Portal de Periódicos da CAPES

Economic Policy and the Problem of Sterling under Harold Wilson and James Callaghan

2011; Routledge; Volume: 25; Issue: 3 Linguagem: Inglês

10.1080/13619462.2011.597548

1743-7997

Chris Rogers,

State Capitalism and Financial Governance

Abstract Sterling's status in the world economy has often been conceived as a problem for British economic policy making because of its sensitivity to fluctuations in market confidence. In contrast, this paper demonstrates how the appearance of sterling weakness conveyed political advantages for the Wilson/Callaghan government. It shows how the fall in the value of the pound in 1975 and 1976—typically viewed as symptomatic of the 'problem' of sterling—actually allowed the core executive to justify the implementation of deflationary policies while minimising political dissent until the resolution of the IMF crisis, at which point sterling's recovery removed this buttress, and laid the foundations of the Winter of Discontent. Keywords: SterlingWilsonCallaghanSocial ContractWinter of Discontent Acknowledgements I am grateful to the ESRC for the funding that allowed me to complete this paper (award PTA-026-27-2503), and to helpful comments on an earlier draft of this article from Christopher R. Moran and the anonymous reviewers from Contemporary British History. Notes [1] Wilson Wilson, Harold. 1979. Final Term: The Labour Government 1974–1976, London: Weideneld and Nicholson. [Google Scholar], Final Term, 114–5. [2] Callaghan Callaghan, James. 1987. Time and Chance, London: Harper Collins. [Google Scholar], Time and Chance, 414. [3] Healey Healey, Denis. 2006. The Time of My Life, London: Politicos. [Google Scholar], The Time of My Life, 426. [4] Pimlott Pimlott, Ben. 1992. Harold Wilson, London: Harper Collins. [Google Scholar], Harold Wilson, 473, 484. [5] Morgan Morgan, Kenneth O. 1997. Callaghan: A Life, Oxford: Oxford University Press. [Google Scholar], Callaghan, 543. [6] Pliatzky Pliatzky, Leo. 1984. Getting and Spending: Public Expenditure, Employment and Inflation Revised ed., Oxford: Blackwell. [Google Scholar], Getting and Spending, 143. [7] Donoughue Donoughue, Bernard. 2005. Downing Street Diary, London: Jonathan Cape. [Google Scholar], Downing Street Diary, 263. [8] Wass Wass, Douglas. 2008. Decline to Fall: The Making of British Macro-Economic Policy and the 1976 IMF Crisis, Oxford: Oxford University Press. [Crossref] , [Google Scholar], Decline to Fall, 60. [9] Stephens Stephens, Philip. 1996. Politics and the Pound: The Conservatives' Struggle with Sterling, London: Macmillan. [Google Scholar], Politics and the Pound, i, 4. [10] Cairncross and Eichengreen Cairncross, Alec and Eichengreen, Barry. 2003. Sterling in Decline: The Devaluations of 1931, 1949, and 1967, 2nd ed., Basingstoke: Palgrave Macmillan. [Crossref] , [Google Scholar], Sterling in Decline, x. [11] Cohen Cohen, Benjamin J. 1971. The Future of Sterling as an International Currency, London: Macmillan. [Google Scholar], The Future of Sterling as an International Currency, 144. [12] Ibid., 144. [13] Schenk Schenk, Catherine R. 2010. The Decline of Sterling: Managing the Retreat of an International Currency, 1945–1992, Cambridge: Cambridge University Press. [Crossref] , [Google Scholar], The Decline of Sterling, 6. [14] Newton Newton, Scott. 2009. The Two Sterling Crises of 1964 and the Decision Not to Devalue. Economic History Review, 62(1): 73–98. [Crossref], [Web of Science ®] , [Google Scholar], 'The Sterling Devaluation of 1967', 914. [15] Egerton Egerton, George W. 1994. Political Memoir: Essays on the Politics of Memory, London: Routledge. [Google Scholar], Political Memoir, 2. [16] Wass, Decline to Fall, xii. [17] Labour Party Labour Party. 