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The Economy 1951-64
Transcript of The Economy 1951-64
Churchill, Eden and Butler.
Poor growth. Any danger?
Responses to Conservative economic policy.
Was it good?
Goodness of economic policy
The Industrial charter
(1947) Butler and his colleagues accepted that Britain should be a mixed economy containing private and state directed industry. This charter also accepted that trade unions would have a legitimate role to play.
Butler acknowledged that the deflationary policies of Labour before 1951 were successful in the short term. The cost of British goods had dropped and exports increased. there was an international boost in the economy largely as a result of the Marshall plan. This led to an increase in the demand for British products. Due to Butler's economic ideas being so close to that of Hugh Gaitskell, it was suggested that the two parties formed a consensus, this overlap is described by the regularly coined term of 'Butskellism'.
The payment deficit.
As a result of heavy war time borrowing and the price fall in British goods, Britain was heavily in debt. A strong criticism at the time was that the post-war Labour and conservative governments over reached themselves, trying to rebuild a modern and competitive government while taking on the huge cost of running a welfare state and maintaining an extensive defence programme. In doing this, they somewhat crippled themselves, creating a continuous payment deficit.
Winston Churchill was 77 when the Conservative party won in 1951. This caused many problems, as he grew older, his health deteriorated and he himself began to lead the country less, delegating greatly to Anthony Eden, his future successor.
Despite his ill health and lack of leadership at times, there were some crucial economic success during Churchill's second premiership. Most importantly, the end of rationing came in 1954 after 14 years. this was seen as a significant victory for the Conservatives although it was not actually down to their economic policy.
The Suez affair, 1956
The Suez affair of 1956 was mainly a foreign policy flop, however some of the roots of the problem were economic. Both Britain and America had promised Colonel Nassar, the new egyptian president, loans for the construction of the Aswan Dam on the upper Nile. However, it was revealed that Nassar also approached the Soviet bloc for financial aid, causing the US to withdraw their original offer. Therefore Nassar desperately attempted to raise funds by nationalising the Suez Canal, this meant that all foreign ships passing through would have to pay to pas through the Egyptian waterway. It was this charge that caused Eden to plan how to bring Nassar down.
The withdrawal from Suez
One reason for Britain's withdrawal from Suez was the International run on Sterling. This run threatened to destroy Britain's economy as the US showed no willing to bale Britain out. It is during this ten year period after the war that the USD overtook the Sterling in being the primary reserve currency of the world.
The amount of money that Macmillan admitted that the Suez affair had increased Britain's debt by in 1957.
Despite the lack of economic success during the Eden and Churchill years, There was no major effort by the chancellor of the exchequer to change Britain's economic policy after 1957. They continued to operate a mixed economy, following a loose form of Keynesianism.
The aims of these policies were to prevent the economy from 'overheating'. The maintenance of the current economy meant that it was easy to introduce new measures to stabilise the economy if inflation was too much of a problem (as it was in the second half of the 20th century). Furthermore, a portion of the budget could then be 'given away' if there was a fall in the demand for goods. this would be done through decreasing taxes and interest rates.
The budget was often used as a tool used by all parties to attempt to 'buy votes'.
In 1959, Heathcote Amory attempted to boost support for the conservatives by introducing a range of tax cuts at a time of high inflation when financial restraint would have been much more sensible. This resulted in increased consumer sending which led to higher inflation.
As a result Heathcote Amory introduced deflationary measures, attempting to cap public spending and put a limit on wage increases.
Macmillan's government reversed these measures, returning to expansionist budgetary policies, lowering taxes and therefore increasing public spending. This had a negative effect as the new increase in public spending caused a higher demand for goods which could not be met by british manufacturers. therefore imports increased.
This ultimate result was a payment deficit of £800 million by the end of 1964.
Percentage growth (GDP 1951-64)
The UK had the lowest growth rate out of all countries in western Europe between 1951-64. Despite these low figures, we must take into account that this low performance was greatly due to the defence expenditure of Britain. The government were spending £1.7 billion (10% of GDP) on research and development in defence. Furthermore the running of the nuclear programme and the maintenance of Britain's overseas military and naval bases was very costly.
Living standards increased
Despite the rising inflation that gripped the period, it never overtook the rise in wages. The rise in real wages kept income ahead of prices meaning that people were able to buy more with their money.
Increase in real wages
The greater availability of credit enabled people to borrow a greater amount of money than they could obtain by saving, this allowed people to purchase goods that they could not previously afford such as cars and household appliances. The availability of credit is perhaps the greatest factor leading to the increase in living standards.
No coherent economic plan. Stop-go tactics used to prevent the economy swinging too wildly between inflation and deflation.
The budget was used as a tool to try and win election votes rather than to benefit the economy.
There was poor investment industrial research and development. Furthermore there was no effort in trying to increase employer-worker relations. These two failures led to Britain having the poorest growth rate in Western Europe 1951-64.
Living standards did increase over this period, with the end of rationing in 1954 under the Conservative government. Real wages increased and there was a consumer boom.
Not at all.
Not at all.
Coal, civil aviation, Cable and wireless (a communications company) and The Bank of England.
Road transport and electricity.
Iron and Steel.
An economic theory developed by john Maynard Keynes. Keynes calculated that a fall in demand for manufactured products caused industrial economies to slip into recession. Therefore if demand was sustained, decliner could be prevented and jobs would be preserved. Keynes believed that the government was the only agency powerful enough to keep demand high and therefore he urged that:
The government should use its budgets to raise capital which could be reinvested into the economy to keep activity high. This artificial boost should lead to genuine recovery and growth.
The government should be prepared to abandon the practice of balancing the budget between income and expenditure. It should be willing to run short-term deficite budgets, even if this meant borrowing. This could be recovered by increased taxation on the companies and workers as they enjoyed the resulting flourishing economy.
Britain seemed to lack a distinctive economic strategy, reacting to events rather than directing them. For instance when prices rose too quickly, the government increased taxes and interest rates. When prices fell again, they would go back on these policies, again making it easier to borrow money. Britain's economic policy lagged and lacked direction, therefore it became known as 'stop-go stagflation'.