Strange Rebels: 1979 and the Birth of the 21st Century (3 page)

Technology played a crucial role in these transformations, too. American sociologist Daniel Bell coined the term
postindustrial society
in the 1960s, but his readers
had to wait a few years to appreciate what he meant by it. The seventies brought a forward leap in the development of semiconductors and microprocessors and ushered in an era that would see computers move from the preserve of governments and big corporations to small businesses and even individuals. The cost of satellite communications now dropped to a level that enabled widespread use—with dramatic effects on the spread of news and the speed of global financial transactions. Consider the extent to which the twenty-first century remains in the thrall of technological innovations that were born in the 1970s: e-mail, the bar code, the MRI, the pocket calculator, and the personal computer.

Apple and Microsoft were both founded in the 1970s. In the years before, most people had thought of computers as monstrous machines affordable only by big bureaucratic organizations. The seventies changed all that for good. From then on, it was no longer the belching smokestacks of the huge Ford factories in Michigan’s River Rouge that symbolized industrial prowess. The world that was coming into being would be a messier, more volatile place, one in which an elegant idea could end up counting for more than an army of assembly-line workers. In the new US economy, corporations could easily relocate factories to lower-cost venues overseas, services and finance played an increasingly prominent role, and the once-enormous political power of unions was beginning to flag. This shift in the balance of economic forces meant, among other things, that the rewards of economic progress would no longer be spread quite so widely as before. The year 1979 marked the moment when income inequality in the United States began to increase for the first time since 1945—the beginning of a trend that has continued to the present day.

O
f all the Western economies that were buffeted by these trends, none of them suffered quite so badly as Great Britain. The OPEC oil embargo dented growth figures everywhere, but the United Kingdom proved especially vulnerable.

Some of the problems had their roots in the political and economic system that Britain had built in the wake of World War II. In the general election of 1945, British voters had given overwhelming approval to the Labour Party’s ambitious plans for the creation of a far-reaching welfare state. Under Prime Minister Clement Attlee, the Labourites soon made good on their word. They established the National Health Service and comprehensive systems for pensions and unemployment insurance. They also nationalized key sectors of the economy, from coal to railroads, and firmly embraced Keynesian macroeconomic policies. Even when the Labour government lost power in 1951, the new Conservative government made
no challenge to the reforms implemented by its predecessor, thus attesting to their enduring popularity with the public. Thus was born what came to be known as the “postwar consensus,” the bedrock of British politics until the end of the 1970s.

The postwar consensus endured because it worked—at least for the first few decades. The British economy grew steadily through the 1950s and 1960s, widely spreading the benefits of expanding national wealth. But by the 1970s, the bloom was off. Rising global competition had revealed the structural rigidities of Britain’s social-democratic system. The oil shock hit at a moment when traditional British manufacturing industries were already affected by painful decline. Once-proud working-class cities had turned into landscapes of blight, factory ruins defaced with graffiti. In the 1970s, the British economy tottered from one crisis to another. In 1974, in the wake of the Arab oil embargo, Conservative prime minister Edward Heath was forced to introduce electricity rationing and a three-day workweek. Unemployment surged and productivity sagged. British business seemed to have lost its way. Entrepreneurs fled punishing tax rates for more hospitable climes. Strikes punctuated the national news with benumbing regularity; the trade unions repeatedly demonstrated their enormous political power, contributing mightily to the fall of Heath’s government in 1974.

These were the problems that confronted James Callaghan as he assumed the office of prime minister two years later. His Labour Party had won the 1974 election under the leadership of the aged Harold Wilson, who returned to Number Ten Downing Street after an earlier stint as prime minister. But Labour’s margin of victory in the election was narrow, and the best that Wilson could do was to form a minority government with his party in the lead. His administration soon foundered as it struggled to deal with the aftereffects of the energy crisis and the intensifying demands from the unions, his party’s most powerful constituency. By the time Callaghan stepped in to take the beleaguered Wilson’s place, inflation had reached a staggering 25 percent. Outside investors lost confidence that the British government would ever regain control over its finances, and the pound became so anemic that London found itself facing a full-blown balance-of-payments crisis. Put simply, the British state had run out of the foreign exchange it needed to pay for imports. Bills were coming due that the United Kingdom was not in a position to pay.

To his credit, Callaghan did not soft-pedal the causes. He inherited stewardship of the economy at a moment when the old sureties were crumbling. His chancellor of the Exchequer, Denis Healey, declared that Britain couldn’t go on spending its
way out of crises. Callaghan’s son-in-law, an influential journalist and politician by the name of Peter Jay, had even become a convert to the economic school known as “monetarism,” which deemed strict control of the money supply to be the only remedy for inflation. This flew in the face of the Keynesian principles of Britain’s postwar consensus, which placed a premium on combating unemployment through government spending. The speech that Callaghan gave at the 1976 Labour Party conference, authored by Jay, turned into something of a eulogy for Britain’s postwar economic system:

            
For too long this country—all of us, yes this conference too—has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry. . . . [T]he cozy world we were told would go on forever, where full employment would be guaranteed . . . that cozy world is now gone. . . . We used to think we could spend our way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy followed by a higher level of unemployment as the next step.
⁶

Finally, in November 1976, the United Kingdom was forced to ask the International Monetary Fund (IMF) for a $3.9 billion loan to tide it over through the crisis. The conditions included brutal spending cuts and across-the-board austerity measures.
⁷
Back in 1945, the United Kingdom had been America’s partner in creating the international economic system that had brought the IMF to life. Now London was calling on the fund for help in an existential crisis. It was the first time that one of the world’s developed countries had ever asked for IMF support. (Nothing comparable would happen again until 2008, when Iceland was forced to follow suit during the global financial crisis.)
⁸

This was a humiliation of epochal proportions. A country that had been at the heart of the Western economic and political system found itself reduced to the status of a banana republic. Callaghan diagnosed the problems but was unable to come up with a remedy. Something always seemed to get in the way: the resistance of the unions, the global economic climate, the accustomed way of doing things. The old ideas no longer worked—that much was clear. But where were the new ones? Britain was waiting for something to give.

