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GB and US: How far? How close?

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John Atherton

Reaganomics and Thatcherism. Origins, Similarities and Differences

Christopher Deeds

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1It seemed a remarkable coincidence that Britain and the United States should elect within the span of a year leaders who were both strongly anti-government, anti-Keynesian, and advocates of the private market sector and tax reductions. Both President Reagan and Mrs. Thatcher had the distinction of getting their names linked to a special line of thinking. This provides the opportunity to discover how close or how distant have been the economic policies of Britain and the United States under their leadership until mid-1985, or in other words to study both the similarities and the differences regarding Reaganomics and Thatcherism.

2In terms of the general thrust of their policies, both leaders tried to shift the centre of the political spectrum sharply to the Right. Reagan set about undoing a half-century of legislation which had built up the public sector while opening up America to expansion led by the private sector. Mrs. Thatcher busied herself with doing the same in Britain. Both leaders believed that government itself was partly the cause of their mutual economic problems, including high inflation and slow economic growth, the answer being less government. In contrast, all previous leaders since the 1930s had assumed that if things went wrong, the remedy would be government intervention or more government.

3Judging by their public behaviour and speeches just before and just after coming to power, one would think that both Reagan and Thatcher were about to undertake a radical break from the past. The press called it the 'Reagan Revolution' as the most pro-business administration since Calvin Coolidge took over the reins of power, while in Britain the press referred to the 'Thatcher experiment' as converts to monetarism gained control of the key government committees concerned with economic policies. In practice their policies were not so novel or so radical as both leaders tried to make the public believe. In the United States President Ford had reverted to traditional Republican economics in 1976, trying to balance the budget and controlling government spending at the cost of higher unemployment. Monetarist ideas influenced the American government in the 1970s when efforts were made to control inflation, while it was a Democratic President, Jimmie Carter, who conceived plans for deregulation and lower taxes. Likewise in Britain monetarism had been gaining ground at the expense of Keynesianism since the early 1970s and it had been a Labour prime minister, James Callaghan, who in 1976 started seriously to reduce government spending and to enforce strict controls of the money supply.

4While this paper focuses on economic policies, it is important to note that Thatcherism signifies much more, and has become in part a mere euphemism for all the good and bad connected with recent Conservative policies, while the term Reaganism has been linked with all recent and past right-wing illiberal influences in the United States. In contrast Reaganomics has been more closely associated with recent Republican economic policies, and alternatively used as a synonym for 'supply side' economics.

  • 1 See Peter Ridell, The Thatcher Government (oxford: Martin Robertson, 1983), p. 7 and Robert Dallek (...)

5Both leaders owed their accession to power partly to the remarkable resurgence of the New Right in both the United States and Britain. However the American New Right included the recent political influence of single issue lobby groups such as the American Moral Majority, founded by the Reverend Jerry Falwell in 1979. Unlike Reagan, Mrs. Thatcher did not have to contend with strong moral or religious lobbies. The New Right in Britain meant solely the ascendancy of the free market wing of the Conservative Party from 1974. Reaganomics and Thatcherism have also been regarded less as a clear set of beliefs but rather as an expression of felt values by which ordinary citizens should order their lives. These included what Reagan called traditionally American and Thatcher Victorian values, namely such eternal verities as family, patriotism, honesty, hard work, independence. Thatcherism has also been associated with Mrs. Thatcher's intuitive personalised form of decision-making and style of government.1

6Keynes had observed in his key work The General Theory of Employment, Interest and Money (1936) that the private market sector of the economy could not unaided reduce the high unemployment level of the inter-war depression years. The government should take responsibility for managing an economy and be prepared to unbalance the budget, expanding or reducing government spending (resulting in budget deficits or surpluses). Such countercyclical policies, accompanied by appropriate measures regarding interest rates, taxes and bank credit, would help ensure that total demand was sufficient to guarantee full employment. Just as one uses the rudder of a sailing vessel to help keep it on course, so Keynes believed that the government could manipulate the national budget to keep the ship of state on course. Not unsurprisingly his approach became known as 'demand side' economics.