1973. Labour's Programme, London: Labour Party. [Google Scholar], Labour's Programme 1973, 16. [18] The National Archives (TNA) T 267/29, 'Sterling Balances Since the War', 10. [19] Ibid., 10. [20] Lairson and Skidmore Lairson, Thomas D. and Skidmore, David. 2003. International Political Economy: The Struggle for Power and Wealth, 3rd ed., London: Thomson/Wadsworth. [Google Scholar], International Political Economy, 81; on this topic see also Burnham Burnham, Peter. 1992. Re-Evaluating the Washington Loan Agreement: A Revisionist View of the Limits of Postwar American Power. Review of International Studies, 18(2): 241–59. [Crossref] , [Google Scholar], 'Re-Evaluating the Washington Loan Agreement', esp. 241–5. [21] TNA T 267/33, 'The Sterling Agreements 1968', 4–6. [22] Browning Browning, Peter. 1986. The Treasury and Economic Policy, 1964–1985, London: Longman. [Google Scholar], The Treasury and Economic Policy, 87. See also Burk and Cairncross Burk, Kathleen and Cairncross, Alec. 1992. 'Goodbye Great Britain': The 1976 IMF Crisis, New Haven, CT and London: Yale University Press. [Crossref] , [Google Scholar], 'Goodbye Great Britain', 20 and Morgan, Callaghan: A Life, 542. [23] Strange Strange, Susan. 1971. Sterling and British Policy: A Political Study of an International Currency in Decline, Oxford: Oxford University Press. [Google Scholar], Sterling and British Policy, 75. See also Newton Newton, Scott. 2010. The Sterling Devaluation of 1967, the International Economy, and Post-War Social Democracy. English Historical Review, 515: 912–45. [Crossref] , [Google Scholar], 'The Sterling Devaluation of 1967', 914. [24] TNA T 267/33, 'The Sterling Agreements 1968', 12. [25] Tomlinson Tomlinson, Jim. 1990. Public Policy and the Economy Since 1900, Oxford: Oxford University Press. [Google Scholar], Public Policy and the Economy Since 1900, 243. [26] Newton, 'The Two Sterling Crises of 1964 and the Decision Not to Devalue', 95. [27] See Zis Zis, George. 1991. "The International Status of Sterling". In Labour's Economic Policies 1974–1979, Edited by: Artis, Michael and Cobham, David. Manchester: Manchester University Press. [Google Scholar], 'The International Status of Sterling', 109. [28] TNA T 267/33, 'The Sterling Agreements 1968', 95. It is interesting to note that despite this view, the sterling agreements were continued until the November 1974 Budget, and public statements from the Bank of England continued to argue that the agreements had 'provided a valuable element of stabilities in the international monetary scene' (Bank of England [BE] 3A 38/4, Sterling Agreements Press Statement, 6 September 1973) despite it being noted in private that the agreements have not been inherently desirable (see BE 3A 38/4, St Clair to Walker, 13 March 1974). [29] Ludlam Ludlam, Steve. 2001. "The Making of New Labour". In New Labour in Government, Edited by: Ludlam, Steve and Smith, Martin J. 1–31. Basingstoke: Palgrave. [Google Scholar], 'The Making of New Labour', 11. [30] Eichengreen Eichengreen, Barry. 2008. Globalizing Capital, 2nd ed., Princeton, NJ: Princeton University Press. [Crossref] , [Google Scholar], Globalizing Capital, 133–4. [31] Milner Milner, Chris R. 1980. "Payments and Exchange Rate Problems". In The British Economy in the 1970s, Edited by: Maunder, W. P. J. 218–46. Gateshead: Heinemann. [Google Scholar], 'Payments and Exchange Rate Problems', 219–20. [32] Sahin Sahin, Sila. 'Britain and the Sterling Float in 1972.' Unpublished Ph.D. diss., University of Warwick 2008 [Google Scholar], 'Britain and the Sterling Float in 1972', 9. [33] See Ibid., 154–7 for a summary of the principal contingency plans. [34] Ibid., 175. [35] For instance, in Labour Party, Labour's Programme 1973, 16; TUC/Labour Party Liaison Committee Trades Union Congress/Labour Party Liaison Committee. 1973. "Economic Policy and the Cost of Living. Trades Union Congress". In Report of the 105th Annual Trades Union Congress, 313–5. London: Trades Union Congress. [Google Scholar], 'Economic Policy and the Cost of Living', 313–5; Labour Party Labour Party. 