The Atlantic and Its Enemies

21. Atlantic Recovery: ‘Reagan and Thatcher’

Ronald Reagan and Margaret Thatcher each brought to bear some of the core beliefs of their civilization, which included (among others) Hollywood and a belief in facts. Ronald Reagan had been an actor, a Rooseveltian Democrat, and he had escaped from a past in a way that commanded respect — his father a drunken failure, his mother a shrew. He had pushed his way forward, via a degree in simple-minded verities at an obscure college, through sports-commentating, to Hollywood. There, he had been repelled at the tactics of the Left, in the actors’ milieu. Actors’ politics are generally repellent: in the Middle Ages they were refused a proper burial, and in the French Revolution they had been well to the fore in revolutionary activities. The Revolution did not have a sense of humour, but they had been given the job of enforcing the price-maximum in grain. Peasants, to avoid selling the grain, had fed it to their animals, which at least they could consume, and a trick was to detect the grain husks in the animals’ excrement, a task for which actors were especially selected by the reigning revolutionaries.

In the later forties in Hollywood, the McCarthy scare fell darkly upon the land, and there were victims, none of whom lost his life, though some, in employment, were for a time under an eclipse. It was certainly true that, as Vladimir Bukovsky says, if you looked at the twentieth century through Hollywood, you would have no idea what it was about. Its wallet, as was said about the Third Republic, was on the Right, but its heart was on the Left, and it felt guilty if in, say, The Killing Fields or Dr Zhivago Communists were mentioned in a bad light, or even at all. In that period Reagan seems to have guessed that these actors were being manipulated, and he became spokesman for the Republican cause: he was even divorced for ‘extreme mental cruelty’, his then wife tending to go along with the martyr-histrions. He had many gifts, especially as a talker. Provincial American politicians tended to be lecturing and charmless. Jeane Kirkpatrick, for instance, talked as if she had a carriage-shift bell in her larynx and qualified for the French phrase, ‘She listens to herself talking.’ Reagan was not like that: he told funny stories, and even, against his opponents, acted them out. There was a revealing scene when Berkeley students protested against his proposals to make them pay money for their education: past screeching demonstrators, Reagan adopted a creeping pose, and said, ‘Shsh,’ That disarmed even the screeching protestors, and worked very well on television, which, of course, Reagan had had in mind. As Governor of California, he had known how to goad his enemies into making allies for him. When the time came, in the crisis-ridden atmosphere of Carter’s America, he quite easily defeated any north-eastern and moderate Republican candidate, and was adopted. In his way, Reagan was a Nixon with charm, for he did not lock himself away, like Nixon, and there was an element of steel as well, in the sense that he knew that the United States represented something. He had charisma, such that people around him delivered, without quite knowing why. He was also quite indolent, and would semi-doze through Cabinet meetings, eating endless jujubes, a habit he had taken up in order to stop the cigarettes that everyone had smoked in earlier decades. Not for him the Carter regimen of rising at six and ploughing through endless paper, before jogging scrawnily in shorts, holding his wife’s claw-like hand, around the grounds. Nancy Reagan was no doubt a facelift too far, but she had seen him through crises, and knew how to deal with the Californian tuxedos whose activities had not made good publicity for Nixon. The White House machine, by now very large, worked messily, and there was a constant changeover. There were complaints. Apparently more efficient machines, both his predecessor’s and his successor’s, consisted of clockwork but worked to little effect. Ronald Reagan managed to get the big things right, sometimes despite crushing bombardments from people who ostensibly knew them much better than he did. In 1987, for instance, the most respected financial expert on Wall Street, Felix Rohatyn, wrote a vast article in the New York Review of Books to explain that the debt and the deficit would wreck the country. Reagan sailed on regardless, and was proved to be quite right. East-coast America was nonplussed, and was vengeful enough to have Reagan missed off the guest list for the Harvard Tercentennial celebration in 1993, whereas a parade of mediocrities such as Ford and Carter was welcomed. In fact, Carter was so full of sour grapes that he did not even give Reagan more than an hour or so of preparatory talk when the changeover occurred, and was appalled that Reagan did not take notes. Reagan had his revenge. Carter had asked him to send a telegram to the South Korean president, asking for an opposition leader’s life to be spared. Reagan sent it, but added that he so wished that he, too, could deal with university mayhem by conscripting students. Americans were good at everything, except losing. They were about to win an enormous victory, and the most interesting question about 1981 is why it did not foresee 1989.

