Margaret Thatcher: The Authorized Biography (47 page)

Heath might have been more successful at maintaining his position if he had tried to incorporate critical voices into his new Shadow Cabinet. His instinct, though, was to surround himself with those closest to him, and he made the crucial decision to deny Keith Joseph his ambition to become shadow Chancellor and give the post instead to the likeable, loyal but unexciting Robert Carr. Joseph refused the substitute post of Industry and insisted instead on a position without portfolio, but with an emphasis on economic questions, leaving him free to range over the whole field of ideas. To prevent him leaving the Shadow Cabinet and so causing a public division, Heath granted Joseph his request. This was dangerous. There was an accompanying agreement that Joseph could approach Conservative donors to set up his own think tank to look at market-based solutions to the political and economic problems of the day. This was fatal. At the time, though, the idea seemed more worthy than threatening. The declared purpose of the think tank was to study the workings of the market economy, particularly abroad. Joseph wanted to use the term ‘Social Market’ – then an admired model from post-war Germany – in the title of his new organization, but was dissuaded by his more rigorist adviser Alfred Sherman. The Centre for Policy Studies was born.
^†
Putting in Adam Ridley,
^‡
the deputy director of the Conservative Research Department, as his spy on the putative board, Heath thought that all was well. He was wrong. The CPS gave Joseph the platform and back-up he needed to launch a full intellectual critique of the Heath years. The Heathites did not pay enough attention. ‘We were a bit one-eyed about what was going on in the party,’ said Sara Morrison.
⁷⁵
In May, Mrs Thatcher, the only potential rebel whom Heath had promoted, making her shadow environment secretary, joined the CPS as Joseph’s vice-chairman.

It was largely through Joseph and the CPS that Mrs Thatcher’s interest in the power of conservative ideas rekindled. Until February 1974 her career had been mentally conformist. Although her sex and her social
background made her something of an outsider in the Tories’ higher circles, and although she had staked out her position as someone on the mainstream right of the party, she had never before felt cause to question the very basis of her party’s policies. Now she did, and as she began to question, she began to think more boldly. Alfred Sherman, who assisted the process, described her, approvingly, as a person of ‘beliefs, not of ideas’.
⁷⁶
This was true. She never possessed the intellectual’s spirit of free inquiry, impracticality or love of paradox. She was motivated always by moral earnestness and by her desire to achieve certain right results, rather than indulge in what she would have considered idle speculation. But ideas and the men – almost all of them were men – who purveyed them excited her. Apart from the mugging up that she did for her CPC Lecture in 1968, Mrs Thatcher had never before made time for much reading of political and economic thought. Now she got started – reading Keynes (whose
Economic Consequences of the Peace
she admired much more than the demand-management theories of the Keynesians which she so often attacked), Milton Friedman, Frédéric Bastiat, the mid-nineteenth-century French free-trader, Arthur Koestler and much more. The Institute of Economic Affairs (IEA), presided over by Ralph Harris
*
and Arthur Seldon,
^†
provided an intellectual forum for the development of free-market ideas, then outside the mainstream of political discourse.
^‡
Mrs Thatcher devoured their pamphlets and others, including work by liberal economists such as Graham Hutton,
^§
Brian Griffiths
^¶
and Douglas Hague.
^||
Sherman, who had a long memory for real and imagined slights, recalled that he lent her a great many books which she never returned.
⁷⁷

