Thursday, 30 June 1983

Thatcher and Friends: Chapter 7 - The Origins of the Conservative Party

By John Ross
The great crisis: 1828-46

The background to the creation of both the modern party system and the modern British economy is the Industrial Revolution itself. After an initial surge of development in the latter part of the eighteenth century, temporarily halted in the first decade of the nineteenth, British capitalism embarked upon the most powerful surge of industrialisation in its history. By 1831 the proportion of British national income accounted for by manufacturing, mining and construction had risen to approximately 34 per cent. In the same period the proportion of national income accounted for by agriculture fell to roughly 23 per cent, making Britain the first major country in history in which industry constituted a larger part of the economy than agriculture. This creation of a fundamentally industrialised economic structure inevitably confronted the British capitalist class with problems of political domination that had never been confronted by any previous ruling class in history. The modern party and political system is precisely the attempt to confront this problem.

The difficulties of constructing a suitable system of capitalist political domination under the new conditions were further complicated by the fact that the process of industrialisation unleashed not one but two potentially violent forces threatening the British economic and political system.

The first such force was the industrial proletariat concentrated within the British state. Between 1811 and 1831 the proportion of the paid workforce employed in manufacturing, mining, and construction in Britain rose to over 40 per cent. This, furthermore, was a working class created under the horrors of an Industrial Revolution too well known to need describing in detail here.

The second element in the situation, however, was Ireland, already discussed in part of the previous chapter. To absentee rents extorted from Ireland were added the systematic use of Irish agricultural products – grain, butter, pork and bacon – to feed the growing towns of Britain. The Catholic population of Ireland itself was increasingly forced back on a lower and lower diet - one increasingly organised around potatoes - which culminated in the famine of 1846.

The effect of this entire system of oppression, both in Britain as a whole, and Ireland in particular, was inevitably to produce sharply increasing tendencies towards a social and political explosion. Logically these reached their first qualitative peak in the most extreme case of oppression of all, Ireland, in the 1820s. In 1823 Daniel O'Connell formed the Catholic Association to campaign against the British law banning the holding of political office by Catholics – that is, a ban on the vast majority of the Irish population. In 1828 O'Connell won the County Clare parliamentary seat - confronting the then Tory government under Wellington with a choice of admitting him to the House of Commons or facing what the government feared would be an insurrection against British rule in Ireland.

The result of this Irish crisis was to fracture the governing Tory Party. The Tory leadership, around Wellington and Peel, passed the Catholic Emancipation Act in 1829, but only after violent opposition from their base. Then, amid increasing unrest on a whole series of issues, the Tory government collapsed in 1830. It was the end of an epoch in British politics. For 47 years prior to 1830 the Tory Party, or its predecessors, had been continuously in office. After 1832 the Tory Party was defeated in the popular vote in twelve out of the thirteen next general elections up to 1885. O'Connell had precipitated a revolution in British politics.

Through the breach opened up by Ireland now flowed a whole new series of political issues. After 2 years of increasing struggles the great Parliamentary Reform Act of 1832 was passed by the new Whig administration. This largely re-cemented relations within the ruling class, but did not restore order – on the contrary, it allowed new forces to come out into the open. In 1838 the first Chartist petition for universal male suffrage in Britain was presented - the first emergence in the world of a clearly working-class mass movement. In 1839 an armed working-class insurrection took place in Newport, South Wales. In 1842, amid one of the worst industrial depressions of the nineteenth century, the second Chartist petition was presented. In the same year the first embryonic political general strike in history took place. Profound new forces were emerging into politics with tremendous disintegrative potentials for the future.

Identical trends to those in Britain were also appearing in Ireland. After 1843 O'Connell was eclipsed in influence by the Young Ireland movement - commencing a process which culminated in 1848 in the first attempted Irish armed insurrection against British rule in the nineteenth century.

