How Thatcher Defeated Mitterrand
Lessons from the late prime minister's decisive victory in the war of economic ideas.
As far as lousy years go, 1979 ranks right down there with the terror-mangled annus horribulus of 2001 and the Nixonian nadir of 1973.
The calendar of woe began with the January-February Islamic revolution in Iran, ushering in the modern global era of atavistic Muslim theocracy. On Iran's west flank, Saddam Hussein formally consolidated his power that July with a brutal televised witch hunt of accused spies within his government. To its east in December, the Soviet Union invaded Afghanistan.
The United States was embroiled in all of these unhappy spasms of violence. The revolution (which deposed a CIA-installed shah, who then was controversially welcomed into U.S. exile) triggered an oil shock, producing long gas lines and every-other-day rationing. The revolutionaries took 53 Americans hostage at the U.S. embassy in Tehran, plunging the remainder of Carter's presidency into impotent despair. Washington funded the anti-Soviet (and pro-theocratic) Mujahedeen in Afghanistan, and organized a buzz-killing boycott of the 1980 Summer Olympics in Moscow.
And if anything, the news on the economic front was worse. Inflation in the U.S., which had been the number one public policy concern of Americans in every annual Gallup poll since 1973, zoomed north of 11 percent. GDP growth began plunging, from 6.5 percent in the first quarter of '79 to 1.3 percent in the fourth, and unemployment increased throughout the year.
Similar stories were being told throughout the Western world: over 10 percent inflation in France, 13 percent in the United Kingdom, 14 percent in Italy, 15 percent in Spain, 19 percent in Greece. England, which had just suffered through a 1978–79 "Winter of Discontent" featuring widespread public-sector strikes and rage against inflation, had grown accustomed to being described as "the sick man in Europe" at a time when Europe itself didn't seem so healthy.
One reason that Jimmy Carter's "malaise" speech of July 1979 (which actually never used that term) is so enduringly famous is that it so perfectly encapsulated the West's sapped morale. "The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America," Carter warned. "For the first time in the history of our country a majority of our people believe that the next five years will be worse than the past five years."
And yet people didn't believe anything of the sort five years later, and five years after that humanity experienced arguably the most liberating year in the history of the species. What happened? Another event from 1979: the election of Margaret Thatcher as prime minister of the U.K. That, and François Mitterrand's election two years later as president of France.
We don't normally associate the imperious French Socialist Party leader with steering the West out of its doldrums, and for good reason. Mitterrand reacted to economic malaise with a nationalization rampage, gobbling up formerly private banks, French multinationals, and strategically "sensitive" industrial giants.
As Milton Friedman pointed out in a 1983 Newsweek column, "Thatcher reduced taxes; Mitterrand increased them. Thatcher reduced controls over prices and wages; Mitterrand expanded them. Thatcher eliminated foreign-exchange controls; Mitterrand made them tighter. Thatcher moved to…reduce regulation, Mitterrand…increased government intervention into the remaining private enterprise. Thatcher tried to hold down government spending, albeit with little success; Mitterrand went on a spending binge."
So how did the statist Frenchman help revive the capitalist side of the Cold War? Easy: by failing. Friedman again: "Had the Mitterrand policies succeeded, even if for only a year or so, Thatcher's opposition in Britain would have been enormously strengthened. The Labor Party would have had a real alternative to offer—one that was consistent with its ideological propensities and that had worked on the other side of the Channel. The cry that Thatcher's 'monetarism' was a tragic failure could not have been dismissed as mere campaign rhetoric."
Instead, Mitterrand's economic prescriptions proved so disastrous, particularly in the wake of the Anglo-American success in taming inflation, that he began reversing course as soon as 1983. And after his Socialist Party took a drubbing in 1986, he mounted only token presidential opposition when Gaullist Prime Minister Jacque Chirac went on a Thatcher-inspired five-year privatization spree. This coincided precisely with France's biggest five-year economic growth spurt of the past 35 years.
As CNN Money's Shawn Tully observed in 2010, "Mitterrand didn't switch course because of a sudden change in ideology. He did it chiefly to ensure his political survival."
He wasn't alone. Beginning in the late 1980s and then gathering to historic speed in the 1990s, the socialistic democracies of Western Europe systematically divested government from airlines, car companies, broadcast spectrum, and on and on. Here Thatcher also played an oft-overlooked diplomatic role, pushing the European Single Market in a 1986 treaty to make further integration contingent on a massive, continent-wide deregulation. (She would come to regret how the treaty helped create an unaccountable bureaucracy centralized in Brussels, but the historically ironic fact is that the modern E.U. was built on architecture partly designed by one of world's most famous euroskeptics.)
Thatcher's working model of privatization and contracting out services was based in part on work done right here at reason. Robert Poole, our longtime editor in the 1970s, produced a small book in 1976 titled Cut Local Taxes—Without Reducing Essential Services. Thatcher advisor John Blundell imported a few copies of Poole's work, brought them to the attention of rising conservative policymaking star Michael Forsyth, and then (according to Blundell's recent retelling at reason.com) "contracting out spread like a really bad disease (though in this case, the infection produced good results)."
By creating a working model that could be contrasted to both the economic failures of Mitterrandism and the total human calamity of communism, Thatcher and her friend Ronald Reagan provided the only basic blue-print available to nascent democracies escaping the yoke of the Soviet Union. There were no "Mitterrandites" taking the reins of post-communist economies. But there were plenty of Thatcherites, ready to use privatization as the essential tool to both economic vigor and human freedom.
When recalling the turning point of 1979, you can't help thinking at least a bit about our most recent catastrophic year, the global economic sucker punch of 2008. Within just five years of 1979, the English and American economies were steaming ahead and the long-dominant Keynesians—such as the 364 British economists who penned a joint letter in March 1981 asserting indignantly that "There is no basis in economic theory or supporting evidence for the Government's belief that by deflating demand they will bring inflation permanently under control and thereby induce an automatic recovery in output and employment"—were on the intellectual run, scrambling to catch up to a much more interesting world that had gleefully passed them by.
Now? We're five years into a largely Keynesian response to the financial crisis, and it sure isn't morning in America or just about anywhere else, at least outside of the Baltics (which cut back government expenditure far more than any other region of Europe, and are now leading the continent in GDP growth).
Margaret Thatcher, like almost all of the late–Cold War generation of larger-than-life politicians, mixed keen insight and political bravery with massive blind spots and errors, including a grotesque soft spot for the Chilean dictator Augusto Pinochet. But in discrediting the socialism of Mitterrand in both word and deed, at a moment when the future looked far from certain, she left behind a valuable lesson about the intersection of economics and politics.
As the lady put it, "First you win the argument, then you win the vote." Time to start winning some arguments.