  • 2 Leonard and Mark Silk, Τhe American Establishment (New York: Basic Books, 1980), p. 252.

7From the time of the Second World War Keynesian ideas grew in influence among economists and his theories were put into practice by governments in both the United States and Britain. However Keynesianism never swept the Republican Party in the US as it did the Conservatives in Britain. Republican economics still stressed fiscal austerity, budget balancing and monetary restraint, and it was not until 1971 that a Republican president declared: "I am now a Keynesian." 2

8By the early 1970s Keynesian policies appeared to have grave short-comings, and seemed in no way capable any more of guaranteeing economic growth, low unemployment and price stability, or of arresting the growing de-industrialisation or decline of the manufacturing sector. Even more serious was the fact that Keynesian economists had no ready answers as to the causes or remedies for the new phenomenon of stagflation, rising inflation and rising unemployment at the same time, a situation affecting most western countries from the time of the world oil crisis of 1973-74.

  • 3 Milton and Rose Friedman, Freedom to Choose (London: Penguin, 1980), pp. 299-314.
  • 4 This aspect of the 'crowding out' theory particularly impressed right-wing politicians in Britain (...)

9The monetarists had been advocating an approach to economic policy-making since the late 1960s which differed radically from the Keynesian approach. John Hilton Friedman, their main exponent, not only had the diagnosis for stagflation, poor growth rates and de-industrialisation, but also the prescription. First he rejected 'demand-management' and income policies as a means of controlling inflation and argued that only one thing caused inflation, namely excessive growth of the money supply in relation to the growth of national output. The main economic responsibility of governments should be strict control of the money supply which would eventually eliminate inflation.3 Second, he argued that government intervention in an economy tended to have destabilising effects and created uncertainty in the business world, since enterpreneurs could not make long-term plans when governments were constantly switching from 'restraint' to 'stimulus' policies and back again (known as 'stop-go'). In addition monetarists argued that expanded government spending to spur growth and reduce unemployment often meant heavy borrowing, and that this led to the state pre-empting an undue share of the total funds available for investment at the expense of the private sector. Furthermore, the competitive bidding raised the cost of such funds through increases in interest rates. 4

10Monetarists criticised government intervention in an economy on various other grounds. First, too many regulations and laws had been passed in the 1970s in favour of consumers, workers or environmentalists which acted as a constraint on business. Also a wide range of welfare or social security benefits, coupled with high rates of taxation, provided a disincentive for some to work when they could survive on the dole and possibly also in the 'black' or 'underground' economy. Furthermore government reflationary policies of increased government spending to stimulate economic growth led first to the public anticipating price rises by accelerating their spending, and second to the trade unions demanding wage rises above the expected inflation rate, even at the risk of greater unemployment for some workers. If the government demonstrated its determination to control the money supply, the monetarists argued, and published targets for lower planned growth in the future, this would help lower the expectations of consumers and workers, and trade union negotiators would moderate their wage demands accordingly.

11Keynesianists assumed that most unemployment was involuntary, and that people would work if the right job came up. Monetarists put forward as part cause or explanation for the growth of the black economy and stagflation the idea that much unemployment represented a voluntary decision of somebody not to work. Once the point of high employment or the 'natural rate of unemployment' was reached, estimated to be about 6% in Britain and the US, the inflation rate would stabilise and no involuntary unemployed would remain. Monetarists argue that if unemployment is above this level, then the rate of increase of wages and prices will slow down, but that once this point of high employment is reached, there is no tradeoff between inflation and unemployment as the Keynesians believed. The continuation of 'demand-management' policies results not in economic growth but in supply shortages, which drives up prices, increases imports and causes balance of payments problems. The result is higher inflation, with unemployment remaining static in the long run or possibly getting worse.

