Modern history

XVII

The New Realism

‘There is no such thing as Society. There are individual men and women,
and there are families’.
Margaret Thatcher

‘The French are starting to understand that it is business that creates
wealth, determines our standard of living and establishes our place in the
global rankings’.
François Mitterrand

‘At the end of the Mitterrand experiment, the French Left appeared more
devoid of ideas, hopes and support than it has been in its entire history’.
Donald Sassoon

Every politically significant revolution is anticipated by a transformation of the intellectual landscape. The European upheavals of the 1980s were no exception. The economic crisis of the early Seventies undermined the optimism of Western Europe’s post-war decades, fracturing conventional political parties and propelling unfamiliar issues to the center of public debate. Political argument on both sides of the Cold War divide was breaking decisively with decades of encrusted mental habits—and, with unexpected speed, forming new ones. For better and for worse, a new realism was being born.

The first victim of the change in mood was the consensus that had hitherto embraced the post-war state, together with the neo-Keynesian economics that furnished its intellectual battlements. By the late 1970s the European welfare state was starting to count the cost of its own success. The post-war baby-boom generation was entering middle age, and government statisticians were already warning of the cost of supporting it in retirement—a problem that loomed closer on the budgetary horizon thanks to widespread reductions in the retirement age. Of West German males aged 60-64, for example, 72 percent were working full time in 1960; twenty years later, only 44 percent of men in this age group were still employed. In the Netherlands the fall was from 81 percent to 58 percent.

Within a few years the largest generational cohort in Europe’s recorded history would cease to contribute taxes to the national exchequer and would begin to extract huge sums—whether in the form of guaranteed state pensions or, indirectly but with comparable impact, by making increased demands upon state-maintained medical and social services. Moreover, being also the best-nurtured generation ever, they would almost certainly live longer. And to this concern was now added the growing cost of paying unemployment benefits, by 1980 a major budgetary consideration in every Western European state.

These widespread anxieties were not unfounded. The post-war welfare states rested upon two implicit assumptions: that economic growth and job creation (and thus government income) would continue at the high levels of the fifties and sixties; and that birth-rates would remain well above replacement level, ensuring a ready supply of new tax-payers to pay for their parents’—and grandparents’—retirement. Both assumptions were now open to question, but the demographic miscalculation was the more dramatic of the two. By the beginning of the 1980s, in Western Europe, the population replacement ratio of 2.1 children per woman was being met or exceeded only in Greece and Ireland. In West Germany it stood at 1.4 per woman. In Italy it would soon fall lower still: whereas in 1950, 26.1 percent of Italians—more than one in four—was under 14 years old, by 1980 that figure stood at 20 percent, or one in five. By 1990 it would fall to 15 percent, approaching one in seven.242

In prosperous Western Europe, then, it appeared that within two decades there would not be enough people around to pay the bills—and prosperity itself seemed to be the culprit, together with reliable contraception and a growing number of women working outside the home.243 The result was ever higher charges on those in a position to pay. Already the cost of pension and national insurance provision in some places (France, notably) weighed heavily on employers—a serious consideration in a time of endemic high unemployment. But direct charges on the national exchequer were a more immediate concern: as a percentage of GDP, government debt by the mid-1980s was reaching historically high levels—85 percent, in the Italian case. In Sweden, by 1977, one-third of the national product was taken up by social expenditures, a budgetary charge that could only be met either by deficits or else by raising taxes on the very constituencies—employed workers, civil servants and professionals—on whom the Social Democratic consensus had hitherto depended.

Public policy since the 1930s rested on a broadly unquestioned ‘Keynesian’ consensus. This took for granted that economic planning, deficit financing and full employment were inherently desirable and mutually sustaining. Its critics offered two lines of argument. The first, quite simply, was that the array of social services and provisions to which Western Europeans had become accustomed were not sustainable. The second argument, offered with particular urgency in Britain—where the national economy had staggered from crisis to crisis for most of the post-war decades—was that, sustainable or not, the interventionist state was an impediment to economic growth.

