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For a Civic and Constitutional Republic 


Issue No 118 Sunday 14 April 2013

This Week

  • Her Malign Lasting Legacy We Live With Every Day of Our Lives (Part One)

News Stories

Highlighting news stories important to the Civic Republican view, particularly those that are overlooked or little covered in the main media.

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Her Malign Lasting Legacy We Live With Every Day of Our Lives (Part One)

Peter Kellow gives a personal view

When we see the massive police presence for Margaret Thatcher’s funeral next Wednesday, when we see the permanent ongoing high security that will be necessary for her tomb in Royal Chelsea Hospital, we will be seeing graphically what Thatcher was about – division and conflict. She is admired by some for her strength of will. For others she was an unyielding, headstrong fanatic. Even her own party and close colleagues could not stomach her in the end and plotted her assassination as party leader and ignominiously dumped her. They knew they had to do the job before the British voters got hold of her.

For many years now mainstream politicians have never discussed what Thatcher actually did in power. She has become a subject of myth making. All the recent tributes to her are made in vague terms referring to conviction and determination. It is just about myth building. As a populist she would have understood and approved of this.

I will discuss here not the myth of Thatcher but her actions when in power, but, in order to understand what Thatcher and her long reign as Prime Minister were about, you must begin by understanding three essential points about her that mark her out from other politicians especially those of her day.

First, she was a populist. She never saw fellow politicians, the civil service, intermediate levels of government like the local authorities or any outside professional groups, as allies. In short she detested the civil society. She did not see herself as a leader working through the governmental and democratic channels or cooperating with colleagues. Her method was to jump over all their heads and appeal directly to popular opinion. Like all populist politicians she believed she had a direct line to the ‘will of the people’ and so democratic institutions were only a necessary nuisance to be exploited for grander purposes. Of course, it only ever worked with a minority and even then only temporarily. Her populist approach explains why she ended her political life in isolation from her political colleagues.

Selling off nation’s windfalls
Second, she only maintained power by virtue of two massive one-off bonanzas that fell into her lap. These enabled the government she ran, with all its misguided and treacherous policies, to maintain some normality and prevent the whole economy collapsing. These bonanzas were created (1) by North Sea oil which begun to create serious tax revenues at the start of her reign and (2) the selling off of publicly owned industries, mostly at knock down prices. Any reasonable leader would have seen these as national treasures that should be used to create long term benefits for the country – but not Thatcher. She shamelessly used the windfalls for shoring up tax receipts as she destroyed large parts of the economy, for paying out massive amounts on unemployment benefits and for politicking to help her win another term. We have never recovered from these the loss of these precious resources that belonged to the nation.

Third. Margaret Thatcher was the first Prime Minister to introduce ideology into the British political landscape. What exactly is ideology? An ideology is a set of ideas or beliefs, that are adopted by a group of people, which then serve to separate that group from everyone else. The ideology functions not as a position from which discussion with others can take place but as a weapon to defeat those who do not subscribe to it. Of course, Britain had seen ideologues before, on the left and on the right, but never near the pinnacles of power. With ideologies always goes “political hygienism” and I mean by this that those subscribing to the ideology believe the world would be a better place if everybody thought like them.

Of course, this is fundamentally undemocratic but as I have said Thatcher was a populist not a democrat. She sought to bypass the machinery of state to gain support. She saw no virtue in a pluralist society and was dismissive of opponents. She wanted everyone to agree with her and adopt her agenda and was prepared to use social engineering in pursuit of this aim. Before Thatcher, Britain could make some claim to believing in consensus politics and this went across the political spectrum. She ended that for good. If you want to understand why the word “divisive” is applied to her so often, the explanation is in the fact that she was an unrestrained ideologue.

There are those right now who think we should celebrate Thatcher’s death popping champagne corks in street parties and sending Judy Garland’s The Wicked Witch is Dead to number one in the iTunes charts, as it is at the time of writing. Overlooking the tasteless aspects of these gestures such people are missing the point. She is far from dead. Thatcher, herself may be gone but Thatcherism lives on with full force. This is why I want in this newsletter (and the next) to catalogue the policies that directly sprung from her person during the 80s. I want to insist that a full assessment is necessary because almost all of her policies bear directly on the state we are in now. This inevitably means this is going to be the longest newsletter I have ever written – even split into two parts. For this, I make no apology. And this list concerns only the most important Thatcherite polices. It is not long because I am discussing ever little aspect of her career.

