#59 - Capital and public services - a long history of parasitism

April 2002

Ancient methods to shield the system from the poor

Social provisions designed to buy social peace go back a very long way. The slave labour-based Roman society is not usually considered as a model in this respect. Indeed its only social provisions for slaves were whips and crucifixion. However, the vast majority of free citizens living in Roman cities had little or no wealth. They were a permanent threat to the handful of fabulously rich families which dominated Rome. And it was largely to contain the frustration of these poor citizens that Rome developed a comprehensive system of public services to cater for their needs. This included the provision of free food and subsidies to keep grain prices low, but also amazing urban achievements - such as planned stone-built housing, paved streets, underground sewers, water mains, public baths, theatres, etc.. Not to mention the infamous gladiator games which seem to have had the same sort of function as today's Sky TV or football matches.

It must be said, however, that Roman society had an unusual way (at least by today's standards) of financing public services. Taxes were not often imposed, at least not in Rome itself and only for war purposes. Public services, like all public expenditure, had to be financed almost exclusively from the pockets of the richest families, particularly those of elected politicians. The phrase "putting one's money where one's mouth is" had a very concrete meaning in Roman times. Needless to say, these politicians usually managed to repay themselves several times over from the spoils of war. But not always. The famous Julius Caesar, before making himself an emperor, bankrupted himself during his term as Rome's commissioner for public works. Still, Roman society had its own way of forcing the rich to pay. There could be some lessons to learn there, on how to deal with Labour's millionaire ministers, the likes of David Sainsbury and Geoffrey Robinson. And with Blair too: to all intents and purposes, it was in Rome that PFI was invented, except that instead of public service contractors making a profit, they had to hand over whatever they had built to the state for free - a much more sensible approach from the point of view of society!

After the collapse of the Roman empire, it took many centuries for some form of public services to emerge out of the Middle Ages. Society was then a patchwork of isolated, rival fiefdoms. Even the road and canal systems inherited from Roman times were allowed to fall derelict for lack of maintenance and users.

Once again, however, it was the fear of the rich for the poor which led to a change. In England, by the 14th century, an increasing flow of freed landless serfs was coalescing in the cities. They ended up in the charitable institutions originally set up by rich individuals and religious orders to provide shelter for sick pilgrims. Such a concentration of the poor in the heart of the cities was soon felt as a threat by the emerging urban privileged. So in 1359, the "unsick stubborn knaves" were banned from London. And throughout the following two centuries they were to be hunted down ruthlessly as criminals. To the point that in the first half of the 16th century, "sturdy vagabonds" of over fourteen years of age were ordered to have their ears cut off and death became the penalty after a third offence.

As it happened, however, these punitive methods did not work. So, in 1572, another tactic was introduced, in the form of a compulsory "poor rate" levy to allow each parish to cater for its own poor so as to keep them away from the towns. Not only was this first form of "welfare state" not aimed at alleviating poverty, but in fact it became the cornerstone of a system of wholesale coercion against the poor. Indeed, the "poor rate" paid by the wealthy was an insurance against social unrest. But it was also a small price to pay in order to force the growing army of landless poor and expropriated tenant farmers first into workhouses and manufactures (the dividing line was not always very clear) and then the factories and mines of the industrial era. To all intents and purposes this first "welfare state" was a decisive part of the mechanism through which the rising capitalist class built its colossal wealth out of the impoverishment of the working majority of the population.

Of course, Britain was by no means an isolated case in this respect. The whole of Europe saw the same kind of gruesome enslavement of the poor to feed capital's appetite for profits. It is worth noting that everywhere religious morals and charity provided a respectable cover for these brutal attacks against the poor, regardless of the local dominant creed - whether Anglican, Catholic, Orthodox, Calvinist, Lutheran or otherwise. The pace and timetable of these attacks was different but their content, in particular the focus on terrorising the poor, was remarkably similar.

Capital's royal midwife

Remarkably similar too is the way in which in every part of Europe the monarchic states had to act as capital's midwife, to supplement the greed and spinelessness of the new so-called "entrepreneur" class.

It is significant in this respect that the discovery of America - which provided the initial boost to the accumulation of wealth required later for the industrial revolution - was not due to the "entrepreneurship" of the emerging capitalist class, but to the encouragement and funds provided by one of Europe's most backward theocracies, the Spanish monarchy. After all, Columbus was himself a sea merchant from one of the strongholds of merchant capital, the Italian town-state of Genoa. As a maritime power, Genoa was on equal terms with any of the monarchies of the time. Its commercial empire stretched as far away as Moscow and the Baltic sea in the North and the Silk road leading to India and China in the East. But for all their wealth the powerful Genoese merchants were simply not interested in the uncertain investment involved in looking for a westward sea route to Asia - which was why Columbus ended up taking his crazy dreams and his begging bowl first to Portugal and then to Spain.

In fact, the short-term greed of the merchants was the main feature of Europe's early international trade. Ironically, this left the monarchic states with the responsibility of protecting the long-term interests of the merchant class against its own short-sightedness. In Britain, sea merchants whined about the losses they incurred from foreign pirates. They demanded the protection of the monarch and argued for punitive wars against rival countries. But many among these very same merchants had discovered very early on that piracy was actually much more lucrative than trade. Quite a few of these "respectable" merchants then used the proceeds of their loot to buy themselves a knighthood so as to join in with the aristocracy's "legitimate" looting - like Henry Mainwaring, who became Lieutenant of Dover Castle in the early part of the 17th century.

