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Labour’s panicky establishment referencing the wrong period in history

Governor of the bank of England Montagu Norman with Labour Prime Minister Ramsay MacdonaldThis young country will be proud of its identity and its place in the world, not living in its history, but grasping the opportunities of its future.” Tony Blair: Leader’s speech, Brighton, 1995.

Tony Blair and those associated with Blairism embraced globalisation and studiously ignored Labour Party history – except to denounce and disown “Old Labour”.  Labour’s economic history was of very little interest to the Blairite generation. And it appears that the history of the 1930s is of little relevance to today’s leadership election debate.

Instead commentary repeatedly harks back to Bennism and the 1980s – when the relevant era is surely the 1930s.  As most economists acknowledge, the 1930s and the great depression are widely and rightly understood as the only modern precedent to the great financial crisis that began in 2007, and that still dogs the global economy.

The great depression was a crisis of globalisation – the de-regulation of global capital flows – which had  been imposed across the world from the 1880s through to the 1920s- only to be reversed by the stock market crash of 1929.  In 1930-31, when the crisis reached its nadir, Labour’s Ramsey MacDonald (PM) and Phillip Snowden (Chancellor) were responsible for economic policy.

Their government was to fall apart in the wake of demands from the financial and economic establishment for severe government spending cuts. Snowden and Macdonald never shied away from these demands that came primarily from merchant bankers, and were made as the quid pro quo for their support for sterling.

To meet these demands, MacDonald and Snowden went straight to the finance sector –  represented by the head of the Prudential Assurance Company (Sir George May) – and called for plans for spending cuts to be drawn up  by what became the May Committee on National Expenditure.

However, while MacDonald and Snowden were gung-ho about spending cuts, the rest of the Cabinet were implacably opposed to the extreme cuts proposed by the May Report . The divisions and infighting led to the collapse of the Labour government in June 1931.

A ‘national government’ then took office which included the Conservative party but which was led by Ramsey MacDonald, with Snowden continuing (only briefly) as chancellor, and including only a handful of other Labour figures. This coalition of peculiar bed-fellows – ‘the National Government’ – went to the country in September 1931 and massacred Labour party candidates.  The Conservatives won 470 seats, Labour lost 225 seats and was left with only a rump of 52 MPs. The 2015 general election campaign and its results echoed both the debates and the outcome of that 1931 election. In both, the Labour Party was castigated by the political and media establishment and blamed for denying the harsh reality that Britain needed  “austerity” and to “live within its means”  – in order to recover from a crisis made in the City of London and on Wall Street.

In the next election (1935) the National Government was replaced by the real thing: a Tory government under Stanley Baldwin and then Neville Chamberlain.  But by then spending cuts had pretty much ended. Despite the clamour for austerity in 1931, by as early as 1933 the Tory government had effectively reversed the policy of cutting spending, just as Osborne eased up on spending cuts in 2012. From 1934 government spending was expanded vigorously. As a result of this reversal, the economy looked relatively chirpy for the ’35 election.

In the meantime the Labour party in conjunction with leading figures from the trade union movement had begun developing a bold and coherent policy agenda. MacDonald and Snowden’s deference to financial authority and fiscal ‘discipline’ was decisively rejected.

 Clement Attlee, by then leader, contested the 1935 election on the basis of this emerging policy agenda, and gained nearly a hundred seats from the Tories.

This remarkable recovery was interrupted by the Second World War.  But Attlee was to build on the party’s policy agenda and its 1935 success, as he prepared the ground for the 1945 election with a programme that included the following statement:

Blame for unemployment lies much more with finance than with industry. Mass unemployment is never the fault of the workers; often it is not the fault of the employers. All widespread trade depressions in modern times have financial causes; successive inflation and deflation, obstinate adherence to the gold standard, reckless speculation, and overinvestment in particular industries. …” (NEC, 1944)

The economic and social achievements of the first majority Labour government in history were truly stunning, a fact still recognised today, even while the real nature of the 1945 Labour government’s programme and its political back-story is forgotten.  Attlee’s government paved the way to a period widely understood by the economics profession as “the golden age” in economics – for at least a quarter of a century after the war.

Jim Callaghan’s speech to the 1976 Labour conference in which he effectively ended Labour’s commitment to full employment (I was there and heard it all) marked the beginning of the end of the “golden age”.  With the election of Margaret Thatcher as Prime Minister, Clement Attlee’s programme was decisively abandoned and a new form of globalization fully embraced. Michael Foot became leader immediately afterwards, as the party unsurprisingly foundered at the start of this new, very different and very harsh epoch.

