We are moving ahead here: ‘The State and Private Industry’ followed the trauma of devaluation, in which Gaitskell, Jay and Wilson were all involved. Until that crisis, which will be discussed in the next chapter, Wilson had no discernible conflict with Gaitskell on policy or anything else. Wilson’s paper is discussed here because of the evidence it provides of the young President’s commitment to the powers of his department and the extent to which he had gone native on them. As we shall also see, Wilson foresaw a modernizing role for state intervention which other Labour economists were beginning to question. Far more than Douglas Jay (who was credited with the famous remark), Wilson had come to believe that the gentleman in Whitehall, with suitable direction, was usually right.
Wilson began 1949 buoyantly. He was now well settled into the routines of his job, his north London home and his expanded family life. His ‘bonfires’ were much in the headlines. The economy was apparently thriving. Although he noted that German and Japanese competition was becoming the biggest problem in many sections of British industry, he was able to claim that the previous year’s export figures put Britain in balance with the rest of the world, it is a tremendous recovery in a single year,’ he declared.1 On 10 May, he set out for Canada on a three-week tour, taking with him his PPS, Barbara Castle, and a retinue of officials. To mark the event, the journalist Honor Balfour, who had known him as an eager collector of Liberal Club subs at Oxford, drew a pen portrait for the Birmingham Gazette. The President was, she wrote:
a nice, quiet, plump, good-humoured fellow, who has not yet quite got used to being the person of importance that he is. In repose, his manner, his greying temples and his formal clothes give him an appearance of middle age. But once he begins to speak, he cannot restrain his liveliness nor his interest in a subject or a person, and his blue eyes twinkle as he chuckles at his own jokes.2
His trip to Canada, however, did not cause much merriment among cotton manufacturers. During the tour, he delivered a speech which castigated the British industry for having ‘failed to modernize in the years before the war, because it catered for a sheltered home market behind a curtain of cartels and price-fixing organizations’.3 Raymond Streat and the British manufacturers were outraged, believing – not for the first, or last, time – that the President was playing to the political gallery. Wilson flew back to England early in June and made a broadcast in which he stressed that increased exports to North America must be ‘Britain’s No. I priority this year and in years ahead’.4 Well he might, for he had returned to a London and Whitehall where the balance of payments and the state of the currency were fast becoming the dominant concern.
The 1949 devaluation crisis was the second of an almost regular series of financial emergencies in the post-war period. Its importance for the economic policies of the Labour Government is hard to exaggerate. ‘There might be room for disagreement as to the need, the purpose, the wisdom or even the significance of the devaluation,’ concludes Sir Alec Cairncross in the most authoritative assessment of the crisis. ‘But it was unmistakably a turning-point. So rare and startling an event as a fall of 30 per cent in the parity of sterling, the currency in which well over a quarter of the world’s commerce was conducted, could not fail to exercise a powerful influence on international transactions of all kinds.’5 Devaluation dealt the administration a near knock-out blow, ending the sense of direction the Crippsian era had briefly given it, and leaving it floundering in its remaining two years of office.6 For Wilson, it was a baptism of fire, shaping his whole future.
Although devaluation had first been considered as a possible option as early as 1945, little was heard of it until after the suspension of convertibility. It began to be talked about again in Whitehall at the beginning of 1948.7 For the time being, however, the Treasury itself continued to downgrade it as a possibility. The reappearance of a deficit in 1949, after the surplus year of 1948, gave the theoretical possibility an immediate relevance. A combination of factors had rapidly turned an improving position into a precarious one. In particular, the relaxation of controls at the end of 1948, over which Wilson had presided, and an increase in home demand, began to affect the balance of payments; at the same time, a recession in the United States made it harder for British exporters to earn vital dollars. As a result, sterling came under ominous attack once more.8
At this point, the professional economists employed by the Government began to agitate for a change in the parity. In March, Robert Hall of the Economic Section got to work on Cripps, and at about the same time Cairncross, in the Board of Trade, tried to persuade Wilson. Neither made any headway.9 As senior officials remained as hostile to the idea of devaluation as their political masters, this was scarcely surprising. Cairncross hoped that Wilson, as a former colleague and fellow economist, might listen: instead, he found the President as resistant as Hall found the Chancellor. During the key months of March to July, in which pressure on the pound sharpened, Cairncross – though the economist-in-residence at the Board – was not directly consulted by Wilson at all. When Cairncross took the initiative, the President responded to approaches by assuring him that ‘everything he was urging had been taken in.’ Cairncross formed a different impression. He concluded that Wilson had closed his mind on the issue. That the President was actively opposed to devaluation is shown by his report in late June to the Cabinet Economic Committee on his Canadian visit, in which he stressed the opposition of the Ottawa Government to a change in the parity, referring to ‘the unfortunate and fairly general – though erroneous – expectation of devaluation’. Wilson told his colleagues that in Canada he had ‘repeated the Chancellor’s recent clear statement on the subject’.10
As far as the economists were concerned, the Chancellor’s clarity was the major hurdle. Having expressed himself clearly, Cripps regarded the issue as a matter of honour as much as of economics. It was, however, honour tied to ideology: the Chancellor, according to Cairncross, ‘did not accept that a change in the exchange rate would have effects on the balance of payments that no amount of planning and administrative action could ever achieve’.11 For more traditional reasons – though Hall succeeded in getting Sir Edward Bridges, Permanent Secretary at the Treasury, to inquire into the possibility of devaluation – most permanent officials at the Treasury and the Bank of England backed him up. The professional economists regarded such attitudes as the product of ignorance: hence they had hopes of Wilson, who understood the issues in a way that Cripps did not. Wilson’s refusal to take the role of a pro-devaluationist Trojan horse in the Cabinet, therefore, was a source of bitterness and anger.
Wilson, however, was no longer a professional economist or an adviser, and had ceased to think like one. He was a minister. The run-up to a possible devaluation is always tougher for ministers than for advisers, and for senior ministers than junior ones. Civil servants and professional advisers have the luxury of arguing the pros and cons in private. Politicians are less fortunate. Until the moment of decision it is impossible for a minister, especially a Cabinet minister, publicly to express the shadow of a doubt that the existing parity will be maintained virtually in perpetuity; even to do so privately runs the risk of a leak which may immediately affect sterling holdings. At the same time, public pronouncements need to be delivered with an appearance of conviction, which in turn makes an eventual climb-down the more painful and humiliating. Cripps, widely respected for his integrity and ideals, was the minister in 1949 most clearly caught in this trap; but Wilson was caught in it as well. Both the Chancellor and the President had little choice but to continue to deny in public that devaluation was about to take place. For both, the difficulty was more agonizing than for others, out of the immediate firing line, when it eventually did.
During the early summer, the pressure on sterling continued to be heavy. American demands for devaluation, and rumours that it would happen despite the