Richard Toye: Gordon Brown and the credit crunch in historical perspective
[Richard Toye is Associate Professor in the Department of History at the University of Exeter and the author of Gordon Brown and the credit crunch in historical perspective. In 2007 he won the Times Higher Education Young Academic Author of the Year Award for his book Lloyd George and Churchill: Rivals for Greatness. He is currently completing a book on Winston Churchill and the British Empire.]
In 1977, a group called Counteract released a satirical LP called The Cuts Show, in protest against the Callaghan government's squeeze on public spending. One song, 'Labour Party History', reviewed the story of Labour in power since World War Two. It is sung as if by the party's leaders and begins with the optimism of 1945. After outlining their bold plans for reform they reveal that there will, after all, be a delay: 'We hope some time this year to implement our plans/But at the present moment there's crisis on our hands.' The story is picked up again in 1964 and 1976. Each time a crisis provides a reason for delaying the implementation of high ideals. The leaders - who adopt increasingly refined accents as the song progresses - seem to become positively gleeful about this. The refrain runs: 'So excuse us for delaying for another year or two/The policies and promises and plans we said we'd do.' The song was not intended as a perfectly fair account of Labour's history, but it was a witty take on a common left-wing theme: the perpetual betrayal of the promise of change. Today the Labour Party under Gordon Brown appears to lack a clear sense of purpose, other than its own survival in power, and again faces severe economic crisis. Does The Cuts Show provide a template for how the current crisis will unfold politically?
One thing is certain: Brown himself has been fully aware of the pattern of crisis and disappointment, and has been determined to break it. In 2002 he told the Labour Party conference:
" Let us remember that while all past Labour governments were forced to retrench, cut back, and were overwhelmed by world conditions in 1924, 1931, 1951, 1967 and 1976, it is because we painstakingly built the foundations in economic management that we are the first Labour government with the strength to be able to plan for the long term on the basis of stability not stop-go. "
But within a few months of taking office as Prime Minister in 2007, that claim was beginning to look like hubris. The run on the Northern Rock bank in September of that year was a major sign that problems in the US sub-prime loan market would have a real impact on the UK economy. As Brown's government struggled to get a grip on the problem, its brief honeymoon of popularity came to an end. As Labour's support atrophied it appeared that Brown might go down in history as a failure, even if he did not suffer the ignominy of being dumped by his own party before he had an opportunity to fight a general election.
However, as Brown struggled for his political life in the autumn of 2008, something unexpected happened. As the Credit Crunch intensified Brown and his Chancellor, Alistair Darling, suddenly seemed to find their feet. They injected equity into British banks and provided guarantees on bank debt in a bid to get inter-bank lending restarted. The influential American economist Paul Krugman praised them for taking the lead in the worldwide rescue effort, writing that 'this combination of clarity and decisiveness hasn't been matched by any other Western government, least of all our own.' Labour's opinion poll rating increased and the party won a crucial by-election. Journalists started to observe that Brown seemed to be enjoying himself.
There was still no denying that the government had been blown off course. Darling's Pre-Budget Statement of 25 November 2008 was a landmark. It was widely seen as abandoning Brown's so-called 'Golden Rule', adopted in 1998 under the government's Code for Fiscal Stability. This stated that the government should borrow only for the purposes of investment, and not for current spending, over the course of the economic cycle. A further fiscal rule, that Public Sector Net Debt (PSND) would be held below 40% of Gross Domestic Product (GDP) over the course of the economic cycle, appeared to be set aside as well. As he boldly increased borrowing, Darling predicted that net debt would peak at 57% of GDP in 2013-14. Although he aspired to balance the Budget by 2015-16, a significant underlying budget deficit would persist in the meantime. In the past Labour governments' spending plans were disrupted by economic crisis, as the need for retrenchment threw cold water on the hopes of left-wingers. Now, a government that prided itself on fiscal prudence was forced by global turmoil to cast aside its austere, rules-based approach in favour of massive reflationary borrowing. New Labour, it seemed, was dead; Keynes, once again, was the man in the news. And even more strangely, far from wrecking the fortunes of a previously popular administration, this financial storm appeared to cast a political life-raft in front of a floundering Prime Minister.
Understanding how this was possible requires knowing the political, as well as the economic, context of previous crises. We can only hope to see what is distinct about British political culture today if we examine it in relation to Britain's recent past. This paper, therefore, addresses three relevant historical questions. In what ways has the Labour Party changed in the period since it first came to power in 1924? To what extent have the economic crises that Labour has faced in power been similar to one another? To what extent have changes in political culture affected the ways economic crises are perceived, and their political outcomes? ...
