The Labour Governments 1945-1951 - What economic and social policies were pursued and how were they put into action?

Table of Contents

1 Introduction

2 Actors and setting
2.1. The Labour Party-a short history
2.2. Economic situation in Britain after the war

3 Economic and social policies 1945-1951
3.1. Planned economy
3.2. Nationalization
3.3. Welfare State

4 Conclusion

1 Introduction

The Labour Party is a Socialist Party, and proud of it. Its ultimate purpose at home is the establishment of the Socialist Commonwealth of Great Britain - free, democratic, efficient, progressive, public-spirited, its material resources organised in the service of the British people. (The Labour Party electoral manifesto 1945, quoted in Adelman 1986: 124)

These were the words of the 1945 Labour Party election manifesto Let us Face the Future.

Consequently, in the ensuing five years, everyone felt caught up in a great national experiment, the creation of a new social democratic society (cf. Webb 1989).

This experiment included an extensive programme of nationalization, planning, and the establishment of the welfare state. After the landslide victory of 1945, Clement Attlee’s government wasted no time in launching a series of major policy initiatives. All of this left a profound mark on modern Britain by creating a new order (cf. Jefferys 1993: 8), an order that meant full employment, a freely accessible health service and a system of social security which improved the quality of life of the bulk of the population.

At the same time, though, it was criticized. Left-wing critics attacked the government for introducing too little socialism whereas the political right claimed that the government introduced too much rather than too little socialism with its reforms. Yet in assessing Labour’s policies, however, account must be taken not only of abstract principles, but also of what was possible in the circumstances (cf. Peden 1985: 153).

It is the aim of this paper, therefore, to analyse the main economic and social policies of the British post-war period in order to shed light on achievements and failures of the first Labour majority government. Was the Prime Minister right to describe his record as constituting a `revolution without tears`, or was this a lost opportunity for a more fundamental transformation of British society? (cf. Jefferys 1993: 3) This will be discussed in the conclusion. But before arriving there it is first necessary to look at the history of the British Labour Party in order to get an idea of its character and ideology which highly influenced its post-war measures. Secondly, the circumstances mentioned above have to be taken into consideration by looking at the economic and social situation in Britain after the war. In the main part, then, Labour’s economic and social performance will be divided into three sections: economic planning, nationalization and welfare.

2 Actors and setting

2.1. The Labour Party-a short history

Where did the party that unexpectedly won such a large majority of votes in the 1945 election come from? This will be the main question in this section.

The Labour Party grew out of the trade union movement and the first socialist parties and societies of the late 19th century, such as the Independent Labour Party, the Fabian Society and the Social Democratic Federation (cf. Williams 2000: 38). At that time it became apparent that there was an increasing need for a political party to represent the interests and needs of the large working-class population (cf. Jefferys 1993: 4). Thus, in an effort to secure greater parliamentary representation, in 1900 the Trades Union Congress cooperated with the Independent Labour Party to establish the Labour Representation Committee with Ramsay MacDonald as its secretary, which took the name Labour Party in 1906 (cf. Encyclopaedia Britannica 1997a: 82). In competing for votes under the restricted pre-war franchise, any limited parliamentary successes were the product of an electoral arrangement with the Liberals, but the Labour Party gained strength rapidly in the years 1910-1914 as a result of an unprecedented scale of strike action and the growing identification of Labour as the natural party of the working class (cf. Jefferys 1993:4). It joined in the coalition governments of World War I and as the Liberal forces gradually split between followers of Asquith and his replacement as Prime Minister, Lloyd George, the party broadened its scope and potential electoral appeal by including anti-war Liberal intellectuals (cf. Williams 2000: 39). It emerged from the 1918 general election as the second largest party in the House of Commons, thus becoming the official opposition after the war (cf. Encyclopaedia Britannica 1997a: 82). Moreover, in 1918 a new constitution was drafted by Sidney Webb with lasting consequences for the party’s future development as his famous socialist clause stated the party’s commitment to the common ownership of the means of production, distribution and exchange (cf. Jefferys 1993: 5). In the early 1930s, this clause was renumbered as `Clause Four` (cf. Morgan 1984: 94).

By the early 1920s the Liberalist party had lost its claim to be the established party of the left in British politics and in 1924, the arrival of a new force on the national stage was confirmed when Labour formed its first minority government headed by Ramsay MacDonald (cf. Jefferys 1993: 5). However, it lasted less than a year. In 1929, Labour again obtained enough votes to form its second minority government, which lasted until 1931, when disagreement over economic policy led MacDonald to resign (cf. Encyclopaedia Britannica 1997a: 82). The party had been exposed to the effects of the Great Depression and was powerless to prevent a steep rise in unemployment (cf. Jefferys 1993: 5). But the economic crisis had also cruelly highlighted the limitations of the formative Labour movement, both in terms of a lack of imaginative leadership and a failure to devise coherent, sustainable policies (cf. Jefferys 2000: 69). This should be different in 1945 when Labour was more prepared for power.

