In October 1980 members of the British Conservative Party gathered in the sea-side town of Brighton for the annual Conservative Party conference. Margaret Thatcher’s government had completed its first seventeen months in office, and the results so far were catastrophic. In the first year of her term, the inflation rate had doubled. Unemployment had soared to 2 million, a level last seen during the Great Depression.1 Manufacturing output ultimately dropped by 16 percent over the course of the year 1980.2 The moderates who still dominated her cabinet—the “wets”—had become increasingly overt in their denunciation of what they described as the “dogmas” of monetarist theory. There was, in short, little evidence of the economic revival that the prime minister had promised. The conference delegates were spooked.
The reasons for this seemed clear enough to everyone. Thatcher’s chancellor of the Exchequer, Geoffrey Howe, had pursued a harsh new counterinflationary course that depended on restricting the money supply, keeping interest rates high, and cutting public expenditures. The Keynesian ideas that had governed economic thinking in Britain throughout the postwar period had operated under the assumption that the most desirable policy goal was full employment. You could achieve it, Keynes had suggested, through judicious “demand management,” various measures to stimulate consumption through fiscal and monetary policy. Thatcher and Howe threw this notion out the window. They were prepared to tolerate a certain degree of pain as the price of wringing inflation out of the economy. But not even they had quite planned for this.
Resistance from the miners’ unions had pressured Ted Heath into the so-called “U-turn” of 1972, when he backed away from the free-market principles enshrined in the party’s 1970 election manifesto. It was that reversal that later spurred Keith Joseph into his quixotic campaign for a market-oriented conservatism two years later. For Thatcher, who was serving in Heath’s cabinet at the time, the U-turn was nothing less than an act of moral weakness, a shameful capitulation. Heath had caved, betraying the collective interests of the nation to the vocal demands of a radical minority. Now she wanted to show that she was made of sterner stuff, and she chose Brighton to do it.
The trade unions were there, too, and their activists were demonstrating loudly outside the hall. But Thatcher—a politician who always seemed to draw energy from the protestations of her opponents—was unperturbed. “No policy which puts at risk the defeat of inflation—however great its short-term attraction—can be right,” she told the delegates.3 She knew that many members of her own party were not entirely convinced. But she was happy to disabuse the weak-kneed: “You turn if you want to. The lady’s not for turning.” The reference behind the line was somewhat obscure: her speechwriter, Ronnie Millar, was playing off the title of a 1940s play.4
But you didn’t have to spot the allusion to get the message. She was showing that she was determined to proceed with the course she had set no matter what the potential political cost—a hugely significant psychological watershed. It was aimed not only at the British public as a whole, but also at those within her own party who still clung to the hope that the old postwar consensus could be maintained. This was the moment, British journalist Simon Jenkins observed, when Thatcher forged her political brand as the woman who knew what medicine the nation needed and wasn’t afraid to administer it whatever the pain. She had many more battles to fight in the years ahead, but the 1980 conference marked the point when she conclusively shook off the legacy of Heath and emerged as the prime minister who would dominate British political life for decades to come.5 From now on, Britons would either love her or hate her, but there was no mistaking what she stood for.
She used the next few months to drive home the point. In January 1981, she began to purge her cabinet of the dissenters. The minister of state for the arts, Norman St. John Stevas, who had ascribed to himself the role of unofficial court jester—breezily referring to the prime minister as the “leaderene,” for example—was summarily fired. (Thatcher said that he had “turned indiscretion into a political principle.”)6 Perhaps most important, economist Alan Walters, who played a critical role in the economic debates that were yet to come, received an appointment as her personal economic adviser.
Another emblematic moment came in 1981, when Thatcher and Howe presented a budget that reaffirmed their dogged commitment to the fight against inflation. (Howe, not a man given to hyperbole, called it “the most unpopular budget in history.”)7 Brutally deflationary, it stipulated even more cuts in public spending despite the continuing high level of joblessness. It was the most radical expression of Howe’s harsh monetarist medicine yet. A few weeks before the budget debuted, 364 of Britain’s leading academic economists published a letter in the Times, that venerable establishment mouthpiece, denouncing the government’s course and proclaiming that “there is no basis in economic theory or supporting evidence” for its policies. The budget was followed, in the summer of 1981, by riots that broke out in inner cities across Great Britain. Elusive growth and mounting unemployment—as high as 60 percent in some communities—seemed to leave little room for radical experiments. Later in the year, Thatcher launched her first full-fledged cabinet reshuffle. Several of the wets were shifted or moved out of the cabinet altogether, with the effect of increasing Thatcher’s dominance over economic policy.
