How Far Can Thatcher Go?

Undoing decades of British socialism isn't easy

Margaret Thatcher has been prime minister of Great Britain for just over one year, and in that time unemployment has increased to the highest level since the depression, inflation has doubled, industrial output has actually begun to fall, and interest rates are the highest ever. At the same time, opinion polls show that Margaret Thatcher is more popular now than ever before.

What that doesn't tell you, of course, is what is popular: Mrs. Thatcher herself, or her policies. In truth, the British people, who in general believe that government should be involved in their lives, are a little confused. They have a habit of judging politicians by their track records and voting for the offerings of parties seeking power to govern paternalistically. Mrs. Thatcher's cabinet, on the other hand, has been repeating ad nauseam that things are bad getting on terrible, all the while insisting that the medicine is good for us, and one day we will all look back and agree that she was right. And while the British people want to give her the benefit of the doubt, they don't actually want the outcome of giving it. Strong medicine is a painful prescription.

The strategic kernel of Mrs. Thatcher's policy is simple: bring down the growth of the money supply and so bring down inflation. If ever there were a demonstration of the practical political difficulties of pure monetarist faith, this is it. Money growth is now being held at 11-12 percent a year; inflation is just above 20 percent. That is 10 percent of strain to be taken by Britain's social and industrial fabric.

Treasury Secretary John Biffen has promised "three years of unparalleled austerity." But much of the electorate does not believe that the doctor can really be serious about going through with the treatment. There is a national hunt for the so-called U-turn, that sudden change in policy that will mean that the cure for inflation has been abandoned in the name of saving the patient.

This is undoubtedly a futile search; there can be no U-turn. Mrs. Thatcher's colors are nailed firmly to the mast. "We don't shrink from any task, we shall not stop, however hard the road," she told a recent conference, and quoting Sir Francis Drake she added, "When we endeavor any great matter, it is not the beginning of the matter but the continuing of the same until it is thoroughly finished which yieldeth great glory." For Mrs. Thatcher's "radical government," making itself credible to an incredulous electorate is a crucial task. She has already declared, however unwisely in the face of skeptics, that ending Britain's financial and industrial malaise will take precedence over winning the next election, due in 1984. There has been no doubt from the beginning of this government's term that they are looking for a renewed mandate in 1984 to complete their refurbishment of the nation's economic and spiritual soul.

TRUSTING THE DOCTOR

It is that dual refurbishment that provides the key to Mrs. Thatcher's popularity in the face of so much bad economic news. She really is a lady from the pugnacious mold of the British character that the general public feels is part of the folk heritage of what is not often called Great Britain any more. At the same time, no one can really pin her down. She is not Churchill—he smoldered and stood firm as the Cliffs of Dover in a time of war; she is a firecracker, dogged but not with mule-like stubbornness. She is not from the mold of Elizabeth Tudor—she was an imperial, hard-bitten, scheming spinster; "Maggie" is married, with two kids, openly honest, and known to be extremely nice to those whom she has time for. Her trick is perhaps to be more like the young Queen Victoria during Britain's great liberal free-trade, free-enterprise era. She remains slightly mystical, never pandering to the press, and in a way the press are still in awe of her. In her enigmatic way she has become a figurehead of morality, patriotism, and courage. Plainly presented, those virtues are much more easily understood by Common Men than the finer points of monetary economics, however often repeated.

These virtues are not just being voiced. Her government's successes in foreign policy are a result not only of diplomatic skills bearing fruit but of personal conviction driven by solidly based principle. It may seem strange to claim as a triumph a Zimbabwean settlement that installs an avowed Marxist leader; it may be confusing for the sporting public in Britain to hear their Olympic champions publicly berated for even thinking of going to Moscow while at the same time being told firmly that it is up to each individual athlete to make his own decision—but domestically these actions convince, and credibly convince, the electorate of Mrs. Thatcher's conviction in her principles and her willingness to act on her views about freedom and democracy.