12Monetarists suggest that the only route towards the goal of full employment is via focus on 'supply side' economics. Keynes was criticised by the monetarists for having given insufficient attention to supply factors in an economy such as wage levels, labour mobility, productivity, profitability and competitiveness. Monetarists argued, like the classical economists in the inter-war period, that rigidities or imperfections in the 'supply side' of the economy, such as the monopolistic practices of big businesses or powerful unions which led to prices and wages being too high, constituted a major cause of large-scale unemployment, and contributed to slow growth rates. The government should also undertake measures to promote greater competitivity in the goods and labour markets, which would in the end help the consumer through lower prices and better service. Remedies lay in lowering wage levels and welfare benefits, and bringing down taxes. This wold give an added incentive to the unemployed to seek work, while the reduced costs of a business (following tax reductions) would act as an incentive for hiring more workers.

13Apart from the monetarists, many others wondered during the 1970s whether the tax system itself in Britain and the United States was not itself a cause of the slow down in economic growth and of ever continuing wage demands. In its Programme for Action (1977) the Confederation of British Industry (CBI) recommended reduced taxes as the way to encourage work incentives. By early 1979, Mrs. Thatcher was determined to switch the emphasis in taxes so that the burden fell less on those who gained income from work (direct taxes) and more on those who spent rather than saved (indirect or sales taxes). The American academic, Arthur Laffer, tried to show by means of the Laffer Curve that at a certain point reduced taxes led to expanded investment in the private sector and increased government revenue. Jack Kemp and William Roth followed up this idea in their 1977 Senate tax proposal, a three year programme of successive 10% cuts in personal taxes, which gained the backing of Ronald Reagan.

14Naturally monetarist theories appealed to many within the right-wing of the Republican and Conservative parties, and within industrial, financial and academic circles who had never accepted Keynes. Disillusioned Keynesians also joined the ranks of new converts to monetarism in the 1970s. The New Right in the Conservative Party embraced monetarism as an economic doctrine which reinforced their growing anti-Keynesianism and belief in free enterprise and limited government. The chief economic aims of both the British prime minister and the American president were remarkable similar, representing in each case a mixture of traditional free market right-wing beliefs and monetarist doctrine. Both leaders wanted to halt economic decline and to launch a strong recovery, and both made the mistake of trying to realise contradictory or conflicting objectives virtually simultaneously. Mrs. Thatcher could only blame herself and her economic advisers, since no strong lobbies existed for particular aspects of the monetarist package. In contrast influential Americans wanting to influence Ronald Reagan on economic matters were divided into three distinct groups.

  • 5 See for example George Gilder, Wealth and Poverty (New York: Basic Books, 1981), pp. 218-225.

15The first and probably the most influential group were the supply-siders such as Arthur Laffer and David Stockman, who wanted to implement the Kemp-Roth tax cuts immediately as a means of getting economic growth and reduced unemployment, and to encourage greater savings and less spending. Supply-siders seemed less concerned about control of the money supply and budget deficits.5 Strict monetarists, represented in Washington by influential persons such as Paul Volcker believed that the quantity of money and credit should expand no faster than the growth of the gross national product (GNP). For them defeat of inflation should be the first priority before the implementation of supply-side measures. The third group represented the traditional balanced-budget conservatives. They shared the preferences of the two other groups for less government and less regulations, but felt reduced government spending should precede any fall in taxes. Reagan, not the first president to be offered conflicting counsel by his supporters, endeavoured to put into practice the wishes of all three groups.

16Broadly speaking, the economic strategy of Reagan and Thatcher covered the five following elements:

  1. Reduce to eliminate inflation. This would involve a stricter monetary policy including slower growth of the money supply. The publication of targets for monetary expansion would help reduce people's expectations, and help moderate price and wage increases. Both leaders intended to take a tough stance towards pay rises, particularly in the public sector.
  2. Reduce or slow down the growth rate of public spending. This was to be achieved in Britain largely through a progressive reduction in the level of public borrowing, which would alleviate any adverse 'crowding out' effect of government borrowing on financial markets, and help achieve a balanced budget. Reagan also wanted in theory to move towards the ideal of a balanced budget, but while he promised spending cuts in the 1982 budget, his priorities were less to cut spending than to redirect public spending away from social programmes and towards defence expenditure.
  3. Tax changes and reductions. Mrs. Thatcher wanted to reduce direct taxes, particularly the highest rates, and to increase indirect taxes. Reagan wanted to implement tax reductions over a three year period and to carry out comprehensive tax reform at some stage. Both leaders wanted the most benefits from tax cuts to go to higher income groups and businesses, so as to promote economic growth rather than the goal of greater equity. Reagan vaguely hoped that subsequent economic growth would increase tax revenue which would help pay for the tax cuts.
  4. Reduce the scale and responsibilities of government. Both wanted to do this partly by staff reductions and fewer regulations. Reagan also wanted to give over certain responsibilities to the state governments (called 'New Federalism') while Mrs. Thatcher planned to denationalise or privatise certain state activities, to contract services out to the private sector, and to increase people's ability to look after themselves.
  5. Expansion of the economy led by the private sector. Both hoped that control of inflation, less taxes and less government as well as government efforts to promote greater competitivity in the economy would help spark a supply-side response from private enterprise.
  • 6 Quoted in Dallek, p. 67.

17Reagan's economic objectives were spelt out in his State of the Onion message to Congress on February 18, 1980. He promised that the magic of the market place would help slay both dragons of the economy, inflation and unemployment. To those who expressed opposition to his plans, the president replied: "Have they an alternative which offers a greater chance of balancing the budget, reducing and eliminating inflation, stimulating the creation of jobs and reducting the tax burden?"6 While Reagan promised that his programme would add three million jobs to the economy, Mrs. Thatcher made no precise commitment though her government naturally hoped that its policies would reduce the unemployment level.

  • 7 Dallek, pp. 64-67.
  • 8 The term 'Wet' was commonly applied in Public Schools to those who disliked physical sports.

18Both Reagan's and Thatcher's programmes appealed to the middle class, but many informed observers in the United States and Britain regarded the proposed measures as 'experiments' or 'gambles.' One congressman called the Reagan programme 'jellybean talk' while George Bush, vice-president, referred to 'voodoo economics.'7 Mrs. Thatcher labelled the doubters in her new Cabinet 'Wets'8 for failing to give their complete confidence to the government programme. Why was there so much scepticism and doubt? First, as regards Britain many thought that a tight monetary policy together with plans to raise interest rates sharply, far from aiding economic growth, would reduce bank loans to industry, cause bankruptcies, increase unemployment and lead to a severe recession. Many also doubted whether some of the monetarist theories would work out in practice. Much depended on aspiration rather than on solid evidence based on the past-on trust, for example, that the publication of monetary targets might lower 'expectations' and that tax cuts would lead to more investment. Britain entered a severe recession in mid 1979, of which details will be given later. Surprisingly President Reagan seemed totally unaware that a similar package of monetary restraint combined with fiscal stimulus (through tax cuts) in early 1980 might eventually also send the United States into sharp economic downturn.

19Probably both countries were heading for mild recessions in any case due to the impact of sharply increased oil prices following the troubles in Iran in 1978-79. However, the immediate cause of the recessions in each case was steeply rising interest rates. Paul Volcker, fearing the inflationary impact of tax cuts, increased interest rates, and this in turn confirmed the worst fears of Wall Street financiers, already worried over Reagan's policies and growing budget deficits. In late 1981, American shares started to fall sharply. Easier monetary policies and tighter fiscal policies in each country would have curbed interest rate rises and created fewer problems for industry.

  • 9 In the US Inflation rose from about 7,6% in 1980 to 12,6% in 1980. In Britain inflation rose from (...)

20How successful were Britain and the United States in achieving the first aim, the defeat of inflation? In the long run both governments managed to reduce inflation, but in the short run the inflation situation worsened in both countries, particularly in Britain.9

  • 10 Milton Friedman, The Tyranny of the Status Quo (London, Penguin, 1985), p. 89. Friedman takes evid (...)

