Thatcher's disastrous legacy

...The core of the government's policy since late 1990 was membership in the European Community's currency system, the Exchange Rate Mechanism (ERM...

...Labour has to face the fact that the Conservatives have ruled (either singly or in coalition) for fifty out of the last seventy-five years...

...Britain has lost whole industrial sectors and its remaining industries are heavily dependent on the import of components and semimanufacturers...

...Well-heeled shoppers in London's plush Mayfair district applauded the massive (250,000 plus) union-sponsored demonstration against the closures...

...It achieved the latter, but did so by so damaging the real economy that it undermined the long-run stability of the exchange rate...

...Currently about 1.3 million households owe more on their mortgages than their properties are worth on the market...

...The inevitable result will be a tendency for living standards to fall relative to those of our competitors...

...The first of their failures was in macro-economic management...

...In late March the government attempted to buy off its own rebels with a two-year subsidy that may save twelve mines...

...The need for constitutional reforms has now become a central political issue...

...The severe recessions of 1979-83 and the early 1990s have led to a loss of a substantial part of Britain's manufacturing capacity...

...A tiny part of the electorate decides the result...

...The only way that Britain's structural trade deficit can be sustained is by attracting short-term foreign capital...

...Likewise, promoting the construction industry through public works and public housing would rapidly boost employment, because it is still a labor-intensive industry and mainly sourced by British products...

...Britain devalued by some 20 to 25 percent...

...The only options are for taxes to rise and public services to be cut, both of which would have severe deflationary consequences...

...Local councils have become centrally policed and funded service-delivery agencies without real fiscal or policy autonomy...

...Sustained recovery needs both, and without recovery the constraints on public expenditure cannot be overcome—growth means higher tax returns and lower social security payments...

...It has fallen to her successor, John Major, to inherit the crisis created by Conservative policy...

...The one authority that did not attempt major alternative economic policies, the Greater London Council, was abolished by Thatcher in 1986...

...In 1978 a senior Conservative, Lord Hailsham, called Britain's system of government an "elective dictatorship...

...Having a majority of only twenty seats, the government had become vulnerable to its own antiEuropean rebels...

...The result has been a succession of legislative measures and executive actions that undermine fundamental human rights...

...The new private companies rapidly committed themselves to a long-term contract that substituted natural gas for coal...

...A modest recovery of consumer confidence will not lead to sustained growth...

...It is certainly ahead in the polls, but it has no reason to be optimistic about its own capacity either to win the next election or to govern effectively if it did so...

...By the end of the 1990s Britain will be part of the poorest third of the European Community...

...The defects of Britain's non-Constitution long predated Thatcher...

...However, such a stimulus and a wider stimulus to the private sector through job subsidies to employers would only be sustainable if the tendency of British wages to rise faster than either prices or productivity could be checked...

...I could extend this list greatly, but one more example will emphasize Britain's lack of effective protections for rights...

...In the later 1980s it was overtaken in GDP (Gross Domestic Product) per capita by Italy...

...Income redistribution would have a similar effect to tariffs, since the poorest spend more of their income on UK products...

...It was Major, then Chancellor of the Exchequer, who persuaded Thatcher in the autumn of 1990 to abandon her long-held opposition to ERM membership and to go in at 2.95 DM...

...Britain's current economic problems are structural more than cyclical...

...There are strategies for economic recovery, but these involve costs for important interests closely connected with the major parties...

...This is what happened in 1974-79...

...This blunder cost the UK some £5 billion...

...Major and his bumbling chancellor, Norman Lamont, stubbornly refused to do so...

...Britain needs both major economic revitalization and a thoroughgoing political reform if it is to remain an advanced industrial country and not join a Fourth World of impoverished ex-industrial states...

...Already there are the beginnings of serious unemployment in hitherto immune areas such as banking...

...He thus saddled the Conservatives with governing in a period when the accumulated results of their thirteen years of misrule became inescapable...

...A state in which an entire level of government can be abolished on a whim of the Prime Minister has no effective constitutional safeguards...

...It has been consuming too high a proportion of national income and investing too little in productive capacity...

...The aim of this policy was to promote monetary stability and to reduce inflation...

...It took Neil Kinnock six years to reshape Labour as a party fit to survive...

