Lobster Winter 2010 Tom Easton Tittle-tattle on Prospect, the friends 60 of Bob Geldof, Alan Donnelly, BAP,, Ed Miliband and Roger Alton. Bryan Gould When will we ever learn? Lessons from the global financial crisis James Lusher The CIA in Guatemala, 1954 Simon Matthews Gordon Brown: in the land of the blind..... Robin Ramsay The financial crisis Well, how did we get here? Thatcher versus the City of London The view from the bridge Corinne Souza Sir John Sawer’s speech and some aspects of SIS PR Book reviews Lobster 60

Parish Notices

I had done all of this issue of Lobster but for this page, when the news broke of the Wikileaks data dump of US diplomatic traffic. I was surprised at my lack of reaction. Once upon a time I would have been excited. Now I am merely curious to see what the US embassy in London had to say about our politicians. Am I just getting old and jaded? Yes: but there is something else here. The US State Department counts for little. It was by-passed in the 1950s by the paramilitary (CIA) and the military (Pentagon). The US State Department exists as a kind of cover story for America’s military power; indeed its subsidiary status is shown by the cables which show diplomatic staff being asked to gather ‘biometric’ data, as if they were low level intelligence assets. Digital security simply isn’t possible. In two years Ministry of Defence staff lost 340 laptops.1 The simple but uncomfortable truth is that to be secure, digital data demands routine levels of attention to detail which human beings are not capable of sustaining. I presume that everything I do by e- mail or on the Net might be public. Our spooks and politicians will have to learn this. Or go back to paper. And that isn’t likely, is it?

Robin Ramsay

1 Lobster 60

Contents

In alphabetical order Tittle-tattle Tom Easton 4 When Will We Ever Learn? Lessons From the global financial crisis Bryan Gould 10 SUCCESS: The CIA in Guatemala, 1954 James Lusher 15 Gordon Brown: in the country of the blind... Simon Matthews 32 The economic crisis Robin Ramsay 52 Well, how did we get here? Robin Ramsay 62 Thatcher versus the City Robin Ramsay 98 The View from the bridge Robin Ramsay 105 Sir John Sawer’s speech and some aspects of SIS PR Corinne Souza 120

Books reviewed 136 Stephen Haseler: Meltdown UK: There is another way Rowan Williams and Larry Elliott (eds.): Crisis and Recovery: Ethics, economics and justice Mike Marqusee: If I Am Not For Myself: Journey of an Anti-Zionist Jew Norman G. Finkelstein: ‘This Time We Went Too Far’: Truth and Consequences of the Gaza Invasion James Petras: War Crimes in Gaza and the Zionist Fifth Column in America David Cronin: Europe’s Alliance With Israel: Aiding the occupation Deborah Mattinson: Talking to a Brick Wall: How New Labour stopped listening to the voter and why we need a new politics Arthur Butler: People, Politics and Pressure Groups: Memoirs of a lobbyist K. D. Ewing: Bonfire of the Liberties: New Labour, Human Rights and the Rule of Law Richard Seymour: The Meaning of David Cameron Dan Hind: The Return of the Public Chris Hedges: Death of the Liberal Class John Kelly: Ethical Socialism and the Trade Unions: Allan Flanders and British industrial relations reform Matthew Alford: Reel Power: Hollywood Cinema and American Supremacy Bob Coen and Eric Nadler: Anthrax War: Dead silence.....fear and terror on the anthrax trail

3 Winter 2010 Lobster 60

Tittle-tattle

Tom Easton

Readers of Lobster may well encounter the rough ’conspiracy theorists’ abuse routinely dished out to anyone questioning an orthodox explanation of events. And, indeed, we do well not to seek over-simple, monochrome accounts of complex occurrences. This is a messy world where the level of institutional core competence, especially in the UK, is low, so one in which we know cock-ups do indeed happen. So, occasionally, do non-causally linked coincidences. And yet, and yet...... Ponder this week-long sequence of events starting in late October. One, British Airways chairman Martin Broughton complains about the UK ‘kowtowing’ to the United States on airport security.1 Two, MI6 chief Sir John Sawers gives a lecture saying why his service should be excluded from general government cuts.2 Three, we have an international terror scare, with air- borne parcels apparently directed at President Obama's support base in the Chicago Jewish community.3 Four, former Defence and Home Secretary John (now Lord) Reid, tells the Radio 4 Today programme why we must

1 2 3

4 Winter 2010 always need money for ‘vigilance’. 4 Then add in the fact that Reid is a consultant to G4S (formerly Group 4 Securicor), the world's largest security company with a big interest in ‘homeland security’, airport handling and in Israel. (Lord Reid, as well as being a leading advocate of the Iraq invasion and toughness in the ‘war on terror’, is a longstanding member of Labour Friends of Israel.) Then turn to The Shock Doctrine by Naomi Klein and read this about Israel’s economic trajectory in the past five years:

‘Much of this growth was due to Israel’s savvy positioning of itself as a kind of shopping mall for homeland security technologies...... Israel’s pitch to North America and Europe was straightforward: the War on Terror you are just embarking on is one we have been fighting since our birth. Let our high-tech firms and privatized spy companies show you how it’s done.’ ‘It’s not an exaggeration to say that the War on Terror industry saved Israel’s faltering economy, much as the disaster capitalism complex helped rescue the global stock markets.’

Are all the recent airport scare events just coincidence or cock- up?

Prospect and Standpoint The new editor of Prospect, the Encounter-lookalike monthly, is Bronwen Maddox, Rupert Murdoch’s former foreign editor at The Times and a longstanding member of the British American Project (Lobsters passim). The author of In Defence of America in 2008, she’s a former Kleinwort Benson director and the daughter of author and journalist Brenda Maddox and science writer Sir John Maddox. Two wealthy City financiers

4

5 Winter 2010 have the controlling stake in Prospect, and even with a senior News Corp executive now at its editorial helm, the magazine still portrays itself as a left of centre publication. It’s ‘right-wing’ rival, Standpoint, is edited by Daniel Johnson. He is the son of one-time News Statesman editor turned Thatcherite, Paul Johnson, honoured by George W Bush with the Presidential Medal of Freedom and an attendee at Benjamin Netanyahu’s first Jonathan Institute ‘anti- terrorism’ conference in Jerusalem way back in 1979 (see Lobster 47). Short on advertisements but heavy with Israel apologists, Standpoint is part of the Social Affairs Unit, itself an offshoot of the Institute for Economic Affairs.

Bob’s chums The row over a BBC World Service item on Sir Bob Geldof and what allegedly happened to some of the money he raised at the time of the Ethiopia famine 25 years ago5 threw up a few names from the past. The BBC person at the centre of the row was Martin Plaut, a veteran World Service Africanist. In an earlier life South Africa-born Plaut worked for the Labour Party on international affairs, and in 1984 jointly authored Spokesman’s Power! Black Workers, their Unions and the Struggle for Freedom in South Africa. His co-writers were Denis MacShane, the New Labour MP now known, among other things, for his support of Israel and being investigated by police over his expenses, and David Ward. Who is David Ward? Like Plaut he worked for the Labour Party many moons ago and was part of the team around Neil Kinnock in the 1980s – mainly Peter Mandelson, Charles Clarke and Patricia Hewitt – who moved the party back into the Atlanticism and nuclear weapons orthodoxy from which it had briefly departed under Michael Foot’s leadership. Ward now

5

6 Winter 2010 works closely with Bernie Ecclestone and Sir Max Mosley on Formula 1 promotion. It was reported by the BBC in 1997 that Ward helped lubricate Ecclestone’s controversial £1m donation to New Labour.6 Geldof drew much media support from The Independent in his BBC battle, in particular from Paul Vallely. The paper’s readers were not told that Vallely, created a Companion of St Michael and St George (CMG) during the Tony Blair premiership, was ghost writer of the Geldof autobiography Is That It? No critical words about the multimillionaire ex- Boomtown Rat in Private Eye either: his Ten Alps media conglomerate runs the Eye’s advertising.

Friends in the North East Ward’s motor racing work brings him into close and regular contact with Alan Donnelly, the man to whom defeated Labour leadership candidate David Miliband wrote his letter about ‘stepping back from front-line’ politics in September. Donnelly has the double duty of being head of Sovereign Strategy, the lobbying firm that grew rapidly during the New Labour years with Ecclestone as one of its clients, and also of being chair of the constituency Labour Party in South Shields where Miliband Snr. is MP. In an earlier life Donnelly was leader of the Labour MEPs in the European Parliament and his partner, Peter Power, advised Peter Mandelson both as EU Commissioner for Trade and Gordon Brown’s last Business Secretary. It’s a small world is North-East New Labour politics, fund-raising and matters of lobbying and business.7

BP and BAP

6 7 Donnelly with his Sovereign Strategy hat on can be seen at

7 Winter 2010 An intimate scene, too, when it comes to sorting out student finance. Mandelson, in his third Cabinet incarnation, passed the job of finding ways to fund higher education to Lord Browne, the former head of BP, disgraced when found to be dishonestly defaming his former lover in front of a senior High Court judge. Mandelson’s very old Fabian friend Nick Butler spent his career alongside Browne at BP, taking time out to help found the BAP in the mid-80s. Mandelson was an early recruit to that network and Browne a supporter and part- funder of it.

Red Ed? At the time of writing, I’d seen no mention of the fact that another prominent political figure cut his political teeth as a ‘fellow’ of the BAP, the new leader of the Labour Party, Ed Miliband. The younger brother spent part of his postgraduate time in the US, along with so many other New Labour neophytes. As mere mention of the BAP has eluded most of the mainstream media since its creation 25 years ago, it came as no surprise to find profiles of the new leader missing his connection with the network in which Paul Wolfowitz and Lord George Robertson were so important. Nor did I spot any reference to his membership of the same Atlanticist freemasonry in the memoirs of Jonathan Powell, the former diplomat who achieved major influence under New Labour without any previously known party interest or activity. Serialising his book, The Guardian did go big on his criticism of Metropolitan Police Assistant Commissioner John Yates for his investigation into ‘cash for honours’. A leading figure in Yates’s sights at that time was Michael (now Lord) Levy. The tennis-playing Labour Friends of Israel (LFI) pal of Blair raised much of the money from 1994 onwards that financed Powell, Alastair Campbell, Anji Hunter and the rest of the high-maintenance team Blair gathered

8 Winter 2010 around him following the death of John Smith. Levy had the post of Middle East ‘envoy’ at the Foreign and Commonwealth Office during the 2003 war to remove Israel’s bête noire of the moment, Saddam Hussein. Powell was Blair’s chief of staff at the time, Campbell the 45-minute dossier man and Hunter the PM’s gatekeeper. She left soon afterwards to join John (Lord) Browne at BP; Campbell’s first big job after leaving No 10 was to accompany Lord Levy to speak at a Labour Friends of Israel bash – and Powell now takes a swing at Yates, the man trying to untangle some of the thicket that was New Labour funny money operation on Lord Cashpoint’s watch.

Wapping wizzards Former LFI chairman James Purnell stood down at the last election and now writes for Rupert Murdoch at The Times and is doing PR work for Murdoch’s son-in-law Matthew Freud. Wapping is also the new home of Roger Alton, the man who turned The Observer into a war-mongering rag ahead of the Iraq invasion. Before editing the paper that had courageously opposed the Suez campaign in 1956, Alton was a stalwart Guardian man. After leaving The Observer, he took the editor’s chair at The Independent. He has followed a similar political trajectory to his old friend David Aaronovitch, the man who decries conspiracies but who now is a columnist for the Dirty Digger, none of whose 150-plus titles around the world opposed the Iraq invasion. Coincidence or cock-up, David?

9 Winter 2010 Lobster 60

This essay below is about a third of a recent essay by Bryan Gould on the economic crisis. The other two thirds is somewhat more concerned with New Zealand, where Gould has lived since leaving British politics in 1994.1 Before entering British politics, Gould had been a Rhodes Scholar and worked in the Foreign Office. As an MP he was telegenic, had done well in the 1987 election campaign and topped the poll that year for Labour’s shadow cabinet. He also understood the British state, economics and, more importantly, economic politics. He rose in the Labour Party at the bow of a wave of thinking in the Party and beyond about the deleterious role of the City on the British economy. This wave included then Labour leader Neil Kinnock, who appointed Gould to chair the Party’s key policy review committee on the economy. Gould’s committee took the thing seriously, did a lot of research and was about to produce a report on how to rein in the City and support the domestic manufacturing economy, when Kinnock changed his mind in 1988, took the first steps towards accepting that there was no alternative to the established City-dominated economic system, and ignored the committee’s work. With the change of line at the top, Gould’s star in the party waned as rapidly as it had risen and he left Britain and returned to New Zealand, whence he had come.

When Will We Ever Learn? Lessons from the global financial crisis

Bryan Gould

The Group of 20 (G20) meeting in Toronto in June 2010 was remarkable in only one respect. The familiar protests, the 1 It appeared in Foreign Control Watchdog 124, August 2010, which is at and is reproduced here with their permission.

10 Winter 2010 police in the streets, the hobnobbing of the leaders were all on show. But, what was extraordinary, if not unexpected, was the speed with which most of the world’s most powerful leaders headed back to familiar territory – not to say, political prejudices – and not only embraced again the very nostrums that had brought about the global financial crisis in the first place, but used the crisis as an excuse to press for a smaller State and a decimated public sector, even though that threatens a renewed dip into recession. This perverse reaction to the manifest failure of the model that had been so enthusiastically constructed over a 30 year period was a feature of not only the G20 meeting. It has characterised the responses of many individual governments around the world, and has certainly reared its head in New Zealand. Contrary to the expectations of many of us that the global financial crisis would be seen as a conclusive judgement on the failures of neo-liberal doctrine, it is the Right that seems to have emerged, for the time being at least, unscathed and emboldened by the failure of their policies. It is worth reminding ourselves of the precise lessons that the global financial crisis should, and briefly appeared to, have taught us. 1. Markets are not self-correcting. This simple and obvious proposition, so strongly confirmed by the failure of many of the world’s financial institutions, had been conveniently overlooked and even flatly denied by neo- liberal theorists. They chose to believe that operators in a market are perfectly informed and enjoy a parity of bargaining power and that market outcomes are therefore the best available and should not be second-guessed. We now know that this is self-serving nonsense, and that the natural tendency of the unregulated market is to lead to excess, irresponsibility, inefficiency and eventually collapse.

11 Winter 2010 2. Financial markets are especially prone to excess.

The huge power wielded by the manipulators of international capital and the unprecedented wealth gained by operators in financial markets, resting largely on their ability to create new forms of financial assets out of nothing, led many to believe that they were the lords of the universe and could do no wrong. But, as Keynes pointed out, financial markets are the most likely to fail, depending as they do so much on hunch and guesswork and on assets whose value depends on subjective assessment and uncertain futures rather than on objective criteria. 3. Risk cannot be quantified according to reliable mathematical formulae.

A great deal of modern economics has been driven by esoteric work aimed at providing an apparently reliable basis on which risk can be quantified. It was on this basis that much of what are now recognised as having been worthless assets were happily traded from one interest to another, each trader taking a profit as the asset appeared to grow in value as it passed from hand to hand. The huge superstructure of debt and valueless assets, built initially on the sub-prime mortgage market, eventually came crashing down. 4. Decisions taken by business leaders alone are a poor guide to a successful economy and society. Business leaders have been so eulogised over recent decades that many people were persuaded that more and more decisions affecting our lives should be handed over to them, and that they could be more trusted in many cases than our elected leaders. We now know that business decisions are invariably taken for reasons of self-interest and take little account of wider or longer-term interests. Those countries – like the US and the UK – that most enthusiastically accepted that societies should be run in the business interest are those

12 Winter 2010 which have, on the whole, suffered the most severe consequences of business failures, with the greatest damage to the social fabric and environmental sustainability. 5. Increasing the wealth of the rich so that inequality widens does not produce a better economy or a stronger society.

The ‘trickle down’ theory was often used to support the proposition that, if the rich got proportionately richer, the rest of us would benefit in absolute even if not comparative terms from the lift in economic activity that the increased wealth of the rich would produce through increased investment and employment. This theory has been discredited in the absence of any credible evidence to support it, and in the face of evidence to the contrary that shows that in countries where inequality has widened the most, the living standards of the poor have actually declined. 6. Government matters.

Contrary to the constantly repeated mantra that the best thing that government can do is to ‘get off our backs’, the global crisis shows that in the end it is only governments that have the resources, will and legitimacy to underpin a failed banking system and therefore the currency and the economy more generally. Without decisive government intervention, the recession would undoubtedly have become a depression. In a recession, governments have a duty to act against market logic in a way that individuals, either people or corporations, cannot. 7. The market cannot perform effectively without government help.

The great benefits of the market can be optimised only if government, too, plays its part. The Government must do those things in economic terms, like investing in fundamental

13 Winter 2010 infrastructure that the market cannot do. It must protect wider and longer-term interests that the market treats only as potential (and preferably ‘externalisable’) costs – interests such as those of people who are left behind by the market, or the value of a whole, healthy and integrated society, or the importance of maintaining scarce resources and a clean and sustainable environment. It must correct mistakes made by the market and regulate the market to avoid excess and failure. 8. If the market cannot be challenged, the whole point of democracy is lost.

The most significant aspect of the global economy that has developed over the past three decades has been the extent to which governments have been sidelined by the power of international investors to move capital around the world, and to hold governments to ransom by withholding investment if their requirements are not meant. The role of democratic government is, after all, to bring the power and legitimacy of the people’s will to bear so as to offset what would otherwise be the overwhelming economic power of capital. If the market is held to be infallible, and government must not intervene, we not only produce bad economic and social outcomes; we lose the point and effectiveness of democracy itself. None of these conclusions is revolutionary or even particularly radical. Each is evidence-based and arrived at through the merest common sense based on our own recent experience. This makes it all the more remarkable that these lessons are increasingly discounted by world leaders as they move into what we might all have hoped would be a post- crisis environment. Foreign Control Watchdog, PO Box 2258, Christchurch, New Zealand/Aotearoa. Email [email protected]

14 Winter 2010 Lobster 60

SUCCESS The CIA in Guatemala, 1954

James Lusher

On 18 June 1954, following the positive outcome in Iran a year previously, backed by the President, Congress and the State Department, the CIA launched their next interventionist operation. It entailed replacing the Guatemalan left-wing, reformist leader Jacobo Arbenz Guzman – seen by many in the US as a Communist sympathiser – with a leader who would be more suitable to US interests strategically, politically and economically, the dictatorial General Carlos Castillo Armas. The effects of the US-sponsored coup d’état were deep and far reaching. For the CIA and the Eisenhower administration, ‘its triumph confirmed the belief....that covert operations offered a safe, inexpensive substitute for armed force in resisting Communist inroads in the Third World.’ 1 This ultimately led to complacency in tactics and methods, and the subsequent failure in Cuba in 1961. Guatemalan politics was also transformed, but not along the path of ‘success’ – as the CIA operation was codenamed – and democracy but one of bloodshed, dictatorship and tragedy. As the Guatemalan ambassador to the US at the time, Guillermo Toriello, stated in his introduction to the book Guatemala in Rebellion: ‘The complicity and support given by a succession of United States governments to the executioners of our people have drenched

1 Nick Cullather, The CIA’s Classified Account of Its Operations in Guatemala 1952-1954, (Stanford: Stanford University Press, 2006) 2nd edition, p. 8.

15 Winter 2010 our road to liberation in innocent blood.’ 2 This essay will explore the reasoning behind the CIA intervention in Guatemala, the preparation involved in the operation, how it was carried out, and the aftermath, highlighting the extent to which the CIA was specifically used to meet Eisenhower’s foreign policy objectives.

The arrival of Jacabo Arbenz Guzman Following the 1944 revolution, which saw Dictator Jorge Ubico stand down, leading to democratic elections, Juan Jose Arevalo was elected. As Stephen Schlesinger and Stephen Kinzer explain in their account of the coup, Bitter Fruit, Arevalo set out four main priorities when he took power: ‘agrarian reform, protection of labour, a better educational system and consolidation of political democracy,’3 ideas most notably expressed in his 1947 Work Code, which improved the conditions for labour. In the 1951 elections, following the assassination of his main opponent Francisco Arana, Jacobo Arbenz Guzman emerged victorious. In his inaugural speech he stated his primary objective was ‘to convert Guatemala from a country bound by a predominantly feudal economy into a modern, capitalist one.’4 The difference between Arevalo and Arbenz, essentially, was that Arbenz would go further in applying the role of government in Guatemala’s modernisation. His most striking reform was announced on 17 June 1952: named Decree 900, it aimed to completely restructure and make more equal land ownership in rural Guatemala, converting the vast amounts of unused crops, usually left in the soil, into staple food crops. This would lessen the reliance 2 Guillermo Toriello, ‘Introduction’ in Jonathan L. Fried (ed.) Guatemala in Rebellion, (New York: Grove Press, 1983) p. 17. 3 Stephen Schlesinger and Stephen Kinzer, Bitter Fruit: The Untold Story of the American Coup in Guatemala (New York: Doubleday, 1982) p. 37. 4 Jacobo Arbenz, Discourses [Speeches] (Guatemala City: Tipografia, Nacional, 1951) p. 14.

16 Winter 2010 of the Guatemalan economy on expensive imports, and, through increased technological innovation, free up the huge number of agricultural workers needed during harvest time, to create an industrial workforce. The plan looked to distribute the land of those latifundios (landowners) with more than 223 acres to as many peasants as possible.5 By 1953, while Guatemala was still underdeveloped, progress was certainly being made, and most notably along lines similar to that of the New Deal and programs the US was supporting in Japan.6 Cold War paranoia, however, meant the situation was viewed somewhat differently in Washington. The reasons for US intervention into Guatemala are often based around two beliefs: the first that Communist infiltration eventually led to direct action from the US,7 through the CIA but under the authorisation of the White House, to protect hemispheric security; and the other that the US acted to protect financial interests, most prominently those of the Boston-based United Fruit Company (UFCO),8 which had large economic interests in Guatemala and lobbying power in Washington. The first of these views, while not leading to firm presidential action until Eisenhower, did start to bloom under Truman. Although most in the State Department were on the whole unconcerned, at first, about Arevalo and the Guatemalan situation, some more persistent anti-Communists 5 Thomas Melville, and Marjorie Melville, Guatemala: The Politics of Land Ownership, (New York: Free Press, 1971) pp. 44-45. 6 By 1953 the government had redistributed an estimated 740,000 acres, which amounted to an average 100,000 families or 500,000 individuals receiving some land, an estimated 10.4 acres per individual. See Karl M. Schmitt and David D. Burks, Evolution or Chaos: Dynamics of Latin American Government and Politics (New York: Praeger, 1963) p. 8. 7 See Richard H. Immerman The CIA in Guatemala: The Foreign Policy of Intervention (Austin: University of Texas Press, 1998) and John Prados, Presidents’ Secret Wars (Chicago: Elephant, 1996), Cullather (see note 1) and Stephen E. Ambrose, Ike’s Spies: Eisenhower and the Espionage Establishment (Mississippi: University Press of Mississippi, 1981). 8 See Schlesinger and Kinzer (see note 3).

17 Winter 2010 such as Spruille Braden, were not satisfied; and alongside heightened reforms in Guatemala caused a ‘general uneasiness within the Truman administration,’ 9 leading to increased ‘thin’ intelligence gathering.10

The duck test No matter how thin the evidence was, reports of the possibility of Communism in Guatemala continued. Richard Patterson Jr., Truman’s ambassador to Guatemala, coined the ‘Duck Test’ in which, using the metaphor of a duck, he explains that just because a duck is not wearing a label, if he ‘swims like a duck’ and ‘quacks like a duck’ then you can probably reach ‘the conclusion that the bird is a duck, whether he’s wearing a label or not.’ 11 John Peurifoy, who would be Eisenhower’s Guatemalan ambassador, would later apply this test. After talking to Arbenz he stated that ‘he talked like a Communist, he thought like a Communist, he acted like a Communist and if he is not one, he will do until one comes along’ 12 – a revealing statement about US Cold War policy thinking. Following Arevalo’s 1947 work code, United Fruit, seeing this action as ‘an assault on free enterprise’,13 found powerful voices who could bring their fears to the Oval Office, notably Edward L. Bernays, a master of public relations, and Thomas

9 Richard Immerman, ‘Guatemala as Cold War History’, Political Science Quarterly, 95:4 (Winter, 1980-1981) p. 635. 10 Intelligence gathering in Guatemala at this time was the responsibility of the FBI. 11 Richard Patterson, ‘Draft of Speech to Rotary Club,’ 24 March 1950, Patterson Papers, box five, Truman Library (Missouri) cited in Stephen E. Ambrose (see note 7) p. 222. 12 House of Representatives, ‘Subcommittee on Latin America of the Select Committee on Communist Aggression’, Ninth Interim Report of Hearings: Communist Aggression in Latin America, (1954) p. 12. 13 Nick Cullather (see note 1) p. 15.

18 Winter 2010 G. Cocoran, a major lobbyist.14 When United Fruit land was expropriated under Arbenz’s Decree 900, compensation of $600,000 was offered in agrarian bonds. The sum was in fact UFCO’s own valuation, but, regardless, this caused outrage in the company, which proceeded to launch a huge PR campaign and sponsor junkets to Guatemala in order to highlight their grievances and depict Arbenz as a Communist.15 While these reports and lobbing tactics, along with UFCO’s close contacts in the White House and State Department, did gain recognition, with Schlesinger and Kinzer even arguing that UFCO held ‘the fate of Arbenz and his ambitious social reforms,’16 neither Truman nor Eisenhower would warrant action purely on this basis. Eisenhower even stated that, ‘expropriation in itself does not, of course, prove Communism.’17 However, in the context of the Cold War situation, and the need to protect America’s ‘backyard’, United Fruit was seen as an example of the American way of life, which in turn was being threatened by those who wanted to undermine it – the Communists. So a threat to UFCO was a threat to US national interests and security.18 This link was made by John

14 Jim Handy, ‘The Most Precious Fruit of the Revolution: The Guatemalan Agrarian Reform 1952-54’, Hispanic American Historical Review, 68:4, (November 1988) p. 699. 15 Correspondents from Time, Chicago Tribune, Newsweek and the New York Times were sent to report on Communist activities. The press took the bait, and floods of articles denouncing the Guatemalan government were published, such as Fitzhugh Turner’s five part series on Guatemala in the New York Herald Tribune in February 1950, and Sydney Gruson’s report (The New York Times, 4 June 1954 p. 1) which called UFCO ‘the whipping boy for the Communists, the pawn in the Soviet’s vast conspiratorial design.’ Also see Richard Immerman (see note 7) p. 112. 16 Stephen Schlesinger and Stephen Kinzer (see note 3) p. 77. 17 Dwight D Eisenhower, The White House Years: Mandate for Change, 1953-1956, (Garden City, NY: Doubleday, 1963), pp. 421-22. 18 Martin Needler, The United States and the Latin American Revolution (Boston: Allyn and Bacon, 1972), p. 79.

19 Winter 2010 F. Dulles, who stated that if UFCO did receive the desired payment, ‘the problem would remain just as it is today as far as the presence of Communist infiltration in Guatemala is concerned. That is the problem, not United Fruit.’ 19 The CIA concluded by early 1952, as stated in NIE-62, that Arbenz was ‘a potential threat to US security.....[engaging in] open communication with international Communism’; also acknowledging that while there were powerful opponents to the administration, they were fragmented, meaning ‘powerful opposition to Communism will remain ineffective.’ 20 With Decree 900 and land reform being announced, the Agency viewed this as meaning ‘the Communists have an excellent opportunity to extend their influence over the rural population.’ 21 The Agency believed the only method to successfully remedy the threat in Guatemala was covert action, and began to look for ears within the still pessimistic State Department and assets within Central America. It was clear that no action could take place without the support of the State Department and authorisation from the President.

