Strange Rebels: 1979 and the Birth of the 21st Century (57 page)

Another emblematic moment came in 1981, when Thatcher and Howe presented a budget that reaffirmed their dogged commitment to the fight against inflation. (Howe, not a man given to hyperbole, called it “the most unpopular budget in history.”)
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Brutally deflationary, it stipulated even more cuts in public spending despite the continuing high level of joblessness. It was the most radical expression of Howe’s harsh monetarist medicine yet. A few weeks before the budget debuted, 364 of Britain’s leading academic economists published a letter in the
Times
, that venerable establishment mouthpiece, denouncing the government’s course and proclaiming that “there is no basis in economic theory or supporting evidence” for its policies. The budget was followed, in the summer of 1981, by riots that broke out in inner cities across Great Britain. Elusive growth and mounting unemployment—as high as 60 percent in some communities—seemed to leave little room for radical experiments. Later in the year, Thatcher launched her first full-fledged cabinet reshuffle. Several of the wets were shifted or moved out of the cabinet altogether, with the effect of increasing Thatcher’s dominance over economic policy.

With her evangelical zeal, Thatcher had already succeeded in shifting fundamental public assumptions about the state and its relationship to the economy. Yet it is noteworthy that, by 1981, some of her most enthusiastic defenders among the ranks of the economic liberals, like CPS stalwart Alfred Sherman, were falling away. They accused her of failing to tackle the truly daunting challenges, including the state’s ownership and control of the “commanding heights” of the economy or the continuing power of the unions. But the accusation missed the point. Thatcher was, and remained, a politician. She had an extremely astute sense of the possible, and she was not yet prepared to race ahead of public opinion on every front.

Fittingly enough, it was politics that saved her. On April 2, 1982, Argentine forces invaded and occupied the Falkland Islands, a tiny British colonial possession in the South Atlantic whose population numbered in the hundreds. Thatcher capitalized on the opportunity. Refusing to negotiate with the military junta in Buenos Aires unless it withdrew its forces, and resisting considerable diplomatic pressure (even from her treasured American allies), she dispatched a naval task force that defeated the Argentines after a short but vicious war and restored British control over the islands. After long years of decline, the victory gave a much-needed jolt to national self-confidence. The first signs of economic growth were also beginning to make themselves felt. Thatcher’s determination was rewarded by the electorate. In
the general election of 1983—greatly helped by a hopelessly divided and ineffective opposition—she achieved a decisive victory (a 144-seat majority in the House of Commons) that allowed her to move ahead with her most ambitious projects.

It is her second term that is often described as the period of “heroic Thatcherism.” Perhaps its most significant legacy was her battle with the powerful and militant National Union of Mineworkers, which went on strike in 1984 to protest the closure of unprofitable mines and determined to insist on its prerogatives as a major participant in economic decision making. An equally determined Thatcher had spent years preparing for the showdown—her government stockpiled coal at key sites and equipped the police for the riots that were sure to come. The strike ended in 1985 with a humiliating defeat for the union that transformed industrial relations in Britain.

Thatcher’s efforts to sell off state-owned assets also finally came to fruition in the mid-1980s. The privatization of British Gas and British Telecom brought billions in revenue into state coffers and tipped the balance away from government control of the “commanding heights.”

For all her radicalism, it is important to keep in mind some of the things that Margaret Thatcher did not do. She did not return her country to a Victorian version of laissez-faire economic policy and social Darwinist ethics, nor did she move Britain back to the 1920s and 1930s. She neither dismembered the welfare state nor gutted the modern machinery of regulation. So Milton Friedman’s admiring remark that she was just another “nineteenth-century liberal” is not entirely on the mark. Nor, indeed, was she the first, or the most famous, to make the arguments or institute the policies. During her first prime ministerial campaign, she was known to cite the Australians, the New Zealanders, and the Scandinavians who had already started comparable reforms in their own countries. And Ronald Reagan, of course, later lent the considerable authority of his office to similar arguments about the moral and practical superiority of free markets.