In the end, the European monarchic states did intervene to help get the merchant class into shape. From the late 16th century, the merchants were ordered under no uncertain terms to regroup into corporations around each deep sea port. They were instructed to pool their resources together in order to build heavy ships capable of resisting pirates. In return, these corporations were granted a royal charter which gave them a form of monopoly aimed at avoiding undue competition and protecting profits. In France, from 1659, king Louis XIV even went so far as to introduce the first system of public subsidies to private investment: all imported goods were taxed and the proceeds were used to subsidise the corporations' shipbuilding investments.

In fact, the more interventionist policy of the French monarchy in the 17th century extended to the whole economy. There were social reasons for this. In Britain, the social basis of the monarchy was an alliance between the new landed aristocracy created during the Reformation, in the 16th century, and the City bankers. And while the English revolution subjected the monarchy to Parliament, it only entrenched the power of this alliance. In France, by contrast, the power of the monarchy rested on the support of certain sections of the emerging urban capitalist class against the old aristocracy. So, for instance, in the early part of the 17th century, the legal profession was granted privileges comparable to those of the aristocracy, while its members were systematically appointed to key state positions. But this did not sever their social links with the merchant class and the state soon focused its resources on boosting the economy for the merchants' benefit, even though most resented this infringement on their private affairs.

This new focus of state policy in France, became particularly visible in the second part of the 17th century, during the two decades in which Colbert dominated government policy under king Louis XIV. His first step was to launch a comprehensive census of all productive resources and wealth across the country. His purpose was to make tax collection more effective, but also, and above all, to reorganise production at a national level. Colbert sent agents all over Europe to recruit skilled men, sometimes abducting them if they could not be lured voluntarily, in order to secure the best technological knowledge available. And for the next twenty years or so, Colbert oversaw the building of 400 manufactures across the country, embracing every possible productive activity. Some of these manufactures were privately-owned and funded by cheap loans from the state, but most were state property. In return for agreed production and quality levels, they were granted a monopoly position in their particular area of activity. And of course, all of them provided the merchant class with large amounts of top-quality manufactured goods which earned them huge profits abroad without their having to risk their own funds in investment.

This account seem to imply that Colbert's views were somehow radical. So it should also be said that his time in office was one of the darkest periods of the century for the poorest. Indeed, Colbert used just about any pretext he could find to coerce them into working virtually for free in his new manufactures or on board the large commercial fleet which was built during that period. But then this was just a foretaste of the class war which was to accompany the industrial revolution.

In any case, although Colbert was finally overthrown by a conspiracy inspired by the very beneficiaries of his policies, his policies left deep traces. For instance, many of today's French multinationals developed out of Colbert's manufactures, among them, for instance, the chemical and metallurgic giant Pechiney-St Gobain, which started off as a glass manufacture and the engineering group Jeumont-Schneider, which began as a canon manufacturer for Louis XIV.

The case of France was by no means isolated in this respect. During his reign, from 1672 to 1725, the Russian czar Peter the Great developed an industrial programme inspired by Colbert's, which included large-scale manufactures and urban developments on the Baltic Sea, as well as the largest European steel complex in the Urals. And their example was to be followed during the next century by the Prussian monarchs.

These were still the very early days of the capitalist class across Europe. For the whole of the following two centuries, the finances of the European states were to be used to boost the profits of their capitalists, in particular through huge military budgets used to wage war against European rivals, in Europe itself or elsewhere, or to repress the rebellions of the colonial populations.

The great canal cuts

Britain was the first country concerned by the industrial revolution. But its industrialisation would have been impossible without means of transportation which were adapted to the requirements of developing industry. However when the industrial revolution took hold in the 18th century, state intervention in the economy was mostly limited to exerting control over export and import trade, especially of agricultural products and raw materials. This meant that capital was left to find its own way to cheapen the means of transport.

Of course, before the advent of railways, water carriage was the only way available to cope with the scale of distribution required to meet industrial need. Indeed, as Adam Smith pointed out, it took "50 broad- wheeled wagons attended by 100 men and drawn by 400 horses" to move the same amount of goods by road from London to Leith (in Scotland) as "6-8 men sailing one ship". And the difference in costs was enormous.

Geographically, Britain had the advantage of being surrounded by the sea. But what about inland transportation? The responsibility for developing and maintaining waterways was left to local initiative. So that during the period of industrial expansion many areas remained productively undeveloped because they were not directly accessible by water. Local committees of merchants at places too far upstream called for the building of canals and locks, using the example of the four-mile long Exeter lighter canal built as early as 1564, which first used a system of double locks. The problem was that investment was required on a large scale to finance such projects and the capitalists were unwilling to supply it from their own pockets.

In France, this problem had already been resolved in the previous century, under Colbert's public works policy. A network of large heavy duty canals had been built by the state and a special administration set up to maintain them. Among these were the Briare canal connecting the country's two largest navigable rivers, and, above all, the 251 kilometer-long Midi canal, which linked the Atlantic to the Mediterranean through a system comprising over 100 locks. Such achievements had been hailed in Britain by people like Daniel Defoe, but to no avail.

In Britain, by contrast, the state stopped short of taking responsibility for the comprehensive programme that would have been needed. True, it did undertake one major project, not on the British mainland, but in Ireland - the Newry Canal, whose construction started in 1742, on Irish tax revenue, in order to get cheap coal to Dublin. But overall, the state confined its role to giving local private consortiums clearance to raise finances and compulsory powers to buy land for new canal projects. Shareholders were protected from liabilities in case things went wrong. Merchants, landowners and City bankers all benefited from this arrangement, not to mention the MPs who were being lobbied with substantial bribes, since such clearance required an Act of Parliament.

