Capitalism-and-Its-Critics-A-History-From-the

Thatcher watched all this with dismay. The Oxford-educated daughter of a grocery store proprietor in the Lincolnshire market town of Grantham, she had many of the characteristic beliefs and prejudices of the petit bourgeoisie. She distrusted labor unions, big government, and even big businesses, especially the big publicly owned industries, such as coal and steel, that the postwar Labour government had nationalized. “She did not need to read books by Milton Friedman or Friedrich von Hayek to learn the importance of sound money or that the power of the State was the enemy of freedom,” the English political journalist Peter Jenkins wrote. “She had learnt these self-evident truths at her father’s knee.”3 Hayek and Friedman did provide Thatcher with the economic arguments she could use to back up her instincts and confront the Keynesian orthodoxy. From Hayek, she got the message that the main source of Britain’s economic problems was its powerful labor unions. In an August 1977 letter to the Times of London, he wrote: “The trade unions, being politically sacrosanct, have been allowed to destroy the British economy  … It is high time that somebody had the courage to eradicate that cancer of the British economy.”4

Hayek certainly wasn’t the first economist to argue that the country’s fractious industrial relations system was holding back capital investment, innovation, and productivity growth. Relative to Germany and the United States, output-per-person was much lower in Britain, particularly in manufacturing. Repeated efforts to address this problem had foundered on the refusal of local union branches to abide by agreements reached at the national level that tied wage rises to productivity growth. In Germany, labor unions were powerful, but they were organized on national lines. They had representatives on the boards of major companies, and when they reached an agreement with management, their members usually honored it. In Britain, the situation was different. Unions were organized at the factory level, and local union officials, known as shop stewards, reveled in their independence and militancy. One of them, the car worker Derek Robinson —dubbed “Red Robbo” by the Fleet Street newspapers—led 523 walkouts at a Birmingham plant during a period of thirty months.5

Well before Thatcher became prime minister, there had been political efforts to address these problems, but they hadn’t worked. In 1969 Harold Wilson’s Labour government published a consultative document, In Place of Strife, that recommended reducing the autonomy of plant-level unions and establishing a national Industrial Board with statutory powers to enforce pay settlements that companies and union leaders had reached. Faced with strong opposition from the Trades Union Congress, the Wilson government eventually dropped these proposals. In 1971 Heath’s Conservative government passed an Industrial Relations Act that, in theory, weakened “closed shop” agreements that obliged workers to join a union, limited wildcat strikes, and made labor agreements legally enforceable. Opposition to the legislation was so intense that it was never fully enforced. When the Labour Party returned to power in 1974, it was repealed.

What made Hayek’s views distinct was less his description of the British trades unions as a cancer on the economy—many Conservative MPs and Fleet Street editorial writers agreed with him—than his calls for an allout effort to destroy their power. After watching the unions defeat Heath, most Conservatives believed the country could be ruled only with their consent. Hayek, however, was on a mission. He had long depicted organized labor not merely as a brake on economic efficiency but as threat to political freedom. In his book The Constitution of Liberty, which was published in 1960, he wrote, “The whole basis of our free society is gravely threatened by the powers arrogated by the unions.”6 He went on to call for the prohibition of mass picketing, in which striking workers sought to blockade their factories or plants, and “closed shops.”7 In the United States, the Taft-Hartley Act of 1947 had proscribed closed shops, but in Britain they were legal.

Hayek’s politics were diametrically opposed to those of his fellow Vienna product Karl Polanyi, but both of them recognized the importance of rising labor power and other efforts to embed the free market in an institutional framework that would constrain its operations. To Polanyi, these developments were part of a “double movement” that was both inevitable and necessary to contain the destructive power of the market. To Hayek, they represented a disease that would prove fatal to the system and to democracy itself. Thatcher shared many of Hayek’s instincts and welcomed his bold declamations. According to one frequently recounted story, she was once sitting through a presentation by a member of the Conservative Party’s research department when she cut short the presenter, slammed a copy of Hayek’s The Constitution of Liberty down on the table, and declared: “This is what we believe.” The website of the Margaret Thatcher Foundation, which contains a trove of correspondence between Hayek, Thatcher, and her associates, says this account is “perhaps a little too perfect to be actually true.”8 But the foundation’s website also acknowledges that Thatcher “absorbed deeply” Hayek’s “idea that you cannot compromise with socialism, even in mild social democratic forms, because by degrees socialism tends always to totalitarian outcomes, regardless of the intentions, professed or real, of its proponents.”9

Throughout the mid- and late 1970s, Britain’s economic problems continued, and the Labour government of James Callaghan struggled to contain them. In an effort to relieve inflation pressures, it reached a “social contract” with the Trades Union Congress, in which wage rises were limited to agreed levels. This pact helped to bring inflation down below 10 percent, but price rises were still running ahead of wage gains, and in 1978 many unions demanded catch-up pay agreements. At the end of the year, truck drivers went on strike, which led to the closure of gas stations, factories, and other businesses. In the first months of 1979, many public sector workers, including train drivers, nurses, and ambulance drivers, staged walkouts. In some cities, they were joined by garbage collectors, gravediggers, and crematorium workers.

