CM 2 - X5ANCV The post war period and the age of consensus PDF

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Economie société et culture des pays de la langue anglaise UK...

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X5ANCV – LECTURE 2 THE POST-WAR PERIOD AND THE “AGE OF CONSENSUS” (1945-1975)

INTRODUCTION •

Need to go back in history to better understand Britain’s economy today

Why? Because the first war period that is to say the years between 1945 and 1975, this period known as the post war period has informed much of modern economic policies in Britain. The most famous example being the Welfare State (Politique d’Etat Providence). • •

The post-war period has informed much of modern economic policies in Britain Outline:

I) II) III) I.

The Post-War Consensus: Definition The Welfare State Keynesianism

DEFINING THE POST-WAR CONSENSUS

1945-75: the “age of consensus“ The post War period, the 30 years after World War II were defined as an era of political consensus, an era of political agreement between various political forces and this has impacted economic policies. How can we define the post war consensus? Consensus means agreement. During those 30 years known in French as “Les trentes Glorieuses” which means an era of economic prosperity, in the political field in Britain there was a substantial degree of agreement between various forces. 1) A substantial degree of agreement  

Between the two main political parties, the Conservative Party and the Labour Party Between the government, employers and trade unions

It made it easier to negotiate policies such as wages, hours of work, repealing child labor and so on.  

Between all classes of the population Priority: unite and rebuild Britain after World War II

At the time, the general feeling was that you need to unite in order to rebuild Britain after WWII, that was a priority, rebuilding the country which was destroyed by Nazi bombings and whose economy has suffered during the war

BRITAIN AFTER THE WAR: SAINT PANCRAS STATION: Picture that shows what London looked like after the War. Ration Books existed even after the war ... Which means that the country was very poor even after the War in the 1950s 2) Reasons explaining the consensus

 

A combination of factors Memories of the interwar period: mass unemployment and poverty after the Wall Street Crash of 1929

The interwar period (the 20s), and Britain did not want to go through an economic crisis again hence the urgent need to rebuild the country after the war. 

WW2 and the difficulties shared by the population, by all social classes

Ration books for example show that people were still experiencing difficulties.

 Trade unions more powerful than before Therefore they were in a position of power to negotiate with the government for progressive economic laws which would solve the country’s problems. 3) Agreement about aims, principles and policies 

Fundamental aim: make Britain more efficient economically, fairer and more compassionate

After the war, Britain was a very poor country and therefore, politicians thought that they needed to take care of the people. That’s what we mean by a set of compassionate policies.   

Social policy: the Welfare State Economic policy: Keynesianism Aim: keep unemployment to a minimum

The aim of Keynesianism was to have as little people unemployed as possible 

“Butskellism” (Chancellors of the Exchequer Butler – Conservative, 1951-55 – and Gaitskell – Labour, 1950-51)

Butskellism is a combination between the names of two ministers of economy and chancellors of the Exchequer, Butler and Gaitskell. They brought very similar policies in the name of the Consensus without being from the same political party.

4) Period 

Some ideas emerged during the war

Like the Welfare State. 

Start: end of WW2, 1945 (election Labor Party)

When the Labor Party was elected in 1945 and therefore implemented a set of more progressive policies. 

End: 1975 (Thatcher Leader Conservative Party) or 1979 Conservative Party, Thatcher PM) or during the 1970s

(election

The end of that consensus era is either 1975 or 1979; historians have a debate on that. However, it always has to do with Margaret Thatcher. , Margaret Thatcher put an end to that age of Consensus. You either choose between 1975, that is to say the year when Margaret Thatcher became the leader of the Conservative Party, or you may choose 1979 when she became Prime Minister. Margaret Thatcher was deeply opposed to the policies which have been voted during the age of Consensus and she thought that something new was needed. The age of Consensus started after WWII and died out somewhere in the 70s.

II.

THE WELFARE STATE

1) Definition •

A State in which the government tries to provide the best possible social services for everybody.

Welfare signifie le bien-être. Everybody means children, adults and old people and that includes old age pension, school for children … Basically provide social services for people to live happily. The Welfare State originated before the war, some ideas emerged before 1945. The principles of the Welfare State were laid out in a report by William Beveridge. And that Report was written during the war.

2) The Beveridge Report (1942) •

William Beveridge

He was repeal by what he saw during the war and wanted to fight poverty. •

Aim of a WS: elimination of the five giant evils: want (poverty), disease, ignorance, squalor (le manque d’hygiène) and idleness (l’oisiveté).

•

The government should set up a scheme that would protect everyone “from the cradle to the grave”.

A scheme is a series of policies and the cradle to the grave means “du berceau à la tombe”. 3) Wide-reaching reforms

a) Dozens of laws voted Dozens of laws were voted after the report. All political parties agreed on the essential things and agreed to put the Beveridge Report into Practice to rebuild Britain. b) Huge impact on society as a whole (even today) • •

Free education for all National Health Service (sort of social security system)

It guarantees free access to hospitals and medicine. It still exists even though it is in crisis. •

Housing (with council houses)

It is like in french « logements sociaux ou HLM). •

Insurance (with a full system of benefits covering, unemployment, sickness, maternity, retirement, death (when the partner dies))

Insurance: Money that the government gives you to have a decent way of life. 