Once the advantages of canal-building became obvious and the possibility for making money out of such projects was realised, major canal building gained some momentum. In 1757, the Liverpool Corporation initiated the building of the first industrial canal from the Mersey to St Helens, to bring Cheshire salt to Lancashire coalfields. This was followed by a period of massive privately-funded canal building which improved accessibility, allowing cargoes to be sent right across the country as the major rivers were linked by cuts from east to west and north to south. By 1790, London, Bristol, Birmingham and Hull were joined by a canal system. In fact Birmingham could boast of more miles of canals than Venice, allowing the Midlands to become the major industrial centre of the period.

But there was no national planning to maximise the capacity of the system, let alone to cater for future needs. The only criterion was short-term profit at a minumum cost. Locations were dictated by the immediate profitability of the most important industries and primarily, at that time, coal. So, the Duke of Bridgewater's canal, which linked his coal mine to Manchester, allowed him to make a fortune purely by reducing his costs of transportation. However, cost-cutting in building the canals meant that they were often too narrow, too shallow, and too tortuous to keep up with fast increasing industrial production. So by the end of the 18th century, a large number of canals were already obsolete, either because the cost of maintenance was too high to make any profit out of them or because they were no longer adapted to transport requirements.

Respectable highway thieves

Today, not even the most fundamentalist supporters of privatisation would consider taking the road system out of state control, except perhaps for a few motorways or bridges. Yet, for a long time, just like for the waterways, the development of the road system in Britain was left entirely to local initiative and private interests. And the result was even more backwardness and chaos than for the waterways.

Indeed, up until the mid 1700s, roads were neglected and in fact the network was more or less that left by the Romans, except that roads were no longer paved and most were not even passable for carriages. By that time it was estimated that even with the best staff, horses and equipment, one could not travel faster than an average of 3 miles per hour - not counting delays due to highway robbers, of course.

What changed things in Britain, in this respect, was not economic or social necessity but military considerations - the threat of the 1745 Scottish Jacobite rebellion. The absence of highways impeded the mobilisation of troops. But even then the only real public road building by the state was undertaken in the Scottish Highlands, in order to deploy a standing army rapidly - and for the same reason on strategic routes such as that to Holyhead - the bridge to Ireland.

Otherwise, hardly any public funding went into road projects. Legislation remained well into the 1780s aimed at preserving roads by restricting traffic rather than building roads to suit vehicles. Laws enforced a minimum width of wheel to preserve road surfaces at the expense of speed.

The main agency for road improvement was the "turnpike trusts", which had been in existence since the 1660s when London began its period of rapid expansion. These were granted long-term leases by Parliament to improve specific stretches of roads (marked by turnpikes), together with the authority to raise capital at fixed interest rates and to charge tolls from users. These trusts really took off the ground in the second half of the 18th century when low interest rates made them an attractive investment. Hundreds of them developed, mostly around the large cities, specially after the development of the macadamisation process, at the beginning of the 19th century, which, by ending the need for deep and solid foundations, reduced the cost of maintenance considerably. As a result a large part of the existing road network became usable by heavy loads and journey time was cut drastically - for instance it took 48 hours to travel between London and Edinburgh in the 1820s, as opposed to 10 days just a century earlier!

However the development of the railways was now opening new prospects for investors to make a much quicker profit while income from tolls was going down. During the second part of the 19th century, as the turnpike trusts came up for renewal, their owners preferred to sell their assets to local authorities. Finally, in 1888, this trend was endorsed by the County Council Act which gave the new county councils the responsibility for maintaining roads in their territory. Now that roads had ceased to make a profit for the capitalists, the state was finally taking them over! The legacy of all these years of chaotic, un-coordinated development persists in today's many narrow, winding roads, with blind rises and corners.

By contrast, the state's role in developing roads in France was marked by the same centralisation as in other areas.

Right from the beginning of the 18th century, the French monarchy had already established a state body of road engineers - known as the Corps des Ponts et Chaussées - whose responsibility was to extend the country's road network. This body was considered essential for military reasons, just as the Post Office was. And in fact the building of new roads was primarily determined by the need for the king to be able to move heavily-equipped troops around the country and to communicate by post with any garrison. But as the garrisons were mostly located in the larger towns, these objectives fitted the merchants' need for effective road transport.

During the fifty years starting from 1720, the road construction budget was increased eight-fold. A code was introduced to ensure the roadworthiness of carriages as well as to provide for minimum road standards. So, for instance, all roads had to be at least 60 feet wide, with the central section paved. By the time the French revolution broke out, in 1789, this policy had led to a network of around 27,000 kilometers of roads. By ending all remaining toll systems and nationalising the king's properties, the revolution turned this network into a public service, in the modern sense of the word, for the first time in Europe.

This policy had its dark side, however. As it required considerable funding, taxes were increased to unprecedented levels and due to the corruption of the tax collectors appointed by the king, tax collection became a method for them to ruin small farmers and confiscate their lands - even though this was formally forbidden by Royal legislation, but who cared about the protest of distant farmers? Moreover, from 1737 onwards, the maintenance of the existing road network was carried out by forced labour - those who could not pay a special road tax had to give a maximum of 30 day's of labour each year to work on the King's roads. As it happened, the hardship resulting from this turn of the screw on the poorer farmers, was a major factor in the overthrow of the monarchy.

Original chaos in the railways

With the arrival of the railway era in Britain, it seemed that, at last, politicians had learnt the lessons of the past, when, very early on, prime minister Gladstone appeared to try to establish some national uniformity by statute. His 1844 Railway Act set up an inspectorate to enforce minimum standards of safety, signalling and braking and telegraph systems. Companies were compelled to run one covered-carriage train a day, stopping at all stations and offering a fixed fare in third class which could not be raised without parliamentary permission - which became known as the "Parliamentary Train".