The state, these critics insisted, should be removed as far as possible from the market for goods and services. It should not own the means of production, it should not allocate resources, it should not exercise or encourage monopolies, and it should not set prices or incomes. In the view of these ‘neo-liberals’, most of the services currently furnished by the state—insurance, housing, pensions, health and education—could be provided more efficiently in the private sector, with citizens paying for them out of income no longer (mis-)directed to public resources. In the view of one leading exponent of free-market liberalism, the Austrian economist Friedrich Hayek, even the best-run states are unable to process data effectively and translate it into good policy: in the very act of eliciting economic information they distort it.

These were not new ideas. They were the staple nostrums of an earlier generation of pre-Keynesian liberals, brought up on the free-market doctrines of neo-classical economics. In more recent times they were familiar to specialists from the work of Hayek and his American disciple Milton Friedman. But with the Depression of the 1930s and the demand-led boom of the Fifties and Sixties, such views had been typically dismissed (in Europe at least) as politically myopic and economically anachronistic. Since 1973, however, free-market theorists had re-emerged, vociferous and confident, to blame endemic economic recession and attendant woes upon ‘big government’ and the dead hand of taxation and planning that it placed upon national energies and initiative. In many places this rhetorical strategy was quite seductive to younger voters with no first-hand experience of the baneful consequences of such views the last time they had gained intellectual ascendancy, half a century before. But only in Britain were the political disciples of Hayek and Friedman able to seize control of public policy and wreak a radical transformation in the country’s political culture.

It is more than a little ironic that this should have happened in Britain of all places, for the economy of the UK, though intensively regulated, was perhaps the least ‘planned’ of any in Europe. There was constant government manipulation of price mechanisms and fiscal ‘signals’; but the only ideologically-driven aspect of British economic life were the nationalizations first introduced by the Labour government after 1945. And even though the case for ‘state ownership of the means of production, distribution and exchange’ (Clause IV of the Labour Party’s 1918 constitution) had been retained as Party policy, few of Labour’s leaders paid it more than lip service, if that.

The core of Britain’s welfare state lay not in economic ‘collectivism’ but in the country’s universalized social institutions, anchored firmly in the early twentieth-century reformism of Keynes’s liberal contemporaries. What mattered to most British voters of Left and Right alike was not economic planning or state ownership but free medicine, free public education and subsidized public transport. These facilities were not very good—the cost of running a welfare state in Britain was actually lower than elsewhere, thanks to under-funded services, inadequate public pensions and poor housing provision—but they were widely perceived as an entitlement. However intensely such social goods were condemned by neo-liberal critics as inefficient and under-performing, they remained politically untouchable.

The modern Conservative Party, from Winston Churchill to Edward Heath, had embraced Britain’s ‘social contract’ almost as enthusiastically as the Keynesian ‘socialists’ of Labour and for many years had kept its feet firmly planted in the middle ground (it was Churchill, after all, who remarked back in March 1943 that ‘there is no finer investment for any community than putting milk into babies’). When, in 1970, Edward Heath brought a group of free-marketers together at Selsdon Park near London, to discuss economic strategies for a future Conservative government, his brief and decidedly ambivalent flirtation with their rather moderate proposals brought down upon him a thunderstorm of derisory condemnation. Accused of seeking to return to the Neanderthal primitivism of the economic jungle, ‘Selsdon Man’ beat a hasty retreat.

If the British political consensus collapsed in the ensuing decade it was not because of ideological confrontation but as a consequence of the continuing failure of governments of all colours to identify and impose a successful economic strategy. Starting with the view that Britain’s economic woes were the result of chronic under-investment, managerial inefficiency and endemic labour disputes over wages and job demarcation, both Labour and Conservative governments tried to replace the anarchy of British industrial relations with planned consensus along Austro-Scandinavian or German lines—a ‘Prices and Incomes Policy’ as it was known in Britain, with characteristic empirical minimalism.

