Resolution Foundation

Preparing for a decade of economic change

Lessons from the era of White Heat

Boris Johnson’s administration may well oversee the start of a period of major upheaval for the UK economy – quite possibly the largest since the 1980s. Whether it is post-Brexit trade dislocation, new patterns of production and consumption resulting from the imperative of Net Zero, a long Covid hangover, or the rise of digital technologies there is a long list of sources of potential economic disruption facing Britain’s workers. And all this comes on top of the normal wear and tear of getting by in a flexible, open capitalist economy. 

In the bloodless vernacular of economics, these shifts will inevitably see labour being ‘reallocated’. Plenty of workers will find new and better roles in growing sectors – this is by no means a simple tale of gloom. But many will experience periods of insecurity, and costly retraining, before they eventually adapt. Yet others will see both earnings power, and economic status, take a permanent hit. Given that some of this turbulence will flow directly from deliberate policy choices, rather than the playing out of impersonal shifts in technology or consumer preferences, maintaining popular consent will be vital.

All this poses questions about the UK’s preparedness for the decade ahead. There are plenty of immediate lessons to learn from the Covid-era. But we can look to other periods of history for ideas and insights – positive and negative – about managing economic change. Contemporary discussions often turn to the 1980s as a point of comparison given the profound occupational, sectoral and geographic shifts that took place. However, the mid-1960s presents another, less bitterly contested, case-study of an era when industrial modernisation was placed at the heart of political and economic debate. Aspects of this story – such as Wilson’s invocation of a ‘new Britain’ forged out of the white heat of scientific revolution – still live near the surface of popular memory. Others, though, are overlooked and worth excavating as we prepare for the decade ahead.

Wilson’s early success is often ascribed to the novel way in which he weaponised public fears about relative stagnation while crafting a patriotic and optimistic narrative about Britain’s dynamic economic future. But the reality was that his embrace of the possibilities of technology and planning channelled (and escalated) well established pre-occupations of the early 1960s. The immediate context was the ‘growth fever’ that had taken over public debate of the early 1960s, with both main parties committing to totemic 4% growth targets. Indeed, before Labour came to office Harold Macmillan had already made a tentative turn towards a planned approach to growth and given it institutional expression through Selwyn Lloyd’s creation of the National Economic Development Council (NEDC). This reflected Whitehall’s growing curiosity about the French experience of indicative planning, rising anxiety about the potential for Soviet ‘planned’ growth to outperform the West’s ‘unplanned Keynesianism’, and a general conviction that the nation’s scientists – who, as CP Snow put it, carried ‘the future in their bones’ – needed to be reoriented from a military to a civil purpose, as well as from the margins to the mainstream of public discourse, if Britain was to avoid an era of decline and decay.

An overlooked aspect of that era’s debate about industrial modernisation was the conviction that stronger collective income-insurance was vital in order to facilitate the higher levels of worker reallocation demanded by rising automation and shifts in consumer demand. Earnings-related unemployment benefits were advocated in Neddy’s ‘Conditions Favourable to Faster Growth’ in 1963 and nodded to in the subsequent Conservative election manifesto. Labour’s thinking had already moved in this direction. Richard Crossman’s (LSE) Study Group, a social policy brains trust that shaped much of Labour’s post-war thinking on the welfare state, had since the late 1950s advocated a departure from Beveridge’s founding principle of flat rate contributions in return for flat rate benefits, particularly in relation to pensions. Partly this was thought to be an inevitable consequence of the move towards earnings-related contributions which, they argued, was essential to meet rising social security costs. But it also reflected the conviction that far more generous levels of provision were needed for those excluded from occupational pensions if Britain was to avoid becoming ‘two nations in retirement’.  By the early 1960s this post-Beveridgean thinking had spread to Labour’s stance on the working-age welfare state too.

