Thatcher and Conservatism

Margaret Thatcher broke the post-war consensus in British politics and in so doing changed Conservatism in a fundamental way. Discuss.

It is generally agreed that the post-war consensus consisted of 3 broad pillars – the welfare state, a mixed economy and Keynesian demand-management to ensure full-employment. Let us firstly turn to Keynesian demand management; the post-war consensus was established when the dominant economic paradigm was Keynesian thought, it was believed that by altering government spending aggregate demand would change so as to ensure that full-employment was achieved. Traditionally, the government had the trade-off between high inflation and low unemployment or vice versa, this occurred because by reducing unemployment labour had strong bargaining power and was able to bid-up wages which caused inflation. However, during the 1970s this relationship broke down, stagflation occurred with simultaneously high unemployment and also high inflation. There was a change in the paradigm of economic thought during the 1970s, introduced by Milton Friedman, a monetarist, who believed that inflation was not caused by wage-demands, but instead by a high money supply. His beliefs were adopted by Thatcher, who interpreted this to mean that corporatist bodies with the intention of trying to control wage demands would be unsuccessful and instead the money supply needed to be controlled. Thus, the first major sustained break from the consensus was to abandon Keynesian thought and the desire for full-employment and instead focus on controlling the money supply to reduce inflation. Despite this break from a commitment to full-employment, Thatcher did still wish to achieve this goal; she wanted people to be working and earning for themselves rather than living off the state, as this was part of her Hayekian beliefs in individualism and small-state governments. Hence, even though she changed the economic policy used to achieve full-employment, she still had an underlying goal to achieve it. Unfortunately, she wasn’t successful in this for a number of reasons – it was difficult to measure money supply and hence hard to control, this occurred whilst she was deregulating the banks who began to increase money supply by lending more, consequently leading to a greater money supply and inflation. In the end, the policy goal of controlling the money supply was abandoned in 1983 and instead she focused on trying to control inflation as she believed this would let firms and consumers plan more effectively and would allow the price mechanism to work unfettered thus promoting the market system.

Turning our attention to the mixed economy we will discover that Thatcher fundamentally destroyed this pillar of the post-war consensus. The mixed economy traditionally meant that the government intervened within the economy to ensure that it was working correctly and also to nationalise industries which were either failing and needed rescuing, or were believed to be of national importance (perhaps, simply because they were a natural monopoly). This was anathema to Thatcher who believed in a small but strong state and believed in free markets. It could be argued that this pillar was the one which was eroded most greatly by Thatcher, both in principle and more importantly in effect. She undertook a major privatisation policy, which wasn’t even included in her manifesto, with the intentions of:

a.)  Reducing the public debt (selling off nationalised assets would give the finances a boost from the sale price and would also shift the debt off government books and into the private sector);

b.)  Getting rid of political influences within nationalised firms;

c.)   Increasing efficiencies and management practise;

d.)  And finally, in order to reduce the size of the state and the role it played within the economy.

The privatisation project was a massive success both financially and electorally. However, even though it reduced the size of the state and showed the government was committed to a free market ideology in principle it didn’t carry the ideology as far as was necessary. Thatcher stopped short of breaking up monopolies before selling off as she was reluctant to fight the businessmen, and she also knew it was more electorally and financially favourable to sell of the firms as monopolies.

Additional to the selling of state-owned firms the government introduced Right-to-Buy, a scheme whereby council home tenants were given substantial discounts to purchase their houses. This was the most effective tenet of her changes to the welfare state. The government made local authorities pay rent equal to the market price, prevented them from building further council homes and initiated Right-to-Buy. The reasons behind this were to again reduce state involvement and provide a greater role to markets, this was alongside her reforms to the private-rented sector which was flagging as a result of the enormous involvement of council influence in housing provision. Moreover, housing was perhaps one of the most successfully implemented reforms that Thatcher brought in, this was largely because it was electorally favourable, where other policies were not. It did, however, come at the expense of having to offer 60-70% discounted rates on the sale of properties to encourage people to buy their homes. It was successful in that it resulted in high take-up and a resulting fall in the influence of local authorities in housing provision.