With her evangelical zeal, Thatcher had already succeeded in shifting fundamental public assumptions about the state and its relationship to the economy. Yet it is noteworthy that, by 1981, some of her most enthusiastic defenders among the ranks of the economic liberals, like CPS stalwart Alfred Sherman, were falling away. They accused her of failing to tackle the truly daunting challenges, including the state’s ownership and control of the “commanding heights” of the economy or the continuing power of the unions. But the accusation missed the point. Thatcher was, and remained, a politician. She had an extremely astute sense of the possible, and she was not yet prepared to race ahead of public opinion on every front.
Fittingly enough, it was politics that saved her. On April 2, 1982, Argentine forces invaded and occupied the Falkland Islands, a tiny British colonial possession in the South Atlantic whose population numbered in the hundreds. Thatcher capitalized on the opportunity. Refusing to negotiate with the military junta in Buenos Aires unless it withdrew its forces, and resisting considerable diplomatic pressure (even from her treasured American allies), she dispatched a naval task force that defeated the Argentines after a short but vicious war and restored British control over the islands. After long years of decline, the victory gave a much-needed jolt to national self-confidence. The first signs of economic growth were also beginning to make themselves felt. Thatcher’s determination was rewarded by the electorate. In the general election of 1983—greatly helped by a hopelessly divided and ineffective opposition—she achieved a decisive victory (a 144-seat majority in the House of Commons) that allowed her to move ahead with her most ambitious projects.
It is her second term that is often described as the period of “heroic Thatcherism.” Perhaps its most significant legacy was her battle with the powerful and militant National Union of Mineworkers, which went on strike in 1984 to protest the closure of unprofitable mines and determined to insist on its prerogatives as a major participant in economic decision making. An equally determined Thatcher had spent years preparing for the showdown—her government stockpiled coal at key sites and equipped the police for the riots that were sure to come. The strike ended in 1985 with a humiliating defeat for the union that transformed industrial relations in Britain.
Thatcher’s efforts to sell off state-owned assets also finally came to fruition in the mid-1980s. The privatization of British Gas and British Telecom brought billions in revenue into state coffers and tipped the balance away from government control of the “commanding heights.”
For all her radicalism, it is important to keep in mind some of the things that Margaret Thatcher did not do. She did not return her country to a Victorian version of laissez-faire economic policy and social Darwinist ethics, nor did she move Britain back to the 1920s and 1930s. She neither dismembered the welfare state nor gutted the modern machinery of regulation. So Milton Friedman’s admiring remark that she was just another “nineteenth-century liberal” is not entirely on the mark. Nor, indeed, was she the first, or the most famous, to make the arguments or institute the policies. During her first prime ministerial campaign, she was known to cite the Australians, the New Zealanders, and the Scandinavians who had already started comparable reforms in their own countries. And Ronald Reagan, of course, later lent the considerable authority of his office to similar arguments about the moral and practical superiority of free markets.
Nonetheless, it is hard to overplay the significance of her achievements. Thatcher was certainly not an intellectual in the conventional sense of the word, but she was an extremely intelligent woman with an intense appreciation of the power of ideas. The comparison with Ronald Reagan is illuminating. Reagan was not a man who participated in think-tank discussions or engaged in polemics about texts. Thatcher once brandished her heavily annotated copy of Keynes’s White Paper in a Commons debate; Reagan would have never gone to the trouble. What distinguished Thatcher from her opponents—some of whom could claim far more literary or philosophical credentials than she—was her often ruthless determination to follow through on the beliefs that she held. Her most insightful biographer, John Campbell, marvels at her capacity for “aggression.” It was the force of her drive to realize her radically conservative ideas that made her unique.
