Thursday, 30 June 1983

Thatcher and Friends: Chapter 5 - The Finances of Toryism

By John Ross
So far we have concentrated on the personnel of the Tory Party. We have outlined the direct connections of its members and leaders to the capitalist class and noted the connections which become closer and closer the more one ascends the ladder of the party. However, from a fundamental point of view this question of personnel is merely an index of the nature of the Tory Party and not of its substance. Other west European capitalist parties are able to get by on a much looser connection with the direct personnel of the capitalist class than the Tory Party. If we want to understand the Conservative Party the most basic questions are who gains from its existence and policies and who supplies the practical means, the finances, to make its entire structure possible? As one might suspect, those who pay and those who gain turn out to be the same.

A landlords' party

The finances of the original Conservative Party, and before that the "old" Tory Party, show exactly the same pattern as its membership in Parliament - confirming from another angle the character of the party. While no systematic accounts exist for Tory funds for the nineteenth century, nevertheless the situation is clear both from what partial records do exist and from elections themselves. Central Tory Party funds, as opposed to a simple reliance on local patronage, came into being some time before 1830and had a regular existence after this date. Thus, in 1831 we find the Duke of Buccleuch contributing £220,000 to the Tory Party (for convenience, and to allow comparisons for periods with different prices, all figures in this section have been converted into 1980 prices). Buccleuch was one of the sixteen largest landowners in Britain. Tory aristocrats Bute, Ellenborough and Powis contributed a further £88,000 at the same time. In 1857 twelve Tory peers alone donated £196,000.

For the general election of 1880 Tory peers subscribed a known sum of £524,000. However, it must be remembered that this is only a fraction of the total donations and of the far higher local expenditure paid for by the Tory landowners. In short, it is quite clear that in this period up to the 1880s the Tory Party was not merely staffed but also financed essentially by landowners (we will consider its policies later).

After 1880

More recently, as we have already noted, the Tory landowners began to be complemented by substantial forces from other sections of the capitalist class. An identical shift may be found in the finances. The essential method of Tory funding used in the late nineteenth and early twentieth centuries was massive corruption in the form of the buying and selling of hereditary titles to newly rising sections of the ruling class. This of course was also a supplementary means of integration of these layers into the old Tory-dominated landowning strata.

This mechanism was simple and may be illustrated by a classic example. For the election campaign of 1900 the American businessman turned British citizen William Astor donated £20,000 to Conservative funds (a sum equivalent to £575,000 in 1980 prices).The next time the Tories were in office after this administration, that is in 1916, Astor received a peerage. He then "spontaneously" donated £200,000 (over £2 million in 1980 prices) to the Conservative Party. By 1914 the Conservative Party had accumulated a reserve of £800,000 (£20 million in 1980 prices) essentially through promises of future creation of peerages.

The Liberal Party used similar methods to secure its finances. Between 1900 and 1906 eight people alone - Wills, Whitley, Lever, Ashton, Langman, Horniman, Joicey, and Robinson - donated £130,000 to the Liberal Party (£3.6 million in 1980 prices). They received in return five peerages and four baronetcies - Lever receiving both. Lloyd George, during his coalition government, built up a personal fund from the sale of titles which, with the accumulated interest and profit, allowed him to spend a minimum of £1.3 million in 1980 prices) on political activities in the inter-war period.

The entire structure of party finance and bribery was furthermore tightly bound into the state and also utilised in relation to Labour Party politicians. The chief technical organiser of the system - a failed actor and suspected murderer named Maundy Gregory - was provided in the 1930s with a secret pension to live in Paris by the ex-Conservative Party chairman John Davidson. The condition was that Gregory kept his mouth shut. To ensure that this was done the diplomatic service was almost certainly used to survey Gregory's exile. The person who donated the funds for Gregory's pension, with a contribution worth over £400,000 in 1980 prices, was duly rewarded with a baronetcy by the1930 national government of Ramsey MacDonald and Baldwin.

Large-scale donation of money along similar lines was not confined to the Tory and Liberal Parties either - although it was concentrated there. Ramsay MacDonald, after taking over as prime minister in 1924, received a settlement for life of the interest on £40,000 (£560,000 in 1980 prices) from the manufacturer Sir Alexander Grant. Grant subsequently received a baronetcy during MacDonald's premiership. MacDonald, acting on information given by Baldwin, also appears to have believed that the Labour leaders, Clynes and Henderson, were involved in the Maundy Gregory scandals.

