The Split Society-4
The Anachronism of a Ruling Class
By NICHOLAS DAVENPORT
STRESS and industrial conflict in the Twenties, depression and mass unemployment in the Thirties, frustration and disillusionment over the socialist failure in the late Forties and pathologi- cal cynicism in the affluent Fifties—it is small wonder that the working class retain their sense of alienation. It was unfortunate that the 1945 Labour leaders in their approach to an eco- nomic policy—they never really had one—got themselves identified in the eyes of the workers with the old ruling clique. One might have ex- pected it of Attlee (Haileybury) or Dalton (Eton) or Cripps (Winchester), but who would have thought that Ernest Bevin would behave like an old Harrovian and follow the Churchill tradition? The explanation of this tragedy is that the tradi- tions of the old ruling class live on in the ser- vices—both defence and civil—and that the Labour Ministers, bowed down by their ap- palling problems, became faint in the arms of thC policy-making higher civil servants.
This is a point which needs understanding. As we all know, the Establishment is recruited from the public schools and there is no doubt that higher education of this privileged and expensive sort turns out some extremely able men. The public schools still monopolise more than half the places at Oxford and Cambridge and Oxbridge still monopolises the higher places in the Civil Service.* By the time the successful candidates are locked away in their government departments—they might just as well enter monasteries for all the contact they keep with the outer world—they have imbibed the outlook and attitudes of their fellow university men who are running the Government of the day. And when the Government is Conservative these are mainly old Etonian.
It has been said: 'Whoever is in office, the Whigs are in power.' This was a profound remark which showed that someone had done his histori- cal research. The present ruling class can trace their origin -back tb 1660, when the great property owners and the rich City merchants got together in common funk of the revolu- tionary radicalism of the lower classes which the Civil War incited. They brought Charles II back to the throne because they feared the socialism preached by the Levellers and the Agi- tators in the army. After the revolution of 1688 this new ruling clique split into camps—Whigs and Tories—the Whigs representing the landed aristocrats and new merchant capitalists, the Tories the lesser but more numerous country gentry. Gradually a new capitalism emerged out of the agrarian revolution in the eighteenth cen- tury and out of the industrial revolution in the nineteenth, but the country gentry remained the backbone of the Tories. As the workers became politically more conscious, the ruling class had to drop its cynicism (its pocket boroughs, etc.) and make concessions to democratic reform. Hence the great reform Bills of the Victorian epoch. But there was no surrender of power * In answer to a parliamentary question in June, 1963, the Financial Secretary to the Treasury pro- duced a table showing that in the open competitions for Assistant Principal level over the past ten years Oxford secured 194 places, Cambridge 149, London thirty-five and seven redbrick universities only fifteen.
on the part of the ruling class. Whigs and Tories, Liberals and Conservatives, went on dishing out social reform but clinging to power and were not seriously challenged until the rise of the Labour Party.
This old ruling class was steeped in the mer- cantile tradition, the modern version of which I call finance-capitalism. Britain became rich and great in the mercantile era and although the industrial revolution of the nineteenth century created a new group of capitalists, these neo- industrialists stayed largely in the provinces and allowed the finance-capitalists in the City, the inheritors of mercantilism, to remain in the seats of political power. This explains why London has been allowed to dominate for so long—too long, I fear—the economic and political life of the country. This also explains why the ruling class was so determined to put the country back on to gold •in 1925 at an over-valued rate for sterling. A fixed gold £ was deemed essential to enable British finance-capitalism to extend its investments overseas and to carry on its inter- national finance-banking with its ancillary in- surance and broking business.
Historically, British industry has been largely developed and financed in the provinces by businessmen exploiting some new industrial technique and putting back their hard-won earn- ings into their business. It is only since the war that the industrial demand for capital has been far too great to be financed locally out of profits, so that the big industrialists have been forced to come more and more to the capital market in the City. This has given the finance- capitalists a further opportunity to extend their money power. The curious feature of this de- velopment is that it is in the old Whig, not Tory, tradition, but with the decline of the Liberal Party the Tories have stepped into the shoes of their old rivals. The Tory country 'gentry,' of course, have had to be quietened with farm subsidies to condition them to accept the cheap food imports of the new mercantilism, but the Tory ruling clique, Benthamite in character, has become a Whiggish money power.