So it is wrong to regard her first months in power merely as the modest prelude of more important events yet to come. The year 1979 itself was a radical point of departure. Her election victory itself represented the first major blow against the British postwar consensus, and this was a rupture that she largely achieved in her first year in office, even if this is sometimes overshadowed by the magnitude of what was to follow.8
To be sure, some of the ideas that figured in her first year were not entirely unfamiliar to British political discourse. Denis Healey, Callaghan’s chancellor of the Exchequer, had already launched modestly monetarist policies before 1979. Even earlier, Ted Heath had won the 1970 election with a manifesto that gave a strong foretaste of Thatcher’s program, even if he ultimately failed to follow through. At the time of Heath’s win, there was also a palpable sense that British public opinion was not quite ready to accept the dramatic change of course embodied by the free-market prescriptions authored by Heath’s supporters. Heath’s election victory in 1970 had been completely unexpected, so it was hard to see it as a watershed that represented a new mandate for change. In 1979, by contrast, it was not just a Labour government but the very notion of socialism that had been decisively rejected by the electorate.9
Thatcher herself saw the assault on the assumptions behind the postwar consensus as the core of her undertaking. In a memo she drafted for her speech to the Conservative Party conference in October 1979, six months after assuming power, she wrote, “We are now tackling a range of problems which have been neglected for years. We are starting to ask the awkward questions people prefer to ignore. We are re-shaping attitudes. This is every bit as important as the laws we pass.”10 The psychological impact of her efforts continues to be felt. Indeed, she successfully dispatched many of the political and economic assumptions considered self-evident by the British political class in the 1960s and 1970s. As Thatcherite economist Tim Congdon notes, the whole notion of “incomes policy” as a means of controlling inflation—once part and parcel of everyday political discourse in Britain—has gone the way of the dinosaurs.11 Jim Prior conceded, in his otherwise combative memoir, that this was true. When Thatcher boasted to him early in her administration that the Conservative government had “killed off the myth that wages could be controlled by anything other than the market,” he reacted at first with astonishment. “However, I think that as things have turned out, she was right and I was wrong.”12
To focus on this particular point might seem a bit abstruse at first sight. But the destruction of incomes policy was a crucial element of Thatcher’s broader assault on Keynesian assumptions of demand management and full employment. It was the election of 1979 that marked the end of that era. The policies she aimed to implement had been foreshadowed by politicians before her, but their failure to address the deep structural flaws created by fifty years of collectivist economic philosophies ensured that Thatcher’s success could be achieved only at what Thatcher sympathizer Richard Cockett conceded was “an almost impossibly high cost.”13
As the 1980s continued, growth and productivity rebounded dramatically. Inflation drained away. A new culture of entrepreneurship took hold. Before Thatcher, many businesspeople aspired to escape Britain’s crushing regulations and its draconian tax rates. Thanks to Thatcher’s efforts, particularly the extensive program of deregulation that came to be known as the “Big Bang,” London established anew its status as one of the world’s financial capitals. The abolition of exchange controls that had so exercised Thatcher and Howe during their first year in office paved the way for a surge of foreign investment into the UK.
The international comparison is particularly illuminating. In 1979 UK per capita output had fallen to around 86–90 percent of that in France or Germany. By 2007 Britain’s level was 1 to 6 percent higher than theirs.14 The United Kingdom can no longer be considered the “sick man of Europe.” And with the rejuvenation of the British economy came a dramatic reordering of the political landscape as well.
Thatcher was lucky in her adversaries. Perhaps the toughest of her electoral opponents was the one she defeated first, James Callaghan. A shrewd veteran of the British political game, Callaghan might well have managed to prolong his term in office had it not been for the Winter of Discontent, which demolished his self-proclaimed standing as the man who could coax the unions to behave reasonably. His departure unleashed forces within the Labour Party that tore it apart for the next decade and a half. The left wing, led by Thatcher’s old Oxford classmate Tony Benn, revolted against Callaghan’s moderate course and persistently undermined his successor, Michael Foot, a compromise figure who tried unsuccessfully to unify the party. In the 1983 general election, when Thatcher was riding high after her victory in the Falklands, Labour published a seven-hundred-page election manifesto that called for Britain’s withdrawal from the European Economic Community, unilateral nuclear disarmament, and the renationalization of the industries privatized by the Conservative government. Thanks to its quixotically leftist policies, the manifesto was quickly (and prophetically) dubbed “the longest suicide note in history.” The Liberal-SDP Alliance, formed in part by moderate defectors from Labour, benefited from the party’s self-immolation, but never quite managed to establish itself as a credible alternative to Thatcher’s reign and ultimately fragmented the forces of opposition to her, thus cementing her rule.
