It subsequently emerged that senior army officers were considering military intervention in the event of the situation “deteriorating”. But the more sober, and far-sighted sections of the ruling class were not amused. Lord Carver, Chief of the Defence Staff in 1974, recalled that he personally intervened “to make certain nobody was so stupid as to go around saying those things.” That is to say, the problem was not the idea itself but that it should not be publicly expressed. They preferred such plans to be kept under wraps until needed. Carver was also reported to have used his influence at the time to prevent army officers openly establishing right-wing paramilitary organisations.[6] Not that he was against these initiatives in principle, but for the moment they proved counterproductive and highly provocative to the Labour movement.
The industrial battles of the early 1970s resulted in a number of important victories for the working class. Real take-home pay increased by 3.5 per cent a year between 1970 and 1973, four times the rate achieved under the 1964-70 Labour government. The miners’ strikes, in particular, had given rise to increased self-confidence among workers. This had wrong-footed the ruling class. But these successes also served to produce a semi-syndicalist mood amongst certain sections of union militants – who regarded the trade union struggle alone as sufficient in dealing with the Tories and the employers. The fall of the Heath government certainly tended to reinforce this outlook.
Nevertheless, the election of the Labour government in 1974, despite being in a minority position, created high expectations from the working class. The new intake of Labour MPs was also clearly to the left, the majority being aligned to the Tribune Group in Parliament, which had doubled in size in comparison to the period 1964-70. Although the new Wilson administration was right wing, both Michael Foot and Tony Benn were included in the Cabinet, at the Department of Employment and the Department of Industry respectively. The first real task of the government was to produce a settlement with the miners. They were eventually awarded wage increases ranging from 22-32 per cent. Within a week of the election, industry was back to five-day working and the crisis was resolved.
The Labour government began by introducing a series of welcome reforms: it raised old age pensions, increased food and rent subsidies, cut the rate of VAT, and encouraged the building of council houses. To the great relief of the Labour movement, the government repealed the hated Industrial Relations Act, abolished the Pay Board and scrapped Heath’s statutory incomes policy. The Housing Finance Act was also repealed and a rent freeze was introduced. As promised, the Labour government introduced gift and wealth taxes, although not as much as to make the rich squeak too loudly. The granting of these reforms produced a honeymoon period for the Wilson government, which appeared at long last to be carrying out a radical programme.
From the beginning, the Labour government was under colossal pressure from both the working class and the capitalist class. At first, it attempted to appease the workers with reforms, which worked for a period as workers were prepared to extend credit to the new government. For big business, however, these reforms were a source of major irritation and annoyance. But for the moment the capitalists were forced to bide their time. Within months Wilson was compelled to go for a second general election in October 1974 in an attempt to gain a working majority in the Commons. Despite these hopes, Labour still only managed to secure a small overall majority, and remained vulnerable.
The Labour government had come to power at a time of a new world slump. Throughout 1974 industrial production declined in the face of a deepening economic slowdown. It was the first generalised worldwide slump since the Second World War. In Britain, unemployment began to climb insatiably towards the politically sensitive figure of one million, reaching 1,319,000 by the third quarter of 1976. Orders for steel products in western Europe during the first quarter of 1975 were down 33 per cent from the same period in 1974. The same was true of shipbuilding, aeronautics, electronics, textiles, automobiles, construction, and electrical appliances. The number of bankruptcies in the United States rose by more than 30 per cent during 1974-75, and in Britain by more than 60 per cent.
Bourgeois economists attempted to explain away the slump as a consequence of the quadrupling of oil prices, but this was a shallow argument. The rise in oil prices certainly aggravated the crisis, but it did not cause it. It simply accentuated the trends that were already present. The elements of overproduction existed prior to the rise in oil prices. The boom and slump cycle was always present under capitalism but the fluctuations were hardly noticed in the unprecedented post war upswing. Now the situation was entirely different, and more like the slumps of the past that were explained by Karl Marx:
“Too many commodities are produced to permit of a realisation and conversion into new capital of the value and surplus value contained in them under the conditions of distribution and consumption peculiar to capitalist production, i.e., too many to permit of the consumption of this process without constantly recurring explosions”,
stated Marx in volume three of Capital. The crisis arose out of overproduction, as Marx had explained over 100 years previously, and would reoccur periodically in 1979-81, 1990-92, and 2001-2. This fact alone shows that the slump of 1974-75 was not the product of an accidental rise in oil prices, but the re-emergence of the boom/slump cycle.
In Britain, inflation rose to nearly 20 per cent, which served to erode living standards very quickly. The economists ironically dubbed the situation “slumpflation”, reflecting a new disease of world capitalism – a combination of slump and inflation. In order to stand still, unions had to fight for sizable wage increases, which averaged 25.4 per cent by the end of the year. At the same time, pre-tax profits fell from 7.2 per cent in 1973 to 4 per cent a year later, and then continued to decline. This fall was primarily due to the tendency in capitalism for the rate of profit to decline. This tendency arose from the accumulation of capital, greater resources ploughed into constant capital (materials and machinery) relative to that invested in variable capital (wages). As the only source of surplus value comes from variable capital, the rate of profit tends to decline. To counter this decline, which would eventually affect the mass of profits, the capitalists are forced to take measures to increase the exploitation of labour power and increase their margins. In particular, they demanded that the Labour government cut public expenditure, hold back wages and stop all state interference.
According to the Financial Times, “the CBI told Mr. Wilson that there was absolutely no room for compromise or negotiation about further state intervention in industry and further nationalisation”.[7] Two days before the November Budget, the Director General of the CBI sent Wilson an open letter threatening drastic action if the government did not toe the pro-business line. Just after the general election, big business had begun a “strike of capital” with the announcement by Pilkingtons that their £150 million investment would be shelved “until such time as essential changes are made in taxation and price control”. As in October 1964, Wilson was again faced with the blackmail and sabotage of Britain’s ruling class. As then, the Labour government had a choice: either capitulate to big business or act against these powerful interests. There was no middle road. Wilson decided to bend the knee to capital. Once again he came forward with an incomes policy to restore profitability, known as the “Social Contract”, but later dubbed the “Social Con-trick”.
The Left on the TUC General Council, headed by Jack Jones and Hugh Scanlon, also faced a stark choice, either back Wilson or fight for the alternative of socialist policies. But like the Left union leaders in 1926, they looked over the abyss and stepped back. These left leaders had built up a powerful reputation and massive support amongst workers because of the militant role they had played between 1968-74. But now, lacking a clear perspective and policy, they recoiled from an all-out struggle with the Labour government. Instead, they used their colossal authority to back Wilson’s policies. In September, the TUC, with the full backing of Scanlon and Jones, accepted a “Social Contract” with the Labour government. The government, in turn, leaned upon the trade union leadership to deliver the support from the rank and file for this wages’ policy.
The problem was that it is not possible to serve two masters and the Wilson government had already surrendered to the blackmail of the City of London. The 1974 November Budget proved a watershed for the government. The Chancellor announced measures to increase profitability: reduction of corporation tax, less stringent price controls, and state handouts for industry. Healey also announced restrictions on public expenditure for the duration of the government. As in the past, this signalled a continuation of orthodox economic policies, and as usual the working class was being asked to pay for the crisis of capitalism.