What is Thatcherism?
The Creation of Thatcherism
There were three factors at play in the creation of Thatcherism; A new leader; the development of new ideas and of course Mrs Thatcher herself
A New LeaderMrs Thatcher replaced Heath as leader of the Conservative Party in 1975 and won the 1979 general election.
- The works of Friedrich Hayek became popular. As an undergraduate, Margaret Thatcher had read his book The Road to Serfdom, written in 1944, with its central message that socialism, even in its social democratic form always leads to authoritarianism and no compromise must be made with it. She later talked to Conservative audiences about ‘the enemy within’. Hayek was still alive in the 1970s and was now invited to right wing discussion groups.
- Milton Friedman challenged Keynesian economics with the idea that inflation is a result of an increase in the money supply. These monetarist ideas argued that governments caused inflation by overspending and that public spending diverted investment from the private sector where it would have been productive.
- Variants of public choice theory argued that bureaucracies, often through close links to interest groups, have an interest in increasing their spending as this gives them more power. The only solution to this is to entirely remove some of the things that the state is doing, rather than simply to reduce public expenditure by a fixed proportion across the board.
- There was a neo-Conservative reaction against the social liberalism and movement for individual freedom of the 1960s, for example, in the writing of Roger Scruton and the Salisbury Review
- The period also saw the creation of right wing think tanks promoting free market ideas. Keith Joseph, one of the Conservative MPs closest to Mrs Thatcher, set up the Centre for Policy Studies in 1974. The Institute for Economic Affairs researched practical change to policy. The Adam Smith Institute, founded in 1977, promoted privatisation.
As Prime Minister she had a certainty of conviction and a willingness not to compromise that allowed her to drive new policies through the government machine.
This was helped by her legendary ability to do without much sleep which meant that she was always on top of briefing notes and committee papers for the next day.
Sir Michael Butler, Britain’s Permanent Representative in the EU, remembers being with her, in Stuttgart, the night before a European Council meeting, to agree the line to be taken the next day and then staying up with her while she drank whisky and talked, mostly complaining about her Cabinet colleagues.
Eventually, at about 2am, she decided to go to bed and asked him to put together a briefing paper for the next day. When he asked what time she needed it, she said for breakfast at 7am!
Margaret Thatcher is one of the only British Prime Ministers to have an –ism attached to her name.
It is difficult for politicians, especially Prime Ministers, to demonstrate a coherent ideology as they constantly have to react to pressure from their party, the MPs that make up their Parliamentary majority, their Cabinet colleagues, the media, challenges from the Opposition parties, public opinion and, of course, events.
They also change their policies over time as they learn from events and Mrs Thatcher was Prime Minister for 11 years. Peter Riddell sees her ideas as an instinct rather than an ideology.
Nevertheless the Thatcher Governments marked a major shift in British politics to produce a State that was smaller and did less, though in some ways more centralised, while the market was accorded a much more important role in the provision of services and the promotion of entrepreneurship was seen as a major role for Government.
Thatcher’s success was in combining these radical changes with a fairly traditional foreign and defence policy and the championing of conservative social values to create a winning electoral coalition.
Interpretations of Thatcherism
There was considerable debate in the 1980s about the nature of Thatcherism among political scientists. There has been little discussion recently but political historians are now beginning to look at the Conservative Governments in the broader context of the post-war period to ask whether there really was such a radical departure in policy (see Peter Kerr Post-war Politics: From Conflict to Consensus, 2001 for the continuity view and Richard Heffernan New Labour and Thatcherism: Political Change in Britain, 2001 for the other view).
The debate among political scientists produced a range of views:-
- For writers on the left such as Stuart Hall and Bob Jessop Thatcherism is a local response to a global economic crisis that threatened welfare capitalism. The State had to intervene in order to re-orientate the British economy towards global markets, reduce the power of labour as against capital and change institutions such as the trade unions, the City of London and local government, to prevent any impediment to this re-orientation. The Labour Government between 1974-9 was starting to reduce public expenditure and abandon Keynesianism and similar changes to that in Britain were made in other countries. Their view is not just simply economically determinist though and Hall discusses the creation by Mrs Thatcher of a highly successful ‘authoritarian populism’ which she was able to combine with advocacy of the free market. Andrew Gamble is also a key writer in this tradition (The Free Economy and the Strong State: The Politics of Thatcherism, 1988)
- The other debate is about whether Mrs Thatcher was really a Conservative or was returning to the free market principles of 19th century liberalism. The Conservative Party absorbed some of these principles in the late 19th century but they were always balanced against traditional Conservative One Nation ideas of pragmatism, so that policies changed only slowly and interests in society were reconciled, of community and of the importance in having intermediate institutions such as local government, the Church, the voluntary sector and the professions that would act as a check on central government and an alternative to the market.
