Foreign Affairs: 100 Years
A New Americanism
Why a Nation Needs a National Story
ALTHOUGH the British Labor Government went down to defeat in October last it still remained the strongest single party in the state. In terms of the popular vote, it led by more than 200,000 over its Conservative opponents, and was defeated in terms of seats by only the narrowest of margins, largely determined by Liberal Party supporters who had finally recognized the collapse of their own party. Now the defeat of an active reformist administration after more than six years in office is scarcely a matter of surprise. Disraeli's description of Gladstone's famous first reform administration two years before its demise in 1874 as "a range of exhausted volcanoes" comes at once to mind. When we consider further that the Labor Party held office during the years following the greatest physical and economic strain Britain has ever had to endure, in which the exhaustions of war were followed by the arduous and lean years of reconstruction, what is surprising is that the party should have succeeded in retaining so much popular support.
My purpose here is twofold--to explain the sources of such enduring loyalty as the Labor Party clearly commands in Britain, and to attempt an assessment of its future rôle, particularly in the light of the threatened schism within the Party, foreshadowed by the resignation of Mr. Aneurin Bevan and his supporters from the Labor Cabinet. This domestic rift in the lute, temporarily papered over perhaps, masks a fundamental crisis in the history of the Labor movement, on the outcome of which may well depend the destiny of Britain in the decades to come.
The Attlee Administration of 1945-1951 was by any standard a very remarkable one. It was not merely its professed intention to make unremitting war on what Sir William (now Lord) Beveridge happily termed the "five giants on the road of reconstruction," Want, Disease, Ignorance, Squalor and Idleness; the Administration actually proceeded to implement its promises. Moreover, it waged this war without resorting to force. It succeeded no less than Churchill's Administration had done before it in evoking a powerful moral response from the people it led. To unite a people in the face of a common external danger may not be easy, but it is more difficult to unite a people in the struggle against social injustice bound up with many entrenched interests.
In the nineteenth century, the British succeeded in the face of many dangers in building a political democracy without incurring a violent revolution. The generation which emerged from World War II formulated their immediate task as that of establishing a system of social justice without incurring the hated rigors of authoritarianism. To accomplish that, they needed a government with the courage to act boldly in the face of a powerful opposition, and at the same time to resist being carried by the impetus of its reforming zeal beyond the existing state of public opinion. In the Attlee Administration they found a leadership which possessed both these virtues in full measure. The Government conceived its task to be essentially a moral one. "I may do well to remind you," John Maynard Keynes had written in 1924, ". . . that the fiercest contests and the most deeply felt divisions of opinion are likely to be waged in the coming years not round technical questions, where the arguments on either side are mainly economic, but round those which . . . . may be called psychological or, perhaps, moral."
At first sight this might appear to involve a revolutionary break in the tradition stemming from Locke in the seventeenth century down to the classical economists and the Benthamite utilitarians in the nineteenth--a tradition which conceived society as a loosely bound group of individuals competing by a law of natural harmony to promote the general interest. On such a view, the rôle of the state was as small as possible; it was the instrument of law and order, and of defense, but little more. "Our rulers," wrote Macaulay in 1830, "will best promote the improvement of the nation by strictly confining themselves to their own legitimate duties, by leaving capital to find its most lucrative course, commodities their fair price, industry and intelligence their natural reward, idleness and folly their natural punishment, by maintaining peace, by defending property . . . and by observing strict economy. . . . Let the Government do this: the People will assuredly do the rest."
In the first half of the nineteenth century, that undoubtedly represented the authentic voice of liberal individualism, although even at that time the social consequences of the Industrial Revolution were demanding of sensitive opinion remedial action, incompatible with the strict canons of laissez-faire. By the 1870's, the core of the orthodox liberal position was being destroyed from within. Both J. S. Mill and T. H. Green were utilitarians; both reached conclusions concerning the legitimate rôle of the state in regulating social and economic conditions, which were poles removed from the position taken up by the philosophic radicals earlier in the century. In Green, indeed, utilitarianism was formally wedded with philosophic idealism in an effort to reconcile the liberal conception of freedom with the radical's misgivings concerning the lot of "the underfed denizen of a London yard" whose proven neglect was already disturbing the social conscience of his betters. The rôle of the state might be a negative one, Green argued; certainly it was important not to undermine the wellsprings of self-help and individual improvement, but since society had a right to demand of its citizens the fulfilment of certain obligations, it had a corresponding obligation to remove obstacles to the individual's development which he could not cope with. Thus was the road opened in the name of individualism to state provision of minimum conditions of health, housing and education for all its citizens. Even idealists like Bradley and Bosanquet, with their emphasis on the duty of the individual to conduct himself worthily whatever the station or class to which God had seen fit to call him, indirectly paved the way to a new attitude toward the responsibilities of the state by the fervor with which they stressed its moral function.
