The rise of New Labour / FRFI 197 Jun / Jul 2007

FRFI 197 June / July 2007

On Tuesday 15 May, Gordon Brown was confirmed as the new Labour Party leader, having received 308 MP nominations. Only 27 MPs had supported the great left hope John McDonnell, far short of the 44 needed to get on the ballot paper. The result confirmed that the left within the Labour Party is a spent force. As prime minister, Brown will serve the interests of the City of London and British imperialism with the same dedication as his past ten years as Chancellor of the Exchequer. This did not stop McDonnell from wishing Brown every success: loyalty to the Labour Party for the Labour left always overrides political principle.

McDonnell’s campaign was based on an illusion shared across the opportunist left that the Labour Party was once and could still be a party that represents working class interests. That week Socialist Worker (19 May 2007) had editorialised: ‘The left wing Labour MP John McDonnell should be on the ballot paper for Labour leader. Socialist Worker has consistently supported his challenge.’ No socialist should have supported McDonnell since he is committed to sustaining Labour as a ruling party, and that means as a party running the British state and British imperialism.

McDonnell and his supporters yearn for the days of the post-war boom when it was possible to guarantee the relatively privileged conditions of higher paid workers and the petit bourgeoisie while sustaining adequate living standards for the mass of the working class. However, this social democratic consensus broke down in the mid-1970s when the Labour government set monetary targets and cut state spending, and when, in the 1978-79 ‘Winter of Discontent’, low-paid workers fought back, driving the higher-paid skilled workers and the petit bourgeoisie into the arms of the Conservative Party.

Behind this were changes in the economy. As long as sufficient profits were produced to give an adequate return on capital and to finance state welfare then the social democratic consensus of the post-war years could be maintained. However as soon as inadequate profits were produced – an inevitable consequence of the process of capital accumulation – the consensus began to break apart. Unemployment and poverty started to grow. And at the very moment when increased state spending was needed, state spending was blamed for the crisis. British imperialism turned to its most dynamic sectors – in particular commerce and financial services as epitomised by the City of London – to resolve its problems. Parasitism became increasingly evident.

The days of the post-war boom cannot return. This means it is not possible for capitalism to meet the interests of the mass of the working class. Far from it: all economic developments since then confirm that British imperialism will seek to satisfy only the interests of the petit bourgeoisie and labour aristocracy to ensure the relative social peace it needs while it defends and extends its interests throughout the rest of the world. For the mass of the working class there is only increasing repression, deteriorating state service, poorer conditions of work and unemployment.

These economic developments and the consequent social changes have moulded Labour, changing it from one reactionary form – so-called ‘Old’ Labour – into an equally reactionary form – ‘New’ Labour. ‘Old’ Labour was a continuation of the alliance between the labour aristocracy – a small, privileged stratum of the working class organised in skilled trade unions – and a radical section of the petit bourgeoisie that founded the Labour Party to represent its interests. The trade unions were the major force in the alliance, bankrolling the party and dominating conferences with the block vote. Under ‘New’ Labour the petit bourgeoisie has become the predominant force: public sector managers and directors, accountants, management consultants, lawyers, journalists, the upper echelons of the media, NGOs and so on. The trade union leadership is important only for its financial backing, even though the unions continue to organise more affluent workers particularly in the public sector. Why and how this happened, and its political significance, is a closed book for the opportunist left.

The 1974-79 Labour government and the crisis
The 1974-79 Labour government inherited a serious economic crisis. By 1975, it faced a huge balance of payments deficit, a 24% inflation rate and a lengthy run on the pound. Its response was a wages policy, the first stage of which restricted wage increases to much less than the inflation rate. Although the limit was hardly breached, the balance of payments deficit continued into 1976, as did the run on the pound. A second stage from 1 August 1976 limited increases to 4.5%, again in agreement with the TUC. The result was an unprecedented 10% cut in real wages. By April 1976, the government had exhausted an IMF loan negotiated the previous December. Substantial cuts in state spending produced no fundamental change and, in autumn, Labour obtained a second loan, agreeing to further cuts of £3 billion. In October that year Prime Minister James Callaghan told the Labour Party conference ‘we must get back to fundamentals’:

‘For too long…we postponed facing up to fundamental choices and fundamental changes in our society and in our economy…We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all honesty that that option no longer exists…’

Chancellor Denis Healey’s letter of intent to the IMF in December 1976 declared that:

‘…an essential element of the government’s strategy will be a continuing and substantial reduction over the next few years in the share of the resources required for the public sector…[and] to create monetary conditions which will encourage investment and support sustained growth and the control of inflation.’

