Post-war consensus

The post-war consensus is a name given by historians to an era in postwar British political history, from the end of World War II in 1945 to the election of conservative Margaret Thatcher as Prime Minister in 1979.^[1] The concept says there was a widespread public policy consensus that covered support for collectivism, a mixed economy, and a welfare state.^[2] Toye says it was widely—but not universally—accepted by scholars. Pimlott says this theory is a myth—that it fails because of the distorted definition of consensus.^[3] Kavanagh and Morris reply that clear, major continuities existed regarding policies toward the economy, employment, trade unions, welfare, and foreign affairs from 1946 to 1970, despite changed administrations and party dominance. They contrast sharply with the partisan political and administrative conflict since that time.^[4]

Policies inside the consensus

The foundations of the post-war consensus (also sometimes referred to as Butskellism) can be traced to the reports of William Beveridge, a Liberal economist who in 1942 formulated the concept of a more comprehensive welfare state in Great Britain.^[5] The first general election since 1935 was held in Britain in May 1945, giving a landslide victory for the Labour Party, whose leader was Clement Attlee. The policies undertaken and implemented by this Labour government laid the base of the consensus. The Conservative Party accepted many of these changes and promised not to reverse them in its 1947 Industrial Charter.

The post-war consensus can be characterised as a belief in Keynesian economics,^[5] a mixed economy with the nationalisation of major industries, the establishment of the National Health Service and the creation of the modern welfare state in Britain. The policies were instituted by all governments (both Labour and Conservative) in the post-war period.

Collapse of consensus

Ideological forces gathered strength, such as the influence of Friedrich Hayek's the Road to Serfdom (1944) on younger Conservatives who came into powerful roles after 1970 and used Hayek, and American Milton Friedman to attack Keynesianism. Keith Joseph played a major role as an advisor to Thatcher.^[6]

Keynesianism itself seemed no longer to be the magic bullet for economic crises. During the 1970s global events such as the 1973 oil crisis put pressure on the post-war consensus; this pressure was intensified by domestic problems such as high inflation, the three-day week and industrial unrest (particularly in the coal-mining industry). In early 1976, expectations that inflation and the double deficit would get worse precipitated a Sterling crisis. By October, the pound had fallen by almost 25% against the dollar. At this point the Bank of England had exhausted its foreign reserves trying to prop up the currency, and as a result the Callaghan government felt forced to ask the International Monetary Fund for a £2.3 billion loan, then the largest that the IMF had ever made. In return the IMF demanded massive spending cuts and a tightening of the money supply. That signaled a suspension of Keynesian economics in Britain until 2008, when a Keynesian-style fiscal stimulus was applied to several of Britain's major high street banks as a result of the Credit Crunch. Callaghan reinforced this message in his speech to the Labour Party Conference at the height of the crisis, saying:

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 candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.

Yet despite this, some elements of the post-war consensus continued.

Economists Broadberry and Crafts have argued that anticompetitive practices, enshrined in the postwar consensus, appear to have hindered the efficient working of the economy and, by implication, the reallocation of resources to their most profitable uses. Higgins says the statistical data support Broadberry and Crafts.^[7]

The consensus was increasingly seen by those on the right as being the cause of Britain's relative economic decline. Believers in New Right political beliefs saw their ideology as the solution to Britain's economic dilemmas in the 1970s. When the Conservative Party won the 1979 general election in the wake of the 1978-79 Winter of discontent, they implemented New Right ideas and brought the post-war consensus to an end.

New Zealand

The 'post-war consensus' is also regarded as an era of New Zealand political history, from the first New Zealand Labour Party government of the 1930s until the election of a fundamentally changed Labour party in 1984, following years of mostly New Zealand National Party rule. As in the UK, it was built around a 'historic compromise' between the different classes in society: the rights, health and security of employment for all workers would be guaranteed, in return for co-operation between unions and employers. The key ideological tenets of governments of the period were Keynesian economic policy, heavy interventionism, economic regulation and a very powerful welfare state.

See also

• Butskellism
• Gaitskellism
• New Deal Coalition
• Postwar Britain
• Washington Consensus

References