Comparison of State-Labour Union Relations UK (Thatcher) and ROK


Korean Minjok Leadership Academy
KKM



Table of Contents


1st Draft
6th posting
Chapter 7
Working Table of Contents 1st Update
Working Table of Contents
Bbliography 1st Update
Bbliography



1st Draft (as of December 3rd 2008) . . . go to Teacher's comment

Table of Contents

I. Introduction
II. Britain since 1900
II.1 Growth of the Labour Party
II.2 Growth of the Trade Unions
II.3 Butskellism
III. Causes of the "British Disease"
III.1 Nationalization and Regional Policy
III.2 Oil Shock of 1973 and Stagflation
III.3 Belligerent Trade Unions and the Winter of Discontent, 1978-1979
IV. The Political Rise of Margaret Thatcher
IV.1 Intellectual Roots of Margaret Thatcher
IV.2 From MP to PM
V. Thatcher, the Iron Lady
V.1 Thatcher's Policies
V.2 Analysis of Major Policies, Including Long Term Effects
VI. Conclusion
Notes
Bibliography


I. Introduction
            According to "IMD World Competitiveness Yearbook 2007" published by International Institute for Management Development in Switzerland, competitiveness ranking of Republic of Korea was 29th, a figure improved by 3 compared to that of last year. This, however, is not the end of the story. While some sectors of business such as manufacturing or finance has grown considerably, labour-management relationship scored one of the lowest for the 5th year, ranking 55th worldwide. It has been long since a story of a belligerent labour union attacking its managers was on the front page ? it simply is not as shocking as it used to be anymore. For the past 10 years, Korean labour government has been far too tolerant of labourers' excessive demands, and concentrated heavily on distribution while neglecting development. Consequently, most economists nowadays agree upon the final destination Korean economy is heading for: stagflation. Now, with both the recently elected president and the parliament being conservatives, would be an adequate time for political advisors to study Thatcherism thoroughly and seek for a solution that will save the Korean economy.
            "Thatcherism" refers to a system of political thoughts and philosophies of Margaret Hilda Thatcher, a prime minister of Britain between 1979 and 1990. In many different ways the situation Britain went through back in the 1970s, called "the British Disease" by some, is remarkably similar to the path Korea has been walking for the past 10 years. It was Doctor Thatcher who cured the disease with a medicine called 'Thatcherism' and now Korea has the same disease. While Korea may not have the same doctor, it has a doctor nonetheless, and he shall do well by differentiating the similar symptoms from different symptoms in order to subscribe the right dose. So then, what symptoms exactly did Britain had 30 years ago and how did it begin ?

II. Britain since 1900

II.1 Growth of the Labour Party
            With Ramsay MacDonald as secretary, Labour Representation Committee formed in 1900. Since then, the party transformed into the Labour Party and grew significantly for the next half of the 20th century, becoming the leading Opposition party. With Churchill, it formed a wartime Coalition government in 1940 to be continued for 5 years, at the end of which it withdrew, won 393 seats in the House of Commons and formed its first majority government under Clement Attlee. While it may be surprising for some that the Conservative Party and its war hero prime minister, Winston Churchill should lose the General Election, ordinary people of Britain thought otherwise. Many people believed that the Conservative Party was the party of aristocrats and privileged. People blamed the Conservative Party for failing to act wisely during the Great Depression in 1920s and 1930s. At the same time, Sir William Beveridge ignited people's unsatisfied minds with his report, turning many people for the Labour Party. The Beveridge Report contains five major points :

(I) Social Insurance be part of a general policy of social progress
(II) Social security achieved only through co-operation between the individual and the state
(III) Special benefits provided for unusual expenses in connection with birth, marriage and death
(IV) Pensions available for everyone
(V) Free medical service

            This (Beveridge) report was universally extolled across the nation and came to be known as the principles of what is now called 'the Welfare State '. Everything had to be 'planned' by the government. The policies of Labour Party was strongly backed up by Keynesianism, an economic theory based on ideas of the 20th century British economist John Maynard Keynes, which required a strong government that constantly intervenes to balance the power between large corporations and unions by fixing the amount of financial stimuli.

II.2 Growth of Trade Unions
            Behind the great wealth, glory and development achieved during the high tide of industrial revolution and capitalism were working-class people working 18 hours a day in extremely dangerous working conditions with practically no insurance. To ensure the basic rights and qualities of life of these working class people, trade union was born. But the real power of trade union came following a court decision in 1906. After a strike at Taff Vale in 1901, the court made the union compensate for the damage caused but people were outraged by this decision and in the Trades Disputes Act of 1906, this initial decision was reversed, meaning that trade union could go on strike for a longer period, with less burden. This Act provided all trade unions with great power, later to be greatly abused. Every year authority and power of trade union became stronger and by 1945 trade unions affiliated more than five million members to the Labour Party. This only meant that the Labour Party was almost a political tool of trade unions.

II.3 Butskellism
            However it was not just the Labour Party responsible for appeasement of the unions - conservatives had followed the same path. Coined by The Economist, the term "Butskellism" came to be used, combining the Tory Home secretary, Rab Butler and the Labour leader, Hugh Gaitskell, to point out the remarkably similar approaches of the two opposing parties. Butskellism propagated for more than 30 years after the war, no matter which party controlled the parliament (table 1), only to be abandoned with election of Margaret Thatcher to the leadership of the Conservative Party in 1975.

Table 1 : British Governments 1945-1974 (2)

Period Party Majority

July 1945 - February 1950 Labour 204

February 1950 - October 1951 Labour 17

October 1951 - May 1955 Conservative 74

May 1955 - May 1959 Conservative 57

May 1959 - October 1964 Conservative 107

October 1964 - October 1966 Labour 13

October 1966 - June 1970 Labour 110

June 1970 - February 1974 Conservative 43


            This so-called ˇ°Butskellismˇ± included the state's domestic approach towards building a welfare state, a mixed economy, full employment and consultation with the unions. As for the foreign policy, commitment to NATO, the nuclear deterrent and the promotion of the Commonwealth were pursued by both parties.

