The Iron Quadrilateral: Political Obstacles to Economic Reform under the Attlee Government

Abstract

The 1945 Labour government came to power with a clearly formulated economic program relating to nationalization and the continuation of wartime planning and controls to smooth the transition to a peacetime economy. The first of these components, at least, was largely carried out according to plan over the next six years. The transition to a peacetime economy was much less smooth, and Labour's policies here underwent a major shift. While controls remained an important part of the policy regime down to 1951, they increasingly gave way to the instruments of fiscal policy. In large part this reflected the buffeting of the economy by balance-of-payments problems. But while the compelling force of economic circumstance must be given its due, it is clear that the increasing dependence on demand management was a political and ideological defeat for Labour, in the sense that it had previously based its distinctive appeal so much on microeconomic policies usually summed up in that ambiguous term, “economic planning.” In that sense the reliance on demand management represented a retreat for Labour from its policy position of 1945: “Socialist planning was a notable, if unlikely casualty of Labour government after the Second World War.”On one influential view, Labour's conversion to macroeconomic management may be considered a success; eventually, as Alec Cairncross records, that management delivered balance-of-payments equilibrium without sacrificing the goal of full employment. But it is increasingly recognized that Labour's agenda involved issues beyond these macroeconomic goals, important as they undoubtedly were.