The Conservatives and their supporters on Fleet Street seized upon these events, which became known as the Winter of Discontent. Accusing the unions of holding the country to ransom, Thatcher called on Callaghan to declare a state of emergency. She also proposed a series of labor reforms, many of which could be traced right back to The Constitution of Liberty. They included a ban on secondary picketing, the prohibition of closed shops, mandatory secret ballots before strikes could be called, and a nostrike clause in the work agreements of some public sector workers. After a decade of industrial disputes, Thatcher’s hard line struck a chord with many British voters, particularly after the industrial disputes that disrupted the country at the end of 1978 and start of 1979.

In late October, a Gallup poll showed Labour with a lead of 5.5 points over the Conservatives.10 By the middle of February 1979, after all the strikes, a survey by the same polling organization showed the Conservatives leading by 20 points.11 During a general election campaign that began in early April, polls showed the gap between the parties narrowing somewhat. But when the vote was held on May 3, the Conservatives defeated Labour by 7 points and won a majority of forty-four seats in the House of Commons.

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After Thatcher entered 10 Downing Street, she kept in touch with Hayek on an intermittent basis. In an August 1979 letter to her, he suggested holding a referendum on reforming the trade unions.12 Although Thatcher agreed with his sentiments, she had a more immediate priority: bringing down the inflation rate, which was in double digits when she entered office.13 At this stage, Milton Friedman’s monetarism had more impact on her policies than Hayek’s demands for institutional reforms. In early 1980, the government adopted a Medium Term Financial Strategy in which it pledged to restrain the growth of the money supply and cut the budget deficit. The immediate results of this strategy were disastrous. As monetary policy was tightened, interest rates shot up, the value of the pound sterling rose sharply on the foreign exchanges, and the international competitiveness of British industry was decimated. The economy fell into the deepest recession since the 1930s. Between January 1980 and January 1982, the unemployment rate rose from 5.8 percent to 10.4 percent.14 The number of people out of work rose to 3 million.15

By the fall of 1981, polls indicated that Thatcher had the lowest approval rating of any prime minister since the Second World War.16 Rather than reverse course, she purged her cabinet of her internal critics—the “wets”—and plowed ahead. In the Employment Act of 1980, which banned the picketing of businesses not directly involved in a labor dispute, she had made a start on Hayek’s anti-union agenda, but she wasn’t ready yet for a full-scale assault. In 1981 the government-run National Coal Board (NCB), which had been steadily running down the number of mines on the grounds that the older ones couldn’t produce coal cheaply enough to be economic, announced plans to shutter another twenty-three pits. The NUM threatened a strike. Thatcher and her colleagues knew that the key to withstanding a lengthy miners’ walkout was to keep the country’s coal-fired power stations going, but they had only six weeks of coal stocks. The NCB and the government backed down from the threatened pit closures.

Watching from Germany, Hayek was frustrated with the slow pace of reform. Through the letters page of the Times, he continued to make his views known, and when he visited London, he occasionally saw Thatcher. In early 1982 he spoke at a private dinner arranged by an investment banker, which the prime minister also attended. At this event, Hayek pointed to the economic program of Pinochet’s Chile as a model for the United Kingdom. In a letter dated February 17, 1982, Thatcher wrote to Hayek, saying that she had enjoyed his presentation and agreed with him that the “progression from Allende’s Socialism to the free enterprise capitalist economy of the 1980s is a striking example of economic reform from which we can learn many lessons.” “However,” she went on, “I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution.”17 Thatcher knew the political constraints she was operating under. The Britain of the 1980s wasn’t the Britain of the early nineteenth century, where an oligarchic Parliament could push through aggressive measures oblivious to the public reaction. “At times the [reform] process may seem painfully slow,” she went on in her letter to Hayek. “But I am certain we shall achieve our reforms in our own way and in our own time. Then they will endure.”

