Strange Rebels: 1979 and the Birth of the 21st Century (58 page)

For Howe, the final straw came a year later, when Thatcher’s increasing animosity toward the European question prompted her to issue a momentous rebuke. Responding to a statement by European Commission president Jacques Delors about the need for a European single market and deeper political integration, she told the House of Commons that she had a simple answer: “No, no, no.” On November 1, 1990, Howe then surprised everyone by announcing his resignation, citing his differences with Thatcher on Europe. He was, as it happened, the last member of the original 1979 cabinet to leave the government. It was, fittingly enough, the departure of this diehard loyalist, a man who had so long suffered from the prime minister’s overbearing manner, that precipitated her downfall.

At first Thatcher’s entourage tried to paper over the break by assuring the press that Howe merely disagreed with the style of the prime minister’s policies on Europe, not their substance. Howe responded by standing up in the House of Commons and coolly elucidating his reasons for his rupture with the prime minister—a devastating challenge to her authority that brought into the open all the simmering resentments within the party. Thatcher’s diminished popularity due to the poll tax was compounded by rising inflation and the onset of a new recession; all this, combined with Howe’s open questioning of her leadership abilities, suddenly rendered her politically vulnerable. Michael Heseltine, a cabinet heavyweight who had long been known to covet Thatcher’s job, seized the opportunity to challenge her
leadership of the Conservative Party. She won the first round of the internal party vote, but by such a slim margin that she was ultimately forced to concede that she had lost the confidence of her own Tory colleagues. The Iron Lady was compelled to resign—victim of an extraordinary parliamentary drama that few would have considered possible even just a month before.
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Her political legacy remained enormously consequential nonetheless. Her successor, John Major, backed down on the poll tax and promised a “compassionate conservatism” that would rub off some of the harder edges of Thatcher’s policies. Yet the basic vector of his governing philosophy remained true to hers. He continued with the privatization of state-owned companies like British Rail and pursued efforts to make government more responsive to market forces. This was an acknowledgment of the reality that her efforts had kicked off a long period of economic growth and a climate that promoted the growth of new businesses. It was this legacy that prompted Labour strategist Peter Mandelson to utter a famous provocation: “We are all Thatcherite’s now.”
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The figure who best exemplifies Margaret Thatcher’s transformation of British politics is Tony Blair. Born to a generation that came of political age under Thatcher’s premiership, Blair operated under assumptions dramatically different from those of his Labour forbears—and, indeed, from those held by Keynesian Tories like Harold Macmillan, who had assailed the privatizers of the 1990s for “selling off the family silver.” The shift in the Labour mind-set amounted to an acknowledgment that the party could no longer expect to win votes by proposing the old Keynesian policies of public spending and nationalization to “the broad mass of the newly affluent electorate,” as Richard Cockett writes. Thatcher had irrevocably shifted the center of gravity on economic policy. Cockett compares Labour’s transformation to the process the Conservatives had been forced to endure in the period from 1945 to 1951, when they had jettisoned their old free-market policies in order to appeal to voters who hewed to the attractive new vision of a comprehensive welfare state. In the period from 1987 to 1992, the Labour Party was similarly forced to discard of many of its old collectivist dogmas to accommodate voters who were now living in the world that Thatcher had built.
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To be sure, the Thatcher era had its shadow side. The number of those living in poverty increased from 5 million in 1979 to 14.1 million in 1992. The gap between rich and poor widened: in 1979 the top 10 percent of the population measured by incomes held 20.1 percent of the wealth; by 1992 the figure had risen to 26.1 percent. Over the same period, the amount of national wealth held by the poorest 10 percent fell from 4.3 percent to 2.9 percent. The real incomes of the bottom
10 percent dropped by 18 percent over the same period, while those of the top 10 percent increased by 61 percent.
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Unemployment, which peaked at 3.3 million in 1984, left lasting scars. It should come as little surprise that the 1980s were haunted by periodic episodes of social unrest: the 1981 riots, the miners’ strike, the anti-poll tax disturbances of 1989–1990.

Thatcher’s supporters respond that the strong medicine she administered was painful but urgently needed. Since the economic recovery of the late Thatcher years, they say, the country has registered strong and persistent growth. “Thatcherism can best be summed up in the statistics showing that, in the 1980s, manufacturing productivity rose faster in Britain than in any other industrial country,” writes Tim Congdon.
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Employment began to rise again during her third term in office, and by the end of the century, British joblessness was lower than in most European countries. One might also observe that revolutions (even conservative ones like Thatcher’s) are invariably divisive.

It is also worth noting that some of the intellectual architects of the Thatcher counterrevolution believed that she did not go far enough. There were some at the promarket think tanks, the Institute for Economic Affairs and the Center for Policy Studies, who continued to insist that Thatcher had dodged some of the greatest challenges of the 1980s. They believed, in particular, that Thatcher signally failed when she refused to take on the daunting task of reforming the public-sector bureaucracies, the places where the real power of the state resided. Without doing this, they contended, the economic liberals “could never achieve that fundamental shift in power from the State to the individual that had been at the core of the economic liberal agenda since the 1940s,” Cockett notes. To them, accordingly, the Thatcher Revolution was only a partial success.
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Journalist Simon Jenkins echoes this critique. Government spending as a share of the gross domestic product actually increased during her administration—evidence, he says, that her antistatist ethos was more rhetoric than reality. This was particularly true at the local level. Contrary to her decentralizing instincts, she ended up increasing London’s power over many organs of provincial and municipal government—precisely, he argues, because local governments were so often dominated by socialist sympathizers who opposed her policies.

