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