...In 1973, despite the relative industrial decline, it was still in the top third, roughly comparable to France and 288 • DISSENT West Germany...

...Public opinion increasingly despairs of what government can deliver at a time when the country needs effective action to tackle the slump and assist the revitalization of manufacturing industry...

...Now it seems clear that Britain has no Constitution at all...

...The unions and Labour refuse to contemplate an incomes policy...

...Not only has Britain's economy suffered under the Conservatives, its political system has been damaged by a long period of arrogant and authoritarian government...

...Britain has no domestic Bill of Rights...

...But it is also the result of economic failure, and the growing dissatisfaction of key sections of business and the thinking right with a form of government that fails to produce competence and continuity in policy...

...Even as it was squandering Britain's foreign exchange reserves, the government committed itself to closing thirty-one coal mines, or about 60 percent of Britain's remaining capacity...

...It has virtually wrecked the ERM in doing so, and helped to set back the European Community's program of monetary union...

...Even the Tory shires were moved to violent anger, and MPs like Winston Churchill (nephew of the wartime leader) went into open revolt...

...An unelectable opposition is thus a contradiction in terms...

...In order to function, Britain's system of Parliamentary government requires roughly evenly matched opposition...

...The country will then face a period in which a significant and rising portion of public revenue is mortgaged to service the debt...

...Some Conservatives would have liked to leave a weak minority Labour government to bear the consequences of the hard decisions that need to be made, and then to fall, leaving the right to return in triumph...

...In April 1992 Labour lost because of its plans to raise taxes on higher and middle incomes, and the ruthless distortion of those plans by the Conservative-owned press...

...Britain's first-past-the-post electoral system means that the result is decided by marginal constituencies, of which there are only about 100 (out of 650), and by switch voters in those constituencies...

...The housing market is in crisis, with a massive slump in values since the peak of the boom in 1989...

...The Constitution is merely what politicians do and can persuade the public to accept...

...When asked which of the major parties has the greatest economic competence, more people respond with either "don't know" or "no party" than endorse the two of them together...

...Britain's growth rate in the 1980s was actually below the long-term rate in the 1950s and 1960s, itself low by the standards of Germany and France...

...If one had proposed this scenario in 1945, Britons would have fallen about laughing...

...Britain has lost competitive advantage because its public infrastructure is in such bad shape and because of the vir290 • DISSENT tual absence of the regional and local provision of collective services to industry...

...We are back to the 1930s again...

...This contract will make Britain dependent on imported gas in the twenty-first century, even though it has vast coal reserves...

...The Conservatives have driven the country to the edge of ruin, yet Labour and the Liberal Democrats have been unable either effectively to oppose them in Parliament or to supplant them electorally...

...Clarke as education and then health secretary has driven through unpopular policies on educational reorganization and National Health Service reform in the face of informed criticism and reasoned resistance...

...Hitherto centralized states such as France and Spain have made determined efforts to build up independent regional governments, and Germany has long been a federal state...

...The 1980s registered massive expansions of capacity in financial services, commercial property, and the retail sector...

...Both opposition parties need to do some major rethinking if Britain is to have a change of government...

...Economic failure and elective "dictatorship" are not unconnected...

...But higher income earners and the Conservatives reject higher direct taxes...

...Bluntly put, Britain's manufacturing sector is about 25 percent too small for the country's living standards...

...So far the party system has failed to deliver the means to accomplish this...

...This was set at a target rate of 2.95 Deutsch marks (DM) to the pound...

...Despite diluting the treaty by obstructive bargaining and gaining exemption from key parts of it, Major could not convince the anti-European fringe of his own party that further European integration was acceptable on any terms...

...The current trade deficit is running at about £12+ billion per annum...

...In the 1980s industrial output increased substantially in most advanced industrial countries, whereas in Britain manufacturing output in 1987 had only returned to the level of 1979, and it is currently only 8 percent above 1979 levels...

...Thatcher's economic miracle has turned out to be a catastrophe...

...That was a carefully contrived illusion, and for a while it was given the semblance of reality by the irresponsible policies that produced the credit-fueled boom of the mid-1980s...

...It used to be said that Britain had an unwritten Constitution...

...It dare not substantially reflate the economy, yet it cannot stand still, for continued recession will destroy its own finances...