But Gladstone's apparent will to impose some order and restraint on the capitalists' profiteering was entirely misleading. On the contrary, his Act was designed to bring a new lease of life to the railway industry at a time when, following the peak reached in 1840 by the first wave of railway investment, railway share prices had suddenly taken a downward plunge. And the most important provision of his Act was that it allowed the state to buy out the railway companies when their charters expired in the 1860s. This did not happen, of course. But, in and of itself, this provision was the closest to a state guarantee for railway shareholders that Gladstone was prepared to give publicly. Shareholders got the message and railway investment increased 8-fold over the next five years - that is until the speculative bubble burst again in 1848.

What fuelled this great speculative boom - or rather series of speculative booms, because there were several dramatic stock market crashes - was the emergence of passenger traffic. In 1830 already, 400,000 passengers travelled between Liverpool and Manchester, despite the horrendously uncomfortable conditions. By 1845, one million were travelling annually between London and Birmingham. Beyond the enormous possibilities opened by the railways for the economy as a whole, it was this huge potential market and the quick profits it implied which attracted a massive flow of capital. Shares sold like hotcakes.

The railway boom lasted until 1866 with a peak in the late 1840s. The extent of the investment boom can be measured by the fact that between 1846 and 1848, the railways absorbed half of all investment in Britain. Every capitalist worth his salt wanted his own share of the bounty.

But this free-for-all, in which the state kept (or rather pretended to keep) the back seat, came at a high price. In Britain the average cost of a new railway line was around £40,000 per mile, which was three to four times more than in the US and Europe. Why so? It seems that up to 20% of this amount went to landowners to purchase land (whereas in other countries the land was usually provided by the state) - often paid for in shares, meaning that the landed class became as big a player in the railways as it was already in mining. But another significant portion went in bribes to win the support of MPs for the Private Acts of Parliament required to build a new line! In the case of the London to Birmingham line alone, almost £1m was paid to soften potential parliamentary opposition. Altogether, no fewer than 157 MPs were shareholders in new companies in 1845.

There were other, more hidden costs attached to the railway free-for-all, particularly linked to the crazy competition it generated. In the mid-1800s, for instance, there took place the so-called "gauge war". Originally, the 4ft 8.5in gauge used by Stephenson's locomotives had become a de facto standard because they were the only locomotives available. But as soon as others emerged, wider gauges were suggested - such as that used by Isambard Kingdom Brunel who built the Great Western main line from London to Bristol in 1845, with a gauge of 7ft 0,25in. This wide gauge was proven to be safer, since it was more stable and provided for a smoother railway with greater carrying capacity. But this also meant that inter-regional flow was obstructed where the Midland line met the Great Western line at Gloucester and Cheltenham. Besides building tracks and rolling stock for this wider gauge was more expensive. Despite its obvious superiority Brunel lost the "gauge war" and in 1847, Parliament decided in favour of Stephenson's narrow gauge - no doubt because of its more powerful backers.

Of course, companies which were interested only in dividends were unable to predict the entirely predictable - that there was a limit to the number of lines that could be built on one island and that some of these lines would not be profitable. This led to a number of spectacular bankruptcies and a long series of take-overs. By 1850, the 200 separate companies which had existed in 1843 had been consolidated into 22 regional groups. But initially this only pushed more capital into the remaining companies, which went on expanding at each other's expense in the most ludicrous way by duplicating routes. Taking only one example, in 1889, no fewer than thirteen different companies were operating 24 different sections of track on a 136-mile stretch of track of the Great Eastern line!

Bailing out the railways

The period between 1870 and WW1 saw the beginnings of economic problems for the railway companies, largely due to competition at a time when periodic economic crises resulted in irregular traffic levels. This was countered to some extent by more mergers, which were facilitated by new legislation. But more and more, the rail operators looked to the state for help. "Reform", they argued, was necessary to allay shareholder anxiety, encourage new investment and reverse the steady decline in profits. A wave of amalgamations took place between 1906 and 1910, in order to maintain profits by ending competition on shared lines. The rail magnates, particularly the "Three Greats" of the Great Central, Great Northern and Great Western, proposed a merger between themselves. Other companies followed suit.

Between 1907 and 1911, the companies and the government's Board of Trade engaged in complex negotiations. The state was prepared to allow the existence of much larger rail monopolies but only provided the companies agreed to allow a measure of state control over the provision of services and the rates charged for them. This was something the companies were now willing to consider. In the end, however, the attempt to create a proper code of practice failed because the companies were not prepared to forego competition to the required extent nor guarantee the level of service provision.

Eventually, it took WWI and the fall in profits due to the postwar recession for the rail bosses to call for a state bail-out. A new Transport Act (passed in 1921) grouped the existing 120 companies into the so-called "Big Four" monopolies to help rescue the industry, granting limited state subsidies in exchange for a fixing of freight charges. The merged railway companies however still remained in the red. Even the biggest, London and North Eastern, paid no dividends right up until WW2, and what is more, starved its lines of vital investment.

More or less the same process took place in the other major European countries, except that the final transformation of the industry into a cartel of privately-owned monopolies subsidised by the state was usually completed much earlier.

In France, for instance, the development of the railways started off in much the same way as in Britain - as private ventures. But as early as 1842, legislation was passed providing the state with a high level of control over the network. In short, under this law, the state provided the land and carried out the building work (except for bridges) while the companies had to take care of the rolling stock, tracks, stations and signalling and their maintenance. Even then, part of the maintenance cost was covered by agreed state subsidies and the state undertook to guarantee a minimum return on investment for shareholders. The issue of competition was dealt with by providing each company with a regional monopoly. In return the state kept some control over prices and services and total control over the building of new lines - which allowed a certain amount of planning.