The CPS gave Mrs Thatcher the context, the sense of direction and the camaraderie that she sought. She remembered its office in Wilfred Street as ‘a very cosy place’, and when it set up shop she went along to help, even assisting with wiring up the electric plugs.
⁷⁸
Simon Webley, one of the CPS’s moving spirits, remembered her holding up the wires and exclaiming, ‘The brown one is supposed to be the live one. That is absolutely ridiculous. Brown is for earth.’
⁷⁹
Her practicality and her ideological enthusiasm combined. For her, the CPS was the chance to ‘get back to the north star’, almost literally to find the words for what she knew she believed, but which the Heath years had suppressed. She did not contribute new ideas herself but drew them from Keith Joseph and from Alfred Sherman. From the beginning to the end of her career, Mrs Thatcher maintained an unbounded admiration and affection for Keith Joseph, although when she was prime minister she quite often found him exasperating and spoke rudely to him. His gentlemanly public-spiritedness, his sometimes tortured courtesy, his Jewishness, his enthusiasm for policy, his interest in the intersection of economic, social and welfare subjects which many Tory grandees considered beneath their notice, all these endeared him to her. So did the fact that, from her earliest days in Parliament, Joseph had helped her, encouraged her rise and often worked with her on subjects such as housing. In Heath’s Cabinet, the two were drawn closer by a growing unease which neither fully articulated at the time. After the defeat of February 1974 their feelings burst out, like a forbidden love at last permitted to express itself. Mrs Thatcher considered Joseph ‘the most sensitive human being I have ever met in forty years of politics’.
⁸⁰
Lord Carrington,
au contraire
, described him as ‘the gentlest, kindest, most insensitive man I’ve ever met’.
⁸¹
Yet in a way both meant the same thing – that Joseph cared so desperately, thought so deeply, meant so well, and yet somehow bungled things. All these qualities were to become even more apparent in the course of 1974, and all of them, the bungling included, were to help the cause of Margaret Thatcher.

Alfred Sherman was a very different character. A former Communist, and former machine-gunner for the anti-Franco Republicans in the Spanish Civil War, Sherman maintained a Marxist rigour of thought after his conversion to the right, and a Leninist capacity to identify virtually everyone else as the enemy. His style of argument was absolute. When arguing against public spending on railways, for example, he was not content to call for privatization or a reduction of subsidy: he argued that all rail track should be torn up and the lines converted into bus lanes. He was manifestly,
almost proudly, ill fitted to the compromises of party politics, but that did not, at first at least, undermine his importance. He took pride in ‘thinking the unthinkable’. Having known Keith Joseph since advising him on aspects of Middle East policy in 1969,
⁸²
he had persuaded him of the virtue of market solutions to problems at the time of the Selsdon conference. As the Heath government began to go wrong, Sherman returned to the charge, and by February 1974 he had found in Joseph a repentant sinner desperate to atone for his misdeeds. He told him how to do so. Mrs Thatcher, at this stage, liked Sherman. ‘Alfred Sherman was a genius,’ she remembered. She linked his Jewishness with that of Joseph as part of their combined virtue and declared: ‘We owe them so much.’
⁸³
She added, however, that Sherman was ‘very difficult to get on with’. This was an understatement.

Partly as a means of raising money for the CPS, Joseph embarked on a series of setpiece speeches examining the basis of economic policy, in both its technical and its political aspects, and then ranging wider still. In his first, at Upminster on 22 June, he called for greater attention to ‘a market economy within a framework of humane laws and institutions’ and developed the international comparisons which were part of his brief:

Compare our position today with that of our neighbours in Germany, Sweden, Holland, France. They are no more talented than we are. Yet, compared with them, we have the longest working hours, the lowest pay and the lowest production per head. We have the highest taxes and the lowest investment. We have the least prosperity, the most poor and the lowest pensions.

He said that Britain was becoming a socialist country, and that Conservative governments, including the one of which he had been a part, had not dared to repudiate socialism, but had ‘tried to build on its very uncertain foundations instead’. The tone of Joseph’s speech marked a clear break from that of the Heathites, and this division was made more apparent by the fact that the Conservative Research Department, with Ian Gilmour as its new chairman and Chris Patten
*
as its new director, was becoming more eloquently consensual and social democratic. In the previous month, Gil
mour had published three articles in
The Times
, developing the theme of ‘national unity’.
⁸⁴

As the long-expected general election approached in the early autumn, Joseph took greater risks. On the day after the Labour government had agreed the full terms of its new, pre-election Social Contract with the trade unions – a corporatist deal involving price controls, rent freezes and the repeal of Tory union legislation in return for moderate wage claims – Joseph offered something much less cosy. At Preston on 5 September 1974, he gave the fullest airing yet to the theory of monetarism, and its application to the political crisis. In his drafting, he was assisted not only by Sherman, but by Alan Walters
*
and by Samuel Brittan
^†
of the
Financial Times
. Worried about what Joseph might say, but feeling too weak to forbid it, Heath asked Mrs Thatcher and Geoffrey Howe to inspect the text and prevent trouble. They duly inspected, but made no decisive alterations.