They failed. The Labour Party was unable to impose industrial order because its paymasters in the industrial unions preferred nineteenth-century style confrontations on the shop floor—which they stood a good chance of winning—to negotiated contracts signed in Downing Street that would bind their hands for years ahead. The Conservatives, notably Edward Heath’s government of 1970-1974, had even less success, largely thanks to the well-founded, historically-engrained suspicion in certain sectors of the British working class—the coalminers above all—of any compromise with Tory ministries. Thus when Heath suggested closing a number of uneconomic coal mines in 1973, and tried to impose legal constraints on the power of trade unions to initiate labour disputes (something the Labour Party had first proposed, then abandoned, a few years before) his government was stymied by a wave of strikes. When he called an election to decide, as he put it, ‘who runs the country’, he narrowly lost to Harold Wilson, who prudently declined to take up the cudgels himself.

Only under the Labour government of Wilson’s successor, James Callaghan, from 1976 to 1979, did a new policy begin to emerge. Driven by desperation and the conditions of an IMF loan, Callaghan and his Chancellor of the Exchequer (the redoubtable Denis Healey) initiated a retreat from the central nostrums of post-war government practice. They embarked on a restructuring program that acknowledged the inevitability of a certain level of unemployment; reduced social transfer payments and labour costs by protecting skilled workers while permitting the emergence of a disfavored periphery of unprotected, non-unionized part-time employees; and set out to control and reduce inflation and government spending even at the price of economic hardship and slower growth.

None of these objectives was openly avowed. The Labour government maintained to the end that it was adhering to its core values and defending the institutions of the welfare state even as it inaugurated a cautiously planned breakout, seeking to achieve by stealth the sorts of reforms that its predecessors had been unable to legislate in the open. The strategy did not work: Labour succeeded only in alienating its own supporters without being able to take any credit for its achievements. By August 1977, thanks in part to the Labour government’s deep cuts in public spending, UK unemployment levels had passed 1.6 million and kept on rising. The following year, in Britain’s ‘Winter of Discontent’ of 1978/79, major trade unions undertook a series of angry, concerted strikes against their ‘own’ government: rubbish went uncollected, the dead were left unburied.244

The Prime Minister, James Callaghan, seemed out of touch: in reply to a journalist’s question about the growing industrial unrest, he airily announced that there was no need for concern, thereby giving rise to a famous newspaper headline—‘Crisis? What Crisis?’—that helped lose him the general election he was forced to hold the following spring. It is more than a little ironic that Labour was constrained to fight the historic election of 1979 on the claim that it had not engineered a social crisis by its radical departure from economic convention—when this was exactly what it had done—while the Conservative Party was swept back to power under the energetic leadership of a woman who insisted that it was just such radical treatment that the British malaise required.

Margaret Thatcher was not, on the face of it, a likely candidate for the revolutionary role she was to perform. Born in Grantham, a sleepy, provincial town in Lincolnshire, she was the daughter of an earnest Methodist couple who ran a grocer’s shop. She was always a Conservative: her father sat on the local town council as a Conservative; the young Margaret Roberts (as she then was) won a scholarship to Oxford—where she studied chemistry—and rose to be President of the University’s Conservative Society. In 1950, at the age of 25, she was an (unsuccessful) Conservative candidate in the General Elections, the youngest woman candidate in the country. A chemist and subsequently a tax lawyer by profession, she first entered Parliament in 1959, winning a seat in the solidly conservative borough of Finchley which she would continue to represent until she entered the House of Lords in 1992.

