and so with inherently unforeseeable consequences, makes for extreme vulnerability of each to all and for consistent attempts to offset that vulnerability by speeding up national responses to international economic events, that is by planning and centralizing economic control in each national centre.
It is easy to pinpoint when the external stimulus to planning came in Britain. While sympathy for the idea had been mounting in the Treasury and in business circles over a decade during which stop-gap measures had failed to improve the external payments position, it was the negotiations on entry to the Common Market that finally nudged the Tories into making moves in that direction. Labour’s own National Plan identified the pinch baldly: The most serious economic problem facing us at the present time,’ runs the Preface, ‘is the balance of payments’; and the Plan itself begins: This is a plan to provide the basis for greater economic growth. An essential part of the Plan is a solution to Britain’s balance of payments problem.’ [26] In other countries the dangers of running a relatively open economy at full stretch have demanded less exclusive attention, but nowhere were they either negligible or neglected. Shonfield attests to the general experience. ‘To begin with’, he writes:
... planning was seized upon as a device for dealing with some specific problem – overcoming past neglect of certain industries or catching up with other countries or helping to smooth out fluctuations in business and employment. Only later did they come to see the relevance of what they were doing to the whole range of economic policy issues. Some of the original motives are still very pertinent. Thus, for all the contemporary feeling of greater security in the economic environment, there are also new forces making for incredible instability in the post-war world. Outstanding among them are ... the acceleration of technological change and the removal of barriers to international trade. Both of these make for sudden jolts. Planning is seen as a means of making them less sudden. [27]
In more restrained tones, as befits an international civil servant, M. Pierre-Paul Schweitzer: ‘the setting of economic policy formation, particularly in the major industrial countries, has been profoundly affected in recent years by the greater international integration of national economies’. [28]
Perhaps more convincing than anything else has been the timing of explicit commitments to planning. Almost everywhere it followed the lurch towards western currency convertibility that took place towards the end of the fifties; mostly it occurred within five years. In Britain, as has been shown, the approach was made in stages between 1961 and 1965; in Sweden, it dates from the formation of the Economic Planning Council 1962; in Holland, from 1963 when the Central Planning Bureau first embarked on a series of five-year forecasts; in Italy, where a plan (the ‘Pieraccini Plan’) was first published early in 1967, the preparations date from the formation of the Planning Commission following the La Malfa Report of 1962. In Germany, despite the camouflage of anti-planning propaganda, the first approach came early in 1963 with the publication of a Report on Economic Trends in 1962 and Prospects for 1963, and has since been taken very much further under the Grand Coalition’s new ‘economic policy of aggregate control’. In the US, while no formal commitment has been made, James Tobin’s recommendation to President Kennedy, Summer 1962, that ‘flexible planning’ be adopted showed which way the wind was blowing. Even in France, the Fifth Plan (1966-70) marked a break from production targeting for particular industries which was what the planners were engaged on up till then, and the adoption of ‘structural objectives’.
Planning breeds planning. A product of international integration and competition, it destroys the automatism of international adjustment – traditionally pure in theory, less so but still there in practice – and the world market becomes an increasingly unstable environment, demanding faster national adjustment, increasing national articulation and so more planning. The distinction grows sharper between the national economy in which competition is heteronomous, one method of attaining goals set by international competition, and the international economy where primordial competition still holds.
Naturally attempts are made to order the international environment. The wilful or inexpert use of the policy discretion now available to each government is potentially so dangerous to the rest that intense diplomatic pressure – backed by the threat of financial and political sanctions – is brought to bear to adopt particular, precisely defined policies. In Britain’s case, the clearest and the most important to date, the Government was baled out of a balance-of-payments crisis at the end of 1964 on the understanding that wages would be pinned under an ‘incomes policy’. In September the following year more credits were raised as the Government prepared to introduce a Prices and Incomes Bill. The following summer further loans were canvassed but now the Government was forced to impose a full-scale deflationary wage-freeze on an already faltering economy. And in November 1967, international financial aid was made contingent on devaluation of the pound together with further and savage deflation. [29] But if Britain’s has been the most important, it has not been the only, case. Almost every western economy has been made to adopt specific measures to align with the rest. Working Party III of the Organization for Economic Cooperation and Development exists precisely to carry out such ‘multilateral surveillance’. Nonetheless, as will be shown in a moment, voluntary international collaboration is as far away as ever.
