Thatcher: not a bit of good

Thatcher is invariably presented as cruel but necessary. Her own phrase “there is no alternative” has become the truth in the popular imagination. The thing is, at the time there really was an impasse - the contradictions in the existing economic setup had reached their limits. What she did was break the impasse to the right - moving the pain onto the working class in the process - solving one problem and creating a host of others.

There is way too much going on in this time period for me to fully get into. Murdoch buys the Sun and transforms it from a working class Labour paper into the nightmare it has become, despite promises to the contrary. Capital controls are being undermined the whole while by Belgian dentists, and of course’ the developing world is developing all the while. I will be focussing on the political economy. I recommend ‘Dial M For Murdoch’, ‘Stick It Up Your Punter!’ and ‘Moneyland’ for other background. Most of this is based on ‘Stolen’ by Grace Blakely. This may surprise you, but I have also heard good things about ‘Full Disclosure’ by Andrew Neil though I haven’t quite been able to bring myself to read it.

The background

The condition of the British economy was pretty poor towards the 70s, driven both by an oil price spike and a flaw in the economics of the time.

The state flitted between increasing spending to alleviate unemployment and cutting it to reduce inflation. The oil price spike had created a catch-22 situation that Keynesian policymakers were not equipped to deal with: stagflation — the combination of unemployment and inflation.

The state’s commitment to promote full employment undermined the thing that made capitalism work: the threat of the sack. A policy of full employment would remove the “reserve army” that capitalists relied on to ensure a steady stream of cheap labour. Without desperate workers to exploit, profits would dry up.

With profits under pressure, only one thing determined who got the gains from growth: who had the power. Thanks to rising capital mobility and the breakdown of Bretton Woods, the balance of power between capital and labour had changed by the 1970s. Capitalists could threaten to up and leave if they didn’t like the business environment — and though capital controls were still in place, many were finding ingenious ways to move their money anyway.

The class war

In crushing organised labour, Thatcher set the stage for the institutionalisation of finance-led growth. Without resistance from the country’s workers, she could go about entrenching neoliberalism and empowering the financial elites that had brought her to power.

The Lawson boom saw tax cuts, a reduction in interest rates (once the union movement had been dealt with, of course), and an across-the-board increase in household borrowing and spending. Growth increased in the short-term, before collapsing in an equally large bust when interest rates had to be hiked again to keep the UK in the Exchange Rate Mechanism. In a mini precursor to 2008, a housing crisis ensued. But it wasn’t long before stability was restored, and debt began to climb once again — and it didn’t stop climbing for nearly two decades.

The removal of restrictions on capital mobility also meant that all this new money was free to flow around the world, allowing investors to buy assets wherever they liked. In the UK, much of this debt was used to purchase housing, made available through the privatisation of the UK’s social housing stock, which was sold off and not replaced. The amount of money directed into the housing market began to rise at a faster rate than the increase in the housing stock, and house prices skyrocketed.

Rather than relying on wage increases to support their living standards, this new group of homeowners came to rely on rising house prices, aligning their material interests with asset owners rather than other wage-earners, and securing their support for the status quo.

This bit is a real killer in my opinion; in the short term it’s lead to increased homelessness, and if you look at any electoral statistics that has data on homeowners, has directly contributed to the 1000 year Tory reich that has just begun along with the increasing indebtedness of the working class.

The miners were fighting an uphill battle against the rise of renewable energy sources and cheap labour from abroad. The demise of the dirty, dangerous, and polluting coalfields was portrayed as a story of modern-isation, which would see Britain transition from a traditional manufacturing economy to a modern service-based one. In the end, coal mining may not have had a much longer future in the UK. But the brutality with which the miners were repressed, the speed with which functioning collieries were closed after the end of the strike and the decline into which many pit communities sank through the 1980s and 1990s were far from inevitable.

But focussing on the miners is a mistake. The mines employed 247,000 workers in 1976. By 1993, it had been crushed down to 44,000; It is a real challenge to find suitable alternative employment for 200,000 people to say the least; but if the mines had been closed gradually, rather than being brutalised, it could have been done. Rather than spending to equip our police to brutalise honest workers, I’d have preferred to see investment in modern, productive industry and infrastructure. In the 19th century, similar enough events had led to the employment of comparable people in creating some of our best public parks and other utilities. It would also have been the perfect time to shorten the working week; absorbing these people into other industries, cutting the welfare bill and the social problems associated with unemployment, and giving the whole country more free time.

As one striking miner put it, “[w]e knew from day one we were firmly in Thatcher’s sights. What was stopping privatisation, what was stopping letting rip with profits, their philosophy of a free-market economy? The thing that was stood in the way was us”. In taking on the miners, Thatcher wasn’t just putting the nail in the coffin of the British mining industry, she was waging war on the labour movement as a whole.

There is, of course, no such thing as neutral economic analysis, even though the neoliberal narrative presented itself as such. The war against the unions was justified in terms of “efficiency”, whilst monetarism was justified on the basis that it would prevent inflation. But the demise of the unions has created inefficiency in the labour market by increasing the returns to capital well above what they should be in the imaginary neoclassical economy. And monetarism failed to achieve its stated aim of controlling the money supply … Thatcher’s deregulation of the banking system meant that the broad money supply increased faster than at almost any other point in history.

We must also not forget how the media at this time began hastened its decay into the reactionary nightmare it has become. Thatcher was helped in this by, who else, but Rupert Murdoch in his takeover of the Sun.