At the same time the Fabians, more intimately associated with the detail of institutional anomalies, continued the pragmatic, radical elements of the English reform tradition by undertaking a detailed survey of the inadequacies of existing institutions. The culminating triumph of their work may be seen in that monument to patient scientific inquiry, informed by a deep concern for the impoverished masses, the Minority Report on the Poor Law of 1909, for which the Webbs must be given most of the credit. Their recommendations involved no less than a total repudiation of the poor-law structure, with its roots going back in an almost unbroken tradition to the Elizabethan Statute of 1601. Instead of a stop-gap system of ad hoc charity, reluctantly given on the one hand and received with humiliation and bitterness on the other, the Webbs urged on society its duty to recognize its responsibility to provide for the care of those on whose ultimate well-being and capacity society must depend for its advancement. In place of the principle of "less eligibility," institutionalized in the shape of the detested workhouse, in place of the perpetuation of pauperdom on a hand-to-mouth basis from the cradle to the grave, they proposed the revolutionary principles of compulsory, curative treatment, universally provided as a means to preventing the tragedies of destitution.
The primary condition for this novel attack on poverty lay, however, in a sphere outside the terms of reference of the Poor Law Commission. No society could hope to shoulder the immense financial burden implicit in these recommendations unless it was able to control the level of employment. And this contemporary British capitalist society was to prove itself increasingly unable to do. The somewhat unpredictable career of the recurring trade cycles in the business world was a long-familiar phenomenon. So long as these periodic upheavals did not get entirely out of hand, they were regarded as a necessary evil compensated for by the blessings of an undiluted individualism which alone could infuse the necessary vigor of incentive to boost production to the level of prosperity. In the inter-war years, however, when the cycle of boom and depression was accelerated to the feverish climax of the world slump of 1929, when the resultant unemployment figures passed the 2,000,000 mark and never fell below 1,000,000, even the most ardent disciples of Adam Smith could not wholly stifle their misgivings. Certainly in the face of such cataclysmic disorders, it could no longer be argued that poverty and social inadequacy were the outcome of the moral shortcomings and improvidence of the unhappy victims. When the unemployed population oscillated between one in five and one in ten of the employables, the futility, not to say mockery, of moral exhortation was fully exposed.
Among those who reacted constructively to the situation are to be distinguished two major schools of thought, the cleavage between which still lies at the root of the present schism in intelligent British political thinking. To put it briefly, the controversy was essentially of the end-or-mend variety. On the one hand were those who argued that the industrialist capitalist structure had stood the country in good stead for 150 years or more, that an alternative system would involve a revolutionary change with unpredictable consequences, that there was no evidence that the system's appeal to the fundamental money-making instinct in mankind could be superseded by anything more reliable, that the existing defects were amenable to intelligent thought, and that accordingly we should seek to retain a modified version of what we had rather than precipitately to embrace evils we know not of. This school looked for leadership to avowed non-Socialist liberal aristocrats, remarkable alike for their intellectual powers and their integrity--preeminent among them Keynes and Beveridge.
While this group wished to prescribe shock treatment to keep the patient alive, others argued that nothing short of a lethal dose could do any good. It was necessary to make a fresh start. The Socialists did not wish to stop the holes in the capitalist dike, for the very good reason that they objected to capitalism on grounds more fundamental than those of economic efficiency. Capitalism was to be condemned primarily because it depended on its appeal to the profit motive. Socialists held that the acquisitive society, resting on privilege and inequality, was basically inimical to the moral aspirations of which men were capable.
