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To reform in order to preserve

What is Thatcherism?

Thatcher at the Conservative Party conference.

Sometimes it is said that Margaret Thatcher was not a true conservative. But I believe she was a conservative liberal...

Even if the term ‘neoliberalism’ is mainly used by its opponents, I see no reason to avoid it. I have nothing against using it about the international movement which arose in the last two decades of the twentieth century, led by two politicians, President Ronald Reagan in the United States and Prime Minister Margaret Thatcher in the United Kingdom, and inspired by two political thinkers, the Anglo-Austrian philosopher Friedrich August von Hayek and the American economist Milton Friedman. I also think the critics of neoliberalism are right in that its political programme can be described as not only a massive effort to transfer decisions from the state to the market, but also as the attempt to take over the state and to use its powers for neoliberal purposes. Where I would, as a neoliberal, part company with the critics would be in that I would regard this as neither anti-democratic nor inconsistent with other planks in the neoliberal programme. This is particularly relevant in discussions about a particular branch of neoliberalism, Thatcherism, a political position which favours both a strong state, albeit a limited one, and the free market, and which is at the same time conservative and liberal.

Neoliberalism is not anti-democratic

The reason why critics of neoliberalism regard it as anti-democratic is that they use democracy in a certain sense: briefly, that it means government  by the people (and also, to quote Lincoln, for the people, and of the people). If the state is governed by the people, the reasoning goes, then it is not democratic to try and transfer some of its powers to the market. It is then being transferred from the people. But this is implausible, for several reasons. The people do not exist as a single agent with a definite will. They are separate individuals with different and often incompatible ends. Some of those ends they can pursue privately: if you want a red shirt you buy it, and if I want a blue shirt I buy it. It would be unreasonable to vote on such an issue, forcing everybody who wants blue shirts to wear instead red shirts, just because there was a majority for it. The main task of government, it would seem, is to enable the separate individuals who together constitute the public to pursue their different and often incompatible ends without violence.  

It is true that individuals cannot satisfy all their needs in private transactions on the market. Some things they have to do collectively, as a whole, such as providing defence and law and order, to mention two examples of what economists call public goods. Therefore government is necessary: it has to ensure that such goods are produced although it does not need to do so itself. For example, even if it is assumed that basic education is a public good which may or may not be true, it does not follow that government has to run all the schools. Instead, it could reimburse parents for school fees, or distribute vouchers to them. Be that as it may, when we accept the need for government we encounter the problem to whom to entrust its powers and how to constrain them so that they do not abuse those powers. Democracy is an answer to that question: We regularly elect our representatives, and if and when we are dissatisfied with them, we replace them with others. Thus, government is not, and could never be, government by the people. It is rather, as Anglo-Austrian philosopher Karl Popper argues, a method of changing our rulers without bloodshed if we are not satisfied with them. Put bluntly: the main benefit of democracy is that under it we can get rid of our rulers without having to shoot them.

The idea that it is somehow anti-democratic to try and transfer decisions from the state to the market is therefore based on an erroneous meaning of democracy. It is also based on a misunderstanding of the market. This is not an entity, a force, or an agent which would receive those powers which would be removed from government agencies. The free market is simply the way in which free individuals resolve most of their affairs. When decisions are transferred to the free market, they are being transferred to individuals, to taxpayers and consumers. Thatcher’s intellectual mentors, Hayek and Friedman, presented many plausible arguments to the effect that such individuals would on the whole tend to make more sensible decisions than officials and politicians located inside huge, non-transparent bureaucracies. One argument is of course that of incentives: You work harder for yourself than for others. But the strongest argument is that of information: Since knowledge is dispersed among the individual actors in the economy, the ability to make decisions should also be dispersed to them as much as possible. Decentralised knowledge requires decentralised decision-making.

