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Magazine Issue 8 - Spring 1999 | ||
| Power, Responsibility, and the 1976 IMF Crisis... "The collapse of the global marketplace would be a traumatic event with unimaginable consequences. Yet I find it easier to imagine than the continuation of the present regime." George Soros, international financier. Conventional wisdom has it that the 1976 IMF crisis in Britain was caused by the then Labour government spending too much money. Stunned by such brazen incompetence, the financial markets panicked and the pound went into free-fall. Faced with imminent bankruptcy, the desperate Callaghan government called in the IMF and began implementing a harsh package of monetarist economic reforms. This traditional interpretation of events is succinctly expressed by the later Tory Chancellor Nigel Lawson in his Memoirs. "By 1976 the British economy was in intense crisis, and the IMF had to be called in, humiliatingly, to bail us out and impose its de facto monetarist terms." (Lawson 1993,p1050). In fact, the way in which this crisis developed reveals that the inability of governments to control the economy is a more fundamental issue. The severity of the crisis was not related to the weakness of the economy - at times the main indicators were moving in the right direction - but to the collapse of market confidence. This was not merely accidental: in fact the markets were clearly intent on forcing IMF intervention, which would inevitably prescribe a right-wing austerity package. With the IMF committed to neo-liberal economic solutions and financial markets committed to forcing IMF intervention this was nothing less than a real world conspiracy to destabilise a left-wing government. Conservative interests exploited the crisis to impose their economic agenda on a democratically government. Bernard Donoughue, special advisor to James Callaghan, describes meeting with a top US official who informed him that: "Parts of the Treasury are in very deep cahoots with parts of the US Treasury and with certain others in Germany who are of very right wing inclination and they are absolutely committed to getting the IMF here." (Eric Shaw 1996 pp 148-50) In other words, financial speculation against the Labour government was not a question of the economic stability of the economy but of stockbrokers’ political preferences. Gavyn Davies (a member of the Labour Government) later complained: "The Markets wanted blood... We didn't understand that at the time, we didn't know what they wanted was humiliation... trying to avoid humiliation was a waste of time." (Shaw 1996 p119)The claims of big business and the right that the decisions of financial markets are based on rational economics, detached from political bias, are nothing short of bizarre. The "Wall of Money" savaged the French socialist Miterrand government whilst capital flowed into Thatcherite Britain, despite similar economic performance. Time and time again, Labour governments in Britain have faced a run on the pound in the first months of taking office. Far from making impartial judgements on economic policy, the city's free market missionaries place a stranglehold on governments who attempt to deal with economic problems in a democratic way. A small group of powerful individuals dominate the economic agenda by defining the limits of what governments can and cannot do. Motivated by self-interest, they use their financial muscle to resist any devolution of real power to ordinary people. To argue that financial markets wield excessive power may not seem controversial. Yet the myth that elected and accountable governments direct economic policy still dies hard. The common complaint that politicians are "all the same" is based on the misconception that they have overall control and responsibility for the economy. Tony Blair's 'Third Way', damping down the expectations of ordinary people and working with big business, is inspired by the failure of left of centre governments to deal with the power of financial markets. Bill Clinton, essentially a '60s liberal (even though he didn't inhale), is reported to have complained that the stranglehold of the markets left him with a choice between Eisenhower's conservatism and Reaganomics. Governments since the Second World War have consistently failed to directly address the real issue they face. Hobsbawm recently pointed out that not having a policy on globalisation is not a strategy for dealing with it (Marxism Today Nov 1998). This summer panic swept financial markets and speculators themselves are being forced to recognise the situation is out of control. The consequences of failing to cooperate and confront international capital - in terms of environmental sustainability and the standard of living of ordinary people across the globe - are simply too serious to ignore. Nick Shaw |