Voluntarily or otherwise, many of them did indeed return ‘home’. In 1975, 290,000 immigrant workers and their families left West Germany for Turkey, Yugoslavia, Greece and Italy. In that same year, 200,000 Spaniards returned to Spain in search of work; returnees to Italy now outnumbered emigrants for the first time in modern memory, as they were shortly to do in Greece and Portugal. By the mid-seventies, nearly a third of a million Yugoslav emigrants had been obliged to return to the Balkans, where their expectation of employment was no better than in Germany or France. The northern European jobs crisis was being re-exported to the Mediterranean. Meanwhile France imposed strict restrictions on immigration from Algeria and its former African colonies, and the United Kingdom placed ever tighter limits on would-be immigrants from the South Asian sub-continent.
The combination of structural unemployment, rising oil import bills, inflation and declining exports led to budget deficits and payments crises all across Western Europe. Even West Germany, the continent’s manufacturing capital and leading exporter, was not spared. The country’s balance-of-payments surplus of $9,481 million in 1973 fell within a year to a deficit of $692 million. The British national accounts were by now chronically in deficit—so much so that by December 1976 there appeared a serious risk of a national debt default and the International Monetary Fund was called in to bail Britain out. But others were little better off. French payments balances fell into the red in 1974 and remained there for most of the ensuing decade. Italy, like Britain, was forced in April 1977 to turn to the IMF for help. As in the British case its leaders could then blame ‘international forces’ for the unpopular domestic policy measures that ensued.
In Keynesian thinking, budget shortfalls and payments deficits—like inflation itself—were not inherently evil. In the Thirties they had represented a plausible prescription for ‘spending your way’ out of recession. But in the Seventies all Western European governments
already
spent heavily on welfare, social services, public utilities and infrastructure investment. As the British Labour Prime Minister James Callaghan glumly explained to his colleagues, ‘We used to think that you could just spend your way out of a recession . . . I tell you, in all candour, that that option no longer exists.’ Nor could they look to the liberalization of trade to save them, as it had done after World War Two: the recent Kennedy round of trade negotiations in the mid-Sixties had already taken industrial tariffs to a historic low. If anything, the risk now was of growing domestic pressure to re-impose protection against competition.
There was a further complicating element in the choices facing policymakers in the 1970s. The economic crisis, however circumstantial and conjunctural its triggers, coincided with a far-reaching transformation which governments could do little to arrest. In the course of a generation, Western Europe had undergone a third ‘industrial revolution’; the smokestack industries that had been so much a part of daily life just a few years before were on their way out. If steelworkers, miners, car workers and mill hands were losing jobs, it wasn’t just because of a cyclical downturn in the local economy, or even a by-product of the oil crisis. The venerable manufacturing economy of Western Europe was disappearing.
The evidence was incontrovertible, though policymakers had for some years been trying hard to ignore its implications. The number of miners had been slipping steadily ever since West European coal output peaked in the 1950s: the great Sambre-Meuse mining basin of southern Belgium, which generated 20.5 million tonnes of coal in 1955, produced just six million tonnes by 1968 and negligible amounts ten years later. Between 1955 and 1985 100,000 mining jobs disappeared in Belgium; ancillary trades of various kinds suffered accordingly. Even greater losses were experienced in British mining, though spread across a longer period. In 1947 the UK boasted 958 coal mines; forty-five years later just fifty of them remained. The mining workforce was to fall from 718,000 to 43,000: most of those jobs were lost in the course of the decade 1975-85.
Steel, the other staple industry of industrial Europe, suffered a similar fate. It was not that demand for steel had fallen so very dramatically—unlike coal, it could not so readily be replaced. But as more non-European countries entered the industrial ranks, competition increased, the price fell and the market for expensively produced European steel collapsed. Between 1974 and 1986 British steelworkers lost 166,000 jobs (though in the latter year the UK’s major manufacturer, the British Steel Corporation, made a profit for the first time in over a decade). Shipbuilding declined for similar reasons; motor car manufacturing and textiles likewise. Courtaulds, the UK’s leading textile and chemical combine, reduced its workforce by 50 percent in the years 1977-83.