Until she successfully beat off much more senior Conservative figures to win her party’s leadership in 1975, Margaret Thatcher was best known in Britain as the Education Minister in Heath’s Conservative government who, in order to meet budget-cutting targets, abolished the provision of free milk in British schools: a decision (taken reluctantly) that led to the sobriquet ‘Maggie Thatcher Milk Snatcher’ and gave the first hint of her future trajectory. Yet this decidedly unfavorable public image proved no impediment to Mrs. Thatcher’s advance—her willingness to court and confront unpopularity not only did her no harm among colleagues, but may even have been part of her appeal.

And she unquestionably had appeal. Indeed, a surprisingly broad range of hard-bitten statesmen in Europe and the United States confessed, albeit off the record, to finding Mrs. Thatcher rather sexy. François Mitterrand, who knew something about such things, once described her as having ‘the eyes of Caligula but the mouth of Marilyn Monroe.’ She could bully and browbeat with less mercy than any British politician since Churchill, but she also seduced. From 1979 to 1990 Margaret Thatcher bullied, browbeat—and seduced—the British electorate into a political revolution.

‘Thatcherism’ stood for various things: reduced taxes, the free market, free enterprise, privatization of industries and services, ‘Victorian values’, patriotism, ‘the individual’. Some of these—the economic policies—were an extension of proposals already circulating in Conservative and Labour circles alike. Others, notably the ‘moral’ themes, were more popular among Conservative Party stalwarts in rural constituencies than with the electorate at large. But they came in the wake of a backlash against the libertarianism of the Sixties and appealed to many of Mrs. Thatcher’s admirers in the working- and lower-middle classes: men and women who had never really been comfortable in the company of the progressive intelligentsia that dominated public affairs in these years.

But what Thatcherism stood for more than anything else was the ‘smack of firm government’. By the end of the Seventies there was much anxious debate about Britain’s purported ‘ungovernability’, the widely-shared perception that the political class had lost control, not just of economic policy but of the workplace and even the streets. The Labour Party, traditionally vulnerable to the charge that it could not be counted upon to steer the economy, was now open to the accusation, following the ‘Winter of Discontent’, that it could not even run the state. In their 1979 election campaign, the Tories made great play not just with the need for economic rigour and proper money management, but with the nation’s ostensible longing for strong, confident rulers.

Margaret Thatcher’s first election victory was not particularly remarkable by historical standards. Indeed, under Mrs. Thatcher’s leadership the Conservative Party never actually gained many votes. It did not so much win elections as watch Labour lose them, many Labour voters switching to Liberal candidates or else abstaining altogether. In this light, Margaret Thatcher’s radical agenda and determination to see it through can seem out of all proportion to her national mandate, an unexpected and even risky break with the longstanding British tradition of governing from as close to the political centre as possible.

But it seems clear in retrospect that this was just what accounted for Margaret Thatcher’s success. Her refusal to be moved even when her monetarist policies were apparently failing (to those Conservatives in October 1980 who begged her to reverse tack and make a U-turn in policy she responded: ‘You turn if you want. The lady’s not for turning’); her happy adoption of the Soviet description of her as the ‘Iron Lady’; her palpable pleasure at engaging and defeating a string of opponents, from the Argentine military junta in the Falkands’ War to the miners’ union leader Arthur Scargill; the handbag waved aggressively at assembled European Community leaders as she demanded ‘our money back’: all these suggest a clear appreciation that her primary political asset was the very obstinacy, the obdurate refusal to compromise, that so outraged her critics. As every opinion poll suggested, even those who didn’t care for Thatcherite policies often conceded a certain reluctant admiration for the woman herself. The British were once again beingruled.

Indeed, and for all her talk of the individual and the market, Margaret Thatcher presided over a remarkable and somewhat disconcerting revival of the British state. In administration she was an instinctive centralizer. To ensure that her writ carried throughout the land, she reduced the powers and budgets of local government (the 1986 Local Government Act dismantled Britain’s metropolitan authorities, taking their powers back to London, just as the rest of Europe was engaged in a large-scale decentralization of power). The direction of educational policy and regional economic planning reverted to central government departments under direct political control, while government ministries themselves found their traditional freedom of maneuver increasingly constrained by a Prime Minister who depended far more on a small coterie of friends and advisers than on the traditional élite corps of senior civil servants.

