Thatcherism after Thatcher

Friday, April 30, 1999


Before Margaret Thatcher became prime minister, Britain seemed set to decline into a banana republic, only without any bananas. Thatcherism reversed that and made us proud of our country again. And before Ronald Reagan became president, the United States was widely believed to be falling behind Japan and Europe and even the USSR. Yet under Reagan in the 1980s America regained its vitality and created twenty million extra jobs. So when we talk about Thatcherism, I take that to include Reaganism, too. Together they dominated an era.

The combined effect of America’s resurgent power and the British example of successfully rolling back socialism led to the collapse of communism. Market economics became the dominant paradigm throughout the world, and yet today the center-left is back in power in America and in Western Europe. Does that mean that the Thatcher-Reagan era is now a closed book with no further chapters to come?

Some people do argue that now that both leaders are retired and the challenges they faced were successfully solved, that’s the end of the story; they have nothing to teach us. They claim that Thatcherism and Reaganism are not isms, they’re wasms. But in my view, that’s a profound mistake. It misses the essence of what Thatcher and Reagan stood for. They weren’t just charismatic leaders, though they were that, and their isms were not just about economic policy, though those policies were immensely successful. What made them so significant was that they broke with the pessimism and defeatism that had characterized conservatism for so long.

Conservatives in the two countries had come to accept that national decline and the growth of socialism and state power were somehow inevitable. Thatcher and Reagan rejected that belief. They were adamant that policies that are not desirable are not inevitable. The left’s claim, of course, that its policies are inevitable has been one of its most potent weapons throughout this century. Karl Marx purported to have proved scientifically that the laws of history would lead inexorably from capitalism to socialism to communism. Our modern-day social democrats and liberals may have dropped this pseudo-scientific mumbo jumbo, but they still assert that history is on their side and that the expansion of state power is inevitable.

The great legacy of Thatcher and Reagan was to demonstrate that socialism wasn’t inevitable—that the frontiers of the state could be rolled back and that our national decline could thereby be reversed. We need to revive that spirit again, that refusal to bow before the supposedly inevitable or to back off from tackling the apparently insurmountable. That doesn’t mean to say we go back to the Thatcher agenda. Thatcher and Reagan slew the economic dragons of the 1980s. We must gird up our loins to slay the new dragons of the next millennium. Like Reagan and Thatcher, we must have the self-confidence to dismiss the left’s claims to have history on its side, and we must have the courage to tackle the challenges that seem so intractable that most politicians shrink from even thinking about them.


The biggest challenge we face is to reduce the share of our national incomes spent by the state. This has risen inexorably over this century in both countries. It even rose under Thatcher and Reagan, although they did sharply check its growth. That was no mean achievement, but we shouldn’t be content with that. A lower share of national income spent by the state would bring not only political benefits but lower taxes, stronger incentives, and greater economic growth. Of course, those arguments have always applied, but a new factor will add urgency to the task of rolling back the size of the state in the next century: It’s going to become harder for governments to extract taxes from their citizens and their businesses as more trade and economic activity moves onto the Internet and escapes into the ether in ways that the government simply cannot tax properly.

In both countries, the main factor that has been driving up federal expenditures is spending on social security and welfare. In Britain, spending on those has grown twice as rapidly as national income over the last fifty years. In the United States, spending on social security and welfare now amounts to more than a third of total public spending. Just to pay for social security and welfare now costs, on average, every working American nearly $150 every week, and that’s an enormous burden on them and their families. The United States has had some success in tackling the welfare element of spending and dependency, but although discussion of social security reform is almost taboo, it’s an issue that cannot be shirked.

In most countries, the United States included, social security pensions are the largest single item of public expenditure. In the United States, social security is financed entirely on a pay-as-you-go basis—this year’s social security contributions are used to pay the pensions of people who are already retired, so nothing is being saved or invested for the future. So as more people live longer, the cost of paying their pensions is going to impose an increasingly crippling burden on those of working age.

Britain, by contrast, has begun to solve that problem and has demonstrated that reform is not only possible but even popular. Britain allows people to opt out of the earnings-related part of their state pension and, when they do so, receive a rebate from their social security contributions payable into a private scheme. So their money is saved. It is invested. It goes into industry. It will generate the profits to pay for their pensions in ten, twenty, thirty years’ time without imposing a burden of cost and tax on the economy and meanwhile strengthening the economy through a huge flow and accumulation of investments. More than a trillion dollars of investments in pension funds in Britain have been generated as a result of this policy, which is not just more than any other country in Europe but more than all the other countries in Europe put together have bothered to save and invest for their pension needs. And before the last general election, a plan was put forward that would have gone even further. Over a generation, the entire social security pension program would be transformed so that it would be completely backed by private investments held by individual members of the public. This would be an enormous extension of private ownership of wealth—the biggest extension since the spread of home ownership—and it would generate an immense increase in long-term committed investment in Britain’s economy, so much so that if the extra investment increased the rate of growth of the economy by just one-twentieth of one percent (from 2.25 percent to 2.3 percent a year), it would generate extra tax revenues sufficient to pay for the whole scheme entirely. In any case, it would ultimately relieve the British taxpayer of a burden of some $60 billion dollars a year and it would give our pensioners the most secure, best-funded pensions in the world.