She became immensely depressed about it and complained bitterly about the Sun to her husband … His wife was in tears as she fixed the Sun and its cruel, left-wing editor ‘Red Larry’ Lamb in her mind. She looked up with the now familiar steely glare and rasped: ‘I’ll see them in hell first. I will never be driven anywhere against my will.’ Five years later Mrs Thatcher’s attitude towards the filthy Sun had changed remarkably. All was sweetness and light

Financialisation

The financialisation of the firm and the demise of the unions led to falling pay and increasing inequality. Whilst real wages grew by an average of 3% through the 1970s and 1980s, as unemployment increased and bargaining power fell, this figure fell to just 1.5% in the 1990s and 1.2% in the 2000s. Rising GDP benefitted owners rather than workers. Modelling from the TUC suggests that the wage share of national income has fallen from a peak of 64% in the mid-1970s to around 54% in 2007.

Everyone’s seen these graphs with ‘Reagan’ marked on them; we have a similar thing here. The crushing of the unions that was necessary for financialisation has led to an even more exploitative labour market for all of us today.

Secondly, and relatedly, investment in fixed capital — in the physical machinery and infrastructure needed for production — began to fall substantially from the end of the 1980s onwards.

investment was also falling due to the financialisation of the corporation, with firms distributing their revenues to shareholders, investing them in financial markets or buying up other corporations

Thatcher’s ‘big bang’ in 1986 broke down the barriers of commercial & investment banking, setting the scene for the 2008 crisis as well as the shareholder revolution, similar to that experienced in the US. Financial profits as a percentage of total corporate profits is increasing, meanwhile non-financial firms are themselves are becoming more and more financialised and extractive.

For contrast…

But in West Germany the trade unions remained strong, social protections were kept in place, and wage levels continued to be relatively high. This stimulated the technological innovation that kept West Germany well ahead of the field in international competition in the 1980s (though it also produced technologically induced unemployment). Export-led growth powered the country forward as a global leader.

In a capitalist world economy, we were always going to lose the game on manufacturing to developing countries, but in the long run, we will lose the game on services to those places too. (Capital always seeks out cheaper labour after all.) If you assume that global capitalism continues to exist, it was necessary for some kind of move towards the service sector. However, this does not mean we needed to destruct our manufacturing base; the easy money from being a rentier or speculator, has lead British capital to look away from the more productive sectors and has left our productivity lagging behind our neighbours.

Doom

How it degraded social bonds and class consciousness, and in the process, damaged democracy.

As finance came to colonise the real estate market, housing was transformed into a speculative asset. average house prices increased tenfold between 1979 and the 2008 crash, whilst consumer prices increased by just half that amount. In London and the south east, the situation is even more extreme.

A central plank of the finance-led growth regime has been the replacement of wages with debt and private wealth as the central determinants of many households’ sense of economic prosperity. When households fall on hard times, rather than taking their fight to employers, they are much more likely to take out new debt. When planning for the future, those who own homes and have private pensions are more likely to rely on the value of these assets than they are on social security provided by the state. In other words, the financialisation of the household has radically individualised peoples’ experience of the economy, leaving them to rely on individual financial management rather than collective political mobilisation to improve their standard of living.

The genius of Thatcherism was to mute peoples’ awareness of the divide between owners and workers by extending asset ownership to middle earners. The expansion of home ownership and the financialisation of the housing market convinced middle earners to side with owners instead of workers. The Conservatives built a large, stable voter base by creating an alliance between homeowners and the oligarchs.

Very little needs to be said about this; we’ve all seen the graphs of the British electorate separated out by home ownership. But this along with Murdoch’s entry into the media landscape in the same time, has smashed class consciousness into the dirt, tricking our grandparents (and in many cases, our parents) into thinking vultures like Philip Green are on the same side as them.

Far from anticipating capital gains of the kind seen in the pre-2007 period, those who own assets should expect to see their values decline as the economy stagnates. Their wages — eroded by several decades of finance-led growth — and their debts will matter much more for their sense of prosperity.

So Thatcher transmuted the - oh so terrible - problem of working class power into problems of unaffordable housing, depressed wages, child poverty and the perfect conditions for the 2008 crisis. Her deregulation also helped set the stage for the 2008 crisis. She hastened the degradation of our economy into an extractive vulture model of capitalism, where profits from asset-stripping firms are chased rather than investing long term into technology and education to boost our manufacturing and service industries.

There is no alternative?

It is strange that the phrase “there is no alternative”, once a propaganda line from Thatcher herself has become the conventional wisdom when talking about her policy. Because there were many alternatives, some of which I have already touched on.

Even the biggest fan of capitalism should be able to see other ways to go. There is nothing radical or Marxist about investing in a different, more productive, sector of the economy, nor about a slow process of closing mines one by one, meanwhile replacing them with more efficient and greener industries and services. There is nothing radical about using the newly available labour to upgrade our rail network into something resembling a modern nation’s. And there is nothing radical about using this labour force to bring the tube to other large cities in Britain.

I have chosen not to spend much time putting forward my position of handing over control of the economy to the working classes, because it is not helpful to the main argument of this - that there were alternatives to Thatcher - and I don’t think this is the time to talk anyone into Britain as a union of socialist republics. Other countries in Europe found alternatives, and we could have too. Furthermore, this is an optimistic vision from a Liberal perspective. If there really was no alternative, that would mean that it was necessary for Capital to crush workers and thrust children into poverty to survive. Eventually though, what happened with manufacturing will happen with services and we will have to resolve this somehow. Ultimately this is where the capitalist tendency to endlessly seek cheaper labour will lead us and at that point it looks to me like the choice will once again be between socialism or barbarism.