Foot’s successor, Neil Kinnock, was a more serious contender to national leadership, but he, too, was hampered by his party’s resistance to change. Thatcher’s resounding defeat of the miners rebounded on Labour itself, which had drawn much of its power from the trade union movement and had correspondingly identified itself with the miners’ cause (even if Kinnock made a point of denouncing their violence and often undemocratic tactics). The comparative weakness of the unions after the failure of the miners’ strike and the defection of many workers to the Conservative camp made Labour’s hard times even harder. The Thatcher era altered the very nature of the British economy, shifting productive forces away from manufacturing and toward services. This also dictated a painful evolution in Labour’s role and ideology. It was John Smith, the man who followed Kinnock as leader, who in 1993 finally persuaded their party to do away with the block vote (the union voting quota) at Labour Party conferences, and thus effectively ended Labour’s self-image as a party defined above all by its allegiance to the working class.15
In the end, it turned out that the one person most dangerous to Thatcher was Thatcher herself. Her domineering style off ended many within her own party over the years, and her urge to govern past her own cabinet ultimately deprived her of colleagues willing to call her out on some of her more ill-advised policies. In this way, her self-assured approach to government gradually became one of her greatest liabilities.
She succeeded in imposing her will on her cabinet colleagues and other Tory grandees as long as she could claim the loyalty of British voters. But it was within just a few years of her reelection in 1987 that her government’s approval rating began to slip. Perhaps the most consequential factor in this decline was her plan to push through a drastic reform of local government taxation. The UK had traditionally financed local government through property taxes, known as the “rates.” Thatcher resolved to replace them with an individual tax she called the “community charge” (dubbed by its critics the “poll tax”). Many Britons viewed the plan as an ill-concealed attempt to shift the burden of taxation from property owners onto the less advantaged. The poll tax prompted intense and widespread opposition that resulted in serious domestic unrest, culminating in a major riot in central London in March 1990. Few in her entourage, cowed by her determination to proceed, were willing to offer open criticisms of the policy.
The prime minister also stumbled over the similarly contentious issue of Europe. Her chancellor of the Exchequer, Nigel Lawson, and her foreign minister, the ex-chancellor Geoffrey Howe, believed that the UK could shape EU policy to its own advantage only by participating actively in the process of European integration; standing entirely outside of that process was impossible, they insisted, given the UK’s reliance on trade with the European market. But Thatcher’s intense national pride made her skeptical about allowing Britain to merge too deeply with the European Community—a stance compounded by her instinctive distrust of Europeans’ presumed socialist proclivities. Lawson and Howe did manage to press Thatcher to allow the pound sterling to join the European Exchange Rate Mechanism, a system of managed exchange rates for all the EC’s currencies that might ultimately serve as a prelude to a common currency. But when Thatcher persisted in publicly denigrating the notion of financial coordination with Europe, and thus undermining the very policy she had pledged to undertake, the rift between her and the two men deepened. Lawson ultimately felt compelled to resign over the issue in July 1989, while Howe accepted a transfer to a new job as deputy prime minister, a move that amounted to a humiliating demotion.
For Howe, the final straw came a year later, when Thatcher’s increasing animosity toward the European question prompted her to issue a momentous rebuke. Responding to a statement by European Commission president Jacques Delors about the need for a European single market and deeper political integration, she told the House of Commons that she had a simple answer: “No, no, no.” On November 1, 1990, Howe then surprised everyone by announcing his resignation, citing his differences with Thatcher on Europe. He was, as it happened, the last member of the original 1979 cabinet to leave the government. It was, fittingly enough, the departure of this diehard loyalist, a man who had so long suffered from the prime minister’s overbearing manner, that precipitated her downfall.