Finally, the background to this entire process was rising discontent throughout Europe which culminated in the 'year of revolutions' of 1848.

1846: The creation of the modern capitalist parties

Confronted with the rising discontent of the 1840s, British capitalism had only two fundamental choices. The first was simply to engage in a head-on confrontation with the rising ferment not only in Ireland but also in Britain - a policy that ran the risk at some point of culminating in exactly the type of revolutionary developments that occurred in Europe (where such a policy was carried out) in 1848, 1870 and 1918. The second option was to use the enormous reserves and newly acquired strength of British capitalism to attempt to co-opt the movements forming against it. Given that at that time Britain accounted for more than 30 per cent of world industrial production, or half as much again as any competitor, it is no surprise that British capitalism chose the latter course. By so doing it was also able to surmount the economic crisis which had been accumulating in the 1840s.

The decisive steps summing up the new orientation of the British ruling class, and laying the basis for British economic policy for the next century, were all taken in a mere 5-year period between 1841 and 1846 - the years inaugurating also the structure of the modern political system. Essentially, free trade in industrial goods had been introduced by the Tory Prime Minister Robert Peel immediately on taking office in 1841. State finance was rationalised through the reintroduction of income tax for the first time outside war. It was the completion of these measures by the repeal of the Corn Laws in 1846 which was then the step which split the old Tory Party and created both modern Conservative and Liberal parties.

The Corn Laws were effectively a tariff on the import of cereals - allowing import of corn duty-free only when the British price was extremely high. They therefore gave a competitive advantage to British agriculture at the expense of its rivals while simultaneously maintaining an artificially high price for all food based on grain. This arrangement benefited land­owners, particularly the smaller and less efficient, but cut the living standard of the working class, and created a pressure for higher wages, by keeping up food prices. High food prices in turn helped feed working-class discontent and threatened industrial profits through the demand for higher wages.

Via a crucial economic mechanism, therefore, the Corn Laws in reality provided for the ruling class two alternative sets of social alliances. Maintenance of the corn tariff meant an alliance of all sections of the ruling class with small landowners at the expense of the working class - a perfectly suitable reactionary combination if the aim was to confront and smash the working class. A similar political system was later used by French capitalism and by Bismarck - and its consequences in France and Germany were exactly the same as had confronted the British capitalist class in the 1830s (i.e. rapidly rising working-class discontent, culminating in the 1848 revolution in France, and the rapid rise of the German labour movement, culminating in the revolution of 1918).

The alternative social alliance for British capital was to scrap the Corn Laws and hold down or reduce the price of food. This would create a basis for a bloc between large landowners and the industrial bourgeoisie and also for attempts to co-opt the working class. For industrialists such a cheap food policy would help keep down money wages - permitting high profit levels while avoiding working-class discontent. Large landowners would not be adversely affected as they could survive the foreign competition. Small landowners, however, would inevitably be crushed.

In reality, therefore, behind the apparent argument on a tariff, stood two completely different systems of social alliances and two totally different political perspectives. The first - that is large landowners, with small landowners and industrialists to crush the working class - might be named, after its most famous exponent, 'Bismarckianism'. The second - large land­owners, with industrialists and the working class at the expense of small landowners - may be termed after what it became, Liberalism and the Liberal Party. Peel chose the latter course of sacrificing the small landowners and his lieutenant, Gladstone, went on to lead the Liberal Party. The majority of the Tory Party, however, formed around forces organised by Benjamin Disraeli, rallied to defend its small-landowner base and against Peel's course. The outcome, as we have already seen, was the creation of both modern capitalist parties in Britain and the surpassing of all the old party alignments. A new 130-year party political system was put in place.