PBFORTUNE Full covert action against Guatemala did nearly begin under Truman. Operation PBFORTUNE was put into motion following Nicaraguan president Anastasio Somoza’s visit to Washington in April 1952. The dictator told State officials that if they supplied arms, he and Castillo Armas, who had escaped from

19 ‘John Foster Dulles, news conference transcript’ (8 June 1954), in US Department of State, American Foreign policy, 1950-1955: Basic Documents, volume 1 (1957), p. 1310. 20 NIE-62, ‘Present Political situation in Guatemala and possible developments during 1952’, (11 March 1952), FRUS 1952-1954, Volume IV, American Republics, (Guatemala Compilation) (1983), document 3 (FRUS 1952-54, Vol IV hereafter). 21 Intelligence Report Prepared in the Office of Intelligence Research, Department of State, (5 March 1953), Foreign Relations of the United States, 1952-1954, Guatemala, (2003) document 35 (FRUS 1952-54, Guatemala hereafter).

20 Winter 2010 prison to Honduras in 1949 after a failed plot against Arevalo, would remedy the Arbenz situation. Truman authorised DCI Bedell Smith to make contact with Armas. Chief of the CIA Western Hemisphere Division, J.C. King, located arms and transport on 9 July 1952 and gave Deputy DCI Allen Dulles a proposal for arms and money. Finally DCI Smith received confirmation to go ahead from Under Secretary of State David Bruce on 9 September 1952. After being set in motion the plan was aborted on 8 October, following a leak.22 As a CIA memorandum from King said: ‘This confirmed our general belief that no Latin American can be trusted to keep his mouth shut.’ 23 Despite this, King did not want to abandon support for Armas and sought to ship arms as far as the Canal Zone, in case there was a change; he also gave Armas $3,000 a week to keep his force.24 Seeking the help of DCI Smith, the two kept the operation alive but with no mandate, hoping the new Eisenhower administration would be more decisive. Following a failed raid by anti-Communist rebels in March 1953, seriously damaging Agency assets,25 the State Department grew more apprehensive. The new administration felt that Guatemala was ‘in miniature all of the social cleavages, tensions and dilemmas of modern Western society under attack by the Communist virus.’ They concluded that ‘we should regard Guatemala as a prototype area for testing means and

22 The leak was from Somoza’s son, Tacho, who asked Assistant Secretary Edward Miller in a meeting if the ‘machinery’ was on its way. 23 J. C. King, Memorandum for the Record, ‘Central American Situation’, (8 October 1952), FRUS 1952-54, Guatemala, (2003) document 24. 24 Ibid. document 25. 25 NIE 84, ‘Probable developments in Guatemala’, (19 May 1953), FRUS 1952-54, Vol IV, (1983) document 15.

21 Winter 2010 methods of combating Communism.’26 Eisenhower took this challenge, with covert action fitting smoothly into his ‘New Look’ framework. Cullather states that ‘departments and agencies were headed by officials predisposed to seek active, covert remedies to the Guatemalan problem.’ Eisenhower, unlike his predecessor, would be more decisive. Covert action in Guatemala had now found the administration it required.

Armas is chosen Due to the nature of the operation, its organisation and structure was kept separate from other DDP/CIA activities. It had ‘a separate chain of command, communications facilities, logistics and funds,’ 27 with most of the CIA’s top members involved.28 Castillo Armas was chosen as the replacement to Arbenz, his ‘military background, honest reputation, folk hero image, and Mayan appearance made him a good choice to lead the invasion.’29 Armas received huge amounts of assistance from the US, militarily and economically. Arms were sent to bases in Honduras and Nicaragua, with whom the US 26 Memorandum by the Officer in Charge of Central America and Panama Affairs (Leddy) to the Assistant Secretary of State for Inter- American Affairs (Cabot). ‘Relations with Guatemala’, (21 May, 1953), ibid. document 16. 27 Nick Cullather (see note 1) p. 44 28 Allen Dulles personally oversaw the operation, putting Frank Wisner at its head. Richard Bissell was Dulles’ special assistant, co- ordinating with J. C. King, who remained head of the Western Hemisphere Division. Hans Tofte was the head of psychological and political areas and E. Howard Hunt was the Chief of Propaganda. The operations field headquarters, codenamed LINCOLN and headed by Al Haney, was established at Opa Locka, Florida. Dulles issued an initial budget of $3 million on 9 December 1953. A diplomatic team was also in place, headed by Bedell Smith. It contained John Peurifoy, the Guatemalan ambassador, William Willauer ambassador to Honduras, Thomas Whelan minister to Nicaragua and Robert Hill ambassador to Costa Rica. See James Callanan, Covert Action in the Cold War: US Policy, Intelligence and CIA Operations (London: IB Tauris, 2010). 29 Richard Immerman, ‘Guatemala as Cold War History’, Political Science Quarterly, 95:4 (Winter 1980-81) pp. 629-653.

22 Winter 2010 signed military agreements in May 1954; and mercenaries were paid with ‘wads of dollar bills’30 to form Armas’s rebel army. Several planes were also sent to Honduras, two of which Armas lost during the invasion, the only event documented in Eisenhower’s memoirs that suggests US involvement. He describes debating with Dulles over whether to replace the planes; and after being told that, if he didn’t, the operation would fail, he agreed.31 It must also be noted that although blame for the coup should be placed solely upon the White House, in his article featured in Studies in Intelligence, David M Barrett states that Congress also played a role, commenting that the belief Congress did not know roughly what was happening is ‘thoroughly implausible’.32

The primary weapon was psywar PBSUCCESS was not, however, a military effort to overthrow Arbenz; these efforts were mainly for effect. The primary weapon in PBSUCCESS was covert psychological warfare (psywar) alongside an overt diplomatic effort from State and Defence, to isolate Guatemala and cover-up details. On 1 May 1954 (a national holiday), the CIA-financed radio station, the ‘Voice of Liberation’ (VOL), manned by a team of Guatemalan exiles across the borders, began broadcasting. Operation SHERWOOD as it was known, was ready as early as April 1954.33 The radio station broadcast anti-Arbenz messages and claimed to be operated within the jungles of Guatemala. SHERWOOD was headed by David Atlee Phillips, a former actor, who, in his account in his memoir The Night Watch,

30 Eyewitness journalist Evelyn Irons, quoted in Edward Bernays, Biography of an Idea: Memoirs of a Public Relations Counsel (New York: Simon and Schuster, 1965) p. 771. 31 Dwight D. Eisenhower, (see note 17) pp. 425-26. 32 David M. Barrett, ‘Congress, the CIA and Guatemala 1954’, Studies in Intelligence, 10, (Winter/Spring 2001) p. 23. 33 Contact Report (28 April 1954), FRUS 1952-54, Guatemala, (2003) document 135.

23 Winter 2010 asserts that SHERWOOD was the key to PBSUCCESS’s triumph, stating that ‘within a week there was unrest everywhere.’ 34 The station was so well concealed that correspondents from The New York Times and Time used it as a source for reports, amplifying the psychological impact.35 As well as radio propaganda, it was ‘recommended a leaflet air drop’ should be carried out ‘on Guatemala City on May Day’.36 In conjunction with this, the CIA had Cardinal Spellman of New York hold clandestine meetings with Guatemalan priests in order to ‘suggest that the Church might warn the faithful against inevitable spiritual contamination through the commie-led fronts.’37 Finally, any army officers not opposing Arbenz were persuaded with bribery.38

Assassination? Recent evidence documented by Kate Doyle and Peter Kornbluh has revealed, that assassination plans and proposals were put forward as part of these ‘methods’.39 A report released in June 1995 by CIA historian, Gerald K. Haines, claims that while assassination was never carried out,

34 David Philips, The Night Watch: 25 Years of Peculiar Service (New York: Atheneum, 1977) p. 53. 35 Ibid. pp. 40-46. 36 Memorandum for the Record. ‘Synthesis of Ambassador Peurifoy's Remarks Relevant to PBSUCCESS Made at a Meeting 21 April 1954’, (21 April 1954), FRUS 1952-54, Guatemala, (2003) document 131. 37 ‘Memorandum From the Senior Representative, Operation PBSUCCESS Headquarters in Florida (Dunbar) to the CIA Station in Guatemala’, (28 April 1954) ibid. document 136. 38 Stephen E. Ambrose (see note 7) p. 229. 39 Kate Doyle and Peter Kornbluh, ‘CIA and Assassinations: The Guatemala 1954 Documents’ in National Security Archive Electronic Briefing Book No. 4. (George Washington University, National Security Archive).

24 Winter 2010 proposals did exist in both PBFORTUNE and SUCCESS,40 but the names of those targeted were deleted in the published version. Indeed a document contained in the PBSUCCESS training file, ‘A Study of Assassination’, details the steps and processes needed to effectively and properly execute ‘the deed’.41 Right up until the beginning of the coup various memoranda 42 also detail the existence of assassination lists and the possibility of ‘disposal action’.43

Diplomacy In conjunction with covert psywar, State Department officials along with the USIA (United States Information Agency), launched a campaign to tilt hemispheric and public opinion: which suggests that not only was the coup not fully justified but that opinion, both domestic and international had to be moulded to fit in with the instruments of US foreign policy. It could therefore be stated that the CIA, working alongside the State Department, held a significant position in defining this policy, not just implementing it. A report detailing the actions of the USIA certainly supports this, saying ‘our principal information effort was directed toward creating greater awareness...of the real threat to peace and security posed by the verifiable Communist penetration.’44 They did this through planted newspaper articles and tight control of the media, ‘spinning’ situations to form a pretext. The most unified and effective pretext however, came 40 Gerald K. Haines, ‘CIA History Staff Analysis: CIA and Guatemala Assassination Proposals, 1952-1954’, in National Security Archive Electronic Briefing Book No. 4, document one (June 1955). 41 ‘A Study of Assassination’ see Nick Cullather (see note 1) pp. 137- 140. 42 See index to ‘Assassination plans’ in FRUS 1952-54, Guatemala, (2003) for list of documents. 43 ‘Disposal List Prepared by C/EW’ (1 June 1954) FRUS 1952-54, Guatemala, (2003) document 166. 44 ‘Report on Actions taken by the United States Information Agency’, ibid. document 280.

25 Winter 2010 from the tenth Inter-American Conference held in Caracas from 1– 28 March 1954.45 The aim of the United States was to secure ‘a strong anti-Communist resolution’, while Latin Americans were concerned, as they had been for some time, with ‘economic matters’.46 John F. Dulles nevertheless introduced the ‘Caracas treaty’.47 This looked to secure support to halt Communism, stating that Communist infiltration of any country would call for ‘appropriate action in accordance with existing treaties.’48 After much protest, the resolution passed with a large majority, which pleased the United States and the corresponding dictatorships, but left most of the Latin American delegates feeling fearful, only voting for it out of worries the US would cut off aid to them.49 Regardless, the US had got what it came for, and with hemispheric support in place the US felt everything was going to plan. Arbenz, however, fearful of impending invasion, made a mistake that would secure a US pretext beyond anything that occurred in Caracas.

Enter the Soviets

45 For a more detailed assessment of the politics behind the actual conference see Richard Immerman (see note 7) pp. 144-151 46 John F. Dulles, Minutes of Cabinet Meeting (26 February 1954) in ibid. p. 145. 47 Full name: ‘Declaration of Solidarity for the Preservation of the Political Integrity of the American States against Communist Intervention’. 48 United States Department of State, Tenth Inter-American Conference: Report of the Delegation of the United States of America with Related Documents (Washington, D.C, Government Printing Office, 1954), pp. 8-9. ‘Existing treaties’ would refer to the 1947 Rio Pact which stated the requirement for an overall consensus between the OAS (Organisation of American States) before any action could take place. 49 As Uruguay’s Chief Delegate explained to Time magazine: ‘We voted for the resolution but without enthusiasm, without optimism, without joy, and without the feeling that we were contributing to the adoption of a constructive measure.’ ‘After the Vote,’ Time, (29 March, 1954), p. 32.

26 Winter 2010 Arbenz turned to the welcoming ears of the Soviets, who obliged by sending him arms through Czechoslovakia, on a Swedish registered ship, the Alfhem.50 The Agency and State Department knew about the shipment, with Wisner agreeing in early April 1954 to let the shipment go ahead for a while until ‘exposure would be most compromising to the Guatemalans.’ 51 It arrived in Puerto Barrios on 15 May 1954, with CIA agents waiting. As Nick Cullather states: ‘the arms purchase handed PBSUCCESS a propaganda bonanza.’ 52 Dulles on 17 May exaggerated the size of the cargo and said it would triple the size of the army, while SHERWOOD, trying to cause a split between Arbenz and the army, reported the weapons were intended for workers’ militias, which Piero Gleijeses, in his book Shattered Hope, has reported to be the case, highlighting the desperation of Arbenz.53 The American press took the bait 54 and, as one Agency telegram stated, the ‘shipment is shocking evidence that Soviets and Commies intend completely to take over.’ 55 Following the incident, intimidation against the government was also stepped up, stretching the limits of international law and diplomatic harmony. Operation 50 The CIA had tried to implicate Soviet/Communist involvement in the region by planting arms in Nicaragua in February 1954. Known as Operation WASHTUB, this is documented as on 7 May a telegram from the CIA station in Guatemala states: ‘at this moment WASHTUB appears to be a complete success.’ FRUS 1952-54, Guatemala, (2003) document 144. Also see Piero Gleijeses, Shattered Hope: the Guatemalan Revolution and the United States, 1944-1954, (Princeton: Princeton University Press, 1991) p. 294. 51 Memorandum from the Deputy Director for Plans, Central Intelligence Agency (Wisner) to the Chief of the Western Hemisphere Division (King): ‘Guatemalan acquisition of Iron Curtain arms’, FRUS 1952-54, Guatemala, (2003) Document 121. 52 Nick Cullather, (see note 1) p. 79. 53 Piero Gleijeses (see note 50) p. 304 54 Ibid. p. 299 55 ‘Telegram From the CIA Station in Guatemala to Operation PBSUCCESS Headquarters in Florida’ (20 May 1954) FRUS 1952-54, Guatemala, (2003) document 156.

27 Winter 2010 HARDROCK, which saw a sea blockade of Guatemala with every ship searched for arms, was initiated on 24 May 1954. The message to Arbenz was that, if the US was prepared to violate international law, she wouldn’t think twice about the 1947 Rio Pact.56

The sinking of the Springfjord This operation nearly lead to a huge diplomatic crisis, when on 27 June, Somoza, fearing a ship named the Springfjord was carrying gasoline, not the cotton and coffee discovered afterwards, went against the orders of the CIA’s Tracey Barnes and Al Haney, and had it bombed. Luckily it sank slowly and everybody escaped; but the real crisis was the fact this ship was British. Eisenhower was looking to gain British support for actions in Indochina at this point at the June 1954 summit, but after the CIA paid for the mistake in full to the sum of $1.5 million, while the mood was soured, the British said little more, as do most histories in this area. The event did, however, make Eisenhower enforce stricter guidelines on covert activity, introducing a senior review group. It also had a psychological effect on the Guatemalan army, which turned against Arbenz.57 The invasion ‘force’ led by Armas, consisting of only 150 poorly trained men, crossed the border into Guatemala on 18 June 1954, advanced six miles and halted at the Church of the Black Christ, where they stayed until Arbenz resigned. CIA personnel in the Florida field headquarters named LINCOLN, jammed radio communications, meaning citizens knew little of what was happening, causing panic and rumours to spread. Arbenz, who was also panicking, decided to initiate a complete blackout, in order to cease ‘Voice of Liberation’ transmissions, which served only to escalate the pandemonium.

56 Piero Gleijeses (see note 50) pp. 312-313. 57 John Prados (see note 7) pp. 105-106.

28 Winter 2010 Armas’s air force, consisting of only a few Cessnas and P-47 Thunderbolts, was the most successful psychological instrument. Manned by CIA-hired pilots, they circled Guatemala City dropping anything that caused a loud noise, from dynamite to coke bottles. (The planes were later referred to as sufatos, Guatemalan for laxatives, which best described their psychological impact upon the population.) Additionally, the ‘Voice of Liberation’ reported that Soviet pilots had defected to the West with their planes; and after a Guatemalan pilot did defect, he was given large amounts of alcohol, secretly recorded making an appeal and this was then broadcast. After this Arbenz ‘did not permit the flight of a single military aircraft during the duration of the conflict.’ 58 Now feeling all was lost, he looked to arm the peasants and the general population. But this was the final straw for the army, already fearing outright defeat, which now saw its own military status undermined. They called for Arbenz’s resignation, which he tendered without a struggle on 27 June 1954, then fled into exile. A short-lived military junta attempted to continue to the fight but gave way to Armas a week later. In the aftermath of PBSUCCESS, Frank Wisner initiated an operation entitled PBHISTORY to exploit the success of the coup and find documents implicating Soviet involvement. As Ronald M. Schneider’s study on Guatemala, based upon PBHISTORY evidence showed, no ‘smoking gun’ proof was ever found.59 The Agency, Whitehouse officials and the Eisenhower administration all failed to realise how close they had come to defeat, labelling the operation as a huge success, making covert action a decisive weapon of choice in diplomatically awkward situations. Through psychological methods Arbenz

58 David Phillips (see note 34) pp. 43-44. 59 Ronald M. Schneider, Communism in Guatemala 1944-1954 (New York: Octagon Books, 1978).

29 Winter 2010 became certain of a US invasion which the CIA was then able to exploit, avoiding the use of direct force, scaring him into resignation. If Arbenz had stood his ground and fought Armas’s small rebel army, the CIA’s main asset would have been removed, leaving Arbenz looking strong and in control, retaining his authority to rule. Aside from the elements of sheer luck that brought around Arbenz’s resignation, various mishaps such as the failure of Operation PBFORTUNE, and the unauthorised raid that followed in March 1953, as well as countless leaks throughout the operation’s history, could have exposed the CIA plans. Much like in Iran, the operation’s success was mostly down to luck and the culmination of favourable local situations, which the Agency was able to exploit, creating the illusion of something much bigger, powerful and better organised. In Guatemala, while removing a leader, the Agency had failed to install a suitable replacement; Guatemala fell into dictatorship and upheaval. PBSUCCESS achieved the short term goal of removing Arbenz, but ‘thwarted’ the long term goal of ‘stable, non-Communist government’.60 Armas further alienated leftist elements, which became more unified and resentful, leading to Armas’ assassination in 1957, civil war, brutality, and large scale political unrest and uncertainty, still evident today. For one man, however, lessons would be learned. Che Guevara, who arrived in Guatemala in February 1954, and later followed Arbenz to Mexico, stated in his article ‘I saw the Fall of Jacobo Arbenz’: ‘the struggle begins now’.61 He had seen what the US did, the mistakes Arbenz made and was now preparing for his own fight in Cuba, which could come following the 1959 revolution. This time the US would not be so lucky.

60 Nick Cullather (see note 1) p. 117. 61 John Gerassi, ‘Introduction’, Venceremos: The Speeches and Writings of Che Guevara (1968) pp. 45-47.

30 Winter 2010 James Lusher is a recent graduate of Bath Spa University, England. This essay is a chapter taken from his final year dissertation on the role of the CIA in US Foreign Policy 1947- 1954. James was supervised by Professor John Newsinger, who has contributed numerous articles to Lobster over the years.

31 Winter 2010 Lobster 60

Gordon Brown: in the country of the blind......

Simon Matthews

Not so long ago the end of a government would be marked by the publication of a couple of ministerial diaries and some memoirs trickling into the public domain within 2-3 years of its demise. Today any change of administration is followed immediately by a slew of books, as its participants cash in with lucrative publishing deals and get their version of history into print as quickly as possible. Thus has the demise of Labour in May 2010 been marked. The accounts that have appeared include the absurdly self-centred, stating-the-obvious-at-all- times tales of Peter Mandelson; the fantastic, optimistic and daytime TV-oriented (and thus immensely popular) narrative of Tony Blair; Jonathan Powell’s treatise on Machiavellianism; and the diarised compendium of sad little stories from Chris Mullin, as he crept away from the political stage after 2005. A particularly interesting work, though, is that written by Deborah Mattinson, a major courtier to New Labour and an observer of many of its foibles and obsessions over 15 years.1 From the North East of England, she originally worked in advertising, joining the Labour Party in 1983 at the age of 27. Her major role began in 1985, when she was approached by Philip Gould, with whom she formed a ‘political consultancy’ at

1 Peter Mandelson, The Third Man; Tony Blair, A Journey; Jonathan Powell, The New Machiavelli – How to Wield Power in the Modern World; Chris Mullin, Decline and Fall; and Deborah Mattinson, Talking to a Brick Wall. All published 2010.

32 Winter 2010 a time when Neil Kinnock was casting around for assistance to rejuvenate his party’s electoral prospects. Her account of her high-level involvement in the Labour Party over the following 25 years is candid and non-partisan, and she makes the valuable point of identifying Neil Kinnock as a neglected figure whose hard work in making Labour ‘electable’ is usually forgotten. She also gently reminds the reader that the need to attract middle class voters in London and the South East was not a strategy devised for the first time by Tony Blair and his acolytes at some point in the mid 90s; it was first raised formally in a pamphlet as long ago as 1921 by Herbert Morrison, and remained a central part of Labour’s electoral strategy from that point onwards, albeit one that might have been neglected. However, possibly due to limited street level political experience on her part, Mattinson lacks a certain perspective while making many of her otherwise correct points. The role of the SDP in disastrously splitting the anti-Conservative vote in 1983 and 1987 is not mentioned at all; nor are the very real difficulties for any major political party, led by even the most gifted leader, to get back into government after a severe defeat (such as suffered by Labour in 1983 or the Conservatives in 1997) under the current first-past-the-post system. In this context, and accepting that her book is not a political history of the period, it would have been of some value for her to have sketched out over a page or two the various events that triggered the launch of the SDP in 1981: particularly the machinations of James Callaghan in the late 60s and the Trotskyite ‘Broad Left’ from the early 70s, as well as the leadership ambitions of Michael Foot. Instead, the reader is dropped straight into a narrative in which she deplores how ‘out of touch’ Labour were with ‘ordinary people’

33 Winter 2010 in the 80s (which may have been true at that point), without demonstrating that Thatcher and the Tory right were ever more ‘in touch’ or commanded a consensus of views (they didn’t), or that Thatcher would have won so easily without the SDP. Although Mattinson’s admiration of Kinnock is clearly genuine, as well as omitting the very basic electoral arithmetic that ultimately explains his failure to win in 1992, she also fails to address other issues that may have held him back. Would the English electorate (85% of the UK total) ever have warmed significantly to a small, balding, verbose Welshman? Can any political group that needs to draw support from across the UK be led effectively by an individual clearly identified with a peripheral region of the country?2 Given her professional experience in advertising and as a pollster, her lack of comment on these matters is odd. In 1992 Kinnock, who had a great interest in polling data and focus groups, gave way to John Smith, who did not. He attended (privately) one such gathering and dismissed its value afterwards by telling Mattinson, ‘These people are Tories.’ Suddenly out of demand, she started her own company, Opinion Leader Research, and was only fully employed again with Labour Party work after Smith’s untimely demise and replacement by Tony Blair in 1994. A major reason for this resurgence in her fortunes was due to the cotacts she had developed with Gordon Brown from the late ‘80s onwards. Brown, it turns out, was even keener on market research than Kinnock and her book is very much an account of her work with him until 2010. Her relationship with Brown follows a familiar trajectory: initial flattery; being made to feel valued; charmed by his wit and demeanour; constant consultations and being regularly commissioned to carry out important tasks. Clearly she was an important figure in the Brown constellation. But roll forward 2 Would France elect a Breton President?

34 Winter 2010 ten years and the telephone calls and e-mails from her are ignored; he stares silently out of the window when she delivers a report he has commissioned; she attends meetings which conclude when he leaves the room without saying anything; he walks past her at an important public event whilst ostentatiously greeting others. She is regarded as having ‘changed sides’ and contact with her is reduced to nil. From a wide range of sources,3 the accounts of Brown’s curious behaviour and how much it was a factor in his conduct as prime minister – de facto from 1997 and actual from 2007 – need to be considered in some detail if we are to make any sense of Mattinson’s book (and the many other narratives now appearing), the Labour Party’s current predicament and the present and likely future political landscape of the UK.

The man Although a complete biography of Gordon Brown has yet to be written, the basic details of his background and rise are well known.4 Brown was born into a solidly middle class family that had no obvious political connections or affiliations. He did well extremely well at school, reaching Edinburgh University at the age of 16. Here he took a BA and an MA in History and moved in rather elevated social circles, his first steady girlfriend being Princess Margarita of Romania, a cousin of the Duke of Edinburgh. He joined the Labour Party in 1969; and in 1971 made his entrée into public debate, writing a lengthy piece in the Edinburgh University student newspaper about the dispute at Upper Clyde Shipbuilders,5 a workers’ occupation of five state- owned shipyards on the Clyde. Treasury officials in London had refused to sanction a £5m funding package to tide them over a period of slack orders, therefore threatening the yards 3 See the series of articles in The Times 16-20 November 2010. 4 The best so far is Tom Bower’s Gordon Brown (2004) 5 See Bower pp. 17-18.

35 Winter 2010 with closure and the workers with mass redundancies. This article indicated that Brown, even at this early stage, had a conformist, centre-right outlook. He inveighed against the political left, radical shop stewards and ‘liberal documentary makers’, seeing them as a distraction from what was properly a local matter which Scottish people alone should try and resolve. He also said that the dispute would fail. He was wrong; and Jimmy Reid, the (Communist) shop steward, who led and planned the occupation, was proved right. The Treasury figures were not reliable; the amount of money needed to support the yards was relatively minor; support of this type was common in other industrial countries; and most of the facilities deserved to be saved. In early 1972 the Heath government, too, came around to this view. Reid became popular across Scotland following his success in saving Upper Clyde Shipbuilders, so much so that in 1972 he was elected Rector of Glasgow University.6

Early career Possibly in emulation of Reid, Brown decided to run as a student candidate for the position of Rector of Edinburgh University. He was not the first student candidate for this office,7 and although he encountered considerable opposition within Edinburgh’s ‘establishment’, his campaign was successful. His period of office ran from 1973 to 1976 and, together with his extracurricular activities as a WEA tutor, raised his profile significantly in Labour Party circles in the area. In the late summer of 1974 Brown attempted and failed to get selected as prospective parliamentary candidate (PPC) 6 Reid failed in three subsequent attempts to enter Parliament: as Communist candidate in Central Dunbartonshire in 1974 (both elections) and as Labour candidate in Dundee East in 1979. He finished his political career as a member of the SNP. Two of the Upper Clyde shipyards are still open and trading profitably. Many thousands of jobs were saved by Reid’s decision to fight the Treasury. 7 The first student rector was Jonathan Wills.

36 Winter 2010 for Edinburgh South, a Conservative-held marginal that Labour could hope to win in a good year. Not downhearted by this rejection, he added to his credentials by editing a collection of essays, The Red Paper on Scotland, in 1975.8 In late 1976 Brown (by now employed as a lecturer in politics at the Glasgow College of Technology) was finally chosen as the Labour candidate for Edinburgh South, when the seat came up for selection again. He was 25 years old and, given opinion polls at the time, would have considered it possible that he could have won the seat had an election been called in late 1978. Now regarded as a rising star by the Scottish Labour Party, Brown was twice offered safer alternative constituencies after this. He declined to run in the Hamilton South bye-election in May 1978 (George Robertson was selected and elected instead) and also declined Leith when a last minute vacancy arose in February 1979 (he was unable to make up his mind). The seat went instead to Ron Brown.9 With hindsight these were clearly significant miscalculations. Although Callaghan duly took Labour down to an arguably unnecessary defeat by delaying going to the country until May 1979, ensuring that that Brown failed to win Edinburgh South, Brown would have been elected in either of the other seats. Had this happened, British political history, and the subsequent history of the Labour Party, might have been very different. 8 The authors of the various pieces Brown edited included: Tom Nairn, now an advocate of European integration, a republican and sometime editor of the New Left Review; Jim Sillars MP who left the Labour Party in 1976 and is now a member of the SNP; Robin Cook MP and Vincent Cable MP. Interestingly, none of these figures took the same political journey as Brown in later years. 9 Ron Brown was regarded as dangerous, unstable and too left-wing by the Scottish Labour establishment. But with hindsight his views on Afghanistan (the real danger came not from Russia but from Islamic extremists) and Libya (there should be a rapprochement with Gaddafi) have both been endorsed by events.

