Thatcherism and the End of the Post-War Consensus

Abridged version from the bbc:

http://www.bbc.co.uk/history/british/modern/thatcherism_01.shtml

By Dennis Kavanagh - Last updated 2011-03-03

 

What was the post-war political consensus and why did Thatcherism represent its final demise?

Consensus

Britain emerged from the 1939-1945 war triumphant, but economically exhausted. It was one of the top three superpowers, although in reality a distant third behind the United States and the Soviet Union. Nonetheless, its political system and the British state had been vindicated by success in war, and over the next few years Britain emerged as a model social democracy, combining planning and collectivism with civil liberties.

The 1945 Labour government was largely responsible for what is called the 'post-war consensus'. However, some of the key elements can trace their origins to the war-time coalition government and the influence of Liberals like William Beveridge and the economist John Maynard Keynes.

There was a belief that government could play a positive role in promoting greater equality through social engineering.

The major features of domestic politics included:

1. Governments accepted a commitment to maintain full employment by Keynesian techniques of economic management. Ministers would use their levers, such as cutting taxes and boosting state spending, to increase the level of economic activity.

2. Acceptance and some encouragement of the role of the trade unions. In contrast to the pre-war years, governments recognised and consulted them regularly on workplace relations and economic policy. The unions’ access to government was increased partly by full employment and partly by governments turning, post-1961, to income policies as a way of curbing inflation.

3. The mixed economy, with a large role for state ownership of the utilities (such as gas, electricity, coal, rail, etc) and intervention and planning in the economy.

4. The welfare state. The object of the national insurance system and the National Health Service was to provide an adequate income and free health when a family’s income was hit by, for example, sickness, old age, unemployment or death of the main breadwinner. The services were provided out of general taxation, or insurance, and represented social citizenship.

5. There was a belief that government could play a positive role in promoting greater equality through social engineering, for example, by progressive taxation, redistributive welfare spending, comprehensive schooling and regional policies.

Abroad, the parties agreed on: the transition of the empire to the British Commonwealth, an association of independent states; British membership of the North Atlantic Treaty Organisation (Nato); nuclear weapons, (regarded as a mark of being a major power); and, on balance, that Britain should join the European Community.

These policies were pursued by both Labour and Conservative governments, the latter because they thought it was necessary to gain working class support to win general elections and gain the consent of the major interest groups.

Consensus is not an ideal term because it may be read as suggesting that there were no differences between the parties. In fact, the above ideas and policies were often challenged by the left of the Labour party and by the free market or right wing of the Conservatives. But much of the political elite – the media, civil service and the leaderships of the parties, particularly when they were in government - shared many of these ideas.

Economic decline

Picture left: Prime Minister Edward Heath in 1971 - During the 1960s and 1970s, the main parties competed to reverse Britain’s relative economic decline. There was a growing awareness that the economic league tables showed that Britain was at the wrong end for figures regarding strikes, productivity, inflation, economic growth and rising living standards.

Virtually all European countries, except for Britain, had so-called 'economic miracles'. Britain was often described as the 'sick man of Europe'. The targets for blame included: failure to invest in new plant and machinery; restrictive working practices and outdated attitudes on the shop floor ('us and them'); amateurish management; loss of markets; and rise of competition.

It seemed that the UK was ungovernable and that no government had an answer to inflation.

Britain appeared to be the weak link in the international liberal capitalist economic system, plagued by high inflation, low growth and irresponsible trade union power.

Governments of both parties turned to incomes policies as an answer to inflation. They tried to agree a 'norm' for annual wage rises with the unions. This was always difficult for the unions, for their purpose is collective bargaining. This policy managed to keep prices down for a time, but collapsed when powerful groups broke the 'norm'. They failed dramatically with the Edward Heath government in 1973-1974 and again with the Labour government in 1979.

Measures to boost economic activity and reduce unemployment sucked in extra imports, thereby worsening the trade balance, and seemed to lead to unacceptable rises in inflation. The financial markets’ loss of confidence meant a sharp slide in the value of sterling, which in turn led to the International Monetary Fund's 'rescue' in 1976. The IMF granted a loan to the British government in return for spending cuts and continued anti-inflation policies. That this happened at a time of high unemployment seemed to signal the end of the era of following Keynesian economic policies.

The 'Winter of Discontent' in 1979 was a key event. The rash of strikes in crucial public services against the Labour government’s income policies seemed to show that the country was ungovernable and that no government had an answer to inflation. It destroyed the government’s reputation for prudent economic management and its ability to gain the cooperation of the unions.