III. Causes of the British Disease
            In February 1974, when the Conservative Party led by Edward Heath was defeated in a General election, Keith Joseph, a member of cabinet said the following: "We are now more socialist in many ways than any other developed country outside the communist bloc, in the size of the public sector, the range of controls and the telescoping of net income." (3) By this point, it was evident that government had failed to control trade union's overwhelming power. Government policy often seemed to be discussed and determined in the Congress House of TUC (Trades Union Congress), as cabinet papers were being sent to the TUC for approval by the late 1970s

            "We are prostrate before you but don't ask us to put it in writing" - James Callaghan, the Labour Prime minister (1976-1979), to the TUC General Council.(4)

            Great Britain was in a dreadful state, with the lowest growth of productivity than any other major industrial economy, and an eight-fold increase in strikes compared to that of the 1930s. National per capita income that was 40% above the West European average in the 1950s dropped below average by 1979. There were three main causes of this "British Disease".

III.1 Nationalization and Regional Policy
            The first cause is the excessive nationalization and the Regional policy to save inefficient industries. As the cradle of Industrial Revolution, manufacturing industry and mining industry flourished in Britain, becoming no.1 industrialized country in the world at one point. Cities prospered and economy grew, especially with increased demand for steel manufacture over the two World Wars. However, the limited amount of natural resources underground soon limited the production level by 20th century. Both supply and demand were decreasing in manufacturing sector while those of service sector were increasing. Simply put, in economical perspective, manufacturing sector of Great Britain was 'dying out'. It was the Labour government, controlled by Trade Union Congress, that went against the law of economics and heavily subsidized the dying industries.
            Beginning with Bank of England in 1946, the Labour government continued to nationalize major industries of Britain including British Overseas Airways, British European Airways, British South American Airways, The Coal Industry, electricity, cable and wireless, gas and steel. All of this happened during the five years of labour government between 1945 and 1950 but above all, creation of National Health Service in 1946 was one of the most significant events in the 20th century Britain. British government chose to nationalize certain manufacturing industries as well, one of which was Rolls-Royce. When Rolls-Royce went bankrupt in 1971, the government chose to nationalize the industry at a huge cost from taxpayer's money. The National Enterprise Board established in 1975 was originally established to invest and promote new industries with good prospects. However, it soon distributed its resources into private companies that were on verge of collapsing. New industries that really needed investment obtained almost none, and hence the economy slowed down. It was these days that British Leyland, the largest British manufacturer, was nationalized. As a result of excessive nationalization, 7.45 million (29.3%) out of 25 million employed people were in the public sector, and the Civil Service had employed twice as many as it had in 1939. The National Health Service alone employed 1.5 million and nationalized industries employed over 2 million. This was nearly half of the entire number in manufacturing industries. The subsidies (4.6 billion Pound Sterling) and borrowing (2.5 billion Pound Sterling) of the nationalized industries in 1979 were almost equal to the cost of servicing the national debt (8.4 billion Pound Sterling) (5). These subsidies, however, were not invested in new growing companies but to declining, 'dying out' industries such as coal industry.
            As part of building up the Welfare state, the government strived to distribute everything equally, even the development of economy. Fruit of this effort was born as the Regional policy, which is an intervention by government in the location of industry and people to ensure a more even distribution of wealth (6). This policy first emerged with the sign of certain manufacturing regions in Britain declining during the inter-war period, and began to grow in scope significantly during the post-war period when both the Conservative and Labour government concentrated on economic equality. While Clement Attlee was prime minister of Labour government between 1945 and 1951, the Distribution of Industry Acts of 1945 and 1950 were passed. Intended to redevelop certain areas, this Act identified areas eligible for assistance, labeling them 'development areas' upon which the Board of Trade was granted authority to build factories, provide finance for trading estates, reclaim derelict land, and make grants and loans to firms in those development areas. As the Act was evidently part of planned economical approach, many felt this to be against the spirit of market economy and private enterprise, calling it ˇ°Socialism carried to the last limitˇ±. From June 1945 to January 1950, some 985 installations (factories, factory extensions, etc.) were built in development areas, creating approximately 200,000 jobs (7). Unemployment in depressed areas dropped significantly, but only at the cost of developed areas. Town and Country Planning Act enacted in 1947 introduced the Industrial Development Certificate (IDC), and this required that all new manufacturing operations or extensions to existing operations over 5,000 square feet obtain the IDC. Many requests of IDC in the development areas were rejected. Although business people and entrepreneurs preferred to set up their industry in development areas where demand was high and transportation cost was low, they were forced to move out where the economy was below average. This act soon expanded to ordinary offices with The Control of Office and Industrial Development Act of 1965, which introduced the Office Development Certificate (ODC). From salary of those who work in service sector, Selective Employment Tax (SET) levied tax rate of 15%, part of which was spent to redevelop certain declining industries in the manufacturing sector. This created an effect of discouraging incentive to work among the service sector, while the productivity of manufacturing sector remained low. The Resettlement Scheme of 1946 provided assistance with migration to all unemployed workers. Its ultimate purpose was in transferring unemployed workers of developed regions to development areas in order to establish new industries or extending the scope of existing ones. The assistance includes free fares to the new area; a travelling allowance; settling-in grant; financial assistance towards the cost of removal of household effects; and lodging allowance for up to three months. All of this money from national budget was spent on removing the growing economy of developed areas and distribute on development areas. Regional policy had to pay a heavy price, because this policy had to subsidize the entire manufacturing industries in a certain area, needless to say the ones that would have gone bankrupt without the regional policy. At the same time, in an effort to discourage growth of developed areas and encouraging growth in development areas, the government often failed to see hardly any development at all.

