Neoliberal Thought and Thatcherism

'A Transition From Here to There?'

Robert Ledger

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781138280267
• eBook ISBN: 9781351987646
• Edition: 1
• Topic: Economia
• Subtopic: Storia economica

The premiership of Margaret Thatcher has been portrayed as uniquely ideological in its pursuit of a more market-based economy. A body of literature has been built on how a sharp turn to the right by the Conservative Party during the 1980s - inspired by the likes of Milton Friedman and Friedrich Hayek - acted as one of the key stepping stones to the turbo-charged capitalism and globalization of our modern world. But how 'neoliberal' was Thatcherism? The link between ideas and the Thatcher government has frequently been over-generalized and under-specified. Existing accounts tend to characterize neoliberalism as a homogeneous, and often ill-defined, group of thinkers that exerted a broad influence over the Thatcher government. In particular, this study explores how Margaret Thatcher approached special interest groups, a core neoliberal concern. The results demonstrate a willingness to utilize the state, often in contradictory ways, to pursue apparently more market orientated policies. This book - through a combination of archival research, interviews and examination of neoliberal thought itself - defines the dominant strains of neoliberalism more clearly and explores their relationship with Thatcherism.

1 Neoliberal thought

There are a number of principles to keep in mind when attempting to define a term such as neoliberalism. The concept contains a number of threads, which in and of themselves can be fairly diverse. In addition, the historical moment in which these developed is very much key to understanding their significance. Nevertheless, it is the historian’s job to bring these divergent ideas together, in a way that aids the reader’s understanding. As mentioned in the introduction, the term neoliberalism has increasingly been used as a catch-all label, often as a pejorative. For our purposes it has been very easily attached to the policies of the Thatcher government. This chapter will break down the term into a series of ‘schools’, building on the recent literature articulating a ‘family’ of ‘neoliberalisms’.¹ These include some that may be familiar, such as Milton Friedman’s Chicago School, and others that are lesser known, such as the Ordoliberal – or Freiburg – School. How these influenced British politicians is the subject of Chapter 2.

Defending classical economics: the Austrian School

Joseph Schumpeter feared that embedded within the success of capitalism lay the forces that could eventually destroy it. Many intellectuals in the first half of the twentieth century were typically antagonistic to the market, barely tolerant of capitalism and critical of the attitudes, extremes and insecurity it appeared to precipitate. This ranged from Marxists, the critique of ‘finance capital’ by Austrian Rudolf Hilferding and the later, more accommodating, followers of Keynes. All wanted to overturn or at least attenuate the effects of laissez-faire. It was unsurprising that in the aftermath of the catastrophic financial problems of the 1930s and subsequent war to which these conditions had seemingly led, thinkers advocated the taming and regulation of unfettered capitalism. The idea of market failure also encouraged growing state intervention in the economy, that is to say the belief that the market system can cause externalities (adverse and unintended effects) that damage wider society and require government intervention. Yet if Schumpeter’s point seemed to be relevant, he himself belonged to a group of intellectuals that would have profound effects in the latter half of the twentieth century. Schumpeter was a classical liberal and belonged to the ‘Austrian School’ of economists.

With socialist thought in the ascendency in the late nineteenth century, Carl Menger founded the Austrian School, studying classical economic thought, in 1870s Vienna. Menger, whose work included The General Theory of the Good, wanted to create a new theoretical framework that would more clearly define Adam Smith’s system of ‘universal opulence’.² Menger’s work concentrated on individual behaviour as well as price.³ Eugen von Böhm-Bawerk was also a noted Austrian thinker at the turn of the century. It was the third generation though, led by Ludwig von Mises and inspired by Menger and Böhm-Bawerk, which began to make significant contributions to what we might now consider neoliberalism. Mises included social science and political philosophy, as well as economics in his work and became mentor to the young Friedrich Hayek in the 1920s.⁴ Mises and Hayek developed thinking on the business cycle during this period. They identified government monetary policy as the primary cause for cycles of boom and bust, believing that interest rates and the supply of money were being manipulated away from their ‘natural levels’.⁵ In an era, particularly following the stock market crash of 1929, when most economists advocated more government intervention, Austrians like Mises and Hayek had a drastically different view. For them, state interference was at the core of the problems experienced in Western countries.