The result was that, by the mid 1860s, half-a-century before Britain, the entire French network was divided up between six regional monopolies, heavily subsidised by the state and totally controlled by a handful of very large banks. The intervention of the state had only accelerated the process of concentrating railway profits and state subsidies into fewer hands. The resulting railway network was probably somewhat more rational than in Britain, but still by no means a system of cheap public transport for the population.

The difficult birth of public education

With the exception of free schools for the children of workers such as that of the well-known utopian socialist Robert Owen, at his factory in New Lanark, most English schools in the first part of the 19th century were still so-called voluntary schools founded by the Church of England. And of course their main purpose was to instruct pupils in religious doctrine, rather than promote knowledge. But then, in a country were the Church was an official component of the state, the voluntary church schools and the very limited form of education they offered to the poor was.. state education of sorts.

These voluntary schools were funded by subscriptions from philanthropic (or devout) rich benefactors and by fees charged to those parents who could afford it. This remained the case up until the 1830s, despite the often very loud lobbies from the reformists of the day who attempted to push for publicly funded education, or even a wholly run state system, as prevailed already in some countries in Continental Europe.

After all, the limited voluntary system presented very distinct advantages to the cotton lords and captains of industry - who used child labour in their factories and were not in favour of being deprived of this cheap source of profits. Neither did they welcome the idea of an educated workforce when all they required was unthinking and unquestioning machine fodder.

A conflict also arose between the different church denominations as to which of them was to have the right to distort the minds of children. The Quakers and dissenters formed their own organisation devoted to the education of the working population - known as the British and Foreign School Society. This lead to the official Church establishing the National Society for the Education of the Poor in the Doctrine and Discipline of the Established Church, in 1811. The next fifty years were dogged by this rivalry. But it seems that in fact this competition between the two main societies resulted in the erection of numerous schools. However, education by charity could not offer adequate schooling to all children. In 1829, out of an estimated 2m children of school age, only around 600,000 were receiving any education at all.

There was still strong resistance in the ruling class against educating working class children, as a Poor Law Commissioner reported: "It is impossible to overlook the fact that a certain portion of the upper and middle classes harbour a rooted distrust of any plan for the education of the poor." Nevertheless, in 1833, the government provided a small building grant to the education societies. In 1839 a committee on the Privy council was established to administer annual state grants and arrange school inspection. A small central education department was established to administer the state's intervention - later to evolve into the ministry of education. However, the Church of England refused to allow inspection of its schools unless it controlled such inspections itself. In fact the government backed down over this in 1840, agreeing a concordat with the Archbishop of Canterbury that no-one could be appointed as an inspector of an Anglican school without the approval of a bishop.

This government policy of conceding power to the Church - and the significant wealth of this institution - meant that it took until 1870 before Parliament passed an Elementary Education Act in order to begin to generalise a system of national primary school education for children. At the time, it was justified by Parliament on the basis that industrial prosperity depended on it. WE Forster, proposing it in the context of France beginning to outstrip Britain in technology, said that it was no use trying to give technical instruction to citizens without elementary education... "if we leave our work-folk any longer unskilled, notwithstanding their strong sinews and determined energy, they will become overmatched in the competition of the world".

But even then a dual system, recognising the continuing rights of the Church and its benefactors to determine education in their fee-paying schools was proposed. However, local authorities were now permitted to provide for schools funded from their rates. It took another ten years before elementary education was made compulsory throughout England and Wales. In 1891 fees were abolished in all but a few elementary schools. Secondary education however was not yet taken on as an official state responsibility. This was still conducted by voluntary fee-charging grammar and public schools. In 1900, only one child in 70 could expect to go to a secondary school. It was only with the 1918 Education Act that a "national system of public education for all persons capable of profiting thereby" was aimed at. And only at this point was school leaving age raised to 14 years.

Producing a fit workforce

The roots of the modern British welfare state lie in the Poor Law system inherited from the 17th century. With time it evolved, but without bringing any improvements to the poor themselves. It took the rising militancy of farm labourers and then the rebellion of the new proletariat of the towns, in the 19th century, for a reform of this law to be implemented.

In the first half of the 19th century, the industrial bourgeoisie used the mobilisation of the proletariat to gain political power for themselves. Their one concession to the workers was the 1833 Factory Act which restricted the exploitation of children and established a body of inspectors to enforce the Act. But in the short space of one year, the new Liberal government representing the industrial capitalists, amended the Poor Law by banning all forms of outdoor relief and subsidies to the low-paid. The payment of any form of relief to the poor was made conditional on their compulsory labour in workhouses. Locally elected boards of Guardians accountable to the Privy Council ensured that expenditure was kept to a minimum. But because local cliques of privileged landowning capitalists still more or less did what they pleased and the state was not prepared to confront them, this attempt to centralise a welfare system - albeit a coercive one and one which was solely in the interests of capital - was only partially successful.

Like education, public health had been largely left to chance and charity until the 19th century. Nevertheless, due to the new interest in science spawned by the ideas of the French revolution, voluntary hospitals had been set up in nearly every county by the end of the 18th century. The Poor Law already required Boards of Guardians to appoint doctors to take care of the health of the local poor. So infirmaries opened as annexes to the Poor House. But only minimum remuneration was received by those who cared for the sick and these infirmaries really amounted to little more than dumping grounds where the poor where left to die.

It was the squalid conditions of the rapidly growing towns in the early 19th century towns, acting as a focus for the spread of disease, which finally spurred the state into some action. While cholera epidemics killed 130,000 people in the 1820s and 1830s many other diseases like Rheumatic Fever and TB had pushed down the life expectancy of manual workers to an average as low as 25 years (15 in Liverpool)! But as the Times newspaper remarked in 1848, "The cholera is the best of sanitary reformers". In that year, as a result of another epidemic, a Public Health Act, proposed by Poor Law commissioner Edwin Chadwick, was passed and a General Board of Health set up to initiate clean water and sewage schemes at local level, under state supervision. But even then this was only partially successful.