The situation is not unlike oligopolistic competition as described in economic textbooks. Here too the behaviour of each unit (or economy) is directly determined as much by its competitors’ behaviour as by its customers’; here too there is a lack of necessary information because part of it ‘can be obtained only by observing the behaviour of persons in a range in which their behaviour depends on the assumed behaviour of others and in which the actual behaviour of the others depends on the assumed behaviour of the first group’. Here too,
failure to develop established patterns of behaviour ... [results] in a process in which the various firms [read governments] would be trying to force each other into accepting some pattern of behaviour ... [This] warfare creates a great deal of instability, and ... does not tend to lead to a socially desirable allocation of resources’. And the failure is itself ‘a consequence of the fact that the different possible agreements or quasi-agreements divide the aggregate gains in different proportions’. Writing soon after the close of the Second World War, it is not surprising that Fellner, from whom these passages are quoted, broke out of a strictly economic analysis: ‘The danger of persistent misjudgement and of stalemates is greater in strongly dynamic societies with changing standards. It is greater for disputes arising in the ‘world society’ of nations than for disputes arising in national communities, because the standards of the world society are especially vague and especially unstable. [30]
The analogy can be carried farther (as it has been in games theory for military strategy):
... each firm knows that the others have different appraisals and that they are mutually ignorant about what precisely the rivals’ appraisal is. Consequently, no firm can be sure whether the move of a rival is towards a profit-maximizing quasi-agreement or towards aggressive competition; and no firm can be sure how its own move will be interpreted. ... Even where leadership exists, the leader’s moves may be misinterpreted as aiming at a change in relative positions rather than as being undertaken in accordance with the quasi-agreement. [31]
Finally, the difficulty competing oligopolists have in reaching an agreement or an understanding (‘quasi-agreement’)
may be interpreted as consequences of the fact that, while the relative strength is known to change, the changes are unpredictable. They cannot be discounted in advance. It is not advisable to disarm in relation to one’s rivals. The potentiality of struggle is always present. [32]
Oligopolistic competition between whole economies is an alarming prospect, particularly when an increasing number of them are armed with nuclear weapons. Yet the analogy is not far-fetched. It holds in general for the relations between the blocs on either side of the Cold War split, and in particular for their ‘leaders’, Russia and America, with their ‘hot lines’, their bluff and counter-bluff, their spy networks, their competition in everything short of hurling ICBMs at each other (this being the international equivalent of the ‘cut-throat’ stage). It need hardly be said that the Russian plans derived from the need to survive in such an environment – more so than from the intentions of the Bolsheviks who did little in this sphere for twelve years after the Revolution – and as we have seen, rudimentary American planning, while younger, is rooted in similar soil.
The analogy holds too for each bloc in isolation. This is not the place to describe the enduring chaos of East European economic relations, the hard drive towards national autarchy in the fifties, and the painfully slow progress towards the most unambitious economic coordination through Comecon since. The results in terms of international planning are negligible and promise to remain so. As for the countries with which this essay is concerned there is no lack of material to illustrate the thesis.
NATO is a simple case. Even before de Gaulle’s break in 1966, the common interest, seemingly so strong, had not managed to internationalize as little as five per cent of weapons production. There have been almost no agreements on a common need for particular weapons systems – the basic requirement – and none even on common specifications for agreed weapons. In particular cases, Britain has been denied US satellite technology on strategic grounds, France – until she took steps to build them independently – has been denied big US computers on the same grounds, and Germany has been deprived of nuclear technology.
