CLIL CLASS FINAL YEAR

UNIT 3 MARGARET THATCHER AND THE SHIFT TOWARDS NEOLIBERALISM

Margaret Thatcher was the Prime Minister of Great Britain between 1979 and 1990. She
was the first female Prime minister of a major European democracy. She turned out to be a very
consequential Prime Minister, not only because she remained in power for longer than any
other PM since 1945 but also because her persona and ideological influence. She had a
reputation for being tough and confrontational, which earned her the nickname the Iron Lady.
And she pushed and ideological agenda which shift in the economic and social policy in Britain
and beyond. She was indeed a proponent of neoliberalism, which departed from the post war
consensus and was to have a global influence on public policies. To what extent did Margaret
Thatcher shift British politics towards neoliberalism?

I. ROAD TO 1979: BRITAIN IN THE 1970’S AND MARGARET THATCHER’S PATH TO

VICTORY

At the end of the 1970s, Britain was often described as the “sick man of Europe”. It
was the only western European country not to have had an “economic miracle” during the
decades since the end of the World War II. The economic league tables showed that Britain was
at the wrong end for figures regarding strikes, productivity, inflation, economic growth and
rising living standards. The two main political parties, the Conservatives (or Tories) and the
Labour, competed to reverse Britain’s relative economic decline but governments of both
parties turned to the same type of policies as an answer to inflation. Indeed, the Heath
government and the Callaghan government tried to implement an income policy but they failed
respectively in 1973-74 and 1979. The key principle of income policy was to set a “norm” for
annual wage rises with the Trade 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 companies granted wage rises above the norm.
Thus, a sense of economic decline and political impotence was the backdrop of the rise
of a the New Right. That current, which constituted the right wing of the Conservative party, was
of the view that Britain economic decline was the result of the Keynesian approach embraced
by both parties since WWII. The two key tenets of that post war consensus that full employment
ought to be the primary goal of the Government and that the Welfare State ought to be extended
over time in order to protect individuals against social ills. On the contrary, the New Right, which
was influenced by economists such as Friedrich Hayek and Milton Friedman, advocated
monetarism, a greater scope for markets and limited government. Despite being a relatively
minor figure among the Tories, Margaret Thatcher won the leadership of the Conservative party
in 1975 with the support of the New Right. The more moderate wing of the party thought she
was unelectable till the last few months before her victory in the 1979 General election.
That electoral success was primarily the result of the failure of the Labour government
led by James Callaghan. The 'Winter of Discontent' in 1979 was a key event in its downfall. The
rash of strikes in crucial public services against the government’s attempt to limit wage raises.
It 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 it
ruined its prospect of winning reelection. That disastrous economic and social context was used
to much effect by the Tories as a political argument during the campaign. For instance, they run
an advertisement using as a slogan a sentence that supposedly said by James Callaghan “A crisis ?
What crisis?”: it was repeated time and again after short footages of the consequences of the
strikes (lorries parked in the middle nowhere, a crowded airport terminal, the closed gate of a
cemetery, rubbish piling up in the streets).

II. MONETARISM AND THE FIGHT AGAINST INFLATION

When Margaret Thatcher came into office, she had set as the top priority of her
Government to curb inflation. According to the monetarist theory she had espoused, the one
and only cause of inflation was an oversupply of money. Therefore, it ought to be tackled not
by public control over prices and salaries but by rising interest rates – even if it meant a short
term rise of unemployment. Thus, the base interest rate was raised to 30% in 1979. The policy
was successful on its own terms as it did bring down inflation but the unemployment skyrocketed
from 2 to 3 million during her first term in office (1979 to 1983). If Margaret Thatcher was so
stubborn in her will to fight inflation, that was not for purely economic reasons. It also stemmed
from fight inflation also stemmed from her philosophy based on values of self-reliance and
personal responsibility. She once said that inflation was “the unseen robber of savings”
whereas she was keen to encourage people to save more.
 That same philosophy meant that she was fiercely opposed the expansion of the
Welfare State and to the redistribution of income. For her, it was to be limited to a safety net for
those in need but should not be relied upon by individuals able to care for themselves. Even if
her governments never challenged universal free healthcare provided by the NHS and free public
education, the state benefits were increasingly subject to means-testing. Her fiscal policy departed
from the goal to reduce income inequality. The right to choose how to spend your own money
was central to her definition freedom. The income tax was sharply reduced whereas indirect
taxation (VAT) increased instead.

III.MARGARET THATCHER AND FREE MARKET ECONOMICS

As a champion of free-market economics, Thatcher wanted to roll back the

intervention of the State in the economy and incentive businesses to seek competitiveness
rather than to rely on government subsidies. That is why privatization became her flagship
policy during her second term in office (1983-1987). Thatcher's government privatized a number
of state-run companies, including key public utilities. In 1984, British Telecom was privatized,
further companies followed such as British Gas in 1986. The program of privatization was
controversial. Two main arguments in favor of privatization were used by the Conservatives.
Firstly, the the market force would deliver a better service for lower prices. In addition, selling
the company to a large public would create the property-owning democracy which was
Margaret Thatcher’s ideal.

The same goals – fostering free-markets and expanding private property – inspired
other defining policies of the Thatcher era: the “right to buy” in housing and the “big bang” in
the financial sector. The Housing Act voted in 1980 gave the council tenants the opportunity to
buy the homes they were living in at a generous discount. More than two million council tenants
- many of them traditional Labour voters - took advantage of it. Then came the big bang in the
financial sector. In 1986, the government introduced a massive deregulation of banks, financial
services and the City of London. This proved successful in establishing London as a global centre
for financial services, although it has been blamed ever since for encouraging excessive risk
taking and greed by bankers.
 In the coal mining industry, the stress on competitiveness led to an effort to stem the
large loss of the sector by closing all the uneconomic pits. The ensuing social crisis gave
Margaret Thatcher the opportunity to crush the influence of the Trade Unions which she
considered as excessive, harmful and politically motivated. In 1984, the National Coal Board
announced its plan to cut the nation’s coal output by 4 million tons. The National Union of
Miners (NUM) led by Arthur Scargill estimated that plan would mean the loss of some 20,000
jobs. A strike immediately started in South Yorkshire and Scargill used this as an opportunity to
call a nationwide strike against the planned pit closures. Controversially, he never held a national
vote within the NUM, and not all miners were on board with the walkout. In some parts of the
country, miners kept working, causing tensions with picketing workers. The striking miners
faced off against police forces backed by Thatcher’s government, in clashes that often turned
violent. After a one-year long strike, miners went back to work without any concession from
Thatcher’s Government. In the aftermath a bill was voted by the Parliament which put legal
limits on the actions of the Trade unions: it included the requirement for pre-strike secret
ballots; and making unions liable for damages incurred in illegal strikes. The number of members
of the Trade unions fell sharply and their influence waned.