21Eventually inflation in the US fell to 9.6% in 1981 and then to less than 4%, while inflation fell in Britain from 22% in 1980 to 12% in 1981, 5.4% in 1982 and then to under 4% in 1983-84. However, neither government deserves much credit for this since inflation fell in both countries partly because of high unemployment and recession, and because of lower prices of imported goods. Monetarists claimed that some credit was also attributable to the Federal Reserve's tight money policy and efforts to reduce people's inflationary expectations.10 But Britain's experience in no way validated Friedman's thesis of a close link between changes in money supply growth and changes in inflation two years after. At first the government failed to control the money supply which increased at over 15% for most of 1980 and 1981, yet the country did not experience high inflation two years afterwards in 1983-84. Only after inflation had fallen markedly did the government gain control of the money supply in 1982.

22In the United States Volcker eased off monetary pressure in mid-1982 to help economic recovery but this did not cause an increase in inflation in 1984. Instead inflation has remained below 4% during the period 1983-85. In Britain money supply growth well exceeded government targets from 1983 on, yet no one fears anymore that this is the harbinger of higher inflation. The persistence of higher interest rates and low inflation since 1982, followed by improved liquidity position of many companies, has led to increased funds being placed in interest-bearing accounts in the banks, with consequent expanded bank lending to the private sector. The popular view now is that the demand for money, rather than government attempts to control the supply, has been the main cause of expansion of the money supply.

23Both Reagan and Thatcher failed to halt or reduce the growth in public expenditure due to public and legislative resistance to proposed cuts in sensitive areas such as welfare and social security, increased spending on unemployment (dole) payments and increased spending on defence. The only substantial decreases in federal spending came in programmes largely administered by states and localities - education, training and employment, transport - and in part these reductions reflected the president's commitment to federalization, to return powers to the states and local communities. Likewise in Britain major cuts were made in housing and lesser cuts in education, largely by means of reduced grants to local authorities which provided these services.

24Both leaders made economies in central administration, and reduced the number of civil servants, and spending cuts tended to fall disproportionately on the less well-off, affecting particularly certain social services and welfare. In all, some 10% of federal spending on programmes for the poor were abandoned or reduced, including Aid for Families with Dependent Children, and food stamps. The British government did manage to reduce the level of public borrowing, an objective given priority over further tax cuts after 1979. In contrast Reagan gave priority to tax cuts and soon federal debt and budget deficits reached astronomical proportions. As a result Reagan had to abandon hope in 1982 of balancing the budget by 1984.

25Both Reagan and Thatcher introduced tax cuts soon after entering office, the major beneficiaries being the rich and large businesses. For example, the top rates fell from 83% to 60% and the bottom rates from 33% to 30% in Britain. As the real value of various social security benefits declined in subsequent years and local taxes increased, with tax thresholds not being increased in line with inflation, many on less than average wages in Britain and the US saw their tax burdens rise during the period 1979-84. Both governments gave generous tax concessions to businesses, and tax relief on investment in small enterprises. From 1984 tax allowances and tax thresholds have been raised considerably in Britain, and in 1985 the government promised tax cuts in 1986 and 1987.

26Tax reform has now become the aim of second-term governments in both Britain and the United States. Both Reagan and Thatcher want to take the low-paid out of the tax net, and Reagan wants to reduce the top rate of income tax to 35%. To finance these changes both governments are looking for ways of doing away with some of the special tax exemptions and reliefs which tend, like mortgage tax relief benefits of private homeowners, to encourage people to put their money into property or other forms of expenditure rather than to save. As a result, funds are absorbed which could be invested in industry or, as Reagan wants, to help plug government deficits. Nigel Lawson, the British Chancellor, wants to abolish many tax exemptions as they distort free markets and discourage wider personal share ownership. In 1984 he abolished tax relief on life assurance premiums, but also increased tax privileges for a variety of schemes through which employees could purchase shares of companies they worked for so as to promote Mrs. Thatcher's goal of a 'property-owning democracy'.

  • 11 Sarah Hogg, "The Tax Muddle," Time and Tide (summer 1985), p. 34.