At first Thatcher’s entourage tried to paper over the break by assuring the press that Howe merely disagreed with the style of the prime minister’s policies on Europe, not their substance. Howe responded by standing up in the House of Commons and coolly elucidating his reasons for his rupture with the prime minister—a devastating challenge to her authority that brought into the open all the simmering resentments within the party. Thatcher’s diminished popularity due to the poll tax was compounded by rising inflation and the onset of a new recession; all this, combined with Howe’s open questioning of her leadership abilities, suddenly rendered her politically vulnerable. Michael Heseltine, a cabinet heavyweight who had long been known to covet Thatcher’s job, seized the opportunity to challenge her leadership of the Conservative Party. She won the first round of the internal party vote, but by such a slim margin that she was ultimately forced to concede that she had lost the confidence of her own Tory colleagues. The Iron Lady was compelled to resign—victim of an extraordinary parliamentary drama that few would have considered possible even just a month before.16
Her political legacy remained enormously consequential nonetheless. Her successor, John Major, backed down on the poll tax and promised a “compassionate conservatism” that would rub off some of the harder edges of Thatcher’s policies. Yet the basic vector of his governing philosophy remained true to hers. He continued with the privatization of state-owned companies like British Rail and pursued efforts to make government more responsive to market forces. This was an acknowledgment of the reality that her efforts had kicked off a long period of economic growth and a climate that promoted the growth of new businesses. It was this legacy that prompted Labour strategist Peter Mandelson to utter a famous provocation: “We are all Thatcherite’s now.”17
The figure who best exemplifies Margaret Thatcher’s transformation of British politics is Tony Blair. Born to a generation that came of political age under Thatcher’s premiership, Blair operated under assumptions dramatically different from those of his Labour forbears—and, indeed, from those held by Keynesian Tories like Harold Macmillan, who had assailed the privatizers of the 1990s for “selling off the family silver.” The shift in the Labour mind-set amounted to an acknowledgment that the party could no longer expect to win votes by proposing the old Keynesian policies of public spending and nationalization to “the broad mass of the newly affluent electorate,” as Richard Cockett writes. Thatcher had irrevocably shifted the center of gravity on economic policy. Cockett compares Labour’s transformation to the process the Conservatives had been forced to endure in the period from 1945 to 1951, when they had jettisoned their old free-market policies in order to appeal to voters who hewed to the attractive new vision of a comprehensive welfare state. In the period from 1987 to 1992, the Labour Party was similarly forced to discard of many of its old collectivist dogmas to accommodate voters who were now living in the world that Thatcher had built.18
To be sure, the Thatcher era had its shadow side. The number of those living in poverty increased from 5 million in 1979 to 14.1 million in 1992. The gap between rich and poor widened: in 1979 the top 10 percent of the population measured by incomes held 20.1 percent of the wealth; by 1992 the figure had risen to 26.1 percent. Over the same period, the amount of national wealth held by the poorest 10 percent fell from 4.3 percent to 2.9 percent. The real incomes of the bottom 10 percent dropped by 18 percent over the same period, while those of the top 10 percent increased by 61 percent.19 Unemployment, which peaked at 3.3 million in 1984, left lasting scars. It should come as little surprise that the 1980s were haunted by periodic episodes of social unrest: the 1981 riots, the miners’ strike, the anti-poll tax disturbances of 1989–1990.
Thatcher’s supporters respond that the strong medicine she administered was painful but urgently needed. Since the economic recovery of the late Thatcher years, they say, the country has registered strong and persistent growth. “Thatcherism can best be summed up in the statistics showing that, in the 1980s, manufacturing productivity rose faster in Britain than in any other industrial country,” writes Tim Congdon.20 Employment began to rise again during her third term in office, and by the end of the century, British joblessness was lower than in most European countries. One might also observe that revolutions (even conservative ones like Thatcher’s) are invariably divisive.
It is also worth noting that some of the intellectual architects of the Thatcher counterrevolution believed that she did not go far enough. There were some at the promarket think tanks, the Institute for Economic Affairs and the Center for Policy Studies, who continued to insist that Thatcher had dodged some of the greatest challenges of the 1980s. They believed, in particular, that Thatcher signally failed when she refused to take on the daunting task of reforming the public-sector bureaucracies, the places where the real power of the state resided. Without doing this, they contended, the economic liberals “could never achieve that fundamental shift in power from the State to the individual that had been at the core of the economic liberal agenda since the 1940s,” Cockett notes. To them, accordingly, the Thatcher Revolution was only a partial success.21
Journalist Simon Jenkins echoes this critique. Government spending as a share of the gross domestic product actually increased during her administration—evidence, he says, that her antistatist ethos was more rhetoric than reality. This was particularly true at the local level. Contrary to her decentralizing instincts, she ended up increasing London’s power over many organs of provincial and municipal government—precisely, he argues, because local governments were so often dominated by socialist sympathizers who opposed her policies.
