The British Labour Government and the 1976 IMF Crisis

283 Pages·1997·13.008 MB·English

by  Mark D. Harmon

The British Labour
Government and the
1976 IMF Crisis
Mark D. Harmon
THE BRITISH LABOUR GOVERNMENT AND THE
1976 IMF CRISIS
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The British Labour
Government and the
1976 IMF Crisis
Mark D. Harmon
Assistant Professor of Politics
University of California at Santa Cruz
California
First published in Great Britain 1997 by
flfl MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 0-333-67818-4
First published in the United States of America 1997 by
& ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 0-312-17624-4
Library of Congress Cataloging-in-Publication Data
Harmon, Mark D.
The British labour government and the 1976 IMF crisis / Mark D.
Harmon,
p. cm.
Includes bibliographical references and index.
ISBN 0-312-17624-4
1. Monetary policy—Great Britain. 2. Great Britain—Economic
policy—1945- 3. Great Britain—Politics and
government—1964-1979. 4. International Monetary Fund. I. Title.
HG939.5.H257 1997
332.4*941—dc21 97-8582
CIP
© Mark D. Harmon 1997
All rights reserved. No reproduction, copy or transmission of this publication may be made
without written permission.
No paragraph of this publication may be reproduced, copied or transmitted save with
written permission or in accordance with the provisions of the Copyright, Designs and
Patents Act 1988, or under the terms of any licence permitting limited copying issued by
the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE.
Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author of this work in accordance
with the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and
sustained forest sources.
10 9 8 7 6 54 3 21
06 05 04 03 02 01 00 99 98 97
Printed and bound in Great Britain by
Antony Rowe Ltd, Chippenham, Wiltshire
Contents
List of Figures vi
List of Tables vii
Preface and Acknowledgements ix
1 Sovereignty, Regimes, and 'Cooperation' 1
2 IMF Conditionality and the United Kingdom, 1944-70:
'My appeal was essentially based on bogus dignity' 20
3 New Directions for Labour, 1970-74: 'We Must in the
Future Alter the Priorities in Favour of Economic Growth' 48
4 Burden-Sharing and Loosened Conditionality, 1974-75:
'The Nature of What Constitutes a Sustainable Balance
of Payments has been Radically Changed' 62
5 Labour Economic Policy, March 1974 - May 1975:
'A Phoney Phase' 79
6 Labour Economic Policy, June 1975 - March 1976:
'We Knew we were Riding a Crisis' 101
7 Burden-Shifting and Tightened Conditionality, 1975-76:
'The Practice of Financing the Status Quo is Coming
to an End' 121
8 Currency Crisis and Restricted Policy Options,
March-August 1976: Opening 'Pandora's Box' 131
9 Driven to the IMF, September-November 1976:
'The Market's Verdicts are Merciless and Effective' 158
10 Crisis Resolution, December 1976 - January 1977:
'It is Mad but we have No Alternative' 193
11 Conclusion 228
Notes 234
Bibliography 245
Index 263
v
List of Figures
5.1 UK currency reserves, 1974-75 89
5.2 Bank of England exchange market intervention, 1974-75 90
6.1 UK currency reserves 1975-76 115
6.2 UK current account deficit 1974-76 116
6.3 Sterling-dollar exchange rate 1975-76 118
6.4 UK Minimum Lending Rate 1975-76 119
8.1 Sterling exchange rate 1976 132
8.2 UK currency reserves 1976-77 137
8.3 Bank of England exchange market intervention 1975-76 138
8.4 UK Minimum Lending Rate 1976 141
9.1 Sterling-dollar exchange rate 1976-77 160
VI
List of Tables
4.1 IMF borrowing for the 1974 and 1975 oil facilities 68
5.1 General election results, February 1974 80
5.2 General election results, October 1974 82
8.1 Labour Party leadership elections, March-April 1976 134
10.1 Summary of Healey and Witteveen negotiating positions,
December 1976 195
10.2 1977-78 and 1978-79 public expenditure savings,
announced, 15 December 1976 219
vn
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Preface and Acknowledgments
There were essentially two factors that led to my initial interest in the
1976 UK-IMF crisis. As a graduate student in international relations
seminars, I became convinced that many of the external influences on
state action that are presented within the literature as 'international
cooperation' are more accurately described and understood as relations
of coercion. Accordingly, I began this project looking for a case in
which I could explore the nature of 'structural power' in contempo
rary international affairs, including the ways in which choices are framed
and possibilities foreclosed. In addition, I was interested in examining
the conflict between economic liberalism and social democracy as a
way to understand why left-of-center governments in advanced indus
trial states so frequently are unable to sustain themselves in power;
this case study allowed me to examine closely a left-of-center
government's accommodation to external pressures for policy change
at the expense of the interests of its domestic supporters.
While working on this project, I incurred numerous debts and obli
gations that I would like to acknowledge. For funding my research in
Europe, I am grateful to have received a Pre-Dissertation Fellowship
from the Council for European Studies, a Grant-in-Aid of Research
from the Mellon-West European Studies Program at Yale, and a Dis
sertation Research Support Grant funded jointly by the Yale Center for
International and Area Studies and the Council of West European Studies
Mellon Fund. I was fortunate to have received a Mellon Fellowship
administered through the Institute for Social and Policy Studies at Yale,
and I am also grateful for a travel grant from the Gerald Ford Founda
tion. I also acknowledge varying levels of research support from Yale
University and from the University of California at Santa Cruz.
I have benefited enormously from the assistance of numerous librar
ians and archivists. At Yale, Sue Lorimer, JoAnn Dionne, Judy Carnes,
and Maureen Malone-Jones answered my frequent questions quickly
and cheerfully. Karen Holzhausen and Diane Windham Shaw, archi
vists at the Ford Presidential Library and at the David Bishop Skillman
Library at Lafayette College respectively, were extremely helpful, as
was Stephen Bird at the Labour Party's archives in London. I also
wish to acknowledge my gratitude to Mary Wood and the staff at the
Library of the Royal Institute of International Affairs. I am extremely
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