Old Labour and economic crisis
New Labour viewed Old Labour’s performance in economic management during the twentieth century as calamitous. The party had to take a different path, prioritising stability and demonstrating it would not take risks with the economy by deviating from the established policy-making consensus. Blair and Brown’s followers were ‘acutely conscious of the fear [their party] created on the money markets’. They were haunted by the folk memories of failure symbolised by:
Ramsay MacDonald, Philip Snowdon, and the Great Slump, Stafford Cripps and devaluation, austere rationing, Harold Wilson and devaluation, British Leyland and “industrial disease”, Jim Callaghan and the Winter of Discontent, Denis Healey and the IMF and 98 per cent rates of marginal taxation.144
New Labour’s leaders put considerable effort into tackling the perception that ‘a Labour victory would mean a financial panic’.145 Social democrats in Western Europe and the United States accepted the limitations of what government intervention can achieve in integrated open economies. Blair and Brown believed macro-economic policies must recognise the central importance of global capital flows and the worldwide market in money. Labour had to accept the economy was incorporated within ‘a highly efficient international market in short-term money’, which made investor confidence decisively important.146 The party should come to terms with the problems of post-war economic management in which ‘the Butskellite mixture of macro-economic management and relatively ineffectual micro-economic industrial intervention’ was replaced by ‘a new mixture of monetarist macro-economic neglect and micro-economic neglect’, both of which hastened Britain’s industrial decline.14'
The Economist's editorial in 1997 emphasised that unlike Old Labour, ‘a left- of-centre government must establish credibility with the international financial markets before embarking on redistribution’ while ‘supporting free trade and globalisation was compatible with pursuing social justice at home’.148 For New Labour politicians, the concept of the ‘national economy’ was an anachronism. The leadership never wanted to experience the acute feeling of powerlessness that plagued the administrations of the 1960s and 1970s. In Brown’s opinion, ‘Too many Labour Chancellors lurched from profligate post-election boom to fatal pre-election bust. Stability, rules, discipline, prudence and transparency: the mantras were more than election slogans. They were the means by which the New Labour government would exorcise the past’.149 Moreover, where Old Labour was circumspect about the private sector, the modernisers would be unreservedly ‘pro-business’.
New Labour’s construction of Old Labour’s incompetence hardly reflected the balanced assessment of economic history. The Wilson and Callaghan governments inherited serious structural problems from their predecessors. Labour ministers invariably pursued sensible policies. There was no easy route to economic growth in the post-war decades, while the tone of criticism has been excessively condemnatory.150 And there is a persistent danger of overstating the discontinuities in economic policy: ‘In the economic field, New Labour appears less of a departure [from previous Labour governments] than its rhetoric suggests’.151 In government, Brown was more than prepared to use budgetary instruments to maintain aggregate demand, not least in the wake of the ‘dot.com’ bubble bursting at the end of the 1990s. What mattered, nevertheless, was the perception that New Labour politicians formed of the party’s experience after 1964 and their overall opinion of Old Labour’s policy-making as inept.
The inference New Labour drew from the experience of the 1960s and 1970s was that the party must win voters’ trust on the economy. Labour’s appeal should be to ‘safety first’ and fiscal rectitude, tackling the pattern of post-war ‘boom and bust’ and endemic ‘stop-go’ cycles. Blair’s consigliere, Peter Mandelson, proclaimed in 1996: ‘There is a rock-hard commitment on our part to the maintenance of macro- economic stability’.152 Labour emphasised its conversion to ‘constrained discretion’, transferring policy-making responsibilities to independent ‘arm’s-length’ bodies and experts over setting interest rates. The economic ‘realities’ of globalisation and the constraints it imposed on domestic policy were widely recognised. Globalisation was the centrepiece of New Labour’s economic narrative.133 New Labour’s motive was less to assimilate the Thatcherite consensus than to recast the party’s policies and identity away from demand management, high taxes, trade union militancy and above all, the economic ineptitude of Old Labour.