The new economic orientation

At the same time as creating the basis for British political stability, however, Peel also set in train processes that were to destroy the competitiveness of British-based manufacturing industry. Indeed, this was in a sense an inevitable outcome of the original decision because it had been adopted precisely to avoid confronting the working class – in other words, to accept a lower than possible rate of exploitation and instead grant economic concessions to the working class. The period following the 1840s therefore saw the re-establishment of political stability, but also British industry beginning to fall behind its rising American and German rivals both in terms of competitiveness and in terms of technological capacity. What is more this process was hastened by new economic mechanisms put in place to supplement and maintain the original Peelite orientation.

Of these new economic mechanisms by far the most important was British overseas investment. With a decreasingly competitive manufacturing base, but with colossal economic reserves, British investment abroad from the 1870s onwards began to reach levels equivalent to investment in Britain itself - and finally overtook it. By the First World War, profits on British investment abroad amounted to around 8 per cent of British GNP and remained at approximately 4 per cent even between the First and Second World Wars. Apart from its direct effects on the economy, overseas investment also reduced the pressure for British manufacturing industry to be internationally competitive.

To show the mechanism of this we need only take the international constraints on the British economy. British capitalism; for as long as systematic figures exist, has always had a surplus on the 'service' side of the balance of payments – shipping, travel, etc. However, this surplus was historically relatively small and at the beginning of the nineteenth century was sufficient to finance only around 10 per cent of British imports of goods ('visible' imports). This 'services' surplus then rose slightly during the course of the nineteenth century, but never reached a figure of more than around 14 per cent - which left 86-90 per cent of British visible imports to be financed by other means.

Taking other possible sources then, at the beginning of the nineteenth century, income from British overseas investment amounted to only about 10 per cent of the visible import bill (i.e. services and investment income together, prior to the 1840s, were sufficient to finance only 20 per cent of British visible imports). British visible exports, and the manufacturing industry which produced most of them, therefore simply had to have a high degree of international competitiveness in selling its goods. A failure of competitiveness in manufacturing could not be compensated for by the service sector or by foreign investment income and, therefore, prior to the second half of the nineteenth century, would have provoked a severe balance of payments crisis, a sharp contraction of imports, and a tremendous drive to re-establish the competitiveness of the manufacturing sector. British manufacturing industry in the early nineteenth century not merely was but had to be competitive.

What occurred over time was that the return from the flow of British investment abroad became an alternative means of financing visible imports to the necessity of having an efficient and competitive manufacturing sector. As the century wore on, the proportion of visible imports which had to be financed by visible exports (i.e. primarily manufactured goods) decreased steadily from 80 per cent in the 1820s and 1830s to just under 60 per cent on the eve of the First World War.

This represented a qualitative transformation in the nature of the British economy and its conditions for equilibrium with world economy during the second half of the nineteenth century. The answer to the famous question as to why British industry became less and less competitive compared to its rivals is simply that it had less and less necessity to be competitive. The international balance of the British economy could be increasingly maintained by means other than a competitive manufacturing sector – it is indeed hard to think of a purer case of Lenin's model of a foreign-investment-dominated imperialism than the British economy during the latter part of the nineteenth century. With the British economy removed from international constraints imposed by the balance of payments, British manufacturing industry could and did slide further and further behind its competitors.

The shattering effect of the two world wars, the acute new crisis which set in after 1945, can be understood in the same light. With the income from foreign investment removed by the effects of war, the proportion of visible imports which now had to be financed by visible exports rose sharply to 86 per cent in the decade after the Second World War and only decreased marginally (to 84 per cent) at the end of the 1960s. British manufacturing industry simply had to become competitive again - with the entire crisis of the 1950s, 1960s, and 1970s being in large part dictated by the need to achieve this. Finally, the situation was changed once again by North Sea oil - but this constitutes a new chapter in British economic development which we cannot deal with here.