Companies and the state

In addition to organising the cover up of its earlier sources of funds, the inter-war period was used by the Tory Party to rationalise its finances and place them on a recognisably modern footing.
The person who supervised this process, John (later Lord) Davidson, is worth a mention all to himself. Before becoming Conservative Party chairman in 1927, Davidson had been private secretary to Tory Party leaders Bonar Law and Baldwin's government of 1924. In this capacity Davidson had been responsible, jointly with the military and the civil service, for drawing up the secret plans to defeat the 1926 General Strike. Earlier Davidson had also been involved in the sensational release of the still mysterious "Zinoviev letter" used to smear the Labour Party in the run up to the 1924 general election - and as late as 1956 Davidson intervened to prevent publication of an account of the role of Conservative Central Office in this affair.

The person whom Davidson recruited to be head of Conservative Party publicity, and later to establish the Conservative Research Department, was a serving army officer and member of MI5, Major Joseph Ball. Whether or not Ball actually resigned from the intelligence service when he took up the new job is, of course, a matter on which one can come to no definite conclusion. But John Ramsden, who researched the period and from whom the above details are taken, considered it probably that Ball continued to work for MI5 "during the whole time he was at Central Office". Whatever the background of Ball and Davidson, however, Tory election expenditure on central propaganda in this inter-war period was, in real terms, among the highest in history. Conservative central publicity alone in 1935 was around £5 million in 1980 prices - in addition to all the local expenditure. The next highest figure for central publicity was that preceding the 1964 election.

The most essential structural innovation which Davidson introduced was to replace the funding of the Tory Party from rich individuals with direct financing from companies. The type of individual contributions indicated previously declined to the point where, by the 1970s, only 15-20 per cent of central Tory Party funds was coming from individual donations. Of the rest, approximately 60 per cent came directly from companies and around 20 per cent, with the proportion declining, from Conservative constituency parties.

Modern Tory financing

Company contributions today make u by far the largest sector of central Tory funds: many of them "laundered" through various intermediate bodies. The Labour Research Department, to whose research in this field anyone who studies the subject is enormously indebted, found that around two-thirds of traced political contributions by companies go directly to the Conservative Party and the rest are channelled indirectly through organisations such as British United Industrialists, the Economic League, Regional Industrial Councils, or given to bodies such as Sir Keith Joseph's Centre for Policy Studies. However, the sums of money involved are so large that they cannot be successfully hidden and the picture is the same whether direct or indirect contributions are taken. We will look at both.

Big capital

The first feature which shows up in Conservative Party funding is that the central apparatus of the Tory Party is an organization quite specifically financed by the very largest concentrations of British capital. Constituency contributions make up only a small and decreasing proportion of Tory Party central funds - 17 per cent in 1979-80 compared to 29 per cent in 1969-70. Furthermore, this figure for constituency contributions is exaggerated as it includes formal credits given to constituencies. These formal credits amount, on the Tory Party's admission, to approximately one-sixth of the total. In short, the real contributions of constituencies to Tory Party central funds was around 14-15 per cent in 1979-80. The rest, that is approximately 80-85 per cent, was divided between individual contributions (of which the Conservative Party refuses to give any specific details) and a minimum of 60 per cent of company contributions.

If the origins of company funds are then considered, a clear pattern shows up. Taking the largest sections of industrial capital alone, in 1967-77, 59 of the 200 largest industrial companies donated funds to the Conservative Party, 39 of the second 200 did, 23 of the third 200 did, and 27 of the fourth 200 gave donations. In short, Conservative Party donations came differentially from the largest industrial companies, with 98 out of the largest 400 donating and only 50 out of the next 400 doing so.

If a wider range of companies is taken, and the financial sector is included, then as Francine Miller and Richard Minns found in a survey in 1979, 60 per cent of large firms contributed to the Tory Party, whereas only 30 per cent of smaller firms did. The contributions of the smaller firms amounted to only 6 per cent of the total donations. The contributions of the smallest companies of all - with a market capitalisation of less than £5 million - accounted for only 1 per cent of total contributions.

Banks, oil and food

Turning to the economic sectors from which the Tory Party receives its funds an extremely clear pattern also shows up. The Tory Party does not receive its funds in a way that is even remotely in a one-to-one relation with the economic structure of British capitalism. On the contrary, the financing of the Conservative Party is massively weighted towards certain sectors of the economy, which give enormously more than their proportionate size in the economy. Other major economic sectors give comparatively very small sums or nothing at all. Furthermore this bias in Tory financing continues to increase, as can be seen in Table 5.