This signalled the Labour government’s acceptance of monetarism. Opposition from the trade union leadership was muted, but when further stages in the wages policy were imposed in 1977-78, it was without TUC agreement. As unemployment rose by a million, the strain for wide sections of the working class was too much, especially in the public sector where such policies could be more effectively imposed. In December 1978, low-paid council manual workers lodged a 40% pay claim, and on 22 January 1.5 million came out in the first of a series of one-day strikes.

Although the better-off sections of the working class and the middle class were able to recover their earnings position by 1979, this was insufficient to stop them from supporting the Conservatives in the June general election. At the October 1974 election, 26% of all skilled workers had voted Conservative, and 59% Labour. In 1979, the figures were 41% for either party. This translated into the loss for Labour of a large number of constituencies in London and the south east. Meanwhile, poorer sections of the working class abstained, amongst them significant numbers of black and Irish workers alienated by a government which had failed to represent their interests, operated racist immigration laws and sanctioned a regime of torture in the north of Ireland.

Rampant parasitism
It was during this period that the parasitic characteristics of British capitalism became more and more evident as the London Eurocurrency market became a central source of loan capital throughout the world. Overall, the private external assets of British imperialism grew from £61 billion in 1973 to £119 billion in 1977; in 1962, such assets had made up some 40% of GNP; in 1977, they had risen to 93%, a position achieved in the US only in 2005. British imperialism utilised its dominance in the financial services market to shore up its domestic position.

Under the Conservatives this process was to continue with a vengeance as successive governments tore down barriers to the operations of the City. By 1997, Britain’s total external assets stood at a massive £1,976.5 billion, 244% of GDP. Direct investment amounted to £232.4 billion (28.7% GDP), portfolio investment at £651.0 billion (80.3% GDP) and other investment at £1,070.4 billion (132% GDP). Manufacturing output hardly changed throughout the period with two serious recessions. During the first, 1980-82, 25% of manufacturing industry was lost as high interest rates and an overvalued pound made much of it uncompetitive; by 1983, there was a net trade deficit in manufactured goods for the first time. In 1977, profits, interest and dividends from overseas investment had represented less than 25% of gross trading profits (excluding profits on North Sea oil). By 1982 this had risen to over 50%. Private overseas investment grew from the equivalent of just under 50% of manufacturing investment to more than 175% over the same period. In 1993, following the 1990-92 recession, British investment overseas (direct and portfolio) at £101.9bn, was greater than the total capital investment in Britain at £94.2bn and more than eight times the investment in manufacturing industry. In 1996 even after the recovery in domestic investment and following a fall in portfolio investment abroad, British overseas investment was equivalent to 77.9% of total capital investment in Britain and nearly six times that invested in manufacturing industry.

Changes in the workforce mirrored the structural changes in British capital. Between 1975 and 1979, manufacturing employment fell by half a million. Over the next 18 years it was to fall by a further 2.6 million, from 7.1 to 4.5 million. In the same period, jobs in finance and business services rose from 2.9 million to 5.0 million, a 67% increase. Many of these jobs were highly paid: a new petit bourgeoisie emerged whose increasingly affluent lifestyle depended directly on the success of British imperialism. On the other hand there was also a growth in low-paid, casualised, part-time and temporary employment, especially in distribution, hotels and restaurants, which rose overall from 5.5 million to 6.6 million: workers to serve the expanding consumption needs of the new petit bourgeoisie. Finally, and despite Conservative rhetoric, employment in the state sector also rose, from 5.7 million to 6.7 million. Again many of these were well-paid management jobs – for example, to run the internal market in the NHS.