This transformation has been assisted by the present dominance of the old Etonian in the Tory coterie. The old Etonian as a rule has inherited wealth and his mind is trained to think in terms of money; that is to say, how to make money out of the manipulation and exploitation of money in banking, insurance, trading and bulk commodity and metal dealing. He will not want to know how to make money out of manu- facturing or wholesaling or retailing. His father may have been a business tycoon but the son will look down upon the business of making or trading things and will drift naturally into politics or the City. In the City he will go into the merchant banks, the discount market, Lloyd's, the Stock Exchange and the investment world. With the exception of Catto, all the Governors of the Bank of England within my working life- time have been old Etonians. When the Labour Party made an inquiry a few years ago, it found that forty-four out of 148 directors of the joint stock banks, forty-six out of 149 directors of the large insurance companies and thirty-five out of 107 directors of big City firms were all old
Etonians. if you look into the boards of the public-school directors of the Bank of England, the joint stock banks, the merchant banks and the insurance companies you will find that they interlock and cover 'the commanding heights of the economy.' By this network of directorships the money power of the present ruling class pervades the whole of British industry.
In my investment work I have always tried to avoid the shares of companies which have a public-school banker in the chair because I know that the money influence will be predominant and that the scientist-technician, on whom our industrial future depends, will be conspicuous by his absence from the board. But I have found this simple investment rule almost impossible to follow. The cases where a successful industrial company is managed by an 'absolute outsider' with a scientific training, who has never seen the inside of a public school, are so few they would not fill a page of an investment portfolio.
It will now be clear why the ruling class in this country instructed their civil servants in the policy-making Treasury to give first priority in their economic management to 'hard' money or the strength of sterling, for without it the activities of finance-capitalism would be harmed and restricted. This has meant slowing down the growth of the economy in the interests of the balance of payments and I do not believe that this has been the right policy for an industrial nation to pursue which has to keep a vast labour force in full employment. It was a policy which made sense in the great mer- cantile era when London was the financial capital of the world and Britain was a great creditor nation, paying for one-third of its im- ports by the invisible exports of banking, ship- ping, insurance, overseas earnings and com- modity trading. But when we lost our creditor position after the Second World War it became obvious that if we were to survive as a great industrial and trading power it could only be, as Austin Albu has put it,t 'by the hard selling of technologically advanced goods in the world markets.' But the Tory ruling clique would not see it. They could only think in the hard money terms of finance-capitalism. They have been pre- pared to hold back expansion to keep the £ strong. They have been investing overseas (to restore the old creditor position) when they ought to have been investing in new industrial pro- cesses and techniques at home. The Bank of England has been strongly supporting this policy, for it has never refused foreign exchange to a finance-capitalist making a remunerative invest- ment overseas. Certainly this mistaken policy has been ably carried out—the item 'interest, profits and dividends' in our invisible account has actually been doubled in the last ten years—but it has been done at the cost of stagnation and the alienation of the working masses.
At the inquiry of the Radcliffe Committee, one of the frank official witnesses was Robert Hall, then economic adviser to the Treasury. Being an Australian, he was free from the taint of old Etonian finance-capitalism and was able to retain a sense of reality in all the monetary moonshine of the Treasury. He was the first
t Encounter, July, 1963.,See also Shanks's article. to admit that there had been a conflict between the objective of full employment and domestic expansion and the objective of hard money. One cannot understand the period after 1951, he told the Committee, without recognising that there had been such a dilemma. Of course there is no dilemma, no clash between finance-capitalism and domestic industry, when the £ is stable. That the situation as I write today, for Maudling is in the happy position to order a re-expansion of the economy, to increase public spending and in vestment, because the balance of payments is showing a good surplus--and perhaps because the dollar is more suspect than the £. But if and when the £ is again threatened, the Bank of England will be pressing the Chancellor to crack down on the domestic economy with dear money and credit restriction. The `stop-go' mone- tary technique was born out of finance-capitalism.