International monetary reform – the adaptation of the payments framework for (western) international trade to current economic realities – is a more complex case but essentially similar. Since 1957 when the US moved into deficit in her international accounts, the major western countries have been at sixes and sevens on the issue. The U S, with Britain in tow, has tried on the whole to continue the present system in which the rest use dollars and pounds to settle their accounts and in which, in consequence, they are forced to hold them as reserves. The arrangement suits the ‘Anglo-Saxons’ well: every dollar or pound held abroad in this way, even if re-lent in the New York or London money markets, means that a similar amount of imports need not be met by exports – the rest of the world simply finances their trade gap. It means above all that the rest are financing cheaply the invasion of their home markets by the technologically more advanced ‘Anglo-Saxon’, overwhelmingly American, capital. The arrangement hardly suits them. Led by France, they have tried to demote the ‘reserve currencies’, replacing them with gold or, when this failed, with a composite reserve unit embracing a number of national currencies and more or less under their control, and latterly, when that failed, with a restricted and highly-controlled form of extended IMF drawing rights.
The details of the intellectual and political tussles are unimportant. What is, is that the battle over international currency arrangements has waxed so fierce, with the Continental Central Banks on the one hand converting their dollars into gold to the extent of half their holdings in Germany in two and a half years from 1964, or two fifths in France, and with the US and Britain on the other trying to stanch their balance-of-payments deficits, that world reserves actually fell for periods in 1965, 1966 and 1967, and are declining rapidly as a proportion of world imports, that newly-mined gold is disappearing almost entirely into private hoards and the expansion of world trade is increasingly dependent on temporary, ad hoc financial expedients. Were it not for a substantial increase in US expenditure abroad since 1965 in pursuit of the Vietnam war, and the phenomenal growth in the network of ‘US swap-credits’, a form of US-initiated bilateral mutual currency insurance which has added some $5 billion to total liquid reserves (1967), the world might well have been in the throes of a serious financial crisis. [33]
There have, of course, been rushes of international financial aid when one or other currency sagged dangerously. Britain’s, the weakest, has received a mounting volume of reserve transfusions – $1,300 million in 1956, $2,000 million in 1961, $4,000 in 1964, more than $7,000 million in 1967. The network of swap arrangements and short-term financial insurance that has grown up has been used widely and with increasing frequency. But agreement is as distant as ever: the ‘Anglo-Saxons’ through their Gallic manager at the IMF, M. Pierre-Paul Schweitzer, continue to insist that ‘the creation of international liquidity ... should become a matter of deliberate decision’ and to believe that that decision should be mainly theirs; the ‘Europeans’ insist that their fingers should be on the ledger, or failing that, that the relations between economies be projected on to gold or some other ‘objective’ system in order to obviate the need for continuing agreement. Meanwhile, interest rate wars alternate with interest rate disarmament in the international financial area; and France escalates its attacks on the dollar’s pre-eminence.
Something of the sort can be seen even in the Common Market. Until 1967, when agreement was reached on fusion, each of the Communities in turn bad been humiliated by the national governments: the High Authority of the Coal and Steel Community during the coal crisis of 1958, so that it has not since dared to use its considerable powers unless assured of unanimity from its member states; the EEC in 1965-6 over the role of the Commission itself; the Euratom Commission increasingly since the early sixties as its resources have been drained to sustain increasingly elaborate national programmes. Fundamental agreements – on transport, foreign trade, company law, customs procedure, and many more – have eluded the member governments for years, so that despite the agreement on agriculture which has contributed to lifting perhaps fifteen per cent of their joint national income on to a supranational plane, despite the Market’s small scope and despite the member countries’ strong common interest in facing competition from outside, there is still no more than an even chance that unity will override the pulls of nationalism. It might well be less than even, for if the principle of le juste retour is allowed to spread from Euratom to agriculture as it is threatening to do, with member countries becoming entitled to benefits equal to their contributions, supranationality will have sustained an irreparable shock.
It need hardly be said that each country does not operate in isolation, and that they do not shun alliances and alignments. On the contrary, as in any oligopolistic situation, these forms of action, like competition itself, are of the system’s essence. What the examples attempt to show is that the basis of the alliances and grouping is self-interest as determined by national policymaking and not by outside centres of control; and that in consequence national planning is as much flawed as brought into being by the instability of the international environment.