The principles lie at the heart of the philosophy of the Conservative Party from which Mrs. Thatcher's administration is drawn. Her strong-headed cabinet is proving a refreshing wind in the dusty introspection of a post-empire Britain that up to now had lost its place in world events. Yet Conservative Party principles contain large doses of social paternalism. Mrs. Thatcher may privately lean toward libertarianism—her husband declares himself one—but in the public policy arena she commands, her practices are distinctly social democratic. There is no great revolution in Britain about to take place.

This too places great strains on her credibility. You cannot go on for too long harping on principles of freedom while practicing socialistic programming of aspirations.

COMPETITIVE MEDICINE

A central reason for her government's present doublethink lies in Britain's nationalized industries. The "commanding heights" of the economy, as they are known in Britain—all the public utilities, coal, oil distribution, railways, steel, aerospace, shipbuilding, health, education, some road freight, the docks, airports, post office, and telephones—and a whole string of lesser economic activities have all been under government control and ownership. So far the new government has announced plans to put British Airways (the airline) and British Aerospace (the industry) into private hands, sold some shares in British Petroleum, begun to talk about the return of the shipyards and docks to private owners, and handed back some minor elements like road freight and a few lame ducks previously held under the protective wing of the laughingly labeled National Enterprise Board set up under the previous Labor government. It has also managed to split the post office into two pieces, one for posts and one for telecommunications, and to bring a breath of competition to mail delivery.

As a result of this, the National Enterprise Board (NEB) has been left in a strange political vacuum with an even stranger mix of responsibilities. Its prize possession, Rolls Royce, the jet engine manufacturer, was quickly brought under direct control of the Department of Industry when it became clear that the chief of the NEB and the chairman of Rolls Royce were achieving spontaneous combustion at the mere thought of each other. British Leyland, too, which has been a bottomless pit for public money for years, now wants to be run by the Department of Industry. This leaves the NEB with very little. All its larger lame ducks have gone to the other sugar-daddy or have been told to learn to fly.

All that's left for the NEB is Inmos, Britain's semiconductor manufacturing "industry." Born by government fiat, it has already swallowed 25 million pounds of taxpayers' money, produced only a few prototype products, and has now become a classic case of wilting industry due to planning delay. Sir Keith Joseph, Industry secretary, visited California's "Silicon Valley" recently and seems to have been told that Inmos is bound to fail (not a surprising diagnosis from its competitors). They are right: chip inspection and component testing are still being done in Silicon Valley; most of the assembly and packaging is being done in Malaysia and Taiwan. Inmos was conceived as a job provider in the enormously depressed South Wales region of Britain; but even with the demand for employment there, it is doubtful that they will accept Malaysian wages.

The doublethink that is perpetuated stems from the mistaken belief that "something has to be done" by the government even though in fact few have any confidence in the method. It is very difficult to maintain credibility as a free-market enthusiast when you are in the process of setting up a State-financed industry. Sir Keith Joseph's department has solved this by prevaricating continuously—while looking, one hopes, for an excuse to dump the whole thing as soon as possible.

There is a growing danger that half-hearted attempts to use free enterprise will alienate the incredulous electorate even further. With respect to energy, the Thatcher government has generally been willing to let market prices prevail. Oil products and domestic gas prices have therefore been surging upward with world prices, with electricity prices not far behind. But there is no sign of any commitment to hand over any utilities to competitive private control. The public, therefore, persist in their belief that public industries are overstaffed with lazy workers and management exploiting their monopoly power and that this should be cured by more government control—advisory bodies, electricity councils, etc. All the while, the rising prices are blamed on free-market policies.

POLITICAL PAINS

The doublethink of attempting market pricing while shying away from market competition is not universal, and excuses can be made that the political pressures are far too strong to attempt a wholesale unloading of government assets. Market pricing has proved difficult enough, even where it has simply been an attempt to try to show the electorate what their services actually cost them through taxation. When charges on prescriptions for medication under the National Health Service were raised in two successive leaps, there was an outcry from both sides of the House of Commons, despite the fact that the elderly, children, and those on welfare do not pay these charges and that even at their higher level they do not actually cover any of the cost of the medicine prescribed and in many cases not even the administrative cost of processing the prescription!