By 1951, the foundations of the WS had been laid down

It has not changed that much yet.

III.

KEYNESIANISM

In order to find solutions to limit unemployment, the various British governments were looking for economic models and they were looking for economic theories and they found the theories of a very famous British economist who is John Maynard Keynes. He was a socialist but today we would consider him a Center left economist. He was ver y active in London middle class intellectual circles that were very active in founding the Labour Party. 1) The classical economic theory versus Keynesianism

a) The classical economic theory: main aims and principles That is to say more conservative  

Importance of a balanced Budget Aim: keep taxation relatively low

It is business friendly measure. Classical economic theory is business friendly and it is advantageous for business owners. 

No/low government intervention to manipulate demand

No or Low intervention in economic life 

laissez-faire policy which left the market to regulate wages and prices

Used by Adam Smith in the 18th century. It is synonymous with the free market. Leaving the free market to regulate itself. 

The economy is self-regulating: boom/bust/boom/bust, etc.

It is the Adam Smith’s invisible hand concept. However it is risky, you deal with boom/bust (crash).

b) Keynesianism: aims and principles



John Maynard Keynes, The General Theory of Employment, Interest and Money (1936), (most famous book).

Keynes was trying to find solutions for the crisis that the world was living after 1929. Keynes agreed with Adam Smith when he said that economic life is provided by a succession of booms and busts, but Adam Smith though that this is inevitable, we cannot do anything about it and Keynes did not agree with that, he said basically, we can, we should get rid of those

busts period and let’s try and find solutions. Economic crisis are not inevitable, they can be solved according to him. To recap he: -

-

Put forward a theoretical framework to explain why the recessions which periodically hit capitalist economies happened and how they could be overcome. Rejected laissez-faire policies which left the market to regulate wages and prices. Rejected the socialist view that the economy could be stimulated by simple redistribution of wealth to the poor. Argued that redistribution of wealth would destroy any incentive to achieve.

Keynes ideas: 

Demand management in a mixed economy - Recessions can be overcome by government intervention. - The government should borrow money and invest in new projects.

According to him it: 

Would provide jobs : these people with new jobs would have money to spend therefore by spending the money, would stimulate the economy so demand would increase then as a result the economy would come out of recession. It is a virtuous circus.

-



The economic goal was a mixed economy that is to say a balance between the nationalization of key industries.

But balanced with large private sector.

The idea is to try to find a balance between a certain degree of State control and a free market. C’est à cet époque suivant les principes de Keynes que on va avoir tout une vague de nationalisation dans des secteurs clés de l ’économie Britannique, soit des entreprises privé qui vont devenir public soit on va créer de tout de pièce des entreprises publiques, notamment the BBC qui est créé à peu près à cette époque la et également BP (British Petroleum) qui est la seule entreprise qui est encore nationalisée aujourd’hui. Le Royal Mail qui en cours de privatisation. C’est Durant l’après guerre donc que on va avoir une vague de nationalisation.

2) The positive effects of Keynesianism in the 1950s and 1960s

   

Low unemployment (1-2% of the working population). 1950-70: rate of inflation 4.5% (low) Wages grew in real terms by 20% (massive) Increased prosperity: Cf. consuming and ownership (thals to the rise of the consumer society)

3) The breakdown of Keynesianism (negative effects)

a) The stop-go cycles In order to control the boom/burst in the economy observed by Adam Smith, Keynesianism had the sop-go cycles however it had negative effects. 



  

If there was a rise in unemployment, the government would increase the Budget deficit by investing in new projects and lowering taxes (GO phase). If full employment and demand threatening to rise too much, the government would reduce the Budget deficit and invest less, for example by raising taxes : would reduce demand (STOP phase). (Brochure page 17). But Stop-go cycles were hard to handle and they happened approximately every two years. In the early 1960s, there was a series of repeated ‘stops’ holding back industrial expansion. Therefore Britain was lagging behind her competitors in Europe

b) Stagflation Stagflation : Combinaison de l’inflation et du chômage



In theory, full employment produces higher wages and therefore higher prices meaning that if you have higher wages, the standard of living increases because people can afford to spend more money and therefore prices increase.

 

 

But if you have higher wages and higher prices the risk is a rise in inflation. The problem is in the early 1970s there was a rise in unemployment so the whole system collapsed they did not predict that a world economic crisis would happen (the oil shocks of 1970s). The rise in unemployment were aggravated by oil shocks which aggravated the world recession In Britain the combination between inflation and unemployment created “stagflation” (inflation mais dans une economie qui stagne).

CONCLUSION • • • • •

Important period for Britain. The Welfare State still exists today (The NHS, free education act etc still exist) Positive effects of Keynesianism for the economy and society in the 1950s and 1960s. Negative effects in the long run: collapse of Keynesianism. End of 1970s: time for a new economic policy. That is when Margaret Thatcher entered the political stage....