Labour’s leadership election takes place at a time when the forward march of globalisation has stalled, following a painful, volatile and divisive period.  The economic flaws as revealed by the 2007-9 crisis are no less severe today than they were in 1929-33, even if the strongest countries have so far protected themselves from a crisis of comparable scale. The reaction of established authority, as represented by the City of London, the media and almost the entire political class has been to make the same demands of “austerity” and “living within our means” as were made in 1931. This is achieved today as it was done then: by transferring the burden of losses away from the architects of the crisis and on to the victims – those dependent on the state for employment and welfare.

Just as in 1931, the Labour Party is again in disarray in the wake of the second great crisis of financial globalization. While the post-1970s expansion of globalisation was imposed in the first instance by financial interests and their backers on the political right, Labour’s political leaders – and in particular its “modernisers” – became enthusiastic cheerleaders for the liberalised financial arrangements that underpin globalisation.  Furthermore some on the right of the Labour Party are beneficiaries of globalisation, and therefore not subject to the pain felt by millions of young unemployed and their families, by the low-paid and those in insecure jobs; the sick and the vulnerable. They should however, not underestimate the severity and duration of this crisis; they may not be protected indefinitely. Present events in financial markets should serve as a reminder that this crisis is not over.

To conclude: it is wrong to argue whether any one candidate in today’s leadership election resembles the Michael Foot of the 1980s. Instead the debate should be whether any of the candidates have the wit or guts or intellectual and political acuity of the leaders (including Clement Attlee) that rebuilt the party after the debacle of 1931.

Above all, in choosing its new leader, Labour should learn the very important lessons of its own, and very relevant history: the period in the 1930s when Labour politicians challenged the architects of financial globalisation with an alternative policy agenda. An agenda which was wildly popular with the British people, and led to Labour’s resounding success as a government between 1945 and 1951 – and to 25 years of the golden age of economics.

This article first appeared at Prime Economics

Image credit: Governor of the bank of England Montagu Norman with Labour Prime Minister Ramsay Macdonald


  1. J.P. Craig-Weston says:

    Several people have recently noted that there are indeed several apparent similarities between the administrations of Ramsey McDonald, (the Government of National Unity,) described by my grandmother, (now101,) who remembers it vividly but with nothing but the most scathing contempt as, “the most completely corrupt British Government ever,” and the governments of Tony Blair which also and equally probably now deserves exactly the same epithet.

  2. Bazza says:

    Good stuff by Ann.
    From a working class background, I was the first in my family to go to university and have been a democratic socialist and Labour all my life.
    But all of my life, Labour has never really played one ace card.
    It is the labour of the working billions that creates the wealth & make societies work but the rich and powerful legally nick the surplus labour of these working billions, and capitalism has got away with this for over 150 years and more!
    Our demands are modest really – we just want the true share of working peoples’ wealth back – it has never been about the politics of envy (as the Right Wing propaganda goes) but is about the politics of economic justice!
    Every day the rich and powerful and Right Wing parties like the Tories (and their apologists in the Right Wing media) continue to con and we should challenge them.
    And they stand on weak ground.
    And perhaps the future is grassroots, bottom up, participatory, democratic, and peaceful.
    Jeremy’s people”s quantitative easing may work but we could also explore post-production, and take a billions from the top 200 companies in Windfall Taxes (as Ann as argued they are sat on £800b).
    We should also increase taxes on the rich, land, and have a significant EC Financial Transaction Tax (1% would be better than the piddling 0.1% Robin Hood Tax).
    And the financiers would then pay for the mess they caused!
    We could then have state led public investment working with partners internationally to meet global human need such as making toilets for the 2.5b in the World who don’t have access to them.
    Meeting global need should also generate a global feel good factor.
    But let’s also take one of Jeremy’s policies – we could move Aeropspace away from totally armament production & they perhaps could for example also make solar panels for the Worlds deserts and poor countries to harness the free energy of the sun and help to address Climate Change.
    Take the Phillipines as an example, it is poor but hot & can’t afford solar panels to give them to them so they meet their energy needs through the free energy of the sun & we globally collectively address climate change as well aiding the lives of millions of poor people.
    We will also need a leader who has a vision for the future and recognises that with technological change (driverless cars, ships etc) we will also need shorter working weeks with good pay (and earlier retirement) to free time poor working humanity.
    But fundamentally we need democratic socialist parties in every country to also be campaigning for the same things such as a living wage (by country) more democratic public ownership (with staff and communities having a say) by country, so people feel that more of their country actually belongs to them!
    Global better health services, better health & safety at work, we could even explore free public transport etc. run by local authorities.
    Yours in peace & international solidarity!

