The trouble with ‘45

by Lee Butcher

Emerging phoenix like from the ashes of 2010 is proving somewhat more difficult than initially expected by some in the Labour party. The shattered economy, left ruined by the fiendish bankers, found the party holding the can and going down to a historically poor election defeat.

The usual fissures in the party have opened up and among the unsurprising and entirely unoriginal bickering between left and right about who is to blame, and who will resurrect the party in time for 2015, a certain wistful gaze over the historical shoulders of the movement has began.

The ‘right’ may have stopped looking back when arriving at Mr Blair’s lofty shoulders but the loosely defined ‘left’ have taken it upon themselves to cast their gaze back further into the distant past coming to a halt at the heady days of July 1945. Ken Loach’s nostalgic documentary outing, soon to be a regular repeat on Film 4, was the cultural firing gun of this endeavour.

A country whose recent past had left its economy close to bankruptcy and social ills crying out for remedy; 1945 and 2015 have never felt so similar. These observations are not entirely incorrect and any wise head in the party would do well to ask what Clement Attlee’s band of post-war “revolutionaries” has to teach us.

The problem is not that it is the wrong question to ask, the problem is that the answers returned are incomplete. As with all matters historical and political, the devil lay firmly in the detail.

As the proponents of such a view argue Attlee & Co. faced a fiscal crisis worse than our own and went on to dramatically increase public spending. They did it, so can we! They are entirely correct, but that enthusiasm can only be dampened when it comes to how they did it.

Britain’s economy, then as now, was in great trouble. Bankrupt is the term employed by most post-war historians to describe the Treasury’s books. George Osborne may have been rendered dumbfounded by a certain predecessor’s note informing him of the fiscal situation, Hugh Dalton must have been rendered incandescent at the sight of most of Britain’s cities laying in ruins.

In response to the fiscal legacy left by the work of the Luftwaffe’s finest, and the unbearable burden of maintaining over one million men in uniform scattered across the world, and the government picking up the bill for thousands conscripted to keep the essential industries running, Attlee and Dalton came to much the same conclusion as Messrs Cameron and Osborne; we need to cut spending.

They were lucky, in many ways, what to cut was obvious. Occupying war ruined central Europe while keeping large garrisons in diverse locales such as Palestine, India and the far east were no longer reasonable. In short, defence spending had to come down. Palestine and India were left to their own devices in 1948, and commitments in Germany and the Far East began a process of scaling back, and a broader policy of decolonisation would follow over the following two decades. The level of public sector cuts dwarfs our own, but luckily for them that cutting was largely done away from home. Economically it was in fact beneficial; it made available a highly trained workforce that could staff the industries now freed to return to peace time production, in order to produce goods to export to a world economy growly rapidly now the fighting had ended.

So they cut, but this was not enough to pay all the bills. The American’s rather unhelpful decision to end the vital lend-lease scheme left Britain a fiscal basket case in need of desperate support. There was only one option, really, and that was to borrow. They didn’t just borrow minor amounts, they borrowed as much as they could possibly get the Americans to agree to. The anglo-american loan, agreed to on July 15 1946, totalled $4.94bn (including $1.19bn from the Canadians) which in today’s terms is around $70bn. The last payment was made on December 29th 2006. It is worth noting that this loan was negotiated by a certain John Maynard Keynes, the great liberal economist from whom some are now seeking economic sanctuary from the hostility of austerity.

This was not the end to the borrowing however. An unfortunate requirement of the first loan was that British sterling be made available for conversion into US dollars, which for reasons best left to the economists among us to explain, left Britain facing yet another fiscal crisis. Alongside high spending over the tortuous winter of 1946-47, that first loan was already spent a year later. Attlee’s Foreign Secretary Ernest Bevin led the charge to convince U.S. secretary of state general George Marshall to introduce a rebuilding programme for war shattered Europe, the Marshall plan. In the course of that plan, between 1947 and 1951, Britain received aid and loans totalling $3.29bn.

It is questionable whether in 2015 any political party would be willing to borrow this amount of money and whether the voting public would accept the risk. Borrowing is not without risk, default is disastrous for a nation (see the Eurozone), but arguably the risk in 1945 was less than in 2015. Firstly, Attlee and Dalton had little choice in the matter, secondly the economic forecast was almost certainly better. International trade was recovering substantially, new export markets were starting to grow again after the war, domestic industry was equipped with a ready workforce to run it and domestic consumption could only go up (admittedly slowly) as post-war recovery set in. Apart from a few blips Britain would remain recession free between 1945 and 1973.

Today the risk is greater. While optimists can point to new markets in China and signs that they are shifting their importing behaviour toward finance and cultural industries (away from the raw material dominance of recent years) which bodes well for what Britain has to sell, as do signs of recovery in the U.S. Our biggest trading partners in Europe however are an entirely different story, and India continues to fall far short of the high expectations held for it in the last decade. Britain continues to struggle for what we can produce, physically or otherwise, that others would want to buy. Finance remains our strong point, but as we know from the recent crash that comes with significant downsides.

Should Britain find something which it can sell then investment in training for the workforce would be a challenge, and there is no ready large source of new workers, with the required training, that could get any new industry off the ground (that is unless immigration rules are relaxed); sadly there are no million men armies to demob and send into the labour market in 2015.

Britain in 2015 will face similar problems as Britain in 1945. We have run out of money and we need either to save, make or borrow more. In 1945 they saved money by drastically cutting defence spending, borrowed significant amounts to fuel domestic industry and economic demand at home, and benefited from export markets that were experiencing rapid growth that enabled them to make more money. The resulting economic growth made the money borrowed a sound investment.

Britain in 2015 is saving through austerity, though unlike ’45 those savings are arguably hurting domestic economic demand because they are cuts made at home, largely because we have no great international commitments left to cut (even saving the amounts that war in Afghanistan and Iraq cost would not be sufficient to save the day).

As yet no political party has yet to endorse significant rounds of borrowing, and because the international export market is looking weaker now than for our predecessors and that is remains unclear what any money should be spent on at home to fuel domestic production and demand, we perhaps should not be overly critical at their decision to exercise caution towards taking the risk of massive borrowing. If money is borrowed, but fails to stimulate economic demand at home and improve our trade deficit, we could find ourselves in a very unfortunate position.

It is right and sensible to ask what can we learn from Attlee’s successful administration, but when we do ask the question we ought to be prepared for some entirely inconvenient answers to come back.

Ultimately 2015 is not 1945, and while our party and its leadership can be guided by lessons of history they will have to take a lead and makes decision based on the circumstances they now find themselves in. There is probably never an easy time to lead the Labour party, but this must rank amongst the most difficult. All wings of the party probably ought to bear this thought in mind as we edge closer to 2015.

Lee Butcher works for a Labour MP and is a postgraduate history student at Birkbeck, University of London

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One Response to “The trouble with ‘45”

  1. John Reid says:

    Well said that documentary, was so painful to watch,through embaressment

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