The same question occurs about Great Britain. Margaret Thatcher in 1979 had a very difficult hand to play, and though she was a very different figure from Reagan, she ran into similar opposition: famously, almost all of the grand names in British economics denounced her to The Times in 1981, just as England was becoming, once again, an interesting country. But it was not just the economists. No Prime Minister can have met such sheer hatred since David Lloyd George, whom the Right had loathed because he had fought, in his way, for the class-eroding England that had ended up under trade union rule in the 1970s. Writers, actors, philosophers: off they rode, and a meeting of the PEN club in Lisbon, where various well-known writers of the world were expecting to protest about the fate, generally under Communism, of their peers, had to listen, in utter bewilderment, as the English contingent went on, and on, and on about Margaret Thatcher, whom most continental Europeans vaguely respected, as a woman fighting her corner in a man’s world. A high point of such criticism occurred when Dame Mary Warnock, a porphyrogenita of the long-bottomed-knicker progressive Edwardian world, mother of five, philosopher called to any committee requiring pronouncements as to public morality, headmistress of a famous school but also wife of the Oxford Vice-Chancellor, was interviewed about Mrs Thatcher. She did not have much to contribute as to privatization or the money supply, and the high point came with a strangled ‘that voice… those hats.’ In such circles Mrs Thatcher was regarded as utterly without culture, but there again was a mistake. She had grown up in a provincial world where application to schoolwork was very important, where you read the national classics. There was a revealing occasion in 1989 when François Mitterrand staged the Bicentenary of the French Revolution. He had made quite an effort, and had a shiny Paris on show. Mrs Thatcher arrived by the new Channel Tunnel and gave an interview to Le Monde as to what she thought of 1789; and her remarks were in favour of the English way of doing things, what with individual rights rather than Rights of Man. Her reward was to be placed in an obscure place in the official photographs. She had her revenge. The official party was taken to a performance of a revolution opera, André Chenier. It was a hot night, and the opera lasted for four hours. The party was then taken to the new Impressionist museum, a brilliantly converted railway station at the Quai d’Orsay. Protocol had forgotten an essential: that after four hours’ exposure to second-rate opera, the guests might need to visit the lavatory. Upon arrival at the museum, they found only one, down a flight of steps, which Margaret Thatcher naturally had the right to use first. She took her time, emerging from the steps to find a small platoon of African heads of state, in their tribal finery, squirming. She was then taken, alone, round the museum by its director, Françoise Cachin (granddaughter, as it happens, of a Comintern stalwart), who later said that, of all the politicians she had taken round, Margaret Thatcher was the one who showed the greatest interest and asked the best questions.

Oxford, also famously, rejected her candidacy for an honorary degree in 1985. That was unworthy behaviour because she was, after all, an Oxford graduate, and had become the first woman Prime Minister, a considerable achievement in itself (and when she finally fell, in 1991, she was given an extraordinarily respectful and indeed moving send-off by the high druidess of feminism, Germaine Greer, at a time when her friends were all shouting for glee). Once upon a time, these honorary degrees had meant something: in giving them to Tchaikovsky and Verlaine in the days when Oscar Wilde had been given two years’ hard labour for homosexuality (Verlaine had served two years in Mons, in Belgium, but for shooting Rimbaud in the thumb, having missed) Oxford had shown decency. Then the things became an excuse for a party, as humble academics could for a moment shine in the spotlight turned on someone else, and picturesquely garbed worthies, having been told in a solemn address that the truth was in the middle, could process through the Cornmarket, past Burger King, W. H. Smith’s, three clothing chain-stores proclaiming sales and the overweight Liverpudlian seller of the Big Issue.

Besides, she was engaged upon a course of action for universities which, however misguided in tactics, was sensible enough in strategy. Inflation was the worst enemy of educational institutions, wrecking scholarship funds, libraries, laboratories. It meant leaking roofs, moonlighting academics and generally the end of serious universities. If Oxford existed at all, it was to give out scholarships to young men and women who could not otherwise have been there — Margaret Thatcher’s case. These scholarships had become small change, the university sent round its ablative absolutes in used envelopes, and then launched an appeal for funds that put the needs of the Bodleian Library — the only major university library in the world where you could not go round the stacks — sixteenth equal with crèches for laboratory assistants. Mrs Thatcher did at least have a programme to deal with this. Both she and Ronald Reagan had in the first instance to deal with this financial operation which, underneath, was a political contest. It amounted to a June Days, of a sort, and England — though not America — did produce, in one Arthur Scargill, a barricade artist whom a great many people would have liked to shoot down, Misérables-fashion, with respect. The crucial date was 6 October 1979, when an American measure was decisive in much the same way as 15 August 1971 had been. The Federal Reserve put up interest rates to almost 20 per cent, at which level credit would become very expensive, and businesses would crash. At the same time, exchange control was abolished in London. Pounds went abroad, especially to the United States, and business also crashed in Great Britain. This, after a very difficult period, worked. No two decades could have been more different. England came back onto the world stage, and Margaret Thatcher became a figure of worldwide significance. But she had a very hard fight in the first two years, much harder than did Ronald Reagan.

