Dark Continent, page 41
It should be remembered, though, that wage pressure was certainly not the sole cause of accelerating inflation. In the international economy, too, inflation was being stoked, both by the war in Vietnam (as the USA printed dollars to finance this) and by the rise in commodity prices on world markets. The two factors were connected—with the depreciation of the dollar brought about by the strain of financing the war in Vietnam forcing the end of the gold standard, introducing a new era of currency instability and encouraging primary producers to compensate by raising commodity prices. It was when the oil producers followed this course and announced a major price hike in 1973 that the world suddenly took note.3
The inflationary disease afflicted all western Europe. For the whole of OECD Europe, on aggregate, the rate shot up from an average of 3.7 per cent in 1961–9 and 6.4 per cent in 1969–73, to a remarkable 10.9 per cent for 1973–9. At the same time national experiences were diverging more and more widely. Thus while the UK, Italy, Spain and Eire all averaged around 16 per cent per annum in the 1970s, West Germany, Austria, the Netherlands and Switzerland were closer to 5 per cent. Such disparities discouraged a unified response. Floating exchange rates allowed countries to move in different directions, and for perhaps the last time, each state was in a position to pursue a separate monetary policy.4
In the past, inflationary pressures had been countered by tightening fiscal policy; the striking feature of the 1970s was that this no longer seemed to work. Demand management appeared impotent, and economic slowdown was no longer an alternative to inflation but accompanied it. A new term was coined for this bizarre phenomenon—“stagflation.” Reflation simply made matters worse. One response was to supplement demand management with increasing state involvement in incomes and price bargaining. If inflation was generated by unregulated corporatism, perhaps it might be contained by government getting involved in encouraging or even enforcing restraint on employers and unions. This was the road taken by both Labour and Conservative governments in the UK, but it turned out to be a cul-de-sac. When Edward Heath lost his battle with the powerful British miners’ union, the very authority of the government was thrown into question and raised the basic issue of the country’s political governability. Labour governments were more successful in imposing wage restraint after 1976, but they eventually failed too. This meant that in the UK, neo-corporatist incomes policy was discredited, and even blamed for making matters worse.
It was easy for the British to forget that not dissimilar policies continued to be followed elsewhere—for example, in Sweden and Austria—with much success right through the 1970s and into the 1980s: both kept unemployment well below British levels, and the Austrians kept inflation lower too. The explanation for the difference with Britain surely lay in the combative tradition in the latter’s industrial relations, compared with the conciliation, joint action and compromise found in the former. Where trade-union movements owned banks, for instance, as they did in Austria, they had an interest in the overall health of the economy which moderated their demands.5
There was, of course, another way to rein in prices: deliberate deflation through a tight monetary policy. The West Germans had pioneered this approach, very effectively, in 1973–4; Callaghan government followed at the behest of the IMF in 1976. In neither case was this seen as an alternative to state involvement in wage bargaining. But with Margaret Thatcher’s victory in 1979, monetary policy was elevated into dogma and became a new creed: monetarism. The state’s ambitions were to be curtailed, its role confined to balancing the books and monitoring the supply of money. Both supporters and opponents of the new government recognized that this was a historic moment—the revival of economic liberalism after fifty years in the wilderness. “It is the second time this century,” wrote Nicholas Kaldor, one of Thatcher’s bitterest critics, “that monetarist dogma has become the official creed of the Government of Britain.” For his fellow economist, John Vaizey, who left the Labour Party for the Conservatives in 1979, “there is no longer a set of social democratic ideas that will work. Keynesianism is intellectually dead.”6
THE THATCHERITE EXPERIMENT
The attractions of monetarism were many. Intellectually, there was the excitement of participating in a counter-revolution against the Keynesian orthodoxies which had held sway since the war. Individual energies would be liberated from the nanny-state; collectivism would give way to freedom; the state would be rolled back, and the attention of government and policy-makers focused upon the one indicator which held the key to economic success—the quantity of money. This was a seductively simple formula for success, and many were seduced.
