Thatcherism, by Kim, Changhyun, Oct 2005

Thatcher's Policies

1) Trade Unions
Margaret Thatcher was elected prime minister of the United Kingdom when there was a popular sentiment against trade unions. Reducing their influence was one of her goals.
Thatcher's policy was not to directly intervene in strikes in the private sector. She believed that workers should be made to face unemployment if they forced their employers into bankruptcy. Her reasoning was that workers were more concerned with preserving their jobs than engaging in political and industrial confrontations.
Although Thatcher did not believe in direct intervention, she did pass legislations to limit the unions' power over the individual workers or against the management. In 1979, she claimed that millions of British workers feared union power. Polls proved her correct: over 80% of workers favored the government's proposals to reform and limit the unions. The first legislation to limit union power was the Employment Act of 1980. It required 80% approval of the workers to establish a closed shop, a workplace where union membership was mandatory. The legislation also restricted sympathy strikes, strikes that workers held in support of other workers in strike. It limited picketing to the workers' place of employment.
The Employment Act of 1982 restricted the definition of a lawful strike to a strike wholly or mainly between workers and their own employers. Sympathy strikes became virtually illegal. In 1973, rail and electrical workers had struck to express support for the mine workers; now such strikes would be illegal. The Employment Act of 1982 also made closed shops even more difficult to create and sustain. Individuals who had been dismissed for not joining a union were now entitled to heavy compensation.
It also provided that unions engaging in illegal labor practices, such as mass picketing, could be sued for civil damages, fined, or held in contempt of the court. Wildcat strikes and other frequent shop floor disruptions were dealt with by making the national union responsible for local violations of the law or labor contract.
By making unions liable to civil suits, the Employment Acts of 1980 and 1982 gave judges, a group typically unsupportive towards trade unions, a say in labor relations. This had a political advantage as well. The government would no longer need to intervene in strikes unless violence erupted, when police force would be used. Rupert Murdoch, the owner of the Times, the Sunday Times, and The Sun, and the News of The World, used the courts to his advantage when his printers went on strike in 1986. The government intervened only when the printers attempted to shut down Murdoch's new printing plant. Overall, Thatcher adhered to her policy that strikes were a matter between the workers and the management.
The Employment Act of 1982 was followed by the Trade Union Act of 1984. This legislation ended the self-perpetuating power of union leaders by requiring that they be reelected at least every five years. It required postal ballots at least every five years for all union offices and provided subsidies for holding them. The Trade Union and Employment Acts of 1988 gave individuals greater independence from their unions. Workers could no longer be disciplined for not participating in an official strike. Most importantly, unions were immune from prosecution for damages occurred during strikes only if the majority of the workers had agreed to strike.
Margaret Thatcher focused her attention on battling unions in nationalized industries. She was successful at preventing a strike at the nationalized auto manufacturer, British Leyland (BL). The company had steadily lost market share to private competitors like Ford. In 1974, BL's market share was 33%, but it had fallen to 20% by 1979. BL unions were notoriously disruptive, but Labour governments had usually gave in to their demands.
In 1980, BL workers threatened to strike for higher wages. The management announced that it would begin paying the wages it had previously offered, and urged the workers to report to work. Fearing unemployment, almost all workers showed up. In 1981, when a similar situation arose, the workers simply voted to accept BL's offer.
Margaret Thatcher's determination to fight public sector strikes was evident in how she dealt with and prepared for the coal miners' strike of 1984. Thatcher had been planning to shut down inefficient mines for some time, and knew that such action would provoke strikes. Prime Minister Sir Edward Heath had dealt poorly with the coal strike of 1973, and Thatcher was determined not to walk Heath's path.
In 1983, she had appointed Ian MacGregor, a tough and resolute Scottish American manager, as the chairman of the Coal Board. He made plans to close unprofitable mines. The Coal Board quietly stored large quantities of coal at the generating plants and the steel mills, the principal users of coal. Other major users of coal were advised to build their inventories of coal. Oil tank trucks were leased and hidden away for use when needed. Thatcher established an agency capable of mobilizing police all over Britain to stop illegal activities such as secondary strikes, mass picketing, and violence.
The pits of Midlands were profitable, and miners in these pits were unwilling to challenge the Coal Board. Workers in unprofitable mines were offered generous payments to give up their jobs, and many decided to take them. Only the most militant miners were left to challenge the Coal Board.
In March 1984, Arthur Scargill, the determined leader of the National Union of Mineworkers, called a strike. Gangs of strikers tried to block the entry of coal into powerplants, and some went to operating mines and provoked violence. This necessitated police intervention, and the public opinion was in favor of the police. Scargill had difficulty getting support from other unions because of the high unemployment rate. Scargill continued to refuse closure of any mines whatsoever, but the strike ended in his defeat in March of 1985. The number of miners were cut by 40%, but coal production dropped only 15%.
During the Thatcher years, union membership declined. In 1979, 13.5 million workers, or 57% of the workforce, were members of trade unions. By 1986, only 43% were. In 1992, mere 35% belonged to a union. Although one cause of the decline of overall union membership was the decrease in the number of manufacturing workers, who are more likely than average to belong to a union, union membership among manufacturing workers themselves dropped as well. In 1980, 65% of the workers in the manufacturing sector belonged to a union; in 1990, only 44% did.

