Jon Milani

Thatcherite Economics

Thatcherism [1] is a term attributed to the political career of British Conservative Prime Minister Margaret Thatcher; however, the term also describes the conviction politics of British conservatism during Thatcher’s reign from 1979 to 1989, encompassing the social and economic policies of her government, as well as the more general conservative political culture during the period. Many historians debate whether Thatcherism represented a coherent and distinct ideology, or whether it was a continuation of traditional British conservatism. Foremost, Thatcherism defined a series of economic policies, designed to restore the British economy by reducing inflation. For many observers, however, Thatcherism challenged conventions of the British state; Thatcher succeeded in removing much of the influence of parliament in favour of executive power, it undercut the collective bargaining power of labor, and it promoted a campaign of privatization based on monetarist economic theory. Combined with advocacy moral behaviour and support for the state, Thatcherism encouraged a new mode of social participation while likewise discouraging conventional class association. While Thatcherite economic policies were primarily designed to stimulate the British economy, they also functioned to consolidate authority at the state level; in turn, Thatcherite economics affected the socio-political structure of Britain.

The origins of Thatcherism1 can be traced to the decline of the consensus politics of the post-war era. Following the dismantlement of the British Empire and rising domestic instability, the uneasiness that gripped political and administrative circles gave rise to debate about how society and the economy could be successfully be modernized. By the 1970s, difficulties in maintaining stable prices, employment, living standards, and balanced trade provided conditions for a rise in the popularity of fiscal and political conservatism. According to E. E. H. Green, Thatcher’s election was largely a response to the failure of previous governments to address these growing problems. The growth of conservatism occurred amid a decline in the Keynesianism and a renewed interest in liberal-market and monetarist economics. According to Andrew Gamble, the popularity of conservatism was exacerbated both by the oil shock of the early 1970s and by Britain’s failure to adjust to fundamental changes in world economics. The Thatcher government’s conservatism also mirrored changes in the United States and Europe, where economic deregulation, a reduction in income taxes, and public spending cuts all illustrated a general conservative uptake with the decline of social welfare politics.

Although Thatcher became the leader of the Conservative Party in May 1979, the key elements of the radical political agenda that came to be defined as Thatcherism first appeared during the following year. According to Stephen Edgell and Vic Duke, Thatcherism’s brand of radicalism sat uneasily with traditional one-nation conservatism, and it faced opposition as it shifted Britain away from post-war consensus politics. More importantly, it was not altogether clear at whether Thatcher’s political rhetoric hinted at any underlying ideological convictions. One of the most distinctive policies of the Thatcher Government was its emphasis on privatization; however, as historian Andrew Gamble notes, there was no public commitment to denationalization either before the election or in the Conservative Party’s post-election manifesto. The policies that came to define Thatcherism were generally based on economics. However, the fact that Thatcherism is often defined solely by its economic policies belies it focus on cultivating certain values in individuals, its attitude toward the family, and its promotion of a certain kind of society suggests that it was altogether more complicated than an economic doctrine. Rather, Thatcherite economics proved to be the mechanism by which profound changes to the Britain’s social and political spheres were accomplished.

Foremost, however, Thatcher exercised a profound effect on the structure and the social composition of the Conservative Party. The Conservative Party under Thatcher underwent rapid changes in social composition, and the political views of parliamentary candidates was mired by a decline in political activism. Despite three consecutive election victories, many contemporary conservatives regarded Thatcherism as a deviation from traditional conservatism; according to historian Eric Evans, Thatcher alienated progressive, paternalist and “one-nation” Conservatives alike. However, others argued that the “new right” conservatism advocated by Thatcher was a reassertion of the most fundamental conservative principles. In either case, the policies of Thatcherite “statecraft” envisaged a new social and economic order, which carried with it major implications for the political order and the legal system. Thatcher’s ideological leanings were also illustrated by her circumvention of the civil service and of parliament; the immediate result was that more non-civil servant policy advisers were brought into government, but more importantly her actions illustrated a Thatcherite consolidation of power. Thatcher also consolidated executive power at the expense of parliament, which was also more cooperative due primarily to the disarray of the Labour Party. Thatcher was likewise skeptical of the integrity and purpose of local government; she did not believe in a separate focus of public politics and she despised what she perceived as the inefficiency and wastefulness of localities.