- Denis Kavanagh (Thatcherism and British Politics: The End of Consensus?, 1990) makes the case for a new ideology which departs from the post-war consensus policies and Ian Gilmour, one of the ‘Wet’ ministers sacked by Mrs Thatcher, compares Thatcherism unfavourably with traditional Conservatism (Dancing with Dogma, 1992). Other writers see Mrs Thatcher as essentially creating a new synthesis between free market ideas and traditional strong state/nationalist ideas to meet the changing political context, just as Conservative Party leaders have always done. Jim Bulpitt, for example, rejects the idea of Thatcherism as a new ideology and concentrates on Mrs Thatcher’s ‘Statecraft’. The success of the Conservative Party in the 20th century has been in finding a formula for winning power, keeping party unity and maintaining the autonomy of central government within a unitary state. Mrs Thatcher was particularly successful at this (Political Studies Vol. 34 No 1, 1986)
(For fans of the interpretivist approach to political science Mark Bevir and Rod Rhodes have a useful article on how the different British ‘traditions’ see Thatcherism (West European Politics Vol. 21 No 1, 1998)
There is obviously a huge debate about whether, as the authors of 1066 and All That would have put it, Mrs Thatcher was a Good Thing or a Bad Thing, which we have not touched on here, although the interpretations of Thatcherism do, of course, have underlying values. Andrew Gamble, though, has a good article on whether the Thatcher Governments’ economic policies worked in their own terms (Parliamentary Affairs, Vol. 43 No 3, 1989). The Margaret Thatcher Foundation has a huge amount of material that gives a detailed insight into the views of Mrs Thatcher and the key people around her www.margaretthatcher.org
The 1981 Budget was a defining moment in the first term.
Geoffrey Howe, the Chancellor of the Exchequer, deflated the economy at a time of rising unemployment, breaking all the Keynesian rules, in order to reduce inflation and cut the Public Sector Borrowing Requirement.
From the mid-1980s, economic conditions were much easier and Nigel Lawson, Howe’s successor, was able to cut taxes, shifting the burden from income tax to indirect taxes.
There seemed to be no clear relationship between the money supply and inflation and Lawson largely abandoned monetarism.
The Government was determined to secure a permanent reduction in public expenditure.
The extra cost of unemployment meant that there was little success before the mid-1980s.
Thereafter, spending fell, not in total, but as a proportion of GDP, as economic prosperity increased the nation’s wealth. The biggest policy change was to drastically reduce spending on social housing.
The desire to reduce spending led the Government into a long battle with local authorities, particularly those controlled by Labour, over local expenditure.
Government grant was cut for those local authorities which the Government judged to be higher spenders and, when this was not completely effective, a system of rate capping was introduced which allowed central government to veto the tax level set by selected authorities.
Still not satisfied with this, Mrs Thatcher decided to support a flat rate local tax unrelated to income – the community charge or, as its critics called it, the poll tax – with the argument that if everyone paid local taxes then they would vote for local councillors who kept spending low.
The tax was hugely controversial and the Duke of Westminster resigned his membership of the Conservative Party because he felt that it was wrong that he paid no more than his gardener towards local services.
The Thatcher Governments did not show any major foreign or defence policy departures from previous Governments.
Mrs Thatcher was strongly Atlanticist in orientation and looked to reach agreement with the United States wherever possible, far more than Heath had done, and shared the Euroscepticism of Wilson and Callaghan, again in contrast to Heath.
However, a distinguishing feature was her nationalist rhetoric and this was used to effect both in the prosecution of the Falklands War, when Britain repelled the invasion of the Islands, and increasingly in dealing with the European Union.
The Bruges Speech of 1989 took Euroscepticism to a new level. She was also opposed to German reunification in 1990.
There was no mention of privatising nationalised industries in the 1979 manifesto but Cecil Parkinson, a junior minister from 1979, is clear that it was an objective from the beginning for ministers on the right of the Party.
Between 1979 and 1981 profitable state owned companies such as British Aerospace and Cable and Wireless were privatised to reduce the Public Sector Borrowing Requirement.
In 1984, British Telecom and, in 1986, British Gas were privatised with the argument that the utilities could be made more efficient and that it would create a popular capitalism by allowing new groups of the population to buy shares.
After 1987 the programme was extended to water, steel, British Airways, and electricity and railways, under the Major Government.
A system of public regulatory agencies was set up for each of the utilities, initially with very light touch regulation. The Governments, keen to get privatisation through, did not do much to liberalise the markets in each area and ensure that they were competitive.
Contracting Out Services
The contracting out of areas of services provided by both central and local government was another objective. Services had to be put out to tender though in many cases the tender was won by teams of public sector workers who already did the work.
In the mid-1980s, in the National Health Service this focused on hospital catering, cleaning and laundry services. Mrs Thatcher pushed for its extension.