27Both Reagan and Thatcher have been subjected to heavy lobbying by groups campaigning against certain changes. Consequently, the British government abandoned any idea of abolishing pension fund tax privileges or mortgage tax relief, and has so far abandoned the attempt at any comprehensive tax reform.11 In contrast President Reagan has been promoting comprehensive tax reform, called 'Treasury Two,' as the centrepiece of his second term, and sees the drive for tax fairness and simplicification as a popular cause.

28The Thatcher government had more success than the Reagan administration in the drive for deregulation and reducing the scope and responsibilities of government. Since 1979 state-owned assets have been sold to private companies, in an extensive privatisation or denationalisation programme. Private firms were allowed an opportunity to compete with former public monopolies, in certain areas or under certain conditions, and this has affected for example coach, bus and air transport. In addition local authorities and the National Health Service have sub-contracted certain services out to private firms, such as school-cleaning and refuse disposal. The government reduced the commitments of the National Health Service by transferring responsibility for the handicapped, elderly and infirm from the hospitals to local communities. The government tried to reduce the burden of petty bureaucracy by reducing the number of forms, and simplifying and reducing the range of regulations affecting small businesses. It succeeded in removing certain regulations and restraints in the area of financial services since 1981, which has now permitted greater competition between commercial banks and building societies, and the entry of banks into a new range of services including the direct marketing of stocks and shares.

29President Reagan had little success in his drive for deregulation, unleashing the economy from excessive bureaucracy as a prelude to economic growth. True he immediately abolished remaining controls on the price of oil on coming to power, which led in the long-run to lower prices, and continued the regulation of the domestic airline industry. In addition key agencies such as the Environmental Protection Agency (EPA) and the Occupational Safety and Health Agency (OSHA) have spent less time enforcing what they consider to be nitpicking rules. The deregulation policy eventually became so controversial that it had to be toned down to preserve peace and, in many cases, jobs. A striking example can be found in the banking industry. Major New York banks wanted the right to enter new markets and lines of business, but were vigorously opposed both by regional and small town banks which feared the competition, and by Wall Street investment firms which did not want banks in the securities business. As a result, major American banking law reform, desired by many banks and the Reagan administration, had to be shelved.

  • 12 John L. Palmer and Isabel V. Sawhill, The Reagan Record (Cambridge [Mass.]: Ballinger, 1984), p. 2 (...)
  • 13 Francis Pym, Sunday Time (17 June 1984).

30While Reagan failed to radically devolve federal responsibilities to the states, partly because state governors and others saw devolution as budget cutting in disguise, he did manage to obtain some devolution to lower levels of government and to the voluntary sector. However, some felt that the Federal government had not become any lighter under Reagan. 12 Likewise in Britain it was argued that, despite the reduction of the size of the public sector since 1979, the burden of the state had by no means been reduced. The government felt obliged to intervene to ensure that no obstacles existed to its monetarist policies or to so-called marked forces, and one former Thatcher minister commented in 1984 that 'central government now exercices direct control over more and more aspects of our lives'.13 This can be illustrated by the extensive government controls over the spending policies of local authorities since 1980.

31Britain experienced a slow economic recovery from the end of 1981, and since then the average growth rate has been about 3% per year. The Americans experienced a faster growth rate from late 1982 but expansion slowed down considerably in 1985. Causes of both recoveries included lower interest rates, falling inflation and cheaper oil prices. Neither government can claim much success for helping the upturn in their economies. Tax cuts seemed to have played a very small part, since in the US many large firms engaged in a frantic merger or take-over activity rather than extensive investment, while in Britain many wealthy people continued to invest outside industry or abroad. In neither case could it be said that 'supply side' market forces provided the main momentum for economic development. Rather both recoveries appeared to have been powered by Keynesian 'demand side' forces such as greater consumer spending on cars, housing etc., with the tertiary sector, notably retailing, instead of manufacturing, leading the way, helped by the failure of both government to limit public spending as they had hoped. Massive budget deficits, caused partly by substantial defence spending, fuelled the stronger American recovery, which was threefifths financed by foreign investment attracted by high interest rates.