Margaret Thatcher instinctively (and correctly) suspected the latter, like their peers in the educational and judicial establishment, of preferring the old state-subsidized paternalism. In the complex conventions of Britain’s class-conscious politics, Margaret Thatcher—a lower-middle class upstart with a soft spot for nouveau riche businessmen—was not much liked by the country’s venerable governing élite and she returned the sentiment with interest. Older Tories were shocked at her unsentimental scorn for tradition or past practice: at the height of the privatization craze, former Prime Minister Harold Macmillan accused her of selling the ‘family silver’. Her predecessor, Edward Heath, who had once angrily described the well-publicized undertakings of a corrupt British businessman as ‘the unacceptable face of capitalism’, abhorred both Thatcher and her policies. She could not have cared less.

The Thatcherite revolution strengthened the state, cultivated the market—and set about dismantling the bonds that had once bound them together. She destroyed forever the public influence exercised by Britain’s trade unions, passing laws that limited union leaders’ ability to organize strikes, and then getting them enforced in the courts. In a highly symbolic confrontation in 1984-85, pitting the armed state against a doomed community of industrial proletarians, she crushed a violent and emotional effort by the National Union of Miners to break her government’s policy of closing inefficient mines and ending subsidies to the coal industry.

The miners were badly led, their cause hopeless, their strike prolonged more from desperation than calculation. But the fact that Margaret Thatcher won a battle that Edward Heath had lost (and that successive Labour leaders had ducked) immensely strengthened her hand—as did an unsuccessful attempt by the Provisional IRA to assassinate her in the midst of the strike. Thatcher, like all the best revolutionaries, was fortunate in her enemies. They allowed her to claim that she alone spoke for the frustrated, over-regulated, little people whom she was freeing from decades of domination by vested interests and by the subsidized, parasitical beneficiaries of taxpayer largesse.

There is no doubt that Britain’s economic performance did improve in the Thatcher years, after an initial decline from 1979-81. Thanks to a shakeout of inefficient firms, increased competition and the muffling of the unions, business productivity and profits rose sharply. The Treasury was replenished (on a one-time basis) with the proceeds from the sale of nationally-owned assets. This had not been part of the original Thatcher agenda in 1979, nor was privatization as such an ideologically-charged idea—it was the Labour Party, after all, that sold off the nation’s share in British Petroleum in 1976 (at the IMF’s bidding). But by 1983 the political as well as the financial benefit of liquidating the country’s state-owned or state-run assets led the Prime Minister to inaugurate a decade-long national auction, ‘liberating’ producers and consumers alike.

Everything, or almost everything, was put on the privatization block. In the first round were smaller firms and units, mostly in manufacturing, in which the state held a partial or controlling interest. These were followed by hitherto ‘natural’ monopolies like the telecommunications network, energy utilities, and air transportation, beginning with the sale of British Telecom in 1984. The government also sold off much of the country’s post-war public housing stock: at first to its current occupants but eventually to allcomers. Between 1984 and 1991, one-third of all the world’s privatized assets (by value) were accounted for by UK sales alone.

Despite this apparent dismantling of the public sector, the share of Britain’s GDP absorbed by public expenditure remained virtually the same in 1988 (41.7 percent) as it had ten years earlier (42.5 percent), notwithstanding Thatcher’s promises to ‘get the state off people’s backs’. This was because the Conservative government had to pay unprecedented sums in unemployment benefit. The ‘scandalously’ high figure of 1.6 million jobless that had so damaged Callaghan’s government in 1977 had reached 3.25 million by 1985 and remained one of the highest in Europe for the rest of Mrs. Thatcher’s time in office.

