The Atlantic and Its Enemies

24. The Eighties

The 1980s have entered history, in much the same way as the twenties or the sixties or for that matter, before them, the fin-de-siècle nineties have done. Pinning down such things is not possible: pedantic historians can even claim that such decade moments do not exist. They do. Perhaps this is just a matter of technology: bikes, typewriters, telephones; the motor car; the Pill. The eighties were marked by the computer, or perhaps just money. However it is to be explained, there was a Wirtschaftswunder in the Atlantic world; though there was no tangible symbol, as had happened for the German original with the Volkswagen, because much of what happened, happened in cyberspace. The money translated into conspicuous consumption, often of a repulsive sort, at all levels, but all in all the 1980s deserve the name The Seven Fat Years, title of a famous book on the subject by Robert Bartley of the Wall Street Journal.

The decade began with lamentation, talk of a crisis in capitalism and of a Second (or Third) Cold War, but quite quickly, by 1982-3, things improved. The ‘Anglo-Saxons’, including Australia, were to see money in a way not experienced except maybe in the USA of the 1920s. In 1990, even taking inflation into account, the American GNP was nearly a third larger than in 1982 — equivalent to the entire German economy. Overall, the standard of living rose by close to a fifth and 18 million new jobs were filled. The output per hour of American labour — productivity — grew by 10 per cent, manufacturing grew by nearly half, and exports almost doubled. So did tax revenues. There was a British counterpart, although the ‘mix’ was very different, as manufacturing fell by roughly one quarter, and ‘services’ took its place: southern England boomed. In 1984 Ronald Reagan was re-elected, the first President since Eisenhower to have two full terms, on the basis of a ‘morning again’ campaign that took advantage of the boom, and the extraordinary confidence that came with it. He had more electoral votes than Roosevelt, and his opponent, Fritz Mondale, who stood on an old-fashioned platform of tax increases for ‘the rich’, was sunk without trace. Margaret Thatcher was similarly triumphant — three electoral victories in a row, and even, though in absentia , four. The performance was extraordinary, comparable to de Gaulle’s. It showed the British capacity for tissue regeneration, in defiance of all the self-imposed odds, and, though this may turn out to be the country’s last moment as world leader, the Thatcher government produced prototypes that were widely followed. But it was uphill work, to start with, the stage being cluttered with toxic historical furniture, with the last gunboat, and the last gasp of the industrial ‘triple alliance’ that had produced the strange death of liberal England seventy years before.

In 1982 Margaret Thatcher was under heavy attack from all sides: one of her best allies, Norman Tebbit, had it right when he said that he bore the scars of many wounds, mainly in his back. Then came an extraordinary episode, bringing modern themes together, including that of military dictatorship in Latin America. There was one such, a junta, in Argentina, the modern history of which had been one of squandered opportunities. Far from copying Pinochet, the military in Buenos Aires regarded him as a poor cousin, and cast about for ways to gain cheap popularity. A national cause of sorts existed, in a remaining British colony, the Falkland Islands, a few hundred miles from their coast. Take it over by force; the British would simply be grateful that some forlorn colonial outpost, which cost the taxpayer money, would be taken off the expense list. Relations between Argentinians and British were good; casual conversations showed that no-one in London cared about the Falklands one way or the other. Besides, British defence policy was a mess. In the later 1970s naval pay was so low that sailors had to moonlight. In 1980 there was a moratorium on defence contracts; there was absolute resistance to aircraft carriers and no-one would pay for the Falklands. On the other hand, Argentinian regimes were generally so awful that the Falklands lobbyists did not have any trouble in convincing the Left of their cause. However, the Argentinians misunderstood. They assumed that they would have American support or at least understanding. After all, the USA had become heavily involved in Central America, where Argentina’s support was needed: there was semi-clandestine military co-operation, the Americans supplying training and weaponry. In this atmosphere, taking the Falklands seemed to make sense. The American ambassadress at the United Nations, Jeane Kirkpatrick, was assumed to be influential, and she had written what was thought to be an important article — saying that the USA should tolerate lesser, banana republic authoritarian regimes.

In December 1981 a General Leopoldo Galtieri seized the dominant role in the Buenos Aires military junta, and he appeared as the ultimate in comic, circus-uniformed rulers, an ‘El Supremo’ out of Hornblower. In March 1982 he tested the waters: his troops landed on South Georgia, a remote, frozen place from which the British had conducted surveys of the Antarctic. Then, on 2 April, he invaded the Falklands. In London there was disbelief: a senior Foreign Office man caught the mood when he gasped, they cannot treat a major power in this way. Parliament was specially recalled, and was in boiling mood, a mood that even affected the left-wing Labour leader, Michael Foot. The navy was full of fight, and of course anxious to show that surface ships were still needed. Sir Henry Leach, First Sea Lord, had the qualities to persuade Margaret Thatcher that a naval force could and should be sent; he called the reductions in naval spending ‘the greatest con-trick of the century’. He also much admired Margaret Thatcher’s decisiveness and remarked, accurately, that if nothing had been done ‘we would have woken up in a different country’. She herself liked military men, whereas she tended to dismiss diplomats; she now took a great gamble. She would fight, guessing that she would have American support where needed. This was correct, and state-of-the-art Sidewinder missiles forced the Argentinian aircraft to fly low, such that many of their bombs did not explode, because the fuses had been mistimed. A British expeditionary force was put together with speed and efficiency, and embarked for a campaign, 8,000 miles away.