III.2 The Oil Shock of 1973 and Stagflation
            1973 was marked as a year that ended period of Keynesian consensus. According to Keynesian theory and its school of economists, there is a trade off between inflation and unemployment. Unemployment rate would decrease while inflation increases and hence government could reduce unemployment rate by printing out more money. Although this theory worked in practice during the 1950s and 1960s, Oil Shock of 1973 resulted in both high inflation rate and high unemployment rate.
            The Oil Shock of 1973 began with Yom Kippur War. When Arab nations attacked Israel, some western nations supported Israel with weapons and money behind the stage. Outraged by this action, Organization of Arab Petroleum Exporting Countries (OAPEC) declared that they would no longer export oil to those nations that supported Israel. At the same time, OPEC members decided to raise world oil price after the negotiation with the "seven sisters" (8) had failed. The dominance of OPEC members over the crude oil export business created devastating effect on targeted country of western world, including high inflation and suppressive economic activity. Britain was no exception. Rise in price of oil produced two results: inflation and exacerbation of state of economy
            But the inflation did not begin with Oil Shock - it had already begun long time ago. Oil shock exacerbated the inflation drastically to the level that ordinary citizens experienced immediate inconvenience in everyday lives. A loaf of bread which cost 1.5 p in 1938 cost 65 p in 1979, an increase of 4200 % in the most basic of commodities in just 40 years (9).
            Keynesian school of economics lost its popularity with the stagflation. Stagnation and inflation was proven to be no longer inversely correlated: it could be directly correlated. Hence, people lost confidence all economic policies based on Keynesian Theories, executed by Labour government. Instead, market economy and monetarism, supported enthusiastically by Milton Friedman and other economists at the University of Chicago gained more acceptances.

III.3 1978-1979 The Winter of Discontent
            As mentioned above, the power of Trade Union in Britain by 1970s was formidable. Numerous times, the Government failed to cope with trade Unions, most notably the National Union of Mineworkers. Ordinary citizens had to face inconvenience due to frequent strikes from public sectors, and were highly dissatisfied with government's incapability to control such problems.
            Once a conservative Prime Minister Edward Heath attempted to fight the trade unions and talked of importance competition. After 13 years of Tories' rule from 1951 to 1964, Labour Party under Harold Wilson won more seats in the parliament than the Conservative Party. The gap between the two only increased in 1966 and this was when Heath started to shape his ideas. He believed in reshaping the welfare society with more emphasis on selectivity priority on business.

            "We will embark on a change so radical, a revolution so quiet and so total that it will go far beyond the programme of a parliament ..." Edward Heath, In Tory Party Conference after his election victory in1970

            But in reality, it was Heath's government that spent enormous amount of national budget in rescuing Rolls-Royce and Upper Clyde Shipbuilders, both of which had been less than competitive in the world market. Although Heath had always believed the necessity of competition, the opposition was strong. During the Oil Crisis of 1973, The National Union of Mineworkers had called on a strike, and the situation turned chaos. He was defeated in October 1974.
            This inconvenience culminated in the winter between 1978 and 1979, a period we now refer to as 'Winter of Discontent'. During this period, Callaghan was the Prime Minister from Labour Party. By this time, inflation was high, unemployment rate was high and strikes in both public and private sector became ubiquitous. In an effort to control the inflation rate, which was 15% in 1978, Callaghan limited wage increases to 5% per year but this plan was strongly opposed by the Trade Unions, and hence the beginning of Winter of Discontent. During this winter, strike spread across the country like a highly contagious disease, calling for higher pay-raise. Due to strikes from public sector, electricity, gas and even waterline was jeopardized. Railway did not operate and even hospitals closed down. Only emergency patients were taken in some hospitals. Some gravediggers went on a strike too, leaving dead bodies rotting on the ground. The Ford Motor Company ended up giving 17% raise to the workers; a rate which would double the wage in less than 5 years if continuously applied each year. Violent mass picketing occurred and even those who obtained the deal that concerns their wage continued to call on sympathy strike, a form of strike that is called on sympathy for a fellow trade union. But the best part of this period for trade union was that they did not have to pay for any damages after all the disruption they have caused over the winter.
            Anti-Union sentiment developed across the nation. Newspapers and Tabloids accused both egoistical Unions and impotent government. "Crisis ? What Crisis ?" was the headline of The Sun after James Callaghan said in an interview at Heathrow, "I don't think other people in the world would share the view that there is mounting chaos." (10) British people watched news of streets stacked up with uncollected rubbish and belligerent union members attacking police. All of this pointed out for a need for fresh new leader who could charismatically contain the situation.

IV. The Political Rise of Margaret Thatcher
            Stanley Baldwin, a conservative, was the prime minister when she was born. Both her parents were born when a conservative prime minister was in power. When Thatcher was attending Oxford, deepening her intellectual knowledge, Winston Churchill was the prime minister. And the year she got married, in 1951, Churchill returned to power, defeating the Labour Party. And in 1959, the year she became MP, Harold Macmillan was premier. All of this could be coincidental, but it is nonetheless a universally acknowledged truth that Margaret Thatcher truly was a daughter of Conservative century.

IV.1 Intellectual Roots of Thatcherism
            In order to understand 'Thatcherism' and its results, one must identify not only the historical background, but also the intellectual background of Thatcherism. Friedrich von Hayek, the author of The Road to Serfdom, was described as one of the greatest intellects of 20th century by Margaret Thatcher (11). In his book, he described the free and competitive economy in which the function of society is merely to encourage individual activity and protecting diversity. This, however, published in the first half of 20th century, bought widespread criticism from society, which thought that role of society is to shepherd all people towards achieving the common good. Hayek also believed that true individualism is not equalitarian. While all men should be 'treated' equally, they should not be 'made equal'. Individualism, Hayek wrote, is opposed to any form of prescriptive privilege, to all protection of any rights not based on rules equally applicable to all persons, and at the same time, to the right of government to limit what the able or fortunate may achieve. This means that just because someone is highly affluent and talented, does not mean government can just take away his incentive to work. Hayek also provided justification for Thatcher's privatization policy and war against trade unions in the later years.
            The Institute of Economic Affairs (IEA) was founded by Antony Fisher, a businessman, in 1957. Through this institution did Hayek's teaching and that of Milton Friedman found expression. Milton Friedman, author of Free to Choose, also strongly believed in free market philosophy. However, the IEA was initially not acknowledged by many politicians except one: Keith Joseph. Keith began to read the publications of IEA since 1964 and shared their views on this society.

