The politics of economic policy-making under Harold Wilson and James Callaghan and the 1976 IMF crisis

The thesis examines the politics of economic policy-making during the Wilson / Callaghan administration with a specific focus on the 1976 IMF crisis. It offers a critique of existing accounts that are based on an artificial distinction between state and market, in which there is an assumed power relationship that allows market actors to discipline state managers when policies diverge from accepted principles and norms, and argue that the fall in the value of sterling and IMF conditionality were examples of this disciplinary potential at work during 1976. This thesis presents a substantial, archive-based re-assessment of events from an open Marxist perspective. It argues that the state is an inherent feature of the social relations of capitalist accumulation, and that whilst this means state managers must pursue policies generally favouring the reproduction of the social relations of production, this constraint is not disciplinary or deterministic. The thesis shows that the Labour government had long established preferences for deflationary policies and argues that they were implemented through the politics of depoliticisation. On this basis, the fall in the value of the pound and ultimately, IMF conditionality, are not understood to be the key determinants of policy outputs. Rather, market rhetoric and IMF conditionality are seen to have provided the Labour government with substantial room for manoeuvre to implement policies aimed at creating favourable conditions for accumulation whilst minimising political dissent by acting as a buttress between the government and its policies. The argument is developed in three phases. Firstly, it demonstrates how despite the manifesto commitments of the Labour Party, significant elements of the core executive had consistent and established preferences for the depreciation of sterling, a transfer of resources into the balance of payments, cuts in expenditure, and incomes policies. Secondly, it shows how austerity measures were justified during 1975 and the first half of 1976 by a slide in the exchange rate and expected external financing pressures, despite a wish to see the pound fall. Finally, it shows how in the final quarter of 1976, the core executive delayed taking fiscal action until after the IMF negotiations because of expectations of conditionality, that it broadly agreed with the Fund’s prescriptions, and argued that this course was preferable to an alternative strategy because if an alternative was implemented, financial markets would force an even greater degree of austerity