The excuse which the Tory ruling clique give for holding an anti-working-class economic policy devoted to the fetish of the strength of the £ is that sterling is a reserve currency in which the sterling area and some other coun- tries hold part of their monetary reserves. But this does not justify putting the interests of those countries above the interests of the UK. At the moment we have sterling liabilities to overseas depositors of about £3,000 million (ignoring the International Organisations) and gold and dollar reserves of just under £1,000 million. In other words, we are in the same position as any bank : we could not meet a run on our cash by our depositors. But everyone under- stands that position. And we have defensive action to take if depositors get restive. As we live by trade, the important thing is to give top priority not to building up our reserves but to the expansion of our trade, to the growth of our production and to the livelihood of our working people.
If the nation were to make more profit as a banker than as a manufacturer and merchant trader selling £4,000 million worth of goods to the four quarters of the world, we might begin to join with the Establishment in worshipping the £ as a sacred cow. But there is no comparison between the two. I would estimate the banking profit at under £30 million and the profit on the export trade at over £300 million. Besides, to make the £30 million you employ only a few clerks and top hats in the City: to make the £300 million you would have to employ millions of workers. The whole of the City's earnings from banking, insurance, merchanting and broking is estimated at little more than £100 million. Certainly this is a valuable source of revenue. Certainly the City's activities are very ably carried on and its reputation for fair deal- ing second to none in the world. Indeed, the use of sterling as a reserve currency is due not ss.% much to foreign confidence in the £ as to
foreign satisfaction with and respect for the unrivalled services offered by the City in bank- ing, insurance and shipping. In what other city
in the world is a word on the telephone regarded as a bond? But this is no reason why the inter-
ests of finance-capitalism should dominate the industrial and trading livelihood of the working masses.
Another general election approaches and the expectation of a Labour victory has caused the trade union and parliamentary Labour leaders to come closer together on an incomes policy. Frank Cousins has conceded that if the eco- nomy is to be planned and the rate of growth stepped up, the trade unions should not expect unplanned wage increases in excess of economic growth. He would never agree to an incomes policy under a Conservative Government, but if Labour is returned he would accept some restraint of wages provided other incomes— profits, dividends and rents—were also subjected to restraint. Is this possible? Does this mean that the division in society between ruling clique and working class will be closed when the next Labour Government takes office? Or widened further if the Tories are returned?
Certainly Harold Wilson would seem to have a greater chance to bring about the miraculous union than the ex-fourteenth Earl of Home. He has the right background—a nonconformist industrial origin, grammar-school education, a scholarship to Oxford followed by an economics fellowship. He has imbibed the modern scientific approach to the technological revolution which is required of British industry. Brains and hard work, not social pull, have brought him to the top. In the old days all that was necessary for a man to reach the top in politics was to have come from the right family, to have been to the right school and to have had a pleasant dis- position. That has been the trouble with the British political system—nice ineffectual people could get to the top. I am not suggesting that Harold Wilson proves the contrary, but one could not imagine such an absurdity happening in Russia.
If Wilson is given the chance to unite the nation and succeeds, be will owe a lot of his success to Gaitskell. It was Gaitskell alone who brought about the modification of Clause 4 which converted the Labour Party from an authoritarian embryo-Marxist set-up to the demo- cratic socialism of a mixed economy in which private enterprise is allowed full partnership with public enterprise. Gaitskell stamped out the frightening nationalisation threats of the 1918 and 1945 policy memoranda. He himself be- lieved in the moderate socialism which conti- nental Europe had adopted after the war. The Socialist International in Frankfurt in 1951 passed this resolution: 'Socialist planning does not presuppose the ownership of all the means of production. It is compatible with private ownership in important fields.' This was Gait- skell's view, but it was only with the greatest difficulty that he got his party to accept it. After much heated debate, a compromise was reached (March 16, 1960) between those who would have abolished Clause 4 altogether and those who would have retained it as a sacred cow for worship. A new constitution was drawn up with much sentimental phrasing in the preamble about the `fundamental dignity of man,' the classless society' and 'social justice,' and with much righteous condemnation of the 'selfish, acquisi- live doctrines of capitalism' and 'the pursuit of material wealth.' The party now stands, it said, 'for the protection of workers, consumers and all citizens against any exercise of arbitrary power, wlfether by the State, by private or by public authorities.' Finally : It is convinced that these social and economic objectives can be achieved only through an ex- pansion of common ownership substantial enough to give the community power over the commanding heights of the economy. Common ownership takes varying forms, including State- owned industries and firms, producer and con- sumer co-operation, municipal ownership and public participation in private concerns. ,Recog- nising that both public and private enterprise have a place in the economy it believes that further extension of common ownership should be decided from time to time in the light of these objectives and according to circumstances with due regard for the view of the workers and consumers concerned.