37 Winter 2010 Despite Callaghan’s error, and even allowing for the leadership of Michael Foot from late 1980, and the launch of the SDP a few months later, things still looked retrievable for the Labour Party between 1979 and 1982. Margaret Thatcher did badly in the opinion polls throughout this period and it remained possible therefore to think of Labour returning to government in 1983-1984. Against this backdrop Brown continued to advance. In 1980 he left academia and became current affairs editor for Scottish TV, while writing a regular column for the Scottish Daily Record. In 1981 he was selected as PPC for the Labour seat of Dunfermline East, and was elected MP in the May 1983 general election.

Into opposition The collapse of the Labour position in 1982-1983, the ‘Falklands effect’, and the significant role played by the SDP in gifting Thatcher an enormous majority, meant that Brown entered the House of Commons facing many years of opposition rather than the prospect of ascent to early ministerial office. In these reduced circumstances, Brown seems to have spent the period between 1983 and 1987 considering solutions to Labour’s electoral predicament while strengthening his position amongst his parliamentary colleagues. His extensive reading about recent UK political history, and, possibly, his own experiences (between 1974 and 1983) indicated to him that when in government, or seeking government, the Labour Party generally ran into difficulties by – in no particular order here – alienating the City of London; failing to have an amicable working relationship with the Treasury and its all-powerful mandarins; behaving awkwardly toward the media and hence both creating and enduring media hostility; and often showing indifference toward to the US. By the late 80s Brown’s approach to these

38 Winter 2010 problems consisted of ingratiating the Labour Party with the City of London; adhering to the Treasury rules about public spending and privatisation; promising the deregulation of the mass media; and working closely with senior US figures at every juncture, taking their advice and implementing their requests. Brown was not solely responsible for this volte-face; but he was certainly part of a powerful group within the PLP, led by John Smith, who were comfortable with this position.10 This striking reversal by Brown of the arguments that he had seemingly endorsed in The Red Paper on Scotland only eight years earlier clearly looks driven by expediency: when it appeared Labour could win with ‘conventional’ centre-left politics Brown was in favour of these (or at least of aligning himself with them). After 1983, when it was considered that the reverse was true, Brown duly modified his position.11 While his views on how Labour should radically reposition itself within UK politics coalesced, after an initial period of carefully studying and getting to know his colleagues, Brown also engaged in a lengthy charm offensive within the Parliamentary Labour Party (PLP) to mark himself out as a major figure and ensure a body of support for his bid – when the time came – for its leadership. His success was unparalleled: in the PLP parliamentary committee elections he finished as follows: 1988 (1st), 1989 (1st), 1990 (2nd), 1991 (1st), 1992 (1st), 1993 (4th), 1994 (3rd) and 1995 (3rd).

10 A colleague of mine invited Brown to a housing conference in the late ‘80s, together with a number of banking executives, who specialised in advancing loans for the construction of new housing. Brown spoke, even then, in adoring terms of the role banks played....so much so that it seemed mildly incongruous to the audience. 11 The elephant in the room here is how much were Brown’s views influenced by his exposure to US policy groups and forums from the ‘80s onward? A separate essay would be needed to tackle this. It should be noted that Brown developed, very early on, extremely close US political connections, spent every summer in the US for many years, and by 1991 had been talent spotted by the Bilderberg Group.

39 Winter 2010 During the same period the only other figures to score regular top four positions (to use a football metaphor) were John Smith (fellow Scot), Robin Cook (fellow Scot and Brown’s senior tutor at the WEA in the ‘70s) and Margaret Beckett (an established northern MP who had, to certain extent, inherited the mantle of Barbara Castle). By comparison during the same period Tony Blair managed 4th place in 1989 and 2nd in 1992 but was otherwise not significantly regarded.

The Blair caucus Brown prospered under Kinnock and advanced further under Smith, to whom he was doggedly loyal. The broadly traditional nature of John Smith’s approach to leading the Labour Party after 1992, and Brown’s clear position as the anointed successor to Smith, was not universally supported within the PLP. By late 1992 a caucus had been organised around Tony Blair to consider (a) how to further ‘modernise’ the Labour Party by ending the block vote mechanism enjoyed by trade unions and (b) deflect Brown from his ambitions, on the grounds that Brown did not have the type of personality likely to appeal to the large number of Home Counties and swing voters needed to ensure a stable Labour Government over a reasonable period of time.12 Those who met frequently with Blair in this caucus during 1992-1994 were Peter Mandelson (whose media connections eclipsed even Brown’s), Jack Dromey (TGWU ‘reformer’ and husband of Harriet Harman), John Carr (husband of Glenys Thornton, a significant figure in the Co-op Party), Margaret Hodge (grande dame of the smart London set with useful connections in local government) and Sally Morgan (Blair’s personal secretary and formerly a significant figure in the 12 See Anthony Seldon, Blair (2004) pp. 181-182. Blair is on record as saying ‘Gordon is flawed. He thinks he can do no wrong.’ Despite this Blair frequently described Brown as ‘the best Chancellor this country has ever had’ between 1997 and 2001.

40 Winter 2010 British Youth Council, the Foreign Office-organised end of student politics).13 Consider the objectives of the Blair faction. A Smith government, by then thought achievable and running, perhaps, from 1996-1997 through to 2000-2001, would probably have had a decent parliamentary majority (though smaller than that won by Blair) and would also have clearly been a centre-right, pro-US administration. It would have been comfortable with a mixed economy and generally similar to the type of government headed by James Callaghan. The Blair group, then, had no ideological aversion to Smith (and Brown) and they certainly didn’t discuss anything too complicated....such as hospital construction programmes or environmental issues. Instead their ‘beef’ was that of ambitious career politicians who felt excluded from Smith’s inner circle. Brown threatened a continuation of this, hence the early evidence of this ‘Brown-Blair split’. After the disappointment of 1992, when Kinnock’s best efforts brought only a modest increase of an extra 35 seats, the Blair group may also have felt that it was still touch and go that Labour could win a majority, and therefore that the Labour Party had to do everything possible to win, including ‘thinking the unthinkable’. The admission by Blair in 2010 that even in the early ‘90s he thought that Brown had an unfortunate personality and that the Labour Party needed a different leadership candidate to replace Smith, one to whom the voters of ‘Middle England’ could warm, is consistent with this.

Brown hesitates again The death of John Smith in 1994 and the immediate

13 Harman is a member of the Pakenham/Longford family, like the Benns and the Foots, part of the ‘nobility’ of the Labour movement. Peter Mandelson, Charles Clarke, Paul Boateng and Trevor Phillips (all significant New Labour figures) were also involved with the British Youth Council.

41 Winter 2010 emergence of a fully-formed Blair campaign badly wrong- footed Brown. As in 1978-1979 he hesitated and, instead of challenging, struck a deal with Blair: Brown would not contest the vacancy and agreed to swing his substantial body of PLP, TU and CLP supporters behind Blair. This would allow Blair to crush Margaret Beckett – the deputy leader – who had entered the race.14 As for the other possible candidates, Robin Cook appears to have either been too diffident to mount a challenge, or was bought off with promises of high office if he co-operated in the Blair-Brown plan. John Prescott was a more difficult proposition, having his own PLP and trade union supporters. Prescott could not be ignored and was instead mollified with the post of deputy leader, a position from which all real power was then duly stripped out by Blair and Brown. In exchange for this ‘deal’, Blair agreed to cede to Brown complete control – via the Treasury – of every aspect of UK domestic policies. Essentially Brown would act as prime minister while Blair behaved as president.

Sofa government Despite the economy having moved out of recession by 1995, and despite Blair having been elected with such an enormous (and unprecedented) majority that he could have pursued any course of action, the Labour government which was elected in May 1997 followed closely the ultra-cautious, centre-right formula that Brown had devised and Blair agreed with. Because of the enormous power conceded to Brown by Blair in 1994, there was also no pretence of proper cabinet government, or even of significant amounts of discussion of

14 The ease with which Beckett was swept aside is very reminiscent of Callaghan’s dismissal of Barbara Castle in 1976.

42 Winter 2010 important issues by the cabinet.15 The media quickly picked up on this, but trivialised the issue by describing a highly unusual, dubious and undemocratic process as ‘sofa government’. On one issue – the UK joining the Euro – Blair tried to engender a cabinet discussion and decision. (Blair was in favour.) Has this been agreed in 1999-2000, the UK would have had lower interest rates (thus helping manufacturing exports), greater regulation of financial speculation and less exposure – eventually – to the US collapse of 2007/8. Brown blocked it, arguing, absurdly in a country with collective cabinet responsibility, that as control of the economy had been delegated to him, any decision on this would be his alone. He then knocked any factual arguments to one side by declaring the existence of the now famous ‘five tests’ the UK economy had to meet before it could join the Euro. Debate in the cabinet was sour, inconclusive and carried a clear implication that Brown would campaign publicly against Blair in the referendum needed before the UK could join, with the prospect, therefore, of a ‘Labour split’. Blair abandoned his efforts.16 In the real world – according to Deborah Mattinson’s

15 On the lack of a meaningful role for the remainder of the cabinet see Alistair Darling writing in The Guardian 11 September 2010 (‘the cabinet actually discussed surprisingly little’) and Chris Mullin in The Sunday Times 12 September 2010 (‘the cabinet rarely ask questions or have discussions, whether on the wars abroad or the privatisation of the Royal Mail’). 16 As shadow chancellor from 1992, Brown initially thought the UK should join the ERM (the precursor of the Euro), not understanding the effect this would have on an overvalued pound and the effect, therefore, on the UK economy. From 1994 Brown was advised by Ed Balls – a Financial Times journalist – who advocated letting the Bank of England set interest rates (a policy change also sought by the US) so that the City of London could become more attractive than Europe as a centre of financial trading and speculation. Brown carried this out as soon as he took office in 1997. Was Balls’ function to show Brown the ropes? As a history graduate Brown did not necessarily know anything about economics.

43 Winter 2010 focus group activities – the public certainly noticed a lack of progress between 1997 and 2001; a common refrain being ‘we voted for change – but where is it?’ As Brown had accepted the spending plans of the outgoing Major government immediately on taking office in 1997, this was hardly surprising. Mattinson does not make this elementary point. On the basis that he had been ‘promised’ by Blair in 1994 that he could ascend to the premiership and replace Blair after one parliament, after 2001 Brown made continual demands that Blair should resign so that Brown could ‘take over’. One such conversation even took place when Blair called Brown to ask for some advice in the aftermath of the 9/11 attacks on the US.

Gang culture Every account of how the 1997-2010 Labour governments functioned is consistent in its portrayal of an internal power struggle between two factions, the Blair gang and the Brown gang. Although the media reported this as a major split between ‘old Labour’ or ‘new Labour’ (or even – stupidly – ‘left-wing’ and ‘right-wing’), there was no major ideological difference between the two groups. Both wanted a deregulated economy, the UK semi-detached from Europe and obedient to the US, and low personal taxes. Neither advocated a written constitution; neither was concerned to introduce the type of resilient and well-funded regional government seen elsewhere in Western economies. Why didn’t Blair sack Brown? Some commentators see this as evidence that Blair (someone who willingly starts wars!) is averse to personal conflict. The truth is mundane: as a clever, calculating, political careerist he always took the easiest course of action. The easy choice was to leave Brown in place. Brown had a bigger following than Blair in the PLP,

44 Winter 2010 posed as being ‘left-wing’, and the economy pre-2007 seemed to be gliding along nicely.17 Under their collective sway, UK industry continued to decline, the equality gap widened and long-term unemployment remained very high. Although spending on health and education did eventually reach average European levels – after Blair had decided to defy Brown on this; Brown had refused to consider the matter18 – the method chosen, a series of complex leasing arrangements known as the Private Finance Initiative, which Brown insisted on so as not to upset the sacred Treasury definition of public spending, involved ruinously expensive long-term maintenance contracts that were far more damaging to the public finances than a traditional public sector procurement mechanism would have been. Eventually Blair departed in 2007, his demise finally brought about by a significant proportion of the PLP being angered by his failure to condemn (or even comment on) the latest Israeli incursion into Lebanon, by the poor polling record of Labour after David Cameron had taken over of leader of the Conservative Party, and, possibly, by the loss of Dunfermline and West Fife, the constituency that directly adjoined Brown’s seat, in a bye-election in February 2006. In a display of unprecedented disfunctionality, Brown ascended to the position of Labour Party leader and prime minister without the inconvenience of a contest for either

17 The easy choice was to go with the US on Iraq and Israel – particularly if you want a subsequent life on the US lecture circuit. 18 Between 2001 and 2005 Blair considered and rejected setting up a separate Ministry of Finance. This would have reduced the Treasury’s role significantly and would have Brown left with little power. It sounds similar to the arrangements put in place by Harold Wilson and George Brown in 1964 with the Department of Economic Affairs....so much for New Labour.

45 Winter 2010 position.19 The spectacle of a political party with 350 plus MPs being unable to find a single alternative candidate – let alone a range of candidates – to allow a semblance of democratic participation to occur, appears to have been an indication of Brown’s capacity for rudeness, arrogance and making enemies. Many figures in the PLP appeared to have taken shelter in the notion that someone better might turn up without them having to do very much; rather as though they were the victims of domestic violence within a marriage that had gone badly wrong, deeply unhappy and fearful, but unable to imagine an existence outside the formal structures to which they were committed. In the real world the public, who were largely ignored by Brown’s supporters, had their own opinions.20 Deborah Mattinson states that the views of one focus group at the time of Brown’s final budget in early 2007 were: ‘Gordon Brown does not have any fresh ideas and so has to resort to sleight of hand to create a story; and worse, that Gordon Brown, who is universally thought to be very clever, thinks the electorate are stupid....’ 21 Is this true? Did Brown have ‘ideas’ in 1997 when he accepted the previous governments spending plans? (Or in the 80s when the blueprint for New Labour involved making radical concessions to every possible powerful adversary that a Labour government might face?) It could be argued that in 2007-2008 the Brown agenda was clearly seen and

19 Meg Munn MP told a colleague of mine – who is now a member of the Labour NEC – (I paraphrase slightly): ‘Look, we know that Gordon is mad, but people don’t realise quite how mad he is....if we don’t let him be Prime Minister he will destroy the entire Labour Party....’ 20 Some commentators – such as Jonathan Powell – have spoken of Brown’s use of emotional blackmail to swing people around to supporting him:..he’s had such a hard life....disabled, you know...he works so hard...Labour through and through.... . Brown was at great pains to portray himself as a victim, cheated out of his rightful inheritance. 21 The public clearly didn’t think Brown was clever – but MP’s did.

46 Winter 2010 recognised for the first time by the wider public, particularly after Brown failed to regularise his position in the autumn of 2007 by calling a general election.

Indecision again The ‘election that never was’ was a particularly strange episode and similar to Callaghan’s dithering in 1978. Between August and October 2007 Labour had a 10% lead in the opinion polls. All the advice given to Brown was clear: he should call an election. All the interested parties consulted on this matter were unanimous: although the size of a Labour majority could not be predicted, and was likely to be reduced, it would still be sufficient to keep a Labour government in place with a working majority until 2011-2012. Brown – who in Mattinson’s account is surrounded by US advisers and even calls an ailing Senator Edward Kennedy at one point to ask if a general election should be called in the UK – decided against an autumn 2007 general election.22 Why? The critical issue appears to have been that he did not feel that he would be guaranteed an increased majority (a ludicrous notion for any party seeking a fourth term) and that the post-election recriminations, therefore, about the reduction in Labour’s majority, and the loss of loyal colleagues etc, would weaken his position within the Labour Party vis-à- vis the increasingly bitter Blair team. The bleak conclusion reached from Mattinson and others is that Brown’s decisive considerations were based entirely on internal Labour Party jockeying for power, and on him remaining prime minister for as long as possible (like Callaghan in 1978-1979), regardless

22 How incongruous is this? Asking a US Senator when to call a general election in the UK? (Kennedy advised Brown to call one.) Perhaps we shouldn’t be too critical of Brown: after all Cameron discussed the latest UK defence reductions with President Obama before announcing them to the House of Commons. Perhaps such arrangements are now normal.

47 Winter 2010 of the prospect of going down at a later date to a catastrophic defeat, losing the entire Labour agenda in the process and handing over the UK to a severe programme of cuts. Perhaps too loyal to draw this conclusion, Mattinson also mentions that Brown was obsessed throughout his career with searching for slogans and PR initiatives that could ‘fix’ an argument or situation in his favour.23 This continued when he was prime minister, when he does not appear to have realised that with a majority of sixty he could and should have been implementing bold policies that had a direct impact on peoples’ lives. This does not mean that Brown had no views, or even that his views were reactionary. Rather, as became clear after 2007, his views were so cautious and generalised that they could have been held by many people within mainstream UK politics, irrespective of their political affiliation. On a personal level, he appeared an uninspiring and drab individual, proceeding everywhere (even to the front line in Afghanistan) in the same business suit; and intoning with great formality, symbolic pauses and faux gravity, entirely predictable replies to all questions in a way that was irritatingly ‘respectable’. It was also possible to detect an immense arrogance in his conduct: he came across as regarding himself as the perfect encapsulation of Labour Party values and thinking, with any suggestion to the contrary, however mild, being ignored, ridiculed or smartly knocked to one side.

Defeat Brown duly went down to defeat in May 2010 presiding over a unique collapse in Labour Party support. At its peak in 2002- 2003, with the Conservatives in wretched disarray under the leadership of Ian Duncan Smith, there was a feeling abroad

23 Typical of these were the derided ‘British jobs for British workers’ and the dull ‘I will do my best’ on becoming Prime Minister.

48 Winter 2010 that ‘New Labour’, with its gigantic middle class ‘tent’, astute use of language and media manipulation, could ‘finish off’ the Tories and govern in perpetuity. The position in late 2010 now appears almost a reversal of this. Today Labour has a level of electoral support similar to that achieved in 1983 under Michael Foot and has been reduced to representing sections of Scotland, Wales and the North. The proposed reduction in the number of MP’s will affect it much more than any other political party and will make it harder still for it to win a majority in 2014-2015. The prospect of Scotland drifting away from the Westminster orbit, within the EU and Commonwealth, cannot be discounted. If anything like this were to occur, the number of seats that Labour would need to gain to secure a majority within a parliament that solely consisted of England, Wales and Northern Ireland would be so high that the prospect of a Labour government (of any ideological bent) in the future would be slim. Nor do any of the above scenarios take into account the possibility of a ‘yes’ vote in the referendum on the introduction of the Alternative Vote system; which, if it occurs, would ensure coalition arrangements – all of which might be centre-right or right wing in complexion, given UK politics – on a permanent basis. When considering the above possibilities it is important to remember that Labour’s current decline arises not from poor organisation, but from the ideological position adopted by Brown and Blair after 1994. This can best be described as a drive to detach the Labour Party from the orthodox, centre- left, social democracy of its sister parties in Europe, and to recast it instead as a free market, centre-right party with a few ‘left’ trimmings. It is known, for instance, that even if Brown had been re-elected in 2010 he would have pursued a programme of budget cuts not dissimilar to those adopted by Cameron and Clegg, but would have spread them out over a

49 Winter 2010 longer period of time. In this scenario what does the Labour Party stand for?24

Politics as patronage One of the oddities of contemporary UK politics is how much it resembles the way business was transacted in the 18th century. A system has developed where patronage and privilege appear to count for more than intelligence, life experience and hard work. Groups of young ambitious people cluster around significant ‘king makers’ (for the New Labour ‘project’ these appear to have been Peter Mandelson and Siobhain McDonagh MP) in the hope of being ordained as suitable figures to ensure a continuation of the status quo. All the leaders of the three largest political parties, Cameron, Milliband and Clegg, have the same personal backgrounds – Oxbridge/Harvard, a gap year and then full-time politics. None has ever had a real job. One suspects they may not even have had very much ‘real’ political experience. In this context it is not clear how many MP’s are actually aware of the policies they should be legitimately pursuing; it’s almost as if general knowledge and clear personal opinions, are now so unusual as to be regarded as ‘anoraky’. It is interesting that it was within this domain that a person of the Brown type blossomed and was commonly referred to as a ‘genius’ by his fellow MP’s.25 In her book Mattinson concludes that politics is now the

24 The current UK public debt is lower than in France (and much lower than in the US) and comparable with Germany – both of which continue to spend more on public services, pensions etc., and neither of which has embarked on a programme of cuts similar to the UK. 25 David Milliband, too, is often called a ‘genius’.....without this being apparent to the public. On Brown it is striking that George Galloway and Tony Blair both ended up with similar views – Galloway in the late ‘70s/early ‘80s thought Brown good at passing exams but not necessarily intelligent; Blair today describes Brown as being calculating but without intelligence.

50 Winter 2010

opposite of what the public wants. She reaches this view after extensive and continuing discussion with a focus group in Harlow (a key marginal seat) in 2009-2010. Their conclusions are: * the media should be closely regulated on how it reports politics so that the public are properly appraised of the nature and context of day-to-day issues; * politicians should be regulated about how they approach the media and provide it with information; * MP’s should have a proper job description; * parliamentary candidates must have proper work/real life experience before standing for office; * all young people should take part in a compulsory National Community Service scheme. The chance of any UK government adopting any of these ideas appears remote. It is ironic that a carefully selected and weighted focus group in Harlow in 2010 should be enunciating views on media regulation that graced the agenda of the Bennite left in the early 80s; though, typically, this is a point that Mattinson fails to make and is probably unaware of. Given that Brown considered at length, and had the opportunity to implement, items 3 and 5 in this list but did not do so, Mattinson’s much stated admiration for him appears to contradict her own conclusions. The real point is that the culture within which Brown thrived and was admired is now seen by the public as a significant handicap. Unless Labour can change this, its future as a party of government must be in doubt.

Simon Matthews has a BA and MA in Modern History. He runs a company that works with local authorities, community groups and housing associations, finding empty land and property and bringing it back into use.

51 Winter 2010 Lobster 60

The crisis

Robin Ramsay

The doom loop We are now into the ‘doom loop’ described last year by Bank of England officials Alessandri and Haldane in which the banks, having discovered that their respective host states do not have the courage to regulate them, say ‘Thanks for the bailout’ and carry on gambling as before.1 Another great financial crash is thus very likely (and some will be making bets on that, of course). Will Hutton described the return to business as usual as ‘breathtaking and depressing’.2 Also absolutely predictable. After all, for the most part these are people who are solely interested in their own salaries and bonuses. Why would they desist? An insight into this world was provided by the account of a conference call between Ireland's finance minister Brian Lenihan and ‘the bond vultures’ which descended into farce and chaos as what the Telegraph called ‘the investors’ began heckling Lenihan, making ‘monkey noises’ and shouting ‘short Ireland’.3 A paper published by the New Economics Foundation, Where did our money go?, made this interesting suggestion: ‘the scale of the current cuts in public services is

1 See p. 114 of Lobster 59. 2 Will Hutton, ‘The banks have refused to mend their ways. Beware the next crash’, The Observer, 13 June 2010. 3 Harry Wilson, ‘Ireland's finance minister Brian Lenihan ridiculed by City investors’, Daily Telegraph, 1 October 2010.

52 Winter 2010 partly dictated by the Coalition government’s covert provisioning against the need to bail out the banks again, in the not too distant future.’4 The core belief of the major political parties and the mass media in this country is that the financial services are very important and governments tinker with them at their peril. But few seem to be sure exactly how important; and even fewer think it worth trying to find out. In the edition of the BBC’s Robert Peston’s Who Runs Britain? (2008) published after the big financial crisis broke, he devotes almost two pages to telling us how critical the City is to British society and economy, without giving us any figures on its actual size in the economy. It is not surprising that London-based political and media systems think the money men are very important: it is hard to live in London and not be affected by their presence in some way – if only in the absurd price of houses, driven from the top by the enormous sums a few thousand people in the City are willing to pay. For most people outside London, however, a bank is just somewhere that’s got an ATM on the High Street (or is a Website) and handles your income and standing orders. It is obviously true that the City is a significant part of the British economy; but, as I quoted in the previous Lobster (p. 114) the latest estimates put the financial services sector of the economy at only slightly more than half the size of the manufacturing sector. ‘Financial services accounts for 7.1pc of GDP, our second biggest industry after manufacturing and proportionately one of the largest among leading nations. In the past 10 years, the financial services industry has grown by 1.2 percentage points of GDP. In the same time, manufacturing has shrunk from 19.4pc to 13.3pc of

4

53 Winter 2010 GDP.’ 5 The loss of 5% of GDP via shrinking manufacturing under NuLab explains much of the growth of the government deficit: less economic activity, fewer taxes collected, higher welfare payments; and so borrowing to make up the gap between government expenditure and income.6

The song changes To my ear there has been a change in the way the City presents its significance. With the possibility of government and/or EU regulation in the air, the story seems increasingly about how much the City contributes to the government’s tax base; and thus – this is the threat – how much income the state would lose if the banksters left the country. As the EU began moving slowly forwards with its proposed financial regulation package, the CEO of Goldman Sachs warned: 'Operations can be moved globally and capital can be accessed globally.'7 The Telegraph commented: ‘His warnings raised fears that Goldman Sachs, which employs 5,500 staff in London and pays more than £2.5bn to the UK exchequer, could scale back its British operations.’

5 Philip Aldrick, ‘Lord Turner puts in focus regulators’ task’, The Daily Telegraph 27 August 2009 and repeated in ‘General Election 2010: a fact checker for the leaders' debate on the economy’, Telegraph 7 October 2010. 6 It is curious that the insurance group RSA (the merger of Sun Alliance and Royal Insurance in 1996) wrote in a recent press release that ‘The City contributes around 2.5% to the UK’s GDP’. . Even among the City’s major players there is little agreement. 7 Harry Wilson and Jamie Dunkley, ‘Banks could leave Europe over regulation, warns Goldman Sachs chief Lloyd Blankfein, Daily Telegraph 30 September 2010.

54 Winter 2010 According to another Telegraph piece a quarter of London- based hedge funds have left for Switzerland, costing the Treasury £500 million in lost tax revenues.8 (But a piece in the Financial Times in October reported that there has been only a very small exodus of bankers.9) But what if – say – half the mobile, international banksters did leave London? How much taxation does the City pay? In December 2009 the City of London corporation issued its annual report on the City, by PricewaterhouseCoopers, Total Tax Contribution of UK Financial Services, which claimed that financial services (undefined) contributed £61.4bn in tax during 2008/09, this being 12.1% of the total UK tax take. One could quibble with the figure: it’s an extrapolation from 38 firms; maybe it exaggerates a little in favour of the people who commissioned the report. But even if we just accept it as true, para 3.6 of the report states: ‘The data provided for FS companies for 2009 shows that the retail and commercial banks..... represented 46.1% of the CT (corporation tax) payments, 61.9% of taxes borne and 59.5% of taxes collected. 9 ‘Retail and commercial banks’ are what you and I think of as banks, high street banks, and the figures tell us that they generated 46.1% of corporation tax paid by the financial services sector. And they are going nowhere. So let’s say something more than half the tax paid by the City is paid by the foot-lose international bankers; and let’s say half of them left for lower taxes and fewer controls elsewhere. That’s (say) 25–30% of total tax paid by the financial sector; and 25–30% of 12.1%, the sector’s total tax contribution in 2008/9, is about 3–4%. Let’s say 5% to include the fact that these are

8 ‘Treasury 'will lose hundreds of millions of pounds' in tax as hedge funds move abroad’, Daily Telegraph, 2 October 2010. 9 Megan Murphy, ‘Banker exodus fails to hit City’, Financial Times, 15 October 2010.