Cheap food

The economic consequences for the working class of this new economic orientation were also clear. If one had to sum up in a single phrase the one most important economic base of capitalist political supremacy in Britain in the entire century and a quarter after 1846, it would undoubtedly be cheap food - cheap food based on the abolition of the tariff on food imports and then cheap food, and other goods, capable of being imported, without a competitive manufacturing sector, through the income from British foreign investments. All else, all the other economic structures, all the ideology, etc., was created on this unshakeable fact that the British working class was given, in the rhetoric of the period, the ‘big loaf’ of free trade in food as opposed to the ‘small loaf’ of protectionism in agriculture. When the necessity for equivalent rates of exploitation compared to other countries, to create a competitive manufacturing sector, was also removed by the foreign investments then the economic basis for extremely powerful political integrative mechanisms was created. Cheap food, combined with foreign investment, gave to British capitalism a stability for its political dominance not matched by any other ruling class in the world, except for the United States which created its basis of low-price food not by imports but by the incredible level of productivity of its internal capitalist agriculture.

Finally, if these statements seem excessive or an example of 'economic reductionism', then the following fact should be noted. From 1846 until 1970 not one single British government with the known intention to place a tariff on imports of food was ever elected (1970 is the turning-point because of Heath's pledge to join the EEC Common Agricultural Policy). In the intervening 124 years an attempt to introduce a tax on food imports was tried twice in elections. In 1906 the Tories appeared pledged to introduce protectionism. The result was, in terms of MPs, the greatest electoral defeat in the entire history of the Conservative Party, with its share of seats in the House of Commons reduced from 60 per cent in 1900 to 23 per cent in 1906. The second time an attempt was made to introduce a tariff on food, in 1923, it led to the defeat of the Conservatives under Baldwin and the creation of the first ever Labour government. Those disinclined to believe in economic and social forces as the driving force of politics need merely ponder that 124-year electoral record.

Finally, of course, once these economic mechanisms, and economic orientation, were put in place then they easily explain the internal balance of forces within, and nature of, the British ruling class we looked at earlier. The great internationally expanding sectors of the British economy from the mid-nineteenth century onwards were not manufacturing, but those based on foreign investment – both direct investment and more especially portfolio investment of the type particularly suited to banking, those with rentier incomes, etc. The rising working-class living standards which this economic system made possible within Britain created a vast new market for the necessities of working-class life – and provided the basis for the food, drink and tobacco manufacturers, retail chains, etc., whose dominance in the economy we have already noted.

While German capitalism was building up its electronics, chemicals, and steel industries based on a tremendous oppression of the working class, British imperialism was building up its foreign investments, and the specific industry and service sectors to supply its internal working-class market. All the fundamental characteristics of the British ruling class in the late nineteenth century at which we have looked flow logically from these features.

Finally, these very same developments evidently also created the basic potential for a very specific type of social alliance. To have developed an economy primarily based on manufacturing capital in Britain would have required a high rate of exploitation to be competitive. It would have demanded a low exchange rate of the currency to make exports competitive - an exchange rate that would have put up the price of food and other imports and cut the value of funds available for foreign investment. The sectors based in banking, food manufacturing, construction and other sectors supplying the internal market - as well as those primarily engaged in foreign investment - required no such measures. On the contrary, they required a high exchange rate of the currency to finance foreign investment - and that high exchange rate meant cheap imports, which could then be processed by the food, drink and similar manufacturers. Far from needing a high rate of exploitation such sectors needed a large internal market based on a relatively high working-class purchasing power - a policy to which those sectors based on foreign investment had no particular objection as their profits did not come from the exploitation of the British working class anyway. An economic basis therefore existed for such sections of capital to appeal to and build a mass base in the working class. That alliance was called the Conservative Party. It was all the more necessary because, for all his efforts, Peel had not succeeded in halting the crisis of the British political system. He had merely succeeded in enormously prolonging its timescale and qualitatively altering its form. No sooner was the new party system put in place than it began to disintegrate - that process of 'disintegration from the edges' constituting the fundamental dynamic of British politics for the next 120 years. That disintegration was also the reason for the rise of supremacy of the Conservative Party within the British ruling class.

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