The upset of planning targets is one obvious result. Planners have also to reckon on imperfect control over national resources. An increasingly important area in which their writ runs fitfully in the short run and hardly at all over time is that of foreign investment, both foreigners’ investment at home and nationals’ investment abroad. Big business is now almost necessarily international. It sees the world as its sphere of activity and meets its rivals everywhere in it. To compete effectively, it might need to concentrate some parts of its range at home, and produce others abroad. This demands strict control over the manufacturing process everywhere. Almost invariably research and development is concentrated at the parent unit, and foreign subsidiaries fed from it. Official pressures to export, to save imports, to remit foreign earnings or restrain capital outflows; global taxation considerations and the tax advantage of transmuting some forms of income into others – royalties into fees, profits into commissions and so on – and adjusting the prices of supplies sent from one subsidiary to another; the desire for political insurance; and a host of other, non-technical considerations reinforce the big firm’s need to control its operations from one centre, notwithstanding the political boundaries that make international operation inevitable. ‘General Motors’, wrote its Chairman, ‘is a single world-wide enterprise in concept, organization, structure and operation.’ And that goes for most.
The ability to control in this way stems from the increasing ease and speed of communication and travel. The methods of doing so are utterly inimical to planning and control by the state. This is true of decisions about the distribution of ownership in overseas affiliates, about the siting of production and research facilities, about the international flow of capital, profits, information and personnel within the firm, about the origins of exports and imports. No means of supervision and control pre-empted by a firm is open to use by the state, and vice versa.
More often that not, due primarily to the feebleness of planning in the west, the conflict remains latent. Occasionally it flares up, as in Gaullist France, where American penetration of the car, computer, petroleum, chemical and electrical equipment industries has given Gaullism a solid protectionist support beneath the froth of battle against ‘Franglais’. In Germany, so solemnly wedded to laissez-faire, the nationalist hackles are also rising. The Bundestag has heard protests against US economic penetration from people like Dr Alexander Menne, a Director of Farbwerke Hoechst, and Chairman of the Bundestag Economic Committee, and there has been a pronounced electoral swing towards strident, anti-American nationalism embodied in Franz-Josef Strauss, Minister of Finance in the coalition Government, and, if only momentarily, a similar swing towards the neo-Nazi National Democratic Party. Even Wilson has shown signs of shedding that running-dog look: ‘While Her Majesty’s Government are loyal members of NATO,’ he told reporters in Rome early in the year, ‘we don’t believe that anything in it requires us to accept the domination of European industrial and economic life by American industrial interests.’ [34]
Other resources are hardly more tractable. As is shown in Part 2, planning has come increasingly to depend on wages policy – the attempt to adjust the distribution of incomes between countries by adjusting the distribution of incomes between classes directly, without loss of output. As such it is flawed from the start. Apart from the crucial consideration that workers are not responsible in and towards capitalist society, and therefore only partially respondent to the social consensus on which wages policies rest, there is the practical point that high employment, growth, stability and many other elements in the causal loop mentioned in the Introduction combine to scatter widely the points of actual wages struggles and to divorce them from the traditional centres of negotiation and labour diplomacy. The emphasis in a number of key industries shifts from the union official (and employers’ organization) to the workplace representative (and local management), from the centre where national considerations prevail to the periphery where local ones do, from an environment in which high employment appears to be negotiable, something for which compromises have to be made, to one in which it is a fact of life.
The consequences of this shift are profoundly affecting the labour movement and the structure of politics throughout the west. They certainly threaten the very idea of planning. Yet they derive as naturally from high employment and its connected phenomena as does planning itself.
We are back where we started, groping for the origins of high employment and stability. While these could scarcely have been sustained for any length of time without planning (the economies and their mutual relations are inherently too volatile for that), planning itself would hardly be called for in their absence. In Britain at least, where economic policy has more often than not been directed at creating rather than alleviating unemployment, the contrary view is untenable.
1. J.C.R. Dow, The Management of the British Economy 1945-1960, Cambridge University Press, 1964, p.384.
2. ‘In the 1951-2 case there were distortions on the side of the balance of payments, but these came from a shock to the economy from the political sphere. In the 1957-8 case there was not much in the way of distortions in the economy; restraining action was taken precisely to prevent their arising to a serious degree ... the recessions followed from acts of policy ...’ – Milton Gilbert, The Postwar Business Cycle in Western Europe, American Economic Review, May 1962, p.100.