Many of those who lost jobs in inefficient (and previously state-subsidized) industries like steel, coal-mining, textiles and shipbuilding would never find work again, becoming lifelong dependents of the state in all but name. If their former employers went on in some cases (steel, notably) to become profitable private companies it was less through the miracle of private ownership than because Margaret Thatcher’s governments had relieved them of high fixed labour costs, ‘socializing’ the expense of superfluous workers in the form of state-subsidized unemployment.

There was something to be said for the privatization of certain public industries and services. For many years vital economic assets had been held in the public sector with little thought given to investment or modernization. They had been starved of cash, their performance cushioned against pressure from competition and consumer alike, their managers hamstrung by bureaucratic inertia and political meddling. 245 Thanks to Mrs. Thatcher there emerged in Britain a much-expanded market for goods, services and, eventually, labour. There was more choice and (though this took longer and remained imperfect) more price competition. When her successor, John Major, kept Britain out of the ‘social chapter’ of the European Union treaty, Jacques Delors accused him of having made the UK a ‘paradise for foreign investment’: a charge to which Thatcherites could justifiably and happily plead guilty.

As an economy, then, Thatcherized Britain was a more efficient place. But as a society it suffered meltdown, with catastrophic long-term consequences. By disdaining and dismantling all collectively-held resources, by vociferously insisting upon an individualist ethic that discounted any unquantifiable assets, Margaret Thatcher did serious harm to the fabric of British public life. Citizens were transmuted into shareholders, or ‘stakeholders’, their relationship to one another and to the collectivity measured in assets and claims rather than in services or obligations. With everything from bus companies to electric supply in the hands of competing private companies, the public space became a market place.

If—as Mrs. Thatcher asserted—there is ‘no such thing as Society’, then in due course people must lose respect for socially-defined goods. And so they did, as late-Thatcherite Britain began to take on some of the more unappealing characteristics of the American model that the Iron Lady so admired. Services that remainedin public hands were starved of resources, while significant wealth accumulated in the ‘emancipated’ sectors of the economy—notably the City of London, where investment bankers and stockbrokers benefited greatly from the ‘Big Bang’ of 1986, when Britain’s financial markets were deregulated and opened to international competition. Public spaces fell into neglect. Petty crime and delinquency rose in line with the growing share of the population caught in permanent poverty. Private affluence was accompanied, as so often, by public squalor.246

But there were limits to Margaret Thatcher’s reach. The typical ‘Thatcherite’ voter—caricatured as a thirty-something realtor in the eastern suburbs of London, under-educated but well-remunerated, with material assets (house, car, foreign vacations, a handful of shares in mutual funds and a private pension scheme) of which his parents could only have dreamed—might have entered the world of Thatcherite individualism. But he and his family were still entirely dependent upon the state for the provision of vital services: free education, virtually free medicine, and subsidized transport. Thus when Mrs. Thatcher and her successor John Major so much as hinted that they might begin privatizing the National Health Service or charging fees for state education, public support evaporated—among precisely those newly-prosperous but highly vulnerable sectors of the population that had been attracted to Thatcherism in the first place.

Five years after Mrs. Thatcher’s departure, John Major did indeed succeed in pushing through the privatization of the railway services. The Conservatives were encouraged by the prospect of further profit from the sale of public assets into private ownership; but their chief motive was Major’s need to be seen to be privatizing something—Mrs. Thatcher had by then sold off just about everything else, and privatization was the Conservative Party’s sole and only program. But the incompetence and malfeasance of the procedure, and the disasters that followed—culminating in a series of tragic and palpably avoidable train crashes—helped bring about not just the defeat of the Conservative government two years later, but the end of a cycle of privatizations and the retrospective discrediting of the more extreme incarnations of Thatcherism itself.

