Labour’s Alternative Economic Strategy, 40 Years On

by Justin Reynolds

In the mid-1970s a socialist bloc at the heart of the government proposed a radical response to economic and environmental crises, elements of which are now back in vogue.

First published: 01 December, 2014 | Category: Book Review, Economy, History, Labour movement

John Medhurst, That Option No Longer Exists: Britain 1974-76 (Zero Books, 2014).

The recent film Will and Testament offered an engaging review of the late Tony Benn’s life, but made only brief mention of perhaps the most crucial episode in his career; a turbulent 15-month spell as Industry Secretary during the 1974–79 Labour Government. Benn’s recasting as avuncular national treasure in later years obscured the real fear he then inspired in office.

That Option No Longer Exists: Britain 1974–76 by John Medhurst recalls a febrile period when the left came close to implementing a radical socialist economic strategy. Medhurst’s absorbing essay argues that the first few months of that Labour government were the pivot on which post-war British politics turned, the point at which the social democratic consensus broke and neoliberalism moved in. It could have been different. Had the ‘Alternative Economic Strategy’ (AES) pushed by Benn been implemented, even in part, the centre of gravity of British politics might have shifted to the left rather than the right.

The AES sought to extend the democratic principle beyond the sphere of politics in the belief that sovereignty over the direction of the economy should rest with the elected government rather than global markets, and that the balance of power within industry should be recalibrated towards workers. For Medhurst, Labour’s abandonment of the strategy opened the way for the right to set Britain on a wholly different course. Now, some 40 years on, in the wake of interlocking economic and environmental crises, elements of the AES are back in fashion.

Years of crisis

The Alternative Economic Strategy emerged in response to international economic turmoil with which post-war Keynesian macroeconomic tools no longer seemed able to cope. The early 1970s saw the breakdown of the Bretton Woods exchange rate framework, soaring inflation and unemployment, and growing industrial unrest. Edward Heath’s Conservative government sought to administer the harsh medicine of market liberalisation and tougher trade union laws, but its attempts at reform were defeated by the unions in a series of bruising industrial disputes.  These, famously, included the miners’ strikes of 1972 and '74, but Medhurst argues the most significant was the disarmingly direct Upper Clyde Shipbuilders (UCS) ‘work-in’ of 1971. Rather than taking traditional industrial action the workers simply occupied the shipyards in defiance of management and took over production themselves. By demonstrating the capacity of an organised workforce to by-pass traditional hierarchies the action electrified the labour movement, prompting hundreds of copycat occupations. The traditional capitalist order, it seemed, was vulnerable: now was the time for the left to push for a new cooperative worker-led economy.

The Labour left was emboldened by the successes and the party’s 1974 manifesto, inspired by this sense that the old order was breaking, set out an economic strategy that sought to move past both mainstream Keynesianism and market liberalisation. It proposed a National Enterprise Board (NEB) with the powers to design an industrial strategy that would set a framework within which all economic actors – in both the public and private sectors – would operate. In the words of the manifesto, the NEB would be empowered to  ‘take over profitable sections of individual firms in those industries where a public holding is essential to enable Government to control prices, stimulate investment, encourage exports, create employment, protect workers and consumers from irresponsible multinational companies, and to plan the national economy in the national interest.’ The City would be obliged to comply with the work of the NEB through new capital and credit controls designed to redirect it from speculation towards investment in productive industries. But most striking of all, perhaps, was a commitment to significant industrial democracy. Until 1974, the party’s preferred model for worker representation was corporatist, allowing only for top-down structures giving board representation to ’‘safe’ union bosses. Inspired by the example of the UCS, however, Labour now seemed open to more radical possibilities.

Internal and external opposition

Benn’s appointment as Industry Secretary after the election put him in prime position to push that agenda through. With sympathetic Cabinet colleagues, Michael Foot and Peter Shore, Benn was part of an avowedly socialist bloc at the heart of the government intent on holding it to its promises.