The fact was that British opinion had now divided, with, on the whole, educated people questioning the whole venture and, on the whole, uneducated people cheering on what the popular press called ‘our boys’. On the face of things, this was, as a German book’s title ran, ‘the absurd war’ — the last of the Royal Navy, embarking on a voyage of 8,000 miles for a nearly valueless set of islands, the inhabitants of which could, with a fraction of the cost, and greatly to their advantage, be resettled on one of the not dissimilar Scottish Hebrides. However, the Argentinian junta behaved with grotesque obstinacy, refusing American mediation, and waving aside even Latin American efforts. A proposal was made for the British ships to stop a thousand miles from the Falklands, and that was ignored (it was, in any event, unreal). An elderly battleship, the Belgrano, was first directed towards the islands, and then away from them; it was sunk on 2 May; 368 sailors drowned. Later, a great fuss was made, to the effect that it had been sunk so that Margaret Thatcher could simply ignore further attempts at mediation. Not many people believed these assertions at the time, and no-one does now. It is clear that the junta were in no mood to offer any concessions, even to common sense. War was war, and developed its own momentum, beyond the helicopter accidents hitherto seen. Two days later Sheffield was struck by an Exocet, twenty-one lives being lost. It was an old ship, with too much aluminium, and chaff, to distract the missile, was not used because the ship was broadcasting, and there were other near disasters, but, with both patience and determination, the Prime Minister was showing the generals and admirals, says Hugo Young, ‘every quality they least expected in a politician’. She also needed luck: there were large and vulnerable ships at stake, including, with some symbolism, the Queen Elizabeth II, which had been constructed in a conscious recall of the great days of Atlantic shipping. But morale was high, and the operation was professionally conducted.

On 25 April the British retook South Georgia, along with a particularly vicious Argentinian officer. The Chileans gave considerable help as well, in radar intelligence and efforts to divert Argentinian strength. The Argentinians’ chief weapon, the French-made Exocets, proved to be less deadly and accurate than expected — on three occasions they did not explode, and the Argentinian pilots were operating at the extreme end of their fuel range, so that they could not manoeuvre easily. In any case the French gave covert help to the British. On 21 May came the landings, and the shivering Argentinian conscripts were no match for professional soldiers; after three weeks, on 14 June, they surrendered, as a celebrated British journalist, Max Hastings, spear-headed the advance into Port Stanley by marching into the local pub and ordering a beer. Margaret Thatcher’s gamble had succeeded, and as her biographer writes, ‘it was an event of stunning political impact all over the world’. Quite accurately, she said, ‘we have ceased to be a nation in retreat’. The junta in Buenos Aires fell, its victims liberated in great numbers. After Margaret Thatcher’s loss of office, there was a gathering of representatives of peoples in whose liberation she had had a hand — central Europeans, Slavs, for the greater part, who each sang a national song. She was very touched and grateful when a representative also came from Argentina. She herself of course shot up in popularity at all measure: why was ‘that woman’ getting away with successes that had escaped her supposed betters? In Scotland the Secretary of State thought that it was all like a ‘Nuremberg rally’ of vulgar triumphant nationalism, and a particularly lugubrious Foreign Secretary remarked that instead of having a cavalry officer, they had ‘a corporal’. Visits by Pope John Paul II and Reagan, within weeks, became part of the picture. As she told an interviewer, rightly, ‘there was a feeling of colossal pride, of relief that we could still do the things for which we were renowned’. But in some ways it marked the high point of the Thatcher period: a courageous budget was associated with economic recovery, and the Falklands campaign with a great sea-change in international affairs.

The ‘high eighties’ were under way. At the time, only a few people sensed the breakthrough to come. Arthur Seldon of the IEA did, but academe was almost solidly refractory, and the dead hand of Edward Heath still lay upon much of the Conservative Party itself — so much so that the creative thinkers of the first Thatcherite hour tended to despair, as, returning to Downing Street from a good lunch on strategy, they were confronted by committees and devil-in-detail agendas. The election of 1983 was an easy win: as with the Democrats in the United States, the main opposition party had talked itself into a corner, had split, and anyway offered nothing more than a rerun of the later 1970s. Considerably less than half of the working classes voted Labour, which became almost a regional party, as a north-south gap opened up. There was only one Conservative seat left in Scotland — aptly, at Bearsden outside Glasgow, the northernmost outpost, once upon a time, of the Roman Empire, which was commemorated by a piece of wall and the first recorded Scottish utterance, to the effect that Rome created devastation and called it peace. That sentiment was expressed, less pithily, by its author’s descendants, as the impetus came from southern England, in the accents of which the Prime Minister spoke. And southern England boomed. This should have given prosperity to the north as well, but there were formidable difficulties, especially to do with a system of ‘social’ housing that stopped labour mobility.