I am going to start with the biggest disaster she created and the one that impacts the most strongly on the economics and politics of today and will do so for many years ahead. I underline that this is the biggest – but that is not to say all the rest are not also big.

1.Thatcherite Economics. Libertarianism

The ideology that Thatcher signed up to was libertarianism of the type put forward by the Austrian school of economics. The greatest figure in this school was Ludwig Mises who formulated its main principles whilst his pupil Hayek became a propagandist for Austrian thinking in the west, first in Britain and then in the USA. Hayek was a lightweight compared with Mises but he was more successful as a populiser than Mises and wrote a best seller The Road to Serfdom in which he outlined his theory that the welfare state would automatically lead to dictatorship. (The nonsense of this theory is evident when you look at those states where the welfare state is greatest such as Sweden and France, and then ask yourself if these countries are dictatorships.) Also he unexpectedly received the Nobel Prize for Economics in 1976 (although he had to share it) and this brought him into the public eye. It was through Hayek’s teaching the Thatcher came to know about Austrian economics.

"Libertarianism" is not a word that Thatcher or her supporters ever used, or use, but her adherence to the Austrian version of it is what marks her out as a true ideologist. This is a word usually associated with extreme elements of the US Republican Party or with US independents like Ron Paul. So what is libertarianism? In order to understand libertarianism you have to see it in relation to classic liberalism.

Liberalism is what most people in the political mainstream in the west support and the founding idea behind it is that people should have freedom to do what they want as far as possible. Everyone accepts that freedom can never be total and that we must have laws that inevitably constrain some freedom of choice. A point about this conception of liberalism is that it is does not prescribe government policy. Yes, we should have freedoms but the conventional liberal view sees these as quite independent of policy on other matters, such as how we should run the economy, for instance. To use the jargon, liberalism is not “instrumental”.

Libertarianism is different for it holds that extension of freedoms should constitute an instrument of policy. By freeing everything up so that there are minimum constraints, great policy objectives, such as, say, a prosperous economy, can be achieved. Extreme libertarians are sometimes called anarcho-libertarians for they propose such a minimal role for government that something close to anarchy would reign.

You can see in many fields how the libertarian view dominated Thatcher’s policy and thinking. Notably, she created the ‘big bang’ in the City of London where at a stroke loads of bank regulations were scrapped. Buildings societies could become banks and there was virtually no restraint on bank creation of money. She believed, as a libertarian, this demolition of the civil society, that had been built up around banking, was all that was necessary to ensure success. Just get rid of government interference and all will be well.

There are today still some people who are in denial about the catastrophic consequence of Thatcher’s libertarianism being applied to banking but they really are only a handful. Most people know we are now living through the greatest crisis of modern times and it has its roots in the big bang. Yes, Britain was not the only one to go in for this free-for-all for banks. The USA, led by fellow Hayekian, President Ronald Reagan, did the same thing. But New York and London were the biggest banking centers and so the effect was greatest there. Other countries in the west did not adopt Austrian libertarianism to the same extent, if at all, and in the up and coming countries of Asia it was never taken up.

But the problems of liberalization did not have to wait until 2008 to appear. On Thatcher’s own watch towards the end of the 80s Britain was forced into crisis and this was due to bank liberalization (as well as other Thatcher policies). Credit flooded into people’s pockets driving a massive boom in house prices for three or more years, but then this was brought to a grinding halt as consumer price inflation spiked up dramatically. To stifle inflation Chancellor Nigel Lawson drove up interest rates into double figures throwing the economy into turmoil with consumer spending shuddering to a halt. The interest rates meant a lot of people could no longer afford to pay the mortgage and hundreds of thousands returned their house keys to the lenders. House prices collapsed. Businesses went to the wall and this included many established firms of very long standing. The loss to the productive capacity of the country was catastrophic and we have also never recovered from this.

