Norman Stone - The Atlantic and Its Enemies

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).