Margaret Thatcher came in on 3 May with a larger swing than any other politician since Clement Attlee, and the right size of majority — forty-three, enough to survive, not enough to encourage greedy zealots. There was one gambit that was essential for her. The Anglo-American crisis brought wise heads together. In Heath’s time, the American connection had been weakened, Heath showing his usual ineptness when it came to intuition of reality. But there was an Atlantic strand in the Tory party, and it had powerful consequences, especially through NATO and the international financial institutions. As soon as Margaret Thatcher was elected, she made it her business to travel to the USA. There, she established herself rapidly. She also guessed at the importance of Ronald Reagan — at the time, thought to be of such little account that, except for Margaret Thatcher, even as late as 1977 he was given only polite, cursory treatment when he came to London. But there was a very bright and energetic group of younger people in Republican circles who were thinking hard about what had gone wrong, and what had to be done. Margaret Thatcher became quite widely known in the USA, and in 1979 Carter gave her forty-five minutes in the White House, more than he had given Mitterrand. He complained that she had done all the talking; but she had something to say, and England, not in good condition, provided the perfect rather crumbling sounding-board. What had been common-sense saloon bar grumbling was well-orchestrated and now became a swelling chorus, with some challenging thinking behind it.

There was also quite a good team, professionally managed. A sensible strategy for the trade union problem was worked out by an astute and affable businessman with a military background, John Hoskyns. The press spokesman was Bernard Ingham: a Yorkshireman, at times a stage Yorkshireman, and a one-time left-wing journalist (on the Guardian), he managed public relations very well. An astute television producer, Gordon Reece, knew about modulated voices and suitable hairstyles. Ronald Millar, a playwright who could manage one-liners, and John O’Sullivan, a Telegraph journalist who could structure a speech, made a Thatcher public performance memorable. She herself knew about oratory, and she got better and better on television, as she knew how to answer back (a warhorse of the BBC, Robin Day, helped). When asked how it felt to be the first woman Prime Minister she said, ‘I don’t know, I’ve never experienced the alternative.’ In fact, she probably did not give the matter much thought, though she was very good indeed at the feminine-as-leader, since she knew when to be Circe and when to be the nanny from hell. In the end these were reasons for her downfall. She was notably bored by the company of women not on her own rare level, and they, at night, resentfully chewed husbands’ ears; on the other hand, men such as old William Whitelaw, loyal, a believer in the party, old-fashioned and bluff, did not much like it when she caused them to burst into tears about being late, or told the Foreign Secretary, also a loyalist, that he was being so boring that someone needed to open the window and let in some cold air so that the Cabinet could wake up. Resentments were stoked up. However, so also were loyalty and affection: there were no stab-in-the-back memoirs. Number 10, Downing Street, was well-managed, and when she left office, the staff were in tears, because, whatever the pressures upon her, she had always been personally very kind to them, remembering to give words of comfort if any had had troubles. At any rate, as her political secretary, Ferdinand Mount, said, ‘Far outweighing minor weaknesses, she radiated a sense of possibility.’ It made a change. There had not been a Prime Minister of this ability since David Lloyd George. She was to sink in the end into the subconscious of the world, in that taxi-drivers from Valparaíso to Vladivostok or Istanbul would have favourable things to say, perhaps the last British figure ever to have this effect (Princess Diana being the shadow). What she had to do took a very great deal of courage.