True libertarians say that Thatcher’s policies led quickly to disaster because she was not full-bloodedly libertarian enough and that the state was too big (it remained at about the same size as Thatcher had inherited throughout her reign). Well, there is little doubt that greater doses of the same medicine would not have worked any better.

Thatcher style half-baked libertarianism by that time had acquired the name of "Neo-Liberalism" which is really just libertarianism but leaving in place a lot of the state, such as state education and welfare. Arguably the libertarians have a point and Neo-Liberalism gives you the worst of all worlds but nevertheless this compromised version of libertarianism became the ideological basis of all so-called “New Right” thinking.


2. Thatcher’s Economics. Monetarism

It is a curious fact that in spite of being so heavily influenced by Austrian style libertarianism, Thatcher, in 1980, also signed up fully to one of its foremost rivals – the Chicago school of monetarism lead by Milton Friedman. Although Thatcher is portrayed by her supporters as a clear-eyed, single-minded visionary, the reality is that she was easily influenced by fads. There is no better illustration of this than her embracing of two opposing economic ideas at that same time.

Monetarism was all about state intervention of the type the Austrians shunned. It was predicated on the simple idea that the way to control inflation was to control the money supply. This in turn was based on a very old economic theory: the quantity theory of money, and this tells us that prices in the shops will increase if there is more money in the economy – “too much money chasing too few goods”.

I will not go into the detailed arguments about monetarism here, but suffice it to note that there have been many occasions (e.g. Britain in the noughties) where the money supply boomed and consumer inflation did not. The empirical evidence for monetarism does not exist and in addition the theory is flawed, for if there is more money in the economy it can just circulate more slowly and prices will stay the same.

Thatcher did not see these failings and in the early years of her reign adopted monetarism with gusto. Friedman was overjoyed for this was the first time his academic theories had been fully tested in a real live laboratory (here the laboratory was the British economy). There was an enormous squeeze put on the amount of money in circulation in an effort to keep inflation down which at the time had overtaken the high rate she had inherited. Three things resulted. Firstly the pound took off on the exchange markets (although this was also partly due to the knowledge that the pound was about to become a petro-currency) and secondly, as a result, exporters could not compete as imports flooded in. Thirdly the squeeze on money and government expenditure cut off markets that businesses had formerly depended on. Unemployment took off and the economy tanked.

At this point this conviction politician who was “not for turning” dropped monetarism like a hot brick and continued with the uncontaminated Neo-Liberalism. This left Friedman in the same position as the libertarians complaining that monetarism had not been applied long enough and fully enough. British industry has never recovered from Thatcher’s monetarist experiment.


3. Exploitation of the Prime Ministerial Power

Lord Hailsham, famously said in 1978 that the office of British Prime Minister was an “elective dictatorship”. He was speaking as a constitutionalist not as an historian, saying what could happen not what actually happened. He was pointing out that if someone once elected as Prime Minister wanted to fully exploit the powers of the office there was virtually nothing in the constitution to constrain them. This weakness had not mattered so much until then for prime ministers generally saw their role as obeying some kind of recognized consensus. They certainly expected to take their cabinet with them and they had a regard for British traditions and ways of doing things. Obviously, changes happened all the time, but the British way was to evolution more than revolution, taking as many people as possible with you.

In this world ideologies were not welcome. Whatever you may think of Keynes, the predominant economic influence before Thatcher, he was no ideologist. He was interested in making the present system work largely by pragmatic measures and he had a proven track record in predicting problems ahead. Prime Minister Jim Callaghan had in 1978 announced that we would have to move away from Keynes but did not see that the answer lay in ideologies of the Austrian or Chicago varieties. He had a very strong and experienced team around him who were confronting the countries undoubted problems and they were working through them and would have continued to do so if they had stayed in power. They were still living in the pragmatic consensus-driven political world which meant that Hailsham’s astute observation remained largely academic.

We will never know whether Margaret Thatcher had heard Hailsham’s verdict on the Prime Ministerial power but she certainly understood the truth of exactly what he had said - however she came by it. For directly on her arrival at No 10, she began to exploit the office as an “elective” dictator. “Dictator” is a strong word and we can argue about whether Hailsham chose well, but whatever word you use the fact is Thatcher as prime minister dictated to others more powerfully than any before her. In this lies her reputation as a conviction politician. She did not need to listen to those around her. She could ignore the advice of long-standing civil servants, jettison colleagues who were off-message and rely on unproven doctrines by academic theoreticians for wholesale policy initiatives.