IV.2 From MP to PM
            Mrs. Thatcher was diligent, effective and intelligent. She became an education secretary after general election in 1970 and the first woman to lead the Tory Party in 1975. Her determination and immense capacity for work put aside all obstacles posed on her by her gender and lack of public school education. As an education secretary she banned free milk to all primary children aged over seven, in order to save the Open University. During her tenure in this office, she showed some aspects of her later ideological stances, such as a suspicion of civil servants for being socialists. In 1975 when she became the leader, to the surprise of many, she had won by a comfortable margin. Peter Riddell wrote : 'Mrs. Thatcher became leader of the Conservative Party in February 1975 principally because she was not Edward Heath, not because of a widespread commitment to her views. She was the only senior candidate willing to challenge Mr. Heath at a time when the majority of Tory MPs wanted a change.' (12)
            Mr. Heath at a time when the majority of Tory MPs wanted a change.' In the election, the Conservatives won 339 seats while Labour won 269. Conservative's percentage of the vote compared to October 1974 rose from 35.8 % to 43.9. It was the largest swing of votes away from the other main party between 1945 and 1997. Yet, as Peter Riddell adequately put, the election result was caused more by disappointment from a discredited government than a hope for a fresh new challenger. For Mrs. Thatcher, winning was only the beginning of what was to become a long and arduous fight against both the enemies outside and the enemies within.

Notes

(1)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 6
(2)      Harmer, H J P. Longman Companion To the Labour Party, 1900-1998. London: Longman, 1999.
(3)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 3
(4)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 21.
(5)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 17.
(6)      Kim, Changhyun, Thatcherism, Sosa-ri : KMLA 2005
(7)      Distribution of Industry Act of 1945, Wikipedia. http://en.wikipedia.org/wiki/Distribution_of_Industr y_Act_1945.
(8)      Refers to seven major oil companies of 20th century: Standard Oil of New Jersey, Royal Dutch Shell, Anglo-Persian Oil Company, Standard Oil Co. of New York, Standard Oil of California, Gulf Oil, and Texaco.
(9)      Thatcher for Beginners, p.17
(10)      Winter of Discontent, Wikipedia.
(11)      Thatcher for Beginners
(12)      Seldon, Anthony and Daniel Collings. Britain Under Thatcher. London : Longman, 1999




6th Posting (as of September 12th 2008) . . . go to Teacher's comment

I. Part One, 1900-1979
            According to "IMD World Competitiveness Yearbook 2007" published by International Institute for Management Development in Switzerland, competitiveness ranking of Republic of Korea was 29th, a figure improved by 3 compared to that of last year. This, however, is not the end of the story. While some sectors of business such as manufacturing or finance has grown considerably, labour-management relationship scored one of the lowest for the 5th year, ranking 55th worldwide. It has been long since a story of a belligerent labour union attacking its managers was on the front page - it simply is not as shocking as it used to be anymore. For the past 10 years, Korean labour government has been far too tolerant of labourers' excessive demands, and concentrated heavily on distribution while neglecting development. Consequently, most economists nowadays agree upon the final destination Korean economy is heading for: stagflation. Now, with both the recently elected president and the parliament being conservatives, would be an adequate time for political advisors to study Thatcherism thoroughly and seek for a solution that will save the Korean economy.
            "Thatcherism" refers to a system of political thoughts and philosophies of Margaret Hilda Thatcher, a prime minister of Britain between 1979 and 1990. In many different ways the situation Britain went through back in the 1970s, called 'the British Disease' by some, is remarkably similar to the path Korea has been walking for the past 10 years. It was Doctor Thatcher who cured the disease with a medicine called 'Thatcherism' and now Korea has the same disease. While Korea may not have the same doctor, it has a doctor nonetheless, and he shall do well by differentiating the similar symptoms from different symptoms in order to subscribe the right dose. So then, what symptoms exactly did Britain had 30 years ago and how did it begin ?

1. Britain since 1900

1.1 Growth of the Labour Party
            With Ramsay MacDonald as secretary, Labour Representation Committee formed in 1900. Since then, the party transformed into the Labour Party and grew significantly for the next half of the 20th century, becoming the leading Opposition party. Under Churchill, it formed wartime Coalition government in 1940 to be continued for 5 years, at the end of which it withdrew, won 393 seats in the House of Commons and formed its first majority government under Clement Attlee. While it may be surprising for some that the Conservative party and its war hero prime minister, Winston Churchill should lose the General Election, ordinary people of Britain thought otherwise. Many people believed that the Conservative party was the party of aristocrats and privileged. People blamed the conservative party for failing to act wisely during the Great Depression in 1920s and 1930s. At the same time, Sir William Beveridge ignited people's unsatisfied minds with his report, turning many people for the labour party. The Beveridge Report contains five major points (1) :
      Social Insurance be part of a general policy of social progress
      Social security achieved only through co-operation between the individual and the state
      Special benefits provided for unusual expenses in connection with birth, marriage and death
      Pensions available for everyone
      Free medical service
            This report was universally extolled across the nation and came to be known as the principles of what is now called 'the Welfare State'. Everything had to be 'planned' by the government. The policies of labour party was strongly backed up by Keynesianism, an economic theory based on ideas of the 20th century British economist John Maynard Keynes, which required a strong government that constantly intervenes to balance the power between large corporations and unions by fixing the amount of financial stimuli.

1.1.1 Growth of the Trade Unions
            Behind the great wealth, glory and development achieved during the high tide of industrial revolution and capitalism were working-class people working 18 hours a day in extremely dangerous working conditions with practically no insurance. To ensure the basic rights and qualities of life of these working class people, trade union was born. But the real power of trade union came following a court decision in 1906. After a strike at Taff Vale in 1901, the court made the union compensate for the damage caused but people were outraged by this decision and in the Trades Disputes Act of 1906, this initial decision was reversed, meaning that trade union could go on strike for a longer period, with less burden. This Act provided all trade unions with great power, later to be greatly abused. Every year authority and power of trade union became stronger and by 1945 trade unions affiliated more than five million members to the labour party. This only meant that the Labour party was almost a political tool of trade unions.

1.1.2 Butskellism
            However it was not just the Labour party responsible for appeasement of the unions - conservatives had followed the same path. Coined by The Economist, the term "Butskellism" came to be used, combining the Tory Home secretary, Rab Butler and the Labour leader, Hugh Gaitskell, to point out the remarkably similar approaches of the two opposing parties. Butskellism propagated for more than 30 years after the war, no matter which party controlled the parliament (table 1), only to be abandoned with election of Margaret Thatcher to the leadership of the Conservative party in 1975.

