The 1970s saw a move away from Keynesian economics that had predominated in the post-war decades and a shift to an economy which, to some extent, can be viewed as a welfare economy.
Keynes’ theory, established in 1936, argued against the ‘market solution’ approach of classical economists who believed that the market could solve unemployment and other economic problems. Keynes advocated that the level of economic activity, and therefore employment, was determined by the amount of aggregate demand in the economy, and therefore governments could manage their economies by influencing the levels of aggregate demand and injecting money into the economy where they saw fit.
Stagflation, the simultaneous rise of unemployment and inflation in the 1970s, largely challenged Keynes’ theory. This was something that had not been seen in the economy before, and arguably provoked a change in economic theory. The change was also compounded by the Oil Crisis of 1973 and welfare economics.
The theory of monetarism followed Keynesian economics, although this was relatively short-lived. This was the idea that by controlling the money supply, the rest of the economy would be able to self-regulate. The theory largely drew on classical economics, and was prevalent in the late 1970s and throughout the 1980s. However, it didn’t last long as monetarism was criticised for being problematic in its simplicity on the link between different measures of money supply and inflation. T
Keynesianism was no longer the prevalent mode of economics, but what replaced Keynes’s theory? This article will explore where government money was actually going, and assess whether the decade was truly one of ‘welfare economics’ by looking at the Poverty Lobby and government spending on Education and the NHS in the 1970s.
The National Health Service
Interestingly, despite the impact of the 1973 Oil Crisis and a change in economic strategy, spending on the National Health Service as a percentage of GDP did not undergo an immediate drastic change. As this graph shows, from 1970-1976 public expenditure on the NHS actually increased from 3.64% in the year 1972/73, to 4.52% in the year 1975/76. Despite this, as we are able to see, a period of significant decline followed from 1976.
The Poverty Lobby
Following the implementation of the Welfare State in 1948, it soon became apparent that many of those suffering from poverty – be it relative or absolute – were largely from the same three social groupings: women, children and the elderly. The mechanisms of the welfare state simply were not designed to accommodate for anyone but the employed, middle-aged man. This suggested that poverty was caused, at least in part, by institutional deficiencies. And yet, despite rising pressure on government via Poverty Lobby Groups (such as Child Poverty Action Group (CPAG), est. 1965), in the 1960s the British government remained far more focused on market spending than on public welfare. As such, the so-called Joint Charities Group was created in 1969, involving the likes of CPAG and Shelter (est. 1966). Throughout the 1970s, the Join Charities Group lobbied government and campaigned on behalf of those whom the government’s economic policies were not benefitting. The Joint Charities Group witnessed some material successes – such as the 1977 Act of Parliament which defined homelessness in law – but also saw many failures. For example, the Finer Report was published in 1964, and emphasized the need for increased welfare grants for single mothers. However, the global economic crisis of 1973-4 seriously constrained parliament financially, and the Report’s recommendations were dismissed. Thus, throughout the 1970s, the Poverty Lobby relied on public donations and media manipulation to remain afloat – welfare economics was largely neglected in a decade where other economic issues, such as stagflation, were deemed more pressing by government. Despite this, historian Stephen Brooke has argued that while the Poverty Lobby may not be able to point to many tangible successes, the fact that it opened up a discussion regarding welfare economics and poverty is as much an achievement as anything else.
Arguably the early 1970s portrays the decade as a welfare economy, especially when looking through the lens of the NHS and the increase in public expenditure. The Poverty Lobby also reflects that the Welfare State was on the agenda, but became increasingly less so when the government was financially strained. This is also marked in Callaghan’s 1976 speech which spoke about the end of ‘The cosy world [that] we were told would go on for ever, where full employment would be guaranteed by a stroke of the Chancellor’s pen, cutting taxes, deficit spending, that cosy world is gone…’ Thus, whilst the 1970s certainly saw the beginnings of a government more dedicated to battling institutionalised poverty, global economic crises, compacted by stagflation, ultimately meant that welfare spending was neglected in the face of nation-building.
1.Andrew Heywood, Political Ideologies: An Introduction, (Palgrave MacMillan: London, 2012)
2. The Economist Online
3. https://www.nuffieldtrust.org.uk/news-item/70-years-of-nhs-spending#then-and-now – J. Appleby, ‘70 Years of NHS Spending’, Nuffield Trust, 2018
4. T. Evans, Stopping the poor getting poorer: the establishment and professionalisation of poverty NGOs, 1945-95, in N, Crowson, M. Hilton and J. McKay (eds.), ‘NGOs in contemporary Britain: non-state actors in society and politics since 1945’ (UK: Palgrave Macmillan, 2009), 152
5. M. Hilton, J. Mckay, N. Crowson and J. Mouhot, The Politics of Expertise (UK: Oxford University Press, 2013), 118
6. Evans, Stopping the poor getting poorer, 149
7. Evans, Stopping the poor getting poorer, 152
8. James Callaghan, Leader’s speech, Blackpool 1976
http://www.britishpoliticalspeech.org/speech-archive.htm?speech=174 [accessed 22/2/2019]