Inflation had two sides, an internal one to do with government behaviour, and an external one, to do with the amount of money going from one country to another. The first involved endless argument about ‘cuts’ — governments just spending less, or not providing credit, or preventing banks from providing credit: there were variations on that theme, familiar in the old days as ‘open-market operations’. That was one aspect of monetarism, and in the early eighties the internal manufacturing of inflation did matter a very great deal in an England that had simply been irresponsibly governed: the government deficit of 1970, nil, had reached £10bn in 1975, and it was probably no great wonder that, as questionable banks and property speculators and toilers in the local government bran-tubs flourished, the trade unions also could see no reason why their members should be excluded. There had been much talk of the ‘Swedish model’, in which the trade unions co-operated in wage policies that suited national needs, and the temptation to follow that model was considerable. The French Left, taking over under the Communist-supported Mitterrand, tried yet another of its ‘singing tomorrows’, and found that the original Swedish example was crashing. Here, with a small population in a vast country containing raw materials — especially newspaper- and even medicine-making timber — that the world prized, was a chance for socialism in one country if ever there was one. This was all the more so as the country had avoided wars; there is even an argument that had Sweden not traded with Germany, the world wars would have ended two years before they did.

However, the ‘Swedish model’ had observers gasping: rich, well-organized, some world-class products and also a very elaborate welfare system. There was very high taxation — even, in one notorious case of a writer who was hit for capital gains and income tax on a bestseller, 108 per cent (one of the system’s architects, Pierre Vinde, later deputy secretary-general of the OECD, operated it with humour: this writer asked him on a plane journey to Colombia, did he not appreciate the damage that such tax rates did. He said, yes, of course, but he enjoyed the screams of pain from the smug bourgeoisie). There was no poverty, on the other hand, and egalitarianism had gone so far that use of the polite, unfamiliar form of the word ‘you’, a feature of all continental languages, was abolished. There was an underside: 70,000 Lapps were sterilized, on the grounds that they were not worthy of reproduction, a practice continued into the 1970s. But the ‘Swedish model’ was not what the outside world thought it to be. The Lutheran Church (which organized the first strikes) had pushed for a corporate solution to labour problems: employers, State, unions. This had been very successful in the 1930s. But it then encountered problems: women entered the labour market, got divorced, and argued for an elaborate system of social welfare, which indeed developed, with very high taxes to match. The system coasted on for a while, and the great Swedish concerns exported as before, but it was on notice. The currency ran down, inflation mounted, and the country, most prosperous of places in the sixties, drifted down to seventeenth on the list by 1980; some trade unions deserted the system. The great architect of Swedish social democracy, Olof Palme, lost an election, and his party lost another one, more convincingly, a decade later. Palme himself was murdered, probably by a Kurd. As Andrew Brown writes, ‘You might say that he devoted his career… to ensuring that no Swede would ever need to experience the American combination of material poverty and boundless optimism, and that he succeeded so completely that… he left a country where no-one was poor and no-one had room for optimism.’ Finland was a more interesting place, her leaders considerably less keen on preaching morality to the rest of the world, as Swedes tended to do. At any rate, the ‘Swedish model’ was no longer of interest.

Versions of the internal inflationary problem had happened before, and there was even a sort of Ur-version of a cure. France had attempted this, with ‘austerity’ programmes that did not quite succeed until de Gaulle came in. Italy had carried it out in the later 1940s, in the teeth of a Communist Party. But the origin in modern times went back to Germany, after the First World War, when, at the end of 1923, a cross-party government just set up a new currency altogether, wiping out the national debt, rewarding people who had property, and expropriating the savings or earnings of people still dealing in the old currency. The programme meant a year or two of extreme discomfort, as the government cut back its spending, and although the established trade unions accepted it, it also meant unemployment for the hundreds of thousands, and latterly millions, who not only were not protected by them, but were actively excluded, because they offered cheap competition. In 1948 the Germans had pushed through a similar reform, but had had to do so under Allied occupation, and at a time when trade union power was greatly weakened by the millions of refugees willing to work for very low wages. Such reforms indeed amounted to a brutal business, but the rewards for the pain were clear enough, a year or so down the line. At bottom, that was what the monetarists in London and Washington were doing, and in 1981 there were indeed fears that civil peace might break down altogether.

Where the monetarists faced difficulties, which were never really resolved, was in the external aspect of inflation. In conditions of free trade and money movement, inflation could be imported. The German Bundesbank, with the lessons of 1923 and 1948 well within living memory, was naturally concerned to keep inflation down, and was independent, in so far as any central bank can be independent. On occasion it had arguments with governments, and on the whole it won them. However, whatever the Bundesbank did, it could not stop foreigners buying Marks, and increasing the domestic money supply; Germany, too, suffered inflation in the 1970s, though at a considerably lower rate than did England. Now, the British had acquired, of all oddities, a petro-currency. Oil had been found in the North Sea, and the rise in oil prices meant that it was worth exploiting, expensive and difficult as this clearly was. Foreign money therefore poured into the pound, and to London came Arabs, acquiring property. How did all of this affect the British money supply, and what should be done about it? The answer had to be in international co-operation among the first-rank countries, the G6 or, with Canada, G7. And since that in turn depended on monetary policy in each of these, they had to march in step. In the end, the contest of internal and external monetarism was won by the external side’s managers, when the price of the dollar was brought down very hard at the Plaza Agreement of 1985. There is a case to be made that that was the end of the Reagan-Thatcher experiment: thereafter it was back to business as usual. But in 1979 a determined effort was indeed made.