Table 1 : British Governments 1945-1974 (2)

Period Party Majority

July 1945 - February 1950 Labour 204

February 1950 - October 1951 Labour 17

October 1951 - May 1955 Conservative 74

May 1955 - May 1959 Conservative 57

May 1959 - October 1964 Conservative 107

October 1964 - October 1966 Labour 13

October 1966 - June 1970 Labour 110

June 1970 - February 1974 Conservative 43


            This so-called "Butskellism" included the state's domestic approach towards building a welfare state, a mixed economy, full employment and consultation with the unions. As for the foreign policy, commitment to NATO, the nuclear deterrent and the promotion of the Commonwealth were pursued by both parties.

1.2 Causes of the 'British Disease'
            In February 1974, when the Conservative party led by Edward Heath was defeated in a General election, Keith Joseph, a member of the cabinet, said the following: "We are now more socialist in many ways than any other developed country outside the communist bloc, in the size of the public sector, the range of controls and the telescoping of net income." (3) By this point, it was evident that government had failed to control trade union's overwhelming power. Government policy often seemed to be discussed and determined in the Congress House of TUC (Trades Union Congress), as cabinet papers were being sent to the TUC for approval by the late 1970s.
            "We are prostrate before you but don't ask us to put it in writing" - James Callaghan, the Labour Prime minister (1976-1979), to the TUC General Council.
            Great Britain was in a dreadful state, with the lowest growth of productivity than any other major industrial economy, and an eight-fold increase in strikes compared to that of the 1930s. National per capita income that was 40% above the West European average in the 1950s dropped below average by 1979. There were three main causes of this "British Disease".

1.2.1 Nationalization and Regional Policy
            First is the excessive nationalization and the Regional policy to save inefficient industries. As the cradle of Industrial Revolution, manufacturing industry and mining industry flourished in Britain, becoming no.1 industrialized country in the world at one point. Cities prospered and economy grew, especially with increased demand for steel manufacture over the two World Wars. However, the limited amount of natural resources buried within the country soon limited the production level by 20th century. Both supply and demand were decreasing in manufacturing sector while those of service sector were increasing. Simply put, in economical perspective, manufacturing sector of Great Britain was 'dying out'. It was the Labour government, controlled by Trade Union Congress, that went against the law of economics and heavily subsidized the dying industries.
            Beginning with Bank of England in 1946, the Labour government continued to nationalize major industries of Britain including British Overseas Airways, British European Airways, British South American Airways, The Coal Industry, electricity, cable and wireless, gas and steel. All of this happened during the five years of labour government between 1945 and 1950 but above all, creation of National Health Service in 1946 was one of the most significant events in the 20th century Britain. British government chose to nationalize certain manufacturing industries as well, one of which was Rolls-Royce. When Rolls-Royce went bankrupt in 1971, the government chose to nationalize the industry at a huge cost from taxpayer's money. The National Enterprise Board established in 1975 was originally established to invest and promote new industries with good prospects. However, it soon distributed its resources into private companies that were on verge of collapsing. New industries that really needed investment obtained almost none, and hence the economy slowed down. It was these days that British Leyland, the largest British manufacturer, was nationalized. As a result of excessive nationalization, 7.45 million (29.3%) out of 25 million employed people were in the public sector, and the Civil Service had employed twice as many as it had in 1939. The National Health Service alone employed 1.5 million and nationalized industries employed over 2 million. This was nearly half of the entire number in manufacturing industries. The subsidies (Pound 4.6 billion) and borrowing (Pound 2.5 billion) of the nationalized industries in 1979 were almost equal to the cost of servicing the national debt (Pound 8.4 billion). (4) These subsidies, however, were not invested in new growing companies but to declining, 'dying out' industries such as coal industry.
            As part of building up the Welfare state, the government strived to distribute everything equally, even the development of economy. Fruit of this effort was born as the Regional policy, which is an intervention by government in the location of industry and people to ensure a more even distribution of economy (5). This policy first emerged with the sign of certain manufacturing regions in Britain declining during the inter-war period, and began to grow in scope significantly during the post-war period when both the Conservative and Labour government concentrated on economic equality. While Clement Attlee was prime minister of Labour government between 1945 and 1951, the Distribution of Industry Acts of 1945 and 1950 was passed. Intended to redevelop certain areas, this Act identified areas eligible for assistance, labeling them 'development areas' upon which the Board of Trade was granted authority to build factories, provide finance for trading estates, reclaim derelict land, and make grants and loans to firms in those development areas. As the Act was evidently part of planned economical approach, many felt this to be against the spirit of market economy and private enterprise, calling it "Socialism carried to the last limit". From June 1945 to January 1950, some 985 installations (factories, factory extensions, etc.) were built in development areas, creating approximately 200,000 jobs. (6) Unemployment in depressed areas dropped significantly, but only at the cost of developed areas. Town and Country Planning Act enacted in 1947 introduced the Industrial Development Certificate (IDC), and this required that all new manufacturing operations or extensions to existing operations over 5,000 square feet obtain the IDC. Many requests of IDC in the development areas were rejected. Although business people and entrepreneurs preferred to set up their industry in development areas where demand was high and transportation cost was low, they were forced to move out where the economy was below average. This act soon expanded to ordinary offices with The Control of Office and Industrial Development Act of 1965, which introduced the Office Development Certificate (ODC). From salary of those who work in service sector, Selective Employment Tax (SET) levied tax rate of 15%, part of which was spent to redevelop certain declining industries in the manufacturing sector. This created an effect of discouraging incentive to work among the service sector, while the productivity of manufacturing sector remained low. The Resettlement Scheme of 1946 provided assistance with migration to all unemployed workers. Its ultimate purpose was in transferring unemployed workers of developed regions to development areas in order to establish new industries or extending the scope of existing ones. The assistance includes free fares to the new area; a travelling allowance; settling-in grant; financial assistance towards the cost of removal of household effects; and lodging allowance for up to three months. All of this money from national budget was spent on removing the growing economy of developed areas and distribute on development areas. Regional policy had to pay a heavy price, because this policy had to subsidize the entire manufacturing industries in a certain area, needless to say the ones that would have gone bankrupt without the regional policy. At the same time, in an effort to discourage growth of developed areas and encouraging growth in development areas, the government often failed to see hardly any development at all.

