Conservative Governments and the Economy, 1979–97
| DOI | 10.1111/1467-9248.00105 |
| Author | Stephen Wilks |
| Date | 01 September 1997 |
| Published date | 01 September 1997 |
| Subject Matter | Article |
Conservative Governments and
the Economy, 1979±97
STEPHEN WILKS
University of Exeter
Over the past eighteen years Conservative economic policy makers have taken
the British economy on a remarkable roller coaster ride which has seen two deep
recessions, a triumphant boom and a mature recovery. In the process they have
created the electoral paradox of winning in a recession (1992 ± and virtually
1983) and losing during a recovery (1997). The shape of macro-economic policy
has been transformed by the ending of the British establishment's love aair
with Keynesianism1 and by its ¯irtations with Europe, although there remains
considerable institutional continuity. In contrast, in the realm of micro-
economic policy, on the supply side of the economy, there have been a series of
profound institutional changes. Privatization has eliminated the state-owned
sector of industry; the labour market has been transformed by measures in
industrial relations and education; and ®nancial re-regulation has changed the
face of the ®nancial sector. Meanwhile supply side policy has gone through a
cycle of disengagement, detachment and revival of interest in the idea of
competitiveness.
This period of Conservative ascendancy has employed new ideas, new policies,
and a new style of government to arm an ancient doctrine: the doctrine of the
market. It is hardly surprising that one of the main outcomes of eighteen years of
a pro-capitalist government should be a reinforcement of capitalist property
relations and the triumph of the master institution of contemporary capitalism ±
the business corporation. Labour is also now a party of the market. Clause IV
has been rewritten, and terms such as co-operative capitalism and stakeholder
capitalism have entered the New Labour discourse.2 In the following discussion
less attention is paid to macro-economic policy and the in¯uence of the
European Union. Important though these factors are, they have been generously
discussed elsewhere. Instead more emphasis is given to the supply side, to
institutions and to changes in the importance of business corporations.
The Policies, the Goals, and the Successes
The traditional goals of economic policy were fourfold; low in¯ation, high
growth, low unemployment, and a trade balance. Since 1979 the single target of
The author gratefully acknowledges the support of the ESRC through a Senior Research
Fellowship, and the comments of Andrew Hindmoor.
1 D. Winch, `Keynes, Keynesianism and State Intervention', in P. Hall (ed.), The Political Power
of Economic Ideas (Princeton, NJ, Princeton University Press, 1989), pp. 107±27.
2 W. Hutton, The State We're In (London, Vintage, rev. edn, 1996).
# Political Studies Association 1997. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main
Street, Malden, MA 02148, USA.
690
Conservative Governments and the Economy
macro-economic policy has become the minimization ± or elimination ± of
in¯ation. The other three goals have been regarded as residuals whose achieve-
ment is contingent on a favourable in¯ation outcome, although Major gave
more emphasis to growth from 1993. The emphasis on in¯ation was central to
the New Right, it was the key to the 1979 election victory and its pursuit shifted
the balance of economic power away from labour (favoured by Keynesian full
employment policies) towards the ®nancial markets. Indeed, the control of
in¯ation gives pre-eminence to abstract market forces and perpetuates the
Keynesian tendency for economic policy makers to ignore speci®cs of industrial
performance. In¯ation came under fragile control but that in itself is an empty
achievement. More important is whether indicators of real eciency and wealth
responded positively and here we can look to measures of GDP, productivity
and purchasing power, all in comparative context.
TABLE 1. Average Annual Growth Rates of GDP: G7 Countries, 1979±97
UK
G7
US
Japan Germany France
Italy
Canada
1979±83
0.9
1.8
1.3
3.4
1.2
1.8
2.3
1.8
1984±88
4.0
3.8
4.0
4.3
2.5
2.5
3.0
4.7
1989±93
0.4
1.9
1.7
3.0
3.1
1.5
1.1
0.7
1994±97
3.0
2.3
2.5
1.7
2.0
2.2
1.8
2.8
1979±97
2.1
2.4
2.4
3.2
2.2
2.0
2.1
2.5
Source: derived from OECD Economic Outlook: Annex Table 1, Real GDP, includes projections for
1997 at December 1996.
On GDP measures the UK performance from 1979 to 1996 is respectable.