Hayek taught at the London School of Economics in London in the 1930s and entered into a series of public and private debates with John Maynard Keynes over the course of the decade. The full effect of Hayek and the Austrians was not to be felt until much later but his 1944 book, The Road to Serfdom, became a liberal classic. Hayek, at the height of British reverence towards Keynes and the Beveridge Report, made an unfashionable argument: the state was not necessarily a benevolent force. Hayek based his analysis on both the Nazi and Soviet regimes, supposedly at either ends of the ideological spectrum. Fascists and communists had assembled huge state bureaucracies, and were oppressive, autocratic and violent towards their own citizens.⁶ As well as the potential malignancy of an expanding state, Hayek saw socialist utopias as ultimately leading to collective misery. According to Andrew Gamble, Hayek thought socialism similar to the ‘archaic religions’ of traditional society but that liberalism was the natural order of things, based on experience, in modern societies.⁷ The Road to Serfdom advocated renewed trust in the power of the market and that individual liberty could only be obtained under capitalism. There has been some debate over the ‘social’ aspects found at this stage of Hayek’s thinking. For instance, he stated that ‘there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody’.⁸ This will be explored in more detail in Chapter 9 (Social policy). Andrew Gamble identified the other key claims of Hayek’s critique of socialism – it destroyed the basis of morals, personal freedom and responsibility; impeded the production of wealth and may cause impoverishment; and sooner or later leads to totalitarian government.⁹ The Road to Serfdom most notably outlined the latter and proved an unlikely success. This led to a speaking tour of the United States for its author and subsequently a teaching position at the University of Chicago, although not in the economics department, in 1950. It also attracted the attention of Conservative Party Chairman Ralph Assheton as well as Winston Churchill during the general election campaign of 1945.¹⁰

Hayek later claimed that of his generation there were only a handful of economists, apart from himself, that believed in classical liberalism: ‘there were just perhaps (Wilhelm) Röpke, Bill Hutt, and two or three others.’¹¹ They were part of a broader movement that began as an obscure club for intellectual supporters of capitalism. The Paris Conference of 1938 was the first convention of this group of (26) economists and philosophers, including Hayek, Mises, Röpke and Walter Lippman (an American journalist who had influenced Hayek). Those present discussed the defence of market economics and individual liberty but were not to convene again until after the war, when the Mont Pelerin Society was born.¹²

The Austrian School, however, was about more than just Hayek. Ludwig von Mises was a vocal critic of many of his neoliberal contemporaries. Austrian thinking led more easily – in later years – to a more libertarian or market fundamentalist strain of neoliberalism. During the first half of the twentieth century, however, the Austrians developed their thinking alongside another set of academics, in interwar Germany.

The Freiburg School of the 1930s and 1940s

Earlier in the 1930s another group of liberals coalesced in the German university city of Freiburg, near the border with France. It was here that ‘neoliberalism’ was literally born. What made neoliberalism worthy of a prefix? The basic difference with what we might think of as nineteenth-century free trade liberalism or laissez-faire is that neoliberals accepted – even desired – some role for the state. This was to be a reference point for the neoliberals of the 1930s – from Hayek to the Freiburg and Chicago Schools – they all conceded something more than laissez-faire was needed.¹³ Although the Austrian School – less convinced that laissez-faire had failed even in the 1930s – would subsequently become associated with neoliberalism, the concept was initially developed in Freiburg.¹⁴ The group’s ideas acted as a liberal response to the crisis of capitalism in the late 1920s and throughout the foll...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright page
• Table of Contents
• Acknowledgements
• Introduction
• 1 Neoliberal thought
• 2 Neoliberal ideas in Britain after 1945
• 3 Economic policy and the Thatcher government
• 4 Liberalization? Exchange controls and enterprise zones
• 5 Financial deregulation
• 6 Trade union reform
• 7 Electricity privatization
• 8 Broadcasting policy
• 9 Social policy: education vouchers and housing
• Conclusion
• Bibliography
• Index