International co-operation was essential. The reform would have to come from Washington, and from Washington it duly came, though with some prodding from the German central banker Otmar Emminger. Paul Volcker, an austere and in private life heroic figure, was now presiding over the management of American public finance, and he was converted to monetarism, in effect by Emminger. On 6 October Volcker woke him up, at a meeting of the IMF in Belgrade, to say that American interest rates would be put up as far as necessary to stop the dollar slide. Carter, by now, was simply furniture, and the unheard of dollar interest rate, of almost 20 per cent, was introduced. That pushed the dollar up to over 3.3 Marks in the years 1980-85. This had very great international complications, some of them near disastrous: Latin America, debt-ridden, with interest to be paid out of native paper but in dollar terms, was in tremendous difficulty. The world’s exports even fell by 11.2 per cent in the years 1980-83, and overall there was no growth at all in the world economy. Such was the dark international context for Margaret Thatcher’s accession in May 1979. Reagan’s United States could somehow absorb interest rates at this level, because of a unique feature of the civilization: Americans moved, and expected to, from parts of the country that did not work to parts of the country that did. Besides, the bankruptcy laws were far easier than in England, and bankruptcy was almost par for the course. Foreign money moved to the USA in any case.

The British also got foreign investment, given North Sea oil, and of course the income from it helped as regards budgets. But the problems were more difficult to solve: the pound was absurdly overvalued, at $2 in 1979 and $2.50 in 1980, very helpful for buying American assets, very bad for exports. This was a very unfortunate context in which to proceed, and it took Margaret Thatcher time to find her way. She had had to keep men from the Heathite past, very ill at ease when it came to forceful confrontation. Alfred Sherman remarked of one of them, John Gummer, that in an age of plastic kidneys and iron lungs someone might have thought up an artificial backbone. Peter (Lord) Carrington was the very archetype of dogmatic appeaser, a dangerous man, very astute, his wife an excellent listener, likely to bring out the best in any interlocutor. He was made Foreign Secretary, and was from all points of view a good choice, in that his short-term talents were extremely effective, and he did not much care about the medium term in any event. He had been party chairman, a job he detested, as he did not much care for the Tory grass roots. His own career had been about appeasement, at the highest level. In 1945 he had been on the sidelines when the anti-Communist Yugoslav and Soviet troops had been tricked into death or the camps at the hands of Tito or Stalin: why bother with niceties when geopolitics were at stake? There had been similar espousal of bureaucratic roughshod-riding when he was Minister of Agriculture in the fifties, having to defend an indefensible takeover of private land (the Crichel Down scandal) by a public body for wartime purposes that had long lost validity. Similar realism applied when it came to trade union protection rackets at home. With decolonization, the British had had quite enough, and a certain pattern set in — identify the least unappetizing would-be successor, arrange some commercial deals, ignore the subsequent massacres. Carrington, who was a land-owner, had interests in Africa (as director of Rio Tinto-Zinc). Quite early on, he turned his talents on Rhodesia, where the least unappetizing man of power was thought to be the Marxist Robert Mugabe. In 1980 ‘Zimbabwe’ became independent, the USSR was held off, and the settler would-be independent aristocracy had a guarantee of existence for a longer time than was usual.

