The IMF Crisis and the Beginning of the One-Party state

The debate about the socialist credentials of the Labour Party is as old as the party itself. The issue is further clouded by the fact that throughout its history, the need for unity and electoral credibility has often resulted in a schism between the party’s right-wing leadership and its more radical membership, often to the detriment of the radical agenda. One consequence of this is that “socialism” becomes itself synonymous with “Labour”, for better or worse. This was perhaps most apparent in the events of 1976, at a series of Cabinet meetings in which the political landscape of Britain was completely changed. I, like most people of my generation, was brought up to believe that Thatcherism was necessary because “socialism” had failed; the people voted Tory because the Winter of Discontent showed that socialism had been shown to be unworkable.

In February 1976, a month before Harold Wilson’s resignation, the Labour government published a White Paper announcing a freeze on public expenditure. This was in response to mounting pressure from the City to curb expenditure to provide a balanced budget. Not content, the City responded with a run on the sterling, so that within the first few months of James Callaghan’s premiership, the pound had fallen by almost 15% against the US dollar. As former journalist David Powell* explains:
The Republican administration in Washington wanted nothing of Labour’s “profligate” policies and, using the International Monetary Fund (IMF) as its stalking-horse, it demanded further cuts in public expenditure in return for stand-by credit.
Leading economists Burke and Cairncross* observed:
What seems cleat in retrospect is that no matter what the government did, short of repudiating both its history and its supporters, the market would continue to demonstrate its total lack of confidence, unless and until an approach was made to the IMF.
As such the Labour government was effectively held to ransom by the City, the idea being that the conditions attached to any IMF loan would effectively destroy the radical agenda and replace it with the “laissez-faire” ethos which was taking hold in America, under the vague title of something called “monetarism”, which Tony Benn would later explain in these terms:
The argument…is simple and straightforward. It is to lift the heavy burden of taxation from industry and commerce by sharp cuts in public expenditure in the hope that financial incentives will work and market forces will revert to their magical role of reallocating resources to maximise their use.

Dr Milton Friedman, the prophet of this school of thought, has succeeded in enthusing a large number of bankers, industrialists, and economists with the beautiful simplicity of this approach, which has been embraced by them with all the passion of a religious conversion.
Benn and his advisors, most notably the economist Francis Cripps, put forward an alternative economic strategy based on a series of measures including the introduction of import restrictions and controls over banks and other finances houses – the democratically-elected government providing a “direct challenge to the combined power of the Treasury, the Bank of England and the City, all of whom were committed to a deflationary policy that was dependent on a fall in real wages and further cuts in public expenditure” (Powell).

The alternative strategy was popular within the Party, but Callaghan dismissed it – “I don’t see why you wrote it.” Predictably, the corporate-backed press launched a bitter campaign demonising Benn, and the Cabinet bowed to the IMF. In the first of a series of cuts, the government initially agreed to cut public expenditure by £2.5billion in order to secure a loan of £3billion. In total, public expenditure would be slashed by £4billion. In the party conference later that year, Benn would launch a stinging attack: “We have played down our criticism of capitalism and our advocacy of socialism… The political vacuum we have left has been filled by many voices, by the monetarists, by the nationalists, by the racialists…” In response to the applause for Benn’s speech, Callaghan’s response smacked of the meaningless newspeak which New Labour politicians would appropriate in years to come: “We used to think that we could…increase employment by cutting taxes and boosting government spending…Now we must get back to fundamentals.”

The alternative strategy was clear enough – Britain would have to go it alone, in the face of international capital. If such a thing were attempted today, Britain would be labelled a “rogue state”. Nor was elf-sufficiency in the face of City pressure a Utopian dream – with a quarter of the oil in the North Sea (later to be sold off by Thatcher), Britain didn’t “need” to please the City. This was no more an act of desperation than it was a conscious ideological shift – it was, more simply, a case of a few men in the Cabinet, lacking courage in the face of intimidation, letting down their party and the electorate. Dennis Healey, who would later admit that he was wrong, dismissed the alternative strategy as the product of “tiny Chinese minds”.

On a constitutional level, the IMF crisis was an attack on the democracy of Britain, challenging the ability of democratically-elected institutions to control economic decisions which affect everyone in society. On a tangible level, the crisis constituted an attack on the social infrastructure of the country, with expenditure first halted and the cut, so that by the time the Tories came to power there was indeed “no such thing as society.” Socialism cannot take the blame for the Winter of Discontent – that honour belongs to the right wing of the Labour Party, who in their adherence to the dogma of pragmatism-at-all-costs, have let down their party members and their country just when they needed them most.
“We have lived so long at the mercy of uncontrolled economic forces that we have become sceptical about any plan for human emancipation.” [/I] Harold Macmillan, “The Middle Way” (1938)

Postscript: Anyone unsure as to the worthiness of having some democratic control over economic matters would do well to look at the situation in the U.S. at the moment. Whatever the other objectives of U.S. foreign policy – these have been discussed elsewhere – the fact remains that the ongoing militarisation of U.S. society is at heart a domestic policy matter. The unpredictability of free market capitalism isn’t just of concern to the millions it affects through uncertainty, job insecurity and unemployment – it has also been of concern to successive U.S. administrations, who have correctly identified the military as the only area in which the state has the capability to make jobs – it is perhaps the one industry that can never be privatised. Just as Roosevelt’s New Deal in the 1930s was only a qualified success until U.S. rearmament for entry into World War Two, so successive administrations have latched onto militarism as a means of achieving a full employment which the corporatist free-for-all can never guarantee. The result is a state of affairs that is both unproductive in domestic terms, and self-evidently dangerous in international terms.

* Bibliography
“A Century of Labour”, Keith Laybourn, 2000
“Tony Benn – A Political Life”, David Powell, 2001
“Goodbye Great Britain: The 1976 IMF Crisis”, Kathleen Burke & Alec Cairncross, 1992

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2 Responses to The IMF Crisis and the Beginning of the One-Party state

  1. Anonymous says:


    North Korea has launched a campaign urging men to get a proper socialist short-back-and-sides haircut.

    The Stalinist regime feels that long hair on men is a sign of a corrupt capitalist lifestyle, reports the BBC.

    The campaign, by the state-run Pyongyang television, is entitled Let us trim our hair in accordance with Socialist lifestyle.

    It shows various state-approved short hairstyles including the “flat-top crew cut,” “middle hairstyle,” “low hairstyle,” and “high hairstyle”.

    Men should get a haircut every 15 days, it recommended.

    Tidy attire “is important in repelling the enemies’ manoeuvres to infiltrate corrupt capitalist ideas and lifestyle and establishing the socialist lifestyle of the military-first era,” the campaign says.

  2. Anonymous says:

    these people who equate socialism with stalinism, i wonder how they’d feel if they were, say, unfairly dismissed or paid below minimum wage, in the absence of any of the legislative support that the left has fought so hard for.

    i’m not saying they should necessarily be grateful to the left, but this naivety is still astonishing.

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