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In 1977, a group called Counteract released a satirical LP called The Cuts Show, in protest against the Callaghan government's squeeze on public spending. One song, 'Labour Party History', reviewed the story of Labour in power since World War Two. It is sung as if by the party's leaders and begins with the optimism of 1945. After outlining their bold plans for reform they reveal that there will, after all, be a delay: 'We hope some time this year to implement our plans/But at the present moment there's crisis on our hands.' The story is picked up again in 1964 and 1976. Each time a crisis provides a reason for delaying the implementation of high ideals. The leaders - who adopt increasingly refined accents as the song progresses - seem to become positively gleeful about this. The refrain runs: 'So excuse us for delaying for another year or two/The policies and promises and plans we said we'd do.' The song was not intended as a perfectly fair account of Labour's history, but it was a witty take on a common left-wing theme: the perpetual betrayal of the promise of change. Today the Labour Party under Gordon Brown appears to lack a clear sense of purpose, other than its own survival in power, and again faces severe economic crisis. Does The Cuts Show provide a template for how the current crisis will unfold politically?
One thing is certain: Brown himself has been fully aware of the pattern of crisis and disappointment, and has been determined to break it. In 2002 he told the Labour Party conference:
" Let us remember that while all past Labour governments were forced to retrench, cut back, and were overwhelmed by world conditions in 1924, 1931, 1951, 1967 and 1976, it is because we painstakingly built the foundations in economic management that we are the first Labour government with the strength to be able to plan for the long term on the basis of stability not stop-go. "
But within a few months of taking office as Prime Minister in 2007, that claim was beginning to look like hubris. The run on the Northern Rock bank in September of that year was a major sign that problems in the US sub-prime loan market would have a real impact on the UK economy. As Brown's government struggled to get a grip on the problem, its brief honeymoon of popularity came to an end. As Labour's support atrophied it appeared that Brown might go down in history as a failure, even if he did not suffer the ignominy of being dumped by his own party before he had an opportunity to fight a general election.
However, as Brown struggled for his political life in the autumn of 2008, something unexpected happened. As the Credit Crunch intensified Brown and his Chancellor, Alistair Darling, suddenly seemed to find their feet. They injected equity into British banks and provided guarantees on bank debt in a bid to get inter-bank lending restarted. The influential American economist Paul Krugman praised them for taking the lead in the worldwide rescue effort, writing that 'this combination of clarity and decisiveness hasn't been matched by any other Western government, least of all our own.' Labour's opinion poll rating increased and the party won a crucial by-election. Journalists started to observe that Brown seemed to be enjoying himself.
There was still no denying that the government had been blown off course. Darling's Pre-Budget Statement of 25 November 2008 was a landmark. It was widely seen as abandoning Brown's so-called 'Golden Rule', adopted in 1998 under the government's Code for Fiscal Stability. This stated that the government should borrow only for the purposes of investment, and not for current spending, over the course of the economic cycle. A further fiscal rule, that Public Sector Net Debt (PSND) would be held below 40% of Gross Domestic Product (GDP) over the course of the economic cycle, appeared to be set aside as well. As he boldly increased borrowing, Darling predicted that net debt would peak at 57% of GDP in 2013-14. Although he aspired to balance the Budget by 2015-16, a significant underlying budget deficit would persist in the meantime. In the past Labour governments' spending plans were disrupted by economic crisis, as the need for retrenchment threw cold water on the hopes of left-wingers. Now, a government that prided itself on fiscal prudence was forced by global turmoil to cast aside its austere, rules-based approach in favour of massive reflationary borrowing. New Labour, it seemed, was dead; Keynes, once again, was the man in the news. And even more strangely, far from wrecking the fortunes of a previously popular administration, this financial storm appeared to cast a political life-raft in front of a floundering Prime Minister.
Understanding how this was possible requires knowing the political, as well as the economic, context of previous crises. We can only hope to see what is distinct about British political culture today if we examine it in relation to Britain's recent past. This paper, therefore, addresses three relevant historical questions. In what ways has the Labour Party changed in the period since it first came to power in 1924? To what extent have the economic crises that Labour has faced in power been similar to one another? To what extent have changes in political culture affected the ways economic crises are perceived, and their political outcomes? ...