There is undoubtedly a measure of truth to this. Yet it is important to recall that Thatcher was not a libertarian. Those of her supporters who wanted to see her privatize the National Health Service, for example, were probably deluded (though she did try to make it more responsive to market incentives). Thatcher’s primary aim was not to destroy the welfare state. It was to restore the primacy of
the “vigorous virtues” in British life, to destroy the culture of dependency fostered by socialism, and to open up greater space for individual self-reliance and private initiative. In this, Thatcher’s defenders say, she resoundingly succeeded. She did it, above all, by transforming the terms of reference of British politics—with consequences that continue to be felt in the country to this day. Whatever one’s political views, no one can dispute that Margaret Thatcher left Britain a fundamentally different place from the one she encountered upon her assumption of office in 1979.

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n September 1989, Poland’s economy faced a desperate situation. The country was wallowing in debt, both domestic and foreign. Its industrial capacity was 90 percent state owned. These publicly owned enterprises never fired anyone, but neither did they produce goods that anyone wanted to buy. Bankruptcy was unheard of. The Polish currency, the zloty, suffered from hyperinflation at rates of more than 600 percent.
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The finance minister of the country’s newly installed democratic government, Leszek Balcerowicz, set out to turn things around. He formed a commission staffed by some of Poland’s leading economists as well as the American Jeffrey Sachs.

On October 6, Balcerowicz unveiled his new program. It gave private businesses the ability to participate in Poland’s foreign trade, which until then had been entirely monopolized by the government, and made the zloty convertible (though only inside the country). Private foreign investors were invited to come into the country and put their money into new businesses. A new law on banking prohibited the central bank from financing the budget deficit; another allowed state-owned companies to go bankrupt. A special tax was imposed on wage hikes. The Balcerowicz Plan also cut state subsidies on energy. Perhaps most important of all, it freed prices for many consumer goods.

It was an approach that came to be known as “shock therapy.” As the name implies, the treatment involved was not entirely gentle. Prices jumped, and unemployment soared to 20 percent. Yet it did not take long for signs of a new economic life to appear. Inflation, an abiding feature of Polish economic life, disappeared. The zloty went from being a symbol of dysfunction to a stable currency that has helped to fuel a persistent economic boom. Polish entrepreneurs have founded hundreds of thousands of companies that have produced millions of jobs. The Polish economy is today one of the most dynamic in the European Union.

The experts can fight over whether these measures were doctrinally “Thatcherite.” What is beyond dispute, however, is that Thatcher’s political example loomed large in the minds of the economist-politicians who engineered the plan and saw it through. Unlike the British prime minister he described as his “hero,” Balcerowicz
managed to stay in office only two years. But he remains a strong advocate of her economic philosophy.

Thatcherism had a remarkable and largely unappreciated impact on economic thinking around the world, and as such it has been a major factor in the global market revolution that has transformed the world in the years since she ruled Britain. Entirely in keeping with her self-image as a political crusader, her influence has been far less theoretical than practical.

The reasons for this are simple. In the 1980s and 1990s, many countries around the world found themselves in positions comparable to that of the United Kingdom in the late 1970s. Under the well-meaning influence of “development economics” in the 1950s and 1960s, developing countries had assumed that state-led modernization, public ownership of industry, and aggressive government intervention were the only ways to kick-start growth. The results, in far too many cases, were inefficiency, corruption, and chronic inflation.

The main intellectual alternative to the reigning consensus in global economics emerged from the so-called Chicago School, a term that was first applied in the 1950s to a group of free-market economists who came together at the University of Chicago. Their most famous theoretician was Milton Friedman, a founding member of the Mont Pèlerin society and a gifted polemicist for the cause of economic liberalism. The Chicago School did not content itself with merely generating ideas. It also turned out an enormously influential crop of international economists who later played direct roles in the process of economic reform in their home countries.
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Friedman and his colleagues did much to prepare the way for Thatcher’s economic counterrevolution by promoting the new thinking during the 1970s. Friedman’s Nobel Prize in 1976 (coming two years after the one received by Friedrich von Hayek, who also taught for a time at Chicago) signaled the shift in thinking that was already under way.

Thatcher’s impact, however, was different. She was not an academic but a practical politician, the leader of one of the world’s most important economies. It was also important that she was precisely not an American. For all of their periodic obsessions with New Deal corporatism and Keynesian fine-tuning, the Americans had always remained committed to a fundamentally liberal economic philosophy—even if the US-trained development economists often did not seem to regard it as suitable for foreign conditions. In 1979, however, Thatcher and her team had confronted a set of real-world conditions that seemed painfully familiar to many reformers around the world in the 1990s: high inflation, a bloated state sector, waning
productivity, and a collectivist mind-set that assumed the need for a government intervention on myriad levels and crowded out entrepreneurship and wealth creation.

All of this helps to explain why Thatcherism proved to be such a spur to the worldwide forces of neoliberal orthodoxy, the market revolution that helped to spur globalization. The newly liberated countries of Eastern Europe looked to Thatcher, not Reagan, as their economic lodestar. And that was only logical, since their problems—a lopsided public sector, a crushing bureaucratic apparatus, a deeply entrenched collectivist ethos, and a long-suppressed spirit of entrepreneurship—were so similar to the conditions faced by Thatcher and her team in the 1980s. The same applied to economies that “emerged” elsewhere, including upstarts like Brazil or Turkey that, unlike the East Asian nations, rejected the authoritarian assumptions of postwar “development economics” and adopted economic reforms more compatible with progress toward democratic rule.

Thatcherism had no greater consequence than in India, where the early-içços reformer Manmohan Singh and his followers referred to her legacy, directly and indirectly, as they cut away a choking bureaucracy to release the wealth-creating potential of the world’s largest democracy. What an irony it would be if, one day, we recall Thatcher less for her role as the reformer of a sclerotic Britain than as the inspiration for India’s transformation into one of the world’s economic giants.