Large towns were allowed to adopt their own regulations without being accountable to Chadwick's Board. All his attempts to remove the provision of water for London's population from the hands of the then existing eight water companies failed. Chadwick in fact recommended at the time that water provision be fully state-owned and operated. The Treasury refused to provide the funds and the water companies saw to it that Chadwick was dismissed from his post. That said, it was obvious that for safe water to be provided and for a proper extensive sewage system to be constructed it would require central intervention and by 1875 it had been made compulsory for all local authorities to enforce minimum standards of drainage, sewage and water provision. Funds from taxation and local rates were made available for this and medical officers were appointed by local authorities to oversee public health.

By the end of the 19th century a consensus had begun to emerge amongst British capitalists that on social matters at least, bold state intervention was urgent. This was partly because of the growing dynamism of the new general labour unions and the growing economic competition from their European counterparts. The working class needed to be fully mobilised to help get the economic machinery in Britain into competitive shape. What is more the Boer War of the end of the 19th century exposed the need for a fit and healthy army. Balfour, Tory prime minister put the whole question in a nutshell in 1895 when he said that "social legislation is not merely to be distinguished from Socialist legislation, but is its most direct opposite and its most effective antidote".

Welfare to tame the working class

The liberal prime minister, Campbell Bannerman who succeeded Balfour, then proceeded to put in place the first social welfare system in Britain, implemented over the nine years from 1905 to 1914. Campbell Bannerman, had visited Bismark's Germany and admired the way he had tamed a threatening labour and trade union movement by incorporating them into the state institutions and providing state schemes for unemployment, sickness insurance and pensions for the elderly. He spoke of the usefulness of trade unions "in restraining social unrest and helping to preserve harmony between capital and labour" and used an informal coalition with the union leadership to prepare the country for the war which was already very clearly on the horizon by this time. Thus by 1906, local authorities were legally obliged to provide children with school meals and a medical inspectorate was set up for children in 1907. In 1909 the Old Age Pension Act provided for a means-tested pension for the over-70s paid for out of general taxation. What is more this was paid by the Post Office rather than the old Poor Law institutions previously responsible for paying relief to the poor. So this established the principle that at least such a pension was a right rather than charity - even if most workers were long in their graves before the age of 70 years in those days.

Also in 1909 Labour Exchanges were set up for the unemployed allowing the government to exercise direct control over the availability of manpower - something which was decisive when war broke out five years later. These exchanges also instituted a permanent framework of co-operation between the state and trade union machineries - which were invited to appoint their representatives to the administrative committees of the exchanges.

By 1913, the scheme covered 2.4m workers, providing them with a non-means-tested benefit paid for 15 weeks when unemployed. 12 million workers were guaranteed means-tested sickness benefit and invalidity benefit. They could obtain free medical treatment from an approved list of doctors, though hospital treatment was still fee- paying.

This welfare system undoubtedly represented a considerable step forward for the poorest layers of the working class. However, by the time WWI broke out, it had served its purpose for the capitalist class: despite the threat of working-class militancy, preparations for the war had been completed. Once the war was over, it was bound to be put into question.

Steps backward

State intervention reached its highest point so far during WWI, with the virtual militarisation of the economy, under the centralised control of the state. But as soon as the capitalist class was able to claim the spoils of victory, it also proceeded to free itself from the constraints it had accepted in the run-up to the war, both in economic and social terms. Its objective became the reversal of the pre-war trend which had allowed the working population to increase its share (albeit still proportionally small) of national income. Of course, this objective turned into an obsession when the capitalists' wartime profits began to melt away during the economic depression which came almost immediately after the war and even more so after the 1929 stock market crash.

This did not mean that the state's intervention in economic and social life was reduced. Quite the opposite. But its main focus shifted to reducing the amount of public funding that went to the working class in order to subsidise capitalist profit.

The rolling back of some of the pre-war welfare provisions was particularly swift. After a brief period between 1918 and 1922, when benefits to the unemployed were increased, the following period from 1922 to 1939 saw a systematic reversal of these concessions.

Of course, for those workers who fell outside of these insurance provisions, the Poor Law remained in place right up until the 1940s. The only change came in 1930, when the Poor Law system was renamed Public Assitance, the Boards of Guardians abolished and their duties handed to county and borough councils. This meant that the workhouse remained an option throughout the Depression years for those desperate enough to apply for relief to this Victorian institution. But the Poor Law institutions were never designed to cope with the scale of unemployment of these years which at its peak in January 1932 reached almost 3m.

Unemployment benefits were initially cut by way of the "genuinely seeking work" test - a forerunner of Major's Job Seekers' Allowance, which was introduced for all claimants by the 1924 Labour Government. 3m workers covered by unemployment insurance lost their entitlement to benefit due to this "test" between 1921 and 1930, when it was abolished in favour of new measures to cut the cost of unemployment. In 1930, means-testing was introduced as a condition for the payment of assistance to those who had already exhausted their entitlements to benefit. This demeaning test subjected working class families to the scrutiny of inspections to assess the level of help they should receive. And this in itself ensured that many would refuse such an indignity.

Social housing, another area vital for the vast majority of the working class, was not just subjected to drastic cutbacks. By a cynical sleight of hand, the governments even managed to turn it into a milch cow for a whole section of the capitalist class.

