Labour Government 1929-31

The second Labour government began brightly enough. First, cabinet-making was fairly straightforward. Snowden returned to the Treasury, and Henderson became Foreign Secretary. Thomas was appointed Lord Privy Seal, heading a fairly high-powered team of four ministers to look at ways of reducing unemployment. Margaret Bondfield was appointed Minister of Labour and became the first female member of a British cabinet. Overall the new cabinet was even less radical than that of 1924. Second, there was little expectation of an economic downturn, even though unemployment remained above one million. And, third, a series of successes in foreign policy were crowned when MacDonald became the first British Prime Minister to address the United States Congress.

Foreign Policy

Indeed, foreign policy remained an area of relative success, with a naval treaty being agreed with the United States and Japan, and a date being set largely thanks to Henderson's efforts for the meeting a World Disarmament at Geneva. In some areas of domestic policy, too, valuable legislation was passed, with Greenwood's 1930 Housing Act introducing state subsidies for slum clearance and the building of replacement housing. Entitlement to benefits was liberalised.

Economic Problems

However, such achievements were overshadowed by the economic situation. When Labour took office, unemployment stood 1.1 million; when it left office, in August 1931, it was over 2.7 million. The underlying economic signals had been unfavourable from late 1928 onwards. Then the Wall Street Crash of October 1929 pushed things ahead with a vengeance. Unemployment rose every month in 1930. In the face of this crisis, which was common to almost the whole of the Western world, Labour had nothing to offer. Thomas's attempts to provide employment via limited public works and the encouragement of industrial reorganisation were pretty insignificant, The party leadership was baffled. MacDonald and Snowden had expected to build socialism from the success of capitalism, but had little notion of what to do when capitalism moved into crisis. All they could do concretely was try to apply the orthodoxies of old: attempting to retrain, and increasing to cut, expenditure, to balance the budget, and to allow capitalism to restore itself to health.

There were those who dissented from this strategy. Sir Oswald Mosely, a member of Thomas's unemployment team, put forward a radical package of policies in the 1930 'Mosely Memorandum':

• A new small emergency executive, headed by the Prime Minister, would act like the old war cabinet in seeking and implementing solutions to unemployment
• This committee would seek to implement a major transformation of British industry, shifting from reliance on export industries to emphasis on the 'new' industries producing largely for the domestic market
• Loan-financed public works on roads, and so on, would mop up large numbers of the unemployment; in addition, more generous pensions and a raising of the school-leaving age would reduce the pool of potential workers
• Interest rates would be cut in order to stimulate economic activity and make it easier for the government to take out the loans needed to finance public works

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