32The greatest impact of the Reagan and Thatcher administrations has resulted from their pro-business orientation, the generous handing out of grants or tax privileges to industry, and efforts to remove unnecessary regulations and to promote greater competitivity. This impact has been felt most by small to medium-sized firms, which played an important role in both economic recoveries, but many of their activities have been in services rather than in manufacturing.

33Linked to their pro-business bias, both Reagan and Thatcher showed themselves anti-organised labour. In the United States as a result of recent enactments firms were allowed to cancel labour agreements simply by moving from union to nonunion plants, and to declare themselves bankrupt to void labour contracts, and then reorganise on a non-union basis. American trades unions had never had the influence in American politics that the British trade unions enjoyed in Britain, and represented a far smaller proportion of the total working population. Thatcherites believed, as did the monetarists, that much unemployment resulted from monopolistic restrictions by trades unions which prevented real wages from falling. By means of three laws, the government sought to reduce the powers of the unions. The determined opposition of both leaders to strikes in favour of higher wages helped to moderate wage inflation. However, Mrs. Thatcher was not as successful in creating a losing psychology among the unions after the defeat of the year-long miner's strike in 1985 as was Reagan after his defeat of the strike of the Professional Air Traffic Controllers Organisations (PATCO) in 1981. While there have been signs of more constructive management-worker cooperation with less union resistance to changes in some large firms, the British government has so far failed to convince many workers that high wage claims can harm the economy. During the period 1984-85 wage settlements averaged 7 to 10%.

34One reason for the continued bitterness of many lower-paid workers towards Reagan and Thatcher has been what they see as deliberate class-based policies designed to enrich the well-off and impoverish the poor. In both countries the real incomes of the less well-off fell between 1979 and 1984, while those with average or above average earnings saw their real incomes increase. The situation became particularly serious in Britain because the unemployment rate instead of going down during the recovery period, as in the United States, worsened. Reasons for this included the tighter monetary policies in Britain, greater labour mobility and greater predominance of the enterprise culture in the United States. However, the government launched numerous schemes to encourage employers to create jobs, and various training programmes for the unemployed, particularly the young.

35At the height of their respective recessions in 1981 and 1982, Thatcher and Reagan and their parties had lost much of their original popularity. However, both Reagan and Thatcher were re-elected in 1983 and 1984 partly because first, both economies were in recovery at the time and second, no rival leader came forward of comparable stature or personality. All signs seem to indicate that the electorate voted for Reagan and Thatcher personally rather than their particular policies. To many ordinary people, both had achieved something in restoring national pride and individual self-respect after humiliations of the past.

  • 14 James Bellini, Rule Britannia (London: Sphere Books, 1982), p. 4.

36In Britain the balance of payments has been in healthy surplus since 1980, thanks largely to revenues from North Sea oil, and the budget deficit in 1985 is much reduced. In contrast America's large budget and trade deficits undermined people's confidence in the economy and led in 1985 to a slowing down in the growth rate and a fall in the dollar. No other country could pile up such debts, as they would have been forced to rein in by the IMF and its creditors, as happened to Britain in 1976. The US is in a special position, because other nations' debts are calculated and payable in dollars, and only the US can print dollars to pay its bills. Britain's economic growth is forecasted to slow down in the next year or two. Both countries are still suffering from heavy import penetration and serious de-industrialisation. Many lack the confidence of the Thatcher government that somehow services will fill the gap left by the decline in North Sea oil revenues between 1985 and the year 2000 or that manufacturing will somehow rise again like a phoenix from the ashes. In fact many think Mrs. Thatcher's policies have only accelerated our industrial decline, and that despite her efforts to drag Britain into the age of information technology and science, through government support of the relevant industries, Britain may be proof that it is possible to go back in time 'to re-create the social order of the Middle Ages behind the misleading appearance of a modern façade'.14

