Thatcher: there was no alternative

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.

UK rate of profit

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.

UK growth

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%.

UK oil

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).

19 thoughts on “Thatcher: there was no alternative

  1. Just a question: How do you reconcile the fact that on the one hand, the golden age was in the 1960s, while on the other hand, the rate of profit seems to have been higher (and climbing) in the 1980s?

    1. Good point. Actually the rate of profit was much higher in the 1950s and the plummeting began the mid-1950s. By taking the ROP from 1963, I have not truly shown the ROP in the Golden Age in the 1950s. But it also true that the rate of profit did get back to 1960s levels by the 1990s but then started to decline. In that sense, neo-liberal policies worked. But that rise in ROP was based on the growth of financial profits sucked in from abroad -the rentier economy. As economic growth depends on productive investment over time, real GDP perfromance was less impressive. And of course, the huge rise in fictitious capital, particularly in the 2000s heralded the financial collapse from mid-2007.

  2. That’s one of the main points of the article – that the increase in the rate of profit in the 80’s was due to a massive attacking on the basic standard of living of the working class. Capitalism, due to the long-term fall in the rate of profit, is forced to attack the working class and destroy our standard of living: lower wages and benefits, worse working conditions, less government aid to the working class (while the government aid to the capitalists continues unabated and grows). This, along with the transfer of production to low wage nations (China in particular) has helped world capitalism stay afloat during these crises. It wasn’t greed, it wasn’t a personal thing – it was capitalism’s only way to survive – it just happens to show that capitalism can’t even provide, long-term, the modestly decent (not great by any standard) quality of life for a certain sub-sector of workers in the imperialist nations. The is no future under capitalism for the workers – it is our sworn enemy and has to be overthrown.

    1. Hi Donnie
      I got the data on UK public spendigng to GDP from Brian Bartlett, He’s a right-wing commentator and got his figures from the UK’s Institute of Fiscal Studies. They differ from your source because they are probably measuring slightly different things and maybe over the fiscal year compared to a calendar year etc. I did a quick calc from the official UK sources and got different figures again. But at least all sources agree that govt spending to GDP under Thatcher stayed above 1979 levels until the mid 1980s. Then it fell as GDP growth picked up, not because of drastic cuts. The current austerity program is much more severe.

  3. Also according to Stedman Jones, in his book “Masters of the Universe”, so-called “neo-liberal” policies was first set in motion by Labour in the UK and by the Democratic Carter administration in the US, before Tatcher/Reagan, as you mention here.

  4. There was no alternative…except perhaps for that socialism thing we occasionally discuss here? The tone of this article is very defeatist, even if it is not meant to be. I understand that your intention is to critique the moderate anti-neoliberalism that imagines that the postwar consensus could have been maintained except for the evil Thatcher, but it is unlikely to give much hope to any socialist readers.

    Also Thatcher can be said to have “done what was necessary” for capitalism, but surely some of the viciousness of the “adjustment” can be attributed to her personality as leader. Are the people out celebrating in the streets merely dupes?

    1. there was no alternative for thatcher but of course there was and is for the labour movement. The miners fought for the alternative and could have won. It was not inevitable that Thatcher would win. but there was no alternative for her but to fight for capital in the way she did.

  5. “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.”

    Globalization in the outsourcing sense you cite took off after most of Thatcher’s PM years — with the dismantling of the Soviet Union and the Chinese export drive based on low wages. What was the significant outsourcing before 1989?

    1. The World Bank states that there have been three ‘waves’ of globalization. The first began in 1870 and ended at the beginning of World War I in 1914. It was characterized by a reduction in trade barriers and and improvement in transportation technologies, which resulted in major migration of about 10% of the world’s population. The next wave occurred from 1950 to 1980 during which multiple trade agreements occurred between developed nations which left out the developing world. The final(and current) wave of globalization(beginning 1980) in contrast has been characterized by the willingness of developed nations to remove trade barriers in order to attract foreign capital.

      And see “A large fraction of the growth in world trade since the 1970s has taken the form of trade in intermediate inputs, in general, and foreign outsourcing, in particular. To cite some well-known examples, Nike outsources production of its footwear to firms in Asia, and Dell outsources production of the components and peripheral devices that make up its personal computers to suppliers around the world”

      But you are right, ‘globalisation’ was even bigger after 1989.

      1. Trace the NBER/Hanson remark back to the underlying NBER paper by M. Slaughter, who states:

        “My main finding is that the data are inconsistent with U.S. multinationals having outsourced heavily in the 1980’s. … multinationals employed abroad fewer production workers in both absolute and relative terms at the end of the decade than at the beginning.”

        At least for Reagan in the U.S., global outsourcing to low-wage countries became significant after his term in office. The NBER paper does not settle the matter one way or the other for the Thatcher years in the U.K.

        The point is that globalization does not explain the decimation of manufacturing (we got the “Rust Belt” in the U.S. starting in the 1970s), the failure of capitalism to shift those workers and their children to better jobs, and in fact the decline of real earnings from its peak of 1973, never recovered to this day.

  6. You imply that Thatcher wasn’t austerian, but isn’t increasing taxes while increasing spending, but not as much, a kind of austerity?

  7. Common ownership and democratic control of the collective product of labour was/is the alternative. Of course, Blair and other members of the social democratic left, took Thatcher’s dogma as the only ‘realistic’ option thus, ‘New Labour’ in Britain, Hawke (not Whitlam) in Australia and the rest of the so-called socialist movement, a movement which had jettisoned Marx’s call on workers to put ‘Abolish the Wage System’ on their banners way back in 1865.

    The left has gone from ‘boring from within’ to ‘we will be assimilated, thank-you very much’ in Thatcher’s TINA Borg machine.

    Carry on….

    1. they most certainly did. Are you not aware that they are in the process of dismantling the welfare state that was built throughout the years?

  8. If they are in the process now, then they didn’t go down this route in the 80’s and not to the extent of Britain, both quantitatively and qualitatively. Germany didn’t either, nor France. Any they are better off for it.

    There was an alternative, there always is.


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