FULL EMPLOYMENT: A PLEDGE BETRAYED

FULL EMPLOYMENT: A PLEDGE BETRAYED

By the same author BUSINESS STRATEGY Edited by the same author STRATEGIC PLANNING IN NATIONALISED INDUSTRIES and with Jonathan Michie UNEMPLOYMENT IN EUROPE MANAGING THE GLOBAL ECONOMY CREATING INDUSTRIAL CAPACITY: Towards Full Employment EMPLOYMENT AND ECONOMIC PERFORMANCE: Jobs, Inflation and Growth

Full Entployment: A Pledge Betrayed John Grieve Smith

John Grieve Smith 1997 Softcover reprint of the hardcover 1st edition 1997978-0-333-68736-9 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1997 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world ISBN 978-0-333-68737-6 DOI 10.1057/9780230372382 ISBN 978-0-230-37238-2 (ebook) A catalogue record for this book is available from the British Library. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 6 5 4 3 2 1 06 05 04 03 02 01 00 99 98 97

For Jean

Contents l D r ~ a c e Acknowledgements 1 A Pledge Betrayed 1 2 Unemployment and Economic Policy before 1939 15 3 The Birth of Full Employment 35 4 The Years of Full Employment: 1946-70 56 5 Transition and Revolution: 1970-95 78 6 Demand Management 105 7 Pay and Inflation 124 8 Jobs and People 149 9 The Capacity Problem 168 10 Our European Future 180 11 A Global Payments Strategy 203 12 The Way Ahead Appendix 1: Measuring Unemployment Appendix 2: Tax-Based Incomes ldolicies Notes Select Bibliography Index 224 242 244 247 254 259 ix Xl Tables 2.1 UK unemployment, 1881-1918 2.2 UK unemployment, 1919-39 4.1 UK unemployment, 1945-70 5.1 UK unemployment, 1970.-95 16 18 57 80 vii

Preface This book is addressed to all those interested in the problems of economic policy and unemployment, whether they be politicians, journalists, civil servants, readers of the economic columns of the press or members of the economic profession. In trying to make it as widely accessible as possible, I am particularly grateful to Kit Jones, Brian Reddaway, Michael Stewart, Geoff Harcourt, Andrew Glyn, Robert Neild and Mica Panic for commenting on all or part of the manuscript. I should also like to thank John Wells for help with data on unemployment and poverty. Once again I am totally indebted to Lesley Haird for typing and retyping successive drafts with such patience and good humour. As the reader may detect, Chapters 4 and 5 on the postwar period rely heavily on the various works of Alec Cairncross, Christopher Dow and Frank Blackaby and the National Institute. I should like to take this opportunity to thank some of the many people to whom I have been indebted over the years for help and encouragement in getting to grips with the problems of economic and industrial policy, of which I believe that the problem of restoring full employment is now the most pressing. My longest standing debt is to Brian Reddaway, my Supervisor throughout the time I was a student at Cambridge, who taught me with tolerance and good humour, and confirmed my belief that economics should be a practical and useful subject. Next came my first boss, Robert Hall, head of the Economic Section of the Cabinet Office (and then the Treasury), who was unsurpassed as a government economic adviser in the postwar period: if Keynes was the architect of postwar full employment policies, Robert was the journeyman builder, who played the major role in turning them into reality. Returning to Whitehall in the 1960s I had the good fortune to work for Donald MacDougall in the Department of Economic Mfairs on tackling what would now be called 'supply-side' problems. I am also deeply grateful for the good comradeship and support of John Jukes and Peter Evans with whom I worked so closely on and off for 20 years. I have been much encouraged by a number of Cambridge ix

x Preface economists as well as those mentioned above, including in particular Wynne Godley, Bob Rowthorn and Frank Wilkinson who commented on previous papers on this subject. It has been especially rewarding to organise a series of conferences on different aspects of full employment, and edit the ensuing books, with my colleague at Robinson, Jonathan Michie. I am also indebted to Patricia Hewitt, who was instrumental in the publication of my reports on Pay Strategy and Full Employment in the 1990s for the IPPR. None of the above is, of course, responsible for the views expressed. Cambridge May 1996 JOHN GRIEVE SMITH

Acknowledgemen ts This book draws heavily on a variety of papers and articles which the author has published on aspects of economic policy in recent years and he is grateful to the respective publishers for permission to make use of material from the following: Pay Strategy for the 1990's (1990) and Full Employment in the 1990's (1992), Institute of Public Policy Research; 'Policies to Reduce European Unemployment' in Unemployment in Europe, ed. J. Michie and J. Grieve Smith (1994), Academic Press; 'A Programme for Reform' in Managing the Global Economy, ed. J. Michie and J. Grieve Smith (1995), Oxford University Press; 'Rebuilding Industrial Capacity' in Creating Industrial Capacity, ed.j. Michie andj. Grieve Smith (1996), Oxford University Press; 'Economic Policy and Constitutional Change after Maastricht' in EMU after Maastricht, ed. D. Currie and J.D. Whitley (1995), Lothian Foundation Press; 'The Delors White Paper on Unemployment', International Review of Applied Economics, volume 8, no. 3, Carfax Publishing Co. xi