The Thatcher period lasted from 1979 to 1990. Much is made of ‘Thatcherism’ as some counter-revolutionary force on behalf of Capital, widely acclaimed by its supporters as saving Britain for capitalism , or turning it around from disaster. But the reality was that Thatcherism was just one strand of a general sea change in economic strategy forced on Capital by the crisis that major capitalist economies had got into by the end of the 1970s. These economies had experienced a steady and sharp fall in the profitability of capital from the mid-1960s onwards. This was the result of tightening labour markets – no longer supplied with influxes of cheap labour from unemployed after the war or a fast-rising baby boomer working population. And also there was a rising level of investment in technology relative to labour that began to deliver less well on raising the productivity of labour.
According to my own calculations, between 1963 and 1975, the UK’s rate of profit for the whole economy fell by 28% from around 26% to 19%. The rate of exploitation fell 20% while the organic composition of capital (the ratio of the cost of plant and technology to labour) rose 20%. This was a classic crisis period for capitalism as explained by Marxist economic theory. See my book , The Great Recession, for further details.
It was the same phenomenon in the US, Japan and many parts of Europe. Something had to be done – as Thatcher herself said: “there is no alternative” (TINA). The only way out was to destroy the power of labour and shift the distribution of the value created by labour towards capital i.e raise the rate of surplus value as a counteracting factor to the fall in the rate of profit. Also, in many major economies, there was a need to destroy the value of old unproductive capital and industries. They would be much more productive and profitable with new technology and with cheaper labour elsewhere. The aim was to end the production of many manufacturing and heavy industries in the mature capitalist economies and shift them to the likes of East Asia and China where profitability was so much greater i.e globalisation.
That strategy required a new ideology based on so-called free markets and a break with the Keynesian-style ‘mixed economy’ where governments provided some level of welfare and public services and ‘interfered’ with capitalist production for the ‘public good’. But as Thatcher infamously said “there is no society”. Above all, ending the power of labour, reducing the cost of the state through privatisations, and in the case of the UK and the US, developing a financial services-based (rentier) economy were the tasks. This required leaders with nerve and commitment – Thatcher was one, but so was Reagan in his own way.
But what is often forgotten is that this counter-revolution to save the mature capitalist economies began earlier than Thatcher or Reagan. The neo-liberal era, at least for the UK, began in the mid-1970s. The data confirm that. The UK rate of profit reached a bottom in 1975 at the trough of the first simultaneous worldwide economic slump of 1974-75. The Labour government under PM Callaghan and Chancellor Healey reacted to this dire crisis that forced the UK to ask for IMF aid in 1976 by beginning the long struggle to slash government spending, squeeze back wages and reduce industry. As Callaghan put it baldly to the Labour conference at the time: “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists and that so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment at the next step.” Keynesian economics was rejected first by Labour not Thatcher.
The terrible global slump of 1980-2 did the job even better than Thatcher in raising unemployment to new heights, reducing real wages and closing down old and unproductive (i.e, unprofitable) plant and industries. By 1982, UK manufacturing was decimated. Thatcher merely presided over the collapse and then continued the process during the subsequent boom by privatising what remained. She made sure it happened by crushing any resistance from labour through abolishing the minimum wage law and introducing draconian anti-trade union legislation enforced by a cynical and corrupt police force. These transformations of the labour market, Thatcher concluded, “allowed management once more to manage and so ensured that investment was once again regarded as the first call on profits rather than the last.”
At the same time, The Big Bang deregulating financial services shifted the focus from manufacturing to finance. It made London the financial capital of Europe, if not the world, although British banking was virtually wiped out as most of the major financial institutions operating in the City are now American or European.
So from 1975 to 1996, the UK rate of profit rose 50% and even though the organic composition of capital also rose 17% (mainly in the 1990s), the rate of exploitation of labour jumped 66%! If we isolate just the Thatcher years, it’s the same story: the rate of profit rose 22%, technology and plant was decimated so the organic composition fell 3%, but the rate of exploitation rose 20%. The Thatcher years were devastating to labour but the process had already begun under Labour before and continued until the mid-1990s.
There are two myths that the supporters of capitalism like to peddle about the Thatcher years. The first is that economic growth was much better under Thatcher than before or after and enabled the UK to ‘catch up’ with other capitalist economies. Even Paul Krugman seems hint at swallowing this one in his latest post: “I guess there is a case that the Thatcher changes in taxes, labor regulation, etc. created a more flexible economy, which made the good years under Blair possible.” Well, it’s true that between 1982 and 1997, UK real GDP growth was better than between 1965-82, when the rate of profit was plummeting. But economic growth (and profitability) was nowhere near as high as between 1946-65 in the UK and in all advanced capitalist economies.
The ‘golden era’ for capitalism was in the 1960s not the 1980s – and the golden era was also one when progressive income tax rates were operating (a 99% top rate in the US under Eisenhower in the late 1950s); there were student grants in the UK for higher education (no fees and loans); pensions were tied to average wages; important sections of the economy like water, energy, transport and power were under state control (including the Bank of England) and unemployment was relatively low. The Thatcher years did not match this in any way.
Indeed, if it had not been for one piece of luck, the discovery and harnessing of North Sea oil and gas in the late 1970s, the UK economy would have done much worse and would have been no better than in the 1970s. It was a short window of an oil boom that allowed the UK to ‘catch up’ with the likes of the US and Germany. And again it began before Thatcher, but her government benefited most from it as oil prices rose sharply up to 1986. There was negligible growth of manufacturing output in the UK from 1973-93. And of course, the highly capital-intensive energy industry created few jobs, just large profits. The primary sector as a whole accounted for 4.2% of GDP in 1973. The boom in oil extraction in the North Sea in the 1980s resulted in an increase to 6.7%.
The other myth is the control of public spending. In these days of ‘austerity’, it is ironic that the Thatcher years actually did not see much of a reduction in government spending or taxation, at least as a share of GDP. Indeed, this fact is bemoaned by some right-wing strategists today. As this table shows, taxes as a share of the gross domestic product in Britain actually increased sharply during Mrs. Thatcher’s first seven years in office before falling in the later years. Even at the end, they were significantly higher than they were when she took office. Spending also rose during her first seven years before falling in Mrs. Thatcher’s later years. Lower taxation, the mantra of the current government, was never applied under Thatcher.
Although the Thatcher government cut the top personal income tax rate to 60 percent from 83 percent immediately upon taking office, the basic tax rate was only reduced to 30 percent from 33 percent. And in 1980, the 25 percent lower rate of taxation was eliminated so that 30 percent became the lowest tax rate. And Mrs. Thatcher paid for her 1979 tax cut by nearly doubling VAT to 15 percent, from 8 percent. As one right-wing commentator put it: “the effect of the Thatcher program has been a substantial increase in taxation on virtually all taxpayers.”
The real result of reducing income tax rates for top income earners and abolishing capital gains tax, lowering property taxes but hiking consumption taxes for all was greater inequality of income and wealth. But the main reason for rising poverty and extreme levels of inequality now, only matched by the US, was the decimation of well-paid secure jobs in industry and their replacement by insecure, lower paid services work. And, of course, there was the massive rise in incomes and wealth for the elite in the financial services sector. And we all know how that ended in tears.
Thatcher did her job of destroying millions of Britons’ jobs, incomes and lives with enthusiasm, dedication and arrogance. But in the interests of capitalism, there was no alternative (TINA).