  3. Andy F says:

    This article is more or less right. 1945 came from 1931. But the article is mistaken in not seeing the necessity for Labout to shed its pro-austerity baggage. That was the crucial achievement of 1931 – a necessary step back to achieve the decisive breakthrough of 1945

  4. John P Reid says:

    Sing if Cllgahan hadn’t said his 76 speech labour would have won in 79 is silly,he pointed out in 79 there was a sea change that happens once every 35 yrs,as for 1935′ do you think had George Lansbury lead us in that election we’d have won,

    After 1997 the Toeies have only won,one of the four elections, with a majority of 12′ after 1974 manifesto,the toeieswon the next 4

  5. swatantra says:

    Excellent article! Putting it all in context. But I would say that it was the most shameful moment in Labour History, when … the Labour Party walked away from responsibility, and left McDonald in the lurch, having formed a National Govt. Yes there would have been a short period of austerity but that would have been for just a short period of 2 years to please the financial Markets that something was being done. But as Ann goes on to say once things had calmed down, it would have been back to normal with growth and investment. IMO the P shot itself in the foot by walking away, and put the Tories back in power in the 30’s.

    1. swatantra says:

      …. just imagine that if in 2008 Gordon and shied away from responsibility and thrown in the towel in and handed the Govt over to the Tories to impose austerity? What then? (Ok, I know that’s virtually what Gordon did in 2010, anyway but its the principle of the thing.)

      1. Robert says:

        We do not remember that far back we do all remember dear Gordon.

      2. john P Reid says:

        Swat have any of the candidates said anything bad against the others

        Ben has praised Stella

        Angela has praised Ben

        And Tom has praised Ben and Angela#

        the idea caroline is better than the others is tosh

    2. john P Reid says:


  6. David Ellis says:

    New Labour MPs will definitely bloc with the Tories against a Corbyn-led Labour Party and there is going to have to be a major examination and discussion of what Labour is for and about when he wins but the 1945 option will not be available to Labour or anybody else as capitalism is now a dead economic system with no Super Power and no powerful Stalinist collaborators to revive it. Globalisation behind the greatest power the world has ever seen, America, was as far as it could go and that film is unravelling at an alarming rate. It is socialism or barbarism. The violence of reversing globalisation will be ten times that required to achieve it in the first place. Only the world proletarian revolution can transcend capitalist globalisation and start us on the next part of our human journey or we perish with it.

    1. Robert says:

      I think we will be long dead before the globalization of the world will be over. I think the issue we have to day is the same issues we have had since 1997.

      the rich get richer that will not stop and the poor will just be as they are poor.

      I remember star trek when the captain said everyone is equal now, we do not have money and people are seen as being equal, and behind him was a ship cleaning the floor wearing a different coloured uniform showing of course it was not equal at all.

      We will always have those with power and those without.

      1. J.P. Craig-Weston says:

        “That’s just the way the world is?”

        Is that really what you’re saying; if so you can depart from this conversation in a manner usually expressed by expletive beginning with the letter F.

        Socialism is historically, (long before Marx or even Adam Smith,) an emotional and social response to those same forces of globalization which have been driving the increasing concentration of wealth and assets within a narrow, predatory and uncountable minority who have gradually become ever more disconnected and disinterested with the plight of anyone they deem to be, “not one of us.”

        Socialism is; as well as being an established, rational and coherent economic and political system that, (in principle,) values and respects all equally according to their needs and abilities, it is also a valid and proven emotional and psychological, (both social and as individuals,) response to the escalating predations of, “the few.”

        It’s actually a fairly straightforward matter to deal with capitalists, (as distinct from capitalism,) and with their overdressed imperial mates, clients and simple lackeys as the late Czar Nicholas II of Russia found out the hard way and not, by the time scale of modern history that long ago.

        But generally by the time that things get that bad and that out of control; everyone else is suffering massively as well, so violent revolution is always a situation that is always best avoided by any responsible political leadership, sometimes their can be no realistic alternative, but we’re still a long way away from that in the UK, at least in my opinion.

        Once again the, “need, for socialism is becoming acute in the UK and reason that New Labor have gained no traction at all from this is, more than anything else, that in their backgrounds, aspirations and even education, they are indistinguishable from the conservatives.

        And that’s going to continue to be a real problem.

  7. john P Reid says:

    Im told There are people who registered for £3, who weren’t going to vote for Corbyn,.who’ve had their vote blocked due to either not filing it in right, or having admitted voting ukip in the 2014 EU elections as they want to increase the debate and leave the EU

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