Later on, Mrs Thatcher did admit that she wished she had handled some of the real, longer-term problems earlier. This was right: Britain became a country where local government, education, health and transport were sometimes lamentably behind those of other European countries. However, there was always the excuse, a perfectly fair one, that major enemies had to be disposed of first. ‘The conflict between good and evil’ was what Mrs Thatcher saw at work in British politics. Nationalized industries, an absence of competition, parasitical trade unions, inflationary finance and taxation which destroyed the most valuable habits and institutions: these had to be defeated. She had already chipped at the unions’ privileges — the right to picket had been limited, and in 1982 individuals’ rights as against their unions were greatly increased (union funds became liable for damages in the event of unlawful action). Public service strikes had occurred, and perhaps, through calculation, had been allowed to last longer than they needed to do before being settled: inconvenience or worse to the public from transport or civil service unions was a great help to the government. But early in 1984 the challenge came from what had been the most troublesome element of all, the National Union of Miners. There was some play-acting involved in this: attitudes being struck. Arthur Scargill was an extraordinary fellow, who thought that he could overthrow the Thatcher government as other miners’ leaders had defeated Heath’s. This was to mistake the enemy. The Thatcher government (in this case, Nicholas Ridley and Nigel Lawson) had made sure that there were reserve stocks of coal, for energy and heating. The police were better paid so that their loyalty could be rewarded. A sustained effort was also made to persuade the trade unions of ‘a new realism’ (the phrase used by their general secretary, Lionel Murray — characteristically in the new England, ‘Sir Len’). Some — the electricians, who understood what could be done with computers — were to be easily persuaded. Scargill, and some old-fashioned unions, had to be defeated. At the time, this appeared to be an all-important cause if England were not to sink into the ‘Third World’ status that so many people predicted for her.

Meanwhile, Scargill had said that opposition of an extra-parliamentary order was legitimate, the government not having had a majority of the vote. In characteristic apocalyptic style, he announced that ‘extra-parliamentary action will be the only course open to the working class’. What he meant was action contrary to his own union’s rule book. He could on his own authority organize a banning of overtime. He could only organize a strike by flouting rules to gain a majority, which he did, in a tradition that went back to Lenin’s own management of the Russian socialists in 1903: ‘Bolshevik’ means ‘majority’, the first, in this case, of many lies. But the government’s intelligence connections were sufficient for a rival union, based on profitable pits with the chance of substantial wages, to challenge Scargill. The Coal Board was now managed, not by comfortable upper-class appeasers of the Carrington class, but by an elderly Scots-man, Ian MacGregor, who had been brought back from America and who knew a great deal about managing such matters: he had already proved his worth at British Steel, though, there, he had had intelligent union leaders to deal with. He announced that loss-making pits would have to be closed, that a third of the miners (70,000) would have to be given compensation, and Scargill responded absurdly, as if he wanted all of his men to continue with their obsolete, filthy and dangerous jobs. He banned overtime in October 1983, and then, with ridiculously inappropriate timing, started a strike on 6 March 1984, at the end of winter. Most productive pits did not follow; attempts to picket and stop the (Nottingham) miners failed, despite a murder, because the police were firm. Scargill, with a baseball cap that went badly with this image of the last Leninist insurrection, failed to break through a police line. Then again, the power stations functioned, because stocks of coal were high, and imports, even from Poland, a supposedly Communist country, went ahead. This time round, government legal action was successful, as it had not been in 1972. In August, for instance, some of the miners took their own union to court over its failure to stage a proper strike ballot. A writ was even delivered at the Labour Party conference. Scargill tried to involve other heavy-industrial unions, the famous ‘triple alliance’ of coal, docks and railways which had been very effective with strikes in the past, back to before the First World War. The government had already managed to privatize some of the docks, and the pockets of dockers who still maintained a local monopoly were isolated and relatively powerless — as well as, in Liverpool, bereft of sense. The railwaymen were simply bought off. This time round, new technology — always an enemy of these old unions, at least if they had an unregenerate leadership — had weakened the old guard. British Steel, for instance, managed with Ro-Ro and free ports; it would no longer be held up by absurd dockland practices, which in the Heath era had involved gangs simply standing, watching other gangs do the work. There was much sentimentality as to the ‘communities’ of the miners, and efforts were made to enlist middle-class sympathies, which had mattered so much in the seventies. But in the end Scargill had a self-destructive urge, and, early in 1985, the strike crumbled. Yes, it had cost a great deal — the Coal Board had losses of over £2bn. MacGregor himself, who had been less forthright, in private, than Margaret Thatcher would have wished, was dissociated within weeks. Curiously enough (and an echo of earlier patterns) the loyalist miners and civil servants were not rewarded, getting only small pensions. It would have been fitting had they been given decorations, but the honours system in England was for appeasing enemies rather than rewarding friends. Still, the old industrial unions, which had made so much trouble for earlier governments, Labour and Conservative, had in effect been defeated.