That time wasn’t long coming. A year after emerging emboldened from the 1982 Falklands War, in which a British naval task force routed thousands of Argentine soldiers who had occupied two British dependent territories in the South Atlantic, Thatcher appointed Ian McGregor, a flinty, Scottish-born American industrialist to head the National Coal Board. In McGregor’s previous job at British Steel, he had halved the workforce. His appointment to the coal board signaled that more job cuts were ahead for miners, too. Arthur Scargill, a leftist firebrand from Yorkshire who had been elected president of the National Union of Mineworkers in 1981, claimed the government’s goal was “to destroy the coal industry and the NUM.”18 The second half of Scargill’s quote was certainly true. Going back to the General Strike of 1926, the NUM had represented the vanguard of the British labor movement. Thatcher knew that if she could defeat the union as she had defeated the Argentine military junta, the victory would have implications far beyond the coal industry.

Other Thatcherite MPs thought the same way. Even before Thatcher took power, one of them, Nicholas Ridley, had drawn up a secret plan for defeating a national miners’ strike. The plan consisted of building up coal stocks, using nonunion truck drivers to transport coal to power stations, and training and equipping the British police to confront and disperse large numbers of picketers.19 Thatcher quietly established a ministerial committee that dusted off the Ridley Plan. The government also ordered power stations to build up at least six months’ supply of coal stocks. Working with police chiefs across the country, it created large, mobile units equipped with riot gear, which could be used to assist local forces at flash points during a strike. Some of Thatcher’s aides even prepared plans for using the British Army to make sure coal could be moved to power stations.20

In March 1984 the National Coal Board announced the imminent closure of twenty mines, with the loss of about twenty thousand jobs. Scargill walked into Thatcher’s trap. Claiming the government had secret plans to close more than seventy pits, he called a national strike without holding a national ballot of his members. In Yorkshire and South Wales, miners walked off the job en masse. But in some coal areas, particularly Derbyshire and Nottinghamshire, many miners rejected Scargill’s strike call and kept working. As the striking workers set up picket lines to prevent stockpiled coal from reaching power plants, the government deployed thousands of police, in full riot gear, to disperse them. There were numerous violent clashes, including a particularly brutal one at a coking plant in South Yorkshire, where the police charged into strikers wielding shields and batons, causing many injuries.

The employment of state violence on a scale that evoked the government crackdowns on protesters after the Napoleonic Wars caused an uproar. In Parliament and the media, questions were raised about the police tactics. Thatcher was utterly unapologetic. At the height of the dispute, in a speech to Tory MPs, she compared the striking miners to General Galtieri’s dictatorship in Argentina, labeling them “the enemy within.” Targeting this alleged internal threat, MI5, Britain’s domestic security service, tapped the phones of union leaders, including Scargill.

The miners kept their strike going for almost a year. In many mining communities, there were impressive displays of solidarity, which included thousands of miners’ wives creating soup kitchens and standing on the picket line with their husbands. But confronted by the full might of the state, including the courts, which ruled the strike illegal, the miners were outmatched. By early 1985, the NUM’s strike funds were exhausted. Many of the union members were virtually penniless, and some of them reluctantly returned to work.

In March 1985, NUM delegates finally called off the strike. With the union vanquished, the management and the government had free rein to rationalize the coal industry. Scargill turned out to be right about the prospect of mass pit closures. In the decade from 1984 to 1994, the number of people working in the British coal industry fell from 139,000 to 7,000 a decline of more than 90 percent.21 In 1987 the government transformed the NCB into the British Coal Corporation. Seven years later this entity sold its English pits to a private mining company.

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Thatcher’s victory over the miners marked the decisive moment in the transition from postwar-era British social democracy to the neoliberal era that succeeded it. It had ramifications well beyond the United Kingdom. After all, Britain was the original industrial nation. Labor unions originated there, and they had been legalized at the height of the Victorian era. During the twentieth century, the labor movement had been a central player in British politics and capitalism. Although the unions’ plant-based structure and internal divisions prevented them from following the German model of centralized corporatism, their mass membership and militancy limited the freedom of maneuver of politicians and business leaders alike.

In breaking the NUM, Thatcher signaled that this consensual model of capitalism was at an end, at least in Britain. She asserted the primacy of the market, stigmatized the union movement, and jettisoned the last vestiges of Tory paternalism, which could be dated back to early nineteenth-century social reformers like Michael Thomas Sadler and Lord Ashley. In November 1984 one of the few surviving representatives of this tradition, the ninety-year-old Harold Macmillan, who served as Britain’s Conservative prime minister from 1957 to 1963, arose in the House of Lords and said: “It breaks my heart to see—and I cannot interfere—what is happening in our country today. This terrible strike, by the best men in the world, who beat the Kaiser’s and Hitler’s armies and never gave in.”22 Although Macmillan didn’t directly criticize Thatcher or the heavy-handed tactics of the police, he lamented growing regional divides, dismissed monetarism as an American invention, and called for a moral and spiritual revolution.