With these changes came increasing poverty for the working class. The proportion of people living in poverty (ie below half average income) rose to 24% in 1995/7 or 14.1 million people, 9.1 million more than in 1979. By 1997, 34% of all children, 4.6 million, lived below the poverty level, 3.2 million more than in 1979. 3.3 million house-holds were workless, compared to 1.2 million in 1979. Only 35% of the workforce was in full-time tenured work compared to 55% 20 years earlier. Inequality grew: in 1979 the richest 10% had more than four times the income of the poorest 10%. By 1995/97 it was nearly eight times. Income and wealth inequalities had returned to Victorian levels.

The Conservative government 1979-83
Although the Conservatives came to power in 1979 promising cuts in public spending, they were unable to deliver them to any significant degree. This was in major part because social security expenditure rose as unemployment soared to four million by 1982. Whilst pauperising large sections of the manual working class, the Conservatives assiduously cultivated the support of the petit bourgeoisie and labour aristocracy through a succession of bribes and subsidies: council house sales, cheap shares from privatisations, growing wage differentials. Privilege for these sectors became mediated more and more through the market, paid for through the impoverishment of millions of workers.

The Conservatives were able to create and sustain a new social base of support for Britain’s vastly-extended parasitism. This was essential given the massive onslaught on the working class which required both the introduction of draconian anti-trade union laws and the destruction of basic employment rights.

Labour offered no effective opposition. Although Labour conference policy seemed to indicate a radical move to the left (triggering the defection of four senior Labour Party figures to form the Social Democratic Party in March 1981), Labour leader Michael Foot distanced Labour from any acts of working class resistance. In 1981 Labour opposed the Irish hunger-strikers, with Don Concannon visiting Bobby Sands on his deathbed to make Labour’s position absolutely clear. When working class youth rose up against police racism in the summer of 1981, Labour left and right condemned them. Despite the blatant racism of the police, Tony Benn declared ‘the Labour Party does not believe in rioting as a route to social progress nor are we prepared to see the police injured during the course of their duties’ – at a time when the opportunist left was supporting his deputy leadership campaign. His defeat at the October conference marked the beginning of the end of the left as a significant force in the Labour Party.

By 1982 Labour and its allies in the trade unions were in headlong retreat. Ken Livingstone’s capitulation when the Law Lords ruled against the Greater London Council’s Fare’s Fair policy showed the impotence of municipal socialism. Meanwhile, the two major rail unions, ASLEF and NUR, had rejected joint action over a pay dispute with British Rail. In the summer, a pay dispute involving nurses and NHS ancillary workers was allowed to drag on for months whilst the TUC refused to organise any support. In April Labour gave its support for the Malvinas (Falklands) War, whilst Benn argued for sanctions rather than military action, proclaiming in Parliament that there was ‘unanimity on the right of self-defence against aggression’.

Labour went into the 1983 general election with a manifesto promising a ‘fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families’. This was anathema to the petit bourgeoisie and better-off sections of the working class who were already benefiting from the Thatcher regime: such strata either voted Conservative or for the SDP or the Liberals. Labour’s share of the vote of social classes A, B and C1 fell from 24% in 1979 to 16%; of the C2 skilled manual workers, from 40% to 32%. Its overall share of the vote at 28% was only 2% more than that of the SDP and Liberal Alliance.

To 1997
Prior to the 1997 election, FRFI pointed out that Labour had become the party of big business and the banks, and that its victory, far from bringing any benefit to the working class, would be the prelude to attacks on democratic rights and state welfare. We also said that the ruling class would expect Labour to defend its interests in a world of intensifying inter-imperialist rivalries. We have been proved correct, and the opportunist left, which supported Labour in the election, have been proved wrong. We had understood how Labour represented reaction all along the line, and how every development within the party after 1983 underlined this.

