Author: Alan Shipman

‘Chaos’ became ‘crisis’ – but was the reality so bad?

Updated Friday, 24th April 2015
Tory themed their broadcast around James Callaghan's 'Crisis? What crisis?' which ridiculed Labour's worst time in 1974-79. But was the reality really so bad?

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Journalism is supposed to be history’s first draft, but sometimes the history is re-written around it. The Sun’s ‘Crisis? What crisis?’ headline was never a direct quotation from Labour prime minister James Callaghan, and the problems it referred to were receding as the 1979 election approached. But the ironic slogan’s appearance (on a newspaper which then sold over 4 million copies daily) ensured that history remembers Callaghan largely by that phrase, no less than Humphrey Bogart telling Sam to “Play it again”.

So when the Conservatives themed their party political broadcast around it, they could count on it invoking some of the stormiest moments of Labour’s past five years, including the 1976 sterling crisis and the 1978-9 Winter of Discontent.

When the record is re-assessed, how serious had the crisis been? With hindsight, the Wilson-Callaghan years were arguably the worst time to be in power outside of a World War. Economically, the 1974-79 government had to deal with the end of the ‘Bretton Woods’ era, a roughly 25-year phase uniquely favourable to inflation-free growth and full employment.

The grim arithmetic shows that average annual growth of economic output, investment, employment and productivity were lower in 1974-9 than in the 15 years before or the 25 years after. Politically, those administrations are now condemned from the right for trying to stick with the ‘Keynesian’ policies that had engineered the 1950-70 ‘golden age’ but appeared to break down in the 1970s. They are equally castigated from the left for turning in desperation to ‘neoliberal’ reforms, push-starting those that Thatcher and Major wholeheartedly pursued from 1979-1997.


Indeed, Callaghan was directly briefed about ‘monetarism’ - the neoliberal Chicago School’s new route to price stability without mass unemployment - from his son-in-law Peter Jay, who even drafted the 1976 conference speech in which the new prime minister pronounced the death of Keynesian ‘demand management’. Thatcher, who preferred Friedrich Hayek’s version of free markets, never seriously engaged with monetarism’s architect Milton Friedman – and Jay later recalled that explaining it to her was “like showing Genghis Khan a map of the world”. 

The official long-run growth record (GDP change on same quarter a year ago) now shows that the slump which followed Thatcher’s arrival in 1979 was deeper and only slightly shorter than the one over which Labour presided in the mid-1970s. And although Thatcher promised that subduing trade unions, prioritising inflation control over full employment, privatising industries and deregulating the financial sector would make the economy fundamentally more dynamic, GDP growth after 1979 has been essentially no different from the annual 2.5% it was averaging before, and continued to average when the Iron Lady left. 

But electorates don’t wait for history’s revised draft. The perception at the time was that Labour had lost control of the economy (and its own trade-union supporters) in a way that threatened the social fabric as well as the economic performance. This was not the first time that election dates and errant data had conspired to break up the party. Wilson’s first (and only) defeat in 1970 came after his painful 1967 currency devaluation apparently failed to close a perilous deficit in the UK’s balance-of-payments.

When the data was revised after his election defeat, the deficit had virtually disappeared. But by then, Edward Heath’s Conservatives had already capitalised on the alarming provisional figures. The piano-playing Heath, too, quickly fell victim to discordant economic times, and the derailment of his ‘One Nation Toryism’ paved the way for Thatcher’s turn to neoliberalism. A crisis of falling output, rising prices and disgruntled labour protest had bundled out both previous administrations after one term, leaving Thatcher and her followers determined not to ‘Play it again’.  


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  • picture of Alan Shipman

    Alan Shipman

    (Department of Economics)

    Alan returned to research and teaching on the economy after it crashed in 2008, having (mis)spent years as an emerging-markets analyst, consultant and business journalist. Lucky enough to have been taught economics when capital ...

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