The “new right” economic policies that came to define Thatcherism were largely the result of an adherence to economic liberalism derived from theories advanced by Adam Smith, and, more recently, Friedrich Hayek and Milton Friedman. During the course of the decade, the Thatcher government sought to retract the state’s reach by lowering direct personal taxation, by advocating an increase in property-ownership, and by encouraging private-sector growth. While Thatcherism certainly demonstrated policy continuities independent of the election cycle, for Gamble, the economic policies of Thatcherism are most appropriately split up into three phases, drawn along the lines of general elections. The first phase of Thatcherite economics was undertaken during the 1980s, when the problem of inflation was agitated both by a decline in demand for oil and increased industrial costs. Thatcherism’s strict adherence to monetarist policy demanded that the government substantially lower inflation, which it combatted primarily through the imposition of a monetary and fiscal squeeze, and by restructuring the burden of taxation. By way of successive white papers, the Conservative Party also adopted a strategy first to stabilize public spending, and then to reduce total public expenditures progressively over the next several years.

Perhaps the Thatcher government’s radical departure from conventional policy was best illustrated by the wholesale abolition of boards of public agencies. However, in its early industrial relations, and when dealing with nationalized industries, the Conservative government moved cautiously. During the early years, the government pursued a hands-off approach to industrial disputes; however, by pursuing a legal framework that undercut cooperation, the Conservative government demonstrated a marked indifference to labour. According to Dennis Kavnagh, the Thatcher government also hoped that strict control of the money supply, coupled with an expressed unwillingness to rescue financially troubled firms, would help to foster a more responsible outlook among wage bargainers. However, according to Edgell and Duke, Thatcherism intended to fundamentally alter the balance of class forces in favour of capital and to the disadvantage of labour. The reform of trade unions was, therefore, a high priority for the Thatcher government; however, the government was careful not to directly agitate labour, and, based only the Ridley report’s recommendations, only pursued the course of least resistance when proposing labour reforms. Successive pieces of legislation reformed or constrained key areas of union behaviour, including picketing, secondary action, the closed shop, and strike ballots.

It was during the second phase of Thatcherite economics (during mid 1980s) that Thatcherism came into its own; the Conservative Party’s confidence was emboldened during these years, driven primary by the growth of the world economy. It was during these years that strong ties were forged between Britain and the United States; supply-side economic policies pursued by the Reagan administration had reflated the American economy and produced new levels of demand, which had the effect of stimulating growth in the British economy as well. The ideological similarities between Thatcher and Reagan brought the two states into a closer relationship. Britain found itself aligned with American foreign policy interests and likewise demonstrated more aggressive tendencies regarding defence policies. Domestically, the Conservative government shifted from a monetarist focus and adopted a similar focus on supply-side remedies considered necessary for economic revival and prosperity. The Thatcher government also adopted a broadly focused privatization programme. Nationalized industries were made more efficient by private-sector style management-restructuring, while other public holdings, including a 5 percent stake in (BP) British Petroleum and a 52 percent stake in British Aerospace, were sold to private interests.

Thatcherism’s primacy of market economics had a profound effect on social and political divisions in Britain. The Conservative government exploited underlying economic trends, such as organized labour’s weakened bargaining position during the recession years, to fundamentally alter the balance of class and sectoral forces in Britain. While monetarist macro-economic policies of the Thatcher government benefitted the privileged classes in Britain, especially by way of tax benefits, the theory endorsed by the Conservative government discouraged intervention in the labour market for fear of driving up inflation. More importantly, Thatcherism sought to concentrate state authority, and it expanded its sphere of decision-making to education policy by way of reform acts. Thatcherite economic doctrine affected the education system by removing powers at the local level, and likewise demanded more from professionals such as teachers; however, Thatcherism was more broadly focused on promoting both a sense of self an a sense of nation in the education system, as well as support for the market, enterprise, and self-help. Furthermore, adherence to Thatcherite economic doctrine was linked with notions of responsible family and the maintenance of a common national identity; Thatcherism shifted the conversation from social democratic collectivism toward individualism and privatism.