Macmillan’s speech didn’t have any impact on policy. In the months and years after the miners’ strike ended, the Thatcher government broadened its attack on the labor movement, stripping unions of many of their legal immunities, eliminating their capacity to conduct mass pickets, and abolishing their closed shops. Labor organizers were forced onto the defensive. Between 1979, when Thatcher was elected, and 2000, the number of union members in Britain fell from about 13.2 million to 7.8 million, a decline of about 40 percent.23 In historical terms, the crushing of the miners’ strike was a twentieth-century version of the 1834 passage of the Poor Law Amendment Act: a signal that a new regime was being established, in which labor would be treated as a commodity, market forces would be unleashed, and the state would use its power to enforce the harsh new rules of the game.

The weakening of the labor movement enabled Thatcher to proceed with other parts of her Conservative counterrevolution. A priority was to slash taxes on high earners. In the 1970s, the highest rate of income tax on earned income was 83 percent; by 1990, it had been reduced to 40 percent.24 At the other end of the income scale, the government cut unemployment benefits and restricted access to them. It also deregulated the financial sector, replaced local property taxes with a uniform national poll tax, and gave millions of people living in public housing the right to buy their homes at a discount to their market value. This latter policy proved popular with former tenants who were able to buy their homes on the cheap, but it contributed to a shortage of affordable social housing.

Following advice that Milton Friedman had offered during the 1970s, and during a visit to England in 1980, Thatcher’s government sold off dozens of publicly owned companies, including British Aerospace, British Airways, British Gas, British Steel, and Rolls-Royce.25 British Leyland, the nationalized car company that had been home to “Red Robbo,” was dismantled and sold to other car companies in bits. Despite public opposition, the government even sold off the country’s regional water and sewage companies and listed them on the stock exchange. The justification Thatcher offered for these “privatizations”—a term chosen by David Howell, one of her ministers—was straight out of one of Friedman’s free market tomes: market forces worked better than regulations, and business executives could do a better job of managing companies than government bureaucrats.

But there was also a long-term political agenda in play: Thatcher was determined to expand the ranks of Tory-voting property owners. As the privatizations proceeded, her government launched large-scale marketing campaigns to introduce nonwealthy Britons to the idea of investing in stocks. In 1984, more than 2 million Britons, many of them first-time investors, bought shares in British Telecom, the national phone provider, which were deliberately priced at a discount from the company’s true value.26 Two years later, about 1.5 million people bought stock in British Gas, the national gas utility.27 Thatcher would later claim that the sale of British Telecom, which established the privatization model, “did more than anything else to lay the basis for a share-owning popular capitalism in Britain.”28

Just as striking as Thatcher’s actual reforms was the impact her long premiership had on attitudes toward the economy and economic policymaking. By the time the Labour Party finally made it back to Downing Street in 1997, it had rebranded itself as New Labour, abandoned its (largely symbolic) commitment to common ownership of the means of production, and openly embraced market forces, including welfare-to-work policies. Center-left parties in other countries, including the US Democrats, had moved in a similar direction. “Bill Clinton and Tony Blair have so much in common that they’ve adopted all the stories, all the thoughts, the policies, originally that go back to Keith Joseph and to Margaret Thatcher, and that’s been the big change,” another of Thatcher’s ministers, Lord Young, said in an interview for the PBS documentary series The Commanding Heights.29 Young’s statement was an exaggeration. Blair’s New Labour was committed to making major public investments in schools, hospitals, and other social infrastructure. It called for a minimum wage, which Britain lacked; the establishment of regional development agencies; a larger foreign aid budget; and windfall taxes on the profits of the utilities that Thatcher had privatized.

Still, Thatcher and Thatcherism undoubtedly shifted economic policy debates in Britain significantly to the right. During the 1997 election campaign, Blair promised to leave in place the key labor reforms that Thatcher had introduced, keep individual tax rates low and cut the business tax rate, restrict the growth of overall government spending, and encourage entrepreneurship. In 1999, when Blair had been in 10 Downing Street for two years, he told an interviewer from The New Yorker that old-style socialism was dead.30

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When Thatcher took office in 1979, few observers thought that such a transformation was possible, let alone likely. In academic circles during the 1970s, it was fashionable to say that Britain was becoming ungovernable, and that no prime minister could make much of a difference to policy outcomes. Inside the Conservative Party, many old-school Tories regarded