Thatcherism: removing obstacles to spontaneous growth

Thus, Thatcherism did not become anti-democratic by being pro-capitalistic. But was it inconsistent in that it purported to be conservative whereas it was in fact radical? Was Thatcher not a Gladstonian liberal rather than a typical high Tory? In a criticism of Hayek, the English conservative philosopher Michael Oakeshott famously remarked that a plan to resist all planning might be better than its opposite, but that it belonged to the same school of thought, rationalism, the energetic attempt to reconstruct society in accordance with some principles. But here Oakeshott is not right. In his works, Hayek did not present a plan to resist all planning. His reform proposals were mainly about removing the many barriers to private transactions erected by government and hindering the free and spontaneous development of the economy and of society in general.

Thatcher’s economic programme was in essence the same as Hayek’s: to remove barriers to the spontaneous development of the economy, including breaking up monopolies, not only in heavy industry, but also on the labour market. I was a student at Oxford in the earlier Thatcher years, and once one of my teachers, Ronald Dworkin, criticised her in a lecture for having increased unemployment. I raised my hand. Dworkin smiled and paused. I said: ‘But is unemployment not really that some services find no buyers on the market? Would this not be solved in the long run by adjustments in prices? Isn’t what is needed a more flexible labour market?’ Dworkin smiled even more broadly and replied: ‘But the problem is the long run. Of course eventually the market is going to adjust to new conditions. But here the long run is simply too long.’ It so happened that shortly after this exchange unemployment in the United Kingdom started to go down. Thatcher’s reforms were bearing fruit. Moreover, Thatcher did not really increase unemployment. She rather revealed the unemployment which already existed: it consisted in overmanning, for example in operating unfeasible coal mines or steel plants.  

Left-wing economists at Cambridge University have published a much-quoted paper where they point out that in fact Thatcher did not reduce the size of government: the total value of central government receipts was 30.4 per cent of GDP in 1979; by 1990, this proportion had risen to 30.9 per cent. But Thatcher’s main achievement was precisely to stop the expansion of the state, hitherto thought by many to be irresistable. The Cambridge economists also stress that economic growth was no faster under Thatcher than in certain selected previous periods. But what was crucial was that Thatcher reversed Great Britain’s decline relative to other major European countries. Her country saw sustained economic growth from 1982 to 2008 (with the exception of two years). In this period the economy grew faster and performed better than comparable economies, those of the United States, Germany, and France.

Burke: to reform in order to preserve

It is true that Thatcher’s government made some sweeping changes in the economy. But these changes were about returning to ordinary working people their hard-earned income and about extending choice. It was about removing obstacles to spontaneous evolution, not about forcing all to march in one direction. None other than Edmund Burke, widely regarded as a founding father of conservatism, had written: ‘A state without the means of some change is without the means of its conservation. Without such means it might even risque the loss of that part of the constitution which it wished the most religiously to preserve.’ What Thatcher did was to reform in order to preserve. She wanted to defend the traditional liberties of the British people, gradually eroded for almost a century. For this she needed a strong state which was able to protect those liberties against militant monopolists such as Arthur Scargill of the National Union of Miners and against foreign aggressors such as Leopoldo Galtieri of the military junta in Argentina.

As a conservative liberal, or a neoliberal if you will, I do not regard the state with the same hostility as some radical liberals, or libertarians. In addition to being an indispensable provider of public goods, the state is an embodiment or expression of the will of a community to stay together, and thus it has the task of preserving the identity of the community in question, including its language, culture, and national symbols. The Norwegians established their own state in 1905 because they were Norwegians, not Swedes. The Icelanders established their own state in 1918 because they were Icelanders, not Danes. Similar considerations apply to the many relatively new states in Central and Eastern Europe. But while the state has to be strong, it should also be limited. The abuse of power is the greatest threat to a traditional way of life. The state as Leviathan is the most dangerous enemy of conservative virtues. Indeed, which of the good, old virtues could be practised in a society transformed into a gigantic nursery, a nanny state? Thatcher’s vision of a strong but limited state securely based on a free market, shared by her close friend and faithful ally Reagan, greatly contributed to the victory of the West in the Cold War. She was a true conservative liberal: conservative in her patriotism and respect for tradition, liberal in her support for free trade and private property.     

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