There were problems, too, with the civil service. John Hoskyns was unimpressed by the government machine: here were men with substantial pensions, inflation-proofed, who had no particular brief against public spending, and whose ways meant committees and paper. Mrs Thatcher was no respecter of them and interfered sometimes in detail with the budgets, much to the civil servants’ resentment. She did not like the ridiculous figure (83 per cent at a none-too-exalted level) of direct taxation: ‘no group is more important’ (than the professional middle class) ‘and yet none has been more put through the mangle… between the rollers of progressively penal taxation and discriminatory incomes policy.’ She saw the very existence of these civil servants, and the width of their powers, as the problem, or part of it. So she was rude to them. She even visited them in their offices to find out who was who: she remarked, ‘I make up my mind about people in the first ten seconds, and I very rarely change it.’ There was a welcoming dinner at No. 10, Downing Street for the Permanent Secretaries: ‘one of the most dismal occasions of my entire time in government,’ said Mrs Thatcher. Later, it was a different story: the civil servants defeated the outsiders such as Hoskyns, who, by 1982, walked away. She complained that there were just too many state servants — 24 per cent of the workforce in 1961 and 30 per cent in 1979 — which was no doubt true, but despite the hysteria of her opponents, she had not come to power with a military coup, could not exile the bureaucracy, and in any case soon found that getting rid of one part of government meant installing another part. In the end this was to be a fatal problem. ‘Cutting back the State’ was very difficult, at any level from local administration to ‘Europe’, which bored and bewildered her, and with which her relations were difficult. Her relations with Chancellor Kohl never recovered from a first meeting, at which she and the interpreter, Alexander Lieven, a Russian émigré prince who had run part of the BBC World Service, told each other funny stories until Kohl, not pleased, finally understood that his wisdoms were not being interpreted.

Margaret Thatcher also had a ball and chain: she had to honour promises made by the outgoing government, including a 25 per cent wage increase for public employees, arranged by some commission that had tried to work out how many secretaries a deputy manager was worth, and the like (‘relativities’), etc. Edward Heath glowered from the back benches, and there was much snobbish sneering. Problems mounted. There were terrible monsters of Heath-Wilson industrial gigantism: British Leyland and British Steel together pushed the budget up by £3.3bn. Average earnings rose by 20 per cent in 1980, but there was a slump in industrial output (of 12.8 per cent in 1979-81) and by the winter of 1980-81 unemployment (including school leavers) reached 2 million. By the early 1980s the West Midlands, industrially and not so long ago not much behind the south-east, was stricken — those square miles of devastation that Ferdinand Mount travelled through; and yet in May 1980 inflation stood at 22 per cent. There were some immediate reforms — for instance, an end to the absurd arrangements by which workers on strike could claim ‘benefit’ rather than take strike pay from their union. The abolition of exchange control on 23 October 1979 was of great importance for the future, because British investment abroad made the City of London again a financial centre of the first importance. However, the monetarists were finding their way, and the initial budget of 1980 was a mixture — Alan Walters said, as it turned out rightly, that the money supply had been too tightly held. There was too hard a squeeze on credit. The new Chancellor could not fail to borrow, to pay for welfare costs, which shot up, but at the same time, with support from his junior ministers (John Biffen and Nigel Lawson), he could see that real austerity would be needed as regards the money supply. It was in the name of ‘monetarism’ that the programme went ahead: a step-by-step policy was announced, to bring down M3. A very confusing pattern followed, with expenditure cuts being announced, but in the first three years the monetary targets were not met; it was only in 1983-4 that monetary growth at last came closer to the aims of 1980.

At first, cunning and caution were on display when it came to the problems that had destroyed the Heath government and then Labour. John Hoskyns, in 1980, said that Mrs Thatcher had been ‘too gentle’ over public service pay and the trade unions. But there was a legitimate enough fear of a battle, especially with the miners. Their leader was a case of life imitating art. A famous British film, I’m All Right, Jack, with a star of genius, Peter Sellers, had made mock of British industrial relations — smooth crooks in charge of industry, vainglorious would-be Stalins in charge of the trade unions. Arthur Scargill was Peter Sellers, down to the body language: strutting walk, bald-patch-covering hair arrangement, humourlessness. But he was single-minded, and from an early age had absorbed a sort of Red epic, as a small boy no doubt striking in the mirror attitudes drawn from one of those lifeless Soviet paintings of the October Revolution: single-handedly he would bring down capitalism. The question on his side was how to keep his troops together. The miners were not unpatriotic, and had no interest in killing capitalism. They were also divided, in that some (a few) coal mines were quite profitable, while others, in a sane world, would have been closed down long before. The whole business was complicated because there were better, cleaner and cheaper sources of energy — not least, oil and gas, coming on stream from the USSR or for that matter the North Sea. In 1980, with the ‘second oil shock’, petrol was still expensive, having doubled in price, but how long would that last? A mixture of sophisticated energy policy and obsolete Marxism-Leninism was involved, and Scargill was determined to make life difficult for Margaret Thatcher and the ‘capitalists’. He had already helped destroy the Heath government. Marauding bands of striking miners had attacked the power stations, so as to keep them from getting coal. The lights had gone out, as the power stations failed, and Heath had been left blustering angrily into the nation’s television sets. The unions had then been invited to take responsibility for running affairs, after Heath had been overthrown. They had not proved to be any good there, either: running the country was not their job. But the lesson learned by Margaret Thatcher and her allies was a valuable one: do not act precipitately. In her first year she used ministers who talked, with every evidence of conviction, of finding common ground with the unions, and her keener supporters were disappointed. Civil servants made trouble in March 1981, refusing to pay pensions. The miners threatened to strike, in response to a plan to close twenty-three obsolete pits, with 13,000 jobs. Here, the Prime Minister gave way: it was not the moment to fight. An initial round with the miners was conceded, with a flexibility that surprised. But inflation, itself driving the miners and other unions, had to stop. She was dismissive as to three-cornered German solutions — suitable for regimented Germans, no doubt, but unworkable anywhere else. As with other matters German, she was right but for the wrong reasons: the institutions of the (untranslatable) Sozialmarktwirtschaft really worked because there was reasonably sound money.