Wilson came to Downing Street steeped in these issues. He was better versed on the link between ‘manpower’, the welfare state and the UK’s economic performance than any other modern Prime Minister. Before entering Cabinet (aged thirty-one) as President of the Board of Trade, Wilson had twice worked for William Beveridge – at Oxford and then in war-time Whitehall — and rose on the wave of mid-century social empiricism that the great liberal reformer did so much to create. Wilson, though, had a complicated relationship with Beveridge who was known to be a regularly trying and sometimes tormenting boss (he once summoned the young Wilson to return early from his honeymoon in order to resume his research duties). It is perhaps no great surprise that Wilson had turned down the offer of being secretary to what would become the totemic inquiry into Social Insurance and Allied Services. After Beveridge’s death Wilson lauded him as ‘one of the greatest social reformers in our history’ but laced his praise with caustic observation (in the first Beveridge memorial lecture, no less): while his former mentor was ‘probably the greatest administrative genius of this century’ he was ‘almost certainly the worst administrator’. He was, of course, an ‘intellectual giant’ but an ‘intellectual snob’ too. There was history here.

It was, therefore, for a wide range of reasons – economic and social, personal and philosophical – that the early 1960s saw policy elites from the main political parties converging behind the need for a new wave of earnings-related benefits.

Early-era Wilson showed great political dexterity in weaving these disparate strands into a compelling electoral and governing pitch. The better-known aspect of this was the call for a ‘shakeout from the country’s boardrooms’ ridding them of the amateurish, elitist and antiquated management that Wilson thought thwarted the meritocratic rise of a new generation of technicians and scientists who would usher in modern approaches and technologies. Britain could no longer be ‘a nation of Gentleman in world of players.’

What gets far less attention was Wilson’s conviction that modernisation also meant upheaval for the shop-floor. Faster growth relied on the rapid expansion of new industries and the reallocation of skilled labour towards them.  The road to higher productivity went through increased worker mobility, as much as modern management. This was a difficult issue that needed to be debated and worked on rather than cloaked. Contrary to the received wisdom that would emerge fifteen years later, the belief was that greater labour market dynamism required more, not less, collective insurance and social support. Beveridge’s subsistence-level flat rate benefits were viewed as a road block to workers, particularly skilled workers, embracing risk.

‘Industrial change without labour re­deployment is a meaningless concept’, Wilson told Labour Party Conference in Brighton after his second election win in 1966. A central political challenge, therefore, was to ‘ease the transition from job to job which must be made if the country is to achieve the redeployment of manpower which it so urgently needs’ and that meant creating the ‘social conditions’ which made this ‘toler­able’. In short, harnessing the technological advances that so animated Wilson in the mid-1960s required his government to build the ‘social infrastructure required for industrial change’.

That new social infrastructure included a shift towards earnings related and time-limited unemployment benefit (introduced via the National Insurance Act 1966) as well as earnings-related sick pay and widow’s benefit (the argument being that it would be morally unacceptable for the latter two to lag behind the former). This came alongside a raft of other measures aimed in different ways at supporting labour to adjust and progress: the Statutory Redundancy Pay Act (1966), the delivery of Industrial Training Boards (legislated for at the close of the Conservative years with Labour support), Crosland’s pioneering of the polytechnic system, the post-Robbins expansion of universities and, of course, the launch of the Open University.  

Looking back we can see this resulted in a rise in benefit generosity and an increase in the acquisition of skills and technical training for a new generation of workers. We can’t, however, know whether any of this played a part in the increase in labour mobility between industrial sectors that followed – many factors would have been relevant. We can, though, observe there was a 44% rise in labour reallocation between industrial sectors in the decade following 1968 compared to the one that went before, surpassing all the preceding decades of the 20th century other than the two dominated by World Wars.

If Wilson’s social security changes were linked to this increased labour market dynamism it would have been despite, not because, of the manner in which they were implemented. The UK’s 20th century experiment in earnings-unemployment insurance was rushed and badly designed (which also made it easier for it to be dismantled in the Thatcher years). New administrative burdens were placed on claimants and the ‘earnings link’ was highly opaque due to a long lag in the assessment period and a byzantine formula that determined the precise level of benefit. No ordinary worker could possibly have known in advance how much benefit they would receive.   