55 Winter 2010 high income earners some of whom pay income tax. 3% of GDP was my guess in Lobster 58 was to the potential loss if half the international banksters left London. This I concluded was significant, but not cripplingly so. And even at 5% of the tax base this remains my view. Could the Revenue not find 5% if they were allowed to go after tax avoiders? The pity is that no-one of any weight within British politics is willing to simply say to the banksters: ’If you don’t like it here, piss off. And if you do we’ll try and ensure that you never do any business in the UK or with the UK government.’

The costs of the City? The endless stream of articles and press releases about the benefits to the UK of the City never mention the costs incurred, starting with the destruction of a large chunk of manufacturing by policies sought by the financial sector. I don’t know how one would go about doing a cost-benefit analysis of the City in the British economy and when I googled ‘the economic cost of the City of London’, and ‘cost-benefit analysis of the City of London’, with and without the inverted commas, I got the replies, ‘No results found’. Is it possible that no-one has ever done an analysis of the cost to the UK economy of being the host body of the City of London?

Greed One of my correspondents, a financial journalist, points out that if you read the transcript of the class action suit currently being pursued against AIG (American International Group),10 whose London operation was one of the cores of the present

10

56 Winter 2010 crisis, you will find among the testimony that: ‘CW (confidential witness) 1 stated that AIGFP (American International Group Financial Products) could have protected itself by hedging its credit default swaps, but did not do so because “their [AIGFP management’s] bonuses were highly dependent on revenue out of that book of business” and if they had incurred the added cost of hedging “it wouldn’t have been much of a business”. This was confirmed by CW4, who stated that “if you had to hedge the business it would not be an economically viable line of business.” According to CW1, the decision not to hedge the CDS [credit default swaps] portfolio was not due to “conservatism” – as defendant Forster stated – but because “they were being greedy”. In short, AIGFP’s top management, including defendants Cassano, Frost and Forster, put the Company at greater risk in order to increase their own compensation.’ If you read the piece by someone with the moniker WhistleblowerIRL and subsquent responses to it, 11 you will learn that part of the Irish economic disaster was fueled in part by Irish-based banks simply ignoring the rules governing the amount of capital they should retain. WhistleblowerIRL writes: ‘I resigned from my position as the risk manager of a foreign bank operating in Dublin in 2007. We breached minimum liquidity requirement by BILLIONS of Euro on a regular basis.’

The American banksters as scapegoats for empire? On The Baseline Scenario, the very good site hosted by former 11 Somewhat confusingly laid out at

57 Winter 2010 IMF chief economist Simon Johnson, this comment from rayllove appeared about the financial crisis.12 ‘What has made our economy, and our culture, what it is, has more to do empire building than it does bankers and financiers. The “banksters” are merely scapegoats, a convenient distraction that is part of an excuse based on a premise of there only being “a few bad apples”. This diverts scrutiny away from the true cause of the economic downturn. The actual cause of the mess though reveals just how jingoistic the US has become, and if revealed, this vast effort to control and dictate the planet would be met with much more resistance than it currently is, both domestically and abroad, especially abroad.’ ‘If a genuine effort were being made to analyze what caused the global downturn that would start with the fact that cutting taxes during 2 wars was made affordable by foreign inflows. The trade surpluses and other dollar holdings that are recycled back through the US, in of course mostly T-bills, is a clever way of minimizing competition from foreign investment. This “recycling” takes vast sums of dollars out of foreign hands and puts this capital in US hands at a very low cost. This allowed the US government to fund its obligations which in turn made the tax cuts doable and that allowed US investors increased capital formation. But it is the minimizing of foreign competition that is critical to consider, and, it is this “exorbitant privilege”, as de Gaulle put it, that is most worthy of scrutiny.’ ‘Bernanke did of course testify before Congress and explain how foreign inflows combined with excessive leverage to provide the source of excessive liquidity. Naturally, Bernanke did not mention the dollar 12

58 Winter 2010 hegemony but if the cause and effect clues are traced back it is somewhat obvious that most of the “financial innovations” would not have been possible without the massive foreign inflows due to their downward influence on interest-rates. So the inflows definitely came before the “innovations”, broadly speaking. But of course this implicates the US Government as opposed to a “few bad apples”. And ultimately, the causal trail leads back to dollar hegemony taken to an irresponsible and misunderstood extreme...... ’ ‘US economic policy and the vast effort dedicated to empire building, maintenance, and protection, have become so intertwined that they are one and the same. Yet, somehow we settle for the “it was just a few bad apples” diversion. Then it follows that when those who are the most culpable, (government officials, [military included here]), do not push to prosecute those who are mostly just sullied scapegoats, (bankers, financiers), we are left to wonder why? But we are simply being duped again, and those who can provide intellectual support for the diversion, they will be rewarded again. They will be our most respected writers and journalists, professors, public officials, economists, and etc. And so goes the duping.’ (Emphases added.) This is a useful reminder not to just concentrate on the bankers. Yes, you only get currency hegemony when you have military hegemony; the dollar follows the fleet. But are the bankers and financiers just ‘sullied scapegoats’? Do you think that’s how these masters of the universe see themselves?

UK subprime The really important moves that are happening are hard to keep track of, as well as being intrinsically difficult for an

59 Winter 2010 outsider to understand. The re-regulation of the banksters – if there is to be some – is the critical issue. So we ought to be reading things like the response from the Council of Mortgage Lenders (CML) to the Financial Service Authority’s consultation paper on new regulations.13 But who has the time? It would take days to digest this properly but I noticed two things as I skimmed it in about ten minutes. You and I might think that lending money on the basis of nothing more than what the applicant says he or she earns and owns – so-called self-certification; a.k.a. liars loans – is the quintessence of irresponsible lending. Not so the CLM.

‘We recognise that self-certification is a higher risk product, that it has been abused in the past, and is not a mass market product. We warn against banning self- certification without a clear understanding of how borrowers with complex incomes and the self-employed would not be excluded from the market. Dontcha just love it? Self-certification was abused (so not the fault of the ‘product’); and let’s not forget those poor self- employed people who have no means of demonstrating what they earn! (How did the self-employed ever manage before?) Secondly, an analysis done for the the CLM and included in their response, concludes that if the proposed new tougher lending policies were introduced, ‘19% of current borrowers, or 2.2 million individuals would not be able to borrow at all and a further 30% (3.4 million) would see reduced borrowing.’ By the proposed new standards a fifth of the current mortgages should not have been given; so there’s the size of the UK’s subprime problem – and one of the reasons we are going to have low interest rates for a long time, with or 13 Response by the Council of Mortgage Lenders to ‘Mortgage Market Review: Responsible Lending 15 November 2010 at www.cml.org.uk/cml/home

60 Winter 2010 without (more likely with) inflation.

61 Winter 2010 Lobster 60

Well, how did we get here?

Robin Ramsay

Introduction

That I do this was suggested by Dan Hind and he made a number of useful comments on this text, some additions to it and suggested the title. Essentially I took parts of my 1999 Prawn Cocktail Party, pruned them and topped and tailed them, with a new intro and conclusion. Here is an example of how being on-line changes things: were Lobster still a hard copy magazine I would never have thought it worth devoting ten pages of it to this. On-line, however, where space is not a major consideration, it looks useful to have this material available to anyone who wants it.

Where Are We Exactly? The banks have ripped us off, screwed the economy, and taken billions in the taxpayers’ name. They are not lending to the productive sector of the economy, they are still paying themselves huge bonuses, and there is barely a flicker of political protest. None of the three major parties are even

62 Winter 2010 thinking of doing anything serious to restrain or reform them. (And the same is true in the United States: the Obama administration’s plans for the financial sector will not inhibit the global gambling.1) It’s not that the banks are too big to fail, to quote the title of one of the books about the events of 2007/8: they have already failed. Rather, they are perceived in this country to be too big to tackle. (In America they have simply bought the politicians.) This essay tries to explain how we got here. By which I don’t mean the recent events leading up to the crash of 2008 – these are have been discussed in dozens of books. Instead I want to set out the older and specifically British back story, both economic and political. The crash of 2008 did not appear out of the blue. Yes, some of the key factors, notably the use of computers in the global gambling, are relatively recent. But many of the building blocks were in place long before the Internet enabled the global casino we now live in. The story in outline is simple: we got here because we removed the controls placed on the financial sector. For sixty years the British banks struggled to escape the constraints imposed on them by the rest of society. And as they overcame each obstacle they proceeded to create and lend money on an ever larger scale. They lent money against property for the most part and left British industry to look after itself as best it could. The bankers in charge did this to make themselves rich. That’s all there is to it. What follows is a very short account of how this happened. And almost no economics knowledge is required to understand it.

The City, 1945-70 Up to the mid 1980s the financial sector might have been described with reasonable accuracy as a nexus of interests

1 See, for example, Liam Halligan, ‘Obama signs a bill that lets banks have US over a barrel once more’, Daily Telegraph, 28 July 2010.

63 Winter 2010 consisting of the Corporation of the City of London, the major banking and investment institutions, including the pension funds, the so-called merchant banks, and elements in the British state, including the Bank of England and the Foreign and Commonwealth Office. This post-imperial network mutated after the so-called ‘big bang’ of 1986, when American and Europeans bought up the British merchant banks and vastly expanded their operations away from the eyes of national regulators.2 Since then London has hosted an almost unregulated, offshore centre for the world’s financial institutions. None of the terms currently in use is a satisfactory shorthand for this complex mixture, but in this essay I will refer mostly to ‘the City’, meaning the financial sector, and the overseas lobby 3 – that is, those whose main preoccupation is with investment opportunities outside the UK. For the domestic British economy, it matters little in which part of the globe ‘British’ investment is made or where the foreign banks in London have their head offices; what matters is that these interests are not in the UK. And what is good for the overseas lobby economy is often not good for, indeed is often antithetical to, the interests of the domestic economy. Before the growth of London as the world’s favourite barely regulated financial centre, the domestic-overseas conflict was simple to understand and widely discussed. On one side were those businesses and people whose welfare depended on the strength of the British economy. On the other were those who sought opportunities to invest abroad. Between the Second World War and 1980 successive governments tried to balance the demands of the overseas lobby with the interests of the domestic economy and the City

2 For a very brief account google . 3 The term was first used in Roger Opie’s ‘The Making of Economic Policy’ in Hugh Thomas (ed.) Crisis in the Civil Service (London: Anthony Blond, 1968).

64 Winter 2010 was, to some extent, kept under control. Britain’s decline from 10th in the OECD ‘league tables’ of economic performance to its present 19th began in 1980, the year that the Conservative Government scrapped the remaining controls on overseas investment of British-generated wealth.4 Although this issue no longer makes it onto the main agendum of this society, the conflict between the interests of the domestic economy and the overseas lobby is one of the major themes in British economic politics in the 20th century. From the rise of Tariff Reform League before the First World War, through the attempts by its domestic manufacturing- based successors, Patrick Hannon and the British Commonwealth Union, to create an ‘industrial group’ of MPs in the House of Commons in the 1920s, to the struggle over the reimposition of the gold standard in 1925 at too high a value for the pound, the conflict expressed the dominance of the interests of the overseas sector over the domestic, largely manufacturing economy. In the 1930s economic crisis a kind of compromise was reached between domestic and overseas sectors: the overseas sector accepted some controls and was largely confined to the trading bloc of the Commonwealth, the so- called sterling area. During the Second World War the state controlled everything: capital movements, production and trade. Of necessity a version of the producers’ alliance sought by some sections of pre-war labour, capital and state, was formed. Co- operation rather than conflict was the model chosen for total war, a lesson not lost on the wartime generation of politicians and labour leaders. The de facto ‘producers’ alliance’ began to weaken after the fall of the Labour government in 1951; the controls on capital were slowly loosened.

4 OECD figures in the Guardian 15 July 1996.

65 Winter 2010 Operation Robot The overseas lobby made its first serious attempt to break free of these state controls a year after the Conservatives returned to government. A group of Treasury and Bank of England officials, with the support of R. A. (Rab) Butler, the Chancellor of the Exchequer, tried to con the Conservative government into making ‘a dash for freedom’: float the pound, remove the controls on access to sterling and put the pound – and the City of London – back as a player on the world financial stage. In its aims and in the methods used to try and implement it, Robot, as it was called, was the prototype for later attempts to free the overseas lobby from the constraints of civil society. In the infantile jargon of the British political system, it was an attempt to ‘bounce’ the proposals through Cabinet, having already primed prime minister Churchill (who, like many other prime ministers, knew little about economics).5 But after an intense struggle, described in detail by one ofthe participants, Donald Macdougall, the Robot proposals were rejected. Harold Macmillan, for example, called the proposals ‘a bankers’ ramp’. Undeterred, the same group tried to ‘bounce’ a slightly amended set of proposals through the Cabinet some months later and were again resisted.6 Robot was startling. It proposed that sterling leave the post-war international system of fixed exchange rates and float. This would have alienated not only the United States, but also the countries of Western Europe who were involved with the UK in a payments system. And the ‘sterling balances’ – money owed to foreigners held in London – would be blocked. What is striking now is that Robot’s authors acknowledged that their proposals would lead to domestic instability, higher interest rates and increased unemployment

5 Donald Macdougall, Don and Mandarin: Memoirs of an Economist (London: John Murray, 1987) pp. 87-9. Churchill had been briefed about the plan by the Bank of England. 6 Ibid. p. 102-3.

66 Winter 2010 at home. One of its opponents in Cabinet, Lord Cherwell, the Paymaster General, wrote to Churchill that, if implemented, Robot would keep the Conservatives out of office ‘for a generation.’ 7 In his study of the Treasury, Henry Roseveare, former professor of history at King's College, London, commented on ‘Robot’ that: ‘Parallels with 1925 [the return to the gold standard] are not too far-fetched. Here, it seems, was the same ruthless impatience on the part of the financial authorities to submit the British economy to the automatic disciplines of international monetary pressures.’ 8 After the failure to con the cabinet with Operation Robot, attempts to restore the City to its pre-war primacy were undertaken piecemeal and with caution, especially after Harold Macmillan became prime minister; but some of the old system was reintroduced – centrally the management of the domestic economy chiefly by using interest rates.9 The results were as predicted by Robot’s authors: a return to pre-war experience of domestic expansions and contractions, as speculation against the pound led the Conservative government of the 1950s to repeatedly raise interest rates and create unemployment, thus giving a higher return to the holders of sterling (and improving the balance of payments figures by reducing domestic consumption: the poor consume less). Economic historians Newton and Porter note: ‘With the wartime and post-war control system 7 Scott Newton, Operation “Robot” and the Political Economy of Sterling Convertability, 1951-52: EU Working Paper no 86/256, (Florence: European University Institute, 1986) p. 31. 8 Henry Roseveare, The Treasury (London: Allen and Unwin, 1966) p. 327 9 This period is described in Scott Newton and Dilwyn Porter, Modernisation Frustrated: the Politics of Industrial Decline in Britain since 1900 (London: Unwin Hyman, 1988) pp. 126-30.

67 Winter 2010 dismantled, the only way the government could prevent a large movement out of sterling was by making Britain a thoroughly attractive place for the owners of capital.’10 The cycle of speculation against the pound, followed by higher interest rates and higher domestic unemployment, which became derided as ‘stop-go’, reached its first climax in 1957 when interest rates were pushed up to the then extraordinary (for peace time) level of 7%. Samuel Brittan commented: ‘.... he [Chancellor Thorneycroft] was proclaiming....that production and employment would be held back whenever currency speculators decided to gamble against the pound.’ 11 Chancellor Thorneycroft, with two of his Treasury junior ministers, Enoch Powell and Nigel Birch, resigned in January 1958 because the Cabinet would not support their demand for larger cuts in public spending. Former Treasury economist Donald Macdougall noted that Thorneycroft ‘felt his only consistent supporter near the top of the [Treasury] hierarchy was Sir Leslie Rowan, who was in charge of external finance.’ 12 Rowan was one of those who had tried to ‘bounce’ Robot through the Cabinet six years earlier. Starved of the investment which continued to go abroad, and repeatedly attacked by high interest rates and deflation – ‘stop-go’ – the British domestic economy was perceived to be not performing as well as its competitors and a long series of diagnoses of British economic failure were published in the late fifties and sixties, contributing to the climate which helped elect the Wilson government in 1964.13 A feature of this

10 Ibid. p. 130 11 Samuel Brittan, Steering the Economy (Harmondsworth: Penguin, 1971). p. 130 12 MacDougall, Don and Mandarin, (see note 5) p. 96 13 For example the Penguin Specials British Economic Policy since the War by Andrew Schonfield (1958), Michael Shanks’ The Stagnant Society (1961), and Rex Malik’s What’s Wrong with British Industry? (1964).

68 Winter 2010 debate was that, unlike today, there was some discussion of whether or not British capital should be allowed to go abroad: capital exports were seen to be linked with Britain’s relative decline.14 But by 1971 Susan Strange noted that ‘none of the three main political parties in Britain has ever engaged in recent years in a serious debate on the ends or means of policy towards overseas investment’. This she attributed to ‘a hidden bias in the political, economic and indeed social system, towards overseas investment’. 15 In the 1950s and 60s the British state clung to the pretensions of world power status, with all that entailed by way of overseas capital investment and expenditure on diplomatic, military and intelligence activities. The ‘bias’ in favour of the overseas lobby detected by Strange wasn’t so much hidden as so taken for granted as to be invisible. In the late fifties and early sixties the Conservatives began to think about ways of getting more growth out of the economy without impeding the overseas lobby. Economic planning, an idea largely imported from France, which was perceived to have outperformed the UK, began to be considered; but the framework had barely been put in place before the ‘dash for growth’ attempted by Conservative chancellor Reginald Maudling in 1962/3 resulted in too many imports being sucked into the economy, producing the large (by the standards of the time) balance of payments deficit inherited by the Wilson Government in 1964. The Wilson story is well known and only needs the slightest of sketches here. The ambitious plans to side-step the Treasury’s dominance of economic policy by the creation of Department of Economic Affairs (DEA) and the Ministry of Technology (MinTech) were frustrated because Wilson took

14 For example in Schonfield’s 1958 British Economic Policy since the War. 15 Susan Strange, Sterling and British Policy (Oxford University Press, 1971) pp. 147 and 150

69 Winter 2010 the political decision that Labour could not (politically) afford to be responsible for the second devaluation of the pound since the war. Wilson’s desire to recreate the ‘producers’ alliance’ of 1941-51 failed while, backed by the Americans, he borrowed and tried to fiddle his way out of the recurring balance of payments deficit, while keeping sterling at its fixed rate, and trying to maintain domestic consumption in order not to provoke unmanageable hostility from his party, the unions and the electorate. In 1966, after Wilson faced down the governor of the Bank of England’s presentation of the overseas lobby’s request to put up interest rates and cut spending at home, the lobby began machinating, with Daily Mirror publisher Cecil King, then on the ‘Court’ of the Bank of England, as the focal point. This reached a climax – or anticlimax – in King’s attempt to persuade Lord Mountbatten to front some sort of ‘emergency government’. Though the origins of King’s animus against Wilson are obscure, King, like his banker friends, wanted Wilson to cut back on domestic expenditure to ‘defend the value of the pound’ – the traditional rationale for sacrificing the domestic economy in the interests of the overseas lobby. One of King’s allies in this was Sir George Bolton of the Bank of England who, as director in charge of overseas finance there, had been one of the architects of Operation Robot in 1952. Wilson was finally forced to devalue the pound in 1967 and from then on the Labour Government pursued policies of financial orthodoxy: tight credit and cuts in public spending were the order of the day. It was in this period, as Chancellor of the Exchequer, that Roy Jenkins acquired the reputation for being ‘sound’ – i.e. doing what the overseas lobby wanted. In a sense, the Wilson-Jenkins austerity years paid off: by 1970 the balance of payments was in surplus. But they paid the price for domestic cutbacks, rising unemployment and the disillusionment of their political supporters: they lost the

70 Winter 2010 election in 1970.

The Rise of the City in the 1970s

Led by Edward Heath, the Conservatives returned in 1970. Heath had one overriding aim: British entry into the EEC.16 Although he had studied economics at Oxford as part of his degree, events would show that he had little understanding of the British economy. In the first year and a half of his government he appeared to believe that the best way to prepare the British economy for EEC entry was a dose of competition and freedom – the traditional Tory Party ideas of getting the government off the backs of the producers, reducing taxation and so forth. In his innocence Heath seems to have believed that British capital was merely waiting for their cue from central government, and would rush to invest in the British economy. But they didn’t and Heath took to berating those he thought should be investing. Head of the Confederation of British Industry (CBI), Sir Campbell Adamson, said: ‘I couldn’t count on the fingers of both hands the number of times that Mr Heath told us that everything had been put right that the government could put right, and still industry didn’t invest enough.’17 And so ‘two years as Prime Minister had quickly disillusioned him as to the energy and even the patriotism of British

16 ‘The centrality of Europe to the administration’s agenda was reflected in the establishment of a European Secretariat in the Cabinet Office.’ Stuart Ball and Anthony Seldon, The Heath Government 1970-74 (London: Longman, 1996) p. 63. 17 Phillip Whitehead, The Writing on the Wall: Britain in the Seventies (London: Michael Joseph, 1985) p. 81. Similar anecdotal evidence is in John Campbell, Edward Heath (London: Cape, 1993) p. 526.

71 Winter 2010 industrialists, who he felt had let him down.’ 18 Heath concluded that, ‘the government had no choice but to intervene directly to promote rapid growth – whatever ministers might have said previously about government getting off industry’s back.’ 19 The economist and Treasury official at the time, Donald Macdougall – the Macdougall who opposed Robot – witnessed this change of tack, Heath’s notorious ‘U-turn’, taking place. ‘Then there was a sudden change in November 1972....Ted started by asking William [Armstrong] ... what he thought. He said that, coming down in the car, he had been brooding over the situation and thought we should think big, and try to build up our industry onto the Japanese scale. This would mean more public spending. We should ask companies what they needed in the way of financial and other help, and give it to them. To my surprise Ted warmed to this and said, “Fine, and of course we must give to only to the good firms, not the bad ones ...” This was the occasion when Heath was converted – or at least first announced his conversion in my hearing – from a “hands off industry” policy to one of selective intervention; and also to a major reflationary policy....’20 The ‘brooding in the car’ story was a fiction. Armstrong had been chairing a secret Whitehall economics committee, created by Heath, that had been in existence for a year.21 The committee has been set up to devise a way of creating economic growth prior to EEC membership, if private

18 Ibid. p. 452 19 Ibid. p. 442 20 Donald Macdougall, Don and Mandarin: Memoirs of an Economist (London: John Murray, 1987) p. 188. 21 Senior civil servant, Leo Pliatzky, later said of this committee: ‘The concept was that we must strengthen our industrial capacity to as to take advantage of membership of the Common Market.’ Whitehead, Writing on the Wall (see note 17), p. 8.

72 Winter 2010 enterprise didn’t deliver the goods. And it really was a secret committee. Even the Chief Secretary to the Treasury, Patrick Jenkin, was unaware of the committee’s existence.22 In the scale of its ambitions and the secrecy with which it functioned, this secret committee ‘was an exercise of prime ministerial power comparable to Neville Chamberlain’s conduct of foreign policy in 1937-9 or Eden’s handling of the Suez crisis.’ 23 Although he never explicitly said this, Heath wanted to convert Britain into a European-style social democracy, similar to that sought by the Labour government he had succeeded. ‘Heath had been very impressed, when visiting Germany, by Willy Brandt’s regular round-table consultations with the unions and the German system of co-partnership; his mind began moving towards establishing a similar relationship in Britain by which the unions should be given an acknowledged role in the running of the economy.’ 24 Heath also wanted the British bankers to become more like their German counterparts, taking direct stakes in British manufacturing. In his diary, Cecil King reports in April 1973 on having lunch with Sir George Bolton, like King a member of the ‘Court’ of the Bank of England. Bolton – who had been a member of the group which tried to foist Operation Robot onto the government in 1952 – told him: ‘Recently Ted addressed a party of bankers at No. 10. Tuke, Chairman-designate of Barclays Bank, told him Ted had lambasted them for not investing more in British

22 Ball and Seldon, The Heath Government (see note 1) p. 40. ‘The free-marketeers among the ministers at the Department of Trade and Industry knew nothing about it [the committee] despite the detailed Industry Bill which was to emerge.’ – Peter Hennessy, Whitehall (London: Secker and Warburg, 1989) p. 239. 23 Campbell, Edward Heath, (see note 17) p. 447. 24 Ibid. p. 444.

73 Winter 2010 industry. This went down very badly.’ 25 Heath’s biographer tells us: ‘During 1972 and 1973 Heath.....used to lecture the banks on their national responsibility, urging them to invest directly in industry like German banks.....’26 (Emphasis added.) Reading these accounts now, Heath seems astonishingly naive, apparently believing that British capital and the labour movement would simply abandon their previous positions and perceived self-interest and throw in with the prime minister on his great venture to transform Britain. But British capital was not impressed by these plans and one section of it in particular, the City of London, which Heath seems to have largely ignored, had other ideas.

Wheelbarrow days 27 The City had been growing in another direction with the development of London as an offshore base for American money avoiding US taxes.28 Cecil King, in communication with the UK overseas lobby, both as Britain’s then major

25 Cecil King, The Cecil King Diary 1970-74 (London: Cape, 1975) p. 278 26 Campbell, Edward Heath (see note 17) p. 526. 27 ‘Just take your wheelbarrow to the banks and cart away the cash’ – Edward Du Cann MP on the credit explosion after the introduction of the Bank of England’s Competition and Credit Control proposals (discussed in this chapter) in 1971. Du Cann was then chair of the merchant bank Keysers. Edward DuCann, Two Lives (Upton on Severn: Images Publishing, 1995) p. 131. 28 This began during JFK’s term in office. It is not widely understood that JFK was more or less a Rooseveltian Democrat who sought – rather like Harold Wilson – to rebuild the US manufacturing economy and rein in the US economy’s tendency to invest abroad. He was hated by Wall Street, not for what he did – none of his radical proposals had got through Congress by the time of his assassination – but for what he intended. The only decent account of this appears to be Donald Gibson’s Battling Wall Street (New York: Sheridan Square, 1994).

74 Winter 2010 newspaper publisher and as a member of ‘the Court’ of the Bank of England, first mentions this in his diaries in July 1971. With banker and fellow member of the Bank of England Court, Gordon Richardson, he discussed ‘the success of London as a financial centre in recent years. [Richardson] said it was remarkable and had drawn to London very numerous branches of foreign banks.....’29 Charles Gordon, part of the management of one of the so-called ‘fringe banks’ – finance companies, essentially licensed moneylenders – in London during this period, commented later: ‘The colonial expansion of overseas banks into London in the 1960s and 70s created a near ring-fenced, onshore, unregulated lending activity, which was simply mind- boggling in its enormous size.’ 30 In the midst of this growth in the late 1960s the British domestic clearing banks, the major high street banks, were unhappy. Not only did they have to watch the growth of pension funds, unit trusts and building societies as rivals for domestic saving, the arrival of increasing numbers of foreign banks, and the rise of the so-called secondary or fringe banks, they were also ‘... unpaid agents of the state, bearing a great part of the considerable administrative burden of implementing exchange controls, in the post-war years their lending activities were almost constantly restricted by government, and they were the main agents through which the authorities tried to enforce periodic credit squeezes.’ 31

29 King, Dairy,(see note 25) 2 July 1974. 30 Charles Gordon, The Cedar Story (London: Sinclair-Stevenson, 1993) p. 152. Gordon was then running Cedar Trust, which became one of the first casualties of the secondary banking crisis of 1973/4. 31 Michael Moran, The Politics of Banking (London: Macmillan, 1986) p. 396.

