Petia Jivkova - Thatcherism and Its Aftermath

Most political and historical analyses of Thatcher’s winning the elections in 1979 explain it as a congruity between adequate conditions, new ideas that have gained acceptance and a fortunate availability of a leader to make a change. The adequate conditions resulted from the decline of Britain as an economic and influential world power. There was a general desire to “try something different” from the social democracy (or even socialist) state. And there appeared a politician (Mrs. Thatcher as a leader of the Conservative party) that offered a platform stating the desire for a break with the consensus politics and an intention to carry out profound reforms that would change both British state and society.

In existing literature there is an agreement on the term “consensus” to refer to the set of policies carried out in post-war Britain. According to Kavanagh, “…for the most of the post-war period the term has also referred to broad agreement and continuity between governments on the mixed economy and the welfare state.” In other words, both society and governments sought to reconstruct the British state after the war by application of such measures as nationalization, full employment, state subsidizing of loosing industries, increased taxation of incomes (at times amounting to 93%), enormous public spending on health and education services and social security.

It is indisputable that there was a relatively long period of prosperity of Britain in the years of consensus. Until 1973 (and especially in the 1950s) the economy grew, living standards and welfare rapidly improved, and although other Western countries had a better record, the British generally enjoyed their Golden Years. There were, however, several events that marked the beginning of the realization that Britain’s economic and political situation had deteriorated. The failure to hold back the Suez Canal in 1956 due mainly to the interference of the United States and other world powers resulted in feelings of national humiliation and the awareness that the international influence of the country had diminished. The unsuccessful attempts to join the European Community in 1961 and 1967 were also attributed to the new status of Britain in foreign affairs. Besides, the falling behind other industrial states in terms of economic growth was publicly acknowledged and attempts of several successive cabinets to reverse this fact had been unsuccessful.

Sir Keith Joseph (one of the strongest supporters of Thatcher and a proponent of the ideas of free economy and monetarism) identified in his parliamentary speeches the reasons for the economic crisis being no other than the consensus policies themselves and the great power of trade unions. Thatcher also perceived the post-war consensus as having a rather negative impact on British economy. For her it was the “old clubbable consensus” and sticking to it involved conformity with trade unions and avoiding responsibility to make tough decisions. She attacked it even before becoming a prime-minister in her speeches in front of the Conservative party in 1968. In coming to power in 1979, Thatcher had the chance to break with consensus politics and bring her ideas to practice. Successful or not, her ideology and political style did change the political and social climate in Britain. She won three successive elections (in 1979, 1983, and 1987) becoming the longest-serving prime minister in the twentieth century. The distinctiveness of her political style led to the coinage of the term ‘Thatcherism’, of numerous political analyses and biographies. Thatcherism is nowadays in the history and politics textbooks. This proves it has had a significant impact on society and should be discussed even for this sole reason.

A preliminary review on existing literature about Thatcherism has shown that there are different perceptions of what the term Thatcherism refers to. According to Wikepedia (an online encyclopedia), “Thatcherism is the system of political thought attributed to the governments of Margaret Thatcher, British Prime Minister during the 1980s.” This stress on the ideological contents (in contrast to action) is distinguished also in Lynch’s definition that “Thatcherism is an expression of moral force in politics…Thatcherism does not embody a scale of options which the statesman may pick and chose. Rather, it urges resolve and fortitude.” Other analysts (as John Campbell quoted on www.history-ontheweb.co.uk/Concepts/Thatcherism) claim that Thatcherism should not be perceived as an ideology but rather as a bunch of controversial ideas, “a culture of rampant materialism … fundamentally at odds with her (Thatcher’s ) own values which were essentially conservative.” There are even more definitions, some of them limiting the scope to the actual government of the three Thatcher’s cabinets (from 1979 to 1990) and some of them pejorative, referring mainly to her foreign policy with regard to Britain’s reluctant integration into the European Community and her attempts to postpone the reunification of Germany (see Sharp, 1998). Kavanagh (1990) summarizes all existing views and offers an extensive analysis of Thatcherism in terms of:

In this paper, I will accept Kavanagh’s definition as my starting point for the discussion of Thatcherism by excluding international applications of similar (Thatcherite) methods as irrelevant to my topic and adding instead the set of foreign policies that made Thatcher’s style and personality distinctive among other world leaders.