Coal and railways were of course the old world. One of these union troubles concerned the new — at that, an immensely important part of the new: the media. The British press had been greatly respected, especially The Times, and it generally managed its affairs with genial informality that somehow, mysteriously, produced results (there was a practice of shutting the leader-writer in a room with a typewriter and two bottles of wine, which went on until one such writer was found slumped over his machine, having typed the word ‘notwithstanding’). Under William Rees-Mogg, in the later seventies, economic journalists such as Peter Jay or Tim Congdon had hard-hitting things to say. However, the paper made severe losses, and there were great economies to be made if new machinery were to be used in printing. The printers’ unions — there were three — resisted and fought each other. After vicissitudes, the newspaper was acquired by a very hard-headed Australian, Rupert Murdoch, who already owned tabloid newspapers that caused some head-shaking as to crudeness, intrusion into private lives and what was soon to be called, in America, ‘dumbing down’. When the Belgrano was sunk in the Falklands War, one headline, ‘GOTCHA’, became famous. However, Murdoch knew how to deal with people, quietly dealt with a rival union altogether, set up a building in the dock areas, which had become derelict because of the dockers’ unions’ ways, and abandoned the original building in central London overnight. The newspapers were instantly produced, by the new methods, without interruption. Early in 1986 there were battles between enraged printers and the electricians or distributors, with police support: not a day’s production was lost, and the printers’ unions came to terms (on television, Murdoch was asked what he would recommend a striking printer now to do, and said, laconically, ‘Find another job’). Some of the journalists took the printers’ part and refused to co-operate, suggesting that a Murdoch Times would betray the newspaper’s status. Others took a different view, and the editor of the Sunday Times, Andrew Neil (like MacGregor a Glaswegian), spoke for many when he took the radical Thatcherite line and advocated an Americanization of the country. Rupert Murdoch astutely used the profits from London to establish an empire all over the globe. He was much hated, but in the end was following an old media pattern: the Manchester Guardian itself had only got away with its moralizing because of the profits made by its sister newspaper, which reported the horseraces. However, here was now an empire based on mountains of debt, with mountains of profit, from media of all sorts which could make or break governments. At around the same time, in London and New York, banks moved into the same world; vast fortunes began to appear from thin air. The Reagan-Thatcher era was associated with a new economy, in which industry of the classic sort meant a degree of backwardness, much as had happened with peasant agriculture in the later nineteenth century. Brazils and Koreas metal-bashed; Turkey produced 90 per cent of the televisions sold in England, and the main road from Istanbul to Kayseri and Antep was choked with container lorries bearing goods to central Europe. London and New York plucked money out of the air.

The tidal change had much to do with technology. Its history proceeds in great leaps. In the middle of the nineteenth century, one of these had involved the railway; electricity had marked another, essentially in the early twentieth century, when it had enabled coal-poor countries such as France and Italy to acquire modern industry (aircraft and motor cars being an obvious instance in both cases). Now came another huge leap, in one view the greatest ever made — electronics, ‘information technology’. In 1980 there was a video cassette recorder in only 1 per cent of American households; by the end of the decade, in three fifths. Cable television, by then, reached half of households — earlier, 15 per cent. Turner Broadcasting survived near collapse and then, by the time of the Gulf War, had become the worldwide network, flattening the old network news programmes. Telephones in 1980 had been very basic, not much beyond the models of fifty years before. Ten years later, there was almost no limit to what they could do, including photography. The old Bell system had encountered some animosity, and in England the national telephone company, like the utilities, was widely regarded as a producer’s conspiracy against the public. Cheap long-distance transmission made for a vast change in this, and the old land-line monopolies were broken (although in some cases they managed to retain a great deal of their power). Cellular phones, fibreoptic cable, flourished, as did the fax machine, which was displacing the, also often despised, earlier methods of post offices. The biggest single item in this technological revolution was the personal computer.

In 1981 there were about 2 million such: seven years later, nearly 50 million — IBM the initial leader, followed by Apple Macintosh in 1984. By 1989 ‘a visiting Russian scientist would be impressed by the computer equipment of his American counterpart, but moved almost to tears by the computer equipment of his counterpart’s secretary’, says Robert Bartley, the Wall Street Journal’s poet in residence, and eighties consumption boomed, to the point at which American clothing or even food styles ran round the entire globe, even, at least for men, in Iran, where there was a forthrightly anti-American regime. The illustrations are endless. The basis was demand from people in new types of jobs — in the USA the participation of women went up from 51 to 57 per cent: almost 60 per cent of families had two earnings (the average family size declining somewhat, to 2.63 members) and the traditional single-earning family now accounted for one quarter of all households (as against nearly one third in 1980). One quarter of the new jobs came from business services and health care; computer and data-processing services led. Some of this followed economic first principles, as they had been established in the nineteenth century. Depression released energy from labour and capital — perhaps women belong in both categories — that had been poorly used. Interest rates, falling, enabled sharp-sighted businessmen to pay for new technology. This process, in the Atlantic world, had been delayed in the 1970s as governments tried to keep the old going — the old now including their own selves — although their unproductiveness was notorious, whether it was bureaucracy or nationalized public utilities. In the USA that process was not as strongly resisted as in western Europe, and there was a whole new breed of entrepreneur — odd, somehow ungrown-up, unappetizingly dressed and outstandingly successful when it came to the understanding of the strange new technology. Steve Jobs and Stephen Wozniak invented the first personal computer in Jobs’s garage in 1976, and their Apple I and Apple II machines beat IBM itself to market. In 1980 they issued their first public stock, brought the Macintosh onto the market in 1984, and by the end of the decade Apple was ninety-fifth in the Fortune list of 500 companies. Another genius who failed to complete his university course (Harvard) was William Gates, who started a small company in 1975 and bought a computer operating system for $50,000; it became Microsoft Disk Operating System, MS-DOS. In 1986 Microsoft raised over $60m by going public, and by 1990 it had thrown Apple and IBM into a defensive alliance: but Windows software had become so popular that a new version, DOS 5.0, sold a million copies in a month. There were other examples — Mitch Kapor, a former disk jockey and instructor in transcendental meditation (Lotus 1-2-3 in 1983, sales of nearly $700 million in 1990); Philippe Kahn, who came to Silicon Valley in 1983, used a clever ruse to persuade a trade magazine to accept an advertisement on credit, raised $150,000 of sales thereby, and set up Borland International, which, in 1991, was the third-largest supplier of personal computer software. There were many similar examples in other industries. For instance, the possibilities for genetic engineering were already clear, in 1980, when Genentech was the pioneer, raising $300m in the capital markets and, by 1984, putting its synthetic insulin in circulation, with sales of almost $500m by 1990. Frederick Smith had suggested a national overnight delivery service — Federal Express, which struggled for a decade until 1980 and then took off as an American institution, with, ten years later, sales of $7bn. There was also Tele-Communications Inc. for cable TV, with sales of $124m in 1980, $3.6bn in 1990; Turner Broadcasting had sales worth $50m in 1980, but $1.4bn — as CNN — ten years later.