Did “Thatcherism”—as the new creed was termed in 1980—actually set out to increase unemployment? This was taken for granted by many critics, particularly as jobless totals soared. Many years earlier, the Polish economist Michal Kalecki had warned that capitalists disliked full employment since it weakened labour discipline, and that therefore they would always look to create a certain level of unemployment in order to control the workforce. In the early 1980s, Kaldor and others saw this happening; in his words, “[the ‘new monetarism’] offered the prospect of reversing the growing imbalance between the power of labour in relation to the power of capital which was the result of the full-employment situation maintained during the previous decades.”7
It may seem hard to refute this, especially in view of the notorious anti-union attitude in the Thatcher government. A determination not to be “held to ransom” by the unions—who had humiliated her predecessor—slid easily into a desire to break them. Even so, it must be stressed that this did not mean that the new government aimed at the deliberate creation of mass unemployment on a scale unseen for fifty years. Consequence should not be conflated with cause. All the evidence indicates that what happened took Whitehall by surprise. As Ian Gilmour—Minister turned critic—notes: “In February 1980 [Mrs Thatcher] would hardly have criticized the Callaghan government for having doubled unemployment if she had thought that her government on top of that doubling would go on to triple it.” But, equally, since her government saw the control of inflation as a higher priority than full employment, it did not regard the re-emergence of mass unemployment as a sign of fundamental policy failure.8
Monetarism—like Marxism—far from offering policy-makers essential truths about the economy, drove them further and further away from what was really happening. It made government policy dependent upon a metaphysical concept—the money supply—that it had difficulty defining and even greater difficulty controlling. A variety of indicators—M1, M2, the PSBR (Public Sector Borrowing Requirement)—came and went. Traditional policy instruments—interest rates, the exchange rate, fiscal policy—remained. In the mid-1980s, monetarism was quietly abandoned. Reality had triumphed even over Mrs Thatcher, who henceforth sought electoral success by the time-honoured means of a government-engineered consumer boom. Intellectually, then, monetarism seems to have offered little advance on Keynesianism. Quite the contrary, in fact: its stark simplicity and dogmatic quality represented an intellectual regression; it was, in Gilmour’s words, “the Thatcherite equivalent of the Marxist materialist conception of history,” less a new start than the final gasp of that long and multifarious search for a pure ideology to explain and therefore to rule society.
It would, however, be a mistake to limit the effects of the “Thatcherite Revolution” to economics when its historical significance lay instead in its reappraisal of what the modern state could and could not do. The Iron Lady herself, after all, when asked what her government had changed replied: “Everything”—pointing if nothing else to the scale of her ambitions. “We offered a complete change in direction,” she stated. “I think we have altered the balance between the person and the state in a favourable way.”9
In fact, claims of a neo-liberal sea change were misleading for two reasons. In the first place, this was a peculiarly authoritarian form of neo-liberalism: cutbacks in some areas of state involvement went hand in hand with increased state powers in others. Local authorities lost much power to Whitehall in a striking process of centralization, so that central government became more rather than less powerful in housing and education and whittled away the residual tax-raising competences of local councils. Police forces, universities and schools all lost autonomy. In addition, a new Official Secrets Act gave unprecedented powers to Britain’s political police. The new Right—in Levitas’s words—sought the twin utopias of competition and compliance. The UK’s economic “privatization,” in other words, turned out to be perfectly compatible with its administrative “nationalization.”10
Perhaps more unexpected is the clear evidence of the failure of Thatcherism to effect any far-reaching roll-back of state economic activity. Public expenditure as a percentage of GDP was 42.5 per cent in 1977/8, and 41.7 per cent ten years later; this hardly looked like roll-back on a revolutionary scale. Over the same period welfare spending remained virtually stationary as a proportion of general government spending (55.7 per cent in 1977/8 and 55.6 per cent in 1987/8), and as a proportion of GDP (23.7 per cent and 23.2 per cent respectively). Tax, too, despite the government’s promises, remained more or less unchanged in proportion to national income. One of the most careful studies of retrenchment is clear: there was no conservative revolution where the British welfare state was concerned. A major LSE investigation concluded that there was “no evidence here to support a story of serious decline.”11
Of course, closer analysis reveals that a number of important changes were taking place. Mass unemployment pushed up spending on social security, despite the tightening of eligibility rules for benefits. Spending on housing plummeted, and combined with the freezing of council-house building helped to generate a visible rise in the homeless population. City-dwellers grew accustomed to the sight of people sleeping rough in doorways or on park benches. On the other hand, spending on education and health care did not, contrary to popular perceptions, fall substantially.
It is not surprising that this state of affairs went largely unnoticed: Thatcherite governments were not keen to boast of their achievement in keeping state spending high; neither were their opponents. One saw cutbacks as desirable, the other as wicked, but both liked to exaggerate their impact. So why was the Thatcherite revolution such a failure? Leaving aside mere inertia, or the difficulty of forcing through change on a reluctant Whitehall, the main reason was simply the high level of public support for state provision of basic services. This, combined with the centralization produced by Thatcher’s more authoritarian tendencies, meant that the state sector overall was strengthened rather than weakened by her years in power. But if this was true in Britain, scene of the most radical experiment in neo-liberalism anywhere in Europe, then what impact did the neo-liberals have on the mainland?
THE ENDURING STATE
The Thatcherite experiment represented the most concerted and ideologically charged attempt to break with the post-war status quo in western Europe. Coinciding with Reagan’s presidency in the USA, it was regarded as ushering in a new period of conservative ascendancy. If Thatcher ultimately fell short of these expectations, it is not perhaps surprising that her influence on the rest of Europe’s domestic policies was also rather limited. Fellow conservatives like Helmut Kohl showed little inclination to follow her lead. In three key areas—industrial relations, privatization, and the welfare state—the British example remained at the extreme end of the conservative spectrum.
