Britain's Dark Days (1974)

While I have long had some vague awareness that the British economy was a mess in the 1970s, I hadn't fully appreciated how bad things were until I read this article by Andy Beckett in the Guardian about the "Three Day Week" in 1974. He writes:

The three-day week began at midnight on New Year's Eve in 1973, a Monday. The Heath administration decreed that until further notice all businesses except shops and those deemed essential to the life of the country would receive electricity only on Mondays, Tuesdays and Wednesdays, or on Thursdays, Fridays and Saturdays. Non-essential shops would get power only in the morning or the afternoon. When the electricity was off, affected businesses would have to make do with candles, gas lamps, private generators or moving their workers next to windows to make the most of the brief winter daylight. Employees would have to wear extra clothes to keep warm.

Beckett goes on to trace the roots of the crisis to the Heath government's economic policies - a tale of aggregate demand management gone awry - as well as the 1973 oil shock, and the militancy of the coal miners union.

From its election in 1970, his government had impatiently sought to boost the performance of the British economy. But from 1971, frustrated by a general lack of progress and spooked by a sudden surge in unemployment, the Heath administration had sought this transformation by increasingly bold - you could say reckless - means. During late 1971 and early 1972, the government cut interest rates, greatly loosened the rules that governed lending by banks, increased public spending and cut taxes. "No government has ever before taken so much action in the space of one year to expand demand," declared the chancellor Anthony Barber on New Year's Day in 1972.

For a time the results were spectacular: the gross national product, which had grown by a feeble 1.4% in 1971, grew by 3.5% in 1972, and by an almost precedented 5.4% in 1973 - the kind of rate usually achieved by Britain's economic superiors at the time, Germany and Japan. Between mid-1971 and mid-1973, house prices rose by almost three-quarters.

But the boom was too reliant on speculation and one-off government initiatives, and too removed from the underlying realities of the British economy, to last long. Shortages of skilled labour and of modern, flexible industrial premises - the legacy of decades of underinvestment and poor training and management - meant that the increased appetite for goods and services awakened by the government soon could not be efficiently met. The result was higher inflation and a growing reliance on foreign goods, which were themselves inflationary, as the other rich countries were experiencing feverish booms and price spirals of their own. Britain's trade balance worsened drastically and the pound, which in 1972 had been freed to rise and fall in value against other currencies, began to fall much more than the Heath government had allowed for.

In May 1973, Barber started to rein in its "dash for growth" by cutting public spending. In July, he raised interest rates to their highest level since 1914. Boom had not quite yet turned to bust; but the British economy entered the autumn in a delicate condition, even more vulnerable than usual to unforeseen problems. Then, on 6 October, came the biggest shock for western economies of the entire decade, and the second catalyst for the three-day week. In a surprise attack, Egyptian troops crossed the Suez Canal and invaded the Israeli-occupied Sinai Peninsula. The Yom Kippur war had started, and with it the 1973 oil crisis. The supply of Middle Eastern oil to Britain and other western countries was severely disrupted. By January 1974, the oil price was more than five times higher than two years earlier.

Even worse, the British economic crisis acquired a potentially lethal political dimension. The leadership of the National Union of Mineworkers rejected a pay offer from the National Coal Board. During November and December 1973, as the second national coal strike of his government changed from a possibility into a probability, Heath's conviction that the miners' militancy was ideological - rather than, as it also was, opportunistic and materialistic - became entwined with his wish to avoid the blackouts that had accompanied the earlier coal strike; with the oil crisis; with his tendency to dig his heels in under pressure; and with his proclivity for state initiatives and economic planning. The result was the three-day week.

And things didn't really get better from there - in 1976, Britain had to turn to the IMF for a loan (and now, there's talk they might have to do so again).