1999. "Let us Work Together—Labour's Way Out of the Crisis". In Labour Party General Election Manifestos, 1900–1997, Edited by: Dale, Ian. 181–92. London: Routledge. [Google Scholar], 'Labour's Way Out of the Crisis', 192; Labour Party Labour Party. 1999. "Britain will Win with Labour". In Labour Party General Election Manifestos, 1900–1997, Edited by: Dale, Ian. 194–213. London: Routledge. [Google Scholar], 'Britain Will Win With Labour', 213. [36] Harmon Harmon, Mark. 1997. The British Labour Government and the 1976 IMF Crisis, Basingstoke: Macmillan. [Crossref] , [Google Scholar], The British Labour Government and the 1976 IMF Crisis, 55. [37] Wickham-Jones Wickham-Jones, Mark. 1996. Economic Strategy and the Labour Party: Politics and Policy-Making 1970–1983, Basingstoke: Macmillan. [Crossref] , [Google Scholar], Economic Strategy and the Labour Party, 32. [38] Dell Dell, Edmund. 1996. The Chancellors: A History of the Chancellors of the Exchequer 1945–1990, London: Harper Collins. [Google Scholar], The Chancellors, 410. [39] Wass, Decline to Fall, 87. [40] Dell, The Chancellors, 412. [41] TNA T 277/3053, 'PCC (74) 4', 20 December 1974. [42] Ibid. See also Rogers Rogers, Chris. 2009. The Politics of Economic Policy Making in Britain: A Re-Assessment of the 1976 IMF Crisis. Politics & Policy, 37(5): 971–94. [Crossref] , [Google Scholar], 'The Politics of Economic Policy-Making in Britain', 977–9 and Rogers Rogers, Chris. 2009. From Social Contract to "Social Contrick": The Depoliticisation of Economic Policy-Making under Harold Wilson and James Callaghan, 1974–75. British Journal of Politics and International Relations, 11(4): 634–51. [Crossref], [Web of Science ®] , [Google Scholar] 'From Social Contract to "Social Contrick"', 638–42. [43] See Butler and Butler Butler, David and Butler, Gareth. 2000. Twentieth Century British Political Facts: 1900–2000, 8th ed., Basingstoke: Macmillan. [Crossref] , [Google Scholar], Twentieth Century British Political Facts, 411 and 418, respectively. [44] Donoughue Donoughue, Bernard. 1987. Prime Minister: The Conduct of Policy under Harold Wilson & James Callaghan, London: Jonathan Cape. [Google Scholar], Prime Minister, 67. [45] Buller and Flinders Buller, Jim and Flinders, Matthew. 2005. The Domestic Origins of Depoliticisation in the Area of British Economic Policy. British Journal of Politics and International Relations, 7(4): 526–43. [Crossref] , [Google Scholar], 'The Domestic Origins of Depoliticisation', 535. [46] Pliatzky, Getting and Spending, 130. [47] See Rogers, 'From Social Contract to "Social Contrick"', 644. [48] TNA T 354/414, 'External Financing: State of Play', 7 March 1975. [49] TNA T 358/207, 'Walker to Barratt', 11 March 1975. [50] TNA T 277/3055 'PCC (75) 41', 13 March 1975. [51] This was proposed by Lord Kaldor, see TNA T 277/3053 'PCC (75) 20', 12 February 1975. On the rejection of the proposal, see Wass, Decline to Fall, 97. [52] See TNA T 277/3054 'PCC (75) 33 (revise)', 26 February 1975. [53] TNA T 358/207 'Walker to Mitchell', 11 April 1975. [54] TNA T 358/207 'Barratt to France', 22 April 1975. Wass correctly notes that the scale of intervention provoked a degree of disagreement between the Bank and the Treasury, with the Treasury arguing that fall was not being achieved quickly enough and the Bank expressing concern over the implications for the sterling balances, Decline to Fall, 334; however, this does not indicate strong disagreement on the principle of a depreciation itself, but rather the most appropriate means of achieving it. [55] Wass, Decline to Fall, 339. [56] See TNA T 358/208, 'Note of a Meeting', 5 May 1975. [57] TNA T 358/208 'Hedley-Miller to Wass', 11 June 1975. [58] TNA T 277/3056 'Mitchell to Richardson' circulated to PCC as 'PCC (75) 65', 18 June 1975. [59] See TNA CAB 128/56 'CC (75) 10th Conclusions', 27 February 1975 and TNA CAB 197/50 'Lever to Wilson', 26 March 1975, respectively. [60] TNA T 277/3057 'PCC (75) 55', 14 May 1975. [61] TNA CAB 128/57 'CC (75) 27th Conclusions', 12 June 1975. [62] See TNA PREM 16/342, 'Note of a Meeting', 20 June 1975. [63] TNA T 358/209, 'Note of a Meeting', 30 June 1975. [64] TNA PREM 16/343 'Donoughue and Haines to Wilson', 1 July 1975. [65] Hansard Hansard. 