There was a considerable revolution, in other words, though it also had its victims. The once great firms came under competitive pressure, and they had to cut costs — ‘downsizing’, as it was unlovably called. The largest 500 companies lost 3.5 million jobs in the eighties, General Electric, for instance, falling from 400,000 to 280,000 employees. The huge conglomerates of the 1960s started to dispose of branches that were not central; and there was a tendency towards small holding companies that simply managed the incentives for almost autonomous operating companies (of these, Kohlberg Kravis Roberts — Wall Street — was a prototype). Gone — or almost — were the days when businesses were comfortable, showing off with huge buildings and endless trotting secretaries. Many companies fell sharply — nearly half of the Fortune list of 1980 was not there by 1990. The losers quite often had merged, and there was much anger against investment bankers’ willingness to finance hostile takeover bids: the short-term results, to impress shareholders, that made their offers attractive, ran the complaint, might mean immediate asset sales that would run counter to long-term investment. But manufacturing itself did not decline, and employment in it did not decline as fast as in the Fortune list. Manufacturing still accounted for almost one quarter of the GNP. What did happen was that productivity, output per man, rose, and did so substantially. It rose at 3.6 per cent per annum and the answer was that management ‘fat’ had been cut, while there was elsewhere a burst of creative energy from the Wozniaks and Gateses (plus illegal immigrants). There was, at work here, a characteristic American quality — it had been shown during the Second World War — of rationalization and risk-taking in pursuit of profit. There was a new financial idea, venture capital. Someone had to raise the initial money for patents, lawyers, etc. for a start-up company; it was a matter of guessing which one. Governments had shown that they were not good at such things, and British mistakes in this respect had been splendidly comic — a prize, stiffly contested, going to the supersonic Concorde.

A molecular biologist, Herbert Boyer, held the patent on techniques for gene splicing. Genentech was founded by two venture capitalists, Thomas Perkins and Robert A. Swanson. By 1980 the market value of the company was $300m. In 1991 Genentech sold part to Roche Holdings for $2.1bn, and an option on the remainder at a price that would have been one hundred times Genentech’s earnings of 1989. Genetic technology is exactly the industry that central planners would love to have developed, but the bureaucracy’s record was very poor, and in the USA congressional lobbying might also have affected the result. As things were, the eighties were a demonstration that venture capital could produce much better results than ‘industrial policy’ ever did.

What caused all of this? Robert Bartley reckons that it was a direct consequence of the tax cuts, both in Great Britain and in the United States, and he cites Thomas Perkins, who was chairman not only of Genentech but also of six other, smaller concerns, and who had been at the start of Compaq and Sun Microsystems, as asserting that a tax cut ‘should make it far easier to raise funds, and it will bring the entrepreneurs forward’. In 1975 there had been only $10m of new net capital, and in 1977 $39m. In 1978, following the first tax cut, the figure was $600m, and with the Reagan tax bill of 1981 over twice this. When the tax cuts appeared in reality, in 1983, the figure quadrupled. Then, in 1986 and later, as increases in the capital gains tax came (from 20 to 33 per cent), the figures fell again, to around $2bn in 1988 and 1989. Initial public offerings, where firms first went public, showed a similar pattern — under thirty per annum from 1974 to 1978, then 103 in 1979 and 953 in 1986 (falling thereafter to 186 in 1990). The public offerings amounted to $9bn in 1972 (constant dollars) but only $142m in 1974, rising to $2bn in 1980 and $24bn in 1986. By 1988 they were back to $6bn. As for England, as John Hoskyns said, a man would have had to be mad to attempt to be any sort of entrepreneur in the 1970s, and the Thatcher governments’ tax cuts did indeed bring in much greater revenue because people worked harder and more inventively. However, there is devil in the detail, not least because some of the new ventures depended in the end on government money — in California, especially, from the largesse of the Pentagon. The other large source for venture capital was foreign, of course, especially where high technology was involved, and that also was brought about by government action, because of the way in which the dollar was managed. The world could not do without it, as the universal currency, and the Americans took what in the foreign-exchange world was known as an ‘arbitrage profit’ — the old word was ‘coinage-clipping’ — on an enormous scale. Japanese and British money flowed into the United States. ‘Deregulation’ broke down some of the internal dams.