75 Winter 2010 The Bank of England was also under pressure, for much of this new financial activity was beyond its regulation; and, with the Treasury, the Bank set up a joint committee to come up with a solution to these difficulties.32 But the Bank ‘bounced’ the Treasury and produced its own scheme in the autumn of 1970 while the committee was still deliberating, and the Bank’s governor, O’Brien, put the plan to Chancellor Anthony Barber at a dinner in January 1971.33 In what were called the Competition and Credit Control proposals (C&CC hereafter), the Bank proposed that there would be no more physical or administrative controls on credit growth: market forces – i.e. interest rates; i.e. interest rate rises – would control the growth of credit. Another part of the 1952 ‘Robot’ proposals was being introduced. The C&CC proposals were adopted as government policy in September 1971, unnoticed by the major media or the Labour Opposition; and barely noticed by Heath himself.34 Indeed, hardly anyone outside the higher echelons of the City seems to have known what was going on. Edward Du Cann, banker and MP, was at a meeting of the backbench 1922 Committee of the parliamentary Conservative Party at which the C&CC proposals were described: ‘I looked round the room and wondered how many of the MPs present fully comprehended what he was talking about. I doubt whether more than half a dozen had the least idea.’ 35 The proposals were run through the House of Commons in chancellor Barber’s budget speech. The Economist commented 32 A clear account of this is in Margaret Reid, The Secondary Banking Crisis 1973-75 (London: Macmillan, 1982) chapter 3. 33 Ibid. p. 31 34 It is not mentioned by Heath in his 1998 memoir The Course of My Life. John Campbell, Heath’s biographer, mentions C&CC briefly on p. 455 of his Edward Heath. The best discussion of C&CC is in Moran’s The Politics of Banking (see note 31). 35 Du Cann, Two Lives (see note 27), p. 130

76 Winter 2010 that they ‘had not been the subject of a single clause of legislation. Parliament has barely discussed it. It has all been fixed up as a gentleman’s agreement in private conclaves in the City.’ 36 A contemporaneous presentation of C&CC, playing to Heath’s desire to see more direct involvement by the British banks in industry, appeared in The Economist, ‘The Banking Revolution’, which presented the consequences of C&CC as being a move towards: ‘... the German-Japanese system of largely bank- controlled industry.... a situation in which banking would have even greater control over British industry and the economy as a whole – that is, direct control through ownership and participation, rather than the indirect control it has exerted traditionally via government and the state.’ 37 This was pure disinformation. Nothing in the C&CC proposals could honestly produce this interpretation. To the clearing banks the proposals meant ‘the end to [lending] ceilings’, government-imposed quantitative limits on lending.38 As banker Du Cann put it, ‘the brakes were well and truly off.’ 39 It was simply more of the old order being reimposed on the British economy. Under the new system the banks could lend what they liked and, when it was decided that they had lent too much, they would put the interest rates up. A truly wonderful racket! Having persuaded the Tories to reintroduce ‘freedom’ into the banking business, the clearing banks began generating credit, but not lending it to, or investing it in British manufacturing, but to domestic consumers, the property 36 ‘The banking revolution’, The Economist 18 September 1971. 37 Ibid. 38 Moran, The Politics of Banking (see note 31), p. 44 39 Du Cann, Two Lives (see note 27), p. 131

77 Winter 2010 markets and the so-called ‘fringe banks’, which in turn lent it on again, largely into property speculation. Charles Gordon, then with the ‘fringe bank’, Cedar Holdings, described the period: ‘These immediate years after C&CC were wonderful shovelling times. The main thrust of the banks (there were a number of honourable exceptions) was to apply the shovel with gusto not with discretion, lip-service was mouthed to the authorities, consequences were ignored, and pious condemnations were made of those who were found out patently overdoing it. Old-fashioned lending practices were contaminated, most of the lending industry was embroiled – from the newly liberated primary banks to the reeking sewage level of the tertiary lenders.’ 40 According to the creator of Trafalgar House Investments, Nigel Broackes, who dined with Heath in January 1972, just after C&CC had been enacted, Heath said he ‘wanted an investment boom with an abundance of cheap credit’.41 He certainly presided over the making of a boom, though largely of the consumer variety. Personal taxes were cut, and interest on some bank loans, including those for the purchase of homes, second homes and shares, was made offsetable against tax, encouraging ‘the biggest credit binge in British post-war history.’ 42 Heath’s government also tripled the amount borrowed by the state to pay for its activities between 1971/2 and 1972/3. When the balance of payments began to deteriorate as a result of imports being sucked in by the 40 Gordon, The Cedar Story (see note 30), p. 149 41 Reid, The Secondary Banking Crisis (see note 32), p. 71 42 William Keegan, Mrs Thatcher’s Economic Experiment (Harmondsworth: Penguin, 1985) pp. 55 and 6. ‘Between December 1971 and December 1974 the total assets of British banks rose from £36,865 million to £85,204 million – a rise of £48,339 million or 131 percent.’ – Douglas Jay, Sterling: a plea for moderation (London: Sidgwick and Jackson, 1985) p. 147.

78 Winter 2010 boom, Heath floated the pound rather than slow things down (another echo of the Robot proposals).43 As late as September 1973, after the OPEC oil price rise, with inflation heading towards 20% a year, Heath told a meeting of the National Economic Development Council: ‘This time I am determined to swim through the whirlpool’.44 Heath’s gamble on a ‘dash for growth’ to kick-start Britain out of its stagnation failed for several reasons. Heath simply did not understand British capitalism. Given the right expansionist conditions, Heath believed, British banks and investors would pump funds into the domestic manufacturing economy. But they didn’t. Why? The controllers of British capital had a duty – a legal duty – only to maximise the profits of their companies. Patriotic appeals from a prime minister, even a Tory one, were of little interest. Absent an activist state capable, on the French and German model, of strategic planning, the private sector didn’t know how to invest while minimising risk. On the other hand, the relatively risk-free business of blowing financial bubbles beckoned. (Capitalists hate risk as much as they like being told that they are risk- takers.) There was also the fact that after twenty years of ‘stop-go’ in the British domestic economy, British capital was reluctant to act on the ‘go’ signals, (correctly) fearing another ‘stop’ round the corner. Heath was also trying to go in contradictory directions. On the one hand he was trying to take the unions into a German-style tripartite management of the domestic economy; on the other – as they saw it – attacking them with his industrial relations legislation. On the one hand seeking an investment boom in Britain via cheap credit; on the other allowing the introduction of a system which explicitly promised

43 Nixon had already floated the dollar. 44 Geoffrey Howe quoted in Michael Kandiah (ed.), ‘The Heath Government: a witness seminar’, in Contemporary Record, vol. 9, no.1, 1995, p. 199.

79 Winter 2010 increases in interest rates (and thus domestic contraction) to ‘control’ the supply of credit. This last contradiction was swiftly resolved in favour of expansion. Heath may have allowed the C&CC changes – apparently without understanding what they implied – but when push came to shove, politics (and prime ministerial power) prevailed over liberal orthodoxy; and Heath refused to allow the rates to rise as far and as fast as the Bank of England wanted.45 The result was the worst of all possible worlds: banks printing money day and night with low interest rates. A former senior Bank of England official said, off the record: ‘We little knew that Ted Heath would lose his head and bolt for wildly exorbitant expansion just as C and CC started. The system was meant to rely on interest rate movements and we were going to be allowed to use that instrument as required. Against the background of enormous expansion of the economy with the banks, just released from their shackles, bolting for business, the end result was very different from what we had hoped.’ 46 But blaming Heath fails to conceal the Bank of England’s culpability. In their entertaining account of this, Can You Trust Your Bank?, Heller and Willatt noted: ‘What had been created, under the eyes of the Bank of England, was a simulacrum of the lethally unbalanced Wall Street of the late and roaring twenties.....between mid 1970 and early 1974 M3 (currency, current bank accounts and deposit accounts) rose by the previously unthinkable amount of 270 per cent .... As for the property boom, which would have been impossible without the heavy financing from the banking system,

45 The fact that Heath refused to allow the C&CC proposals to be operated as intended is good evidence that he did not understand them in the first place. 46 Reid, The Secondary Banking Crisis (see note 32), p. 76

80 Winter 2010 the Bank’s sole reaction was a mild directive to the banks in the autumn of 1972, requesting them to make credit less freely available to property companies and for non-industrial purposes.’47 Massive expansion of debt and Bank of England regulatory policy still being done by ‘a word from the governor’? Which had no effect: the pigs were in the trough by then. (In the current banker boom and bust, a Bank of England subcommittee did report on the dangers of the giant globalised debt pyramid in 2006; but still thought things might be OK...... with care.... and nothing was done.48) Heath realised it had all gone wrong and reversed some of the changes over which he had presided. For a period, building societies were subsidised to try to prevent the interest rates paid by owner-occupiers from rising above 10%. Incomes policy was reintroduced. At the end of 1973, with the energy crisis in full swing, the balance of payments deep in deficit and inflation rising, government spending was cut, surtax was increased, hire purchase controls were reintroduced and the 1971 C&CC reforms were suspended. After ‘go’ we returned to ‘stop’. Heath had failed to swim through the whirlpool. But it was too late; and for the ‘fringe’ banking and property sectors, the tightening of credit was too much.49 The edifice of speculation based on rising property and land prices, began to topple and the impending collapse of some of the ‘fringe’ banks led to the Bank of England’s then secret launching of ‘the lifeboat’ bearing (suitably expensive) financial 47 Robert Heller and Norris Willatt, Can You Trust Your Bank (London: Weidenfeld and Nicolson, 1977) p. 102. 48 Edmund Conway, ‘City faces meltdown if debt crisis hits', Daily Telegraph, 12 July 2006 49 This view is expressed very strongly by Edward Du Cann, then Chairman of the banker Keyser Ullman, in his account of the crisis in his memoir, Two Lives (see note 27)

81 Winter 2010 assistance to them. The bankers had been given their heads and did what they always do: enriched themselves and their shareholders by expanding lending – and fuck the social consequences. It is one thing to con the prime minister into supporting legislation but another to get him to accept the consequences when it dawns on him what they are. The Bank of England managed the first but failed the second.

Free at last!

In 1974 Heath’s government was replaced by that of Harold Wilson, who resigned in 1976, handing over to James Callaghan. The Labour government of 1974 inherited inflation at 20% and rising, and set about trying to bring it down without causing too much unemployment. In the conventional view of this period, the central event was the visit by a deputation from the IMF in 1976, after the government requested a large loan with which to defend the value of sterling against speculation. While the IMF visit was traumatic for the wider Labour movement, signalling cuts in social programmes, was used by the Labour left to attack the Callaghan government, and was portrayed by the government’s political opponents on the right as an event of national humiliation, in retrospect it was of little consequence. Half the loan was never used and the rest was paid back without incident. With hindsight, rather more significant, was a decision taken about the North Sea oil revenues which were on the political horizon. Reducing inflation and deciding what to do with the coming oil money were two big items on the economic agendum in late 1970s Britain. Let’s take oil first. In the Labour Cabinet Tony Benn wanted to create an oil fund –

82 Winter 2010 what would now be called a sovereign wealth fund – to be used for industrial investment. (This is what Norway did with its oil money; their oil fund is now worth roughly $450 billion.) But after a debate in Cabinet, the fund idea was rejected. Benn noted in his diary: ‘So that is the end of the saga of oil revenues. They are now a part of general public expenditure.....we are going to give it away in tax cuts.’50 In the event Labour lost the 1979 election and the oil question fell into the Conservative Party’s lap. The Tories in opposition, as well as the financial nexus - the City, Treasury and Bank of England - had been discussing the coming oil wealth in 1977-8 and had concluded that manufacturing would decline when North Sea oil came on-stream. The argument went thus: 1. As Britain produced oil it would need to import less and less oil. Assuming the British economy continued exporting as much as it had before oil, the result would be produce a growing trade surplus. 2. Such a surplus would push up the value of the pound. 3. A rising pound would make British exports more expensive, imports cheaper and British manufacturing would decline. The overseas lobby offered as the solution to this problem the following: if exchange controls – i.e. government- imposed restrictions on the movement of capital out of the UK – were abolished with more capital leaving the UK, this old wealth going out would counterbalance the new coming in from the North Sea. Thus there would be no trade surplus and

50 Tony Benn, Conflicts of Interest: Diaries 1977-80 (London: Hutchinson, 1990) pp. 280/1. Edward Pearce’s biography of Healey, Denis Healey (London: Little Brown, 2002) p. 508, attributes the decision to Healey supported by Treasury ministers Lever and Barnett; with the kicker that the fund notion was rejected in part simply because it was supported by Tony Benn who had become a pariah within the cabinet. Healey doesn’t mention the event in his memoir.

83 Winter 2010 no rising pound. Complete freedom to move money would solve the problem. Complete freedom to move money – what the City had always sought but never really expected to get. In 1977 this had been adopted by the Treasury and Bank of England, and was the message coming from financial journalists and the Conservative Party’s spokesmen.51 Thus, when in 1977, with the IMF stamp of approval on the economy and the imminent prospect of the pound being a petrocurrency, the international value of the pound began to rise sharply, the Treasury tried to persuade the Labour government to scrap exchange controls. This Labour refused to do; but they were abolished by the Thatcher government in 1980. However, despite a rush of capital out of the UK, the value of the pound continued to rise, making British exports uncompetitive and eventually destroying nearly a quarter of British manufacturing industry. Why did this theory fail (assuming it would have worked)? It ran into another theory held by the Thatcher government: that you reduce inflation by controlling the money supply; and you control the money supply by raising interest rates. (In reality: rising interest rates cause a recession, which reduces spending in the economy and so price rises are reduced and eventually eliminated.) This should now sound familiar. When the idea of capital exports preventing a rising pound was adopted in the late 1970s, it had not occurred to the discussants that the government would also raise interest rates. The result was that on top of the rise in the pound’s

51 The general tenor of the oil debate can be seen at a glance in The Times Index for 1977, especially p. 375, under Economic Situation and Policy. For the most influential financial commentator of the period, Samuel Brittan, scrapping exchange controls was the ‘only serious way of preventing North Sea oil from imposing a contraction in manufacturing.. ...’ – The Financial Times, 3 July 1980. Brittan’s piece was headed ‘Deindustrialisation is good for the UK’.

84 Winter 2010 value due to its status as a burgeoning ‘petrocurrency’, anti- inflationary interest rate rises made the pound even more attractive to foreign investors. Leo Pliatzky, who had been a senior Treasury official in the previous Labour administration, commented on this episode: ‘It was a strange period to look back on. There appeared to be a great gulf between attitudes in much of the City and in industry throughout the country. In some quarters there was a Khomenei-like fanaticism about, a reluctance to see the connection between high interest rates and a crippling exchange rate. North Sea oil had made sterling a petrocurrency, it was alleged; the days of manufacturing were over.’ 52 Fronted by Mrs Thatcher, who knew little about economics, the City was in charge. Unconcerned by the mess created by partial deregulation of the financial sector during Heath’s term, and in addition to abolishing exchange controls, between 1979 and 1982 the Thatcher government: * ended some restrictions on building society lending – starting them off on the road to becoming banks – and thus beginning the great credit explosion of the later 1980s; * abolished the restrictions on bank lending which had been introduced by the previous Labour government; * abolished the Reserve Assets Ratio which made the banks hold at least 12.5% of their deposits in some specified range of liquid assets, thus enabling them to lend more; * abolished hire-purchase restrictions.53 The British bankers had finally shed almost all state restrictions on their activities. As the Thatcher recession deepened, North Sea oil

52 Leo Pliatsky, Getting and Spending (Oxford: Basil Blackwell, 1982) p. 128. 53 These measures are listed by Nigel Lawson in his memoir, The View from No 11 (London: Corgi, 1992) p. 626.

85 Winter 2010 production and revenues from it to the exchequer grew. But having become ‘oil rich’, much of Britain was getting poorer. Leo Pliatzky commented: ‘It is understandable that people are frustrated that more primitive (sic) countries which produce oil have used the revenues from it to finance industrial and social development while in Britain both have been cut back since the North Sea oil came on stream.’ (Emphasis added.)54 Where had the oil riches gone? The Guardian's Victor Keegan wrote in 1983: ‘Most of it, in the supreme irony of economic history, has gone to pay out unemployment to those who would not have lost their jobs if we had not discovered [oil] in the first place.’ (Emphasis added.)55 If British economic history since the 1920s shows one thing it is that these ‘ironies’ always benefit the financial and overseas sector and not domestic manufacturing. The result of the ‘dream conditions for London’s financial apparatus in 1980 and 1981’ 56 – high interest rates, a high pound and no restrictions on lending – was the shrinking manufacturing base accompanied by a booming City of London. As the manufacturing was mostly in seats held by the Labour Party, and a section of the Conservative Party, including Mrs Thatcher, believed that Labour (and unions) were in the grip of communists, the rising unemployment was more a suitable punishment for the working class for having the temerity to support Labour than a cause of great concern. In his pre-election budget in 1987 the chancellor of the exchequer, Nigel Lawson cut personal taxes and, after the

54 Leo Pliatzky, The Treasury Under Mrs Thatcher, (Oxford: Basil Blackwell, 1989) p. 194. 55 The Guardian, 16 May 1983. 56 Tom Nairn, The Break-up of Britain (London: Verso, 1981) p. 392.

86 Winter 2010 stock market crash in October that year, kept interest rates low to head off recession, when his own theories said they should rise. Cue the great house price inflation of 1987-90 and what became known as the Lawson boom, fuelled in large part by people borrowing against the rising values of their houses. Which boom, with accompanying inflation, after another Conservative election victory in 1992, was followed by the second big recession since 1979 – again triggered by raising interest rates to reduce inflation. It was a return to stop-go, the familiar sequence. Along the way the City’s commentariat changed the story. It wasn’t that we had to lose manufacturing to make room for oil 57 but that Britain was on a natural evolutionary path towards a post-manufacturing, service economy. It did not matter that Britain was making fewer and fewer products: they would be replaced by ‘financial products’ – a term which came into use in the mid-1980s as the language followed the money. This became the received wisdom within the Treasury. Political journalist Edward Pearce recounts how a ‘Treasury knight’ – i.e. one of the very senior civil servants in the Treasury – said to him of John Major’s period in office (1992- 97): ‘....that though very fond of Mr Major, we worried a little at his anxiety about manufacturers. He wasn’t very happy with the analogies we made about Switzerland, so prosperous entirely from service industries, so it was necessary to let him make friendly things (sic) to the manufacturing people.’ (Emphasis added.)58 Britain as Switzerland? Oil revenues would pay the dole for the shrinking manufacturing sector outside the London travel

57 ‘As the energy sector grows, something has to shrink’ – Hamish MacRae in the The Guardian, 13 October 1981. In this curious universe it is unclear how countries ever get richer, for as one sector grows, another, apparently, has to shrink. 58 The Guardian 8 January 1992.

87 Winter 2010 to work distance, while the City – avatars of our post- industrial destiny – showed us the way.

Uncle Sam’s New Labour

Fifteen years after they first appeared in financial circles, these ideas were adopted by New Labour. Talk of the service economy became talk of the ‘knowledge economy’, a mishmash of the City, computers, film production, rock music and the Internet. There was a supplement about ‘the knowledge economy’ in the New Statesman 27 September 1999. In his contribution James Dyson, the inventor, wrote: ‘...... I’ve had an argument with the governor of the Bank of England about this, who thinks that software is replacing the need to make goods.’(Emphasis added.) In the late 1970s and 1980s the bankers first thought oil would replace manufacturing; then it was the growth of the City of London and the financial services sector; finally the governor of the Bank of England thought it would be computer software. Historically, geographically and institutionally the Labour Party was the party of the domestic economy and the response of its leaders in the early 1980s was to resist all this drift away from manufacturing. The idea that there was a basic conflict between the City – with the South benefiting from it – and industry was quite widely understood in the party. It wasn’t a hard sell: the City was booming but the industrial North, Scotland and Wales were deep in recession induced by the high interest rate, high pound policy. In 1982 the Labour Party’s national executive committee published a report by its Financial Institutions Study Group, The City: A Socialist Approach, which recommended a raft of new legislation to regulate the City more closely. Neil Kinnock, who replaced Michael Foot as leader after the election loss in

88 Winter 2010 1983, was influenced by a version of the City-versus-industry thesis by the Cambridge economist John Eatwell. In 1982, in the depths of the first Thatcher recession, Eatwell had written a TV series which argued that the recovery of the British economy centred on the reconstruction of manufacturing, and that this needed something like the German or French relationship between manufacturing, finance capital and the state: i.e. ending the City’s dominance of British economic policy. These views were reflected in Labour leader Neil Kinnock’s 1986 book Making Our Way. But after the election defeat of 1987 (the third) the Labour leadership abandoned any thought of challenging the economic status quo and began accommodating the perceived power and electoral popularity of a Thatcherised, privatised Britain.59 Tony Blair and Gordon Brown, who had acquired safe Labour seats in the 1983 general election, were part of this shift. By the end of their first parliament in 1987 both had been noticed as rising stars and had been given shadow cabinet roles, Brown as number two to the late John Smith, who was shadowing the Department of Trade and Industry. The US government was also paying attention: in 1985 – only two years after Blair became an MP – an official in US embassy in London described him as ‘one of the brightest and most ambitious of recent Labor intake’;60 and the next year

59 See Eric Shaw The Labour Party Since 1979, (London: Routledge, 1994) pp. 46-50, for an account of the policy shifts in this period. The one member of the Labour leadership who really understood this subject, Bryan Gould, eventually resigned his seat and went to back to New Zealand in disgust. A recent essay by Gould is in this issue of Lobster. 60 Giles Scott-Smith, ‘Searching for the Successor Generation: Public Diplomacy, the US Embassy’s International Visitor Program and the Labour Party in the 1980s’, in British Journal of Politics and International Relations, 2006, Vol. 8, pp. 214–23. Using declassified US files, Scott- Smith shows that virtually the entire cast of ‘New Labour’ went on US government-sponsored trips to America in the 1980s and 90s.

89 Winter 2010 Blair took the first of his freebie trips to America. Brown and Blair were ‘modernisers’ and that had a specific meaning in this period: accept the power of the City and American global hegemony and give up all this nonsense about economic independence (let alone socialism).61 John Smith, another ‘moderniser’ in the Labour leadership, was on the steering committee of the Bilderberg group, one of the key elite forums promoting globalisation, from 1989 to 1992.62 In June 1991 Smith took his then understudy, Gordon Brown, to the Bilderberg meeting at Baden Baden. There Brown met the then obscure governor of Arkansas, Bill Clinton. Blair attended the 1993 Bilderberg Conference in Athens. After the 1993 American presidential election Brown and Blair went out to America to meet the new Democratic government. In Washington Brown and Blair met Clinton’s people; and also Larry Summers, a Harvard academic who had been with the World Bank, Robert Reich, Clinton’s newly- appointed Labor Secretary and Alan Greenspan, chair of the Federal Reserve. These meetings were arranged by a young Financial Times journalist called Ed Balls who had studied under Summers at Harvard. Like other Labour personnel, including Yvette Cooper, whom Balls later married, and David Miliband, head of Blair’s policy unit, Balls had spent a year in America as a Kennedy Scholar.63 By 1994 the long-delayed implementation of the 1952 Robot plan – the British economy open to the world and controlled solely by interest rates – had caused the second

61 Neil Lawson, former aide to Gordon Brown, said of this period: ‘Labour got to the stage in the early 1990s where we’d give up virtually anything to get elected.’ Quoted in Francis Wheen, ‘Social justice - that's so old Labour’ in The Guardian, 7 February 2001. 62 Letter from Maja Banck, Executive Secretary of Bilderberg Meetings, to the author, 13 April 1999. 63 New Labour’s wider American links are detailed in Robin Ramsay, ‘Uncle Sam’s New Labour’ at .

90 Winter 2010 major recession since Mrs Thatcher’s election in 1979 and it was likely that the Tories would lose the next general election. There had already been speculation in the media that Tony Blair would succeed John Smith as Labour leader. Three months before John Smith’s death in 1994, the then shadow home secretary Tony Blair went on a trip to Israel at the Israeli government’s expense. Blair was sympathetic to Israel, had shared chambers with the president of the Board of Deputies of British Jews, Eldred Tabachnik,64 and had joined the Labour Friends of Israel on becoming an MP. On Blair’s return from Israel, Gideon Meir, from the Israeli embassy in London, introduced him to Michael Levy, a retired businessman who had become a major fund-raiser for Jewish charities. Levy was ‘dazzled by Blair’s drive and religious commitment’ and the two men became friends.65 A month later the leader of the Labour Party, John Smith, died, and Blair became leader. Michael Levy then set about raising money for his new friend, Tony Blair. The Israeli government had spotted Blair as a very pro- Israeli politician and probable leader of the Labour Party and steered him towards one of the leading Jewish fund-raisers in London. With the Levy-raised money in his ‘blind trust’, Blair achieved financial independence from the trade unions and the Labour Party and could really get down to ‘modernisation’.66 NuLab duly won the 1997 election and the rest is probably familiar. They set about implementing what they had learned about ‘the Washington consensus’ on their trips to

64 See the profile of Michael Levy in the Daily Express 26 June 2000. 65 Geoffrey Alderman, ‘Playing Tennis with Blair’ in The Jewish Quarterly, Autumn 1997. 66 John Lloyd, ‘Labour falls for the Big Gift’ in New Statesman 27 February 1998. A number of reports stated the Levy raised £7 million for Blair’s office. Alastair Campbell, in his diaries of the period, Prelude to Power (2010) p. 156, quoting Levy, puts it at £1.3 million.

91 Winter 2010 America in the early 1990s. The moneymen were given their heads; regulation would be ‘light touch’. Chancellor Brown surrendered the power to set interest rates to a committee under the aegis of the Bank of England. Following his American mentors, Brown believed – I think really did believe – that globalisation, the City’s role in the world economy and the absence of government regulation, was Britain’s future. (Though how this would work for – say – Brown’s constituents in Fife was never explained.) Interest rates and the value of the pound rose. The champagne flowed in the City. Manufacturing continued to shrink.67 British banks had worked to get rid of state supervision from 1945 to Brown‘s final surrender of the control of interest rates in 1997. But the game had changed. By 1997 very little of the City was actually British-owned. London had become the location of choice for corporations and individuals seeking to avoid taxes and regulation in their home jurisdictions. London had become the most important offshore centre in the world – a washing machine for criminal entrepreneurs, politicians, and the big winner in the shell games of globalisation. By 2001 the British and American economies were running huge trade deficits and facing recession. The Americans began stimulating their flagging economy by cutting interest rates. This encouraged house price inflation and private consumption as millions borrowed money against rising house values. Mortgages were offered to almost anyone. Ninja mortgages – no income, no job, no assets – appeared. Nulab followed suit. Cue the enormous expansion of debt on both sides of the Atlantic, bringing great times for the money- movers, followed by the collapse in 2007/8. The governor of 67 ‘Manufacturing accounted for more than 20 per cent of the economy in 1997, when Labour came to power critical of the country having too narrow an industrial base. But by 2007, that share had declined to 12.4 per cent.’ Chris Giles, ‘Manufacturing fades under Labour’, Financial Times, 2 December 2009.

