The British Economic Miracle

The British Economic Miracle:

New Labour and the economy

Andrew Gamble

Abstract

For much of the last forty years Britain was perceived to be in decline and the UK model of capitalism to be failing. The unsuccessful modernisation programmes in the 1960s and 1970s led to a different turn of policy in the 1980s under the Thatcher Government, which sought to reconstruct the older UK liberal model, drawing inspiration from the US rather than from Europe. The Thatcher Government helped create conditions for a new political economy to emerge in Britain after 1992 which has provided a sustained period of economic growth and financial stability. Its reforms were consolidated and extended by the Blair Government. The article will discuss the historical trajectory of the British economy in the postwar years, and the choice between Europe and America. It will examine why the UK model is once again claimed to be a success, and whether it is sustainable.

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British post-war history has been dominated by decline. The English model of capitalism in the nineteenth century appeared to sweep all before it, and made Britain the most modern economy, the economy which Marx believed showed to others the image of their own future. But in the twentieth century and particular in the third quarter the British model came under widespread attack, criticism and disparagement. The deficiencies of the British model were laid bare, and numerous prescriptions advanced as to how it might be reformed to improve UK economic performance. Many of the projects for reversing British decline recommended an alternative national model as the exemplar which the British needed to embrace in order to establish a more successful economy. The widespread perception of Britain as the 'sick man of Europe' through the 1960s and 1970s made many cast envious eyes at the economies in other parts of Europe, in East Asia, and in North America. Britain it seemed had the wrong kind of capitalism, the wrong kind of state, certainly the wrong kind of unions and was rapidly moving to the abyss. As Sir Keith Joseph, one of Margaret Thatcher's closest allies, memorably put iti

The visible signs of Britain's unique course - as it slides from the affluent Western World towards the threadbare economies of the communist bloc - are obvious enough. We have a demotivating tax system, increasing nationalisation, compressed differentials, low and stagnant productivity, high unemployment, many failing public services and inexorably growing central government expenditure; an obsession with equality, and with pay, price and dividend controls, and immunities for trade unions; and finally, since 1974, top of the Western league for inflation, bottom of the league for growth.

Times have changed. Twenty five years on, decline as a theme in British political discourse has almost been banished, and the economy is no longer at the centre of political debate. There is a new triumphalism in British public pronouncements about the economy, reminiscent of the heady days of Thatcherism. At the height of the shortlived 1980s boom, the 1987 Conservative Party manifesto in the unmistakeable cadences of its Leader proudly proclaimed:ii

Remember the conventional wisdom of the day. The British people were 'ungovernable'. We were in the grip of an incurable 'British disease'. Britain was heading for 'irreversible decline'. Well, the people were not ungovernable, the disease was not incurable, the decline has been reversed.

But this was followed by a severe recession between 1989 and 1992, which saw unemployment rise by 1.5 million, the collapse of the housing market, plunging many houseowners into negative equity, and the ERM dйbacle. Twenty-five years on, however, Gordon Brown, Chancellor for eight years (the longest stretch since David Lloyd George at the beginning of the twentieth century) is indulging in a new bout of triumphalism, and appears to be rather more justified in doing so. The long history of policy failure in relation to the economy has at the very least been interrupted. In his 2004 budget speech Brown put it rather more strongly:iii

For decades after 1945, Britain repeatedly relapsed into recession, moving from boom to bust...since 1997 Britain has sustained growth not just through one economic cycle but through two economic cycles, without suffering the old British disease of stop-go - with overall growth since 2000 almost twice that of Europe and higher even than that of the United States. Indeed in the Pre-Budget Report, I told the House that Britain was enjoying the longest period of sustained economic growth for more than 100 years...I have to apologise to the House. Having asked the Treasury to investigate in greater historical detail, I can now report that Britain is enjoying its longest period of sustained economic growth for more than 200 years - the longest period of sustained economic growth since the beginning of the Industrial Revolution.

The Chancellor omitted to mention that this record period of sustained economic growth commenced under the Conservative Government of John Major in 1993, four years before Labour took office, but the general point is undeniable. Something of a sea-change has taken place in Britain's economic fortunes. The pessimists have so far been proved wrong and the economy has continued to grow steadily. Britain in 2004, the Chancellor announced, had 'the lowest inflation for 30 years, the lowest interest rates for 40 years, and the highest levels of employment in history'. The inflation peaks in the last three recessions of 27% in 1975, 22% in 1980, and 9% in 1990 were a distant memory, as were the three million unemployed of the 1980s, and high interest rates (17% in 1980 and 15% in 1990).

Has the performance of the British economy improved? One school argues simply that it has not, or at least that the improvement is only superficial, and that the fundamental problems of the British economy remain unresolved. The economy has only appeared to improve because expectations about British economic performance have been lowered so much. As David Coates puts it:iv

The UK had spent the first four decades of the postwar period locked in a process of cumulative economic decline caused by inadequate levels of investment in plant and equipment, and that growth trajectory remained firmly in place at century's end...[positioning]