An even louder outcry, and a defeat for the government in the House of Lords, happened over a plan to charge parents for busing their children to school. The objections were on principle: education shall be "free" and equally available. There was also the political weight of the inescapable fact that much of the Conservative government support comes from rural areas where "free" busing is most valuable. (Rural areas, by the way, are where most small village schools have disappeared, as governments "rationalize" schools into larger and larger units and are now paying the enormous costs of post-OPEC transport for children who previously would have walked to the village school.)

Private pricing policies properly executed would undoubtedly provide convincing examples to the most incredulous of the efficiency of the free market and its benefits, especially where consumers saw bureaucrats becoming redundant and a new flexibility in response to consumer demand undreamed of by any social planner. But the half-way house of market pricing without a free market inflicts painful medicine that does nothing to cure the underlying illness.

Within Mrs. Thatcher's cabinet there are those who have the courage of their principles. Trade Secretary John Nott was recently faced with a problem. British Caledonian, Britain's second-largest, privately owned airline had been granted the lucrative London-Hong Kong route by the government regulatory agency, the Civil Aviation Authority. Laker (Sir Freddie) and Cathay Pacific appealed directly to Secretary Nott, claiming that they should be allowed to compete on the route. Nott responded by overruling the CAA to open the route to all three. (Laker immediately offered one-way fares to the Far East for slightly over 100 pounds. Caledonian organized a demonstration in London to protest "unfair competition.")

But that sort of "open skies" policy, which may spread to all Europe's air routes soon (they are highly regulated, and the fares have become extortionately high compared with those in the United States) is relatively simple when it is between private companies. Freeing gigantic monoliths of State "enterprise" to compete in the marketplace is something quite different. There simply is not the political will for it in Britain yet. Instead, there is a touching faith in a medium-term forecast of government spending, announced in advance in good Friedmanite fashion, but with some dubious cracks. It shows the nationalized industries breaking even by 1984, while only last week British Steel Corporation announced that it would have to cease to trade unless its cash limit were increased by 400 million pounds. It also shows local authorities cutting down their spending drastically, but even now the prime industrial city of Manchester has declared itself nearly bankrupt and unable to pay its way.

THE LABOR COMPLICATION

These problems do not worry the government overmuch. There is luckily a huge cushion available for problems like this in the revenues arising from taxes and royalties on Britain's oil reserves in the North Sea. The overall strategy is to cut inflation, and to this end the real energies are expended toward the difficulties of the trade unions, particularly those in the nationalized industries. There is very little understanding in these industries that income earned should be tied in any way to product produced. This gives the preoccupation with the unions some foundation. As a result of years and years of "restructuring" (that is, government subsidy) of these industries, there has always been government money available, and it is established practice for the unions to squeeze the public purse for every concession made.

The government's solution to the trade union problem is the Employment Bill. This has huge public sympathy but rock-solid opposition within the Trades Union Congress. The bill lands in the middle between hard-line public opinion and trade union intransigence. It basically tries to curb the closed shop and to stop secondary picketing of companies not in dispute with the union.

The question is often asked whether, with inflation cured, there will be the need for trade union curbs. A plausible response is that, without inflation to keep them preoccupied, Britain's trade unions will increase their efforts to gain political power. The extent to which they seek power was in evidence when Mrs. Thatcher declared that the government would not negotiate with them—they should negotiate with their employers. The dismay that this caused trade union leaders has been watched with great amusement by many observers and on several occasions has shown up a large gulf between the wishes of union leaders and the wishes of their members. Members adhere to the maxim "more," while leaders have been found to be much more interested in power.