Since 1979 we have seen two recessions of great severity and two recoveries. The
1979±83 recession was simply catastrophic as illustrated in Table 1. It saw the
biggest slump in output and rise in unemployment since the 1930s. It was
exacerbated by a series of doctrinaire policy stances and restrictive budgets,
causing Peter Riddell to remark that `the Thatcher administration's record in its
®rst term was worse than that of any previous post-war government in Britain'.3
Yet ®ve years later, in his 1988 budget speech, Nigel Lawson asserted that the
`country is now experiencing an economic miracle comparable to that enjoyed
by West Germany and still enjoyed by Japan'.4 Although such claims generated
magisterial rebukes,5 for a short euphoric period the Lawson boom generated
serious academic discussion of a breakthrough in British economic perform-
ance.6 Then came the 1990±94 recession with its bankruptcies and property
slump, the misery of long term unemployment and the sense of betrayal across
the small business sector. As Mrs Thatcher was ejected from oce in November
1990 she was accompanied by an aura of economic failure. But by 1995 the
triumphalist voices were again being raised. More cautiously, and with less
3 P. Riddell, The Thatcher Government (Oxford, Martin Robertson, 1983), p. 76.
4 Cited in R. Martin, `Has the British Economy been Transformed? Critical Re¯ections on the
Policies of the Thatcher Era', in P. Cloke (ed.), Policy and Change in Thatcher's Britain (Oxford,
Pergamon, 1992), p. 136.
5 See, for instance, K. Coutts and W. Godley, `The British economy under Mrs Thatcher',
Political Quarterly, 60 (1989), 137±51, who call the claims `preposterous', p. 150.
6 For instance, L. Hannah, `Mrs Thatcher, Capital Basher?', in D. Kavanagh and A. Seldon,
(eds), The Thatcher Eect (Oxford, Clarendon, 1989), pp. 38±48.
# Political Studies Association, 1997
STEPHEN WILKS
691
impact, Britain's performance in the mid-1990s was once again beginning to
outstrip her European competitors, and particularly Germany. Growth in
British GDP passed that of the united Germany in 1992 and is forecast to
maintain that lead up to the end of the decade. Table 1 indicates that the UK
growth rate for the 19 year period 1979±97 is reasonable, compared to the rest
of the G7, and for the four most recent years is actually the best. Even on
standardized, un-massaged, statistics British unemployment is on a par with
Germany and has been better than France since 1988. This can be translated
into living standards by looking at GDP per head at purchasing power parities.
In 1994 the UK's output per head was the 16th highest in the OECD but no EU
country exceeded the UK ®gures by more than 15 per cent,7 our European
competitors are `within reach' and the frustration of Conservative ministers in
search of the `feelgood factor' as they entered the 1997 election was palpable.
Very little of this periodic economic success appears to have been due to the
operation of macro-economic policy. In the ludicrous monetarist experiments of
the early 1980s, the arrogant boom of the late 1980s, and the grotesque rout
from the ERM on Black Wednesday, 16 September 1992, British macro-
economic policy has deepened slumps, stoked up booms, and produced inept
policy. Panic remarks that `the extraordinary tale of UK monetary policy from
1979 to 1992 is likely to be recounted in economic textbooks . . . as a classic
example of how not to pursue such a policy'.8 Since 1992 macro-economic
policy has been emptied of content. No targets, except the control of in¯ation;
and no dominant theory of how the economy works; instead a rather welcome
pragmatism that has aided British industry through a mild re¯ation and
devaluation. In retrospect Black Wednesday appears rosy and the debate on
EMU has taken centre stage.
In his spectacular assault on the Treasury, Sidney Pollard accused the
economic policy establishment of a contempt for production manifested in a
concentration on symbolic values (like prices and the balance of payments) to
the exclusion of `real' quantities (like goods and patents).9 This tendency was
accentuated by the Conservatives' obsession with sound money and by the
discrediting and dismantling of the industrial policy machinery. In many
respects, however, the great disjuncture in economic policy post-1979 is in
micro-economic policy.
In the early days of the Conservative neo-liberal counter-revolution Sir Keith
Joseph (as Secretary of State for Industry) engendered much amusement in his
hand-wringing approval of vast tranches of aid for coal, steel and cars; in his
patent unhappiness at the mere existence of the Department of Industry
(merged into the DTI in 1983); and in his reading list which he solemnly
circulated to senior ocials.10 But Sir Keith's preoccupations were neither
transient nor unattainable and the second term of oce allowed the Conserva-
tives to impose a new supply side orthodoxy on the British economy which was
7 See W. Eltis and D. Higham, `Closing the UK competitiveness gap', National Institute
Economic Review,...
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