Money and Power by Vince Cable

Author:Vince Cable
Language: eng
Format: epub
Publisher: Atlantic Books

British ‘Decline’ and the Origins of Thatcherism

Until Margaret Thatcher, the economics of free markets, or neoliberalism, did not have much of a political following in the UK, beyond the political fringes. In the 1950s Enoch Powell was almost a lone voice promoting free markets, privatization, strict monetary policy and cuts in public spending. Indeed, the failure of a Tory government to stick to the last of these led to his ministerial resignation in 1958.6 The Institute of Economic Affairs was established in 1957 as a think tank for free market ideas which were, then, more likely to be absorbed by the much-diminished Liberal Party than the Conservatives. Indeed, the man who was perhaps the most influential economist of that genre – Alan Peacock – was a Liberal, not a Conservative.7

The change in national mood which enabled Margaret Thatcher to introduce policies which were hitherto inconceivable emerged from the collapse of the post-war economic policy consensus in the face of slow growth and economic crisis. The mood was captured in the ‘declinist’ literature of the 1960s and 1970s: from Michael Shanks’s Stagnant Society8 to Andrew Gamble’s Britain in Decline.9 Successive governments had become unable to deliver the post-war, Keynesian, promise of full employment without triggering inflation: a weakness aggravated by trade unions’ control over labour supply. Mrs Thatcher’s predecessor, Jim Callaghan, expressed the growing sense of pessimism in a speech to the Labour Party Conference in 1976: ‘I tell you in all candour that that option [of countering unemployment with more public spending] no longer exists and that in so far as it ever did exist, it worked by injecting inflation into the economy… Higher inflation, followed by higher unemployment. That is the history of the last twenty years.’10

The second element flowed from the first: inflation spilled over into imbalances in trade (since governments attempted to defend a fixed sterling exchange rate which soon became overvalued in relation to the competitiveness of export and import competing industries). Economic crises followed. The devaluation of 1967 was a harbinger of the 1975 crisis which featured soaring inflation and loss of confidence in sterling, culminating in an appeal for help to the IMF. The IMF medicine may have worked temporarily but it represented a national humiliation; the UK was the only developed country to have needed an emergency loan (an experience shared by Greece after the 2008 global crisis). The austerity measures that followed fed the deepening resentment of public sector workers, which found expression in the 1978 ‘Winter of Discontent’ and proved fatal not just for the Labour government but for the post-war economic consensus.

Underlying these two factors was a third: the relatively slow growth of productivity (and of incomes, after allowing for inflation). A variety of explanations were on offer: poor quality, unprofessional British management; uncooperative, unionized workers; poor systems of training; inadequate scale; the ‘wrong’ products being sold to the ‘wrong’ (ex-colonial) markets; outdated, poor infrastructure; excessive taxes on individuals and companies leading to inadequate savings, risk taking and investment. Some

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