...The only answer, if higher taxes are ruled out, is to cut welfare benefits and public-sector pay...

...Previously many Britons had been satisfied with the traditional windy rhetoric about the "oldest continuous system of parliamentary government" and the "Mother of Parliaments...

...Major won the April 1992 general election with a majority of twenty MPs, against the expectations of informed opinion...

...To put it in old-fashioned language, the country has been living beyond its means...

...A government that can restore the reputation of miners' leader Arthur Scargill, defeated by Thatcher in the prolonged and bitter miners' strike of 1984-85, is clearly in dire trouble...

...Her successor and his cronies, like Kenneth Clarke, have made mulish stupidity a test of political virtue...

...What may spur them to do so is that it is now obvious to the public as a whole that Conservative rule is a road to disaster...

...The shortsightedness of this measure was so staggering that it caused a wave of revulsion throughout the country...

...In the 1980s Britain's growth depended on an unsustainable expansion of consumer credit, on a hyper-inflating housing market, on inflationary wage rises, and on cuts in direct taxation sustained by oil revenues and receipts from privatization...

...This chaotic government is now widely despised, not merely by opponents but by many previous supporters in business and the media...

...The government is unlikely to fall, but it is almost certain to drift...

...The Major administration persisted at SUMMER • 1993 • 287 first in defending the indefensible, that is, a suicidally over-valued currency that was wrecking domestic employment and output in manufacturing...

...It refused to sign the Social Charter, a package designed to ensure common employee rights and standards of social provision in the European Community, and opted out of the goal of rapid progress toward a single European Community currency...

...The government abandoned its sole policy for national economic management, but Lamont refused to resign, and Major feebly tried to blame the Germans...

...There was no effective means to check these policies because for a crucial period Labour was committing electoral suicide and was in danger of falling to the hard left...

...Since 1979 Britain has been governed by a party with a minority of the vote (43 percent) but a majority of parliamentary seats...

...It was left to Thatcher finally to overthrow the unwritten conventions that tempered the government's powers and to make conviction politics and pure political will a basis for governing...

...Increasing direct taxes on higher income earners would raise revenue, but it SUMMER • 1993 • 289 would also reduce their disposable incomes so that they would have less to spend on imported goods...

...Public frustration at economic failure is at an unprecedented level, but Britain's electoral system makes radical policies that hurt key minorities into dangerous vote losers...

...The Maastricht Bill is unlikely to be ratified before the summer and Britain is now seen in Europe as not really committed to the Community...

...Yet it has taken fourteen years for the Labour party to get to the point of making a serious decision about proportional representation, and that decision is still in doubt...

...So far they have got neither competence nor stability...

...No government in modern British history has so quickly created an impression of utter incompetence as has Major's administration...

...In late August 1992 it was obvious to virtually everyone that Britain had to devalue or face ruin...

...Yet even this short-term expedient may prove impossible if sterling becomes perceived as a weak and volatile currency, which is likely...

...Judges are virtually powerless in the face of a specific statute or in regard to the exercise of the prerogative powers of the Crown...

...Britain had an effective democracy when it had a working two-party system...

...The Conservatives have followed dogmatic, extreme, and unworkable policies both in macroeconomic management and the restructuring of the public sector...

...The household sector is burdened with unprecedented levels of personal indebtedness...

...This has been the result of campaigning by the constitutional reform movement Charter 88, formed at the height of Thatcher's power, and other organizations...

...Services experienced a major investment boom...

...The Constitution became a political issue under her and her lackluster successor because with them potentially authoritarian institutions have been exploited in an authoritarian style...

...Hailsham feared partisan left Labour rule...

...Yet, by contrast, in the European Community regional government has emerged as a key source of economic regulation and support for industry...

...Under the ERM Britain has suffered its worst slump since the 1930s and a major devaluation...

...Labour committed itself late in 1992 to opposing the passage of the bill incorporating the relevant parts of the treaty into UK law...

...Lamont spurned a German offer to realign the currencies within the ERM...

...An over-long period of Conservative short-termism, promotion of easy credit, and tax cuts for the rich have left the government boxed in on macroeconomic policy...