92 Winter 2010 the Bank of England at the time, Eddie George, told the House of Commons Treasury Committee: ‘In the environment of global economic weakness at the beginning of this decade...... external demand was declining and related to that business investment was declining. We only had two alternative ways of sustaining demand and keeping the economy moving forward: one was public spending and the other was consumption..... But we knew that we were having to stimulate consumer spending; we knew we had pushed it up to levels which couldn’t possibly be sustained into the medium and long term. But for the time being, if we had not done that the UK economy would have gone into recession just as had the United States. That pushed up house prices, it increased household debt.’ Like his American counterparts, Eddie George thought he was postponing a recession. Like his American counterparts, George had not grasped that the clever people in the globalised finance world would use this credit expansion to create another, immeasurably enormous pile of debts, derivatives and financial trades on top of it; and that while the world-wide spreading of financial risk was supposed to mean its dilution and diminution, in fact it meant that the entire rickety structure was only as strong as its weakest part. The breaking point was all those mortgages given to people who couldn’t afford them. When the sub-prime loans went bad and repossessions rose, the housing market in America turned down and the whole thing collapsed. It was the same old story: give the bankers freedom and they will lend too much (enriching themselves and their shareholders) and screw things up. The new factor this time was the enormous power of modern computers which enabled them to screw things up on a truly epic scale. As the British economic commentators surveyed the

93 Winter 2010 wreckage of the world economy in 2009, those who had formerly seen financial services as the future of the British economy discovered this was the delusion the likes of Dan Atkinson, Larry Elliott and Will Hutton always said it was. They also discovered that even after 30 years of economic policies hostile to it, manufacturing was still a bigger section of the British economy than the financial sector: roughly, manufacturing is 13% and financial services 7% of the UK’s GDP. Telegraph economics editor Edmund Conway: ‘One dangerous misconception perpetuated by financial lobbyists is that without the City, we are nothing. Financial engineering [sic], they argued, was something Britain was well placed to do, while mechanical engineering could be carried out far more cheaply by the Chinese, or with far greater quality by the Germans. While it is a compelling narrative, and fits nicely with the British propensity for defeatism, it is balderdash.’ 68 That the importance of manufacturing for Britain is now being written about again is a welcome change of tack. But it is terribly late in the day, and thus far neither government nor opposition show any signs of understanding how to rebuild manufacturing or an interest in so doing. This is not surprising. In economic history no country has built, let alone rebuilt, its manufacturing sector in open market conditions. The industrial success stories of the post WW2 era have followed the same pattern: extensive state intervention in the domestic economy, accompanied by protection from the products of other economies and/or the maintenance of an artificially low exchange rate. But none of our major political parties would be willing to contemplate this – not least because doing so 68 Edmund Conway, ‘Shock news – Britain still makes things. Our much-mocked manufacturing sector is stronger than we think’, Daily Telegraph 26 November 2009.

94 Winter 2010 would certainly mean leaving the EU and possibly the World Trade Organisation. So manufacturing may acquire a slightly louder voice in Whitehall but nothing substantial will happen. The present government appears to believe that they are reliving the 1980s and that they can embark on a large programme of cuts in public services and the economists’ warnings about this course of action can be ignored, just as the Thatcher government ignored them in 1981. They also appear to believe that in this climate of cuts and recession the private sector will spring to life, creating hundreds of thousands of jobs, in time for the coalition (if it survives) to present themselves before the next general election as having done a dirty but necessary job. (Let us not forget that these are politicians and getting elected is top of every one of their lists.) But this isn’t the 1980s. Most of the oil in the North Sea has gone, ditto coal-mining, shipbuilding and steel-making. Manufacturing is a third of the size it was then. Cuts in public spending will create private sector cuts, creating more unemployment. This, in turn, will create further demands on the welfare system; and, certainly in the short run, higher public spending. None of this is mysterious; this is economics 101. Why are they doing it? They are in the grip of a theory about the deficit. They have been persuaded that the UK is on the verge of being another Greece, an economy collapsing under its public debt. To prevent this they need to be ‘tough’ on deficit reduction to head off the ‘bond vultures’. They believe that it is in the national interest to engineer a big recession rather than risk a full-blown economics crisis à la grèque. This theory is nonsense. The present ballooning deficit has been caused by a combination of rising unemployment (so falling tax revenues and increased welfare payments to the

95 Winter 2010 unemployed) and lending to the banks – both of which are the result of the financial crisis caused by the banks. Though large by recent British standards, at 68.5% the UK’s public debt as a percentage of GDP in 2009 was lower than France (79.70) German (77.20), Canada (72.30), Belgium, Italy and Japan, among the industrialised countries.69 The historical evidence is also clear that government deficits reduce when the economy is doing well. Economics 101 again: as employment rises, tax revenues increase and welfare payments fall. 70 Meanwhile the domestic banks are rebuilding their reserves with government loans (taxes), increased charges for their services and by the devaluation of their individual depositors’ savings (the interest they are paying on deposits is lower than the rate of inflation). The banks’ customers are helping to pay for the bankers’ mistakes. Normal life is returning to the City (and Wall Street). The bankers have seen off the politicians so far and no significant restraints have been placed on the global casino. When Operation Robot was proposed in 1952 its advocates predicted that it would cause instability – i.e. booms and slumps – and unemployment.71 We’ve had it working since 1980 and they were right: we’re now at the beginning of the third major recession since then. Lord Cherwell, one of

69 According to the CIA’s World Fact Book, quoted in Another version of the same data, a eurostat news release, 22 April 2010, gave government debt ratios as % of GDP in 2009: Italy (115.8%), France (77.6%), Germany (73.2%), the UK (68.1%). For more EU details see the table under the subhead ‘Economies of member states’ at . 70 Explained in fairly simple terms by Anne Pettifor and Professor Victoria Chick in their ‘The Economic Consequences of Mr Osbourne’ at . 71 Donald Macdougal, Don and Mandarin (London: John Murray, 1987) p. 91.

96 Winter 2010 Robot’s opponents, told prime minister Winston Churchill that Robot would be so unpopular it might keep the Tories out of office ‘for a generation’.72 In April this year, Bank of England governor, Mervyn King, was quoted as saying ‘whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be’.73 Yes, there are echoes of 1931 and the formation of the national government then to implement the cuts required by this economic orthodoxy and the City, whose interests it embodies. But these policies failed in 1931 and will fail again. If it holds together, the coalition – this would-be national government – will lose the next election. The Liberal-Democrat part of it will be decimated by its association with the recession and Labour will return, once again to try and repair the economic damage created by the Conservatives. The central question that arises is, as always, what kind of Labour Party, and with which policies, will take office after the next election?

72 Something Macdougal also attributes to one of the plan’s major advocates, Chancellor of the Exchequer Rab Butler. Ibid p. 90 73 Larry Elliott, ‘Mervyn King warned that election victor will be out of power for a generation, claims economist’, The Guardian, 29 April 2010.

97 Winter 2010 Lobster 60

This began as a chapter in Prawn Cocktail Party. (On which sorry tale see ‘View from the Bridge’ in this issue.) When I used some of that for the Well, how did we get here? essay, I reread this section for the first time in years and it struck me as rather interesting that the last prime minister who had tried to challenge the City was Thatcher, and she lost.

Thatcher versus the City of London

Robin Ramsay

The older I get the more I am struck by the economic illiteracy of our politicians. I don’t mean their grasp of economic theory, most of which is bollocks or irrelevant; I mean their grasp of our economic history and the structural conflict between domestic and overseas economies. The last prime minister to understand this was Harold Wilson. Edward Heath did economics as part of his undergraduate degree but was conned by the City and the Bank of England into passing the Competition and Credit Control Act, which allowed the British banks to massively expand their lending, caused the secondary banking crisis of 1973/4 and was one of the causes of the inflation of the 1970s (which reached 25% in 1975). That inflation became a stick with which the Tories beat Labour and unions in the 1974-79 period and beyond,

98 Winter 2010 and a section of the Tory right beat the Heathites. Mrs Thatcher and her faction promised to defeat inflation by ‘controlling the money supply’. Mrs Thatcher seems to have assumed that ‘controlling the money supply’ could be done relatively easily and quickly, and didn’t grasp that the City’s real agenda – i.e. more ‘freedom’ to lend money and more ‘freedom’ to move money abroad – which was being articulated notably by the chief secretary to the Treasury, Nigel Lawson, would make impossible measuring, let alone ‘controlling’ the money supply. When Thatcher saw what the consequences were for the domestic economy of the regime of high interest rates, introduced to ‘control the money supply’, she began looking for an alternative. Nigel Lawson sneers in his memoirs: ‘....there was no more assiduous seeker for gimmicks which would supposedly give us tight money without high interest rates than Margaret Thatcher.’ (Emphasis added.)1 Lawson only mentions one such ‘gimmick’, monetary base control, which, instead of trying to influence the demand for money by raising interest rates, tries to control the supply of money by regulating the amount the banks could lend.2 Regulating the amount the banks could lend? This the City was not going to wear.

Thatcher versus the Treasury ministers 1 Nigel Lawson, The View from No. 10 (London: Corgi, 1992) p. 77. 2 On MBC see the discussion in David Llewelyn (ed), The Framework of UK Monetary Policy (London: Heinemann, 1982) pp. 56-60 and Lawson (see note 1) pp. 80 and 81 for his reasons for rejecting it. Milton Friedman, the guru of monetarism: ‘Direct control of the monetary base is an alternative to fiscal policy [i.e. taxes] and interest rates as a means of controlling monetary growth.’ (Emphasis added.) Cited in David Smith, The Rise and Fall of Monetarism (Harmondsworth: Penguin, 1987) p. 95. Direct control was precisely what the City did not want

99 Winter 2010 In October 1979 Chancellor Geoffrey Howe announced the end of the remaining exchange controls (some had been scrapped in June). The following month the Thatcher Government raised interest rates to a minimum 17% – nearer 30% for many individual customers – where they stayed for eight months. The pound soared in value as ‘hot money’ poured into London attracted by real interest rates of over 5%.3 British exporters and manufacturers began to collapse but the champagne flowed in the boardrooms of the banks. No exchange controls, no limits on lending, and record interest rates – this was everything the City had been seeking since the end of World War 2 and more. Against the alliance of City interests led by Nigel Lawson and the chancellor, Geoffrey Howe, and, lined up Mrs Thatcher and a group of advisors – economists such as Brian Griffiths, Gordon Pepper and Alan Walters – who urged the adoption of control of the monetary base (MBC) as the better method of ‘controlling the money supply’.4 Pepper, one of the first within the City to express concern at the growth of the money supply in the 1970s, was the editor of monetary bulletins published by the stockbrokers, Greenwells.5 ‘[Pepper] had established a private line to Margaret Thatcher when she was Leader of the Opposition.... [and] persuaded her that a given degree of monetary tightness could, through MBC (monetary base control), be secured at an appreciably lower level of interest rates than the UK was experiencing. Given her – by no means unique – detestation of high interest rates, a promise of sufficient monetary tightness to bring down inflation at

3 The ‘real’ interest rate is the stated interest rate minus inflation. 17% interest rate with 12% inflation is a real interest rate of 5%. In the 1930s real interest rates were 3% or less. 4 Margaret Thatcher, Path to Power (London: HarperCollins, 1993) pp. 133 and 4 5 William Keegan, Mrs Thatcher’s Economic Experiment (Harmondsworth: Penguin, 1985) p. 41

100 Winter 2010 lower interest rates had an irresistible appeal.’ 6 But the financial system would not have it. Nigel Lawson tells us that the Bank of England ‘deeply disliked the whole idea of MBC,’ and he ‘was convinced that such an experiment had a chance of success only if those responsible for its implementation wished to make it a success. Given the Bank's profound antipathy, it would all too likely have proved the disaster they predicted.’ 7 Mrs Thatcher tells us that, ‘the Treasury were not prepared to move to the system of monetary base control which Alan [Walters] favoured and to which I was attracted by his clear and persuasive analysis.’ 8 (Emphasis added.) Philip Stephens tells us that the Treasury was hostile to MBC because its officials regarded controlling public spending as more important than controlling the money supply and public spending was a key element of their adopted money supply indicator, sterling M3; they could use M3 to reduce public spending.9 Thatcher got the consolation prize. ‘Bank of England and Treasury officials were instructed to put together proposals for changing the methods of monetary control, with a view to moving away from excessive reliance on high interest rates.’ 10 (Emphases added.) ‘Action this day’ it was not. The Bank of England and Treasury proposals on monetary control were published in March 1980 as a ‘green paper’ – a discussion document – which ‘stopped well short of

6 Lawson (see note 1) pp. 79 and 80 7 Ibid. pp. 80 and 81. 8 Margaret Thatcher, Downing Street Years (London: HarperCollins, 1995) pp. 133 and 4. 9 Philip Stephens, Politics and the pound (London: Macmillan, 1996) p. 20 10 Ibid.

101 Winter 2010 a move towards a monetary base system’. 11 While sterling M3 was to remain the guiding light of policy, changes in methods ‘consistent with the eventual adoption of a monetary base system’ were also introduced.12 (Emphasis added.) ‘Consistent with’ and ‘eventual’ – this was looking down a long, foggy road. Mrs Thatcher and the MBC lobby had been repulsed. High interest rates would remain the policy. Recession and unemployment would reduce inflation: no pain, no gain. But Thatcher had another try. ‘Holidaying in Switzerland.... Mrs Thatcher met Fritz Leutweilerm, head of the Swiss Central Bank, and the economist Professor Karl Brunner of Rochester University in the US.....[who] both blamed the Bank of England, saying its method of controlling the money supply was all wrong. The answer to controlling inflation was to control the monetary base.’ 13 Thus fortified, Mrs Thatcher called a meeting in September 1980 to discuss MBC again. According to one of its participants, Christopher Johnson, at that meeting: ‘After a memorable debate with academics and City economists on 29 September 1980..... the Bank and Treasury officials joined in rejecting the plan [MBC] as impracticable, to Mrs Thatcher's disappointment.’ 14 On 16 November 1980 the Bank of England finally reduced the Minimum Lending Rate to 14%. This, argues David Smith, was 11 Ibid. p. 95 12 Ibid. 13 William Keegan (see note 5), p. 153. I doubt this ‘holidaying’ story. Mrs Thatcher hated holidays. Perhaps she was at the annual gathering of the Mount Pelerin Society, worshipping at the shrine of Hayek. On Pelerin see Richard Cockett, Thinking the Unthinkable (London: HarperCollins, 1985) 14 Christopher Johnson, The Economy Under Mrs Thatcher (Harmondsworth: Penguin, 1991) p. 34.

102 Winter 2010 a direct consequence of the notorious speech (which cost him his job) by the Director General of the CBI calling for a ‘bare knuckle fight’ with the government over economic policy, and the Chair of ICI warning Mrs Thatcher that the recession was so serious ICI was going to announce a third quarter loss. 15 She had already admitted to leaders of the CBI that she was concerned about interest rates and the exchange rate.16 This interest rate reduction is now seen as the end of the ‘monetarist’ experiment, for the monetary figures did not justify the cut. Eight days later Chancellor Howe announced a number of minor economic changes, framed by the explanation that: ‘These steps would be consistent with the gradual evolution towards a monetary base system and will help to judge how far such a system will contribute towards our medium-term monetary objectives.’ 17 (Emphases added.) This may have sounded like progress to Mrs Thatcher – at last her Chancellor was actually talking about moving towards a monetary base system – but in his memoir Nigel Lawson commented: ‘An experienced Whitehall watcher would have seen that this was in fact the thumbs down for MBC.’18 The Prime Minister and her allies tried again to get MBC taken seriously by Whitehall. They commissioned Professor Jurg Niehans, a Swiss monetarist economist, recommended by Walters, John Hoskyns and Alfred Sherman of the Centre for Policy Studies, to study the British monetary system and its experience since the Tories took office. In Mrs Thatcher's account of it, Niehans report had ‘a clear message’: ‘....we should use the monetary base rather than sterling 15 Smith (see note 9) p. 98 16 Donald Macdougal, Don and Mandarin (London: John Murray, 1987) p. 248 17 Lawson (see note 1) p. 85 18 Ibid.

103 Winter 2010 M3 as the main monetary measure and [he] suggested that we should allow it to rise in the first half of 1981. In short, Professor Niehans thought monetary policy was too tight and should quickly be loosened. Alan [Walters] emphatically agreed with him.’ 19 (Emphasis added.) But Niehans’ report changed nothing.20 Lawson omits the Niehans visit from his memoir. In late 1981 there were rumours – presumably from the Thatcher camp – that Thatcher ally and monetary base control advocate, Gordon Pepper, would be the next Governor of the Bank of England. But Mrs Thatcher failed to get her way on that one, too. In 1985 Mrs Thatcher and Walters tried once again, to get MBC off the ground, but, says Lawson: ‘The issue was satisfactorily put to bed with the promise of “further studies” of the US and German systems.’ 21 The first big interest group Mrs Thatcher took on was the City-Treasury-Bank of England nexus – and she was defeated.

19 Thatcher (see note 8) pp. 133 and 4. In June that year Niehans repeated at the LSE the seminar he had given in private in February. See the Guardian, 27 June 1981. On the Niehans report see also Keegan 1985 (see note 5), p. 160. 20 The Economics Editor of the Sunday Times commented on 14 June 1981: ‘There will be no further step towards monetary base control...’ 21 Lawson (see note 1) p. 480.

104 Winter 2010 The View from the Bridge

Robin Ramsay

Prawn Cocktail Party I rarely mentioned my Prawn Cocktail Party (PCP) in Lobster because I didn’t want to encourage people to buy it. PCP was mangled by the publisher. They scrambled the footnotes to two of the chapters and added errors, including different titles on front cover and flyleaf and having the election of 1997 taking place in 1996. Then they put it out without bothering to show me a proof copy. When the mess they’d made was revealed I was told it would be pulped; but it wasn’t. Some years later I received an anonymous phone call. A middle aged man with an RP accent told me that the Labour Party had contacted the publisher of PCP and offered to pay to suppress the book. How thrilling! Then I asked how much was offered: £5000. Which put me in my place. Did my caller have any evidence? None he would share with me. Some of it I recycled through The Rise of New Labour, and some through ‘Well, how did we get here?’ and ‘Thatcher against the City’ in this issue.

Storming teacups 2.0 I recently read on Stephen Dorril’s website his account of what he sees as his ouster from Lobster.

105 Winter 2010 Lobster was [sic] a journal of parapolitics, primarily covering the activities of the British Security and Intelligence Services. It was co-founded/edited with Robin Ramsay, who went through something of a self-confessed mid-life crisis and unceremoniously ejected Stephen Dorril, stole the Lobster name, subscription list and back copies.

Almost none of this is true. Yes, Dorril suggested the name and was cofounder. But there was no mid-life crisis; and my ‘ejection’ of Dorril consisted solely of taking his name off a magazine which had always been entirely edited and produced by me. I merely carried on as usual but took his name off it. (On becoming a book writer, he had contributed very little after issue 11, and nothing at all to six of the issues preceding number 24 when I deleted his name.) I had always had the back copies and subscription list and thus could hardly ‘steal’ them. If anyone wants to read more about this, see my ‘Storming teacups! Or: Steve Dorril, Lobster and me’ in issue 39. Having written or co-written four significant books in difficult fields, having become a regular commentator on intelligence for the major media, and an academic, why does Dorril need to tell lies about something so piffling?

Chemtrails Chemtrails – high altitude aerial spraying for purposes unknown – have become a regular feature on US conspiracy theorists’ websites and are now starting to appear in the UK equivalents. If you presume it’s all hogwash, take a look at . If that isn’t film of a twin-engined jet engaged in high altitude aerial spraying, what is it?

106 Winter 2010 The consequences of Chernobyl You may remember the 2005 United Nations report which claimed that the fallout from the Chernobyl meltdown was going to result in perhaps 4,000 deaths.1 I always wondered how the figure was arrived at. A report on a new book on the incident by some Russian and Belorussian scientists tells us: there was a 1959 agreement in which the World Health Organisation was obliged to clear any information it had on radioactivity with the IAEA (International Atomic Energy Agency). Hence the low figure from the nuclear lobby. The new book, published by the New York Academy of Sciences, shows, from statistical analysis of deaths in the areas affected by the fallout, that the death toll will be at least 985,000, mostly from cancer.2

One cat, let out of bag In comments to trade unionists on the eve of the TUC conference this year, the Governor of the Bank of England, Mervyn King, was reported to have said: ‘The role of the Bank of England changed with independence [of the Bank]. It was an apologist for the City. I now see it serving the nation as a whole.’ 3 (Emphasis added.)

1 See, for example, the report by Bronwen Maddox, ‘Chernobyl fallout not as bad as first feared’ (The Times, 7 September, 2005), which began, ‘Only 56 people have so far died directly as a result of the explosion at Chernobyl in 1986, including 9 children with thyroid cancer. In the end, perhaps up to 4,000 people will die from radiation- caused illness.’ 2 The article notes that the 4,000 figure is still on the IAEA website. 3

107 Winter 2010 I guess we all knew this but it is interesting to see it acknowledged.

David Kelly’s death I have never been greatly interested in this for two reasons. First, I cannot see why anyone or any group would bother to kill Kelly. Cui bono? Norman Baker MP, I understand – I haven’t read his book – concludes (his best guess) that he was ‘suicided’ by a pro-Saddam group. Did that ever make sense to you? I read recently somewhere that some Australian spooks thought SIS had done it. Why would they bother? Like the rest of the UK foreign policy establishment, SIS were against the war. Kelly was of relatively little consequence: the war was going to happen no matter what anyone said. Had Kelly called a press conference and told the world everything he knew, he could have embarrassed the Blair government; but that’s all. Second, if Kelly’s death looked like an unlikely and/or incompetent way to commit suicide, it was an even more incompetent way to fake a suicide. Richard Webster, the author of the wonderful study of the paedophile panic centred round a children's’ home in Wales, The Secret of Bryn Estyn (The Orwell Press, 2005), has written a very interesting essay on the growth of the Kelly conspiracy theories.4

Cometh the hour And then there as the case of Rory Stewart, new Tory MP for Penrith and the Border, still sort of trying to deny that he was an MI6 officer. A piece in the Telegraph 5 said ‘Stewart last year dismissed claims circulating on the internet that he himself had 4 At . 5 Jon Swaine, ‘Rory Stewart concedes career “gives appearance” that he worked for MI6’, Daily Telegraph, 8 November 2010.

108 Winter 2010 been an MI6 officer.’ Said claims were made by former British Ambassador Craig Murray (evidently unmentionable by the Telegraph), who wrote this: ‘One person I would not vote for is the crusading neo- Conservative Rory Stewart. It is particularly annoying that he is constantly referred to as a former diplomat. Stewart was an MI6 officer and not a member of the FCO. Three years ago I received a message from the FCO asking me not to mention this as, at that time, Stewart was still very active for MI6 in Afghanistan and his life could have been endangered. I agreed, and even removed a reference from my blog. However now that he is safely and lucratively ensconced at Harvard, I see no reason to conceal the truth. It is necessary to reveal this so that people can correctly evaluate his political pronouncements on Iraq and Afghanistan, and his motives in making them.’ 6

Wikileaks There is an interesting discussion of what if anything the US state can do to stop Wikileaks at . The conclusion is: not very much. There are too many mirror sites and there is a kind of insurance policy: ‘...the site has posted insurance.aes256, a password- protected file, to act as insurance in case anything happens to the WikiLeaks website or its founder, Julian Assange. ....WikiLeaks volunteers have been instructed to send out a password to allow anyone who has downloaded the file to instantly open it. Considering that the file is estimated to be nearly 20 times the size

6

109 Winter 2010 of the already released Afghan War Diary files, this seems like adequate insurance indeed.’ Which does not explain why Julian Assange is allowed in and out of this country. All manner of comparatively insignificant people are prohibited from entering this country, yet Assange, the figurehead of a movement apparently blowing the official secrets of this state’s (much larger) ally on a scale never seen before, is allowed to come and go as if he was just another tourist. This needs explanation.

Farewell NuLab Someone with the moniker JacktheNat wrote this on the Guardian’s Comment is Free on 16 July: ‘The core of New Labour was a bitchy queen, a depressive fawner upon powerful men, a couple of messianics, a coterie of ex-Communist Party opportunists, a few jaded, modist "thinkers" and a young Praetorian guard of ambitious student politicians and assorted money-grubbing lobbyists. A bit more complicated than this? Well chuck in devotion to the City, US foreign policy and Israel and there's little more to say.’ Which is essentially true; but I like the details. I haven’t read the Blair/Mandelson/Jonathan Powell versions of NuLab yet but I did read – I confess I bought – Alastair Campbell’s diary of the 1994-97 period, looking for clues as to the creation of the NuLab ‘project’. There are few. Most of the book recounts either the daily chore of trying to spin/bully the mass media, or his attempts to mediate between the egos of the Mandelson- Brown-Blair triangle. (There is a play to be written with the best of the collected exchanges between these three.) Much of this is fascinating in a soap opera-ish sort of way – can the

110 Winter 2010 depressed spin doctor get out of bed in time to save the day as one or other of the prima donnas flounces off again? – but there are only two sections which added anything to my knowledge. The first concerns concerned the birth, short life and death of the notion of the ‘stakeholder economy’ in NuLab thinking. Originally promoted by Will Hutton, it was briefly adopted by Blair – not that he had thought its implications through; but it sounded good – and was kiboshed immediately by Brown. (Campbell presents Blair as to the left of Brown throughout this book.) The second is a passing reference to the fund-raising activities of Lord Levy. Several accounts have stated that Levy raised around £7 million pounds for Blair’s private office (liberating him from the financial clutches of the party and unions). On p. 515 Campbell quotes Levy as saying he’d raised £1.3 million. It might even be true. Of rather more interest is Giles Radice’s Diaries 1980- 2001 (London: Orion, 2004). Radice was essentially Tony Blair – pro American, pro EU, pro market – but with more principles and fewer ambitions; and this account of being a Labour MP from the days of Michael Foot to Blair is full of interesting bits and pieces. Radice went to Oxford, became a researcher for the GMB union (in one of its earlier incarnations) and then found a safe Labour seat in the North East. The EU is one of the dominant themes. He tells us that he met the late John Smith at a ‘young Koenigswinter’ 7 meeting in the early 1960s; his second wife is the cousin of Joseph Retinger, the founder of the Bilderberg group; he is a leading light in the European Movement; and was a ‘parliamentary scholar,’ attached to the FCO/SIS outpost, St. Antony’s College, Oxford. In short, Radice was the very model of the sensible, middle of the road Gaitskellite, plugged into

7

111 Winter 2010 the europhile Foreign Office’s networks. To his credit (and to the detriment of his career) he never pretended to be anything other than the Euro-enthusiast that he was. In one entry in 1998, he and Blair are discussing the possibility of a revolt against Murdoch by sections of the Parliamentary Labour Party, and he quotes Blair as saying: ’It only makes my job more difficult when I want to discuss policy issues with Murdoch and his executives.’ Blair discussing policies with Murdoch and complaining (Campbell p. 420) that ‘It would be so much easier if I didn’t have the party around my ankles the whole time’, either sums up the dilemma for a modern Labour leader – lumbered with party members uninterested in the results of the latest focus group in the Home Counties and obliged to kiss the shite media’s arse 8 – or expresses everything that was wrong with the NuLab ‘project’.

Bilderberg Radice’s account of attending a Bilderberg meeting in 1995 is the third by a British politician I can think of. The brief comments of Denis Healey (in his autobiography) and Paddy Ashdown (in his diaries) are on-line. Radice writes: ‘I am sent by the Blair office as none of the front-line Labour spokesmen can go.’ So much for Bilderberg being the executive committee of world capitalism! Blair, Brown etc. had more pressing engagements. Bilderberg is ‘much more right-wing than Koenigswinter’, says Radice. (p. 337) Another batch of Bilderberg meeting minutes has

8 This would be would be Radice’s view. He was co-author of the influential 1992 pamphlet Southern Discomfort which, using focus groups to analyse the political attitudes of voters in marginal seats who had considered supporting Labour in 1992 but in the event stayed Conservative, provided support for those who believed that to get elected Labour had to become a version of the Conservative Party.