The Labour Party faced disintegration following its defeat that year. If it did not recover the electoral support of wide sections of the petit bourgeoisie and labour aristocracy it would never run the country again. That was the clear message of SDP’s election result. Labour had to refashion itself so that it could both win the confidence of the ruling class and build the electoral coalition necessary to win a general election. Replacing Foot as leader, Kinnock laid down the requirement for Labour very clearly:

‘…we can only protect the disadvantaged in our society if we appeal to those who are relatively advantaged. The apparent over-concentration of our energies and resources on those groups like the poor, the unemployed and the minorities – does a disservice both to them and ourselves…if we are to be of real use to the deprived and insecure we must have the support of those in more secure circumstances – the home owners as well the homeless, the stable family as well as the single parent, the confidently employed as well as the unemployed, the majority as well as the minorities.’

In other words, a Labour victory would depend on the extent to which it could secure the support of the upper layers of the working class and the growing petit bourgeoisie. In the meantime Labour would abandon in words, as it had always done in practice, the interests of the poorer sections of the working class. The 1983 Labour Conference which elected Kinnock as leader also voted to expel Militant. Many left Labour MPs, seeing the writing on the wall, started their odyssey to the right.

The defeat of the 1984/85 miners’ strike was to be the next decisive step in the refashioning of Labour. It both ended any significant trade union resistance to the restructuring of British capital and, in the longer run, undermined the central role the trade union leadership played within the Labour Party. The strike was defeated, not by the state alone, but with the support of the trade union movement and the Labour Party who successfully isolated the miners and the working class communities who supported them. Crucial unions scabbed by moving coal supplies, whilst the Labour Party at first did nothing to support the miners and then denounced the miners for defending themselves.

From then on, Labour determinedly pursued a path of wooing the support of corporate and financial capital and that of the petit bourgeoisie and labour aristocracy. General election defeats in 1987 and 1992 merely spurred its endeavours. Under Kinnock a series of organisational changes concentrated power with the leadership, reducing the influence of the trade unions and annual conference.

By the 1987 election Labour was talking about a share-owning democracy and supported council house sales. Its membership was reflecting the privileged interests to which it was trying to appeal: in 1987, 60% of its members had a degree or equivalent higher educational qualification compared to 11% amongst the general population. The next step was to overhaul Labour policies. In 1989 it abandoned unilateral disarmament, the restoration of lost trade union rights and renationalisation, and then supported Britain’s entry into the Exchange Rate Mechanism, signalling the end of a commitment to full employment. Labour also became soft on the rich, committed to a maximum tax rate of 50%.

In March 1990, Labour condemned poll tax protestors in London when their 200,000-strong demonstration was attacked and broken up by the police. Kinnock condemned the ‘minority’ for ‘causing this dangerous uproar’ and said ‘they should be dealt with severely’. The following year, the first Gulf War allowed Labour to re-assert its imperialist credentials. The Labour leadership was, if anything, more rabid than Thatcher.

Following the defeat of 1992, Ken Livingstone argued that ‘We must be able to build socialism without taxing middle income families till it hurts’, and continued ‘If you analyse the result I suspect that we just failed to win seats we should have because people on middle incomes were concerned. In London and the South East, £21,000 is average earnings and should not have been a target for higher tax. I have always argued the figure should have been £26,000’. In other words, yet more concessions were needed to the petit bourgeoisie.

In 1993, Kinnock’s replacement, John Smith, reassured business leaders that any future Labour government would not introduce a shorter working week although Britain worked the longest hours in Europe. At the 1993 party conference Labour agreed to institute a policy of ‘one member, one vote’, a direct attack on the trade unions’ domination of the party and possible because the unions had been so enfeebled by anti-trade union laws, their constant capitulations, and the loss of more than 40% of their members since 1979. The petit bourgeoisie – accountants, management consultants, lawyers, journalists, lecturers, managers, professional politicians – was now in the driving seat. Tens of thousands of them joined the party over the next few years.

From 1994, under Blair’s leadership, social authoritarianism now matched economic liberalism as Labour proposed:
• Targeting of benefits to achieve cuts and force people into low-paid work or training. It dropped any commitment to restore the link between pension and wage rises.
• Increased powers for the police and further attacks on civil rights. Blair said Labour would become ‘the party of law and order’.
• No new top rate of income tax. Echoing Livingstone, Blair said ‘there are top-rate tax payers now who are hardly in the super-rich bracket and I think we have to be extremely sensitive to them’.