There is nothing tb upset the business world in this compromise document. Private enterprise can work happily along with public enterprise. The amended Clause 4 gives Wilson the right to refuse, if he wishes, any further nationalisa- tion beyond iron and steel, water and some road transport. It gives him freedom to im- provise his policy as he goes along in the best tradition of British politics. Instead of nationalising old industries he can create new industries by setting up State-owned enterprises to develop new techniques and skills, as 1 be- lieve be intends to do in chemical engineering and machine tools. But he will have to kill the old Labour suspicions of profit-making private enter- prise. Profit-making, in fact, will have to be en- couraged. When the State advances money to a company in need it must insist on its profit- ability and demand a slice of its equity capital. The Labour idea that equity share-owners are parasitic and out-of-date betrays an appalling ignorance of the key mechanism of the private capitalist system.
When will Labour stalwarts understand that there is nothing immoral in earning a profit pro- vided it is not outrageous? A profit is merely the residual surplus arrived at by deducting expenses and depreciation from revenues received. As it is a residue it cannot be 'controlled' unless wages and prices, which predetermine it, are fixed. The notion that company profits can be limited to, say, a 4 per cent annual increase in line with the projected annual increase in national productivity is ludicrous. In any particular year the profits of one industry, which may be re- covering from a slump, will be advancing by, say, 50 per cent, while the profits of another, which may be turning down from a boom, will be declining by. say, 10 per cent. To put an extra tax on profits which have risen through the greater skill of the management would be to tax and discourage efficiency. The Labour Party must accustom itself to the idea that the efficient profit-makers in a mixed economy are the pillars of the trading Slate. It is private enterprise which runs the export trade, which enables the nation to pay its way ip the world and secure a surplus on its balance of payments. Sometimes it is the flamboyant business tycoon, drawing on an immense expense account, who is responsible for the most spectacular success in foreign markets. Wilson has got to make these businessmen feel that they can work with profit in a mixed economy under a Labour Govern- ment. And by 'with profit' I do not mean a meagre profit. In 1945 his predecessors in office made the mistake of believing that Britain could be run by £2,000-a-year men.
Private enterprise, as we all know, can do nothing without the co-operation of labour, but if labour is to co-operate it will have to be given a new social status. No longer can working men be regarded as second-class citizens liable to be dismissed on a day's notice. They must receive service contracts like salaried employees, entitling them on the termination of the con- tracts to, say, a week's pay for every year's service. Redundancy, which is constantly being brought on by automation, is the nightmare of the trade unions, and the feeling of insecurity it generates will never be removed until the Government has an adequate scheme for com- pensation, retraining, resettlement and rehousing. At the moment there is no national scheme for training the adult worker whose job has dis- appeared through some automation process. In the factories workers must be consulted more by the management and treated as partners in the enterprise. Of course, managements must retain control over policy, but in the day-to-day administration of the factory the management and its labour force must co-operate through joint committees and these joint committees must include the shop stewards, This problem of in- dustrial relations is largely psychological and the labour officers of big managements need some training in psychiatry.
At the same time, a better opportunity must be given to the workers to raise their social status through education. Out of the great edu- cation debate now raging more chance for the clever boys of the working class to receive higher education in university or technical college is obviously going to come. But let us not stop at that. Teaching by means of television (Harold Wilson's 'University of the Air') must be pushed forward. Education apart, the system of apprenticeships needs modernisation. There much to be said for the French system which puts apprenticeship on an industry basis, each industry setting up committees responsible for the pay and instruction of the trainees. At present about two-thirds of the boys leaving school at fifteen enter no apprenticeship course at all. Working-class ambitions must be fostered. The Coal Board has set a good example with its 'ladder plan.' Every worker should be made to feel that if he has the will and ability he can end up on the management or at the board room table.
