How Jim Callaghan changed the world

Thirty years ago this week, British Prime Minister James Callaghan (above) changed the world. Here's my Guardian piece from twelve months ago on how Callaghan's failure to call a General Election in September 1978 had global ramifications.

Twenty nine years ago this month, a decision was made by a Labour party leader whose consequences still reverberate around the world today. Prime Minister James Callaghan stunned the nation by announcing that he was not going to call an autumn election. Instead, he announced he would carry on until the following year. It was to prove a catastrophic misjudgement.

Suppose Callaghan had called an election in September 1978 and won- as most opinion polls said he would. How might things have been different?

Callaghan has been blamed for introducing monetarism to Britain, but the cutbacks in public spending his government introduced after taking out the IMF loan in 1976, were mild fare compared to the ideologically-driven "rolling back of the state" which Mrs Thatcher had in store.

Although Callaghan's second government is likely to have included rightwing figures as David Owen and Shirley Williams, the presence of socialists such as Tony Benn, Michael Foot, Peter Shore, Judith Hart and Stan Orme would have ensured that the party did not stray too far from a progressive agenda.

In 1978 the economy was rapidly improving. Inflation was down to single figures and unemployment was on the way down too. The great Thatcherite myth that late 1970s Britain was the "Sick Man of Europe" is not borne out by the facts. "The outlook for Britain is better than at any time in the postwar years," was the verdict not of a Labour party propagandist, but of Chase Manhattan bank's chief European economist, Geoffrey Maynard.

Under Labour, North Sea oil revenues would not have been squandered on paying people not to work, but spent on industrial regeneration. To ensure that the benefits accrued to the nation, energy secretary Tony Benn had set up the state-owned British National Oil Corporation. Another country in Europe followed a similar statist approach to its oil industry: Norway, now one of the richest countries in the world.

In terms of the Labour party's electoral fortunes, victory in 1978 would have meant the party staying together, avoiding the damaging Gang of Four/SDP breakaway, which by splitting the anti-Tory vote helped keep the party out of power for the whole of the 1980s.

The presence of a strong parliamentary left would have prevented the government adopting too hawkish a foreign policy stance: it's inconceivable that Callaghan would have formed the same relationship with Ronald Reagan as his successor did. Without the Iron Lady's neo-con aggression, it's more likely the cold war would have ended differently, not with the triumph of one system over another, but with the gradual coming together of east and west, within a peaceful, democratic socialist framework. It was not a forlorn, utopian hope - at the time western european countries were becoming progressively more socialist, while communist countries - most notably Hungary, Yugoslavia, and the Soviet Union itself, after the death of Brezhnev in 1982, were becoming less authoritarian.

A Labour government in the 1980s would have carried on the mixed economy model- and probably would have extended public ownership still further: even the 'right-wing' Callaghan had nationalised ship building in 1977. The mines would have stayed open, and large scale de-industrialisation would have been avoided. Yosser Hughes would have found a job and Sheffield steel workers would not have had to become striptease artists.

Defeat for the Tories in 1978 would undoubtedly have meant the political death of Margaret Thatcher. The party's lurch to the right in 1975 had already alarmed many Tory grandees - after an election defeat in 1978 the party is likely to have moved back to the one nation centre, under a more consensual leader such as Jim Prior, William Whitelaw, or Sir Ian Gilmour. Had the party returned to power in 1982/3, it's most unlikely they would have done so on a programme as radically neo-liberal as in 1979.

Of course it's easy to exaggerate the significance of general elections. But Labour's defeat in 1979 really was a watershed: marking the end of the collectivist, mixed economy consensus and its replacement with privatising, pro-big business neo-liberalism. The neoliberal road has led not just to social disintegration and an ever widening gap between rich and poor, but to war: if Callaghan had called an election in the autumn of 1978, it is unlikely that British troops would now be fighting in Iraq.

The victory of Margaret Thatcher - and the triumph of the ideals she represented transformed not only Britain, but the world. The former communist countries of eastern Europe do not follow the progressive, mixed economy model which brought the fastest rise in living standards for ordinary working people in the history of the world, but the rapacious, socially destructive capitalism which Thatcher championed. And when Labour did eventually come to power 18 years later, it did so with a neoliberal programme that owed more to Thatcher than it ever did to any previous Labour party leader.

It's a sobering thought that had Jim Callaghan simply done what everyone expected him to do on that fateful September day 29 years ago, "Thatcherism" is a word the world would never have heard of.