Sunshades in October: An Analysis of the Main Mistakes in British Economic Policy since the Mid-1950s. Norman Macrae. Allen & Unwin, 16s.
Macrae’s thesis in this book is simple and, nowadays, familiar. He argues that the Government policy from the middle fifties of tackling the threat of inflation by damping down domestic demand was misconceived and disastrous. The effect of the squeeze on demand was naturally to reduce the sales of the consumer goods industries. The characteristic of these industries is that unit costs drop as output increases, and conversely that unit costs rise if sales and thus output are forced down. In fact the Government’s efforts to combat inflation not only involved loss of output but also created a cost-push pressure on prices. Naturally, to have ignored the initial signs of inflation would have been to invite other difficulties, as indeed the Government now seems to be discovering. First of all, a balance of payments crisis would be likely if imports rose without a corresponding increase in exports, secondly foreign bankers, who tend not to be so ‘progressive’ in their views as Macrae, would be likely to sell Sterling. To pursue ruthlessly such a policy would be to undermine the present structure of the Sterling area and would probably demand the creation of a new international banking organization that could guarantee an adequate level of international liquidity. Macrae himself is prepared to envisage changes of this sort but he is surely incorrect in claiming that it was simply wrong-headed of Conservative governments not to have followed the path he indicates. In fact they were responding to the real interests of an important sector of British capitalism; roughly speaking, the City. Expansionist policies actually harm the interests of this sector, witness the fall in the profit levels of the commercial banks last year when the economy entered a boom period. Low interest rates, priority given to growth rather than to the defence of Sterling, disincentives to the export of capital; policies which involve all these can have no attraction to most in the City, hitherto the dominant influence within British capitalism.
One of the main reasons why the Government seems at last to have been converted to expansionary policies, and why an Economist leader writer like Macrae, champions them, is that the real weight of the City within the private sector has dramatically altered. From being an important but still subsidiary enclave within the economy the industries based on consumer goods have now come to dominate it completely—to neglect their interests is to profoundly weaken British capitalism itself, especially in a world of increasingly fierce international competition. Although British growth has been lethargic it has all been concentrated in the industries linked to the mass consumer market (cars, tv’s, synthetic fibres, etc). The shifts in Conservative policy thus to a great extent reflect shifts within British capitalism itself. Presumably the prospect of the election will serve to strengthen the Conservatives in this turn towards growth.
The latter section of Macrae’s book demonstrates again how important control of wages is to the exponents of expansion; if runaway inflation is to be avoided it is imperative either that the power of the unions be broken or that they be persuaded to negotiate away the strong bargaining position they would possess as soon as shortages of labour developed. Clearly this sort of situation places the unions in a good position to pose the really fundamental questions of any capitalist economy. Institutions like Neddy in a country where the unions are strong inescapably bring about a confrontation between