There is undoubtedly a measure of truth to this. Yet it is important to recall that Thatcher was not a libertarian. Those of her supporters who wanted to see her privatize the National Health Service, for example, were probably deluded (though she did try to make it more responsive to market incentives). Thatcher’s primary aim was not to destroy the welfare state. It was to restore the primacy of the “vigorous virtues” in British life, to destroy the culture of dependency fostered by socialism, and to open up greater space for individual self-reliance and private initiative. In this, Thatcher’s defenders say, she resoundingly succeeded. She did it, above all, by transforming the terms of reference of British politics—with consequences that continue to be felt in the country to this day. Whatever one’s political views, no one can dispute that Margaret Thatcher left Britain a fundamentally different place from the one she encountered upon her assumption of office in 1979.
In September 1989, Poland’s economy faced a desperate situation. The country was wallowing in debt, both domestic and foreign. Its industrial capacity was 90 percent state owned. These publicly owned enterprises never fired anyone, but neither did they produce goods that anyone wanted to buy. Bankruptcy was unheard of. The Polish currency, the zloty, suffered from hyperinflation at rates of more than 600 percent.22 The finance minister of the country’s newly installed democratic government, Leszek Balcerowicz, set out to turn things around. He formed a commission staffed by some of Poland’s leading economists as well as the American Jeffrey Sachs.
On October 6, Balcerowicz unveiled his new program. It gave private businesses the ability to participate in Poland’s foreign trade, which until then had been entirely monopolized by the government, and made the zloty convertible (though only inside the country). Private foreign investors were invited to come into the country and put their money into new businesses. A new law on banking prohibited the central bank from financing the budget deficit; another allowed state-owned companies to go bankrupt. A special tax was imposed on wage hikes. The Balcerowicz Plan also cut state subsidies on energy. Perhaps most important of all, it freed prices for many consumer goods.
It was an approach that came to be known as “shock therapy.” As the name implies, the treatment involved was not entirely gentle. Prices jumped, and unemployment soared to 20 percent. Yet it did not take long for signs of a new economic life to appear. Inflation, an abiding feature of Polish economic life, disappeared. The zloty went from being a symbol of dysfunction to a stable currency that has helped to fuel a persistent economic boom. Polish entrepreneurs have founded hundreds of thousands of companies that have produced millions of jobs. The Polish economy is today one of the most dynamic in the European Union.
The experts can fight over whether these measures were doctrinally “Thatcherite.” What is beyond dispute, however, is that Thatcher’s political example loomed large in the minds of the economist-politicians who engineered the plan and saw it through. Unlike the British prime minister he described as his “hero,” Balcerowicz managed to stay in office only two years. But he remains a strong advocate of her economic philosophy.
Thatcherism had a remarkable and largely unappreciated impact on economic thinking around the world, and as such it has been a major factor in the global market revolution that has transformed the world in the years since she ruled Britain. Entirely in keeping with her self-image as a political crusader, her influence has been far less theoretical than practical.
The reasons for this are simple. In the 1980s and 1990s, many countries around the world found themselves in positions comparable to that of the United Kingdom in the late 1970s. Under the well-meaning influence of “development economics” in the 1950s and 1960s, developing countries had assumed that state-led modernization, public ownership of industry, and aggressive government intervention were the only ways to kick-start growth. The results, in far too many cases, were inefficiency, corruption, and chronic inflation.
The main intellectual alternative to the reigning consensus in global economics emerged from the so-called Chicago School, a term that was first applied in the 1950s to a group of free-market economists who came together at the University of Chicago. Their most famous theoretician was Milton Friedman, a founding member of the Mont Pèlerin society and a gifted polemicist for the cause of economic liberalism. The Chicago School did not content itself with merely generating ideas. It also turned out an enormously influential crop of international economists who later played direct roles in the process of economic reform in their home countries.23 Friedman and his colleagues did much to prepare the way for Thatcher’s economic counterrevolution by promoting the new thinking during the 1970s. Friedman’s Nobel Prize in 1976 (coming two years after the one received by Friedrich von Hayek, who also taught for a time at Chicago) signaled the shift in thinking that was already under way.
Thatcher’s impact, however, was different. She was not an academic but a practical politician, the leader of one of the world’s most important economies. It was also important that she was precisely not an American. For all of their periodic obsessions with New Deal corporatism and Keynesian fine-tuning, the Americans had always remained committed to a fundamentally liberal economic philosophy—even if the US-trained development economists often did not seem to regard it as suitable for foreign conditions. In 1979, however, Thatcher and her team had confronted a set of real-world conditions that seemed painfully familiar to many reformers around the world in the 1990s: high inflation, a bloated state sector, waning productivity, and a collectivist mind-set that assumed the need for a government intervention on myriad levels and crowded out entrepreneurship and wealth creation.