Following on from Thatcher, once the cat was out of the bag on the constitutional power of the prime ministerial office, there was no going back. All the Prime Ministers that followed her have treated the office as she did. In this way, Thatcher completely changed the political culture of Britain. Following her style, Prime Minister Major forced through an unpopular rail privatization, a disastrous decision to join the European Money Union and a squandering of tax payers money in the attempt to defend that decision - while George Soros notoriously was handed billions of pounds of tax payers' money. Major never apologized the British people for this. It is hardly necessary to remind anyone of the dictatorial arrogant styles adopted by the subsequent PMs, Blair, Brown and Cameron.

Thatcher was the prime minister who found out the constitution and exploited it to impose her extreme policies on us and, as I have argued before, this constitutional weakness can only be corrected with a republican constitution embodying a separation of powers.


4. Privatization

Thatcher did not start off as a privatiser. The idea seemed to creep up on her. After all, the idea of selling off the “family silver”, the long term assets the country held that contributed to the exchequer’s coffers, in exchange for the short term gain of the income from the sale, was not obviously a good idea. Thatcher, as a populist, would not at first go near it. Surely, the people would rumble what was happening and how future Britons would be fleeced.

Once she had concluded that she could get away with privatization there was no stopping her. It was sold to the public on the basis of two ideas

  1. It would lead to popular share ownership
  2. Private companies are automatically more efficient that state run companies

As I have said, Thatcher was a populist and an ideologue. The first idea was populist, the second was ideological. Let’s look at each in turn

What happened in reality to the idea of wider, popular share ownership? Who now owns the shares? In fact, very little of the original float has remained in the hands of private individuals. The shares were all sold too cheap and so people found themselves sitting on a potential profit and the temptation to sell off was too strong for most. Where institutional investors such as pension funds have bought into ex-state industries you might argue that they have ended up being owned by the public – but this is far from being so in many cases.

In the worse cases, such as some of the water companies, the companies have ended up being 100% held by private equity concerns and so the shares are no longer floated. Private equity companies exist because of the huge amount of wealth that has accumulated in recent years to the global state-free superrich - about which I have written several times. The wealth of these individuals is so colossal that buying properties and shares is too small beer for them. They want and can afford whole companies. They particularly like cash cows such as monopoly water companies. So ownership passes to private equity (a long way from popular share ownership). These companies do not register in Britain but exploit tax havens to reduce their taxes to minimal amounts. Often the services they give to their customers is poor and they use customer receipts to finance capital. They have a stranglehold over their customers (in spite of the ‘watchdogs’) and so there is little need to plough back profits into investment.

Turning to the second argument for privatisation, that the state cannot run companies is pure ideology. The French electricity company EDF, for instance, is mostly state owned and it is as efficient as any private company. It is also predatory as, where other countries have foolishly privatized electricity, it can buy up the private companies - so we have the irony whereby the privatized companies have been returned to state ownership but the state in question is foreign. Thatcherites would never accept the simple truth that an important reason why the state owned companies in Britain functioned poorly is because the state starved them of investment. By not maintaining them properly a self-fulfilling policy was constructed

Private entrepreneurship is the essential motor that drives an economy and so companies should be private – unless there is a compelling reason why they should not be. There are two such compelling reasons

  1. If the industry is as service industry and can never be run at a profit. This is the case with railways, for instance. This did not prevent the ideological conservatives from privatizing rail. Privatisation did not alter the fact that rail companies on their own are unviable, it just meant that that the subsidies go to private not public companies - with all the inefficiency and unaccountability that that involves
  2. If the industry is a natural monopoly. If one private company owns an entire industry and there is no competition the consumer will be poorly served and probably exploited. This is the case with the essential public services: water, gas, electricity. If these industries are in private hands the public will be the loser. We can all too easily end up with foreign owned companies, over which we have only limited control and that have no regard for British national interest. There may appear to be competition as you can buy, say, gas, from a range of companies, but this is a farce. The supply of gas has to be along the same pipes whichever company nominally supplies the gas. The supposed competition just leads to inefficiency as tasks are duplicated between different companies. The consumer will ultimately pay for these inefficiencies

And what we tend to forget is that some state industries did make profits and these went to the exchequer and reduced taxes and state debt. Listen to anyone who was Chancellor before privatisation and they will talk fondly of how they could see each year state industry receipts dropping into their lap. The fact that the country is broke now is partly because these revenues exist no more.

