The 1950’s and 1960’s were both decades of exceptional economic performance in historical perspective, the UK economy had never performed so well as it had during these periods, for this reason it is often referred to as being the ‘golden age’. It was a period of continuous growth (on average 3.0% per annum during that period), which had produced increases in living standards, a high level of consumption, stable employment and higher wages. However, in comparison to Britain’s competitors, its performance could be seen as a failure, with other countries such as France an average growth of 7% per annum for that period.
The study of economic history usually groups both decades together and refer to them as the golden age, there were however many differences between the two decades performance and policies which are both interconnected with the problems and also each other.
The differences between the two decades can be explained by the two governments in power during the period. The Conservative party were in government during the 1950’s (with exception of 1951) through to 1964 where the Labour government took over. Thus it could be said that the 1950’s were the days of the Conservative party and the 1960’s were the days of Labour party. Both parties had a very different approach to the problems, which resulted in very different policies that could of helped or hindered the economy.
The 1950’s performed better then the 1960’s in many ways:
* The beginning of the 1950’s saw the UK as an economic superpower, second to the USA, with a 25% share of the world manufacturing exports; this is compared to 16% in 1960. This decline is a long-established trend dating back to the 1900’s when the UK had approximately a third of the total world trade in manufactured goods. The 25% in 1950 was only a temporary advantage as Japan and Europe were in a worst position then the UK after the war; they soon recovered which explained the decrease in world share.
* The GDP growth slowed during the 1960’s, from 2.9% in the 1950’s to 2.5% in the 1960’s. (Figures are approximate)
* The retail price index (a measure of inflation) changed from 3.4% in 1950 to 4.6% in 1960.
* Unemployment also rose from 1.8% in 1950 to 2.1% in 1960.
* The current account was in surplus in the 1950’s and on average was 0.2%, with the exception of 1951 and 1955. The effects of the Korean War could explain the 1951 deficit. The 1960’s one the other hand was in surplus for five years and in deficit for the other five years.
* In the 1950’s the prosperity of banking and commercial capital still rested on sterling’s role as an international reserve currency, when this began eroding, the sterling became increasingly vulnerable with immediate implications for the balance of payments and longer term ones for London’s future as international finance centre. The UK’s share of world trade in invisibles and private services began to fall from 24.9% to 20.9% and from 26.3% to 20.3% respectively between 1955 and 1960.
The Conservative came to power in 1951 with the promises of ending rationing, subsidies and replacing state controls with market forces. Which was the opposite of what the former Labour government’s measures/policies.
The Conservatives promised the following:
* More welfare spending
* Intervene less in the economy
* Maintenance of full employment
Although the emphasis was on holding down the amount spent on public expenditure, the Conservative government endorsed the creation of the welfare state and the promise of more welfare spending was achieved by a dramatic cutback in military spending. This cutback also meant that workers wages and industry’s profits did not need to be sacrificed for the time being.
As they could not use rationing and price subsidies, their answer to the problem of the trade deficit was a short-term problem of excess demand that was leading to a high level of imports, which could be rectified by increasing the level of personal taxation and purchase tax as a way of restricting demand.
The governments promise of intervening less in the economy was in hope of turning the UK into an opportunist state like the USA, this however changed in 1955 when they began to intervene more in incomes and prices. They then became more interventionist towards the end of their period in power at the beginning of the 1960’s. They argued that the UK needed planning and also by securing an agreement with the trade unions on incomes policy.
They also differed their strategy to the balance of payments from the former Labour government, who had argued that Britain needed a structural strategy to improve their export performance and implemented policies to reduce labour costs and increase productivity. The Conservatives attitude towards the balance of payments was that of a short-term economic problem which required a ‘touch on the brake’ either by increasing personal taxation or reducing public expenditure or increasing interest rates.
The Conservatives also pledged to recognise certain workers rights, including the right to strike and to belong to a trade union along with their commitment to full employment. They also pledged to end the wage freeze and to allow free bargaining. The breakdown of the wage freeze as far as the Conservatives were concerned meant a Conservative government committed to a more market orientated economy with less price controls and less subsidies, which was more likely to succeed reaching an agreement with the trade unions on incomes policy. The reduction of subsidies and the phasing out of price controls would increase pressures on prices and wages, at least in the short-term, and therefore if the government were to succeed in removing controls then it was better to allow for wages and prices to be determined in the market place without the government having to resort to direction.
The 1960’s was a decade of slower growth, balance of payments problems and low competitiveness. Around 1962 the Conservative government began to change its practices in order to attempt to generate faster economic growth, improve competitiveness and sustain full employment. The National Economic Development Office and Council was created during this period to identify barriers to growth.
Major UK manufacturing firms began investing heavily overseas. Early Transnationalisation of production by UK firms in pursuit of enhanced profits is an example of the growing convergence between their interests and those of finance capital in an ‘open’ economy with limited government restrictions on capital movement and the growing conflict between their interests and those of the national economy.
After the election of the Labour government in 1964, balance of payments problems and sterling crisis became more frequent and severe. The overriding importance placed on preserving the sterling’s international exchange rate necessitated tackling balance of payments problems in the short term by abandoning modernisation policies and implementing deflationary domestic economic policies to try and boost exports. These measures later turned out to be in vain as the sterling was devalued to $2.40 in 1967. The sacrifice of the expenditure planned for modernising the economy could be blamed for the UK’s slipping position of manufactured exports.
The devaluation of the sterling did offer opportunities for some sections of manufacturing. Prices of goods were more competitive then before.
The sterling crisis of 1966 forced the government to introduce additional legislation, a statutory wage freeze on wages for the next six months to be followed by another six months of restraint. Between 1966 and 1969 they Labour government, like the previous government had to resort to a statutory wages policy.
Industrial restructuring policies were continued from 1966 but in a chaotic and unorganised way. The Industrial Reorganisation Corporation and the provisions of the 1968 Industrial Expansion Act created new channels to pursue modernisation, of which included mergers. These initiatives had some impact, though not always the intended ones as newly merged companies invested overseas rather then in the UK defeating the purpose of the exercise.
The differences in policies can be pinpointed to the difference between the different governments.
The Labour government were more interventionist and focused more on modernisation to encourage competitiveness and ultimately growth, whereas the Conservatives tried not to intervene too much with the view that this would encourage firms to become more competitive.
It can be argued that the 1950’s performed better then 1960’s with stable balance of payments, stable growth, employment and inflation. However many of the problems that arose in the 1960’s were due to the activities of the 1950’s. The lack of modernisation attempts and the stop-go policies during the 1950’s proved to have slowed the growth during the 1960’s.
Them 1960’s also seemed to suffer from more problems, such as the balance of payments problems and the sterling crisis which led to abandoning modernisation plans – which further slowed the growth.