1.2.2 Oil Shock of 1973 and Stagflation
            1973 was marked as a year that ended period of Keynesian consensus. According to Keynesian theory and its school of economists, there is a trade off between inflation and unemployment. Unemployment rate would decrease while inflation increases and hence government could reduce unemployment rate by printing out more money. Although this theory worked in practice during the 1950s and 1960s, Oil Shock of 1973 resulted in both high inflation rate and high unemployment rate.
            Oil Shock of 1973 began with Yom Kippur War (7). When Arab nations attacked Israel, some western nations supported Israel with weapons and money behind the stage. Outraged by this action, Organization of Arab Petroleum Exporting Countries (OAPEC) declared that they would no longer export oil to those nations that supported Israel. At the same time, OPEC members decided to raise world oil price after the negotiation with "seven sisters" had failed (8). The dominance of OPEC members over the crude oil export business created devastating effect on targeted country of western world, including high inflation and suppressive economic activity. Britain was no exception. Rise in price of oil produced two results: inflation and exacerbation of state of economy.
            But the inflation did not begin with Oil Shock - it had already begun long time ago. Oil shock exacerbated the inflation drastically to the level that ordinary citizens experienced immediate inconvenience in everyday lives. A loaf of bread which cost 1.5P in 1938 cost 65p in 1979, an increase of 4200% in the most basic of commodities in just 40 years. (9)
            Keynesian school of economics lost its popularity with the stagflation. Stagnation and inflation was proven to be no longer inversely correlated: it could be directly correlated. Hence, people lost confidence all economic policies based on Keynesian Theories, executed by Labour government. Instead, market economy and monetarism, supported enthusiastically by Milton Friedman and other economists at the University of Chicago gained more acceptances.

1.2.3 Belligerent Trade Unions and the Winter of Discontent 1978-1979
            As mentioned above, the power of Trade Union in Britain by 1970s was formidable. Numerous times, the Government failed to cope with trade Unions, most notably the National Union of Mineworkers. Ordinary citizens had to face inconvenience due to frequent strikes from public sectors, and were highly dissatisfied with government's incapability to control such problems.
            Once a conservative Prime Minister Edward Heath attempted to fight the trade unions and talked of importance competition. After 13 years of Tories' rule from 1951 to 1964, Labour party under Harold Wilson won more seats in the parliament than the conservative party. The gap between the two only increased in 1966 and this was when Heath started to shape his ideas. He believed in reshaping the welfare society with more emphasis on selectivity priority on business.
            "We will embark on a change so radical, a revolution so quiet and so total that it will go far beyond the programme of a parliament ..." Edward Heath, In Tory Party Conference after his election victory in1970
            But in reality, it was Heath's government that spent enormous amount of national budget in rescuing Rolls-Royce and Upper Clyde Shipbuilders, both of which had been less than competitive in the world market. Although Heath had always believed the necessity of competition, the opposition was strong. During the Oil Crisis of 1973, The National Union of Mineworkers had called on a strike, and the situation turned chaos. He was defeated in October 1974.
            This inconvenience culminated in the winter between 1978 and 1979, a period we now refer to as "Winter of Discontent". During this period, Callaghan was the Prime Minister from Labour Party. By this time, inflation was high, unemployment rate was high and strikes in both public and private sector became ubiquitous. In an effort to control the inflation rate, which was 15% in 1978, Callaghan limited wage increases to 5% per year but this plan was strongly opposed by the Trade Unions, and hence the beginning of Winter of Discontent. During this winter, strike spread across the country like a highly contagious disease, calling for higher pay-raise. Due to strikes from public sector, electricity, gas and even waterline was jeopardized. Railway did not operate and even hospitals closed down. Only emergency patients were taken in some hospitals. Some gravediggers went on a strike too, leaving dead bodies rotting on the ground. The Ford Motor Company ended up giving 17% raise to the workers; a rate which would double the wage in less than 5 years if continuously applied each year. Violent mass picketing occurred and even those who obtained the deal that concerns their wage continued to call on sympathy strike, a form of strike that is called on sympathy for a fellow trade union. But the best part of this period for trade union was that they did not have to pay for any damages after all the disruption they have caused over the winter.
            Anti-Union sentiment developed across the nation. Newspapers and Tabloids accused both egoistical Unions and impotent government. "Crisis ? What Crisis ?" was the headline of The Sun after James Callaghan said in an interview at Heathrow, "I don't think other people in the world would share the view that there is mounting chaos." (10) British people watched news of streets stacked up with uncollected rubbish and belligerent union members attacking police. All of this pointed out for a need for fresh new leader who could charismatically contain the situation.

1.3 The Political Rise of Thatcher
            Stanley Baldwin, a conservative, was the prime minister when she was born. Both her parents were born when a conservative prime minister was in power. When Thatcher was attending Oxford, deepening her intellectual knowledge, Winston Churchill was the prime minister. And the year she got married, in 1951, Churchill returned to power, defeating the Labour party. And in 1959, the year she became MP, Harold Macmillan was premier. All of this could be coincidental, but it is nonetheless a universally acknowledged truth that Margaret Thatcher truly was a daughter of Conservative century.

1.3.1 The Intellectual Roots of Thatcherism
            In order to understand 'Thatcherism' and its results, one must identify not only the historical background, but also the intellectual background of Thatcherism. Friedrich von Hayek, the author of The Road to Serfdom, was described as one of the greatest intellects of 20th century by Margaret Thatcher. In his book, he described the free and competitive economy in which the function of society is merely to encourage individual activity and protecting diversity. This, however, published in the first half of 20th century, bought widespread criticism from society, which thought that role of society is to shepherd all people towards achieving the common good. Hayek also believed that true individualism is not equalitarian. While all men should be 'treated' equally, they should not be 'made equal'. Individualism, Hayek wrote, is opposed to any form of prescriptive privilege, to all protection of any rights not based on rules equally applicable to all persons, and at the same time, to the right of government to limit what the able or fortunate may achieve. This means that just because someone is highly affluent and talented, does not mean government can just take away his incentive to work. Hayek also provided justification for Thatcher's privatization policy and war against trade unions in the later years
            Institute of Economic Affairs (IEA) was founded by Antony Fisher, a businessman, in 1957. Through this institution did Hayek's teaching and that of Milton Friedman found expression. Milton Friedman, author of Free to Choose, also strongly believed in free market philosophy. However, the IEA was initially not acknowledged by many politicians except one: Keith Joseph. Keith began to read the publications of IEA since 1964 and shared their views on this society.