British institutions were dealing with a rubber currency, and proper planning was not possible. Besides, as costs rose, employers looked to machinery, new technology, to reduce them. There was such new machinery in printing. Newspapers could just take news from an agency, and dispense with many journalists; the money would come from advertising. Accordingly, the National Union of Journalists, then led by Denis MacShane, took a lead in stopping provincial newspapers; not just stopping, through strike pickets, their delivery, but also trying to stop, through ‘secondary picketing’, the functioning of the agencies. MacShane even won a court case, and the Times itself was closed down for a year. In the same style, private steel companies lost £10,000,000 per week in a fight that had nothing to do with them. Here again was a characteristic affair. Heath had overinvested in steel before the 1973 oil price rise. The Clyde had been given the deepest deep-water jetty in Europe, but Rotterdam obviously had a vastly more important role, and a far better infrastructure because Dutch and German unions had not had to be placated as British ones had had to be. In 1979 the transport and steel unions had fought for six months over access to the Hunterstone Ore Terminal, as it was called, and cargoes were actually diverted to Rotterdam, there to be transferred to smaller cargoes for despatch to the deep-water jetty — a symbol, among many, of what was going wrong. British Steel took £3bn in public money and made a loss in 1979-80 just the same. Alone of the national corporations, British Steel was trying hard to modernize, to shed labour and expenses. Businesslike, it could not offer the 20 per cent the miners were given. The workers struck and ‘blacked’ private steel producers. In time, European law could be invoked against such practices, and a small start was made in an important process: that unions could be made liable for damages. As things turned out, sense, after three months, prevailed. The steel union leaders were not stupid; they realized that they had an industry which, if successfully modernized, could compete, with high wages. British Steel did continue to modernize its labour practices quite effectively, preparing the way for a privatization that was very successful: a sign that, pre-privatization, there were essential changes to be made.

Whatever the troubles of the first year, there was no doubt as to Margaret Thatcher’s determination to avoid ‘decline on the instalment plan’. It was true that target plans for the money supply (a 10 per cent increase, at most) were overshot. Unemployment had gone up by almost one million, and manufacturing output was in decline, as exports became dearer through the strong pound. It was an immensely difficult time. She was under attack, open and surreptitious, from men such as Chris Patten and other Heathites, and knew that she herself was irreplaceable: ‘If I give up, we will lose. If I give that up, I just think we will lose all that faith in the future… I hope that doesn’t sound too arrogant.’ Earlier, there had been breaches in her line — the inflation-upgrading of ‘benefits’ (£1bn) and an increase in defence estimates even though everyone knew, at the time, that defence could have been more prudently and more productively handled. Even John Hoskyns said that, if a U-turn were intended, it should be done quickly. In the winter, unemployment touched 3 million, and output fell by 6 per cent. But in January 1981, just as Alfred Sherman was losing influence (his own fault: he lectured at length on the private telephone line as to his own merits and deserts), Alan Walters joined the financial team (in 1975, like several others, he had gone to the USA, out of contempt for what was happening in England, where he had a post at the LSE). He and the Chancellor, Geoffrey Howe, had agreed on a measure of the money supply (M0, crude but reasonably accurate given the inflow of foreign money) and said the deficit must come down, from its £11bn. This meant higher taxes, and of course at least a stop on further spending. Walters called this ‘the biggest fiscal squeeze of peacetime’ as ‘benefits’ were not index-linked whereas inflation stood at 21.9 per cent.