Thatcher didn’t have a huge amount of success with other welfare reforms on a large scale. Ideologically she wished to completely reduce state benefits to ensure that there was a greater incentive for people to work. She wished to open up the NHS to private competition to increase efficiencies and consumer choice, but in the end only succeeded in creating an internalised market, the free on point of delivery principal still withstanding. By reducing state costs she would have been able to shrink the size of the state and offer lower taxes, again – according to her beliefs – meaning that there would be a greater incentive to work. The reason she was so unsuccessful in these reforms was that it would have been political suicide and there was fierce resistance to changes in NHS and education. In addition, the economy wasn’t doing too favourably and unemployment was rising, so despite changing the indexation of unemployment and pension benefits to reduce these costs, they actually rose!

To summarise Thatcher’s changes to the post-war consensus, I believe that she was ideologically committed to severely reducing the size of the state, and wished to eradicate all 3 pillars of the consensus, moving to a free market economy whereby the individual was key and the government played a small role in maintaining regulation and private property. But despite her beliefs, and her supposed refusal to U-Turn alongside her ‘there is no alternative’ comments, she actually managed to implement very few of her ideas in the face of pressure from interest groups and to avoid a political disaster.

It is important to note that according to Marsh and Rhodes “in no field was there a total break from the past, for in each area elements of the policy pursued by the Thatcher Government had been present previously”. This shows that despite making many changes to the post-war consensus and perhaps going further in undertaking and implementing the policies the Thatcher government wasn’t unique in its desire to alter the post-war consensus. Heath in 1970 had already experimented with the free market ideas and despite claiming that they wouldn’t cave in, eventually did as a result of the macro-economic situation and the electoral demands to bail out failing companies (e.g. Upper Clyde shipbuilding and Rolls-Royce) in order to mitigate unemployment. Previous governments had attempted to reduce the influence of unions, but again had found it difficult to change under fierce opposition from interest groups. Even in housing policy Heath had already tried a watered-down version of Right-to-Buy, it was only unsuccessful because it was subsidised at a 20% rate compared to Thatcher’s 60-70% discounts.

If we turn to look at how she changed conservatism we need to understand what it meant to be conservative before Thatcher came to power. Traditional conservatism has very few inherent beliefs, but they do have a strong tendency towards tradition and the status quo, which if necessary need to be maintained through change but at a slow pace. This means that traditional conservatives generally subscribe to Disraeli’s One Nation Toryism that the party should support some degree of a paternalistic state in order to maintain social stability and thus the status quo. This is also a realisation that in order to win an election where the number of working class voters exceeds the number of middle/upper class voters concessions need to be made towards the working class. It has often been said that the lack of inherent beliefs within the Conservative party allows it to successfully survive.

Conversely, Thatcher signed up to the beliefs of the New Right, which had many of its foundations established on the principals of Hayek and on individualism. Unlike traditional Tory’s she had a strong belief in economic neoliberalism – as already discussed, this is the belief that the economy should be governed by free market forces. This goes against traditional conservatism, because they try to avoid adopting a stable belief and instead prefer to maintain the current electoral consensus. Despite this, Thatcher did in practise try to keep to what the electorate wanted. She campaigned on a policy of reducing union strength which was what a lot of voters wanted after living through the Winter of Discontent and the continuous strikes that the unions created. In practise, Thatcher abandoned or relaxed many of her beliefs in order to ensure that she was electorally viable. For example her attempt at a poll tax, a fixed rate tax, was a disaster and she did U-Turn despite her claims to be a strong leader who wouldn’t turn back on policies. Rhodes and Marsh pertinently say “the Thatcher Government proved unwilling to pursue its ideological hares when such a pursuit might have damaged them politically or electorally.”

Thatcher was a traditional Conservative in that she believed in a strong state and the rule of law. She just went further in this belief, wanting a small state, which some would say ran contrary to the traditional standpoint of paternalistic government.

To conclude, I think that Thatcher was fundamentally different from traditional Conservatives in her personal ideology, and managed to shift the viewpoint of the party rightwards, but in practise she wasn’t utterly committed to her ideological principles. She wished to ensure that the party would still be seen in a favourable political light (which is perhaps why she won 3 elections and then the Conservatives won a further election under Major) whilst trying to enact her policy change and break away from the post-war consensus. I believe she managed to change the principles of the post-war consensus even if she wasn’t able to destroy it and this led to further erosions of the consensus after her government. Finally, I think it can also be said that she did change Conservatism in a fundamental way. After Thatcher the electorate knew that Conservatives stood for a small-state, a belief in the free market and the want to increase individual powers at the expense of society as a whole.

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