Notes

(1)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 6
(2)      Harmer, H J P. Longman Companion To the Labour Party, 1900-1998. London : Longman, 1999
(3)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 3
(4)      Pugh, Peter and Carl Flint. Thatcher for Beginners. London: Icon Books, 1997. Page 17.
(5)      Kim, Changhyun, Thatcherism, Sosa-ri : KMLA 2005
(6)      Distribution of Industry Act of 1945, Wikipedia. http://en.wikipedia.org/wiki/Distribution_of_Industr y_Act_1945.
(7)      Fought from October 6 to October 26, by a coalition of Arab states led by Egypt and Syria against Israel. The war began with a surprise joint attack by Egypt and Syria on the Jewish holiday of Yom Kippur.
(8)      Refers to seven major oil companies of 20th century: Standard Oil of New Jersey, Royal Dutch Shell, Anglo-Persian Oil Company, Standard Oil Co. of New York, Standard Oil of California, Gulf Oil, and Texaco.
(9)      Thatcher for Beginners, p.17
(10)      Winter of Discontent, Wikipedia.



Chapter VII (as of June 8th 2008) . . . go to Teacher's comment

VII. Symptoms Common to Both Nations
            Current economic situation of Korea is highly similar to that of Britain back in the late 1970s when Margaret Thatcher obtained power. In other words, Korea is suffering the same disease that Britain experienced before. Evidence is overwhelming that it is not so difficult to detect the similarities.

VII.1) Inflation and Bubble Economy
            The British economy suffered from reduced standard of life due to high price increase rate and high currency (Pound) rate. While Korean economy suffers less from increasing price rate, Seoul has one of the highest price rate status quo, and has a huge bubble inside. This is due to almost mad increase of professional speculator and stockjobber in real estate. There is also the polarization effect among different sectors of income level, distorted overconsumption culture, a sudden boom of price in public service such as education, health care and energy that further accelerates the bubble economy of Korea. All of the increase in price rate may be partly attributed to the excessive demands of workers on all sectors, both low and high income group.

VII.2) Explosion of Demand for Public Service and Over-Spending by Big Government
            "From cradle to grave" was the motto of British welfare state under labor government. Public service expenditure rose significantly, continuously and hence excessively. To make matters worse, flimsy management among nationalized industries produced little outcome. Economy of South Korea after IMF economic crisis has been nonetheless the same. In a desperate effort to save the workers and reduce the unemployment rate, government increased the aid to the unemployed, low-income group and low growth rate industries to the point that the rest were completely neglected. Commonly indicated as a side-effect of Grassroots democracy in Korea is an ostensive executive branch with burden of high expenditure.

VII.3) Lack of Entrepreneurial Spirit and Violent Group-Egoism of Trade Unions.
            In May 2006, Angela Merkel, the prime minister of Germany famously said in her speech at the conference of German Confederation of Trade Unions, ˇ°I want strong Trade Unions. I want powerful German confederation of Trade Unions!ˇ± and with that came thunderous applause and cry of support. And then she continued, ˇ°And I now ask you, the members of trade union to ask yourselves if the method of problem solving you have been using since the creation of the trade union is still validˇ± and the entire place was dead silenced.
            Margaret Thatcher, prior to becoming the prime minister saw that the origin of British economic disease was in belligerent trade unions that crave for excessive power and money. Unlike back in the 19th and early 20th century, there are laws that protect the rights and working conditions of workers. Hence continuous demand of wage raise that has far out-raced the inflation rate resulted in fall of competitive power of nation. South Korea, without its entrepreneur spirit that raised the nation back in the 1950s is long gone, and only the hungry spirit of trade unions is left.
            Lee Kuan Yew, the former prime minister of Singapore who lifted up the nation from being a developing country into one of the most developed country, once remarked with sincerity in one of his interview, ˇ°If the members of trade unions in Korea on save up their energy to fight against national police for targeting the global market, I have no doubt that South Korea will surely be able to develop significantlyˇ±.
            Of course, settlement of cooperative and productive relationship between trade unions and the managers is not an easy objective. The new legislation that bans distinction between regular and non-regular job, passed in the third quarter of 2007 in South Korea, is regarded as a step forward to improve relationship. However even this is criticized by the new Right movement, gravely concerned about fluidity of labor capital and burden on business sector with the new legislation. The Korean confederation of trade unions is unsatisfied with their win, as usual. Hence a direction for a win-win legislation amendment to meet the demands of both sides is dim.

VII.4) Long Term Economic Backdown and Rise of the Unemployment Rate
            Similar to the situation of the Great Depression back in the 1930s, Britain suffered from economic back down in the 1970s that eventually became a long-term phenomenon. Every year unemployment rate rose little by little, a little more than the previous year. Korean economy after IMF economic crisis also suffered from ultra-high unemployment rate and increase of one-man business or flimsy independent business management. This in turn is producing excess supply of labor capital and settlement of long-term economic back down. Especially the high unemployment rate among the young generation accounts for insufficiency of effective demand, further accelerating the economic back down.

VII.5) International Monetary Fund and Absence of Stabilization Policy
            In 1976, the United Kingdom, the former empire on which sun never sets, humiliatingly had to receive aid from International Monetary Fund. But even after the fund, economic stagnation and inflation continued to soar, exacerbating the stagflation. Stabilization policy, the one and only solution to this situation was avoided.
            With 20 years in gap, Korea too received aid from International Monetary Fund in November of 1997, but to the surprise of many foreigners, recovered very quickly and graduated from subordination under IMF. But the problem was that even before the toast celebrating economic recovery has been finished, credit card crisis broke out and again, stabilization policy was to be abandoned in pursuit of imminent danger of economic break down. The credit card crisis refers to a crisis in which millions of credit card debtors refuse to pay back until the company is bankrupt. When the company is bankrupt, their debt is nullified.
            Besides these apparent similarities arise numerous other similar characteristics. Law and order is loosened under overflowing populism, distribution-priority policy leftist government for the past fifteen years, frequent changes in economic policy ? all constitute to the ambiguity and dimness of future society. Clearly, Korea is suffering from British economic disease syndrome.