37Despite the immense differences between the political, economic and social systems in Britain and America, and the circumstances and constraints under which both Reagan and Thatcher operate, similarities rather than differences characterise Reaganomics and Thatcherism if all the diverse broad threads are analysed. Despite this generalisation naturally differences characterise specific aspects, as in the case of the virtual fixation of the Thatcher government with the money supply and the level of public borrowing compared with the more relawed American approach to these aspects. Despite their radical intentions, observers have felt that both Reagan and Thatcher had to proceed slowly in practice. While Reagan had to contend with Congress and the Supreme Court, Mrs. Thatcher, though assured (unlike Reagan) of a majority in Parliament for her legislative measures, had to take into account stiff opposition at times within her own Cabinet and the civil service as well as possibly negative, public reaction reflected in the opinion polls. Lastly, both leaders differ considerably in personality and experience. While Mrs. Thatcher attracts enormous respect, she is not much liked. President Reagan, whatever his policies, attracts immense personal popularity because of his easy manner, charm, sense of humour and optimism. Both are arguably tough, populistic, 'conviction' conservative politicians, but, whereas Reagan is a natural conciliator, Thatcher is a confrontational politician, who distinguishes sharply between her dedicated supporters and the doubters in her party and tends to antagonise opponents such as the trade unions.

  • 15 When she remarked in October 1980 'the lady's not for turning,' she acquired the nickname TINA (ac (...)

38Mrs. Thatcher faces a 'Thatcher Must Go' movement by the Tory moderates or consolidators within her party, who feel that she must be replaced as leader with the government ditching monetarism and returning to modified Keynesianism if the Conservatives are to stand any chance of winning the 1988 election. In fact ever since 1980, Mrs. Thatcher has been pressurised by the left-wing of her party to revert to Keynesianism, but she has persistently refused to embark on any U-Turn.15 In contrast, Reagan has never experienced such pressure within his own party to change course. Though some Americans have argued since 1982 that 'Reaganomics' is dead, there is no movement within the Republican party working for a return to any form of up-dated Keynesianism.

Notes

1 See Peter Ridell, The Thatcher Government (oxford: Martin Robertson, 1983), p. 7 and Robert Dallek, Ronald Reagan: The Politics of Symbolism (Cambridge: Harvard University Press), p. 94.

2 Leonard and Mark Silk, Τhe American Establishment (New York: Basic Books, 1980), p. 252.

3 Milton and Rose Friedman, Freedom to Choose (London: Penguin, 1980), pp. 299-314.

4 This aspect of the 'crowding out' theory particularly impressed right-wing politicians in Britain and the United States. For reference see Robert Bacon and Walter Eltis, "Stop-Go and De-Industrialisation," National Westminster Bank Quarterly Review (Nov. 1975) and Britain's Economic Problems - Too Few Producers (London: Macmillan, 1978), pp. 17-18.

5 See for example George Gilder, Wealth and Poverty (New York: Basic Books, 1981), pp. 218-225.

6 Quoted in Dallek, p. 67.

7 Dallek, pp. 64-67.

8 The term 'Wet' was commonly applied in Public Schools to those who disliked physical sports.

9 In the US Inflation rose from about 7,6% in 1980 to 12,6% in 1980. In Britain inflation rose from 10% in 1979 to 22% in 1980.

10 Milton Friedman, The Tyranny of the Status Quo (London, Penguin, 1985), p. 89. Friedman takes evident pride in pointing out how his theory worked. Money growth declined from mid 1978 to be followed by inflation peaking nearly two years later at 12,6%

11 Sarah Hogg, "The Tax Muddle," Time and Tide (summer 1985), p. 34.

12 John L. Palmer and Isabel V. Sawhill, The Reagan Record (Cambridge [Mass.]: Ballinger, 1984), p. 23.

13 Francis Pym, Sunday Time (17 June 1984).

14 James Bellini, Rule Britannia (London: Sphere Books, 1982), p. 4.

15 When she remarked in October 1980 'the lady's not for turning,' she acquired the nickname TINA (acronym for 'There Is No Alternative').

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Université de Nancy II

© Presses universitaires François-Rabelais, 1986

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