‘Inflation is threatening to destroy our society,’ was Joseph’s opening sentence, and he warned of ‘the processes of despair and disintegration which ultimately invite dictatorship’. He expounded the notion that inflation was caused not by wage rises or even by world commodity prices, but by excessive increases in the supply of money, a matter which governments had the means to control. Repudiating the suggestion that ‘monetarism’ was the answer to everything, he said rather that it was ‘a pre-essential for everything else we need and want to do’. The most devastating and, for Heath, embarrassing part of the speech was Joseph’s admission of collective and repeated error by Conservative as well as Labour governments in ignoring this pre-essential. ‘For the past thirty years in this country governments have had unprecedented power over economic life,’ Joseph said. ‘It is only fair that we should accept correspondingly heightened responsibility for what has gone wrong.’ The motive for the error had been honourable – a fear of a return to the unemployment of the early 1930s – but it was an error nonetheless. The weapons of the 1930s were being used to fight the battles of the 1970s. Governments had believed that a bit of inflation would help unemployment, economic growth and the funding of the social services: now it had turned out to be a ‘mortal threat to all three’. The
‘menacing tensions’ created by inflation ‘cannot be cured by incomes policy’. Incomes policy as a means of curbing inflation was ‘like trying to stop water coming out of a leaky hose without turning off the tap; if you stop one hole it will find two others.’ Joseph advocated that incomes policy be abandoned, and that governments sustain a clear, gradual policy of bearing down upon the excessive supply of money. Within three or four years, this would yield the right results, which would include, he emphasized, a more sustainable form of full employment than that provided by the current governmental attempts to manage demand.

Joseph flagellated himself harder than anyone else, but this did not conceal the fact that his argument undermined the economic basis on which Heath had governed the country, had fought and lost the previous election, and was about to fight the next. Joseph’s words were neither unexpected nor, like some of Enoch Powell’s interventions in the years of the Heath government, mischievous. The Preston speech was simply the full enunciation of arguments he had been making privately to colleagues since March and in several speeches, including one to the House of Commons on 8 July. Its effect, however, was to raise the standard of revolt for a battle which could be fought only after the next general election was out of the way.
*

Within the Tory Party, only a small minority understood the precise nature of the monetarist arguments, but a much larger number were looking for a different approach to the economic problems which beset them. The respect in which Joseph was held meant that many gravitated towards his views. In the Shadow Cabinet, Margaret Thatcher, along with the much more low-key Geoffrey Howe, whose interest in the IEA’s liberal economics predated her own, were the only two who supported Joseph’s rethink. Contrary to her memory,
⁸⁵
it was not true that Heath forbade all discussion of these matters, though he certainly did not welcome it. On three occasions, including one on 3 May when it met in the form of its manifesto group, the Shadow Cabinet did give some consideration to Joseph’s views on the causes of inflation. But the case was presented in rather tentative form and Joseph himself did not argue flat out that a prices and incomes policy should be abandoned, only that it should be reassessed.
^†
Even in the minds of the radicals, the growing belief that the control of the money
supply was the key to beating inflation seemed to be at war with a feeling that union demands for wage rises had to be held back, and also that the rise for one group could not be too different from that of another. They were groping their way towards coherence. When Mrs Thatcher told the Shadow Cabinet of her support for Joseph, she did so quite cautiously. She said things like ‘I think we should give careful attention to what Keith is saying’
⁸⁶
rather than arguing for a complete break with the past.