The Context of Program Ownership: British Economic Policy in 1974

Abstract

The first half of the 1970s brought fundamental changes for the world economy that created difficulties for domestic and multilateral economic management. The suspension of dollar convertibility into gold in 1971 and the collapse of the Smithsonian agreement in 1973 saw the end of the par value system after fewer than 15 years operating as it had been intended, and the OPEC price increases at the beginning of the decade created massive structural imbalances in the international trade and payments system. Internationally, the problem of recycling oil revenues from surplus nations with insufficient capacity to spend them, to deficit nations that were reliant on petroleum products to fuel their industries, proved to be a controversial problem with no universally accepted solution. Domestically, the balance of payments deficits caused by increased oil prices and the inflationary impact that the rising cost of imports had on domestic prices posed state managers with two very real problems: the first was how the competitiveness of industries could be improved in order to bring the payments system back into balance, and the second was how the brakes could be put on inflation without requiring unbearable costs from the wider population that could escalate into a political crisis of legitimation. Given that the first problem would seem to require a rationalization involving lower wage costs and higher unemployment, and the second a reduction in disposable incomes to restrict wage-push inflationary pressures, the international context clearly resonates with the accumulation versus legitimation dilemma outlined in Chapter 2.