Nonetheless, it is hard to overplay the significance of her achievements. Thatcher was certainly not an intellectual in the conventional sense of the word, but she was an extremely intelligent woman with an intense appreciation of the power of ideas. The comparison with Ronald Reagan is illuminating. Reagan was not a man who participated in think-tank discussions or engaged in polemics about texts. Thatcher once brandished her heavily annotated copy of Keynes’s
White Paper
in a Commons debate; Reagan would have never gone to the trouble. What distinguished Thatcher from her opponents—some of whom could claim far more literary or philosophical credentials than she—was her often ruthless determination to follow through on
the beliefs that she held. Her most insightful biographer, John Campbell, marvels at her capacity for “aggression.” It was the force of her drive to realize her radically conservative ideas that made her unique.

So it is wrong to regard her first months in power merely as the modest prelude of more important events yet to come. The year 1979 itself was a radical point of departure. Her election victory itself represented the first major blow against the British postwar consensus, and this was a rupture that she largely achieved in her first year in office, even if this is sometimes overshadowed by the magnitude of what was to follow.
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To be sure, some of the ideas that figured in her first year were not entirely unfamiliar to British political discourse. Denis Healey, Callaghan’s chancellor of the Exchequer, had already launched modestly monetarist policies before 1979. Even earlier, Ted Heath had won the 1970 election with a manifesto that gave a strong foretaste of Thatcher’s program, even if he ultimately failed to follow through. At the time of Heath’s win, there was also a palpable sense that British public opinion was not quite ready to accept the dramatic change of course embodied by the free-market prescriptions authored by Heath’s supporters. Heath’s election victory in 1970 had been completely unexpected, so it was hard to see it as a watershed that represented a new mandate for change. In 1979, by contrast, it was not just a Labour government but the very notion of socialism that had been decisively rejected by the electorate.
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Thatcher herself saw the assault on the assumptions behind the postwar consensus as the core of her undertaking. In a memo she drafted for her speech to the Conservative Party conference in October 1979, six months after assuming power, she wrote, “We are now tackling a range of problems which have been neglected for years. We are starting to ask the awkward questions people prefer to ignore. We are re-shaping attitudes. This is every bit as important as the laws we pass.”
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The psychological impact of her efforts continues to be felt. Indeed, she successfully dispatched many of the political and economic assumptions considered self-evident by the British political class in the 1960s and 1970s. As Thatcherite economist Tim Congdon notes, the whole notion of “incomes policy” as a means of controlling inflation—once part and parcel of everyday political discourse in Britain—has gone the way of the dinosaurs.
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Jim Prior conceded, in his otherwise combative memoir, that this was true. When Thatcher boasted to him early in her administration that the Conservative government had “killed off the myth that wages could be controlled by anything other than the market,” he reacted at first with astonishment. “However, I think that as things have turned out, she was right and I was wrong.”
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To focus on this particular point might seem a bit abstruse at first sight. But the destruction of incomes policy was a crucial element of Thatcher’s broader assault on Keynesian assumptions of demand management and full employment. It was the election of 1979 that marked the end of that era. The policies she aimed to implement had been foreshadowed by politicians before her, but their failure to address the deep structural flaws created by fifty years of collectivist economic philosophies ensured that Thatcher’s success could be achieved only at what Thatcher sympathizer Richard Cockett conceded was “an almost impossibly high cost.”
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As the 1980s continued, growth and productivity rebounded dramatically. Inflation drained away. A new culture of entrepreneurship took hold. Before Thatcher, many businesspeople aspired to escape Britain’s crushing regulations and its draconian tax rates. Thanks to Thatcher’s efforts, particularly the extensive program of deregulation that came to be known as the “Big Bang,” London established anew its status as one of the world’s financial capitals. The abolition of exchange controls that had so exercised Thatcher and Howe during their first year in office paved the way for a surge of foreign investment into the UK.

The international comparison is particularly illuminating. In 1979 UK per capita output had fallen to around 86–90 percent of that in France or Germany. By 2007 Britain’s level was 1 to 6 percent higher than theirs.
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The United Kingdom can no longer be considered the “sick man of Europe.” And with the rejuvenation of the British economy came a dramatic reordering of the political landscape as well.