But it wasn’t going to be easy. Elected in February 1974 as a minority government, Labour had an inconclusive mandate for radical change, and a second election that October secured a majority of just three. Though the party had moved to the left, it was still led by veterans of the previous Labour government; Harold Wilson, Dennis Healey, Jim Callaghan, Roy Jenkins and other senior figures were less interested in radical economic reform than in delivering a pragmatic ‘Social Contract’, a deal with the unions according to which progressive social and employment reforms would be delivered in return for wage restraint and industrial peace. And the institutional opposition Benn would face became clear during his first meeting with his Permanent Secretary, Sir Anthony Part, who asked: ‘I presume, Secretary of State, that you do not intend to implement the industrial strategy?’[1]

Benn nevertheless wasted no time in drawing up a White Paper for an Industry Act commensurate with Labour’s programme, encompassing the commitment to extending workers control. Medhurst notes that it was Benn’s uncompromising championing of this cause that most concerned Wilson and the wider British establishment. Benn wasn’t interested in tinkering: strongly influenced by the ‘Marx-ish’ Institute for Workers Control (IWC), his ultimate aspiration was the gradual replacement of the traditional capitalist firm with enterprises owned and run by workers that would prioritise ‘socially useful’ production over profit.

Medhurst illustrates the scope of this ambition by recounting the fascinating episode of the Lucas Aerospace (LA) ‘Alternative Corporate Plan’. In late 1974 shop stewards at the struggling military hardware giant lobbied the Industry Secretary for its inclusion in the government’s nationalisation programme. Though sympathetic, Benn doubted he could secure Cabinet approval and instead recommended that they draw up proposals for how the LA workforce would run the company if granted control in the event of its collapse. The resultant Alternative Corporate Plan, written in consultation with 13,000 LA employees, recommended repurposing the company’s productive capacities for civilian ends, and included ideas for sustainable energy systems, anticipating today’s renewables technology. As with the UCS work-in the Plan indicated that given the opportunity ordinary workers were capable of thinking creatively about the use of their skills without the mediation of managerial structures. In seeking to recast work as a channel for self-expression and self-determination, the Plan gave contemporary expression to an old libertarian strand in the socialist tradition. Medhurst writes:

Although few thought of it in explicitly socialist terms it was in embryo William Morris’s ‘factory as it might be’ – a place of work where worker utilised their innate creativity to increase their own job satisfaction and to benefit society rather than a corporate balance sheet, the very application of ‘useful work versus useless toil’. The logic of the Alternative Corporate Plan was profoundly anti-capitalist and if widely implemented would pose a fundamental threat to British management’s right to manage.[2]

An alarmed Wilson, helped by informants in Benn’s department, ensured the White Paper was substantially watered down before it got to Cabinet. The power of the proposed NEB was significantly diluted, losing the all-important rights to influence the direction of existing firms and impose a statutory framework for economic growth.

Benn tried again by drawing up a paper designed to set the Industry Act in the context of a wider ‘Alternative Economic Strategy’, which argued for reflation, price and import controls to protect nascent and struggling British industries, public ownership of major financial institutions, and the tackling of systemic inequalities through progressive taxation and social spending. It too was blocked, Medhurst noting: ‘When given the paper Wilson wrote a short note in red ink for his office across the cover “I haven’t read it, don’t propose to, but I disagree with it.”’[3]

The 1975 EEC membership referendum gave Wilson the opportunity he had been looking for to get Benn away from the Industry portfolio. Ironically Benn himself had secured the referendum, fearing that Treaty of Rome competition clauses threatened the Industry Act. After an overwhelming ‘Yes’ vote, Wilson moved a weakened Benn to the Department of Energy. Medhurst documents the extreme pressure Wilson was himself under from an establishment – including the City, senior civil servants, the press and the security services – bitterly opposed to the disturbance of established economic structures and interests:

In Benn’s industrial strategy it recognised an existential threat to its power and privileges driven forward by an eloquent and effective socialist in a vital ministerial position who had support across the extra-parliamentary left and trade union movement.[4]

With Benn on the sidelines the impetus for radical industrial reform was lost, together with the ambitions for worker democracy symbolised by the LA Combine Plan. The government did examine possibilities for more modest forms of worker representation: a committee of enquiry led by Sir Alan Bullock recommended a German-style model of co-determination requiring larger companies to ensure 50% worker representation on executive boards. Though limited by IWC standards, Bullock’s recommendations would have given the unions a degree of strategic influence over British industry they have never come close to again

The eventual fate of the government is, of course, history. After Wilson’s surprise resignation in 1976 it became embroiled in the infamous IMF crisis, and in response to rising inflation and escalating budget and trade deficits sought an emergency loan from the IMF, which was granted on the condition that Britain pursue what  would today be called an ‘austerity’ agenda. Prime Minister Jim Callaghan’s 1976 conference address famously signalled Labour’s rejection of Keynesian orthodoxy. British social democracy was in its death throes, to be succeeded after 1979 by something quite different.