2) Taxes
Margaret Thatcher believed that direct taxes, especially progressive direct taxes like the income tax, reduced the incentive to work. One of her key objectives as the prime minister was to cut direct taxes, especially the income tax.
She did not have the same attitude towards indirect taxation; her reasoning was that most people pay indirect taxes without even realizing it, and therefore, do not lose the motivation to work. Furthermore, rates of indirect taxes do not go up with income, encouraging people to work hard to make more money. In fact, many indirect consumption taxes such as the Value Added Tax (VAT) and the gasoline tax are regressive; the poor usually spends a greater portion of their income purchasing goods and services than do the rich.
Her tax philosophy was apparent in her first budget, that for 1979. Howe, the chancellor of the Exchequer, stated that he intended to increase personal incentives by reducing direct taxation. Reducing direct taxes, according to him, "would leave room for commerce and industry to prosper." The top rate of the income tax fell from 83% to 60%; the base rate went down from 33% to 30%. On the other hand, the VAT was sharply increased from 8% to 15%. The motor fuel tax and the National Insurance contributions were raised as well. The National Insurance contributions are, despite the name, a kind of direct tax. It is, however, regressive. The poor pay a much greater portion of their incomes than do the rich.
The 1979 budget shifted the burden of taxation from the rich to the poor and the middle class. Thatcher noticed the potential for controversy in making the poor pay more taxes. She later explained that the government could do it only at the beginning, when the mandate was fresh.
In 1981, she actually increased taxes. It had become apparent that cutting taxes while aiming to reduce inflation was contradictory. In order to reduce inflation, public borrowing and private consumption needed to go down. She was eagerly cutting spending in certain areas, but not enough to eliminate budget deficits. The 1981 budget included raises in the income tax and the National Insurance contributions. A wide variety of new consumption taxes were introduced. However, the increase in the income tax rates was not permanent. Its rates were soon lowered back to previous levels.
By 1984, the economy was back on its track, and the sale of North Sea oil and nationalized companies provided additional revenue. That year, the corporate income tax was cut, balanced by the removal of many corporate income tax exemptions. In 1985, the basic exemption for the personal income tax was raised, giving tax relief to many low-income people. Tax deductions for mortgage interest were also raised. The Chancellor of the Exchequer promised to eventually lower the basic rate for income tax to 25% from 30%. He started by lowering it by 1% in 1986 and then by 2% in 1987.
Thatcher continued to stress the virtues of low direct taxation. In March 1988, an income tax structure comprising only two brackets, the standard rate of 25% and a higher rate of 40%, was announced. Direct taxes accounted 19.9% of the GDP in 1979; in 1996, it accounted for 17.7%.
Thatcher must not be credited with lowering the overall burden of taxation. Her tax policy was to cut direct taxes at the expense of increasing indirect taxes, particularly the VAT, consequently reducing redistribution of income through taxation. Taxation accounted for 38.5% of the GDP in 1979, the year Thatcher became prime minister; it accounted for 40.75% of the GDP in 1990, the year Thatcher left office. This is because she aimed and succeeded in eliminating budget deficits, and funding of certain areas of spending such as health, education, and the police increased. From 1985 to 1989, public revenue grew 37%, but public spending grew only 21%.
Thatcher's policy regarding direct and indirect taxation was met with mixed emotions, but her decision to start one tax, the poll tax, was met with almost universal criticism. I will discuss the poll tax in greater detail under 7. The Poll Tax.