That was an outright challenge. At the time, there were 3 million unemployed, three times as many as in 1979, and the real figure, given some manipulation of the figures, was probably considerably higher. Up to 1982, manufacturing output had fallen by 15 per cent, the GDP by 5 per cent. Mrs Thatcher’s anchor figure, Whitelaw, did not think there would be an election victory: probably a ‘hung’ parliament, without any natural majority. Besides, as Hugo Young says of this period, ‘another count on which ministers were vulnerable was their detailed failure to achieve what they said they would achieve by the methods they said they would use’. Taxes had not been reduced, except for people earning more than twice the average, and the doubling of VAT had affected the poorest hardest. No-one really knew how to measure money: M3 had grown by 65 per cent from 1980 to 1984, as against the 24-44 per cent expected. No-one, as yet, had noticed that privatization would be this government’s real innovation. The only bright spot was the fall in inflation (from 21.9 per cent in May 1980 to 3.7 per cent by May 1983). At the turn of 1980-81 there were ugly scenes, and what even appeared to be race riots. Interest rates, because of the dollar’s movements, went up to 16 per cent. The economists were almost all in favour of spending. A new political party, set up by Labour grandees who had also been distressed at the turn of events, was winning in the polls, and at her own later party conference the level of grumbling was such that she had to acknowledge it in her speech, saying, ‘the lady is not for turning’. Some of the more obvious critics left the Cabinet (including Sir Christopher Soames, responsible for the civil service, who berated her for twenty minutes: ‘he was, in effect, being dismissed by his housemaid’). It was Margaret Thatcher herself who stiffened Howe’s faltering resolve: and when she saw Walters before the budget, as she was packing hats in the private flat at 10 Downing Street, she said, ‘You know, Alan, they may get rid of me for this. At least I shall have gone, knowing I did the right thing.’ In any case, she was sceptical, or even contemptuous, of the welfare system: ‘I asked myself how people could live in such circumstances without trying to clear up the mess and improve their surroundings. What was clearly lacking was a sense of pride and personal responsibility — something which the state can easily remove but almost never give back… television undermined common moral values… The results were a rise in crime (among young men) and illegitimacy (among young women).’ She simply thought, ‘Oh, these poor shop-keepers’ as she saw the mayhem on television. In her memoirs she rightly says of the 1981 budget, ‘I doubt that there has ever been a clearer test of two fundamentally different approaches to economic management.’ There was much anger when the budget appeared (Tory enemies heard of it only a few hours before). It was famously denounced by 364 academic economists, including the best-known names, in a letter to The Times. It was their profession’s suicide note, and economics as a subject moved substantially to the United States, where the ‘orthodoxy’, as these Keynesian views had now ossified, was seriously under challenge. In England, apart from pockets here and there in academe, interesting economics came from financial journalists, a few of whom taught at business schools (this writer will again not plead innocence: he submitted an article to The Times, suggesting that the overall atmosphere was similar to that of the last years of the Weimar Republic, and that deflationary budgets might be fatal. The editor, the brave Charles Douglas-Home, spiked it).

Far from collapsing, as these academic economists warned, the economy began to move up, headed by the Stock Exchange, in spring 1981. As 1982 began, exports recovered, and retail sales rose. Investment returned, and property prices moved up again. At least the government’s determination to deal with inflation was not, now, doubted, and that had its own effect, for confidence returned. The very clever Nigel Lawson was now at Energy, with a brief to prepare for trouble with the miners. He had devised the Medium-Term Financial Strategy, which laid out plans for budgets and monetary growth in a credible way, a more sophisticated method of presenting monetarism. It was the start of the ‘Golden Eighties’, and any economist with a sense of history ought to have known that its verities were being reasserted. There were blocks — ‘rigidities’, they had once been called — to the proper exploitation of this in an England so strongly marked by the recent past. In America, Donald Regan was saying in public that Margaret Thatcher had failed for not being radical enough, but, as she replied, in England ‘socialism’ had just made more inroads than in the USA. She had indeed had a very difficult time, but her success made the enemies more devious, and there were even modest gifts in the following budget, as the Medium-Term Financial Strategy — the money supply — was revised, to make life easier. The criticism of this was that the lady was reverting to old practices — not carrying out the serious cuts, the change in the way of life that the original Thatcherites had wanted. They began to drop away, or to lose their sense of fight. But they had had a good moment.