The recession of the Seventies saw an acceleration of job losses in virtually every traditional industry. Before 1973 the transformation was already under way in coal, iron, steel, engineering; thereafter it spread to chemicals, textiles, paper and consumer goods. Whole regions were traumatized: between 1973 and 1981 the British West Midlands, home of small engineering firms and car plants, lost one in four of its workforce. The industrial zone of Lorraine, in north-east France, lost 28 percent of its manufacturing jobs. The industrial workforce in Lüneburg, West Germany, fell by 42 percent in the same years. When FIAT of Turin began its switch to robotization at the end of the 1970s, 65,000 jobs (out of a total of 165,000) were lost in just three years. In the city of Amsterdam, 40 percent of the workforce was employed in industry in the 1950s; a quarter of a century later the figure was just one employee in seven.
In the past, the social cost of economic change on this scale, and at this pace, would have been traumatic, with unpredictable political consequences. Thanks to the institutions of the welfare state—and perhaps the diminished political enthusiasms of the time—protest was contained. But it was far from absent. In the years 1969-1975 there were angry marches, sit-ins, strikes and petitions all across industrial Western Europe, from Spain (where 1.5 million days were lost to industrial strikes in the years 1973-75) to Britain, where two major strikes by coalminers—in 1972 and 1974—persuaded a nervous Conservative government that it might be the better part of valor to postpone major mine closures for a few more years, even at the cost of further subsidies charged to the population at large.
The miners and steelworkers were the best-known and perhaps the most desperate of the organized protesters of the time, but they were not the most militant. The decline in the number of workers in old industries had shifted the balance of strength in trade union movements to the service-sector unions, whose constituency was rapidly growing. In Italy, even as the older, Communist-led industrial organizations lost members, teachers and civil service unions grew in size and militancy. The old unions evinced scant sympathy for the unemployed: most were anxious above all to preserve jobs (and their own influence) and shied away from open confrontations. It was the combative service-sector unions—
Force Ouvrière
in France, NALGO, NUPE and ASTMS in Britain
195
—which enthusiastically took up the cause of the young and the jobless.
Faced with an unprecedented raft of demands for job security and wage protection, European leaders initially resorted to proven past practice. Inflationary wage settlements were negotiated with powerful unions in Britain and France; in Italy a flat-rate indexing system linking wages to prices, the
Scala Mobile
, was inaugurated in 1975. Ailing industries—steel especially—were taken under the wing of the state, much as in the initial round of post-war nationalizations: in the UK the ‘Steel Plan’ of 1977 saved the industry from collapse by cartelizing its price structure and effectively abolishing local price competition; in France the bankrupt steel combines of Lorraine and the industrial center of the country were regrouped into state-regulated conglomerates underwritten from Paris. In West Germany the Federal government, following form, encouraged private consolidation rather than state control, but with similar cartelizing outcomes. By the mid-seventies one holding company,
Ruhrkohle AG
, was responsible for 95 percent of the mining output of the Ruhr district.
What remained of the domestic textile industries of France and Britain was preserved, for the sake of the jobs it offered in depressed regions, by substantial direct job subsidies (paying employers to keep on workers they didn’t need) and protective measures against third-world imports. In the Federal Republic the Bonn government undertook to cover 80 percent of the wage costs of industrial employees put on part-time work. The Swedish government poured cash into its unprofitable but politically sensitive shipyards.
There were national variations in these responses to economic downturn. The French authorities pursued a practice of micro-economic intervention, identifying ‘national champions’ by sector and favoring them with contracts, cash and guarantees; whereas the UK Treasury continued its venerable tradition of macro-economic manipulation through taxes, interest rates and blanket subsidies. But what is striking is how little variation there was along
political
lines. German and Swedish Social Democrats, Italian Christian Democrats, French Gaullists and British politicians of every stripe instinctively clung at first to the post-war consensus: seeking full employment if possible, compensating in its absence with wage increases for those in work, social transfers for those out of work and cash subsidies for ailing employers in private and public sector alike.