...The country now has to face the fact that it has to resort to widespread civil disobedience, as happened with the poll tax, or suborning a faction of rebellious Tory MPs in order to check government policies opposed by over 80 percent of the population, as with the mine closures...

...Then the only option will be to raise interest rates to attract foreign rentiers...

...But such rates will cripple manufacturing investment and, therefore, long-term economic performance...

...This promoted speculation that the value of the pound would fall and led to uncontrollable volatility in the money markets...

...Britain was then forced to devalue and leave the ERM on Black Wednesday (Sept 16, 1992), when the tide of selling finally threatened to exhaust the government's foreign currency reserves...

...This may work, but the fiasco over the mines has undermined the government's credibility...

...Major has created the impression that he is so inflexible he cannot do a deal with the opposition parties to get the treaty through and so weak that he cannot control his own rebellious MPs...

...This in itself is deflationary and imposes the burden of adjustment on the poorest...

...The current recession, unlike the one of the early 1980s, has been particularly severe in the south of the country and in white-collar unemployment...

...With three million unemployed (about 11 percent of the labor force), public expenditures on social security have rocketed and tax receipts fallen...

...A short-term recovery in consumer confidence will be shallow and easily reversed...

...It appears virtually impossible, therefore, to reflate the economy by further deficit financing and impossible to reduce unemployment or address fundamental deficiencies in infrastructure by strategic public investment...

...Thatcher has wrecked local government, and her successor has continued the policy that has converted Britain into the most centralized state in the advanced industrial world...

...Soon it will be overtaken by Spain...

...The Prevention of Terrorism Act is virtually useless against the Irish Republican Army, but permits the practice of internal exile, sending UK citizens back to Northern Ireland against their will...

...Margaret Thatcher managed to persuade the world at large, and conventional opinion in the United States, that her government had engineered the economic recovery and social transformation of Britain...

...Nearly 60 percent of the electorate has not voted for Tory rule...

...For once the Conservatives have inherited an economic crisis of their own making...

...The UK has had more judgments against it in the European Court in cases brought by its own citizens under the European Convention on Human Rights than any other signatory state...

...A government whose core wisdom was "You cannot buck the market" refused to listen to the markets and blamed the weakness of sterling on "speculators...

...The state is currently borrowing about £50 billion a year to finance government expenditure, and by 1996 the level of public borrowing will approach about 8 percent of GDP...

...Major and Lamont have become figures of fun...

...Politicians are increasingly regarded with contempt, as dishonest, second-rate careerists...

...This implies an incomes policy to allow an expansionary stimulus to be reflected in growing employment rather than in the increased wages of the employed...

...They voted for competent economic management in the face of a severe recession, and for political stability instead of the dangers of a hung Parliament with no majority...

...Many voters in 1992 seem to have decided at the last minute to play safe and switch back to the Tories...

...Its crass errors were by no means at an end with the mine closures...

...The danger is that this is a sign the public may be turning against the political process...

...This decision was a direct consequence of the government's ill-considered privatization of the nationalized electricity supply industry...

...Whitehall and unelected quasigovernmental agencies have unprecedented and unaccountable power in fields as diverse as education and inner-city regeneration...

...Thus, for example, Britain's labor laws are regarded as below accepted international standards by the UN's International Labor Organization...

...The freedoms of peaceful protest have been eroded by several pieces of legislation, most notably the Public Order Act of 1986...

...Britain has a strong propensity to wage inflation that is being moderated only by the exceptional severity of the recession...

...In later 1991 Britain had negotiated its own version of the Maastricht Treaty on further European union...

...He was pointing to such facts as the ability of the ruling party to make what laws it pleases without constitutional or judicial check if it has a majority in Parliament...

...The elected "dictators" feared they would be defeated by the opposition at the next election and moderated their policies accordingly...

...It had antagonized the pro-European Labour party by rejecting the Social Charter...

...Britain's manufacturing sector is in far worse shape than that of the USA, and its poor performance has led to an inbuilt tendency to a chronic deficit in the balance of trade...

...But this growth was unsustainable once the consumer boom burst and left the country with about 25 percent surplus capacity in these sectors relative to real economic performance...

...In these circumstances, the Labour party should be triumphant...

...Britain had no shortage of capital, rather it was misapplied by distorted market-driven priorities in investment...