Since the great Slump of the 1930s, government regulation in the US had followed government regulation. Banks had got themselves a bad name, and thousands collapsed, the managers running away with people’s savings, in some form or another. There always had been a dislike of money-out-of-money people in the United States: Jefferson thought, for instance, that Hamilton’s proposal for a Bank of the United States was intended to restore the monarchy; Andrew Jackson was similarly ill-disposed; William Jennings Bryan famously denounced the ‘Cross of Gold’ upon which honest farmers were said to be crucified. It was easy enough in these circumstances to make a great fuss about crooked finance, and it was no doubt true that behind every fortune lies, if not a great crime, as Balzac claimed, at least a few corner-cuttings. When things went well, these passed unnoticed. When things went badly, various highly placed money-men were found out. Regulations of a fairly stringent sort were then imposed by the Roosevelt administration to make sure that banks did not do it again: ‘the money-changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truth,’ said Roosevelt. This was not really fair. The causes of the great Slump of the 1930s went far beyond the crimes or corner-cuttings of some money-men. It was the high priests themselves who had done for the alleged ancient truths — an absurd tax increase in 1932, in mid-Slump; an absurd tariff, Smoot-Hawley, which had destroyed foreign trade in 1930; a grotesque mismanagement of the money supply and the arbitrary shutting down of 6,000 banks; a pig-headed unwillingness to value gold properly and thus provide internationally valid credit; an equally pig-headed obstinacy as regards Europeans’ paying their war debts promptly and in full, while at the same time discrimination went ahead against their exports. In such a context — it destroyed parliamentary democracy almost everywhere — the crimes of some money-men amounted to small beer. However, they caused an irresistible demand for regulation. The same happened over housing. The ‘thrifts’ took money from savers and lent it to mortgagers, i.e. borrowing short and lending long, with an easy profit margin and a foreseeable income, but through a ‘Reg Q’ which limited the interest that they could charge for mortgages. The inflation of the seventies knocked the props from the system: the existing interest rate on mortgages could not be pushed upwards to match the fall in the value of the dollar, and savers clearly would not keep money in any bank if they wanted to preserve its value — they would look for higher interest elsewhere (the bonds sold by private companies or even the government), or they would switch into gold, or something that would not go away. By 1978 the amount of money in funds tripled, to almost $10bn, and reached over $40bn the following year (and in 1982 over $235bn). In 1980 the thrifts asked for help, as they lost funds, and ‘Reg Q’ was abolished. The ‘thrifts’ were allowed to invest beyond home mortgages, even offering credit cards, and there was, later, a similar relaxation in Great Britain for the equivalent, the building societies. Bricks and mortar, greatly rising in value, offered apparently solid collateral, and pyramids of credit then built up on that basis. But such deregulation happened elsewhere, and banks became free in ways that they had not been since 1932. By 1985 there was lamentation in advanced educational institutions to the effect that economics, business schools and banks were attracting far more students than ever before. A classic of this period, Michael Lewis’s Liar’s Poker (1989), reveals the world of Salomon Brothers. He had been a graduate student at the London School of Economics, despised the concentration at his native Prince-ton on two-dimensional economics, but, almost by chance, was wafted into a world in which his starting salary was twice that of his professor, and then made cruel mock of the whole greedy and stupid business of the bond market. Tom Wolfe’s Bonfire of the Vanities remains the outstanding novel of the decade and perhaps even the half -century. He too had made his observations on the trading floor of Salomon Brothers, once a rather staid and safe Wall Street house, turned into a sort of perambulatory worldwide casino.

The money thereby let loose might well be directed towards assets held by the State — in most countries, many. Here, again, was one feature that made the Thatcher government stand out, abroad as well as at home — privatization. In the later nineteenth century, most enlightened people had wanted the essential pieces of the economy — water, railways, etc. — to be run by the State, especially if the companies running them were foreign, as was the case in, say, Russia. In old Austria, trains were stopped at the border because the company had not paid some debt or other. In England such private companies went on for longer than elsewhere, especially France, but in the course of the world wars the State moved in, and by 1979 the ‘commanding heights’ — ports, steel, aircraft, railways, etc. — had been taken over. It was now the State’s turn to experience criticism, and there were even attempts to explain theoretically (‘public choice’) why there was such truth in Nietzsche’s great line, ‘What the State has is theft; what the State says is lies.’ Why theorize? Anecdote existed, in mountains, to bear him out. Even the recipients of ‘benefit’ in Oxford went on a sort of reverse strike at the slipshod and inhuman ways in which they were paid their cash (1984). However, as any government had discovered when it came to privatization (Konrad Adenauer had tried it to a very limited extent), there were very severe difficulties. The arguments against privatization (it should really be called ‘re-privatization’) were considerable, and who would want to take over these tremendous loss-makers, with their in-built over-employment, incompetent or demoralized managers, huge debts and gigantic pensions commitments? As regards education or public health, there was also a very great political problem: the National Health Service in Great Britain, giving medical care at any level for nothing (at any rate in appearance), could hardly be reformed without patients’ having to pay something directly, as happened in, say, Spain or Sweden, but any government suggesting this would have lost the next election, or three. There was a possible halfway house, of introducing what was supposed to be ‘internal competition’, but Nigel Lawson, a chief privatizer, aptly quoted the saying that applying private sector discipline to the state sector was equivalent to painting stripes on a donkey and calling it a zebra. In time there was to be a cavalry charge of such donkeys in British higher education and the health service, but privatization, otherwise, went ahead in areas that greatly deserved it.