Following the war, the government had pledged to build "homes fit for heroes" - 500,000 houses for workers in 3 years. This was not as grand as it sounded, in fact, given that two years later, by 1921, there was a deficit of 805,000 houses! But it could have been a start had the state fulfilled its promises.

Originally, funding for this programme was meant to come from state funds while local authorities were responsible for the planning and implementation. And surprise, surprise, by 1920 already private builders were being offered a lump sum subsidy to build a house either for sale or for rent. But only about a third of the houses built with this subsidy were social housing. By 1921, only 203,821 houses had been built - 170,000 by local authorities, 4,545 by housing associations and 39,186 by private enterprise. This did not reach even half of the original target.

Then, in July 1921, the Treasury ended the subsidy system to local councils, but not to private builders. Two years later, a new subsidy system was brought in whereby local authorities and private builders were offered the same subsidy provided certain standards were met. This was to be paid on an annual basis for 20 years to local authorities or as a lump sum to private builders. But local authorities could only build houses if they could convince the Ministry of Health that they could do so better than private enterprise. This meant of course that the private builders were given a generous state handout and also that houses were built not in areas most in need but where the private builders could get high selling prices or rents. Neither was there any constraint imposed on rent nor price nor who could occupy them.

In 1924 when the Labour government got back into power, Wheatley's Housing Act provided for a new rate of subsidy, now paid as a lump sum to local authorities and gave them a free hand to build as well as to contribute additional funding from rates. However the subsidy to private builders was not abolished. Then came a series of changes which finally resulted in the 1933 Act, which left the provision of subsidised working class housing to private enterprise, supplemented where necessary by unsubsidised building by local authorities, who were encouraged to borrow from building societies for investment in housing to let.

Over the twenty years between 1919 and 1939 one million homes were built by local authorities all told. Many of the "heroes" who had been promised fit homes in 1919 were still waiting for them when they were asked to make themselves available for slaughter once more on the battlefields of WW2. But, under the pretext of building affordable houses, the building industry had pocketed a considerable amount of public funds, a large part of which were never used to build social housing.

During this interwar period, the most notorious instance of state subsidy to the bosses was the one which led to the 1926 General Strike - when the subsidy to the Coal Owners, paid in the form of a wages top-up to the workers, was revoked and the miners' wages were slashed. But there were many others. For instance the £75m worth of grants to industry given out by the government in 1927 under the Trade Facilities Act in return for their commitment to increase employment - which never transpired, of course. Then, the following year, it relieved industry of 75% of its rates bills under the same pretext, and all this even before the Depression had broken out.

But after that, particularly after the crisis reached the banking sector from 1931 onwards, the flow of state subsidies to private companies turned into a flood, either in the form of straight bail outs or under the pretext of rationalising one industry or another (which was, in many cases, the official cover for rearmament). Not that these industries did not need rationalising - they certainly did, given their atomised state in the form of antiquated medium-sized companies. But what they needed above all was capitalists willing to invest in new machinery and production. And it was this investment that the state provided for them, thanks to the drastic cuts made in social provisions.

It should be added that the economic crisis was not the only factor that determined the rolling back of social provisions. After all British capital, although partly sidelined by WWI, was still enormously wealthy, rich enough in any case to keep welfare provisions at the same level. But the defeat of the 1926 General Strike, the confidence this gave to the bosses and the subsequent weakening of the working class by rising unemployment, were probably major factors in shifting the general concensus among the capitalist class in favour of this wholesale attack against the standard of living of working people and the jobless.

After WWII - a "socialist" package?

By the time WW2 ended, the concensus had already changed among the capitalist classes, not just in Britain but throughout Europe. Everyone, including among the most reactionary politicians, took for granted that the postwar period would have to involve both large-scale involvement of the state in the economy and large-scale welfare programmes. There were minor differences concerning the packaging required for this state intervention, but not on its necessity.

The reasons for this European concensus were to be found, of course, in the unprecedented scale of the destruction caused by the war. Not only were most industries disorganised or partially destroyed by the war, but no country, not even those which had suffered relatively little material damage like Britain, was in a position to benefit from this situation by selling its products to others which were less fortunate.

There was also a major difference with the situation which had followed WWI: this time round, the main European powers could not even count on intensifiying their past plundering of their colonial empires. For the American leaders, who were the only real victors in this war, had made it absolutely clear that they expected the former colonies to become open markets to US companies.

So, with only a few exceptions, the policy of all European countries followed more or less the same pattern, whether they were rich or poor, whether they had been occupied during the war or not, whether they were in the American sphere of influence or on the Russian side. They nationalised the main basic industries and public services in order to relieve their owners from having to make the vital investment required (which the owners would not have done), but also to provide a steady flow of supplies and orders to the remaining private industries; and they launched a host of welfare programmes designed to win the support of the working population for the reconstruction effort, at the lowest possible cost to the state, while allowing employers to keep wages to the barest minimum.

In some countries, as in Britain or in Eastern Europe, this package was portrayed as "socialist" or even "communist" (at least after 1947), while in others, such as Western Germany (and even Japan for that matter), it was carried out under the auspices of the American general staff, which was not likely to indulge in such language. But behind the label, it was the same package, implemented with the same objectives.

Of course, another factor which cemented the concensus in favour of this policy among the capitalist classes was their own uncertainty regarding a possible backlash from the working class of their own countries. Not that they feared in any way that Stalin might take advantage of the situation to foment revolutionary unrest in the West, as was sometimes claimed later. On this account they knew they had nothing to fear. But after seven years of the most murderous war ever, there were serious grounds to think that workers, and more specifically discharged soldiers, could be determined to bring those responsible for this slaughter to account. But this fear did not last long as was shown by the unanimous anti-communist turn taken by all governments, following the lead of the US leaders, only two years after the end of the war.