All of this helps to explain why Thatcherism proved to be such a spur to the worldwide forces of neoliberal orthodoxy, the market revolution that helped to spur globalization. The newly liberated countries of Eastern Europe looked to Thatcher, not Reagan, as their economic lodestar. And that was only logical, since their problems—a lopsided public sector, a crushing bureaucratic apparatus, a deeply entrenched collectivist ethos, and a long-suppressed spirit of entrepreneurship—were so similar to the conditions faced by Thatcher and her team in the 1980s. The same applied to economies that “emerged” elsewhere, including upstarts like Brazil or Turkey that, unlike the East Asian nations, rejected the authoritarian assumptions of postwar “development economics” and adopted economic reforms more compatible with progress toward democratic rule.
Thatcherism had no greater consequence than in India, where the early-içços reformer Manmohan Singh and his followers referred to her legacy, directly and indirectly, as they cut away a choking bureaucracy to release the wealth-creating potential of the world’s largest democracy. What an irony it would be if, one day, we recall Thatcher less for her role as the reformer of a sclerotic Britain than as the inspiration for India’s transformation into one of the world’s economic giants.
Americans tend to believe that the values of their economic system require no elucidation, so they have never really seen the need to disseminate coherent arguments for free-market ideology. Thatcher’s supporters, emerging from a political environment where collectivist ideas dominated for so long, did. In the 1980s, operating like good evangelical missionaries of the nineteenth century, they took their model of the free-market think tanks and internationalized it. Anthony Fisher, the founder of the Institute for Economic Affairs,24 was invited in 1975 to run the Fraser Institute in Vancouver, Canada. The experiment was a success, and in 1977 he set up another one, called the International Center for Economic Policy Studies. The Center for Independent Studies followed in Australia at the end of the decade.
Building on these first cautious efforts, Fisher in 1981 then established the Atlas Economic Research Foundation, which served as the core of an international network of other free-market research centers modeled on the IEA. Within the course of the next decade, Atlas took credit for founding seventy-eight institutes around the world (thirty-nine of them in Latin America) and close ties with another eighty-eight. By the time the Berlin Wall fell in 1989, these institutes had spawned a global community of economic thinkers schooled in Hayekian principles, many of whom soon fanned out into the countries of the former Soviet bloc to argue the virtues of capitalism.25
“What happened under Ms. Thatcher was an eye-opener, a revelation,” said Palaniappan Chidambaram, who served as India’s finance minister for a while during the 1990s. “After all, we had gotten our Fabian socialism from Britain.”26 Bolivian president Gonzalo Sanchez de Lozada cited Thatcher—along with the rise of the East Asian tigers and the reforms of Deng Xiaoping—as the precedent for the program of market-oriented reform that began in 1985.27 In Brazil in the 1990s, President Fernando Henrique Cardoso embarked on a privatization program that, measured by the value of the assets sold, amounted to twice the size of what Britain had done under Thatcher.28 Even continental Europe found it impossible to resist the positive impact of Thatcher’s privatization program. From 1985 to 2000, European governments sold off some $100 billion worth of state assets, including national champions such as Lufthansa, Volkswagen, Renault, Elf, and the Italian oil company ENI.29
But Thatcherism, even in its economic guise, was never just a theory about economics. Thatcher, as a clearly identifiable global brand, became the face of the market counterrevolution that swept the world. By the early 1990s, “Thatcherism” had already become identified, in places ranging from Latin America to Eastern Europe, with a particular set of policy choices.30 The Soviet military newspaper Krasnaya Zvezda had nicknamed her the “Iron Lady” even before she became prime minister, and it was a label that she was happy to appropriate to herself. And it as the “Iron Lady” that she is mentioned in the movie Platform, Chinese director Jia Zhang Ke’s marvelous paean to the early reform period in China. Thatcher’s mission excited intense emotions among both opponents and fans. Her polarizing effect was precisely what made her such an extraordinary agent of change. Even today, decades after her term in office, her name still has a unique capacity to provoke dispute, debate, or outright rejection. There are very few politicians who can claim the same.