Now Britain may be a bit ahead of the United States on reforming social security, but Britain clearly has much to learn from America on how to deal with crime. The British have come to believe that crime of all types will go on increasing inexorably, year in, year out, and a continuous diet of American crime movies has given Britain the minor consolation of believing that crime will always be worse in the United States. As a result, few people in Britain are willing to recognize that America has now seen a sustained decline in crime such that its crime rate is now lower than Britain’s. Britain should be studying carefully the lessons of America’s experience. Some of them are already clear. First, success wasn’t achieved by liberal policies or by tolerating crime. Second, you can’t have law without order. Third, the best way to get order is through effective policing. Fourth, the best way to make policing more effective is to delegate to local police districts responsibility for reducing crime and hold them responsible for achieving that. And, fifth, the best way for them to reduce serious crime is to refuse to tolerate the vandalism and hooliganism that create the climate in which crime flourishes.

The state nowadays has no compunction about issuing heavy propaganda against smoking, yet it’s deemed politically incorrect to show the slightest hint of approval for marriage.

Conservatives used to assume that, where social issues were concerned, sociologists were part of the problem, not the source of the solution. But now there’s a growing body of high-caliber work by sociologists and criminologists that confirms what conservatives have always instinctively believed. So whereas Thatcher and Reagan used to look to economists as their gurus, their successors will be calling on social scientists to provide their intellectual firepower and their policy ideas. Which brings me to one of the most crucial issues we face.

The latest sociological research has identified an institution of immense importance. It lowers the crime rate, it increases people’s likelihood of finding work, it socializes young males, it reduces rates of mental illness, and it contributes to people’s sense of well-being. It’s quite a small institution, but if there are a lot of them together, the whole area begins to enjoy less disorder and a greater sense of neighborliness. That institution is called the family; so conservatives have been right to believe in it, but we’ve yet to discover a strategy to prevent the spread of family breakdown. The rising tide both of births outside marriage and of marital breakdown means that more and more children find themselves being brought up by one of their parents, and the implications of that for society are enormous. The family has always been the fountain of love, of culture, of religion, of language, and of economic support, and the cost to the taxpayer of helping lone parents support their children has reached alarming levels. In the United Kingdom, the equivalent of $2,000 a year in tax has to be levied from every married couple struggling to look after their own children in order to pay for benefits going to lone parents. We shouldn’t respond to this problem by being judgmental or punitive. Many lone parents find themselves in that position through no fault of their own; they’re widowed, divorced, or deserted, and they struggle to bring up their children properly and often with success. But we should ask whether the state has done anything to undermine the institution of marriage and what it can do to sustain it. There’s little point in our politicians preaching to people, but the government can ensure that the tax and the benefit systems send out positive rather than negative signals about the value of marriage. It’s extraordinary that the state nowadays has no compunction about issuing heavy propaganda against smoking, yet it’s deemed politically incorrect to show the slightest hint of approval for marriage. If the state takes more and more responsibility away from people, it shouldn’t be surprised if people behave less and less responsibly. The answer is to restore responsibility to people and to families, and then we will see more responsibility in society as a whole.


Finally, let me raise an issue that preoccupies us in Britain and that I believe ought to worry Americans as well. It’s the issue of the euro, the new single currency in Europe. British conservatives believe that Britain should keep its own currency, the pound sterling, and refuse to join in and replace it with the euro. Our opponents try to sweep all rational argument aside with the claim that British membership will somehow be simply inevitable. Like all claims that policies are inevitable, this is bunkum. There is no compelling force that requires a medium-sized economy like Britain’s, alongside what we hope will be a successful single-currency zone, to abandon its own money in favor of the neighboring currency. The United States has a successful single currency circulating throughout the fifty states, but, so far as I know, Canada has no plans to give up its currency and adopt the U.S. dollar.

The truth is that the euro is not primarily an economic project, it’s a political project. A single currency is intended to lead to a single government and a single state, a United States of Europe. And it will probably lead in that direction because never in the history of the world has there been a currency without a government to run it and a state to give it authority. I believe Americans should be as wary as the British of plans to create an artificial superstate in Europe for three reasons: First, because artificial federations invariably collapse, and, when they do, it is often bloody, as we saw in Yugoslavia and the former Soviet Union. Second, because most of the people pressing for a European superstate see it as essentially an anticapitalist, protectionist, almost socialist project. They found it impossible to pursue socialist policies increasing state power within individual states in the global economy, so they hope that creating a larger superstate will enable them to reimpose control over the economy, over business, and over their people’s lives. And third, because many of the proponents of the idea of a United States of Europe have always seen it as an intrinsically anti-American project. It’s designed to challenge America’s role in the world, and, if they have their way, European integration will transform, destabilize, and undermine NATO with incalculable consequences for world peace.

By contrast, British conservatives want the European union to evolve as a community of nation-states, working together to remove barriers to trade, travel, study, and investment across Europe. But we want to allow each nation to retain the ability to govern itself according to its own forms and preferences.


In conclusion, let us remember that the future is not inevitable, it’s what we choose to make it. The time is quickly approaching when the people will want a government based on clear principles again, on belief in smaller government and bigger citizens, in lower taxes and stronger families, in free trade with other nations, of pride in our own countries. So Thatcherism does have a future if conservatives are prepared to show that lady’s courage, to revive her principles, and to apply them with her conviction.