The agenda of strengthening the social infrastructure in this period has since been obscured by the wider turbulence that surrounded Wilson’s first two administrations and the lure of the language of White Heat. Much of the economic modernisation agenda was, of course, fatally wounded by the sterling crisis and subsequent devaluation as well as the enervating conflict over the government’s incomes policy and In Place of Strife. From the start there were contradictions and blind-spots. The ambitions for major domestic expansion were always going to collide with the external constraint that resulted from the desire to protect that value of sterling. The popular attack on restrictive practices sat uncomfortably with the state-sponsored push for greater industrial concentration. And there was undue confidence in the potency of the ‘plans’ and programmes originating from new and often rivalrous public agencies – Department for Economic Affairs, Mintech, and the Industrial Reorganisation Corporation – to translate into real gains in the productive potential of the economy, not least due to the fact that neo-corporatist creations like the NEDC weren’t underpinned by deeper changes to the UK’s system of economic governance.

Yet, for all that, there are insights to be gleaned. The early years of the Wilson administration provided an example of a government seeking to take a broad view of how economic and social policy need to work in tandem if they are to help a country adjust to pressures for industrial change. Wilson understood that – at least in the UK context – labour market dynamism tends to be an enabler of increased productivity and pay.  He was, though, keenly aware that the promise of ‘economic change’ could be applauded in the conference hall yet fiercely resisted – collectively and individually – when it showed up in worker’s lives. There was an intuitive sense that stronger unemployment insurance could ultimately help workers find more productive  employment than would otherwise be the case which in turn help generate gains that may outweigh costs arising from the possibility of slightly longer periods of unemployment (an insight that only entered the mainstream economics profession some decades later). Above all, though, he was clear-eyed about the fact that social infrastructures, like their physical counterparts, have to be regularly renewed and periodically reimagined to meet new times.

We need to apply a similarly wide lens today. If the UK is to successfully navigate the post-Covid, post-Brexit, transition to net zero alongside the rise of the digitalised economy then it will have to cope with new social pressures and strains. Some sectors, occupations and localities will take a hit as others rise. The distribution of the risk of income loss across the workforce may alter, potentially spreading it more evenly across different types of workers. Society will have to find ways of sharing out new costs and burdens.

The UK today doesn’t measure up well against these challenges. We entered this decade with a threadbare social security system, extremely low levels of income-replacement for those who face a shock, a chronically underfunded training system, patchy employment support, a stunted idea of the potential of direct job creation, and weak and poorly enforced labour standards. Contrary to the entrenched narrative about the accelerating pace of change, the reality is that labour market dynamism, geographic mobility and workforce training are all significantly lower than they were at the turn of the millennium. We don’t resemble a nation poised to rise to the structural challenges of the 2020s.  

None of this is fixed in stone. The success of the system of national wage insurance that the current government recently created reminds us of what is possible when old assumptions are ripped up and minds are focussed. If nothing else, it should help free us of sterile thinking about the sorts of policies that are thought to be compatible with our liberal market economy.

It is true, of course, that prevailing ideological and institutional assumptions always weigh heavily on the sense of what is viable. But alternative welfare trajectories are always possible, even if they are sometimes hard to envision. It wasn’t long ago that the basic state pension felt destined to wither on the vine, now the only question is whether it will be uprated by the ‘triple lock’ or merely earnings. The need to align economic and social objectives in the face of the shocks and shifts of the 2020s could, and should, act as an impetus for policy innovation.   

‘He who rejects change is the architect of decay’ is one of Wilson’s better remembered lines. There is little doubt that economic change is coming in the 2020s. As for decay, well, that depends in no small part on whether today’s policy architects are up to the task of building a stronger 21st century social infrastructure.