3) Privatization
Thatcher believed in free enterprise, competition, and market economy. To her, public ownership of major industries meant that they would be sheltered from competition of the marketplace and become inefficient. For political reasons, nationalized industries would never be allowed to go bankrupt, placing heavy burden on tax payers who funded subsidies. Furthermore, they were bastions of the labor movement, since the workers didn't have to worry about losing their jobs.
During her first term (1979-1983), getting inflation under control was her primary objective. She mainly privatized companies that were generally unknown to the public and weak politically. These included the National Freight Corporation (1980), part of British Aerospace (1981), Cable and Wireless (1981), British Oil (1982), British Rail Hotels (1981), British Sugar Company (1981) and Associated British Ports (1983). All of the National Freight Corporation was sold to its employees, and the prices of shares rose so fast that those who chose not to buy regretted their decision.
After 1983, privatization became Thatcher's primary objective. British Telecom was sold in 1984. Privatization continued with the sale of the remainder of British Aerospace (1985), the National Bus Company (1985), Associated British Ports (1985), Jaguar (1984), some naval shipyards (1985-1986), and the factories of the Royal Ordinance.
British Airways had been high on the privatization list, and it was privatized in 1987 after it was made profitable by cutting unnecessary staff and improving service. Rolls Royce, the British Airports Authority, and the remaining 31.5% of British Petroleum were also privatized in 1987.
British Steel was privatized in 1988. Like British Airways, it had to be made profitable before it could be sold. Stringent efforts were made to introduce modern technology, cut staff, and close unprofitable plants. Many communities dependent on British Steel were adversely affected, but by 1988, British Steel became one of the largest and most profitable steel companies in the world. When it was privatized, 23% of the stock was reserved for small investors.
The British water system was privatized in 1989. Britain's nationalized water system comprised of ten companies serving major river basins. Each of these companies were charged with provision of water and sewage disposal, in addition to environmental cleanup and nature preservation. Thatcher transferred environmental duties to the newly created National Rivers Authority, and the water companies were made responsible for water and sewage only. In order to privatize the water companies, the government paid their debts, provided tax breaks, invested considerable amount of cash, and offered shares at low prices. The shares were considered good investments, and the competition to acquire them was 5 to 1.
Also privatized in 1989 was Britain's electric system. 12 regional electricity companies were created. The 12 regional electricity companies collectively owned the National Grid, the system of electrical lines. The 12 electricity companies bought electricity from one of the two generating companies. They were required to buy power from the cheaper source. Other entities were welcomed to enter electricity generating business. Also, as was in the case of the water system, the shares were considered lucrative investments and the competition to acquire them was over 5 to 1.
Privatization provided additional economic benefits other than improved efficiency. Privatizing a corporation meant that no more subsidies would be required; private businessmen would be responsible for the success of their corporations. Not only did selling nationalized industries reduce government spending on subsidy, it provided additional revenue to the government. The British government raised 17 billion pounds this way from 1979 to 1987. Privatization helped fund cuts in the income tax, another cornerstone of Thatcherism.
Privatizing reduced union power. In a private corporation, workers would lose their jobs if they drove their employer out of business. Furthermore, managers in private companies are more difficult to fight than the government, which may be lenient to the unions' demands for political reasons. Thatcher would also benefit from not having to battle the unions herself.
There also was a political advantage. Union members, especially those working in nationalized industries, were key constituents of the Labour Party. Privatizing undermined the support base of the Labour Party.
Thatcherism emphasized restoring enterprise culture. Thatcher hoped to achieve this with widespread stock ownership, ushering in an era of popular capitalism. She believed this would take the power away from the government and give people freedom. In order to achieve "particularly the kind of privatization which leads to the widest possible share ownership by members of the public," portions of nationalized corporations were set aside to be sold to small investors. Stock was sold at artificially low prices to attract buyers. In most cases, only lucky investors could buy shares, which increased in value almost instantly. There were 3 million private shareholders in Britain when Thatcher took office; there were 11 million when she left it. This was good for Thatcher politically as well. Private share holders almost always voted Conservative.

Kim, Changhyun
October 2005

Winter of Discontent, from Wikipedia
Thatcherism, from Wikipedia
National Enterprise Board, from Wikipedia
Margaret Thatcher, from Wikipedia
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Thatcherism 1979-91, from BBC England Timeline
Thatcherism 1979-90, from BBC British Timeline
The "British Disease", from BBC British Timeline
Thatcherism, from Economy Professor
Margaret Thatcher, from PBS
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