As regards a wages policy, the Selwyn Lloyd idea of a 'guiding light' operated by a signal- box like the National Incomes Commission is ludicrous and will have to be' abandoned—to- gether with the NIC itself. It is too difficult, too complicated, to administer. In this democratic society the amount Of each wage increase must he left to individual bargaining between em- ployers and trade unions in each industry. Their wage negotiations have in the past succeeded or failed irrespective of the index of national pro- ductivity or cost of living. They depend on the exercise of reasonableness and common sense and, fortunately, the British people have a large measure of both. The trade unions know per- fectly well that the nation cannot go on paying itself more money for the goods and services it produces than it gathers in by way of their dis- posal. Has not Ted Hill said that 'you can't get more than a pint out of a pint pot'? To make sure that reason and common sense' will prevail, the Government should be represented a: each wage negotiation, that is, hold a watch- ing brief, so that the public view can be presented and the plain facts of economic life kept in mind. Above all, the Government as the largest employer of labour, should practise what it preaches. The trouble in the past has been not that wages have risen too fast, but productivity too slowly. This has been due partly to the restrictive practices of the trade unions, but mainly to the stupidity or sloth of manage- ments—too many of them family concerns prac- tising nepotism—who have failed to apply new industrial techniques in time. Both managements and men have got to change their ways.
Will a new industrial charter on these lines give the workers sufficient confidence and sense of security to make them co-operate with their employers in the expansion of our mixed eco- nomy? I think they will still want a govern- ment guarantee that in the division of the national income the shares taken between wages and profits will not be altered at. the expense of wages. In this period of affluence the wages share in the national income has still kept around 42 per cent. (It was 39.9 per cent in 1938.) The profits share has actually been falling since the spurt it received at the time of the Korean war boom. From 19.5 per cent in the period 1948-51, it had sunk to 16.7 per cent in 1960-62. (It was 14.3 per cent in 1938.) The. simplest way for the Government to give the .workers an assur- ance that restraint on their part will not, mean extra profit for the employers is to bring in a corporation tax at, say, 50 per cent, and raise it if profits start climbing unreasonably. This company tax would be in lieu of income tax and profits tax. As companies are now paying 381 per cent of their profits in income tax and 15 per cent in profits tax, making a total of 531 per cent, I would suggest that they should be made to shoulder directly more of the cost of social security and welfare. This would make them less inclined, to hoard labour*—hoarding has been one of the causes of our bad produc- tivity record—and put them on a par with em- ployers on the Continent. In West Germany and France, for example, the employer pays about Is 8d. out of the total wage of between 5s. Id. and 5s.-6d. per hour to meet the cost of social security. In our country the comparative figure is 8d.
There is still another awkward question of taxation. The workers must be convinced that the tax system is -fair—that there is an equitable distribution between direct and indirect taxation and that the possessors of capital are not more lightly treated than the possessors of income. On the first they can be satisfied, but not on the second. The possessors of capital pay 1 per cent on transfers of capital, heavy estate duties, which are largely voluntary because they can be avoided by gifts and trusts, and a capital gains tax limited to six months for securities and Three years for land. It is plainly not enough. James Callaghan has proposed a wealth tax simi- lar to the very stiff ones in Sweden.; but Sweden is a bad example. (Its wealth tax only brings in about £16 million out of direct taxation of £560 million, which indicates that the very rich have been forced to leave the country.) My own tents- tive suggestion is that the taxpayer should be asked to make a return of capital as well as income and pay 1 per cent on its annual incre- ment, thus avoiding the necessity of a capital gains tax. An initial levy of, say, I per cent, would establish the datum line. Various estimates have been made by Oxford statisticians of the amount of private wealth in this country. James Callaghan seemed to think it was £20,000 million. It is much more likely to, be well over £50,000 million. The Labour Party makes great play of the fact that 2 per cent of the population own 50 per cent of the national wealth—cer- tainly there are too many property millionaires— but a few compulsive money-makers are a great asset in a dynamic economy.
Labour attempts to secure a wider capital distribution have been futile. It cannot be done by nationalisation (which makes the rich more liquid); it cannot be done by heavy discriminat- ing taxation (which' would merely drive the rich abroad); it must not be done by confiscation, which is politically impossible in this State; it can only be done by making poor people less poor, and giving the mass of wage and salary earners a better chance to acquire some capital.