Rejection and return

Labour’s left kept the main elements of the AES alive for some years, and it was at the heart of the sprawling programme on which the party fought the 1983 election. After that cataclysmic defeat, however, it went underground, as neoliberal scepticism regarding the possibility of intelligent state-directed economic intervention (‘picking winners’) established itself as economic orthodoxy. But many of the fundamental principles that underpinned the strategy now seem to be in the process of rehabilitation, with growing pressure in Britain, and internationally, for governments to design and pull economic levers to address acute environmental, social and financial crises.

Economists such as Mariana Mazzucato have popularised the idea of the ‘the entrepreneurial state’, a new skin for an old wine. Mazzucato highlights the critical role public institutions across the world already play in providing the kind of patient high-risk investment necessary to develop the pioneering technologies and processes from which new industries emerge, making up for the deficiencies of commercial financial sectors more interested short-term speculative trades. Mazzucato’s work flows from Keynes’s simple insight of 1926: ‘The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.’ Mazzucato has pointed out that every technology used by Apple for the iPhone was seeded by state investment, including GPS, touch-screen display, ‘Siri’, and even the internet itself.

The various ‘Green New Deal’ proposals of recent years constitute perhaps the most comprehensive attempts to reimagine the AES for today’s world, arguing for state directed investment in renewables and the channelling of finance capital towards productive investment. The original Deal formulated by the NEF recommends the 'greening' of the British economy through an annual investment of £50bn in the renewable sector, the mass construction of energy-efficient homes, and a kind of ‘Green Quantitative Easing’ that would channel new money directly into energy and transport infrastructures.

Although the comparison would doubtless be resisted, elements of the economic agenda Labour has been developing have spiritual affinities with the AES, particularly the concepts of ‘Responsible Capitalism’ and ‘Predistribution’. In an IPPR article Ed Miliband said:

Since the 1980s, successive governments have been scarred by the experiences of the 1970s, preventing them from taking an active approach to supporting industry. Government has sought to stay out of the economy, rather than be a partner to our most enterprising and innovative businesses. This has put British firms at a stark disadvantage compared to their competitors abroad, and has harmed our economy’s ability to generate more inclusive growth.

The budget restraints Labour has imposed on itself would make Green New Deal style investment impossible, but there has been much talk of smart restructuring, and, in Miliband’s words, the reshaping of the ‘rules of the game under which capitalism operates’ through ‘reforms to corporate governance, regulation to create new markets, and improvements in the way government procures goods within its existing budget.’

This thinking surfaced most visibly in the energy price freeze, but Labour has an opening to go much further and capitalise on strong popular support for economic interventionism, with polls finding large majorities in favour of the renationalisation of utilities, extensive reconstruction of the banking sector and the introduction of a statutory living wage. And many of the new movements in British politics go further, including a growing Green Party, the Radical Independence Campaign and Common Weal groups inspired by the Scottish independence vote, and even, in its own way, UKIP, whose ever changing platform mixes bracing Thatcherism with populist corporatism.

The missing element

This revived confidence in the possibility of an intelligent state has not yet extended to the most controversial element of the original AES: the principle of industrial democracy. There has been occasional interest: Labour has spoken warmly of the ‘John Lewis model’ with its embrace of some co-operative ideals, and of the possibilities afforded by German-style worker representation explored by the Bullock enquiry all those years ago. But the kind of worker-led economic democracy imagined by Benn remains beyond the pale. This wariness is nothing new: the lingering ideal of worker self-management, which goes back to the start of the labour movement, has always been hard for Labour to assimilate and express through concrete policy.

Perhaps that’s because it’s an idea that goes beyond social democracy, driven by a socialist logic that rejects the premise that production should prioritise profit, asking a philosophical question about the ultimate purpose of work. In the words of the LA Alternative Corporate Plan:

[A] socialist industrial strategy rejects competitive success as an overriding objective. Instead we must reassert that the objective of a socialist industrial strategy is to match productive capacity and human energies and skills to social needs under democratic control.[5]

That that aspiration still seems – according to one’s political perspective – so inspiring or profoundly misguided, testifies to its abiding radicalism.

Justin Reynolds is a writer and designer from Edinburgh active in the Labour Party and the Scottish Fabians.



[1] John Medhurst, That Option No Longer Exists (Zero Books, 2014), p 64.

[2] Ibid., p 98.

[3] Ibid., p 103.

[4] Ibid., p 116.

[5] Ibid., p 155.

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