Such rhetoric as the two quotations above made some politicians and political analyzers believe that Margaret Thatcher had no consistent economic or ideological theory to back up her political actions. Such a perception is expressed by Peter Jenkins (1988) for whom: “Thatcherism is more usefully regarded as a style than as an ideology: an ideology is a consistent system of ideas whereas what she called her conviction politics were largely instinctive and very much the product of her own experience. These instincts were narrow in range, dogmatically voiced; that she came to be credited with an ‘-ism’…is a tribute to the force of her beliefs rather than to their coherence.” Jenkins uses the expression ‘the product of her own experience’ to refer to the often-cited practical wisdom of Thatcher’s father, the grocer, who was the embodiment of all Victorian virtues that Thatcher wanted the British to rediscover, thrift, self-reliance, industry and spirit of enterprise. Kavanagh, on the other hand, although agreeing on the personal experience factor, argues that “Mrs. Thatcher has a coherent set of political ideas” and her early experiences “have been subsequently reinforced by her reading of some of the economic writing of Milton Friedman, particularly on income policy and his advocacy of monetary control and the free market, and the philosophical works of Friedrich von Hayek.” Even at a first glance one finds Kavanagh’s claims more plausible as it would be highly improbable that a prime minister that has won three successive elections and was so radical in her reforms would not have had a solid economic theory to lean on.

It turns out that not only did Margaret Thatcher read widely economics books but she was also the axis around which revolved a small but influential group including the Institute of Economic Affairs IEA (1955), Centre for Policy Studies CPS (set up by Keith Joseph and Mrs. Thatcher in 1974) and Adam Smith Institute - the British branch of an American organization (1979). The ideology of this circle was based on the works of Friedrich von Hayek, a libertarian economist from the Austrian School and the president of the American Economic Association, Milton Friedman (both winners of the Nobel Prize for Economics). Although those two differed in their means of achieving their aims, they both agreed on the following principles: 1.) inflation can be eliminated only in a free economy and by means of strict governmental control of the money supply mainly through interest rates (monetarist theory); 2) state planning and intervention on the market are inherently evil; and 3) individual freedom and wealth creation are natural results from the functioning of a free market;

In contrast to the above-mentioned neo-liberal (Kavanagh) ideas, Thatcher also held some beliefs of the necessity of strong state and government that can be described as typically conservative. Her views of the centralization of power were mainly in terms of the enforcement of law and order, an important framework for the existence of free market and in the development of a strong state by spending more on defense. In any other respect, Thatcher was against an active government.

The new goals of the Thatcher cabinet required new means of achieving them. The political focus of the consensus governments had been the support of full employment. This was unacceptable for Thatcherites. Their basic target in fiscal policy was keeping inflation under strict control by decreasing the supply of money. Analyses of the practices of a governmental control on the supply of money have proven that monetarist theory cannot be relied on as it was not efficient and even did not produce any consistent results (see Kavanagh, 1990). By 1985 monetarist practices were abandoned in Britain. The Thatcher government had to limit its economic means to “supply-side” policies, or cutting taxation to increase investment and hence productivity and control of the interest and exchange rates (see An Economic Revolution - Margaret Thatcher Studies at www.margaretthatcher.net/studies/economics.php).

Thatcher’s government succeeded to reduce the inflation from the maximum 21% in 1980 through the average 5% in the 1982 to 3% in 1986 but this was a temporary success as in 1990 inflation increased to 10% as a result of the policy of “shadowing the deutschmark”, an experiment to fix the pound exchange rate to the German currency.

Cutting public spending was an issue on which Thatcher government fell behind with regard to their promises. What actually happened was that public spending increased in real terms and as a proportion of the Gross Domestic Product (GDP). From an inherited 39.5 % in 1979 public spending increased to 42.5 % in 1984 as a proportion of the GDP. Some of the factors contributed to the increased public expenditure were the rising costs of social security, the increased number of dependent person as a result from the rising unemployment and an increase in the number of pensioners as well as the commitment to NATO to increase the budget on defense with 3% annually in real terms.

The Public Expenditure White Paper from 1989 seem to offer some unexpected figures such as 73%, 34%, 33% changes in expenditure of the programs of employment, health and social security respectively. These figures do not speak in support of those opponents of the government that claimed that the welfare state had been ruined. In comparison, the change in the percentage of public expenditure between 1978-79 and 1988-89 for defense is 18%. The public expenditure of Foreign Office and European Economic Community, however, have been considerably reduced (to respectively -5% and -40%) in support of the claims that British Conservatives in the 20^th century were not pro-European but rather pro-Atlantic oriented.

