Margaret Thatcher Was a Privatization Pioneer, and This Is the Story of How Her Agenda Did Nothing But Make Life Worse for Millions of People
Continued from previous page
But first, she had to convince her fellow Conservatives. This became her major initial fight, within her own party.
How British Monetarism Planned the Neo-Conservative Takeover
No economic theory can be promoted successfully today without institutional sponsorship. In America, monetarist ideas were spread by policy institutes such as the Heritage Foundation, the Cato Institute and the American Enterprise Institute. Likewise in England, if the history of privatization is dominated by Margaret Thatcher, her victory was largely a product of British monetarism’s main policy institute, the Centre for Policy Studies (CPS), founded in 1974 by her mentor Keith Joseph (then a Member of Parliament). With Mrs. Thatcher as its President, the CPS used the economic philosophy of Frederick Hayek (the “father of monetarism”) and Milton Friedman to launch the “Thatcher Interlude” that culminated in 1979 with her election as Prime Minister.
Britain could claim the Austrian-born Hayek as one of its own. He had become a British citizen in 1938, and held the Tooke Chair in economics at London from 1931 to 1950. (Ironically, Thomas Tooke was the great anti-monetarist, a century and a half earlier, in the 1830s.) To help spread his political philosophy, he helped create the Institute of Economic Affairs in 1957, the Adam Smith Institute in 1977 (serving as its first chairman), and the Social Affairs Unit in 1980.
Hayek wanted to abandon all public regulatory structures. Followed by Friedman, he argued that all attempts by government to shape markets were doomed to failure. Planning itself was wrongheaded in principle. As Nigel Lawson summarized this philosophy: “Economic planning was both impossible and unnecessary. . . . The price mechanism . . . was a much more efficient means of transmitting consumer wants and needs than the vast bureaucracies of Whitehall and the nationalized industries.”
This view of idealism as serving to strengthen state power enabled the Conservatives to take the moral high ground, Lawson continued, “by elevating private actions above public direction and dismissing ‘social justice’ as both vague and arbitrary.” The only valid idealism was to destroy the state. This could best be done by cutting off the government’s financial taproot, the ability to create the money needed to finance its budget deficits. The alternative to government bureaucracy, Lawson concluded, was to create a new political ideal for capitalism: to turn “profit” and “capitalism” into words of praise; “planning,” “government” and “taxes” became the new terms of invective.
Hayek joined the Chicago economics faculty in 1950, two years after Friedman, who spent 1953-54 in England as a visiting Fulbright Lecturer at Cambridge. At that time, he reminisced (in Capitalism and Freedom), “Those of us who were profoundly worried by the danger to freedom and prosperity posed by the growth of government, the triumph of the welfare state and Keynesian ideas, made up a small minority and we were considered eccentric by the vast majority of our intellectual colleagues.” Monetarism was deemed eccentric because it saw in government only the power to tax and oppress, not to protect and support. (Herman Kahn’s wife, Jane, likes to tell the anecdote of how, Milton Friedman once replied to her when she asked whether social spending on needy children was not be one type of public welfare that was well justified: “Mrs. Kahn, why do you want to subsidize the production of orphans.”) To the monetarists, all socially ameliorative spending appeared only as an economic distortion on the expenditure side, and as a burden on industry on the tax side of the tax-and-spend equation.
Mrs. Thatcher’s truculent Joan of Arc personality found a kindred soul in Alfred Sherman, CPS’s Director of Studies, whom she described as an ex-Communist who brought a “convert’s zeal” to the monetarist cause. Like so many former left-wingers, he seems never to have forgiven the working class for not following his early entreaties. And much like a spurned lover, he got his revenge as a Tory. But he retained from Marxism an awareness of economic theory’s political service as apologetics for one class or the other. He found in monetarism not so much an objective analysis of money and credit as a means of blaming inflation on government spending. Cutting off the government’s ability to run into debt would leave the power of private capital (“the market”) to take its place.