Labour’s sacred cow heads to market
Amid rising unemployment, Labour signalled how it would put Britain back to work in the spring of 1993— but nationalisation was off the agenda.
“We need both dynamic markets and active government. For years we've conducted a largely sterile debate about the ownership of industry and services as if privatisation and nationalisation are the only conceivable choices in economic policy… In a world of multinational ownership of companies, the only truly national asset which we possess is the skills and accumulated knowledge of our own people. Ownership today is therefore largely irrelevant.” John Smith, Feb 7, 1993, Labour Local Governance Conference
In the spring of 1993, with UK unemployment topping 3 million, the debate over how Labour would put the country back to work was intensifying. In a speech followed by a draft industrial plan, a typically cautious John Smith indicated one of the party’s sacred cows, the nationalisation of key industries, was ready for the butcher.
Taken together, the two documents reflect a party leadership that no longer subscribed to the socialist arguments that underpinned Clause IV of the Labour constitution—the commitment to common ownership of industry. For them, getting the country back to work meant working with the market through private-public partnerships, fostering a welcoming environment for foreign investment, and clamping down on predatory behaviour in the financial sector.
Labour was gearing up to free itself from its constitution and tether itself to the market.
The long road to the abattoir
At the turn of the century, socialist thought contended that a government could not respond to the economic needs of the majority without owning and controlling the economy. The adoption of Clause IV in 1918 was seen as Labour’s commitment to socialism, even though socialism wasn’t directly mentioned in the text.
The right and centre of the party, while supporting public ownership, had never seen nationalisation as an end in itself. It was a way to control prices, stimulate investment, create employment, and protect workers and consumers from irresponsible firms. Nationalisation was a tool to achieve economic aims, not a political goal.
In this sense, Smith’s February 1993 speech at the Labour local government conference1 acknowledged what had been widely recognised in the party leadership for some time: that nationalisation was not the only way to achieve these aims.
In the 1970s and early 80s, there had been a clear disconnect between the thinking of the Labour leadership and party members on nationalisation. The 1974 manifesto had committed Labour to expanding the government’s stake in British manufacturing, including the North Sea Oil, shipbuilding, and aircraft manufacturing sectors. Once in power, however, the National Enterprise Board, established to expand government equity in major manufacturing companies under the Wilson government, was more active in propping up flagging companies than nationalising “the commanding heights of the economy”.
In 1982, Labour’s National Executive Committee (NEC) endorsed the nationalisation of the 25 largest private sector manufacturing companies and adopted a 1983 manifesto that recommitted Labour to the “expansion of common ownership substantial enough to give the community decisive power over the commanding heights of the economy.” The Foot-Healey election manifesto of 1983, however, ignored the 25-firm pledge and stopped short of the NEC recommendations, limiting the expansion of the public stake to the electronic, pharmaceuticals, health equipment, and building materials sectors, but adding the ambiguous, “and in such other sectors as required by the national interest.”
Internal divisions on the left and its waning influence at the national level weakened party support for nationalisation under Neil Kinnock. The shadow cabinet released a new policy statement on the issue in 1986. Entitled Social Ownership, the document was the product of a committee co-chaired by David Blunkett and John Smith. It reiterated Labour’s commitment to an extension of public ownership, but didn’t name any target industries. It also conveyed support for a socialised public sector within a flourishing private sector, arguing that state planning and market competition could happily coexist.
The use of “social ownership” over “public ownership” in the title was significant. Nationalisation as a term had fallen out of vogue and, opposing the centralisation of power under Thatcher, Labour needed a term that better hinted at the possibility of local administration and control.
After 1987, the “social ownership” proposals were quietly dropped. Public speeches and documents made few references to public ownership. Few supporters of nationalisation outside of the far left advocated for the issue in the Policy Review process of 1987-89. The party membership was now much more closely aligned with the leadership on the issue as well. A resolution supporting the expansion of public ownership at the 1989 conference was roundly rejected by 5.5 million votes to 459,000.
By early 1990s, Clause IV had become the guiding principle that nobody dared to mention.
Smith treads carefully
Although the party may have been ready to drop the commitment to nationalisation, Smith couldn’t afford to let an argument about Clause IV consume political oxygen. David Ward, John Smith’s head of policy, told IFTC, “in January 1993, his priority was to get One Member One Vote (OMOV) done. You don’t have two [policy] battles on two fronts at the same time.”
Smith was also gearing up to maximise pressure on the Tories over the Maastricht Treaty ratification that summer. “Those two things were the major priorities, not having a big internal argument over Clause IV.”
He used the February speech to signal his belief that Clause IV was no longer relevant, without falling into a rattrap of detail and giving it too much political weight. “Smith was a long gamer. He wanted an evolution of the whole policy agenda over the lifetime of the parliament.”
So would Smith have eventually dropped Clause IV? We can’t be sure. David Ward says that before his death, the Labour leader was considering issuing a personal statement at the 1994 party conference on the new values of the party. There was even a meeting set with his advisors to discuss drafting the statement. Ward believes it would have reflected many of the moral positions and policy changes that Tony Blair eventually pushed through.
A draft industrial plan further illuminated the party’s new economic thinking…
Two months after Smith’s speech on nationalisation, in April 1993, Labour published a draft of a new industrial policy plan, Making Britain’s Future. It was to form the basis of a year of consultations with industry and business schools, and identified several policies up for consideration—putting workers on company boards, changing laws to discourage hostile takeovers, reforming bankruptcy procedures to improve firms’ chances of survival, reviewing tax and pension laws to boost investment in British firms, and funding for training and research and development.
While more a direction of travel than a concrete set of commitments, it showed that Labour viewed the decline of British industry and rising unemployment as a result of underinvestment, predatory behaviour, and warped incentives that rewarded prioritising short-term share price gains over the long-term health of firms.
… but it wasn’t an alternative
The Tories blasted the plan as a “rerun of tried and tired policies”. They had a point. Michael Heseltine, President of the Board of Trade, had argued for many of the same policies during the 1980s, including an expansion of government funding for research and development, putting the onus on firms to prove takeovers will benefit the public interest, and using tax incentives to increase investment in British industry.
“Labour has lost four elections primarily because it has not presented a clear enough vision of what kind of society we actually want. To accept the values of the market means to perpetuate the hideous obscenities of mass unemployment and poverty.” —Jeremey Corbyn
Turning to the market for solutions to Britain’s economic distress, and signalling an intent to leave much of Thatcherite capitalism intact, was a tacit acceptance of the government’s impotence when it came to controlling unemployment. Conservative governments could tolerate eyewatering levels of unemployment by clinging to the belief that employment levels were determined by market forces, and there was little the government could do to control it. Committing to preserving these forces, albeit softening the most predatory market elements, meant Labour offered only a superficial economic alternative for British workers suffering at the whims of the market. As Paul Foot argued in the Independent, Labour appeared “every bit as impotent as their opponents.”
The Conservative’s neoliberal doctrine had eroded Britain’s industrial base, fuelled inequality, and left Britain reliant on a de-regulated financial sector. Yet Labour was on its way to asking voters to swap one brand of neoliberalism for another.
Yes, we’ve been dining out on this one for weeks, but I promise, this is the last you’ll hear of it—I think… Maybe.