The policy of Thatcher governments concerning taxes was to reduce direct taxation and to increase indirect taxation. In 1979 the top income and the standard income taxes were reduced from 83 to 60% and from 33 to 30% respectively. Simultaneously, however, the VAT was increased from 8 to 15%. The income tax reduction continued to fall gradually until 1988 when the top rate tax was cut to 40% and the standard rate tax to 25%. As a share of the GDP, the overall taxation has increased from 33.1% to 37.6% in 1989.

A strong pound was seen by the Thatcher government as an essential part of its fight against high inflation. There were two major interventions to reverse the fall in the exchange rate by raising interest rates in 1981 and in 1985. The appreciation of the pound (backed up even further by the North Sea oil) had a highly damaging effect on manufacturing. Between 1979 and 1982 industrial output fell by 11 %. In the period 1979-88 industrial output per head increased by 4.2% which was better than the 1960s but worse than her major competitors.

Unemployment was a common phenomenon in all Thatcher governments. The number of unemployed in 1979 was 1.2 million (5.4%) which in 1983 reached 3 million (12.7%). It led to greater public spending on social security and increase of its costs and to general disappointment with the government. After 1985 the figure of unemployment steadily decreased falling below 2 million.

The impact of Thatcher government and the break with consensus are most clearly distinguished in the program of denationalization and liberalization (or the abolition of the state monopoly). Mrs. Thatcher herself often expressed her views against public ownership of industries because of their inefficiency and competitiveness. By 1983 the cabinet succeeded in arranging several privatization deals and sold parts of British Petroleum, British Aerospace, Britoil, Cable & Wireless (Telecommunication business), and Amersham International (Radio-chemicals). In 1983 Associated British Ports, shares in the National Enterprise Board and National Freight Association, Sealink, Jaguar, British Telecom, British Gas, and British Airways were all sold bringing many billions of pounds. Between 1979 and 1989 nineteen industries were sold bringing over £24 billion, transferring 750,000 jobs into the private sector, and increasing private share ownership from 4% in 1979 to almost 25 % in 1990. To re-quote the impressive results from “The Economist” (The end of privatization? from June,11, 1998): “When Mrs. Thatcher entered office in 1979, 33 state enterprises absorbed £500 million of public funds and £1 billion in loan finance; by 1987 these same - though newly privatized - companies contributed £8 billion in share sales, tax receipts and dividends to the treasury.”

The post-war trade unions have probably been the worst nightmare for British Conservatives. In the years of consensus state ownership of main industries and the full-employment strategy increased their membership and made them powerful and militant. Conservatives considered them responsible for Britain’s relative economic decline: job protection, wage and working hours bargaining, the closed shop, the unofficial strikes, and their close relations with the Labor party. The unpopularity of the unions reached its peak in the winter of 1978-79 (the notorious Winter of Discontent) when a number of strikes disrupted British life and resulted in the closure of schools, chaos in hospitals, even in a case of refusal to bury the dead.

What the Thatcher government did to eliminate the trade unions as an economic and political decision-maker was to gradually reduce their power by means of successive restrictive laws. The Employment Acts of 1980 and 1982 ended closed shops and severely limited picketing by insisting on 80% vote of the members in favor of the actions. Subsequent Trades Union Act in 1984, Public Order Act in 1986 and Employment Act in 1990 practically banned mass picketing and political strikes.

The Employment Acts of 1988 and 1989 greatly reduced membership in the unions as banned any pressures on a worker to join a trade union and any measures of disciplining members refusing to join a strike.: illegal to dismiss workers who fail to join a union, even where a closed shop is legal, union unable to discipline a member who does not join a strike.

The decisive battle of the cabinet with trade unions came in the 1984-85 when the National Union of Mineworkers (NUM) went on strike against the closure of unprofitable mines. The government, however, was prepared for a long strike. The Coal Board had been encouraged to increase coal production and the electricity industry to accumulate stocks. The strike went on for a year but finally it ended in a failure and this led to the splitting of NUM. The nation admired the resistance of the government to the pressure but at the same time, the “the violence and hatred of the dispute left a bad taste in its mouth” (The Thatcher’s Record, The Economist, November, 24, 1990).

Critics of the welfare policies of the Thatcher government argue that it has greatly undermined the welfare state and by cutting public expenditure on health, education and social security it turned welfare into a ‘social jungle’. Statistics, however, show that this was not so. The aims of the government were to reduce public ownership of welfare services by transferring some services into the private sector and to cut spending on public owned services. The governments of Thatcher did not manage to reduce public spending on welfare. On the contrary, they increased spending on health and social security by a third in comparison to 1979 and the share of total public spending has increased from 14% in the 1979 to 16% in 1988-89. Influential factors in this increase were the rising unemployment and the increase of people of pensionable age.