The industrial relations malaise in Britain has a good deal to do with distortions in the labor market arising from a large government sector, heavily unionized and able to pick the taxpayers' pockets. Pay parity between the public and private sector has been a major issue, with comparability studies making things worse. There is an intellectual commitment to egalitarianism among the union leadership, while the man in the street just wants what he knows to be his going rate. Mrs. Thatcher looks like being on the verge of throwing out the idea of comparability studies and basically acting as a proper employer with an "incomes policy" (wage guidelines) for the government sector.

Inevitably, the preoccupation with these problems diverts the government from its main task: proving to the masses that freedom and enterprise are to their benefit. And the effect on private industry of these pressures within the government's own sphere of responsibility can be imagined. Few industrialists are going to bet on the success of an announced medium-term strategy where the government's workers are being offered the alternative of small wage increases or massive layoffs. The industrialist tends to batten the hatches and wait for the explosion in that situation. No credibility there.

It's no wonder that at the moment many of the party faithful among the Conservatives are shouting wolf. Their middle-class supporters are being hurt by high interest rates, while their grassroots industrialist supporters, seeing profits whittled away, are realigning plans for production and contemplating high interest rates and exchange rates. The Confederation of British Industry has already called for selective import controls, and small business organizations are saying that there will be thousands of bankruptcies soon.

IN GUARDED CONDITION

The crunch in the cycle of monetarist policy effect has indeed arrived. Interest rates have soared, output is down, and stocks are depleted; unemployment is moving upward fast; in fact, all the pain that one expects from the cure is here. Everyone now waits to see if the treatment will work!

And if it does—if interest rates break and prices break around the same time, followed by a fairly rapid tumble in both rates, will the government assume their work done and hold off any structural measures? With high oil revenues available to pad out high government spending, the temptation will be to avoid any more denationalization. This would mean that the fundamental problems in Britain remain. The delusion that the nationalized industries are solvent and competitively productive would go on. I do not believe that the government will be able to desocialize much of the British economy, certainly in this parliamentary term. The high unemployment remaining after the monetarist cure will make it difficult to generate the political will to go against the fundamentally socialistic values of the trade union movement whose power base lies in the government sector.

Without desocialization, Britain will be forever unable to compete in world markets. Two cases make the point, showing also the attitudes that Mrs. Thatcher faces in making her programs credible.

While the worker's best friend is alternative competing employers, the trade union movement fights a battle, union member against union member, at a power station construction site. One group is fighting for monopoly power over the craft of turbine lagging in the government-owned power stations. The other group is fighting for power to get some of its members trained in that skill so that they can return to work after many months of a dispute that has cost the taxpayers more than a billion pounds. Both unions are threatening to spread their action if the government doesn't do something about the situation.

Second, the National Independent Television News service is blacked out as unions refuse to allow transmission of material produced on electronic news gathering equipment. The blacking out comes 10 years after the equipment first became available on the market. This is only one case of resistance to technology in British industry—ostensibly to save jobs, but actually in the long run preventing the creation of thousands of new ones.

And yet you can't help feeling that the chance is there to get through to the people what a free economy could mean to them. There's usually half of an understanding of the marketplace…but in some areas a real blind spot: Tom Jackson of the Union of Post Workers, in a speech to his members: "Let the public understand that if the general letter monopoly is interfered with it will be for doctrinaire reasons. The effect will be substantially to damage the general letter service. Costs will rise dramatically as the profitable large town collection and delivery service is creamed off. Prices will rise for users of the service as a whole, but the rural community will suffer most as its services become either more highly priced or cut out entirely."

It is precisely the credibility of speeches like that that Mrs. Thatcher's government has to combat. The task has begun. Late in July that very postal monopoly began to be "interfered with," as the government announced that certain types of first-class mail could henceforth be handled by competing delivery services. I have grave doubts about Margaret Thatcher's "continuing of the same until it is thoroughly finished" in all the areas it is needed. But I am sure of the "great glory" that could be yielded if she succeeds.

London-based journalist Eben Wilson was associate producer of the TV series Free to Choose. He writes and produces documentaries and dramas.