Table 5

Three sectors of the British economy (finance and property companies; food, drink and tobacco firms; construction companies) have steadily been accounting for a larger and larger proportion of Conservative Party company donations. Between them these three sectors make up regularly 45-55 per cent of all company contributions to the Tory Party. Other sector, notably engineering and general manufacturing industry, have been progressively reducing their percentage or contributions to the Tory Party.

Furthermore the figures given in Table 5 are not simply equivalent to the relative weights of these different sectors of the economy. Excluding education, health, public administration and public utilities, finance and property companies accounted for only 10 per cent of GDP in 1981, but gave 31 per cent of company donations to the Conservative Party. Food, drink and tobacco manufacturers only accounted for 4 per cent of GDP, but gave 15 percent of company contributions to the Tory Party. As we will see in the next chapter, those economic sectors which do contribute most heavily to the Conservative Party today are precisely those which had come to dominated the British capitalist class by the end of the nineteenth century. Conservative Party funds do not necessarily reflect accurately the overall structure of the British economy but do very definitely reflect the historically most powerful groups within it - a fact in line with the point already made that Conservative financing comes differentially from the largest concentrations of capital.

Who gains?

The relation between economic interest, concentration of capital, and the Tory Party becomes even clearer if we now integrate these figures with the development of the British economy under Thatcherism. It is not true, as is sometimes presented, that the period since 1979 has seen some sort of generalised collapse of production in the British economy.

On the contrary, while certain sectors of the economy declined sharply others were growing very rapidly indeed. Furthermore, while in some economic sectors the fall in production was considerable, the fall in profitability was very small even at the peak of the recession. Essentially, the experience of British capital under Thatcher breaks down into three categories.

First, certain economic sectors underwent rapid growth almost throughout the recession. These were in particular five - oil, agriculture, communications, finance and electrical engineering. Although the economy as a whole contracted by 4 per cent from 1979 to 1981, oil and natural gas output increased by 20 per cent, agricultural output by 9 per cent, and income from financial services by 6 per cent. Electrical engineering did contract at the height of the recession in 1981 but this was temporary, after growth in 1979 and 1980. In 1982 electrical engineering output expanded by over 5 per cent and electrical engineering production was 6 per cent above its level in 1978.

Second, a series of sectors of the economy underwent no major decrease in output at all despite the recession. These included food, drink and tobacco manufacturing, mining and retailing.

Third, the sectors which underwent massive decline under Thatcher were general manufacturing and construction. Manufacturing production overall declined by over 15 per cent between 1979 and1982. By the end of 1982 manufacturing output was down to the level of 1967 - 15 years earlier. The fall in construction was even greater: it decreased by almost 20 per cent between 1979 and 1982.

But while both manufacturing and construction output declined, the profit levels in construction and manufacturing were very different. In manufacturing not only output but profits too collapsed. In construction, however, profits held up relatively well and were significantly above the average for the economy as a whole. If we take the best profits calculations available – the inflation-costed accounts prepared by the Bank of England – the return on capital in contracting and construction companies in 1981was 10.7 per cent compared to an average of 7.5 per cent for all companies outside the oil industry.

In Table 6 major commercial and industrial sectors of the economy are arranged in order of their profitability in 1981. It is very interesting and instructive to compare this with the figures on output given above and with the information on the sources of Conservative Party finances in Table 5.

Table 6
It should be noted that the category "engineering contractors" in Table 6 is not what is referred to in general language as the "engineering industry" (i.e. vehicles, metal goods etc.). It includes chiefly firms such as the Davy Corporation - which is the second largest overseas construction contractor in the world – and Babcock International, another supplier of industrial plant. These are among the most internationalised of all firms in the British economy. Babcock International exports over 30 per cent of its British production and carries on almost 50 per cent of its production abroad. The Davy Corporation exports nearly two-thirds of its British production, carrying on more than 50 per cent of its production abroad.

What is clear is that if the financing of the Conservative Party does not reflect accurately the shape of the British economy as a whole, it does reflect with quite astonishing accuracy the levels of profit and changes in production which took place under the first Thatcher government. Of the growth sectors of the economy under Thatcher, we noted that oil companies do not contribute directly to the Conservative Party - although they do to pro-private industry groups such as the Economic League. Profits in banks and financial institutions cannot be calculated in the same way as those above, but they are enormous. With these exceptions, however, it is obvious that while the Conservative Party's finances do not come necessarily from the largest sectors of industry in terms of output, they do come from the most profitable - and from those which have been most rapidly expanding. Those who paid were those who gained.