One minister earned her disapproval when he explained that he had not been able to give out the contracts for the cleaning of trains because no one had yet come up with a definition of what a clean carriage meant.
Compulsory Competitive Tendering was gradually imposed on local authorities, firstly in manual areas such as street cleaning and refuse collection and later in professional services.
Liberalisation of the Markets
The liberalisation of markets was another policy and was carried out most notably in the financial services in 1986.
Called the big bang, these reforms introduced computer trading into the Stock Exchange and broke down the traditional networks that had operated in the City of London.
The system of stockbrokers dealing with clients and then giving their business to jobbers who traded in shares was broken up and replaced by investment banks.
Many of these were American owned because British deregulation had gone further than in the United States, who did the whole process.
In other areas, Government promoted liberalisation was more limited and far more important was the Thatcher Government’s promotion of the single European Market.
This started the process of removing regulations in each member state that had made it difficult to sell goods and services from one to another.
Reduce the Role of the State in Providing ServicesThe most successful policy was the sale of council houses to tenants at a discount. This was followed by allowing councils so transfer their housing estates to housing associations or private landlords and most Conservative councils did so.
The Government was determined to reduce the power of the trade unions and plans were drawn up in opposition to deal with a future strike in the coal industry, a strategy successfully carried out in 1984-5.
The legal framework for trade unions was changed.
A ballot, rather than a show of hands, was required before a strike could take place and picketing was only allowed at the site of the strike and not at other places that might be economically related.
Compulsory trade union membership in a ‘closed shop’ was banned and employers no longer had to automatically to take union membership payments out of wages.
Trade union membership dropped by half during the period, although the decline of manufacturing industry was also an important factor.
Trade unions had to ballot members to keep their affiliation to the Labour Party, although all the ballots were in favour of keeping the link.
The End of Consensus
Radical change develops as a reaction to some existing situation that is causing problems. There were two aspects that Thatcherism and what have been called New Right ideas reacted against:-
1. The period from 1945 to the 1970s was one of considerable political agreement. The sharing of power by the parties during the war and the Conservatives’ acceptance of the main elements of the programme that the post-war Labour Government had carried out, after its landslide victory, led to a broad consensus around a number of areas:-
- After Labour had nationalised a few basic industries the boundary between the public and the private sector was only changed in a few industries, such as steel and road transport
- Keynesian economic management was adopted to prevent unemployment and manage excess demand by deflating and inflating the economy as necessary. This was accompanied by a policy of Government help to the regions that had seen high unemployment in the 1930s
- A constructive relationship was developed with the trade unions to consult them on issues that affected them and Government intervened when needed to help settle industrial disputes
- A welfare state, including a National Health Service and a local authority house building programme, was supported which was mostly universal but with a few means tested elements
- A decolonisation programme, the Atlantic Alliance, an independent nuclear deterrent and (from the 1960s) participation in Europe were broadly agreed by the leadership of both parties
All this was in the context of Britain’s relative imperial and economic decline and Government managed the crises that this change created from time to time.
Mrs Thatcher’s adversarial nature revolted against the idea of consensus and she called it,
“The process of abandoning all beliefs, principles, values, and policies in search of something in which no one believes, but to which no one objects; the process of avoiding the very issues that have to be solved, merely because you cannot get agreement on the way ahead”.
2. By the 1970s, problems were occurring that centrist politicians in the two parties were finding intractable.
- The rise in oil prices in 1973 sent a shock through the western economies. Inflation in Britain rose to a peak of over 25% in 1975 while unemployment also rose. Keynesian economic management did not have a prescription for simultaneous inflation and unemployment. The Labour Government began to abandon Keynesianism and instituted public expenditure cuts and a prices and incomes policy
- The Wilson Government of 1966-70 and the Heath Government of 1970-4 had both failed to carry through reform of the trade unions and the miners’ strike of 1973-4 had contributed to the end of the Heath Government. The Labour Government’s incomes policy began to collapse in the winter of 1978-9 with major strikes in the public sector
- The view developed that Britain was facing a crisis of ungovernability. As well as the problems with the trade unions, consensus politics had allowed interest groups to influence government with the result that public expenditure increased to meet their various demands
- The idea of welfare dependency developed as a critique of the universal Welfare State
- International free trade policies had increased the interrelationship between the world’s economies to help produce the process that we now know as globalisation, leading to new challenges for the British economy
- Manufacturing industry was collapsing in the inner areas of main cities leading to a new inner city problem
On the left, the new situation was seen as a crisis of welfare capitalism and the reaction, within the Labour Party, was to demand an Alternative Economic Strategy and a more socialist direction for a future Labour Government. On the right a set of ideas about a smaller state and changes in economic policy coalesced into the intellectual movement that has been called The New Right.