Capitalism cannot be planned
When the Labour Party won the 1945 general election they declared their confidence in their ability to solve the problems of British capitalism, the main plank in their programme being the nationalisation of coal, steel, the railways, the Bank of England and other industries. They promised full employment, stable prices, expanding production and a rising standard of living but soon came into difficulties and adopted the first of the post-war incomes policies. Prices rose sharply, the export of British manufacturers lost ground and in 1949 they sought another remedy in devaluing the pound from $4.00 to $2.80. It did not save them and in 1951 the Tories came to power and remained in office until 1964, declared by the Labour Party to be Thirteen Wasted Years.
At the 1963 Labour Party conference, Harold Wilson announced a new cure-all –the technological revolution –spelled out in the Party’s 1964 election programme, LET'S GO WITH LABOUR FOR THE NEW BRITAIN:
“The world wants it and would welcome it. The British people want it, deserve it, and urgently need it…A new Britain –mobilising the resources of technology under a national plan; harnessing our national wealth in brains, our genius for scientific invention and medical discovery; reversing the decline of thirteen years; affording a new opportunity to equal, and if possible, surpass, the roaring progress of other western powers, while Tory Britain has moved sideways, backwards but seldom forwards…The country needs fresh and virile leadership. Poised to bring its plan into instant operation. Impatient to apply the New thinking that will end the chaos and sterility.
After much consultation with industry and the unions, and collection of information, this heady stuff was embodied in a government publication, the National Plan, running to nearly 500 pages, all of it summarised in a Labour Party pamphlet Target 1970. The Trade Union leader Frank Cousins was appointed Minister of Technology. According to TARGET 1970 there was to be a 25 per cent growth in the national income, wages were to rise by 20 per cent, houses would be built at a rate of 500,000 a year, the output of manufactured goods was to go up by about 25 per cent and 800,000 new jobs were to be created. Steel output was to go up from 25,820,000 tons in 1964 to 30,750,000 tons in 1970 (NATIONAL PLAN, p. 142).
In 1965, after a year in office, George Brown spoke optimistically at the Party Conference about the National Plan for which he had been responsible:
Even though we are not yet on sound ground, it has been an incredible change in the situation. The prospects now compared with what they were last October, are almost unbelievably different (CONFERENCE REPORT, p. 222).
His excuse for difficulties that had arisen or might arise was that though the Labour government knew the previous Tory government had left a mess behind them, it was much more than they had thought. The Tories had not only left a mess but had concealed it from their successors how great it was:
“We did not know the full capacity of our predecessors for deception”
In 1968, after four years in office, the Labour Party published A Dictionary of Achievements, prefaced with the claim:
“Since Labour came to power in 1964, the whole country has been experiencing a quiet revolution. In almost every aspect of government, a ferment of new ideas has been at work”.
It gave details about aspects of the plan that had been put into operation but almost nothing about the results.
As it turned out, when 1970 arrived (and the Labour government lost the election) most of the planned targets had not been reached, growth in national production was only 17 per cent against the planned 25 per cent. Wages had indeed gone up but prices had risen by 35 per cent. The rise in real wages was under 10 per cent. (There was of course nothing in the plan about putting up prices). Instead of the 500,000 new houses a year the average number completed in the period 1965 – 1970 were fewer than 400000 a year. In 1970 it was 364,000 actually below the number in 1964. The growth in national production under the Plan was less than in preceding years under the Tories and it has continued to grow more slowly under later and Tory governments.
Exports of manufactured goods continued to lose ground in world markets and to remedy it there was another devaluation of the pound from $2.80 to $2.40 (nothing about this, either, in the plan). When Labour lost office in June 1970 unemployment was nearly 200,000 higher than when they took power in October 1964.
So why did it all go wrong? Basically it is because the Labour planners do not understand how capitalism operates. They fail to realise that the quantity of commodities that a company or industry can go on producing is not determined simply by its productive capacity but by the quantity that can be sold at a profit –that is by market conditions generally. And market conditions cannot be controlled, or even forecast with any certainty. The quantity that can be sold at a profit not only depends on the completely uncontrolled and unpredictable state of the world markets but also the sales of one industry are dependent on what is happening in other industries. It only needs a few industries –steel, motor cars, shipbuilding, textiles –to overproduce for their particular markets and consequently to cut back their investment and output, for other industries to be adversely affected.
In drafting the Plan the Labour government approached companies and organisations asking them to estimate future demand and their capacity to increase production up to the expected level. But how could they know? There are dozens of governmental and private organisations engaged in forecasting. Did any of them in 2007 forecast that there would be 2.47 million unemployed by the end of 2009. Or did any of them foresee that in the early 1970’s the oil exporting countries would band together to use their monopoly to double and treble oil prices? In anticipation for a growing demand of steel Labour (and Tory) governments doubled the output of the British Steel Corporation, only to find out that the world market for steel had slumped and they had to cut production down again.
Because the Labour Government’s National Plan was “national”, it had to be constructed by combining the separate plans of each industry and company and trying to adjust these to the comprehensive whole. This assumes that the companies themselves know what is going to happen. What success did the steel, motor car and shipbuilding industries have at peering into the future? None at all.
The fallacies of planning were exposed by Frank S McFadzean, a managing director of the Royal Dutch Shell group. The group was asked among other things to tell the Labour government in 1964 what would be its future investments in oil tankers, how much would it be and where would it be. It was impossible to answer the question:
Its investment decisions are influenced by the investment decisions of others – British, Norwegian, Swedish, Dutch, and Chinese ship-owners for example. If these later decide to charter at low rates Shell may build no tankers at all. (Article on a volume of McFadzean’s lectures FINANCIAL TIMES 6 April 1969).
McFadzean was in an exceptionally good position to expose the futility of the National Plan because Shell had for years spent millions of pounds on its own attempts to foretell the future of the market for oil and other commodities of the group. This was his verdict:
Except in the very short period ahead, we are not really very impressed by the detailed results shown by our plans. It will be the sheerest fluke if we ever achieve them. Looking back to 1962 and what we then prognosticated…we were wrong on many counts…We were wrong on volumes, we were wrong on prices, we were particularly wide off the mark on our estimates of the demand for and price of tankers, we were wrong on our cost projections, we were wrong on the level of investment which we would need to make. We did not fully foresee the increase in the size of the tankers, we did not foresee the extent of Libya’s crude oil production; we did not see the dominant role that natural gas would play in Holland…we did not foresee the closure of the Suez Canal…
If Shell with all their experience could not plan ahead with confidence for one industry what hope was there or is there that a government could do it for a combination of all the industries?
Capitalism is inherently unstable and its periodic descent into depression is inevitable, as shown by the experience of a couple of centuries. From 1945 to the mid-1970’s the Labour and Tory leaders all believed that they had found a way to maintain boom conditions and full employment indefinitely by the use of the fallacious doctrines of J. M. Keynes.
With the rise of Thatcher first Monetarism and then economic liberalism of free trade and free markets became the basis of subsequent Tory and Labour administrations. These economic doctrines were unable to maintain boom conditions and full employment. With Gordon Brown’s government it went bust, but it would have happened no matter who was in power. Capitalism can no more be planned than it can be benign, self-adjusting and in a state of equilibrium when left to its own devices.
Capitalism goes its own way, in accordance with its structure and its own economic laws, with its inevitable cycles of expansion and contraction. Capitalists expand investment and production when it is profitable to do so, and contract both when it is not profitable. Neither National Plans nor free market forces alter the essential conditions under which capitalism operates.