As to the "inconvenience" caused to the capitalists due to their being pushed out of some industries by the nationalisation programme, it was certainly considered insignificant compared to the price they would have had to fork out just to restart normal pre-war production, not to mention to find markets for their products or modernise their facilities. Instead the big shareholders in steel, coal, transport, etc... ended up selling large chunks of shares which were virtually valueless to the state for very respectable sums - which they could reinvest in any profitable activity they could find, like financial markets for instance.

The NHS - welfare on the cheap

The "Welfare State" was an essential cog in the machinery of the post-war economy. Its inception had nothing to do with the particular character of the Labour government which happened to be ruling Britain at the time. Other Western countries also developed comparable welfare states after the Second World War and most of them ended up spending a higher proportion of national income on them while still achieving higher economic growth rates.

Britain had, of course laid the foundations for its welfare state already. And Beveridge whose blueprint report of 1943 outlined the form that Britain's social security system would take, made it clear that the objective of unemployment benefit was to provide only the minimum income for subsistence and that to "give by compulsory insurance more than is needed for subsistence is an unnecessary interference with individual responsibilities."

Why did he choose an insurance based system rather than a taxation based one? In the 1940s a worker was only liable for income tax until he was earning at least 40% of the average manual wage. A tax-based social security system would have been paid for mainly by business, the middle class and those higher on the scale. Workers, however already paid into insurance schemes and it was considered that this was therefore possible to reimpose - and of course it would prevent the poor from regarding the state as a "Santa Claus" which dispenses something for nothing! The minimum provision was to be based on flat-rate contributions - the same for everyone, regardless of income, employees and employers, and a flat rate benefit which would also be the same for everyone. While the excuse given was that this avoided the despised mechanism of means testing, the obvious reason behind it all was that it was the cheapest possible way of generalising a benefit system.

While even Churchill, who coined the phrase of social security "from the cradle to the grave", spoke of an equitable society without poverty at last - another version of the "homes fit for heroes" speech of Lloyd George after WWI - his rhetoric was entirely cynical. Because of course, with a state social security system in place, wages were in fact being subsidised by the state in the sense that employers could keep wages much lower on average in the post WW2 period.

The National Insurance Act of 1946 was duly passed and for the first time ever, an Act covered all contributors between school leaving age and pensionable age for benefits for unemployment, sickness, maternity, retirement, widows' pensions, guardians' allowances and death grants. The self-employed and non-employed were covered but were entitled to fewer benefits.

It took almost another two years for the National Health Service to be launched, the main sticking point having been the opposition of a section of high-earning medical specialists and General Practitioners who objected to being mere salaried employees of the state subject to its control. In the end concessions were made to these doctors and this is what has led to a major flaw in the system which has never been resolved and has indeed, just been exacerbated with the lauching of Primary Care Trusts on April Fools' Day 2002. It seems that all the disastrous legislation regarding NHS reforms (and for this one should read "cuts") is passed on April Fools' Days. It was on 1 April 1991, after all, that the NHS underwent its most radical transformation since 1948 when the Conservative government of the day set up 57 self-governing trusts comprising acute hospitals, created the so-called internal market and gave 1,700 GPs control of their own budgets for some of their work.

In 1948, the NHS was set up to provide health care and treatment free for everyone, at the point of use. But proportionally of course like for all the other aspects of the welfare state - be it education or unemployment and other benefits, when everyone pays the same, those who earn less are proportionally spending more of their incomes on their contributions to the state system. This means in fact that the main beneficiaries are the middle classes who can easily afford their contributions and yet benefit from free provision. And of course the employers, who have no statutory social duties to fulfill since the state is taking care of these. Not to mention the pharmaceutical giants whose power has been increased thanks to the existence of the NHS instead of the NHS being used to tame it.

Is the system returning to "normal"?

This postwar settlement, with its large state-controlled industries and welfare systems, was never intended to last forever. It was the response of the European capitalist classes to a specific situation in which they were in a position of weakness, both socially and economically.

But at some point the capitalists were bound to try to reclaim a larger share of the profit-making cake in the nationalised industries and public services and of state funds - just as they did everywhere in the interwar period. As long as the consumer boom of the 1960s lasted, they had enough loot to play with. Arguably, precisely because in was a consumer boom, they even benefited from any improvements in the living standards of the population.

However, once the boom collapsed, in the first half of the 1970s, with the re-emergence of all sorts of financial disorders, the capitalist class was likely to look for ways of making the working population foot the bill for the return of their own economic crisis.

This was why, from the late 1970s onwards, austerity measures were imposed in all Western countries in the form of wage freezes and social cuts, while the profitable parts of the nationalised industries were being prepared for privatisation. In the absence of significant resistance on the part of the working class, which was already weakened by rising unemployment, the next targets could only have been the welfare system and public services, in other words the last and most sensitive activities to remain outside the control of capitalist profiteering.

It would be misleading, therefore, to describe the changes of the past two decades, particularly the attacks experienced by the working class, as "new" in the workings of the capitalist system. Rather than "new", these developments are better described as reflecting a return to the "normal" operation of the capitalist system, to its "normal" way of parasitising society - as well as a return to the capitalists' "normal" intolerance of any attempt to use the resources of a state which they consider, rightly in a way, as their own private property, for the benefit of the working population.

This also means that the main lessons of the past are still valid today. The capitalist class has never conceded any ground to the working class unless it had reason to fear for its profits. There are no good old days for the working class, no harking back to the postwar settlement, not any more than there will ever be a benign state which will look after its needs, not without a fight in any case. There are only the battles of the future, which must be prepared, and the vital need to give the capitalist class good reason to fear our collective strength.

6 April 2002