Subsequently, the shift of emphasis moved from cutting spending on welfare to getting better services for the rising costs. The government stressed the importance of management and competition. In practice this was accomplished by reorganizing the health and education services as internal markets by developing mechanisms for internal competition.

In 1982 Argentina invaded the Falkland Islands in the South Atlantic and claimed them from Britain. The insignificance of the islands for the British was evident from the questions that followed a day after the invasion: “Where are these islands? And what have we been doing there?” Nevertheless, it was a matter of national conscience and pride as of sensitivity to the decline of Britain’s influence in foreign affairs to stand up to Argentinean aggression and claim back the islands. Unimportant as they were in a strategic plan, they were also a symbol of Britain’s power and leaving them to the Argentines would have meant that the state does not care for its citizens in remote parts of the world. Margaret Thatcher knew what was expected from her and did not lack the courage to do it. She sent an armada of British warships some 13, 000 kilometers away from Britain and after a short but violent war with small casualties on both sides, Britain ruled the Falklands again.

The Falklands War became the celebration of English nationalism back at home and the image of Margaret Thatcher was greatly promoted in the eyes of the public. There is a general agreement in literature that this was the most important event in her first cabinet and it contributed greatly for her successful reelection in 1983. According to Paul Sharp the Falklands war had also contributed to the international image of Great Britain. It was important, he claims, for a country to be perceived as powerful and dangerous because of the resolute to defend national interests and to stand up to national values.

Thatcher’s active diplomacy concerning the USSR and the close relations with the USA (and especially President Ronald Reagan) contributed greatly to the end of the Cold War. Thatcher herself is not modest about her role in the conflict and its end. In Statecraft she argues that hers and mostly Ronald Reagan’s provisions for resolving the conflict have been considerably diminished while the role of Mikhail Gorbatchov was overrated and all he did was to fail to defend socialism.

In her foreign policy Thatcher was predominantly pro-American, anti-communist and a reserved European. She did not refuse to accept American Pershing and Cruise nuclear missiles on British territory. On the contrary, she was a strong supporter of armament race and development of nuclear bombs as a restrictive policy to the Soviet aggression. In her opinion, the free world won the Cold war with communism because Reagan (and the countries supporting his policy) had the courage to win the armament race and because communism itself proved to be an economic and ideological failure.

In his article “The Defiant European” (Newsweek from December, 3, 1990) Scot Sullivan argues that Thatcher’s disagreements with the European Community arose mainly on initiatives that she perceived as damaging to the British political and economic interests. Thatcher’s opposition to the enormous British contributions to the EC budget (second only to those of West Germany), her unwillingness to support the EC centralization of power that she saw as a damage to the nation-state, her disapproval of measures as the adoption of a unified EC currency and increased spending on agriculture were the basic causes of tension between her and the other European leaders.

Her obstructionism on such issues compelled the EC leaders to search for ways to achieve their aims in spite of her. For instance, in 1984 Mitterrand satisfied the British demands for a partial return of their money at the same time increasing the EC taxation to balance the budget. When in 1985 Thatcher threatened to veto decisions she disapproved of, the Single European Act was drafted to eliminate a single-member veto on most matters.

Nowadays, when the European Union is the most important factor for the economic development of Europe and a cherished objective for the governments of the candidate countries it is easy to declare Thatcher’s policies as detrimental for an earlier prosperity of the British economy. Her conviction of the significance of the nation-state for the individual may be even viewed as outdated. Her policies, however, were consistent with her conservative ideas of the strong state and with her acceptance of British economic interests as a top priority.

Thatcherism and its aftermath are controversial as an economic and social legacy. Some authors claim that today’s Britain is already picking the fruits of the tight economic reforms and the following decades will prove that Thatcher did save the British economy and contributed to the revival of the British state. Others see Thatcherism as a complete failure to fulfill its aims and to respond to the needs of society. Still others claim that Thatcherism could not make a difference in a steadily declining post-imperial Britain that no longer had the resources and international power to ensure prosperity for its people. Most analyzers agree that there is a need to “wait and see”. There is, however, a common ground between the different views: Thatcherism did make a difference in the political life in Britain. This is evident in the reformed New Labor Party that has taken on power after the Conservative cabinet of John Major. Social democracy is buried in modern Britain. Although the new government has declared its prerogatives in developing education and health services, it now holds the Thatcherite beliefs in the free economy, private initiative and the non-intrusive role of government.