An element of luck supervened. The nationalized industries had no admirers, and the only arguments of substance concerned what had gone wrong: the nature of the beast? Unions? Management? Inflation? At any rate, privatization, to begin with, was just a way of raising money. Steel, coal and Leyland dominated the early agenda, as these cost taxpayers £300 each (in 1995 money). In 1982 a few small things were sold off, such as government shares in British Petroleum and the National Freight (lorry) company. Then, with Lawson as Chancellor in 1983, half of British Telecom was sold off: an enormous success, amounting to the largest equity offering in history. The shares were undervalued, and buyers had to be rationed, but they made windfall profits at the same time. One of the early charging donkeys was also a low-level loan scheme for students who would then pay low-level fees to their universities (less than their parents would have paid for a few weeks in a crèche). Bright undergraduates took the loan, bought the shares, sold them and paid off the loan at a profit. In 1984-5 assets such as railway hotels were sold off, with beneficial results, and the nationalized industries were told they might raise prices (and they even made a profit in 1989). By 1989 half of them had gone to shareholders, and 650,000 workers left state employment, nearly all with shares. As the journalist Simon Jenkins says, ‘the biggest transfer of assets out of state hands in the history of democracy’ was the sale of council housing — 1.25 million people were able to buy their dwellings from the local council, instead of paying ‘social’ rents which, though in themselves sometimes ridiculously low, represented a trap: immobility, no capital. In the ‘projects’ (the American equivalent) of a Liverpool or a Manchester, single mothers lived without cost, but also without hope. Selling off such housing was a creative step. Great Britain again became a pioneer, but again suffered for it, in that mistakes were inevitably made, which other countries, following, would know to avoid. Water, gas, Telecom, though prepared for privatization, were not groomed to expect competition — they would in effect be monopolies, and BT soon showed that it could fall behind others. Regulation was heavy-handed, and Ferdinand Mount correctly noted that the degree of regulation and public subsidy was such that what in Britain was called ‘private’ would probably have counted as ‘public’ on the Continent. The later privatization of the railways was near farcical (and Mrs Thatcher herself had always opposed the scheme, as too complicated): it would have made more sense just to concrete over the railways and substitute buses on the roads thereby acquired to a central terminal. Mobile telephones worked less well and more expensively in England than they were to do in Azerbaidjan. However, no-one really knew how privatizations should be executed; the Treasury was only interested in taking the money, and reducing the annual borrowing figure; the privatizations were rushed and the shares were undervalued. Rolls-Royce shares were nine times oversubscribed, ports thirty-four times, British Airways twenty-three times, at a cost of £25m to the taxpayer. However, this was uncharted territory, so mistakes would be made. At the least, regulation did become more open and there was an obvious gain in efficiency as against the old, dreadful, days. That managers’ salaries now reflected private sector ones of course created some adverse comment, but the overall degree of efficiency was noted later on. In the old days, nothing had worked and no-one had earned anything.

As the ‘high eighties’ went ahead, a great wave of money swept over the Atlantic world, and the outcome was a long boom — ninety-two months of growth, compared to fifty-eight in any earlier period (outside wartime, as with the Vietnam era). No recessions got in the way of the compounding of growth: 1984 was spectacular enough — almost 7 per cent growth — but the other years are remembered for the extraordinary prosperity of the Atlantic world. Geoffrey Owen, an expert on this dismal subject, shows how even the motor car industry was recovering. In 1984 Toyota and Nissan were adopted and invited, and Michael Edwardes could simply close the hopeless Merseyside plant. Jaguar was privatized, and some of the excessive manpower was at last shed, but the new models were still not much of a success (even in 1986 there were of course industrial-policy Conservatives arguing for continued support) and in the end the Japanese were brought into north-eastern England to show the way forward. Honda-Nissan insisted upon a single-union agreement, as did Toyota-Honda at Swindon. By 1997 output was 1.7 million cars and exports accounted for a million of them. The world of the sixties albatross had at last been overcome, but essentially through foreign management. By 1988 100,000 new firms were registered. As Bernard Connolly remarks, ‘the bullishness of the country’ became visible. Business investment rose by 20 per cent. The adaptation of advanced computers to financial transactions somehow catapulted London back to the centre of the world’s money, and as the bond market got under way, older divisions between deposit banks, operating on classic old-fashioned lines, and investment ones, involved in speculation, were elided. In October 1986 came an important moment, deregulation of the City, otherwise known as ‘Big Bang’, such that old-fashioned banks and stockbroking firms gave up their staid ways. Venerable (and well-run) establishments such as Lawrence, Prust were bought up by a Deutsche Bank anxious to escape from the stuffy confines of Frankfurt, where, it was said, there was a night-life, but she went to see her aunt on Tuesdays. In New York and London the money poured in, and in the British case Alan Walters himself called it a ‘miracle’, comparable with the earlier German one, for there had been steady growth since 1981, weekly earnings had risen by 14 per cent in real money between 1983 and 1987, and inflation had been held below 5 per cent.