The effect of Thatcherite economic policies was to create a more unequal society; the real income of the poorest 10 percent of the population declined outright, and the measure of poverty increased substantially during the decade. Arguably, the Labour Party and it support base was also substantially affected by Thatcherite economics; the growth of “new labour” was primarily a response to the neglectful Thatcherite politics of the era. Some observers claimed that the Thatcher government embarked on a path of “creeping authoritarianism”; from trade union and homosexual bashing, the government took advantage of its nearly unchecked institutional powers to pursue its enemies, harass journalists, curb workers’ rights, restrict the right of defendants to remain service malfeasance, and set an illiberal tone that had palpably diminished the quality of political discourse. Furthermore, while Thatcherism caused an attitudinal de-radicalization of employers its policies had the effect of increasing radicalism among employees, especially public sector employees. Moreover, as an article in Economic and Political Weekly noted, radicalism was particularly appealing to minorities. Indeed, the radicalism that Thatcherism ignited was both the result of its economic policies and the social fragmentation that it caused.

Conservatives debated whether Thatcherism reasserted conservative principles or whether it represented a radical departure with convention. The failure to modernize the British state arguably necessitated a radical redefinition of the socio-economic and political relationship between the British state and society. As Gamble notes, Thatcherism was the first to grapple with the problems of post war democracy by way of a practical programme and policies. Thatcherism’s legacy is that it attempted both to propagate and to weave together electoral, ideological, state, and economic hegemony into a programme of radical change in British society. Furthermore, Thatcherism reconciled its renewed focus on the capitalist system with traditional welfare institutions by introducing logic of the market into the production and distribution of welfare state services. The effect was twofold: while it strengthened the coherence of Thatcherite ideology, the increasingly deregulated industrial capitalist state posed a risk to social classes that relied on state-based welfare spending. However, Thatcherite economics also had the effect of alienating the professional workforce; the consequences of Thatcherism’s “efficient delivery” often resulted in long working hours and compounded stress. Thus, Thatcherism’s influence was not limited to the labouring class, which was displaced with the marginalization of collective bargaining; rather, Thatcherite economics affected, to varying degrees, the entire British social structure.

Although Thatcherism was a term attributed to the political career of British Conservative politician and Prime Minister Margaret Thatcher, the term describes more than simply her collective political convictions. Rather, Thatcherism encompassed both a distinct political culture and social ideology, expressed primarily through its economic policies. Many historians debate the distinctiveness of Thatcherism; however, while Thatcherism might have shared ideological similarities with conventional conservatism, its adherence to monetarist economic policies resulted in an ideological radicalism that was altogether unique in British social and political history. Thatcherism succeeded in cultivating executive power at the expense of parliamentary autonomy, the role of the civil service, and the collective bargaining power of labour. More importantly, it encouraged a new mode of social participation by promoting redefinitions of self, of family, and of national identity. Thatcherism also began to align itself with broad expressions of conservatism, both in terms of defence spending and foreign policy; the results also shifted its economic focus from a strictly monetarist policy toward supply-side economics. Thus, although Thatcherism sought primarily to stimulate the British economy, it functioned to consolidate state-level autonomy, and, in turn, to redefine the social and political structure of Britain.

1 This essay will not specifically analyze the differences in successive Thatcher governments between May 1979 and November 1990. Although Thatcher often made cabinet changes in order to promote party-solidarity, this paper is more interested in examining both the consistency of policies and the underlying ideology that comprised both Thatcherite economics and its subsequent influence on British society and politics.