'Commons Sitting of 1 July 1975, Series 5, Vol. 894.' Available from http://hansard.millbanksystems.com/sittings/1975/jul/01; INTERNET (accessed 1 November 2009). [Google Scholar], 1 July 1975, col. 1190. [66] Harmon, The British Labour Government and the 1976 IMF Crisis, 228–29. [67] See Burk and Cairncross, 'Goodbye Great Britain'; Hall Hall, Peter A. 1993. Policy Paradigms, Social Learning, and the State. Comparative Politics, 25(3): 275–96. [Crossref], [Web of Science ®] , [Google Scholar], 'Policy Paradigms, Social Learning and the State'; Hickson Hickson, Kevin. 2005. The IMF Crisis of 1976 and British Politics, London and New York: Tauris Academic Studies. [Crossref] , [Google Scholar], The IMF Crisis of 1976. [68] See TNA T 382/3 'Walker to Hedley-Miller', 13 January 1976 and TNA T 277/3175 'PCC (76) 6th Meeting', 16 February 1976. [69] Rogers, 'The Politics of Economic Policy Making', 979. [70] TNA T 277/3175 'PCC (76) 7th Meeting', 18 February 1976. [71] Browning, The Treasury and Economic Policy, 96. Burk and Cairncross also suggest that this was part of an attempt to bring sterling to about $1.90, see 'Goodbye Great-Britain', 22–3. [72] Pliatzky, Getting and Spending, 143. [73] It should be noted that at this stage the Bank expressed a view that the best way to keep control of the rate with the least cost to the reserves was to establish a floor for sterling, and that failure to try and maintain a rate of just over $2 had meant investors did not believe British authorities wanted to hold the rate. See BE C 40/1429, Note on the Exchange Rate, 29 June 1976. [74] TNA T 277/3175 'PCC (76) 14th Meeting', 11 March 1976. [75] TNA CAB 134/4048 'MES (76) 6th Meeting', 17 March 1976. [76] TNA T 378/21 'Britton to Posner' 26 April 1976. Similar sentiments are expressed in Sir Bryan Hopkin's note to Douglas Wass in TNA T 378/21 'Hopkin to Wass', 12 May 1976. [77] TNA T 277/3175 'PCC (76) 22nd Meeting', 14 June 1976. [78] See TNA CAB 128/59 'CM (76) 2nd Conclusions', 19 April 1976 and TNA T 371/87 'Jones to Pliatzky', 4 May 1976. [79] TNA CAB 129/189 'CP (76) 15', 14 May 1976. These statements in May pre-empt those of the closing statement of the Fund's annual consultation, in which the IMF emphasised the need to bring down the PSBR urgently, preferably by cutting expenditure rather than through increasing taxation. See BE 6A 399/1, Note for the Record, 26 May 1976. [80] On 3 June, the Governor of the Bank of England telephoned Arthur Burns of the FRBNY about the possibility of 'putting together a large sum of money' to stabilise the rate, see BE 2A 77/1, Telephone Conversation with Dr Burns, 3 June 1976. The following day Jelle Ziljstra, President of the Netherlands National Bank, telephoned the Governor to enquire formally whether it would be helpful to mobilise multilateral central bank backing for sterling, and at this time the Governor relayed his previous conversations with Burns, see BE 2A 77/2 Governor's Telephone Conversation with Ziljstra, 4 June 1976. These conversations formed the impetus for the G10 standby. [81] See TNA CAB 134/4025 'EY (76) 5th Meeting', 7 June 1976 and TNA CAB 128/50 'CM (76) 8th Conclusions', 10 June 1976. [82] See TNA CAB 134/4025 'EY (76) 5th Meeting', 7 June 1976 and TNA CAB 134/4025 'EY (76) 6th Meeting', 15 June 1976. [83] See TNA T 277/3175 'PCC (76) 25th Meeting', 23 June 1976. [84] TNA PREM 16/833 'Hunt to Callaghan', 24 June 1976. [85] See TNA CAB 129/191 'CP (76) 52', 13 July 1976 and Modern Records Centre MSS.292.D/560.1/16 'Econ Ctee 12', 14 July 1976. [86] Reynolds Reynolds, David. 