This is not so difficult. The unit trust move- ment, which has now caught the popular fancy, is the instrument at hand. All that is necessary is to divert some of the savings of the workers, which are squandered on betting, into the units of a sound equity trust. Already the rate of public savings in unit trusts is reaching £1 million a week and an even greater growth could be achieved if employers would give facilities for unit trust savings when the weekly pay-packets are handed out. Better still, the State itself could create a public unit trust to hold blocks of the equity shares of leading companies in every in- dustry in the country. Units in 5s. or Is. form could be obtainable at the Post Office counters like other forms of savings documents. This was an idea I put out years ago, but it has sub- sequently been taken up by Douglas Jay and, I hope, will become part of the savings policy of the next Labour Government. The State could acquire its equity share holdings either in the open market or by taking shares in place of cash for payment of estate duty. There is no doubt that a State unit trust for equities would have an immense following. It would be a wel- come change from the dreary fixed-interest bonds and savings certificates which the Post Office sells to poor people who are ignorant of the continued depreciation in the value of money. At the rate at which equity shares have lately been appreciating, during periods of full em- ployment and expansion, a worker could, like any capitalist, double his wealth every ten years.
There is, of course, another way in which the worker can acquire capital wealth. This is by profit-sharing, but I hold this to be objection- able. It creates a new privileged clique within the working class at a time when we want to widen the distribution of wealth. If we take the total working population at 24,000,000, not much more than one-third are eligible for direct coin- pany profit-sharing. First, we have to exclude all those working for the central government and its armed forces, its nationalised industries and its public boards, all those working for local services, such as police, public health and edu- cation, and all those professional. scientific and domestic and welfare services which have no equity profits to share out. Secondly, we must omit the vast amount of enterprise which the
*Selwyn Lloyd introduced a payroll la% \NitiL:h was quite unworkable.
government classes as self-employment--farmers, shopkeepers, one-man trades and services, pri- vate family businesses, not to mention the huge public companies engaged in financial services such as insurance, banking, hire purchase and property, where participation in equity profits is not practicable. We are left with a small minority of companies engaged in manufacturing and trading which can effectively offer their workers a share in the equity. Why should this minority be privileged above the vast working mass? Take the case of the great Imperial Chemical Industries. This company has a profit- sharing scheme which requires 22 per cent of the total amount paid out in dividends or interest (gross) on all forms of the company's stock to be handed over to the trustees, who use it to buy ordinary shares for the workers at current market prices. No doubt the company at one time thought it wise to bribe their employees so that they would not vote for nationalisation, but this is an insurance which should now be dropped.
Carried to its logical conclusion, employee profit-sharing leads to syndicalism in which management and labour gang up to exploit the consumer. I am therefore against any form of Profit-sharing. It will only aggravate, not relieve, the social stresses in the economy. It will in- crease the unequal distribution of wealth and extend privilege to select managements and workers. Further, I am wholly opposed to stock options granted to managing executives. These are usually bribes to induce the ablest, if greediest, managers to stay, but it is an affront to the principle of fair shares.
With such &astic reforms can the revolution- ary challenge to society be killed? It was side- tracked after the war when Labour deluded the people into thinking that a plunge into socialism was being made. It was forgotten when affluence knocked at the door of the working-class homes under the Conservative regime. But affluence has led to complacency and complacency has allowed the Communists to infiltrate further into the Labour movement. Aidan Crawley, who has made a special study of this subject, declares* that the Communist Party today is increasing its membership and extending its influence among the trade unions. By clever and sometimes dis- honest manipulation, Communists may obtain control of a particular union, but it is difficult to see them in command of the whole working- class movement unless the split in our society is allowed to grow wider. Any government pledged to lessen the privileges of wealth and enforce a fairer deal for the workers in the matter of an • incomes policy should be able to meet the revolutionary challenge. But it must be com- petent to manage a mixed economy in which private and public enterprise compete in a healthy race for higher productivity without looking over its shoulder all the time at the state of the gold reserves. And it must be a government which is drawn from every class, from grammar school as well as public school, and from the provinces as well as the capital. A London-based moneyed ruling class is surely an anachronism today.
0 Nicholas Davenport 1963
*See Encounter, July, 1963.