112 Winter 2010 appeared, on Wikileaks;9 and Public Intelligence has many lists of participants at the meetings.10 I haven’t read this latest batch of minutes and probably never will. How interesting or useful are the minutes of a meeting in which none of the speakers are identified? ‘A German said.....an American said....’ The Wikileaks preamble to the minutes states that the organisation does not have a Website. It does now: . Bilderberg as an organisation was never quite as secret as the list of those attending its meetings used to be. When I wrote to its office in 1999 to ask if it was true that Labour leader the late John Smith had been on their steering committee, I received a brief but prompt reply from the secretary confirming it and giving dates.

Electromagnetic hypersensitivity (EHS) EHS is barely recognised by the medical profession. One recent study concluded: ‘The symptoms described by “electromagnetic hypersensitivity” sufferers can be severe and are sometimes disabling. However, it has proved difficult to show under blind conditions that exposure to EMF can trigger these symptoms. This suggests that “electro- magnetic hypersensitivity” is unrelated to the presence of EMF, although more research into this phenomenon is required.’ 11 And – of course – the mobile phone industry wants to deny its existence. So where is the evidence? Some French scientists

9 10 11

113 Winter 2010 have just provided some. They took an EHS sufferer and scanned – encephaloscanned – his brain. Then he went to live for several months in a spot in France almost free of electromagnetic radiation. Then they scanned his brain again and found that areas of his brain which had been relatively inactive have come back to life. You can see the pictures.12

La Lutte continue Lady Falkender, Marcia Falkender as was, Harold Wilson’s political secretary, has a website, . I don’t know if it is still open – I am now denied access – but when I had access to it and initially skimmed across its sections, she was using it to attack/critique the treatment of her and Harold Wilson, in the books of Joe Haines (Glimmers of Twilight) and Bernard Donoughue (Downing Street Diary).

The fascist plot to take the White House in 1933 I am still regularly gob-smacked by what is available on the Net. Take the infamous but murky 1933 plot by some Wall Street bankers to overthrow Roosevelt and his New Deal. The hearings of the congressional committee which half- heartedly investigated it are on-line13; as is the text of the only book written about it, Jules Archer’s The Plot to Seize the White House, which relies heavily on the committee’s report.14 Why did the committee do it so badly? One version quoted here has it that President Roosevelt used the plot’s existence to neutralise the banksters in return for not prosecuting them. Practical politics first. On a quick skim neither account seems to

12 A collection of articles about this and related subjects is at Click on ‘Studies and statements showing mobile phone health risk’. 13 14

114 Winter 2010 answer the central question: why did the plotters want Smedley Butler, a high profile, Quaker general, to front their scheme?

From NuLab to NuTory In the previous issue Anthony Frewin reviewed John Stafford’s book about democracy (or its absence) in the Tory Party. Stafford has an essay on the current state of the TP,15 most of which could have been written about the Labour Party: take- over of the party by rich individuals and corporate money; no need for members who are just an encumbrance. It’s the American model, of course; it’s what Tony Blair yearned for. Very striking.

Tugwell and InfPol Way back when.....there was a Canadian JFK researcher called Scott Van Wynsberghe who wrote a couple of pieces for Lobster. In number 27 I noted that Van Wynesberghe had graduated from writing for Lobster (e.g. issue 24) to one of Canada’s leading daily papers, the Globe and Mail; and that his ticket into the big media had been a recanting of his previous writing, and acknowledgement that Lee Harvey Oswald had done the dirty deed in Dallas. I had declined to publish Van Wynesberghe’s change of tack in issue 26 and suggested to him that he should try the straight media in Canada; they would love it. And they did. I heard no more of the man until November this year when Dr Noel Currid alerted me to a piece in the Globe and Mail

15 ‘Allowing and encouraging meaningful participation is the key to reviving the Tory grassroots’ at

115 Winter 2010 by Van Wynesberghe, ‘I Remember Maurice Tugwell’. Tugwell has appeared before in these columns as he had been in Northern Ireland at the same time as Colin Wallace, and in the same line of work. Tugwell, who lived in Canada, died in October this year; and in his piece Van Wynesberghe recounts an interview he did with Tugwell in 1994.16 This is the key section about the British psy-ops unit in Northern Ireland, Information Policy. ‘He [Tugwell] sighed when I introduced myself and brought up Information Policy – I was obviously not the first to bug him about it. But he then spared me 15 minutes and patiently explained the actual nature of the unit.’ ‘No, he said, it was not a psychological-warfare gang that deliberately spread lies. Rather, its purpose was to co-ordinate between frontline troops and public- relations officers, who had not been interacting well in such a charged, political environment.’ ‘Also, the unit studied the media campaigns of the Irish Republican Army and suggested rebuttals. Taken aback, I mentioned the whistleblower Colin Wallace, who had been one of those PR officers working with Tugwell.’ ‘Wallace had admitted to peddling disinformation, but Tugwell quickly pointed out a major discrepancy between the highly professional man he and others once knew and the teller of lurid tales Wallace became years later.’ ‘Whatever Wallace had been up to, Tugwell was adamant that he himself had not knowingly spread false accounts.’ So there was Tugwell still running the InfPol cover story, years after the British government had acknowledged that Wallace’s

16 < http://v1.theglobeandmail.com/servlet/story/LAC.20101122. IREMTUGWELLATL//TPStory/Obituaries>

116 Winter 2010 version of events was true.

News from Airstrip One Solomon Hughes had an important piece in The Morning Star on the US-British military relationship.17 Using the Freedom of Information Act, Hughes got some British documents about the American use of British bases from which to bomb Libya in 1986. ‘A “top secret” draft press release written by a senior official in the Defence Department on April 11 1986 makes clear that the raid was not a “joint decision” in terms of the 1952 communiqué [which governs US-UK actions]. It says: “The prime minister agreed that the US should if necessary use their forces in the United Kingdom, but there was no ‘joint decision’ on the action in Libya, which is a national action by the United States.” In the accompanying letter the official makes clear the Ministry of Defence worried that allowing the US to fly its planes without a joint decision weakened British control of our territory. He writes: “The argumentation about the decision on the use of US bases in this country raises two issues which will require very careful consideration.” These are “the need to avoid anything which could set a precedent affecting our ability in the future to control US use of assets in this country” and “our possible concern on this occasion to avoid stating publicly that the US actions had been a matter of ‘joint decision’ in the terms of the 1952 Churchill-Truman agreement.” ’ 17 18 November 2010

117 Winter 2010 The whole thing is worth reading. Hughes concludes: ‘The documents show that the US didn’t really discuss the bombing, that the British government worried about losing control, that it rushed to support the US bombing anyway and that ministers were shocked at how unpopular the bombing was.’ My only quibble would be with Hughes’ comment: ‘In fairness to Reagan, it is likely Libyan secret services were involved in the nightclub bombing.’ Is it? In his book The Other Side of Deception, the former Mossad officer, Victor Ostrovsky, claimed that Libya had been framed by Mossad for the nightclub bombing in Berlin which led to the American raid, with Mossad planting a radio beacon – a Trojan – in Libya and using to it broadcast signals implicating Libya in the bombing. ‘ “Using the Trojan, the Mossad tried to make it appear that a long series of terrorist orders were being transmitted to various Libyan embassies around the world,” Ostrovsky continues. As the Mossad had hoped, the transmissions were deciphered by the Americans and construed as ample proof that the Libyans were active sponsors of terrorism. What’s more, the Americans pointed out, Mossad reports confirmed it. “The French and the Spanish, though, were not buying into the new stream of information. To them it seemed suspicious that suddenly, out of the blue, the Libyans, who had been extremely careful in the past, would start advertising their future actions…..The French and the Spanish were right. The information was bogus.”’18 To my knowledge Ostrovsky is the only source on this.

Briefly

18

118 Winter 2010 * The filmmaker, Adam Curtis (‘The Power of Nightmares’, ‘Pandora’s Box’ etc), perhaps the most important documentary maker in the English-speaking world today, has a blog – more accurately, a website – on which he puts bits and pieces of film and research. Well worth a look.19 * Richard Cummings, who wrote in Lobster about The Paris Review and the CIA, now has a blog.20 His essay there on the actions of the Republicans in America, ‘The Prosperity of Treason’, concludes thus: ‘All of these actions by the Republicans were treasonous, .... And because the Republicans keep winning, “none dare call it treason.” ’ * Ola Tunander’s ‘Approaching the dual state of the west’, an interesting essay on the subject of the ‘deep state’, the parapolitical state, beneath the formal structures of democratic regimes, is on-line.21 Tunander considers a wide range of covert operations – the strategy of tension, Aginter Press etc. This essay was eventually incorporated into a chapter of the book Government of the Shadows: Parapolitics and Criminal Sovereignty, which I hope to review in the next issue. * Did the CIA shelter Nazis after WW2? Yes they did; and now it’s official. A 600 page report of a recent Justice Department investigation of the subject is now on-line.22 Of particular interest may be the chapter which critiques John Loftus’s book The Belarus Secret, which for many years was the only source on some of this.

19 21 22

119 Winter 2010 Lobster 60

Sir John Sawer’s speech and some aspects of SIS PR

Corinne Souza

An article in Lobster ten years ago claimed that SIS would not see its centenary (1909-2009). Lobster was right. SIS Chief Sir John Sawer’s speech on 28 October 2010 – a public first – was a closing statement, even if the new chief cleverly made it look like an opening one.1 In much the same way as the influence of ‘big oil’ is in decline because, with the exception of Washington, everybody else recognised the environment debate, so too has ‘big’ espionage collapsed. The last of the Cold War spook agencies with leading brand status to topple in ignominy like the rest of them was SIS: in its case because of the illegal and immoral invasion of Iraq, and allegations of complicity in torture, rendition and other issues. The condemnation of spook behaviour, led by activists, some journalists and politicians, and some supporting ‘silent lobbying’ by honourable men and women at all levels of Britain’s judiciary and public service, including the spooks, delivered a rebuke so deafening that it has led to a once-in-a- generation catastrophic collapse of SIS’s reputation. Nothing gives a new chief more power or as much room for manoeuvre as this sort of circumstance. Sir John made clear his belief that he has the people and the relationships for SIS to recover. (‘We work with over 200 partner services around the world

1 Sir John defined his products. No intelligence chief does this because they change according to local markets and conditions.

120 Winter 2010 with hugely constructive results.’)

PR distraction In the meantime, non-spook colleagues can use hideous allegations of complicity in torture, as a PR distraction. The real crisis was never SIS’s reputation, as poor as this had become, the tragedy of the innocents, or indeed the guilty now confirmed in their hatreds, but the unasked question: ‘Do the spooks represent the British people and their values, or the state and some particularly nasty individuals within it?’ The fact that the majority of the public did not know the question existed when confined to the spooks, let alone that until Sir John’s speech no answer had been given, is an example of this country’s state censorship and finest top spin. This is one of the reasons why we have historically succeeded in avoiding revolution – making a virtue of ‘evolution’ is perception management – but it is also a real time example of an ad hoc ‘fall guy’ PR state construct.2 The fall guy in this case was SIS, which was in trouble anyway. It could just as easily have been some other organ of state. Its purpose was to distract attention from the real question to which the people do know the answer: does the British state represent the people and their values, or does it represent a whole bunch of crooked businessmen, politicians and the like and theirs? The ‘noise’ honourably generated by activists about torture and the spooks has been used to divert attention away from that for which the spooks were not responsible – corruption of the state machine – even if at one time some spooks or their assets were obscenely well-rewarded

2 Not all fall guys are underdogs. This is the value of the construct: it can be used against soft or strong targets. The Americans used the same trick against BP following the Gulf of Mexico spill.

121 Winter 2010 facilitators – e.g. the BAE debacle.3

SIS Presentation As a chastened, and in due course, aggregated national spook alliance sorts itself out,4 Sir John admirably pulled his organisation away from the past, staking Britain’s future not in America’s long war but in alternative thought leadership: he is the only global intelligence chief to be able to broadcast live on all media his abhorrence of torture.5 This ongoing fight is as significant a battle as the one against slavery, today’s vested interests no different to the slave owners and slave traders of yesteryear. As a result of the speech, SIS is now able to offer a gold standard choice distinguishing it from others. As a competitor pitch it was a clear, targeted invitation to the honourable and the best to join Britain in common cause. In this respect, it was one of the most memorable, moral and official British ‘Fuck-You-Neanderthals’ in years. Including to those in this country.

Control Principle This is why it was a disappointment to watch Sir John sink into litigation lobbying in the hope that the judicial process will 3 The same thing happened to commercial lobbyists when the state was the cause of the problem having created the political information market in the first place, controlling the cartel. Similar parallels vis-a- vis the state can be made with the private security industry and military consultancies. Allow one issue to unravel, they collapse into and collide with each other. 4 Sir John said: ‘The next five years will see us intensifying our collaboration.....’ Convergence of services always results in greater consolidation – aggregation. A spook name change cannot be far off. 5 Sir John gave his speech while a former Mongolian torture chief is being held on an international arrest warrant in Wandsworth prison. Mongolia is seen as a strategic ally ‘not least because of its geographical position sandwiched between Russia and China’, The Independent, 5 November 2010.

122 Winter 2010 continue to look favourably upon what is known as the ‘Control Principle’: that intelligence material provided by one country to another should remain confidential to the country providing it, and it should never be disclosed, directly or indirectly, by the receiving country without the provider’s permission. Sir John did not even acknowledge the legitimacy of the other side’s arguments as they defend that which is central to British law. If nothing else, this was poor PR. In PR, omission is a mechanism to force polarisation. It is an instrument of authoritarian command – not something Sir John should have exposed, given he was talking to civilians. He was so intent on being loyal to his friends that by using the phrase ‘Control Principle’ twice, he bumped up the number of times he mentioned the word ‘control’, in a short speech, to seven. This is plain silly in a statement to post- leadership civilian Britain even though abbreviating it to ‘the Principle’ would have been a spin too far. Because the spooks have allowed appalling miscarriages of justice to go uncorrected, a pragmatic arrangement will eventually end. This is bad news: some very decent people work for lousy regimes. This way, they feed their families and serve their co-patriots as best they can. If, for their own honourable reasons, they are also working with the Brits, the Control Principle (CP) is of incalculable comfort and protection because they are situated within some pretty nasty efficient administrations. CP removal exposes them and their families to the possibility of appalling retribution. CP also prevents an SIS competitor-ally from poaching or undermining them, whether deliberately or inadvertently.

Evolving terrorism language Top down language is always a give-away and can be a pleasing indication of progress. So, for example, in Professor

123 Winter 2010 Jeffery’s reference work, MI6, the history of the Secret Intelligence Service 1909 – 1949, there is an example of the huge lobbying pressure that the educator – a crucial spook role – would have been under when writing it. On page 689 he consigns militant Zionists intent on violence fifty years ago to civilian ‘groups’ and military ‘units’ involved in ‘sabotage operations’ – which is how the Allies explained their similar work in the Second World War – even though British authorities of the day described militant Zionists intent on violence as terrorists, in the same way as militant Islamists intent on violence today are also described as terrorists.6 Now turn to Sir John’s speech and see how, also as a result of lobbying, including women’s groups whose opinions are given parity by an intelligence chief for the first time – he has moved the terrorist debate on.7 Instead of the simplistic demonisation of recent years, and while remaining neutral, he recognised some of the reasons behind it.: ‘There is no one reason for the terrorist phenomenon. Some blame political issues like Palestine or Kashmir or Iraq. Others cite economic disadvantage. Distortions of the Islamic faith. Male supremacy .....’ Given precedents – e.g. Irgun and more recently terrorist groups in Ireland – it can be only a matter of time before negotiations are opened with Al-Qaeda. By key-wording, Sir John provided spook PR teams a vehicle by which they could create a base reputation pulse score, allowing for subsequent

6 Terrorism/bombing of the King David Hotel, 1946: in July 2006, the British Ambassador in Tel Aviv, and the Consul-General in Jerusalem, condemned Israel’s commemoration: ‘We do not think that it is right for an act of terrorism, which led to the loss of many lives, to be commemorated.’ Sunday TimeS 20 July 2006. 7 Language evolution: See how the term ‘rogue state’ has been dropped since some say it can be used against the UK, in favour of ‘failing’ state.

124 Winter 2010 measurement of issues in order to monitor or influence them.8

Non-verbal PR Sir John also got his non-verbal PR right on 28 October, enabling him to get his various messages across to the global publics he hoped would be viewing him. Everything would have been considered including the time of day that he spoke. Out went dated British tailoring. In came British style, of great consequence overseas where a fashion frump cuts no ice. The light blue colour of his civilian clothing was appropriate for the hot climates where some of his key audiences were based. Delivering his statement from Reuters’ London office, he stood at a lectern like a cutting-edge trainer in stylish ‘Strictly Come Spooking’ mode. Behind him, instead of a Union flag – too militaristic – was the logo of the Society of Editors. His photo released to the press was a non-dominant half-body shot taken from a soft angle.9 In a cosy real time newsblog immediately after the speech, the Guardian correspondent summarised the main points, parcelling out each of Sir John’s key issues to separate media or newspapers including a tweet from Channel 4. No information about the Society of Editors was given – a PR ploy ensuring that interested parties’ googled it. If they did so, they discovered that prestigious speakers lined up for

8 It may make the reader wince but a retailer’s reputation-monitoring and taking action on consumer issues and biggest complaints is no different to what the spooks are doing re: say, torture. For example, a reputational pulse score – if one is being taken by SIS – for, say, the Daily Telegraph’s full page coverage of Sir John’s speech, would be lower than hoped because of non-related headlines on the facing page beside Sir John’s photograph. 9 International relations students find photo PR useful: e.g. state photographs of captured terrorists which are no longer demonic. National leaders use it to talk to their people, offering in the process a snapshot of their society’s different levels of development: Prime Minister Putin showing off his biceps; intelligence chief Sawers photographed by his wife in his speedos.

125 Winter 2010 its annual conference included Alexander Lebedev, the Russian proprietor of important British newspapers, and Ellis Watson, CEO of Simon Cowell’s Syco Entertainment. Subtext: British spooks have access to international media and entertainment elites, a crucially influential global sector which have overtaken, say, Hollywood movie moguls. Ostensibly part of a chieftain rolling programme – Sir John’s speech followed those given by the director of GCHQ and directors general of MI5 – the statement was the finale to an impressive three pronged SIS PR campaign. In addition to Sir John’s talk, this comprised the September launches of John le Carré’s latest novel Our Kind of Traitor and Professor Jeffery’s book mentioned above. The subliminal messaging – Sir John wrote forewords to both – was SIS’s association with high status civilians whose occupations and attributes have world-wide followings or significant niche networks. The two men complemented each other – patrician Englishman, scruffy Irishman. It included the cover design colours of their books (black and gold; red and gold) which ‘talk’ to key listeners abroad. The jacket to Professor Jeffery’s in particular looked as if it had been designed to knock out others. Publication was perfectly timed for Christmas buyers, the markets maturing six months down the track sustaining separate dialogue streams around – when they fall due – the verdict of the Chilcot inquiry into the Iraq war, and Sir Peter Gibson’s into allegations that SIS was complicit in the torture of detainees.10 Every gizmo under the sun was used to launch the books – the bill picked up by the private sector, not the taxpayer – in a marketing campaign that was traditional, experiential, digital and impressively expensive.

10 ‘Resolution’ either way of torture allegations will concentrate minds on the present, letting SIS off the hook re: any other misconduct long into the past, the lives trashed, including those of patriotic British businessmen.

126 Winter 2010 The books by Professor Jeffery and John le Carré Professor Jeffery’s book was linked directly to the MI6 James Bond website offering free copies in answer to the question: ‘What is the name of the London tube station closest to the SIS/MI6 HQ’. In addition, the site played a YouTube video of Sir John’s speech, a pretty Asian girl in the frame, interspersed with action shots from the latest James Bond movie.11 The book itself, errors and omissions excepted, sets out as faithfully as possible old loyalties and prejudices, creating a base document which invites comparisons with British foreign policy today. This provides Sir John with the hooks he requires to flag-up modernisation – e.g. changing attitudes towards terrorism as evidenced by evolving language (see above). Simultaneous to the non-fiction, the movie of John le Carré’s fiction was announced which, if it is faithful to the novel, will showcase the ‘good’ British spook, unable to defeat the wicked – classic underdog appeal which works across all continents and cultures. Le Carré himself used his global celebrity to give a punishing round of ‘last’ interviews including one to Channel 4. In this he skilfully placed the ‘good’ British spook wholly at the public’s – not the state’s – side, which is where Sir John is repositioning his staff. In a bravura performance, the eighty-year old le Carré forcefully set off a round of complementary viral sound-bites, some recycled – ‘we spoke truth to power’ – and some new, creating sound-bite and PR collateral for the future. Speaking as a former interrogator, he was contemptuous of anything other than ‘sweet interrogation’; and expressed the belief that to do a distasteful job, a ‘pastoral connection’ was the ideal: i.e. he condemned torture and had the credibility to do

11 Question: how do you give a YouTube video legs? Answer: you remove it. Keep in mind that The Sunday Times reported ‘Sawers wants to phase out the image of the MI6 officer as a globetrotting James Bond figure who undertakes glamorous missions abroad.’ 17 October 2010.

127 Winter 2010 so.12 He also condemned Russian oligarch corruption and complicity at the highest levels of British politics, as well as setting out the task ahead: ‘our next job is to deal with the excesses of capitalism’; i.e. the PR message was that the spooks are the people’s friend not their enemy.

Britain’s brand Sir John gave his speech when Britain’s overall reputation in some parts of the world is low.13 Two companies with which SIS prestige is also linked have sunk: BP has lost its status as the world’s biggest non-state oil producer. De La Rue, a one- time British world leader with a licence to print bank notes for countries across the globe, is collapsing under falsified test certificates.

It’s a new world order The new world order also causes anxieties. In the latest version of the scramble for Africa, middle class Africans have to be airbrushed. If water is the new oil in some parts of the world, people in pre-consumer societies are the new oil in others. African countries are always presented as basket cases because Britain needs Africa to need Britain and therefore has to portray it as needy. An existing and growing middle class Africa has to be airbrushed out of the picture in

12 Parts of Mr le Carre’s performance were the best piece of ham acting in years. 13 Canada’s former Prime Minister Paul Martin who eradicated his country’s debt by harsh reductions in public spending, said that he believes Britain’s decision to increase foreign aid funding has been recognised ‘throughout the world’ and will pay ‘huge dividends’ for the UK, not least in attracting business and influencing public policy in Africa. The Independent, 31 October 2010.

128 Winter 2010 consequence. 14 In fact, in consumer PR terms, Britain is running a loyalty programme (Aid budget), paid for by the taxpayer, as part of its soft power initiative to guarantee new markets and influence. History, usually crucial to soft power cannot be used. Instead, Africa’s nu-history will lower the status of the independence movements and begin instead with, say, genocide, followed by reconstruction courtesy of the West. Unlike in Britain, where personal history (genealogy) is the new sportism,15 Africa will not ‘do’ history. The scramble for the continent is about more than stealing its mineral wealth. While at the moment some African countries suffer from Al Qaeda training up new recruits, over time this will subside. What will not go away is Islam: while some parts of Africa will remain Christian, the predominant faith will remain Muslim not least because the implosion of the Church of England in Africa pretty much leaves only the Vatican as Islam’s faith challenger which, incidentally is the case world-wide. This is why ‘the West’ has thrown itself into promoting the antiracism/religious tolerance messages, in much the same way, as Lobster’s Tom Easton has pointed out, that the Israeli lobby allied itself a generation ago in common 14 This nu-history is most evident when seeing how Rwanda is presented today. Fifteen years ago, Rwanda suffered one of the deadliest genocides in world history, when an estimated 800,000 people were killed in 100 days. This year it was named the world’s top reformer in the World Bank’s Doing Business report. It has the highest proportion of female politicians in the world (52%) and a growing number of female entrepreneurs. PRWeek, awards issue, 2010. 15 Perhaps ‘sport-ism’? Maybe this is clearer. The point I am making is that sport has been promoted world-wide not only because of the money it brings in which is a result not a tactic, but because it became necessary for ‘ordinary’ people to see reflections of themselves and that which they could attain if they trained hard enough and had the talent – no different to the 'It could be you' strap-line that once promoted the National Lottery. This was the foil to the ‘ordinary’ person seeing, say, a parade of top politicians who did not necessarily have the talent but were top-dogs because of a patronage or class system to which the ‘ordinary’ person has no access. Sport now provides an alternative patronage system.

129 Winter 2010 cause with antiracist movements promoting black rights, drawing attention away from racism against Palestinians/ Arabs. In very clever perception management today, ‘the West’ pretends its devotion to the religious tolerance cause, is because it is the solution for Christian/Muslim violence in the Sudan. In fact it is the solution all over Africa for ‘the West’, which is predominantly white, secular or Christian, so that in due course huge potential African consumers do not boycott it. These markets will be so vast that during the 2008 Beijing Olympics, African faces predominated in the Chinese promotional video in Beijing when China is one of the most racist countries in the world. At the far end of Europe a trio of countries – the 21st century versions of the one-time Hindu and Islamic empires of India, Persia and the Ottomans – demand recognition equal to their huge populations and status. How does the Foreign Office grab a share of the consumer markets without offending both Israel and the royal princes of Arabia? Besides which, their re-emergence was never one it envisaged – Turkey with its years of understanding of Russia, the Balkans and the Levant as well as of its southern neighbours; Persia, now in control of Iraq, and with substantial knowledge of Russia and the ‘Stans’. 16 As for shining India, it has long history with Russia and Central Asia; recognises that Pakistan is essential for

16 With all the avarice, it is interesting to note the number of times ‘Mesopotamia’ now creeps into discussion of Iraq. ‘The Allies’ will do all it takes to get their hands on the oil which could lead to an independent Kurdistan after all. Turkey’s water theft of the Tigris and Euphrates, which once irrigated many countries of the region, means that it is impossible to get at the oil in southern Iraq now because vast amounts of water are needed to get it out of the ground. Oil companies plans to build conduit to transport sea water from the Persian Gulf deep into the Iraqi desert in ‘probably the largest industrial project of its kind ever undertaken’. See ‘Iraq's “third river”, the largest industrial project of its kind’ in The Times, 8 November 2010.

130 Winter 2010 Afghanistan and will not countenance a 21st century version of the Baghdad Pact; has exceptional global Buddhist, Christian, Hindu, Jewish, Muslim, Parsee and Sikh diasporas, including in South America; is equal to the might of ‘harmonious’ (!) China; and is happy to engage on its own terms with America – tumbling balance-of-power tacticians in Britain and Bismarck’s Old Europe into meltdown in the process. Meaning, as Sir John knows all too well, it is boom time for spooks again and SIS in particular.

Sir John Sawyer’s speech This is why Sir John’s speech promoting SIS was a good example of bid-related communications: ostensibly open and certainly well-timed, revealing head and heart decision-making along with aggression and strong messages. In so doing Sir John subliminally showcased British society – ‘we want to enjoy public confidence’ – which was an essential component of his pitch. Unable to turn some of SIS’s biggest liabilities into positive attributes – not least because ‘liability’ and ‘attribute’ mean different things to different audiences – Sir John mixed his messages. For example, he rightly praised heroic agents who, for their own honourable motives, work with SIS – an attribute to most British audiences; but a liability if a philosophical discussion of the morality of espionage is being held, or you are the current President of Iran.17 Unsurprisingly, there was some ludicrous top spin: Sir John tried to give the public the impression they were his sole priority when he has many, including the preservation of the corrupt banking system. He said the ‘debate on SIS’s role is not well-informed’, when the cumulative picture of SIS is truly well-informed. His comments about ‘our support for forces of moderation around the world’, followed by almost in the same 17 Iran has accused Britain of not only carrying out ‘secret espionage activities in the country but also funding and supporting certain terrorist groups. . .’ The Times, 5 November 2010.