Sealing the political defeat of the Labour left and its radical petit bourgeois allies, a Special Conference in April 1995 voted to replace Clause 4 with an endorsement of ‘the enterprise of the market and the rigour of competition’ and a ‘thriving private sector’. In a striking demonstration of their class origin, 90% of constituency delegates voted in favour, along with 54% of union delegates. In February 1996 Blair secured union agreement to ending trade union sponsorship of MPs, and in October the membership voted 95% in favour of Labour’s utterly reactionary election manifesto.

In an act of obeisance Blair flew to Australia to address a conference of News International executives, to be rewarded with the support of Murdoch’s press, including the Sun. The final flourish prior to the 1997 election was a promise to keep to the Tories’ stringent public spending plans if Labour was elected.

Labour now had a programme which met the needs of British imperialism, and with the constant exposure of Tory sleaze and disarray over Europe, it was able to assemble the electoral coalition necessary to win the May 1997 election. A Tory lead amongst A, B and C1 voters, which had never been less than 32% since 1974, was cut to 5%. Amongst C2s, Labour recovered all the ground it had lost in 1979, posting a lead of 23%. Wide swathes of the petit bourgeoisie and the better-off sections of the working class felt that Labour provided a surer defence of their narrow material interests.

Conclusion
Two weeks after the election, Chancellor Gordon Brown handed control of the Bank of England over to the City of London. Parasitism remained rampant: by 2005, British imperialism’s total external assets had risen nearly two-and-a-half times since 1997, standing at £4,837 billion, 395% of GNP. Labour has fought five wars to protect Britain’s global interests. More than 1.1 million extra jobs have been created in the finance and business sector as a result, whilst jobs in manufacturing have fallen by the same number. The reactionary petit bourgeoisie has consolidated its grip of the Party. The Labour left, unable or unwilling to understand economic and social reality, has been reduced to a pitiful rump.

It is not a question of whether ‘New’ Labour is more or less reactionary than ‘Old’: it is merely the form that Labour has had to take in order to remain a party fit for imperialism in the 21st century. It has become an openly bourgeois imperialist party. Those on the opportunist left who imagine that Labour can be returned to a mythical past, or who believe that an alternative in ‘Old’ Labour’s image can or should be built are merely creating an illusion that Labour’s opportunist past is worth fighting for. It reinforces our point that breaking with Labour and its apologists is the only way a new party representing the mass of the working class will be built.
Robert Clough

Material for this article was drawn from:

Labour: a party fit for imperialism, Robert Clough, 1992, Larkin Publications

The state we’re in: the political economy of the middle class, David Yaffe, FRFI 124, April/May 1995, http://www.rcgfrfi.easynet.co.uk/marxism/articles/

Poverty and inequality in Blair’s Britain, David Yaffe, FRFI 147, February/March 1999,
britain/housing-and-welfare/1169-poverty-and-inequality-in-blairs-britain-frfi-147-feb-mar-1999

The labour aristocracy and imperialism, Part 3: From the Second World War to the end of the post-war boom, David Yaffe, FRFI 163, October/November 2001 britain/1139-the-labour-aristocracy-and-imperialism-part-three--frfi-163-oct--nov-2001.html

The labour aristocracy and imperialism, Part 4: The end of the post-war consensus, David Yaffe, FRFI 164, December 2001/January 2002 britain/labourtrade-unions/1138-the-labour-aristocracy-and-imperialism-part-4-frfi-164-dec-2001-jan-2002

The labour aristocracy and imperialism, Part 5: Neo-liberalism and the new labour aristocracy, David Yaffe, FRFI 165, February/March 2002 britain/labourtrade-unions/1135-the-labour-aristocracy-and-imperialism-part-5-frfi-165-feb-mar-2002

Britain: parasitic and decaying capitalism,
David Yaffe, FRFI 194, December 2006/January 2007, britain/1042-britain-parasitic-and-decaying-capitalism-frfi-194-dec-2006-jan-2007.html