T
hatcher was lucky in her adversaries. Perhaps the toughest of her electoral opponents was the one she defeated first, James Callaghan. A shrewd veteran of the British political game, Callaghan might well have managed to prolong his term in office had it not been for the Winter of Discontent, which demolished his self-proclaimed standing as the man who could coax the unions to behave reasonably. His departure unleashed forces within the Labour Party that tore it apart for the next decade and a half. The left wing, led by Thatcher’s old Oxford classmate Tony Benn, revolted against Callaghan’s moderate course and persistently undermined his successor, Michael Foot, a compromise figure who tried unsuccessfully to unify the party. In the 1983 general election, when Thatcher was riding high after her victory in the Falklands, Labour published a seven-hundred-page election manifesto that called for Britain’s withdrawal from the European Economic Community, unilateral nuclear disarmament, and the renationalization of the industries privatized by the Conservative government. Thanks to its quixotically leftist policies, the manifesto was quickly (and prophetically) dubbed “the longest suicide note
in history.” The Liberal-SDP Alliance, formed in part by moderate defectors from Labour, benefited from the party’s self-immolation, but never quite managed to establish itself as a credible alternative to Thatcher’s reign and ultimately fragmented the forces of opposition to her, thus cementing her rule.

Foot’s successor, Neil Kinnock, was a more serious contender to national leadership, but he, too, was hampered by his party’s resistance to change. Thatcher’s resounding defeat of the miners rebounded on Labour itself, which had drawn much of its power from the trade union movement and had correspondingly identified itself with the miners’ cause (even if Kinnock made a point of denouncing their violence and often undemocratic tactics). The comparative weakness of the unions after the failure of the miners’ strike and the defection of many workers to the Conservative camp made Labour’s hard times even harder. The Thatcher era altered the very nature of the British economy, shifting productive forces away from manufacturing and toward services. This also dictated a painful evolution in Labour’s role and ideology. It was John Smith, the man who followed Kinnock as leader, who in 1993 finally persuaded their party to do away with the block vote (the union voting quota) at Labour Party conferences, and thus effectively ended Labour’s self-image as a party defined above all by its allegiance to the working class.
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In the end, it turned out that the one person most dangerous to Thatcher was Thatcher herself. Her domineering style off ended many within her own party over the years, and her urge to govern past her own cabinet ultimately deprived her of colleagues willing to call her out on some of her more ill-advised policies. In this way, her self-assured approach to government gradually became one of her greatest liabilities.

She succeeded in imposing her will on her cabinet colleagues and other Tory grandees as long as she could claim the loyalty of British voters. But it was within just a few years of her reelection in 1987 that her government’s approval rating began to slip. Perhaps the most consequential factor in this decline was her plan to push through a drastic reform of local government taxation. The UK had traditionally financed local government through property taxes, known as the “rates.” Thatcher resolved to replace them with an individual tax she called the “community charge” (dubbed by its critics the “poll tax”). Many Britons viewed the plan as an ill-concealed attempt to shift the burden of taxation from property owners onto the less advantaged. The poll tax prompted intense and widespread opposition that resulted in serious domestic unrest, culminating in a major riot in central London in March 1990. Few in her entourage, cowed by her determination to proceed, were willing to offer open criticisms of the policy.

The prime minister also stumbled over the similarly contentious issue of Europe. Her chancellor of the Exchequer, Nigel Lawson, and her foreign minister, the ex-chancellor Geoffrey Howe, believed that the UK could shape EU policy to its own advantage only by participating actively in the process of European integration; standing entirely outside of that process was impossible, they insisted, given the UK’s reliance on trade with the European market. But Thatcher’s intense national pride made her skeptical about allowing Britain to merge too deeply with the European Community—a stance compounded by her instinctive distrust of Europeans’ presumed socialist proclivities. Lawson and Howe did manage to press Thatcher to allow the pound sterling to join the European Exchange Rate Mechanism, a system of managed exchange rates for all the EC’s currencies that might ultimately serve as a prelude to a common currency. But when Thatcher persisted in publicly denigrating the notion of financial coordination with Europe, and thus undermining the very policy she had pledged to undertake, the rift between her and the two men deepened. Lawson ultimately felt compelled to resign over the issue in July 1989, while Howe accepted a transfer to a new job as deputy prime minister, a move that amounted to a humiliating demotion.