There were two fundamental differences between the UK and continental Europe which help explain why the former ended up—in Gilmour’s words—“the most right-wing state in West Europe.” The first was a question of historical memory: it was surely no coincidence that the kind of deliberately confrontational politics espoused by Mrs Thatcher unfolded in the country with the least experience of ideological turmoil and political violence on the entire continent. Elsewhere, the memory of polarization in the past constrained policy-makers; social cohesion and political unity meant most where they had been bloodily and recently fractured. Gambling with class conflict surely worried Mitterrand and Kohl rather more than the British prime minister.
The second factor was connected with the first: the gulf in values and outlook which divided British Conservatism under Thatcher from European Christian Democracy, which has perhaps been the single most important political force in post-war Europe. It is hard to think of a Christian Democrat politician who would have endorsed Mrs Thatcher’s famous dictum that there was no such thing as society. Christian Democrats may have varied in the closeness of their attachment to the Church; often, it seems hard to find what was distinctively religious about their policies. Even so, their core beliefs clearly revolved around notions of mediation and reconciliation—whether for individuals or social groups. They aimed, in the words of one scholar, to “restore the natural and organic harmony of society”—a goal which had made many hostile to both democracy and capitalism before the war. Reconciled after 1945 to both, Christian Democracy remained conscious of the importance of social policy, and suspicious of neo-liberal individualism; in countries such as Italy and West Germany, real differences of view separated them from Liberals and Free Democrats. Emphasizing the family and the role of charitable institutions, they emerged as the key architects of “social capitalism.” Put simply, but not entirely misleadingly, the main differences between them and British conservatives were firstly Catholicism, and secondly, the memory of occupation.12
What was more, their support for the welfare state was not simply the result of their beliefs and values. In the 1950s, the expansion of the state had offered a means of expanding their power and patronage and acquiring new bases of electoral support. In countries such as Italy, Belgium, Austria and the Netherlands, clientilism fed off public-sector growth. Roll-back thus implied weakening the party itself. When national memory, political expediency and morality all dictated against a radical assault on the state sector, it was hardly surprising that the Thatcherite experiment should look about as attractive as collective suicide, especially in view of the strong and continued popular attachment across western Europe to social solidarity. The lack of any “tax protest” along American lines deterred politicians seeking votes in a radical diminution of the role of the state. From this point of view, the 1980s exposed once again the limited Americanization of western Europe.13
In industrial relations, too, European conservatives stuck to a more consensual approach than in the UK, and continuities with the 1970s were greater. Even where tighter monetarist policies were adopted in the fight against inflation, as in West Germany, they were pragmatically accompanied by more traditional modes of wage negotiation and pay bargaining. Structures of neo-corporatist mediation remained in place. Despite substantial changes in shop-floor patterns of unionization, collective bargaining was seriously eroded only in Belgium and the Netherlands. Unions and their workers adjusted their expectations after 1973 so that there developed everywhere a convergence upon the pattern of West German industrial relations, with wages decoupling from prices and following productivity.14
It was the same story with privatization. Neo-liberalism was stimulated by financial deregulation (London’s “Big Bang” of 1986 triggered off minor explosions in Paris, Stockholm, Vienna, Rome and elsewhere), by EC trade liberalization (culminating in 1992’s single market), by the need to combat high government debt and by the weakening of state monopolies as a result of technological change or intensified international competition. Even so, countries were slow to follow Britain’s lead in selling off major nationalized industries; they doubted whether this would necessarily lead to greater competitiveness and feared the damage to national interests. Across the Channel, national sovereignty usually trumped British chancellor Geoffrey Howe’s “consumer sovereignty.” Outside France, denationalization was not carried far and popular capitalism remained limited by the small size of domestic equity markets.15
Many sympathized with the need to cut back bureaucracy—Portugal, for instance, declared a “National Day for Debureaucratization” in 1990, while in Italy the “Movement for the Defence of the Citizen” formed in 1987 to protest against “bureaucratic micro-persecution.” But none of this led very far and no one equalled the British cuts in civil-service employment. The British mania for exposing the public sector to a “management revolution,” which rapidly produced a plethora of monitoring and auditing bodies, contrasted with continental caution; so too did the impact of “contracting out,” the rise of the quango (quasi autonomous non-governmental organization) and the consequent blurring of public- and private-sector values.16
If, then, the so-called “conservative revolution” starts looking like a rather self-deluded Anglocentric view of events after 1973, perhaps the collapse of the Left which so worried British commentators needs to be viewed in the same light too. Labour’s defeat in the UK was followed by that of Germany’s SPD in 1982. The two oil crises ushered in a stream of gloomy predictions: Eric Hobsbawm warned that “the forward march of Labour” had been halted. Dahrendorf heralded the “end of the social democrat century.” Marxists, liberals and conservatives all agreed that social democracy had had its day. Commentators warned that the entire political spectrum had shifted to the Right during the 1970s and 1980s. But even if this was true, did it necessarily imply the decline of the Left?