But did we not benefit from the sales? Any capital the country received was squandered by Thatcher in propping up her ideologically driven policies. We are all the losers from privatization. There was certainly a case for making parts of the industries concerned private and subject to competitive tender but placing natural monopolies wholesale in the private hands simply makes no sense.

In a latest twist, Britain is now in a position where it is seeking contractors to build new nuclear powers stations, but the trouble is there is only one tenderer – our old friend, Electricité de France, EDF. One of those reviled state industries is the only one left standing that can do the job. Money and jobs will go abroad. How many Thatcher supporters are will to stand up and admit we are in this sorry position because of her privatization policy? None. They ignore the facts and just keep spouting myths about conviction and political greatness


5. Falklands war.

It is often said that Thatcher got re-elected in 1984 because of the Falklands war. But she would have been re-elected anyway – and this for one reason. The Labour Party had chosen Michael Foot as leader. Already clearly way past his sell by date, he was a creature of the Labour Party left who had been put in as leader because it was judged he could play a healing role in the party. The Labour Party had lost interest in the bigger picture of winning the election and handed it to Thatcher on a plate.

In all the mythmaking surrounding Thatcher (most of it originally manufactured by her) a crucial element in the Falklands crisis gets overlooked – it should never have happened. Argentine’s President Galtieri would never have been able to take over the Falkland Islands if the defense forces and our well-funded security services at MI6 had remotely been doing their job. And there is evidence that Thatcher ignored intelligence about Argentinean preparations for the invasion of the Falkland Islands and scrapped the only Royal Navy presence in the islands

This was still the era of the Cold War and all eyes were on Russia and on how we could “nuke” Moscow with a couple of minutes notice. The defense of British territories you would think was a prime function of the security services. But that was not how they saw it. They had their backs turned and the Argentineans just walked in. Whilst it was not in Thatcher’s nature to admit culpability for anything, her Defense Secretary, Lord Carrington, was of the old school and saw clearly that the government had to take responsibility for its massive oversight. He resigned his post.

This grave error on the part of the British government should have shaped its response to the invasion for it made a pressing case for not declaring war and seeking a negotiated solution - but this was not Thatcher’s way. Against all professional advice to the contrary she ordered a foolhardy mission to send a Task Force to the South Atlantic and beat the Argentineans out of the islands. This military action was shear madness. Of course, it had a chance of coming off, but the casualties on both sides would certainly be significant, and the likelihood was of British failure.

Once in place the British fleet engaged in what many still see as a criminal act by sinking the Argentine Navy light cruiser, ARA General Belgrano, with a loss of over 300 Argentinean sailors’ lives. At the time, she was outside the exclusion zone the British had put in place and was sailing away from the zone. What followed this tragedy included an element of farce. The Argentineans responded to the loss of the Belgrano by sinking the criuser, HMS Sheffield, with the loss of 17 lives. This took the British completely by surprise for they had thought that Sheffield was out of range of any Argentinian firepower. Incredibly what the British did not know is that our allies, the French, had been supplying Argentine with Exocet missiles. This was a completely open trade but the Royal Navy had failed to register the fact and so miscalculated completely their tactics.

The nation was in a state of shock. This was a real war where people got killed. And we looked hopelessly vulnerable. Relief then followed for it turned out that the French had only supplied 13 Exocets and so a counting down of how many the Argentinians fired off started. If they had had a good stockpile the Royal Navy would have been blasted out of the water. France obligingly said it would suspend future deliveries. It beggars belief that the Task Force could have set off without intelligence (that was fully available in Jane’s, the popular publication on military matters) on the presense of Exocet missiles.