Developments within manufacturing
This trend becomes even clearer if the situation within manufacturing industry is looked at. In Table 5 it was demonstrated that the proportion of contributions from the three core sectors for Tory finance was continuing to rise. This evidently means that the funds from other sectors, including manufacturing, were decreasing, as we showed earlier. Within the manufacturing sector there is only one significant exception to this – electrical engineering. Here, there was not a reduction but an increase in contributions to the Tory Party, at least up to the height of the recession in 1981 - which, as we noted, was the only time when electrical engineering output was seriously affected by the slump. In 1980, when Thatcher's party was paying off the 1979 election campaign expenses, the two electrical engineering giants - GEC and Plessey - were respectively the first and fourth largest company donators to the Conservative Party and were, after Allied Breweries, the second and third largest political contributors to all right-wing organisations in that year (i.e. including British United Industrialists, the Economic League, etc,). The three traditional core sectors of Toryism plus electrical engineering accounted for more than 60 pre cent of all traced company contributions to the Tory Party in this year.

At the time of her election, Thatcher also had no more openly proclaimed admirer in industry than the head of GEC, Lord Weinstock. His ardour, judged by cash payments rather than praise, seems to have temporarily abated at the height of the recession in1981 when GEC temporarily withdrew from giving a donation to the Conservative Party.

This new attitude of the electrical engineering industry towards the Tory Party can be contrasted, for example, to the traditional position of GEC's chief rival as Britain's largest industrial firm - Imperial Chemical Industries (ICI). ICI is a firm traditionally keeping its distance from the Conservative Party. Its chairperson in the 1960s, Paul Chambers, was a frequent critic of Tory governments and one of the chief campaigners for entry into the Common Market at a time when the Conservative Party was not at all prepared to accept all the consequences of this. Under Thatcher, the distancing of the heads of ICI from the Conservative Party has gone still further with its present chairperson, John Harvey-Jones, being an open supporter of the SDP and bitterly opposed to Thatcher's war over the Falklands. Two other smaller chemical firms, Fisons and Laporte Industries, also withdrew funding from the Conservative Party - Laporte industries publicly declaring that it was doing so because of the policies of the Thatcher government.

The connection between these changing relations to the Conservative Party and the shifts in the economy under the Thatcher government examined earlier are rather obvious. Electrical engineering firms such as GEC or Plessey are in an industry which, apart from 1981, continued to expand almost throughout the recession. They are also locked into a great complex of heavy dependency on state expenditure on armaments, power generation, telecommunications, etc., which were among those sectors of state expenditure which were not cut back by the Thatcher government. GEC in particular also adopted a very specific strategy for dealing with the slump - it accumulated £1,000 million of liquid funds by the beginning of 1983 and invested them at high interest rates in the money market.

As Anthony Sampson put it, in his Changing Anatomy Of Britain, Britain's "largest manufacturing corporation was looking more like a bank" - which is not a bad analogy for a Tory manufacturing company.

In contrast, a firm such as ICI in the chemicals sector is not tied in a similar way into the same complex of military and state spending. For this reason, and others, while electronics output continued to expand for most of the recession, chemicals was a sector significantly hit by the slump. Whereas GEC's profits maintained themselves relatively well, ICI in 1980 suffered the first loss in its history, recovered somewhat in 1981, and then suffered another big fall in profits in 1982. In 1981 GEC, in electrical engineering, was making a profit almost 75 per cent higher than ICI in chemicals despite a turnover 40 per cent smaller and a capital employed less than half as large. The shifts in financial contributions, then, reflect the shifts in the economy itself.

These figures also show that it is not serious to suggest, as is sometimes done, that the relation of companies to the Conservative Party, or a phenomenon such as Thatcherism, is simply based on "ideology" or "purely political" considerations. Naturally, there is a specifically political, and even ideological, element in the relations of the ruling class to the Tory Party. All sections of the ruling class, or at least the major ones, would almost always prefer a Conservative government to a Labour one. They will defend the Tory Party as a fundamental strategic instrument even when they have sharp tactical differences with it. Nevertheless, as we have shown, there is also a very clear economic dimension. Certain sections of the capitalist class have gained enormously from the Conservative Party in general and Thatcherism in particular and continue to finance the Tory Party to a high degree. Other economic sectors have ceased to gain as much as before and are withdrawing their level of funding. Only someone who is very naive, or deliberately wants to obscure reality, can believe that these trends are "accidents".

However, all this poses another question. Why did this extraordinary collection of landowners, banks, construction firms, and food, drink and tobacco manufacturers come to dominate the Conservative Party and the British ruling class? To see this we need to go back to look at the British capitalist class itself.

No comments: