Post-war consensus
Encyclopedia
The post-war consensus is a name given by historians to an era in British political history which lasted from the end of World War II
in 1945 to the election of Margaret Thatcher
as Prime Minister of the United Kingdom
in 1979.
The foundations of the post-war consensus (also sometimes referred to as Butskellism) can be traced to the reports of William Beveridge
, who in 1942 formulated the concept of a more comprehensive welfare state
in the United Kingdom
. Shortly after the surrender of Germany
in May 1945, a general election was held in the UK. The result was a landslide victory for the Labour Party
, whose leader was Clement Attlee
. The policies undertaken and implemented by this Labour government laid the base of the consensus. The Conservative Party
accepted many of these changes and promised not to reverse them in its 1947 Industrial Charter
.
The post-war consensus can be characterised as a belief in Keynesian economics, a mixed economy
with the nationalisation of major industries, the establishment of the National Health Service
and the creation of the modern welfare state in Britain. The policies were instituted by all governments (both Labour and Conservative) in the post-war period.
Between 1947 and 1975 post war consensus economic strategies created 28 consecutive years of budget surpluses
, despite the massive reduction in the size of the British Empire during the period.
During the 1970s global events such as the 1973 oil crisis
put pressure on the Post-war consensus, this pressure was intensified by domestic problems such as high inflation, the three-day week
and industrial unrest (particularly in the coal-mining industry). In early 1976, expectations that inflation and the double deficit
would get worse precipitated a Sterling
crisis. By October, the pound had fallen by almost 25% against the U.S. dollar
. At this point the Bank of England
had exhausted its foreign reserves trying to prop up the currency, and as a result the Callaghan
government felt forced to ask the International Monetary Fund
for a £2.3 billion loan, then the largest that the IMF had ever made. In return the IMF demanded massive spending cuts and a tightening of the money supply, signalling a lull in Keynesian economics
in Britain until 2008, when a Keynesian-style fiscal stimulus was applied to several of Britain's major high street banks as a result of the Credit Crunch. Callaghan reinforced this message in his speech to the Labour Party Conference at the height of the crisis, saying:
Yet despite this, some elements of the post-war consensus continued.
However, in the 1970s the consensus was increasingly seen by those on the right wing as being the cause of the UK's relative economic decline. Believers in New Right
political beliefs saw their ideology as the solution to Britain's economic dilemmas in the 1970s. When the Conservative Party
won the 1979 general election in the wake of the 1978-79 Winter of discontent
, they implemented New Right ideas and brought the post-war consensus to an end. During the period 1947-1979 the post-war consensus economic model allowed successive Labour and Conservative governments to reduce government borrowing from an all time high of 237% of GDP in the aftermath of war down to 43.6% when the Conservatives abandoned the Keynesian style mixed economy and began shifting the balance of the national economy towards free-market capitalism through the privatisation of state controlled infrastructure.
government of the 1930s until the election of a fundamentally changed Labour party in 1984, following years of mostly New Zealand National Party
rule. Like in the UK, it was built around a 'historic compromise' between the different classes in society: the rights, health and security of employment for all workers would be guaranteed, in return for co-operation between unions and employers. The key ideological tenets of governments of the period were Keynesian economic policy, heavy interventionism
, economic regulation and a very powerful welfare state
.
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
in 1945 to the election of Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
as Prime Minister of the United Kingdom
Prime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
in 1979.
The foundations of the post-war consensus (also sometimes referred to as Butskellism) can be traced to the reports of William Beveridge
William Beveridge
William Henry Beveridge, 1st Baron Beveridge KCB was a British economist and social reformer. He is best known for his 1942 report Social Insurance and Allied Services which served as the basis for the post-World War II welfare state put in place by the Labour government elected in 1945.Lord...
, who in 1942 formulated the concept of a more comprehensive welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
. Shortly after the surrender of Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
in May 1945, a general election was held in the UK. The result was a landslide victory for the Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
, whose leader was Clement Attlee
Clement Attlee
Clement Richard Attlee, 1st Earl Attlee, KG, OM, CH, PC, FRS was a British Labour politician who served as the Prime Minister of the United Kingdom from 1945 to 1951, and as the Leader of the Labour Party from 1935 to 1955...
. The policies undertaken and implemented by this Labour government laid the base of the consensus. The Conservative Party
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...
accepted many of these changes and promised not to reverse them in its 1947 Industrial Charter
Industrial Charter
The Industrial Charter: A Statement of Conservative Industrial Policy was a 1947 pamphlet and policy statement by the United Kingdom Conservative Party in which the party reconciled itself with the radical social changes introduced by the Labour Party government following the United Kingdom general...
.
The post-war consensus can be characterised as a belief in Keynesian economics, a mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
with the nationalisation of major industries, the establishment of the National Health Service
National Health Service
The National Health Service is the shared name of three of the four publicly funded healthcare systems in the United Kingdom. They provide a comprehensive range of health services, the vast majority of which are free at the point of use to residents of the United Kingdom...
and the creation of the modern welfare state in Britain. The policies were instituted by all governments (both Labour and Conservative) in the post-war period.
Between 1947 and 1975 post war consensus economic strategies created 28 consecutive years of budget surpluses
Government budget
A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. For example, only certain types of revenue may be imposed and collected...
, despite the massive reduction in the size of the British Empire during the period.
During the 1970s global events such as the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
put pressure on the Post-war consensus, this pressure was intensified by domestic problems such as high inflation, the three-day week
Three-Day Week
The Three-Day Week was one of several measures introduced in the United Kingdom by the Conservative Government 1970–1974 to conserve electricity, the production of which was severely limited due to industrial action by coal miners...
and industrial unrest (particularly in the coal-mining industry). In early 1976, expectations that inflation and the double deficit
Twin deficit hypothesis
The twin deficits hypothesis, also called the double deficit hypothesis or twin deficits anomaly, is a concept from macroeconomics that contends that there is a strong link between a national economy's current account balance and its government budget balance.-Definition:Macroeconomic theory points...
would get worse precipitated a Sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
crisis. By October, the pound had fallen by almost 25% against the U.S. dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
. At this point the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
had exhausted its foreign reserves trying to prop up the currency, and as a result the Callaghan
James Callaghan
Leonard James Callaghan, Baron Callaghan of Cardiff, KG, PC , was a British Labour politician, who was Prime Minister of the United Kingdom from 1976 to 1979 and Leader of the Labour Party from 1976 to 1980...
government felt forced to ask the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
for a £2.3 billion loan, then the largest that the IMF had ever made. In return the IMF demanded massive spending cuts and a tightening of the money supply, signalling a lull in Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
in Britain until 2008, when a Keynesian-style fiscal stimulus was applied to several of Britain's major high street banks as a result of the Credit Crunch. Callaghan reinforced this message in his speech to the Labour Party Conference at the height of the crisis, saying:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
Yet despite this, some elements of the post-war consensus continued.
However, in the 1970s the consensus was increasingly seen by those on the right wing as being the cause of the UK's relative economic decline. Believers in New Right
New Right
New Right is used in several countries as a descriptive term for various policies or groups that are right-wing. It has also been used to describe the emergence of Eastern European parties after the collapse of communism.-Australia:...
political beliefs saw their ideology as the solution to Britain's economic dilemmas in the 1970s. When the Conservative Party
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...
won the 1979 general election in the wake of the 1978-79 Winter of discontent
Winter of Discontent
The "Winter of Discontent" is an expression, popularised by the British media, referring to the winter of 1978–79 in the United Kingdom, during which there were widespread strikes by local authority trade unions demanding larger pay rises for their members, because the Labour government of...
, they implemented New Right ideas and brought the post-war consensus to an end. During the period 1947-1979 the post-war consensus economic model allowed successive Labour and Conservative governments to reduce government borrowing from an all time high of 237% of GDP in the aftermath of war down to 43.6% when the Conservatives abandoned the Keynesian style mixed economy and began shifting the balance of the national economy towards free-market capitalism through the privatisation of state controlled infrastructure.
New Zealand
The 'post-war consensus' is also regarded as an era of New Zealand political history, from the first New Zealand Labour PartyNew Zealand Labour Party
The New Zealand Labour Party is a New Zealand political party. It describes itself as centre-left and socially progressive and has been one of the two primary parties of New Zealand politics since 1935....
government of the 1930s until the election of a fundamentally changed Labour party in 1984, following years of mostly New Zealand National Party
New Zealand National Party
The New Zealand National Party is the largest party in the New Zealand House of Representatives and in November 2008 formed a minority government with support from three minor parties.-Policies:...
rule. Like in the UK, it was built around a 'historic compromise' between the different classes in society: the rights, health and security of employment for all workers would be guaranteed, in return for co-operation between unions and employers. The key ideological tenets of governments of the period were Keynesian economic policy, heavy interventionism
Interventionism
Interventionism may refer to:*Interventionism is a political term for significant activity undertaken by a state to influence something not directly under its control....
, economic regulation and a very powerful welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
.