In the ensuing elections Labour was heavily defeated and remained out of office until 1940, when Labour ministers joined Winston Churchill’s World War II coalition government. (cf. Encyclopaedia Britannica 1997a: 82) Underpinning the shift in opinion as the war progressed was an egalitarian ethic which followed on from the mobilization of the entire civilian population and from the intense physical dangers of life in the war. Labour also benefitted from a growing interest in welfare reform (cf. Wende 1995: 306). Moreover, in the first half of the 20th century the main intellectual tradition in Britain eventually became attached with the Labour Party and many young intellectuals became inclined to it (cf. Francis 1997: 29). Indicators of public feeling showed a marked anti-Tory trend, underlined by Churchill’s cool response to the Beveridge Report on Social Insurance and Allied Services issued in 1942 and other proposals for social change (cf. Turner 2003: 20). By concentrating so exclusively on the war effort rather than on reconstruction, Churchill clearly misjudged the desire of the British people to create a `New Jerusalem` - a theme made central in Labour’s election campaign at the end of the war (cf. Jefferys 1993: 7). In July 1945 Labour rejoiced at its political triumph, the first independent parliamentary majority in the party’s history (cf. Encyclopaedia Britannica 1997b: 92-93).

As to Labour’s ideology, it can only be properly understood if the focus is placed on groups such as the Fabian Society as they provided much of the intellectual stimulus for the party. Fabianism, in contrast to Marxism, gave a positive valuation to the gradualist approach to social justice. Fabians believed that reform could come through the existing media of capitalism (cf. Francis 1997: 4; 16). In line with this evolutionary ethos, Labour ideology sought gradual social and economic change rather than the overthrow of capitalism. Even more, “Labour socialism was predicated on the idea of successful capitalist enterprise as the dynamic force which would bring about a socialist society.”(Thorpe 1997: 121) Indeed, Labour sometimes opted for cautious reformism and cooperation with private industry during its years in government, which sometimes gave the party a conservative connotation in retrospect. For this reason, left-wing critics have often expressed a dislike of Labour gradualism, regarding this as a betrayal of the radical potential for fundamental change in British society. But at that time, in the aftermath of war, few Labour MPs or party workers had clear ideas about what more socialism might amount to in practice. For most of the movement there was shared pride in what were considered to be notable achievements (cf. Jefferys 2000: 68-80). Moreover, the government had to take many decisions for purely pragmatic and administrative reasons, deal with many problems that were altogether unrelated to political philosophy and include in its programme many measures that were not specifically socialist in character but were required of any government irrespective of its general outlook on affairs (cf. Francis 1997: 6). There was a broad concern with pragmatic reform, rather than with what was widely seen as the unworkable theorising of the left (cf. Jefferys 1993: 6).

Finally the pluralistic and multi-dimensional nature of socialism has to be mentioned. Far from being regimented and dogmatic, Labour’s socialism was fluid and unstable, the synthesis of a variety of different traditions. This helps to explain its ambiguity and the ambiguity of some of the policies it pursued (cf. Francis 1997: 14-18). The author of this paper has insisted in a thorough treatment of this section that an understanding of the Labour party’s historical and ideological background is indispensable in order to analyse the reforms it carried through.

2.2. Economic situation in Britain after the war

Whichever party had won the 1945 election would have faced tremendous external constraints on its policies (cf. Peden 1985: 143). These will be outlined in this section.

Labour inherited economic and social problems of the utmost severity. A large proportion of the pre-war housing stock had been damaged or destroyed by bombing raids and hardly any building or repairs had occurred (cf. Shaw 1996: 20). Moreover, the economy was in disarray. Some industries, for example aircraft, were far larger than needed while others, railways and coal mines, were desperately short of new equipment and in bad repair (cf. Encyclopaedia Britannica 1997b: 93). A vast programme of retooling was required to reconvert wartime productive capacity to peaceful use (cf. Shaw 1996: 20).

But even more severe were Britain’s balance of payments problems. The new government was presented in its first week in office with a lengthy memorandum on the overall financial situation written by John Maynard Keynes. It was described in terms of terrifying pessimism, with Keynes talking of a `financial Dunkirk`.^[1] He spelt out, with characteristic clarity, the position confronting the nation: the vast burden of overseas indebtedness, the loss of overseas income owing to the sacrifice of the export trade and the sale of overseas assets, the huge rise in the cost of necessary imports and the threefold increase in the national debt. During the war Britain had lost about a quarter of its national wealth (Morgan 1984: 144). The nation had built up “sterling credits”-debts owed to other countries that would have to be paid in foreign currencies, amounting to several billion pounds (cf. Encyclopaedia Britannica: 93). Overseas foreign assets, upon whose earnings the country had been reliant to maintain balance of payments equilibrium, had been liquidated to finance the war effort. With exports comprising less than 30 per cent of their pre-war volume, Britain lacked the means to purchase essential imports of food and raw materials.

The British economy had been sustained since 1941 by the Lend-Lease programme by which the Americans had provided dollars to allow the UK to mobilize fully for war without worrying about its external account (cf. Shaw 1996: 20). But when the war was over, US President Harry S. Truman abruptly cut this assistance. Britain could not survive on its own resources. Like the other European industrial states, it needed American goods and the dollars to pay for them. The immediate answer was an American loan (cf. Webb 1989). As his last service to Great Britain, Keynes negotiated a $3,750 million loan from the United States and a smaller one from Canada (cf. Encyclopaedia Britannica 1997b: 93). But there were strings attached: Britain had to make sterling convertible by mid-1947 (cf. Peden 1985: 143). In a world avid for dollars to purchase American goods, a measure permitting sterling holders to exchange British for US currency was bound to lead to massive sterling sales and a full-scale foreign exchange crisis. This came in 1947 as what Hugh Dalton, the Chancellor of the Exchequer, called the annus horribilis of the Labour government (cf. Shaw 1996: 21-22). It will be considered in the next chapter.

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^[1] Dunkirk is a harbour city in the northernmost part of France, 10km from the Belgian border, which was largely destroyed by bombing during World War II.