Evaluación in-vitro y ex-vivo

Keynesian economic theory had been the main policy position of the Labour Party throughout much of the post-war period (Donoughue, 1987, p.79). Simply put, it is a method of state involvement in economic policy, whilst allowing the private economy to continue. It also manipulates consumer demand in order to control unemployment. Effectively, this is what was known as the mixed economy. However, Labour's commitment to full employment and high expenditure within a Keynesian economy resulted in higher inflation and taxation (Donoughue, 1987, p.80). For many within the Labour movement, this was a price worth paying for the advantages of higher employment. However, the economic theory became increasingly problematic as the 1970s progressed, forcing a debate on all sides of the political spectrum on whether the mixed economy could continue. Monetarism was in the ascendency on the right, whilst a socialist challenge was in the ascendency on the left.

An Alternative Economic Strategy (AES) was developed by some on the left to counter Keynesianism because “British capitalism had failed the nation and that the moment was ripe to push forward government control and public investment” (Cronin, 2004, p.181). Ultimately, Foot joined with Benn, Silkin, Shore and Orme in supporting the AES, which was based around import controls, import deposits and currency manipulation (Donoughue, 1987, p.90). The idea being that through isolationism the government would be able to manage the British economy through the global economic crisis.

The International Monetary Fund (IMF) promotes capitalism within the nations which seek financial assistance. It is ideologically bound to promote free market ideals over those of collectivism. Consequently, when Healey approached them for a loan in 1976, he would be bound to their ideological conditions regardless of how much money the government drew from the loan (Holland, 1984, p.244). Holland (1975) warned that increasing monopolies within

industry meant that fewer firms were controlling more of the economy (Holland, 1975, p.49). With fewer firms came reduced competition, legitimising a larger role for the state to monitor their activities. Economic competition was illusionary because of the inequalities between those participating in the competition. Holland (1975) argued that international trade was giving way to multi-national trade between the same companies (Holland, 1975, p.62). The growth of these monopoly companies utilised transnational structures such as the Common Market to earn higher profits by increasing prices thereby increasing inflation.

Holland argues that the Common Market's

prevailing ideology of liberal capitalist integration is contradicted by the new dominant mode of monopoly-multinational capital which has swept Europe faster than Commission decrees against abuses of competition (Holland, 1975, p.317).

Holland is arguing that the Common Market acts as a platform for multinational companies to dominate international capital within the hands of a select group of companies, and that as an institution it is unable to control them. In this sense, the illusion of competition has given way to corporate domination. The idea that capitalism could be managed by the state was giving way as Keynesian theory gave way to an economic crisis. Keynesianism had failed to adequately manage this economic development, whilst monetarism would actively promote it. Only socialism could adequately analyse the problem and provide an alternative to the corporate domination of monopoly-multinational capital.

Foot was “brought up by Aneurin Bevan to be a socialist critic of Keynes” (Foot, 1984, p.184). As discussed in a previous chapter, Bevan was a key inspiration of Foot's political philosophy, and this extended to Foot's understanding of economic theory. Foot was a critic of Keynesian theory because as it acted as a preventative measure against socialism. Keynesianism enabled capitalism to continue alongside progressive steps towards social policy, thereby negating the need for a socialist society. However with the

gradual adoption of monetarist policies, Foot argued that the nation was risking the moderate progresses achieved through Keynesian economics and that “we should have to recapture that precious ground” (ibid). Foot continued to argue that co-operation with the key players of the mixed economy was a sensible action for the government to undertake.

The IMF “seriously impaired” independent economic and social progress and that “the period 1977-79 was still a vastly more successful period than the period of, say, 1970-72”

(Foot, 1984, p.185). Through co-operation, the social contract, and retaining the limited gains won through Keynesianism Foot was arguing the economy would operate more effectively than if the ideas of the IMF or monetarism were implemented.

The key economic symptoms which Britain was experiencing included interest rates at 15 per cent deterioration of the pound on the markets, and high inflation (Cronin, 2004, p.180). The crisis, Donoughue (1987) argued, was because

the PSBR was above forecast and money growth was running well above the Treasury's 12 percent target – monetarism already secretly ruled and we were failing the basic monetarist test (Donoughue, 1987, p.93).

The solutions which Callaghan would endeavour to pursue brought controversy to the Labour movement; he argued that

Britain has for too long lived on borrowed time, borrowed money, borrowed ideas.