This clash of opinion might at first sight appear to be fundamental. The vast majority of British Socialists, however, inherit a strongly pragmatic tradition within the framework of lawful constitutional action. The Fabians, after all, advocated the "inevitability of gradualness." Revolution and authoritarian methods are as inimical to Socialists as to any other British political party, the Communists excepted. This results in a basic ambivalence of attitudes, often subconscious in British Socialists. On the one hand, liberal proposals to mend capitalism, involving an extension of state regulation of economic life and a broader distribution of the national wealth, seem from a Socialist angle to be welcome as a step in the right direction. On the other hand, Socialists fear that such remedies might succeed in persuading people of the spiritual adequacy of a society which still rests basically on an appeal to the despised profit motive. Thus fidelity to their ideal of voluntary coöperation in pursuit of the good life for all causes them to oppose measures which may be economically sound from an immediate standpoint.
This conflict, which Keynes once diagnosed as one between the head and the heart, is crucial to an understanding of present-day alignments in left-wing British politics. For the Labor Governments of 1945-1951, while pursuing policies acceptable to most Socialists, did nothing to demonstrate decisively that they had passed beyond the Keynesian-Beveridge position of making capitalism work. Only in the tardy and somewhat hesitant nationalization of steel did they come close to burning their boats, and that measure is already due for repeal by Churchill's second Administration. The implementation of the remedies of the "liberal aristocrats" for alleged capitalist inefficiency and injustice required a program extending over six years; so long as it was being enacted, it was possible to evade the issue of whether or not this remedy was only a transition stage on the road to a full democratic and Socialist society. When the program was completed, however, the ambivalence in the minds of Socialists came to the surface and threatened a schism within the ranks of Labor.
Though this may seem surprising to those who have been wont to consider the Labor Government as a full-fledged Socialist government, a comparison of the main outlines of the Keynesian-Beveridge proposals with the policies actually pursued by the Labor Government in office shows how far from Socialist most of them are. Keynes, it need scarcely be said, was always an avowed opponent of state Socialism, while Beveridge (like Keynes a lifelong member of the Liberal Party) was careful to emphasize in his "Full Employment in a Free Society" that his proposals were irrelevant to the Socialist-capitalist debate. His conclusions, he stated, implied "only a judgment that it would be possible to obtain full productive employment under conditions of private enterprise." Both men, moreover, shared an "apostolic" faith in a moral and intellectual élite matched by a corresponding disinclination to attribute much in the way of responsibility or capacity for leadership to the masses of a modern democracy.
The theory of employment implicit in the classical conception of laissez-faire maintained that the price of labor competing in a free market would be determined by the requirements of full employment. If in fact conditions of full employment were not realized, this could only mean that the price of labor had been artificially forced up. If, for example, the labor unions were strong enough to make it politically impracticable to allow the unimpeded forces of supply and demand to drive wages down to the requisite level, then unemployment must be accepted as an unavoidable evil. It might, however, even be desirable to maintain a pool of unemployed in the interests of the living standards of the employed, and also as an incentive to their efficiency.
The burden of Keynes' critique is found in his denial that an unrestricted free-enterprise economy could, automatically, adjust the propensity to save to the inducement to invest. An increase of savings as a result, for example, of increased profits would produce unemployment by reducing consumption. This in turn would reduce the margin of saving available to others. There was accordingly no guarantee that an increase in the propensity to save would, by reducing the rate of interest, result in an increased inducement to invest. On the contrary, in so far as diminished consumption tends to undermine the confidence of entrepreneurs in their expectations of a return on their investments at a rate higher than the prevailing rate of interest, their logical incentive will be to stop creating new assets and to substitute for them investments with greater liquidity. The logic of the system, moreover, produced a permanent pressure toward disequilibrium, because of the automatic reduction of the value of capital assets through their own increase in a boom period. In the nineteenth century this fluctuation was not disastrous in its effects because the demand for capital outlay tended constantly to run ahead of the capacity to invest--a result of the combined factors of a steadily increasing population, immense technological advances and seemingly inexhaustible overseas markets. In the twentieth century, however, the impetus of the Industrial Revolution had exhausted itself at the very time that the "great frontier" (in Professor W. P. Webb's phrase) was approaching its physical limits.