T
here were, of course, countries that benefited from the oil shock. First and foremost among them was the Imperial State of Iran, one of America’s key Cold War allies in the Middle East. Nevertheless, the shah of Iran, Mohammad Reza Pahlavi, welcomed the cash that poured into his coffers as a result of the OPEC embargo. He had ambitious plans for the remaking of Iranian society, and changes on the scale he envisioned certainly did not come cheap.

Ten years earlier, in 1963, he had inaugurated the grand reform scheme that he called the “White Revolution.” The idea of a revolution led by a reigning monarch might have seemed odd, but there was a certain logic to it under Iranian conditions. The shah knew that his country urgently needed modernization, but it had to be pursued without endangering his own rule. And the main threat to that rule, as he saw it, came from the Left. In 1953, an American-assisted coup had saved his throne by toppling Mohammed Mossadeq, a leftist-nationalist prime minister who had achieved immense popularity among Iranians through his efforts to nationalize the British-controlled oil industry. The shah knew that Far Left ideas enjoyed broad currency among Iran’s intensely politicized intellectuals and that the country’s deep class divides and entrenched poverty made it vulnerable to the lure of revolution. Though he had banned the powerful communist party, the Tudeh, in 1949, it was still enough of a force to lend vital support to Mossadeq in his nationalization campaign in the years that followed. After Mossadeq’s arrest, the shah responded by cracking down even harder on the communists. Thousands of their activists vanished behind bars, and the party never quite regained its former strength.

The White Revolution represented the other major component of the shah’s response to the communist challenge. Having crushed their organization, he would now selectively steal their ideas. On paper, at least, the shah’s program sounded as though it had been lifted from a Marxist-Leninist manifesto: sweeping land reform, state-sponsored literacy campaigns, nationalization of forests, the awarding of company shares to the workers. In practice, of course, many of these positive-sounding measures were undermined by corruption, nepotism, and bad planning—in other words, by the very nature of the regime they were supposed to be changing for the better.

Yet the White Revolution, fueled by rising oil revenues, did succeed on many fronts. By the beginning of the 1970s, Iran boasted an educational system that was the envy of its neighbors, a broad array of showcase industries, and the most powerful military in the Middle East. Many countries in the nonaligned world regarded it as a model of successful authoritarian development—something like China in the
early twenty-first century. (Iran’s economic growth rates at the time were similarly dazzling.) Still, the achievements of the shah’s rush to modernity brought a whole host of new problems. The reforms jolted Iranian society. Migrants lured by the promise of factory jobs poured from the countryside into sprawling urban shanty-towns. Accelerated economic change undermined the positions of traditional elites like the once-powerful bazaar merchants. And the proliferation of educational opportunity, as positive as it was, raised unfulfillable expectations: the system produced graduates faster than the economy created jobs.

The shah’s policies were also calculated to anger one particularly influential interest group: the Shiite religious establishment. For hundreds of years, these scholars and clerics had proudly cultivated a sense of independence from the state. This didn’t stop them from doing business with it, or even accepting its favors, but they were careful to maintain control over their own institutions—above all the
hawza
, the prestigious Shiite seminaries, and the wealthy religious foundations. Whereas the shah’s father, the strong-willed Reza Shah, had railed against the clergy, and had once even physically attacked seminarians, his son had generally left the Shiite establishment to itself, muting resistance to his policies.

The White Revolution, however, was hardly calculated to meet with their approbation. Its embrace of Western ways posed a threat to the religious elite. The expansion of modern schools and universities offered overpowering competition to traditional educational institutions dominated by the clergy. Secular courts grew more important than those based on Islamic law. Reforms encouraged women to study, to work, and to scorn the veil.

The most prominent critic of these policies was an outspoken Shiite legal scholar named Ruhollah Khomeini, who denounced the launch of the White Revolution for measures that he deemed un-Islamic, such as its extension of suffrage to women in 1963. He was particularly incensed by the shah’s dependence on the United States and his closeness to Israel, which Khomeini regarded as the foremost enemy of Islam. Khomeini persuaded other senior religious scholars to join him in urging voters to boycott a referendum on the shah’s modernization plans. The shah responded by ordering Khomeini’s arrest in the seminary town of Qom, triggering three days of rioting by thousands of seminarians. The security forces quelled the protests at the cost of dozens of lives. Khomeini was later released, but after delivering another jeremiad against the regime in 1964, he was finally deported. The shah and his entourage presumed that this would put a stop to Khomeini’s influence within Iran.

They were wrong. In 1971, when the shah staged a lavish celebration to commemorate the twenty-five-hundredth anniversary of the founding of the Iranian
monarchy, Khomeini issued a blistering condemnation of the shah’s extravagance from his exile in Iraq. Based in the Shiite holy city of An Najaf, Khomeini received a steady stream of zealous young clerics-in-waiting eager to absorb his message that a return to Islam was the only solution for what ailed their country. Some of these clerics later found themselves under arrest as well—but prison, as is so often the case, proved to be a productive learning experience in its own right. The shah had continued his crackdown on leftist dissidents, and imprisonment brought the men of religion together with them on equal terms. Their Marxist cell mates engaged the Shiite clerics in vigorous polemics, debates that would prove unexpectedly useful in the context of subsequent events.