For too long, perhaps since the war, we postponed facing up to fundamental choices and fundamental changes in our society and in our economy. The cosy world we were told would go on forever, where full employment would be guaranteed by a stroke of the Chancellor's pen, cutting taxes, deficit spending, that cosy world is gone. [It is wrong] to think that you could just spend your way out of a recession and increase unemployment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists and insofar as it

ever did exist, it worked by injecting inflation into the economy (Cronin, 2004, p.180).

With this announcement at the Labour conference, Callaghan broke free of the Keynesian economic theory which Labour had sought to pursue. Callaghan had divorced Labour from the Keynesianism²², freeing them up to debate about the future of economic policy (Pugh, 2010, p.357). By breaking free of the theories of the past, Callaghan enabled both the left and right to begin a debate over which policies to adopt, with monetarist and socialist theories in the ascendancy.

Foot supported the AES because the alternative was to accept £2bn in ideological spending cuts demanded by the IMF (Jones, 1994, p.407). In cabinet Foot argued that

there was no economic case for the cuts. Far from reducing PSBR (Public Sector Borrowing Requirement), the spending cuts would mean higher unemployment, which would in turn mean higher social security payments and lower tax revenues, this actually increasing the PSBR (Jones, 1994, p.408).

By demanding the cuts to public spending, Foot was arguing that the IMF would, in fact, worsen the economic situation by causing higher unemployment, leading to increases in

welfare spending. Foot described the consequences of the cuts as “inconceivable” which would force the government to break with the deals it had made with the trade unions whilst also splintering the Party into various warring factions (Jones, 1994, p.408). Foot clearly believed that the ideological cuts would undermine Labour's raison d'être, which given the IMFs opposition to collectivism, it could be argued was the purpose of the condition. The demands were ultimately accepted by Healey, yet he would not draw on the full amount of the loan.

22 This also solidified the Conservatives freedom from the consensus.

Foot opted not to resign given the precarious state of the government in the House of Commons and with it the threat of a Conservative government had an election been called. Despite their differences of opinion, Foot remained loyal to Callaghan and the government. Foot had "been leaning over backwards to support the Prime Minister”

because he did not wish to undermine the Labour Government (Smith, 8 December 1976, p.16). The preservation of the Labour Party in power guarded against another term of potential Conservative rule, which Foot believed legitimised his continued support. Foot's support for the AES did not extend to destroying the government over a disagreement concerning economic theory.

Foot argued co-operation through the social contract was vital in order to avoid the

“immense problems” of industrial breakdown and economic decline (Foot, 1984, p.195). The issue of pay restraint came to haunt the government when they imposed a 5 per cent wages policy (Cronin, 2004, p.189). This measure was designed to demonstrate the government's strength over the trade unions, and demonstrate to the capitalists and the electorate that the government was able to control them. This was not the kind of relationship Foot had argued for. However, this would have been an effective message to non-Labour voters that Labour remained capable of controlling the unions. The unions accepted this as a piece of electioneering. However, given Callaghan chose to hold back the election until the following year the trade unions then interpreted the policy as a genuine attempt to control them. As with In Place of Strife, the unions believed that Labour had again turned on them, and so this prompted a period of industrial unrest which came to characterise the final period of the Labour government as the winter of discontent.

On 22^nd January 1979, a day of action intensified the symptoms of the strike on a single day during which schools, hospitals, ambulance drivers, dustmen, and grave diggers in Liverpool ceased working (Cronin, 2004, p.192). Callaghan's pre-election demonstration of strength over the unions had been proven an ineffective tool. The Conservative press were scathing of the government, running headlines such as “Target for Today: Sick Children”

(Cronin, 2004, p.193). Shore described the disintegration of industrial relations as a

“nightmare”, arguing that by bringing down the Labour government, the subsequent general election would produce a highly anti-union government (Shore, 1993, p.118). Shore (1993) also argued that Callaghan should have used civil resources such as the military to keep the country operating. Foot opposed the calling of a state of emergency or the use of the military, arguing in cabinet that the trade unions had a just cause of protest (Morgan, 2007, p.364). Ultimately, the period of industrial action petered out. The issues that the trade unions were fighting for were left largely unresolved whilst the Labour government was now left fighting for its life.