Under these changed circumstances, there was only one way to maintain the amount of investment at a level equal to the sum that consumers would wish to save out of incomes derived from the full employment of all available resources. The state, as the only agency powerful enough to restore the requisite balance, must, if existing economic forms were to be preserved from internal collapse, be permitted an increased degree of economic control. And Keynes envisaged conditions in which these controls might have to extend beyond monetary controls over the flow of investment to include state programs of public works, control of profits, and the redistribution of the national income to increase consumer demand. Thus he arrived at the paradox of delimiting the sphere of unrestricted private enterprise in order to safeguard "the traditional advantages of individualism" in those fields where they still held good.
Lord Beveridge is, of course, most widely known for his historic "Report on Social Insurance and Allied Services," made in November 1942, from which it can be seen that his main interests place him with the institutionalists in the tradition of the Webbs rather than with the great economic theorists. So successful was he in his task of demonstrating that a comprehensive social insurance scheme was administratively practicable that the Government eventually translated his proposals on to the statute book almost as they stood. No more a Socialist than Keynes, his proposals to cure the twin evils of unemployment and underconsumption similarly involved a drastic extension of the traditional rôle of the state. The defects of capitalism he diagnosed (in the Herbert Spencer Lecture, May 1935) as liability to monetary disturbance, gross inequalities of income and mutual antagonism between capital and labor. These defects he proposed to cure by granting the state the power to maintain a total capital outlay sufficient to maintain full employment, to control the location of industry, and to secure the organized mobility of labor. Moreover, his extensive social insurance proposals, though conceived as intrinsically valuable in relieving wage earners from distress and anxiety, would also involve a supplementary means of redistributing the national income through taxation. In this respect, too, Beveridge's links with Keynes are clear.
These non-Socialist economic prescriptions and political assumptions help us to evaluate the significance of the Labor Government's postwar program. The program can be summarized as an attempt to reconcile national planning in the interests of social welfare and full employment with the limits imposed upon state action by a deeply cherished tradition of political liberty. It will be convenient to discuss the means to this end under three heads: first, the extension in the Government's powers to control the flow of investment; second, the national taxation policy; and third, the actual postwar social welfare measures themselves.
Governmental control over investment is exercised financially and physically. To exert adequate financial pressure, the Government assumed control of the Bank of England and increased the powers of the Bank to coerce the Joint Stock Banks; it further passed the Investment (Control and Guarantees) Act of 1946, perpetuating the wartime Capital Issues Committee and establishing a National Investment Council. Pressure was applied to the flow of investment by maintaining the rate of interest at a low level, and thus stimulating a high monetary demand; this made possible a controlled expansion of capital investment through inflationary pressure. At the same time, under the Supplies and Services Act of 1945, counter-inflationary physical controls were exercised through the licensing system. These enabled the Government to control the flow of raw materials and imports on a basis of priority allocations. In such industries as coal, electricity and gas, internal transport and overseas airways, the Labor Government could, of course, control the flow of investment directly by transferring what it regarded as vital public utilities from the sphere of private enterprise to public ownership.
So far we have discussed policies designed to secure the requisite total capital outlay by the controlled stimulation of the entrepreneur's inducement to invest. But however extensive the financial controls, they will not in themselves secure full employment if the national income is so unequally distributed as to leave the bulk of consumers unable to translate their basic needs into effective economic demand. This problem was attacked on two fronts: direct taxation and the provision of social services.
Since the new social services would cost the state a great deal of money, the Government had to decide how the money was to be raised. Its policy on this issue was frank. "We shall shift the burden," announced Chancellor Dalton, "from the poorer to the richer, from the active element to the passive element. . . ." Of the 10,000,000 people newly subjected to income tax by wartime Chancellors, over 3,000,000 were wholly exempted from liability. Further reliefs were given to the lower income groups in the shape of reduced rates on small incomes, and increased personal and dependents' allowances. At the other end of the scale, surtax rates were increased to a level which in effect reduced the legal maximum annual net income to £5,000 or £6,000.