Working Table of Contents, 1st Update (as of June 8th 2008) . . . go to Teacher's comment

I. Abstract
II. Introduction
     1.) A Brief History of Trade Unions since Industrialization
     2.) Examples of Conflict among other State-Labour Relations and Major Trend
III. Korea
     1.) Formation of Labour Unions in Korea
     2.) Effect of Labour Unions on Korean Economy and Society
          1.) Leftist Party Rule (1992-2007)
               1.) Kim Young Sam 1992-1997
               2.) Kim Dae Joong 1997-2002
               3.) Noh Moo Hyun 2002-2007
          2.) Bubble Economy and Excessive Demand
IV. British Disease before Thatcher (from Attlee to Callaghan)
     1.) Socialist Policy of the Labour Party
          1.) Welfare State and Stagflation
          2.) International Monetary Fund 1976
     2.) Trade Unions and Group Egoism
          1.) National Union of Mineworkers
          2.) Cooperational and Hierarchical Structure of Trade Unions
          3.) Effect on Overall Economy
V. Doctor Thatcher in Office (1979-1990) - New Right Movement
     1.) Monetary Economic Policy
     2.) Privatization of Industry
     3.) State-Trade Union Relationship
     4.) Low Direct Tax, High Indirect Tax
     5.) Reduction of the NHS
VI. Effects of Thatcherism
     1.) Positive Efects
          1.) Increase in Production Level - Reduced Power of the Trade Unions
          2.) Stabilization of the Inflation Rate
               1.) Stabilization of the Currency
               2.) Removal of Bubbles
     2.) Negative Effects
          1.) Polarization of the Economy among Different Sections
          2.) High Unemployment Rate
VII. Symptoms Common to Both Nations
     1.) Inflation and Bubble Economy
     2.) Explosion of Demand for Public Service and Over-Spending by Big Government
     3.) Lack of Entrepreneurial Spirit and Violent Group Egoism of Trade Unions
     4.) Long-Term Economic Backdown and Rise of Unemployment Rate
     5.) International Monetary Fund and Absence of Stabilization Policy
VIII. Thatcherism and the Korean Economy
     1.) How Thatcherism Could Be Adapted and Applied to Solve Problems in Korea
     2.) Drawbacks and Limitations of Thatcherism in Korean Society
IX. Conclusion
Notes
Bibliography



Working Table of Contents (as of May 30th 2008) . . . go to Teacher's comment

I. Abstract
II. Introduction
     1.) A Brief History of Labour Unions and Their Purposes
     2.) Brief Summary of Situation of State-Labour Relations in Korea for the past 10 years
III. Korea
     1.) Labour Unions in Korea
     2.) Economy of the Manufacturing Sector
     3.) Corruption
     4.) Bubble Economy
IV. Thatcherism
     1.) The British Economy before Thatcher
          1.) Problems of British Society
          2.) The Emergence of Thatcher
     2.) Thatcher's Policies
     3.) Results
          1.) Overall conomy and the Labour Unions
          2.) Manufacturing Sector (the North)
          3.) Business Sector (the South)
V. Comparison
     1.) Comparison of the two situations: Labor unions of London in 1980s and that of Korea.
     2.) How Thatcherism could be adapted and used to solve problems in Korea
     3.) Drawbacks and limitations of Thatcherism in Korean society
VI. Conclusion
     1.) Thatcherism is a policy proven to have worked
     2.) However, the social structure of Korea does not allow some of the benefits of Thatcherism to flourish in this society.
VII. Notes
VIII. Bibliography



Bibliography (as of May 30th 2008) . . . go to Teacher's comment

I. Sources already looked into
1.      Cook, Chris and John Stevenson. Longman Companion to Britain since 1945. 2nd Ed. London : Longman, 2000.
2.      Harmer, H J P. Longman Companion To the Labour Party, 1900-1998. London : Longman, 1999.
3.      Kim, Changhyun, Thatcherism, Sosa-ri : KMLA 2005
4.      Mankiw, Gregory. Principles of Economics. no place : South Western, 3rd edition 2004
5.      Taylor, B. John. Economics. Wilmslow : Sigma Press, 2006
6.      Bong-Shik, Seol. Thatcherism and Korean Economy. Chung-Lim Press, 2007

II. Books that will be used but yet to be ordered
7.      Pugh, Peter and Paul Flint Thatcher for Beginners. London : Icon Books, 1997.
8.      Seldon, Anthony and Daniel Collings. Britain Under Thatcher. London : Longman, 1999
9.      Seumas Milne, The Enemy within (2004) : About secret service undermining coal industry
10.      A. Wakefield, The Miners' Strike Day by Day (2002): day-to-day account
11.      Taylor, J. Andrew. National Union of Mineworkers and British Politics 1944-1995. Sutton, 1998
III. Books once considered but unlikely to be used
12.      A.J. Taylor, The Politics of Coal (1985) : only 6 pages long
13.      Triona Holden, Queen Coal, Women of the Miners' Strike (2005): about women's role in society
12.      Guthrie Hutton, Coal not Dole, Memories .. (2005) :not enough information



Bibliography (as of March 23rd 2008) . . . go to Teacher's comment

1.      Cook, Chris and John Stevenson. Longman Companion to Britain since 1945. 2nd Ed. London : Longman, 2000.
2.      Harmer, H J P. Longman Companion To the Labour Party, 1900-1998. London : Longman, 1999.
3.      Kim, Changhyun, Thatcherism, Sosa-ri : KMLA 2005
4.      Mankiw, Gregory. Principles of Economics. no place : South Western, 3rd edition 2004
5.      Pugh, Peter and Paul Flint Thatcher for Beginners. London : Icon Books, 1997.
6.      Seldon, Anthony and Daniel Collings. Britain Under Thatcher. London : Longman, 1999
7.      Taylor, B. John. Economics. Wilmslow : Sigma Press, 2006