2000. Britannia Overruled: British Policy and World Power in the 20th Century, 2nd ed., Harlow: Pearson. [Google Scholar], Britannia Overruled, 238. [87] Schenk, The Decline of Sterling, 6. [88] Ibid., 358. [89] A sharp fall at the end of the month prompted Healey's dramatic return from Heathrow airport as he prepared to travel to Hong Kong just before the 1976 Labour Party conference, see Harmon, The British Labour Government and the 1976 IMF Crisis, 163–4. The figures are available from the Bank of England statistics Bank of England. 'Interest and Exchange Rate Statistics Generator.' Available from http://www.bankofengland.co.uk; INTERNET (accessed 1 November 2009). [Google Scholar] generator at www.bankofengland.co.uk [90] Wass, Decline to Fall, 337. [91] See Strange Strange, Susan. 1994. States and Markets, 2nd ed., London: Continuum. [Google Scholar], States and Markets, 112. [92] TNA T 277/3175, PCC (76) 37th Meeting, 26 October 1976. [93] TNA T 378/22, Note of a Meeting, 25 October 1976. [94] See TNA T 381/17, Mitchell to Monck, 4 November 1976. [95] See TNA CAB 134/4026 'EY (76) 54', 2 November 1976. [96] TNA PREM 16/836, 'Berrill to Callaghan', 2 November 1976. [97] TNA T 378/22, Note of a Meeting, 25 October 1976. [98] See Wass, Decline to Fall, 231–3. [99] TNA PREM 16/805, Note of a Meeting, 3 December 1976. Also Healey, 432. [100] Morgan, Callaghan: A Life, 544. [101] TNA T 277/3175 PCC (76) 37th Meeting, 26 October 1976. [102] TNA T 277/3175, PCC (76) 38th Meeting, 2 November 1976. This led to opening sessions described as 'somewhat formal', making it difficult to judge how the negotiations would go, see BE 6A 399/1, Note for the Record, 8 November 1976. [103] See TNA 364/50, Note of a Meeting, 11 November 1976. Also Rogers, 'The Politics of Economic Policy Making', 984–5. [104] TNA CAB 129/193 'CP (76) 111', 22 November 1976. [105] See PREM 16/805, 'Note of a Meeting', 3 December 1976. [106] The relevant Cabinet papers are TNA CAB 129/193, CP (76) 117, 29 November 1976 (Benn), TNA CAB 129/193, CP (76) 118, 29 November 1976 (Crosland), and TNA CAB 129/193, CP (76) 124, 30 November 1976 (Shore). [107] Objections to such strategies were persistently raised throughout the period in question. See, for instance, and among others TNA T357/174, 'Fogarty to France', 26 March 1974; TNA CAB 128/55, CC (74) 29th Conclusions, 26 July 1974; TNA 277/3054, PCC (75) 33 (revise) 26 February 1975; TNA CAB 128/56, CC (75) 17th Conclusions, 25 March 1975; TNA CAB 197/50, Lever to Wilson, 20 November 1975; TNA CAB 134/4048, MES (76) 32, 12 March 1976; TNA CAB 134/4025, EY (76) 19, 27 May 1976; TNA CAB 129/193, CP (76) 116, 30 November 1976. On the practical problems faced by Italy in introducing an import deposit scheme, see BE C 40/1430, RHG to Balfour, 1 July 1976. [108] Rosen Rosen, Andrew. 2003. The Transformation of British Life 1950–2000: A Social History, Manchester: Manchester University Press. [Google Scholar], The Transformation of British Life, 59. [109] Clarke Clarke, Peter. 2004. Hope and Glory: Britain 1900–2000, 2nd ed., London: Penguin. [Google Scholar], Hope and Glory, 356. [110] Morgan Morgan, Kenneth O. 2001. Britain Since 1945: The People's Peace, New ed., Oxford: Oxford University Press. [Google Scholar], Britain Since 1945, 417. [111] Coates Coates, David. 2008. Darling, It Is Entirely My Fault! Gordon Brown's Legacy to Alistair and Himself. British Politics, 3(1): 3–21. [Crossref] , [Google Scholar], 'Darling, It Is Entirely My Fault!', 17. [112] Hay Hay, Colin. 1996. Narrating Crisis: The Discursive Construction of the "Winter of Discontent". Sociology, 30(2): 253–77. [Crossref] , [Google Scholar], 'Narrating Crisis', 260.