As we know the mission to recapture the Falkland Islands, against all the odds, worked. This was due to the amazing courage and professionalism of the British military, but the loss of British lives and the horrendous injuries and disfigurement our soldiers suffered must be laid at the door of Thatcher. Like most wars this was unnecessary and could have been avoided. The comprehensive peace plan proposed President of Peru Fernando Belaúnde was dismissed by Thatcher and her War Cabinet.

It is to Britain's shame that the Falklands tradegy is partly the reason for Thatcher's quasi-state funeral. It is not a victory of which Britain can be proud but a sorry episode of incompetence, lack of foresight and foolhardiness which was redeemed by the only people to come out of it all honourably – our fighting men and women.

6. Channel tunnel

Before looking at how this project came about let us recall the days before it was even muted as a possibility. To cross the Channel at its eastern (narrowest and most popular) end there was a choice of ferries operated by Sealink, Townson Thoresen and P&O. There was intense rivalry between them and the result was that good deals could be had. Many of us learned the trick of turning up by car late at night with no booking and taking up empty places for next to nothing.

We do not normally think of major infrastructure in relation to Prime Minister Thatcher. She was for a smaller leaner state and all decision making should be left to the market place. The recent decision, for example, to spend 30 billions of tax payers money on the London to Birmingham rail link would be incomprehensible to her.

For reasons which are not altogether clear she became interested in the idea of constructing a fixed link across the English Channel for use by vehicles and trains. This was a dream that had been long held by many but had never happened as it could never be shown to be viable. It happened that President Mitterand was in power in France and Mitterand had a liking for self aggrandizing projects and so the unlikely duo of Thatcher and Mitterand agreed together to go forward with a Channel tunnel. It was clear from the start that this was a vanity project for both. Its feasibility was far from certain

Thatcher’s ideology naturally determined that the public purse could not be touched in financing the tunnel and so private money was assembled together with a marketting of millions of shares to ordinary people and professional investors. The shares were well subscribed and the existence of many smaller shareholders bolstered Thatcher’s policy of encouraging wider share ownership.

Work got under way and, as is always the case with projects of this nature, unexpected difficulties arose. Costs spiraled and it quickly became obvious as many had predicted that there was not enough money in the pot to complete the project. Additional money had to be found. Meanwhile the share price collapsed the Thatcher’s much trumpeted small share holders were wiped out. The project could not just be allowed to stop for too much political capital was at stake and so money had to be found to complete it.

To cut the story short, the money was found by complicated arrangements whereby the banks took a major share in the scheme and the British and French governments engaged in behind the scene arm twisting to make it all happen. But there remained a big question mark. The "Chunnel" might be completed and be able to offer places to people with vehicles wanting to cross the Channel but what about the ferries? The tunnel was going to be in direct competition with them. But its construction costs had proved vast. The only way it stood a chance of recouping the capital costs was be charging ticket prices that would be uncompetitive. Things looked grim.

But then a strange thing happened. In a normal competitive environment of the kind that Thatcher and her Austrian co-ideolo gues favoured the tunnel would have been put out of business by the ferries. But the ferry prices started to rise and they went on rising until mysteriously, hey presto!, the tunnel was competitive. Now I do not know how the price fixing was engineered, but it surely happened.

So we went from a situation before the tunnel of having nice cheap fares for crossing the Channel to after it opened of having expensive ones however you did it. Things had been fixed so that that those crossing the channel would have to pay for the disastrous decision to construct a fixed link carrying vehicles. Probably if the tunnel had only included a train service the finances would be entirely different and, in any case, the rail link is an asset that does not duplicate other services.

The consumer in this has been screwed. Public money has not been put in to any great degree and there is no reason why it should be. But if this is a private project it should be at the whims of the market place and clearly this is not the case. They whole thing is fixed so that the ordinary consumer has to bail out Thatcher’s mad, bad self-serving decision.

Thatcher’s admirers have long since dropped the Channel tunnel from her list of achievements. What she saw as a crowning glory ended up having to be bailed out by the rest of us.

In next week’s newsletter

Her Malign Lasting Legacy We Live With Every Day of Our Lives (Part Two)

Attack on the civil society.
Attack on the civil service
Contracting out
Council house sales
The Union of Britain
South Africa
Poll tax
Union law.
Foreign Policy
Section 28
Industrial destruction
North sea oil

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