131 Winter 2010 breath condemnation of Al-Qaeda for wanting to control the Arab world’s oil reserves, was laughable given that Britain and America have had the same goals for over a century. And, incidentally, while ‘weakening the power of the West’ is certainly an Al-Qaeda ambition, Western corruption has done a far better job.

Personalisation PR Nor did Sir John personalise some of his arguments which is essential if you are in the persuasion business.18 Personalisation could have been helpful when Sir John said ‘if we demand an abrupt move to the pluralism that we in the West enjoy, we may undermine the controls that are now in place.’ Suggesting that people favour stability, which allows their children to go to school in safety, over instability, which may result in their children being shot if their societies are modernised too swiftly, would have furthered empathy, a PR staple. Sir John was rightly proud of what is known in PR as an ‘influencer programme’, which works for organisations that deliver change across a complex network of partners: ‘We offer training and support to partner services around the world. It wins their co-operation, it improves the quality of their work, and it builds respect for human rights.’ Does he mean that this is a one-way street and SIS has nothing to learn from others? For example, while Saudi Arabia is revoltingly lacking in some areas, it has also established a humane de-radicalisation programme for its young Al-Qaeda supporters, a coincidental echo of John le Carre’s ‘pastoral care’ message. Surely our country has need of this sort of expertise?

18 In PR, personalisation is so important, it is the reason the Americans said ‘only’ three men were water-boarded; and that the information obtained as a result, protected Londoners – a ‘perception positive’ – which claim was disputed.

132 Winter 2010 Sir John rightly praised his staff whom he wants us to like and trust, but whom he disadvantaged by dehumanising. They ‘receive recognition for their work only within the confines of the Service’ – in PR, an internal recognition/applause programme. Less reductive language would have explained that, in addition to the utmost need for their identities to be protected, these ‘exceptional’ and ‘remarkable’ men and women are profoundly modest people anyway and do not seek or want public recognition. We have some idea of exactly how awesome they are given the formidable qualifications made available to us, following the tragic death in August 2010 of a young star on secondment to SIS.

Agents Where Sir John did personalise, as a measure of his fervour, was when he expressed his sincere gratitude to SIS’s foreign agents, whom he described as ‘the true heroes of our work’ which they are. As he rightly said: ‘They have their own motivations and hopes. Many of them show extraordinary courage and idealism....’ Although it is some years since I researched the subject, so far as I am aware Sir John has done more than any other country’s intelligence chief to lift the agent profile and give credit where it is due. In particular, he broke new ground by smashing a long held pejorative consensus proselytised by some who should have known better. ‘Our agents are working today in some of the most dangerous and exposed places, bravely and to hugely valuable effect, and we owe a debt to countless more whose service is over.’ The last part of that phrase, speaking intimately to this generation of the recently retired or their families, was profoundly touching. Sir John’s gracious correction of other people’s bad manners was an end in itself but had a further legitimate

133 Winter 2010 motive. At a time when intense competition for good agents is likely to be at an all time high, he wanted the public to understand why SIS make them ‘a solemn pledge: that we shall keep their role secret’. Given the courage of these agents, the risks they take, the unbearable haunting sorrows, the debt public owes them, it is the very least that they deserve.19 Parts of Sir John’s speech seemed unnecessarily obtuse. I did not understand his definition of SIS as ‘a sovereign national asset’. It may be that he was confirming SIS’s status. However, it could also be a spook way of explaining that SIS staff are Crown Servants. In my dated experience and if this is what Sir John meant, it invited legal query which today may well have been resolved. Questions once included: is the Crown immune from prosecution? Given that for their own protection some may have no written proof of their contract, what protection is there for agents and the sources they are running? The person who plays a pivotal role in all this is an agent’s case officer. The vivid experience of espionage offers a passport into other people’s lives which is a privilege. For this and many other reasons, the qualities of SIS staff could not be more important. Sir John described them in the warmest possible terms as patriotic, loyal, dedicated and innovative people who act with the utmost integrity.20 While I have no knowledge of the present generation, and my family’s

19 Agents and staff are not the only brave civilians and they certainly would not claim to be. For example, a Human Rights Watch report was based on months of working undercover in remote and dangerous areas. Daily Telegraph, 29 October 21010 20 See also a suspicious story in Sunday Times 17 October 2010 about the impact of Sir John’s internal SIS changes and alleged poor SIS morale; glowing advertorial for Australian Secret Intelligence Service; SIS alumni programme; SIS middle managers being offloaded which simultaneously twin spook experience (e.g. job losses) and concerns (e.g. torture allegations) with the public for the first time since the ending of the Cold War.

134 Winter 2010 relationship with SIS went badly wrong, I have no reason to disbelieve him.21 I wish him, his staff and agents well.

Corinne Souza’s father, Lawrence de Souza (1921–1986), was a senior decorated SIS agent for nearly twenty years.

21 Unlike their predecessors whose international views were likely to have been formed by the influence of the Second World War and the Cold War, thus chiming with much public opinion then, British spooks in their twenties and thirties today are of the generation who learned about, say, the tragedy of Palestine through the protest movements when they were at university, or about the destruction of the Aral Sea through environment protesters. This is to say, we have a generation whose knowledge of international relations may have been formed by civilian protest: they know that Kazakhstan, with all the endemic hideous corruption and repression (torture), is eyed greedily by China, India, Russia and the US, but their views may be conditioned not by pragmatism but by their primary influences. In much the same way as the Second World War created a moral generation of public servants and politicians of all political parties who did not wish to visit on their children the same carnage, protest movements various are likely to have grown today’s equally moral generation who are more representative of issues-based opinion and a British public starved of virtuous example than the top echelons of elected and administrative government may wish to admit.

135 Winter 2010 Lobster 60

Books

Another way

Meltdown UK: There is another way Stephen Haseler London: Forum Press, £19.99

Crisis and Recovery: Ethics, economics and justice Rowan Williams and Larry Elliott (eds.) London and New York: Palgrave Macmillan, £20.00

Tom Easton

One can only admire the ubiquitous energy of Stephen Haseler. He was a precocious Gaitskellite parliamentary candidate in Saffron Walden in the 1960s, a fellow of the Heritage Foundation in Washington DC in the 1970s, as well as being a founding member with Douglas Eden of the Social Democratic Alliance in the UK, and then helped launch the SDP in the 1980s. In that latter period he also helped set up Heritage’s London operation, the Institute for European Defence and Strategic Studies, while authoring anti-Labour material here alongside his old acquaintance Brian Crozier and

136 Winter 2010 in the United States with Roy Godson (Lobster 31 et seq). He is now director of the Global Policy Institute, a senior fellow of the Federal Trust and a prominent republican, opining recently on BBC Radio 4 on the forthcoming royal marriage. His latest book is a fulminating criticism of those elected to power in Britain while he was busy on these assorted activities. His main focus is globalisation and the way these islands have suffered its orthodoxies, particularly in the areas of the City and finance, with the ‘meltdown’ future he envisages in his title. He calls for a stronger state as a force for democratic action at home and a new Europe-wide ‘protectionism’ abroad. Haseler’s is a forceful work with some footnotes and a limited index. The Williams and Elliott volume is much better, and much of Haseler’s ground is covered in a rather less hectoring manner. The contributors range from the Archbishop himself to Zac Goldsmith, with stimulating thoughts from ‘Red Tory’ Philip Blond, Financial Services Authority general counsel Andrew Whittaker, and theology student turned investment banker John Reynolds. The contributions from New Labour familiars Jon Cruddas and Will Hutton offer little that is new or incisive. Rowan Williams calls for ‘an unashamedly immodest and ambitious plea for a renewal of political culture and social vision, a renewal of civic energy and creativity, in our own country and world-wide’. Amen to that.

Israel, the lobby and its critics

If I Am Not For Myself: Journey of an Anti-Zionist Jew Mike Marqusee London and Brooklyn: Verso, £9.99 (UK)

137 Winter 2010 ‘This Time We Went Too Far’: Truth and Consequences of the Gaza Invasion Norman G. Finkelstein New York: O R Books, £12

War Crimes in Gaza and the Zionist Fifth Column in America James Petras Atlanta: Clear Day Books, $15

Europe’s Alliance With Israel: Aiding the occupation David Cronin London: Pluto, £17.99

Tom Easton

One of the more heartening developments in this chilly political climate is the growth of Jewish groups and individuals speaking out and organising against the policies of Israel. Some are prominent figures like Miriam Margolyes, who recently used her fame as Professor Sprout in the Harry Potter series to publicise the living conditions of Palestinians in Gaza. Her self-description as ‘a proud Jew and an ashamed Jew’ is one that disarmingly cuts through the bile and bluster of those who routinely reach for the ‘anti-Semite’ smear. Two of these authors have suffered that fate. Mike Marqusee recounts a moment is his teens when his father abused him as a ‘self-hating Jew’. The occasion was when the young Marqusee first measured the behaviour of Israeli forces against the humane, Judaism-derived principles of his liberal family in New York. Norman Finkelstein has long been targeted by the US lobby for Israel, most famously losing his battle for a tenured teaching post after a campaign of vilification led by Alan Dershowitz, the Harvard professor of law. Dershowitz doesn’t

138 Winter 2010 just go for people like Finkelstein, the son of Holocaust survivors. As several of these authors point out, he also led the charge against the United Nations report on the Gaza conflict led by the South African jurist Richard Goldstone. (James Petras’s book contains some striking images from Operation Cast Lead.) All four books point up the increasing difficulties faced by those who support the current policies of Israel, but also warn that increasingly forceful efforts are being made by that country and its allies in an effort to surmount them. David Cronin provides the best published survey I have yet seen on the Israel lobby in Europe. He shows that Brussels has become the focus of much of that activity, where, he suggests, Israel now has a status not far short of full European Union membership. He lists the failures of the EU to act on Middle East matters where it has direct interests and responsibilities, and indicates the proliferation of organisations set up to promote Israeli interests under other guises. Both in Brussels and London are politicians in hock in one way or another to supporters of Israel – and he names some of the names. All four books are well footnoted and three – Petras’s being the exception – have an index. For those looking to the European dimension, the Marqusee, beautifully written and, in places, deeply moving, is much recommended for its human depth as well as its detailed knowledge. The Cronin book is a big step forward in our understanding of the mechanics of the Israeli lobby in Brussels and London. There’s much more to be revealed, but it’s a good push in the right direction. The last word should go to Finkelstein, who has paid a heavy price for his commitment and who says the latest bloodletting in Gaza has now roused the world’s conscience: ‘Israel can no longer count on reflexive support for its policies. Public opinion polls not only outside but inside

139 Winter 2010 Jewish communities around the world over the past decade reveal a growing unease with Israeli conduct. This shift largely stems from the fact that the public is now much better informed.’ ‘Historians have dispelled many of the myths Israel propagated to justify its dispossession and displacement of Palestine’s indigenous population; human rights organisations have exposed Israel’s mistreatment of Palestinians living under occupation; and a consensus has crystallised in the legal-diplomatic arena around a settlement of the conflict that upholds the basic rights of Palestinians.’

Political life in Britain

Talking to a Brick Wall: How New Labour stopped listening to the voter and why we need a new politics Deborah Mattinson London: Biteback, 2010, £17.99

People, Politics and Pressure Groups: Memoirs of a lobbyist Arthur Butler Hove: Picnic Publishing, £12.99, 2010

Bonfire of the Liberties: New Labour, Human Rights and the Rule of Law K. D. Ewing Oxford and New York: OUP, £19.99

The Meaning of David Cameron

140 Winter 2010 Richard Seymour New Alresford: Zero Books, £6.99

Tom Easton

Deborah Mattinson is just one of the many early enthusiasts for what became New Labour to have been enriched during its 13 years in government. She keeps company with the Kinnocks, Alastair Campbell and partner Fiona Millar, Lords Mandelson, Liddle, Reid and Gould, YouGov’s multimillionaire Peter Kellner and his wife, EU foreign minister Kathy Ashton, and a very long list of New Labour’s single-minded student politicos who turned their address books into lucrative consultancies and careers of one kind or another. In Mattinson’s case, her early membership of Mandelson’s 1980s Shadow Communications Agency alongside peer-to-be Philip Gould led her after 1997 into winning lots of lucrative government contracts. Her own Opinion Leader Research company became part of the Chime Communications conglomerate owned by Margaret Thatcher’s PR adviser Tim (now Lord) Bell. Her book travels from her early focus group ‘discovery’ that Labour grassroots members ‘were all a bit weird.....all slightly strange people.....strange personally I mean’, to her late disappointment with ‘Team GB’, the Brownite faction within New Labour she came to favour. In between she describes her efforts – initially very successful, she claims – to make Labour saleable despite of its ‘weird members’. But at no point does she ask how ‘normal’ were the New Labour hierarchy who sought to benefit from her ‘qualitative’ polling. All the memoirs, diaries and accounts since the general election seem to confirm what many members – weird or not – long suspected: that their ‘leaders’ were very strange people

141 Winter 2010 indeed, and that their governments were scarred by petty personality feuding that probably damaged ‘Labour’ – New, Old or ageless – as a focus of political organisation, action and loyalty for ever. As someone who once took part in a Mattinson company focus group I must admit to scepticism about the rigour of its methods. The event conducted on behalf of what is now Age UK was wholly bogus. The dominant figure in the group pretending to have voted Lib Dem in a marginal constituency in the 2005 election was, in fact, the Labour leader on a local council miles away making a bit of cash-in-hand, focus group money. He told me afterwards, contrary to his expressed views on the Iraq war at the group, that he’d met Tony Blair at a Labour Friends of Israel bash and wouldn’t have a word said against him. But setting my experience aside, I find Mattinson’s reasoning – ‘how New Labour stopped listening to the voter’ – weak, and her prescriptions for a ‘new politics’ unconvincing. Like many New Labour leading lights she dismisses the catastrophic collapse of the Tories under John Major. And what was New Labour, after all, other than a ‘new politics’? It’s sad, but not surprising, that a party’s fate was in the hands of the likes of those so insubstantial as Mattinson, and that The Sunday Times serialisation of this book generated more media heat than light on the dead body politic that is New Labour. No such razzmatazz attended the appearance of Arthur Butler’s wry, wise and well-drawn memoirs of post-war political Britain. And more’s the pity, for these tales from the Westminster journalist turned successful lobbyist fill in parts of our history necessary to grasp and digest if we are ever to have genuinely ‘new politics’ in this sceptr’d isle. He offers insight into the media world of Lord Beaverbrook – the Rupert Murdoch of his day in this country –

142 Winter 2010 and the political world of Hugh Gaitskell and his SDP followers 20 years after his death. As the founding brain behind lobbies for tobacco and the motor industry, and a pioneer of the development of expert parliamentary committees, Butler tells us much about the real world of business, science and politics. Butler also took on local government reform and offered what aid he could to communities devastated by the loss of traditional employment, and to others at home and abroad needing support and encouragement. Along the way he has fascinating stories to tell about John Addey, James Sherwood, Joseph Godson, the Gang of Four and many more. He also had experiences of the intelligence services worth reading. This is not an academic work, though academics could learn much from it. Nor is it just a collection of anecdotes from a long and fascinating working life. It is well-written British political life intelligently observed and reflectively considered. It is everything the Mattinson book isn’t – and that’s probably one of the reasons it wasn’t serialised by Uncle Rupert. Keith Ewing is professor of public law at King’s College, London, and an angry chronicler of the erosion of civil liberties under New Labour. He’s travelled a fair bit of the world and knows a lot of law. He brings both together in a clearly written, heavyweight assault on Blair and Brown governments packed with lawyers with little apparent concern for either the legality of their actions on their far-reaching consequences for human rights and well-being. From surveillance and the national security state to the ‘war on terror’ and control orders and rendition, Ewing’s solid, incisive work reaches out to lawyers and journalists, but also to a broader band of concerned citizenry. Richard Seymour, who blogs at Lenin’s Tomb (http://leninology.blogspot.com/), has produced a short guide to David Cameron’s politics, but crammed a lot into it in an

143 Winter 2010 accessible way. Those to whom the current crop of Tories are largely unknown will learn lots about ‘Red Toryism’, the Henry Jackson Society/neocon network and the ‘wealth creators’. There’s no index, but decent footnotes.

The Return of the Public Dan Hind London and New York: Verso, £14.99

Death of the Liberal Class Chris Hedges New York: Nation Books, £14.99

Tom Easton

Lobster contributor Dan Hind has produced a mind-stretching plea to no longer leave politics to the experts – the practitioners and the gatekeepers who control access to what is going on in our name and with our money and leave most of us persuaded or confused into passivity. As a former gatekeeper in commercial publishing himself, Hind knows of what he speaks. He sees techological change as being a lever for fundamental reform of the media – that, in turn, then being part a process of radically changing politics into something for doing rather than watching. Literate, drawing on wide sources historically as well in philosophically, this is a bracing warm-up class for the overdue heavy lifting this country’s politics badly needs. Like The Return of the Public, the latest book from Chris Hedges is well footnoted and indexed. Hedges has covered

144 Winter 2010 wars around the world, is a columnist for Truthdig.com and a widely published writer of power, passion and refinement. He marks the decline of ‘the liberal class’ in the United States – the press, the labour movement, universities, the Democratic party and liberal religious institutions – from the time of the fall of the Berlin Wall. He says there are now no counterweights to the corporate state, with profound consequences for those seeking to live and survive in that new dispensation. His Death of the Liberal Class is not a book for faint hearts. It has much of the challenging force of those German anti-Nazis – Dietrich Bonhoeffer and Fritz Reck-Malleczewen are two names who come readily to mind – who steadfastly marked out the ground in earlier battles for rights, decency and integrity in a disordered world.

Tom Easton is a freelance writer.

Industrial relations and social democracy

Ethical Socialism and the Trade Unions: Allan Flanders and British industrial relations reform John Kelly, New York/Abingdon: Routledge: 2010, £70 (h/b)

Lawrence Black

By the 1960s Allan Flanders was amongst the foremost industrial relations experts in Britain. A key figure in the ‘Oxford School’, he sat on the government Commission on Industrial Relations, provided key evidence to the Donovan Commission and, particularly since his 1964 study The Fawley Productivity Agreements, was listened to by shop stewards and

145 Winter 2010 management alike. Yet his politics originated in revolutionary German socialism in the 1930s. He was schooled by the miniscule Militant Socialist International (MSI), inspired by the philosopher Leonard Nelson, which became the Socialist Vanguard Group in Britain. How to explain this unique political trajectory: a transition from anti-capitalism to working within the system; vexed by the ‘indiscipline’ of 1960s workers; accepting but also keen to institutionalise the role of shop stewards; and, whilst never opposed to free collective bargaining, prepared to countenance state intervention in the national interests of industrial peace and productivity? That many revolutionaries lose their fervour, Flanders’ wartime work with the TUC, and the pressures of the Cold War, seem plausible candidates. But Kelly argues it was ethical socialism, born of Nelson’s vehement critique of materialism, that was the continuous thread and motor of Flanders’ various works. Flanders’ concern always went beyond the material benefits of trade unionism to issues of dignity and respect. Indeed he feared that unalloyed, monopoly trade union power would counterproductively push up prices and prejudice non-unionized workers. Kelly contends that Flanders used ethical values somewhat indiscriminately – dogmatically asserting their presence often in spite of contrary evidence. And whether rethinking socialist principles or advocating a tripartite, union-state-management industrial relations system, Flanders was a devoted advocate of reason, dialogue and discussion. There were other legacies of Nelsonism: the ethical end justified almost any means; anti-communism (for its materialism as much as anything); a focus on monopoly not ownership as the root fault in capitalism; and a scepticism about democracy and emphasis on leadership. This dovetailed with the emerging Labour revisionism in the 1950s and Kelly notes how Flanders found the elite, factional atmosphere of

146 Winter 2010 the Campaign for Democratic Socialism, formed to defend Gaitskell’s leadership from unilateralists, ‘congenial’ (p. 113). Yet the ascetic, vegetarian, moralist Flanders and Socialist Union (as the SVG had become) were always slightly at odds with the more consumerist, libertarian revisionists. Flanders, collaborators like Rita Hinden and their journal Socialist Commentary, were also intimate with the Congress for Cultural Freedom. The extent of their knowledge and collusion with what was later exposed as a CIA-funded organisation has long been of interest. Kelly has trawled the CCF archives, but found little new or concrete evidence – not entirely surprising, as he admits. And one has to ask: had they known, would this have unduly bothered such committed international anti- communists? Flanders’ reputation fell with the collapse of the ‘Social Contract’ soon after his death in 1973 and the real skill of this book is in reconstructing that world of industrial relations. Kelly undertakes this not uncritically. He accepts that by the 1970s Flanders had little to counter Marxists critics like Richard Hyman and former allies like Alan Fox who argued that he failed to acknowledge the persistent power structures of capitalism; and notes how sociologist John Goldthorpe’s work highlighted Flanders’ paradoxical focus on the material realms of work and production, rather than to what purposes earnings were put. But in all its complexity, Flanders was an exemplar of this world, fusing academia, politics and policy. His Donovan mantra that management would only recover control by sharing it was scotched in the 1980s. Yet he might have contended his case that there was little union advantage in alternatives to institutional co-operation was also brutally proven. And in bridging the academic disciplinary gap between industrial relations and politics that has opened since, it reminds us how central an industrial vision once was to Labour politics.

147 Winter 2010 If this is a narrative about the contradictions of social democratic thinking by the 1970s, it also one about the influence that a small, dedicated group of activists can obtain and an important, neglected chapter in the history of Anglo- German socialism. Willie Eichler, who headed the MSI until 1946, was a prime mover of West German Social Democrats’ Bad Godesburg reformist program of 1959. In short, this rigourously argued and detailed study tells us a lot about UK industrial relations and social democracy. The price, sadly, tells us a lot about UK academic publishing.

Lawrence Black teaches modern British history at Durham University and in 2010-11 is a Visiting Professor at Duke University, North Carolina, USA.

Media matters

Reel Power: Hollywood Cinema and American Supremacy Matthew Alford London: Pluto Press, 2010, £13.00 (p/b)

Robin Ramsay

On the British right there is a widespread view that the BBC is full of lefties and puts out lefty propaganda. Here’s Melanie Phillips: ‘With a few honourable exceptions, the BBC views every issue through the prism of left-wing, secular, anti- western thinking. It is the Guardian of the air. It has a knee-jerk antipathy to America, the free market, big

148 Winter 2010 business, religion, British institutions, the Conservative party and Israel; it supports the human rights culture, the Palestinians, Irish republicanism, European integration, multiculturalism and a liberal attitude towards drugs and a host of social issues.’ A bit of this is true: the BBC certainly supports the human rights culture and multiculturalism. But how could it not do so? These are the official policies at both national and European level, and are supported by the dominant factions of all three major political parties. Nor are these particularly or intrinsically left-wing. However, as you could listen to/watch the BBC’s output for a week and never hear a socialist, republican (let alone Irish republican) anti-business or anti-American voice, the rest of Phillips’ paragraph is either a delusion, or a strategy of constantly calling the BBC left-wing to try to make it more right-wing. In Phillips’ case it’s a bit of both, motivated in part by her shift rightwards but also by her fear that the BBC may one day report what the Israeli state has been doing for the last half century. In America the right believes or pretends to believe that Hollywood is a nest of pinkos (or Jews, or pinko Jews) undermining America with its liberal propaganda. This belief is the target of this book. Alford does a detailed analysis – genre by genre – of the recent films costing over $30 million from Hollywood’s major studios, and shows that their movies almost always express the notion that in its foreign policy, the endless wars in which it engages, America is always right, well intentioned and frequently the victim. That this fantastic lie is in the films owes something (how much isn’t clear) to the Pentagon and CIA liaison operations with the studios. ‘Wanna borrow a submarine? Talk to the Navy guy.’ If Alford isn’t quite describing the corporations and the state running joint psy-ops, it will do until joint psy-ops come along.

149 Winter 2010 On the other hand, how could Hollywood not portray America as a benevolent force in the world? The domestic audience, still the major market, would not pay to see films showing America as the cause of most of the casualties in the world since WW2, supporter of the worst dictators, trainer of torturers and a major feature in the world drug traffic. There are the occasional exceptions, recently most notably Avatar – estimated takings $237 million – which I read (I haven’t seen it) has definite liberal, eco, anti-corporate capitalism themes. Alford wiggles past this: Avatar ‘is one of those partial exceptions that highlight the rule.’ Partial exceptions? Surely it either is or isn’t. Highlight the rule? Is that something weaker than ‘proves the rule’? I wonder how much the ideological content of most movies actually matters to their producers. Maybe the fact that a major studio made Avatar simply suggests that the corporations which own Hollywood are chiefly interested in profits and if green-lefty stuff makes them money, their dream factories will make that, too. Just as there was in the 1970s, in the wake of Watergate and the subsequent revelations of FBI and CIA covert operations, there is a little bit of liberal dissidence in mainstream American movies, mostly at the low budget end, which the author discusses. But ‘a little bit’ is all. This is competently done, decently written and, if you’ve seen a lot of American movies – and I have – it is interesting to have the ideological content articulated. I could do it myself, and I’m sort of subliminally aware of it; but most of the time I’m just watching the movie. So the author’s considerable efforts are both useful and entertaining. They are also slightly chastening: he makes me feel that I don’t have my ideology detector turned up high enough.

150 Winter 2010 Bio-Blackwaters

Anthrax War Dead silence.....fear and terror on the anthrax trail Bob Coen and Eric Nadler Berkeley: Counterpoint, 2009, £10 (UK) p/b

Robin Ramsay

Starting with an interest in the anthrax attack on Congress which followed 9/11, the authors, both big league print and TV journalists, investigated the world of CBW, chemical and biological weapons. This is an investigation and an account of the investigation; a written version of a documentary film. And what they found is really scary stuff. CBW programs are the dirty secret of post-WW2 states. The Soviets, the Americans learned from a defector in 1989, had a monster programme – and maybe the Russians still do, though officially they don’t. (Dr. David Kelly was part of an inspection of the program that doesn’t exist.) The Rhodesians used anthrax in the war of the 1970s, killed maybe 10,000 black Africans. The apartheid regime in South Africa had a large programme, Operation Coast, though what it amounted to is as murky as the rest of these stories and lots of its funding may simply have been stolen. En route the authors wander into all manner of interesting byways, including the CIA trials in the early 1950s and the Frank Olsen case; and David Kelly and other dead microbiologists. (Just google ‘dead microbiologists’ to get a flavour.) This is reminiscent of the dead Marconi scientists story of a decade ago. Is someone knocking-off microbiologists? As happened with Marconi, they are told that statistically nothing interesting is happening here. But they wonder.

151 Winter 2010 After the anthrax attack in America on politicians – the people who write the cheques – the US CBW pork barrel really got rolling and now amounts to $50 billion a year. CBW is the perfect dollar-generating threat: infinitely expandable and seriously frightening. This being America – the universal good guys, of course – it’s all defensive research, looking for antidotes to possible attack by others. But it means developing the bugs for research into antidotes; and so a defensive program and an offensive program look pretty similar. At the end we don’t know who did the original US anthrax attack and you take your pick. I think some sharp cookie/psychopath realised that the post 9/11 climate was perfect for a push in the CBW field and mailed some anthrax. The rest of us better hope the crazy bastard doesn’t get us all killed. Because being America, large chunks of the state’s enlarging CBW activities have been handed over to the private sector: bio-Blackwaters. Someone says to the authors,’ It’s the Wild West out there’ – money sloshing round, programs being cobbled together to get the funds, no regulation worth mentioning. And it would take just one of the 10,000 Americans currently qualified to work in this field to ‘go postal’, or one company to begin cutting corners in pursuit of profit....

152 Winter 2010