3. Maddison, Economic Growth In the West, p.50. Emphasis added.
4. J.K. Galbraith, American Capitalism, Penguin edition, 1963, p.141.
5. John Strachey, Contemporary Capitalism, Gollancz, 1956, pp.279, 152.
6. Social Security in Britain and Certain Other Countries, National Institute Economic Review, No.33, August 1965, Table 6, p.56.
7. ILO, Labour Costs in European Industry, ILO Studies and Reports, New Series No.52, Geneva, 1959, Table 13, pp.52-3.
8. G.L. Reid, Supplementary Labour Costs in Europe and Britain in G.L. Reid and D.J. Robertson (eds.) Fringe Benefits, Labour Costs and Social Security, George Allen & Unwin, 1965, Table 32, p.101.
9. Patrick Wood, The Times, 15 June 1966; Arthur Seldon, Which Way to Welfare?, Lloyds Bank Review, October 1966, p.45.
10. Robert A. Brady, Crisis in Britain, Cambridge University Press, 1950, p.517.
11. Cmnd 2235, 1963.
12. Andrew Shonfield, Modern Capitalism, Oxford University Press for The Royal Institute of International Affairs, 1965, p.161.
13. Jean Blondel, Voters, Parties and Leaders, Penguin, 1965, p.224.
14. J.K. Galbraith, The New Industrial State, Hamish Hamilton, 1967, p.314.
15. Shonfield, op. cit., p.128.
16. The Times, 1 April 1966.
17. Shonfield, op. cit., p.138.
18. The Role of the State, fourth 1966 BBC Reith Lecture, Listener, 8 December 1966, p.842.
19. Debate on the Beveridge Report, 17 February 1943, quoted in Nigel Harris, The Decline of Welfare, International Socialism 7, Winter 1961.
20. Shonfield, op. cit., p.349.
21. Goals Setting and Comprehensive Planning, American Bureau of the Budget, 1963, p.ii, quoted in Shonfield, op. cit., p.346n.
22. Dexter M. Keezer and associates, New Forces In American Business, p.97, quoted in Paul A. Baran and Paul M. Sweezy, Monopoly Capital, Monthly Review Press, 1966, p.130.
23. The National Plan, HMSO, 1965, Cmnd 2764, p.204.
24. J.K. Galbraith, The Affluent Society, Penguin, 1962, p.109.
25. ‘The closer interdependence between, say, the United States and the USSR than that between this country and some distant developed non-Communist nation (like Australia), or than that between the United States and Czarist Russia before the First World War, is a phenomenon too obvious to need stressing even though the dependence is one of mutual watchfulness and sensitivity to security’ – Simon Kuznets, Postwar Economic Growth, Harvard University Press, 1964, p.26.
26. The National Plan, HMSO, 1965, pp.iii, 1.
27. Shonfield, op. cit., p.230.
28. Pierre-Paul Schweitzer, Managing Director of the International Monetary Fund, International Aspects of the Full Employment Economy. Address before the Trustees of the Committee for Economic Development, Los Angeles, California, 19 May 1966, Supplement to International Financial News Service, 20 May 1966.
29. [International constraints on British economic policy have since grown even tighter. Two further drafts on international credit – June 1968 and May 1969 – have been accompanied by further deflationary measures, further legislation directed against labour, and explicit undertakings by the Government – in its Letters of Intent to the International Monetary Fund and in other ways – that it will adopt and maintain internationally-agreed, domestic economic policy measures.]
30. William Fellner, Competition Among the Few, Alfred A. Knopf, 1949, pp.32-3. Earlier quotations are from pp.14, 16, 27.
31. ibid., p.179.
32. ibid., p.199.
33. [Between the time of first publication and mid-1969, four major international financial crises have occurred: the $3 billion rush into gold of February-March 1968, the $1.5 billion flight from the French Franc in May-June 1968, and the two stampedes into Deutsche Marks of November 1968 ($1.8 billion) and May 1969 ($4 billion).]
34. Financial Times, 18 January 1967.
Last updated on 12.2.2005