However, as the money poured into government coffers, what next? It mattered that Margaret Thatcher was now a world figure. As with an American presidency, the possibility always existed that a British Prime Minister would escape into foreign affairs. To begin with, she had been rather contemptuous of these international gatherings — what had begun as a decent enough idea for small, informal gatherings soon degenerated into a media circus, and at meetings of the G7 the final communiqués would be drafted before the people had even met. Photographs and television images with foreign leaders were thought (mysteriously) to win votes. Besides, abroad there was sometimes adulation — none of the abuse shouted back home. Patriotism could be on display, without any sniggering. It also mattered that NATO had come under considerable pressure. In 1982 there was a great fight over the placing of intermediate-range ultra-modern missiles on European soil, and vital countries, Germany, especially, saw enormous demonstrations against this, a matter in part of KGB manipulation which Bukovsky, from Politburo documents, was able to demonstrate. In this atmosphere of the ‘Second Cold War’, as commentators called it, the transatlantic link became all-important. Margaret Thatcher took her eye off the domestic ball, and moved on to what appeared to be a much larger one, foreign affairs. Instinctively, she did not like the Foreign Office: it was too ‘European’, talking platitudes, and inclined not to be as fervently Atlantic as she was. If the Americans took a hand in anti-terrorist action, as they did in the spring of 1986 against Gaddafi in Libya, then Mrs Thatcher could follow her instincts and offer support. There had been an outburst of terrorist killings, organized from Iran or Libya or elsewhere, and at Christmas 1985 nineteen people had been killed at Vienna and Rome airports. Three British hostages were taken in the Lebanon and killed, and her view of such things was that proper retaliation should be made. It duly was, and the problem greatly lessened, though she was regarded as reckless in the usual quarters. In general, she remained forthright in her opposition to the humbug of Third World goody-goodies, Scandinavian ladies, lecturing and the like, and at the waste-of-time ‘summits’ which now proliferated she was at ‘new levels of manifest arrogance’.

Such bluntness went down well, domestically, and it was no doubt utterly deserved: the British had given away too much for membership of the Common Market and the cant of ‘North’ and ‘South’ needed to be dismissed. But there was similar and greater cant at home, and here the lady was being sidetracked. More and more, foreign affairs took over: the endless grind of domestic reform was too exhausting, and the divisions on the Right too difficult to bridge. Increasingly, too, matters European came centre-stage, generally in a cantankerous way. For a good generation the Common Market had been bumbling along, but in 1985 Margaret Thatcher herself had promoted the ‘Single European Act’, which was supposed to simplify things. It would end the hidden protection devices and stop the endless haggling over uniform standards that got in the way of trade. But, unnoticed at the time, that same Act allowed the larger countries, and of course Germany especially, to override opposition provided they could take on a lesser ally or two. This meant that in matters of some importance the British might be outvoted and yet compelled by the Europeans to go ahead. ‘Europe’ took attention that diverted and exhausted; it was also in the end destructive of constitutional ways. The British Parliament soon found itself nodding through great heaps of small-print legislation in obedience to European directives, and since Parliament had absolute power, the police were soon prosecuting people who illegally killed bats in their attics, and the absurd persecution of smokers got under way.

Deregulation, privatization, the existence of powerful computers that could be programmed to buy and sell at an advanced level, with endless manipulations of complicated IOUs (‘swaps’, ‘options’, ‘warranties’): much of it came down to mortgages on bricks and mortar, whether the Colombian embassy in Tokyo being sold to pay off the national debt, or a broom cupboard near Harrods in London being sold for £35,000. As ever in such a world (after Louis Napoleon’s Eighteenth Brumaire there was a similar bonanza with property in Paris, and even a form of unit trust) there were figures, part child, part ogre, who understood the system, made vast sums of money mainly by borrowing from people who did not, and discredited the system as a whole. There had been Armand Hammer, who had managed to make money in Stalin’s Russia, with a monopoly for the sale of pencils made on a German model, just as every child in the USSR needed a pencil for the expansion of schooling — Stalin ended this in 1929, but Hammer was allowed, in compensation, to take two waggon-loads of icons and art, confiscated from the original owners, out of the country; he set up shop in Park Avenue, used the profits to buy oil in the early 1930s, when its price was very low, and then boomed: at the end of his life, while watching cricket at Lord’s with the Prince of Wales, he was harassing his sister-in-law for the $15,000 that he had lent to his much less successful brother for a life-saving operation which had failed. There was Robert Maxwell, fraud to the core, claiming to be a Czech, but in effect Hungarian (he had been born in what had been north-eastern Hungary, and cut his teeth, financially, on cross-border smuggling). He survived by doing his own people out of their retirement fund, and died by drowning, probably suicide, in circumstances that were never cleared up. In the USA ‘junk bonds’ created fortunes and led to discredit of the whole system. These involved a real risk, being bonds raised against the possibility of taking over, via the stock exchange, some firm or other, allegedly badly managed and overextended. In 1980 such bonds raised $5bn, but by 1986 almost $50bn, falling back to around $35bn thereafter. Their chief architect, Michael Milken, made himself vastly unpopular and eventually was imprisoned (though on a lesser offence). He financed Turner Broadcasting and many other well-known, now well-established, concerns, and two thirds of the ‘junk bond’ money went quite productively into such corporate growth, not into the spectacular takeovers. It was all, in the end, brought about as a consequence of the seventies inflation, and the distortion that that had produced, but there was a great deal of head-shaking. Economists stuck in the Left could be waved aside. Those on the Right, with views as to probity, not so, and the best were worried. In the mid-1980s Tim Congdon wrote in warning against what was happening, and was followed a decade later by Peter Warburton. They were proven right, but only a decade later, in 2008, when the bubble appeared to collapse, and trillions disappeared, the exports of Japan (at this moment of writing) dropping a quarter in a month (January 2009). But such works appeared in the 1980s to be wolf-crying. Michael Milken might be led off, to boos, in handcuffs. But a far greater drama was going ahead elsewhere: Moscow and Peking had noticed what was happening.