But over the course of the seventies a growing number of politicians came to the conviction that inflation now posed greater risks than high levels of unemployment—especially since the human and political costs of joblessness were institutionally alleviated. Inflation could not be addressed without some sort of international arrangements for the regulation of currencies and exchange rates, to replace the Bretton Woods system precipitately overthrown by Washington. The six original member states of the European Economic Community had responded by agreeing in 1972 to establish the ‘snake in a tunnel’: an accord to maintain semi-fixed ratios between their currencies, allowing a margin of 2.25 percent movement either side of the approved rates. Initially joined by Britain, Ireland and the Scandinavian countries, this compromise lasted just two years: the British, Irish and Italian governments—unable or unwilling to withstand domestic pressures to devalue beyond the established bands—were all forced to withdraw from the arrangement and let their currencies fall. Even the French were twice forced out of the ‘snake’, in 1974 and again in 1976. Clearly, something more was needed.
In 1978 the West German Chancellor Helmut Schmidt proposed recasting the snake into something altogether more rigorous: a European Monetary System (EMS). A grid of fixed bilateral exchange rates would be set up, linked by a purely notional unit of measure, the European Currency Unit (the
écu
196
), and underwritten by the stability and anti-inflationary priorities of the German economy and the Bundesbank. Participant countries would commit themselves to domestic economic rigour in order to sustain their place in the EMS. This was the first German initiative of its kind and it amounted in fact if not in name to the recommendation that, for Europe at least, the Deutschmark replace the dollar as the currency of reference.
Some countries stayed out—notably the UK, where Labour Prime Minister James Callaghan correctly understood that the EMS would prevent Britain adopting reflationary policies to address the country’s unemployment problem. Others joined precisely for that reason. As a ‘
solution de rigueur
’, the EMS would function rather like the International Monetary Fund (or the European Commission and the euro in later years): it would oblige governments to take unpopular decisions which they could hope to blame on rules and treaties framed from abroad. Indeed, this was the true long-term significance of the new arrangements. It was not so much that they succeeded in time in driving out the demon of inflation (though they did), but that they did so by steadily depriving national governments of their initiative in domestic policy.
This was a momentous shift, of greater consequence than was sometimes appreciated at the time. In the past, if a government opted for a ‘hard money’ strategy by adhering to the gold standard or declining to lower interest rates, it had to answer to its local electorate. But in the circumstances of the later 1970s, a government in London—or Stockholm, or Rome—facing intractable unemployment, or failing industries, or inflationary wage demands, could point helplessly at the terms of an IMF loan, or the rigours of pre-negotiated intra-European exchange rates, and disclaim liability. The tactical benefits of such a move were obvious: but they would come at a price.
If the European state could no longer square the circle of full employment, high real wages and economic growth, then it was bound to face the wrath of those constituents who felt betrayed. As we have noted, the instinctive reaction of politicians everywhere was to assuage the anxieties of the blue-collar male proletariat: partly because they were the worst affected, but mostly because precedent suggested that this was the social constituency most likely to mount effective protests. But as it transpired, the real opposition lay elsewhere. It was the heavily-taxed middle classes—white-collar public and private employees, small tradesmen and the self-employed—whose troubles translated most effectively into political opposition.
The greatest beneficiaries of the modern welfare state, after all, were the middle classes. When the post-war system started to unravel in the 1970s it was those same middle classes who felt not so much threatened as cheated: by inflation, by tax-financed subsidies to failing industries and by the reduction or elimination of public services to meet budgetary and monetary constraints. As in the past, the redistributive impact of inflation, made worse by the endemic high taxation of the modern service state, was felt most severely by citizens of the middling sort.