Just as the Heath government had come to grief following the miners’ damaging strike against its incomes policy and subsequently lost the February 1974 general election, so the Labour government lost office in 1979 on pretty similar grounds.

There were two responses to this failure. From the right, the new ideas of economists Friedrich Hayek and Milton Friedman - advocating monetarism, a greater scope for markets and limited government - won out over the ideas of the left for more state ownership and protection of industry following a withdrawal from the European Community.

Thatcherism

Picture left: Margaret Thatcher at the Conservative conference in 1982 - Much of so-called Thatcherism actually evolved as circumstances allowed, and was helped by the failures of the opposition. For example, privatisation, a flagship policy, was not mentioned in the 1979 manifesto.

At the 1983 general election, in spite of unemployment doubling to some three million, the government won a landslide victory thanks in large part to Labour’s divisions and its left-wing policies.

Thatcher’s government insisted that it could no longer be a universal provider.

It is interesting to consider the fate in the 1980s of the five features of the post-war consensus outlined previously.

1. Trade unions now operated in a tighter legal framework, including: the requirement for pre-strike ballots; the end of the 'closed shop' (union membership as a precondition of employment in a specific industry); and making unions liable for damages incurred in illegal strikes. They were hardly consulted by the government and their influence waned in part because of the abandonment of income policies and rising unemployment.

2. The spread of privatisation of the major utilities altered the balance of the mixed economy. Gas, electricity, telephony, British Airways and later British Rail were all privatised. There was also a huge sale to tenants of council housing.

3. The government abandoned its commitment to full employment, stating this was the responsibility of employers and employees, and accorded priority instead to keeping inflation low.

4. Welfare state benefits were increasingly subject to means-testing.

5. Government insisted that it could no longer be a universal provider. More should be left to the market, the voluntary sector and self-help.

Thatcher's mandate

Picture left: Striking miners clash with police in Wooley, Yorkshire, 1984 - There was no great endorsement of Thatcherism in 1979. As late as October 1978, Labour was still ahead in some opinion polls, but the 'Winter of Discontent' turned the public against Labour and the unions. The election was more of a rejection of Labour than an endorsement of Thatcherism.

The recapture of the Falkland Islands from Argentina in 1982 was important for the success of the Thatcher’s project. It coincided with an improvement in the public standing of the government and of Thatcher herself. The victory seemed to vindicate her claims in domestic politics that she could provide strong leadership and stand up for the nation. The war rhetoric could now be turned against the enemies within - particularly the trade unions.

There are academic disputes about the extent to which military success boosted Conservative chances in the 1983 election. There were signs of a revival in the polls and greater economic optimism even before the capture. But what if the Falklands had been lost? Would the government have survived?

Labour could not exploit dissatisfaction, because it was seen as weak and divided.

Thatcher was respected but not liked by the British public. For all the talk of sweeping election successes, government only gained an average of 42% of the vote at general elections. But the peculiarities of the British electoral system and the split of the non-Conservative vote between the Labour and Liberal-Alliance parties meant that the government was able to win over 60% of seats in the House of Commons.

Surveys showed limited support for many of Thatcher’s values. Professor Ivor Crewe’s 'The Crusade that Failed' noted the lack of support for Thatcher’s policies on 'tax-and-spend' and replacing the dependency culture with an enterprise culture. And there was greater approval for a more equal society and for social and collective provision of welfare as against Thatcher's vision of people looking after themselves.

But Labour could not exploit this dissatisfaction, because it was not trusted on the economy or defence and was widely seen as weak and divided.

 

Labour conversion

Successive heavy general election defeats gradually convinced Labour to accept much of the new settlement. From outright repudiation of the policies at the 1983 general election, Labour steadily came to accept successive tranches of Thatcher's policies.

Labour accepted the need to prioritise economic stability and encourage private enterprise.

Some of these policies, including sales of cheap shares in privatising utilities, cutting direct taxes, and trade union reforms, were widely popular.

Globalisation also meant that there were international pressures for national governments to pursue ‘prudent’ economic policies. Labour gradually accepted the need to prioritise economic stability, low inflation and borrowing, and encourage private enterprise.

In addition, de-industrialisation and the decline of the working class and trade union membership meant that Labour’s traditional electoral base was being eroded. Gaining the support of an increasingly middle class electorate was crucial for electoral victory as Britain underwent demographic and economic change.