The enormous extension in the social services, enacted by the Family Allowances Act, the National Insurance Act, Industrial Injuries Act, National Assistance Act and the National Health Service Act, secured for every active citizen, including housewives, a minimum subsistence level, whatever the reason for the loss of earning capacity. This giant social insurance scheme was financed in large part by universal compulsory insurance contributions, although in the case of the Health Service, which provides everyone with free medical treatment, the bulk of the expenditure is supplied by the Exchequer. Nor is this by any means the sum total of the state expenditure on social services. Further redistribution of the national income is effected through free compulsory education, housing subsidies and, above all, through extensive food subsidies. Indirectly, too, the rent restriction acts have served to subsidize the tenant class at the expense of the landlord class. Some idea of the extent of these schemes can be gained when it is realized that considerably more than one-third of the total state expenditure is consumed in supporting them.
As a result of this immense program, the vast majority of the working population are undoubtedly better provided for today than at any time in the past. For example, Mr. B. Seebohm Rowntree and Mr. G. R. Lavers, in the third social survey of the City of York, conclude that whereas in 1936 over 17 percent of the total population of the city were living below a minimum "human needs standard," the corresponding figure for 1950 was less than 2 percent.
There is, however, another and darker side to the picture: the problem of the balance of payments. So long as the British cannot be confident of their capacity to export enough to pay for their necessary imports of food and raw materials, so long must they feel that the financial stability and with it their social welfare provisions are in constant jeopardy.
For a time at least after the war, it seemed plausible enough to explain the dollar gap in terms of the liquidation of most of Britain's overseas assets and their replacement by a prodigiously swollen national debt. Moreover, the entire economy had been gravely distorted in the interests of prosecuting the war. Plant normally devoted to the production of civil requirements had been allowed to stand idle or to depreciate. In the interests of increased war production valuable overseas markets had been lost. Shipping services, one of the most important of Britain's invisible exports, had been grievously hit by the war. But laudable as have been the production feats of British industry, and generous as has been the aid afforded by the United States and the British Dominions, the position has continued seemingly intractable.
Part of the explanation for this lies, of course, in the continued burden of armaments required by the demands of national security. At no time since the war have British military commitments abroad been remotely commensurate to the limited economic capacities of the nation, and the latest rearmament effort is a severe trial. It is finally plain to the British people that the economic ills of the nation are not going to disappear overnight. The hard fact of the matter is that Britain achieved the prosperity which enabled her to expand her population to some 50,000,-000 by her primacy in the race of the Industrial Revolution. In the nineteenth century, conditions of world trade favored enormously a nation which was peculiarly dependent upon foreign trade. But the conditions which produced high prices for manufactured goods and low prices for food and raw materials have now been decisively reversed, and all the available evidence suggests that this state of things is likely to endure. If Britain is to survive as a prosperous nation in terms of her present population, she cannot long continue to carry the present burden of armaments and she must still further increase her levels of production.
This latter requirement at any rate is not impossible of fulfilment. Three basic industries in Britain are chronically undermanned--coal, textiles and agriculture. It has been estimated that if scarcely more than 1 percent of the employed industrial population could be persuaded to transfer to these industries, the over-all economic position of the nation would be immeasurably improved. But this at once raises the crucial problem of how to induce men to perform vital but unattractive services to the community in a free society. Economic freedom, i.e. full employment, excludes the solution of the problem of incentive through the economic whip of fear in the shape of unemployment. Political freedom excludes the solution of civil conscription of labor.
These are the conflicting needs which create the dilemma confronting the Labor movement. The British economy is still far from being a Socialist economy; it is at most a mixed economy with the privately controlled sector of industry still playing the predominant rôle. The economy relies still on the profit motive for its effective functioning. Although much has been done to diminish vast disparities of personal wealth, and the social classes blend into one another more easily than in the past, the complicated web of social relations cannot possibly be described as a classless society. Moreover, such advances as have been made toward this somewhat abstract ideal are, as we have seen, beset with dangers. In the hazardous and difficult circumstances of the mid-century, when the security of the state makes demands on human energy more unremitting than ever before, the Labor movement in Britain will shortly have to make the fateful choice as to whether the circumstances are such as to encourage it to press on with further measures designed to bring about a society in which men will be content to labor and create for the common good, instead of being driven by motives of personal enrichment.