Among Margaret Thatcher’s chief victims was her very own Conservative Party. By the time the Iron Lady had finished with it, the Tory Party—Britain’s ‘natural’ party of government for nearly a century—had no program, no leaders and, as it appeared to many, no soul. This seems a harsh judgment to make of a woman who led her party to three electoral victories in succession and governed virtually alone for nearly twelve years. But that of course is the point: Margaret Thatcher governed alone. In the words of Frederick the Great, ‘The people say what they like and then I do what I like.’ Any colleague who differed from her on any significant issue and who was thus not ‘one of us’, was cast into the outer darkness.

Most of Mrs Thatcher’s Tory contemporaries, not to mention the party’s cohort of elder statesmen whom she thrust aside as soon as she dared, were genuine conservatives , old enough in many cases to remember the bitter political divisions of the inter-war years and wary of arousing the demon of class warfare. Thatcher was a radical, bent upon destruction and innovation; she scorned compromise. For her, class warfare, suitably updated, was the very stuff of politics. Her policies, often dreamed up at very short notice, were secondary to her goals; and these in turn were in large measure a function of her style. Thatcherism was about how you govern, rather than what you do. Her unfortunate Conservative successors, cast out upon the blasted landscape of post-Thatcherism, had no policies, no goals—and no style.247

Margaret Thatcher may have destroyed the Conservative Party but she must be credited with the salvation and re-birth of Labour. In the short-run, of course, she crushed her Labour opponents—indeed, she could not have wrought the changes she did but for their stunning incompetence. While some Labour Party leaders in 1979 understood the problems they faced, they could carry neither conviction nor their supporters. With Thatcher in power, the British Labour movement entered a decade of turmoil. The party’s militant and unionist core saw the world much as Mrs. Thatcher did, but from the other side of the mirror: Britain must choose between a protectionist, collectivist, egalitarian, regulatory state and open markets, untrammeled competition, privatized resources and a minimum of shared goods and services. The choice, thanks to the Iron Lady, was once again clear: socialism or capitalism.

Labour’s traditional moderates, like their Conservative counterparts, were in despair. Some of them—notably Roy Jenkins, a former President of the European Commission—abandoned Labour and formed a short-lived Social Democratic Party that would in due course merge with the Liberals, Britain’s perennial third party. But most stayed, albeit with trepidation. Their pessimism was well-founded. Led by the intellectually appealing but politically ineffectual Michael Foot, the party fought the 1983 general election on a shamelessly anachronistic program committed to undoing not just Thatcherism but many of the compromises of Labour’s own past governments. The UK would retreat from the international economic arena (and from its unswerving fealty to the American alliance). There was to be no truck with privatization, open markets, ‘Europe’ or any other alien project.Safe behind the protective walls of a closed economy, the Little Englanders of Britain’s Left would defiantly build, at last, the New Jerusalem so often traduced by their colleagues.

Labour’s election manifesto of 1983 was succinctly and presciently described by one of the Party’s own dispirited parliamentarians as ‘the longest suicide note in History’. Buoyed by her recent victory in the Falklands War, in which she had established a party monopoly upon ‘patriotism’ and displayed once again her unusual taste for confrontation,248 Mrs. Thatcher won the election of June 1983 by a near-record margin. The Labour Party lost over three million voters, and 160 seats in Parliament. Its share of the vote fell to 27.6 percent, the party’s worst performance since the First World War. Whether the British people wanted what Mrs. Thatcher was selling remained uncertain (the Conservative vote did not rise); but they decidedly did not want the alternative on offer.

It took the Labour Party fourteen years and three different leaders to recover from the catastrophe of 1983. Politically, the party had to isolate and destroy the influence of Trotskyites and other ‘hard’ Left activists in some of its regional strongholds (notably Liverpool). Sociologically, it needed to come to terms with its failure to keep abreast with the concerns and aspirations of a new middle class, without whose support it could never again be elected to office, and which outnumbered the evaporating core of industrial proletarians and public sector employees on whom Labour (like all Social Democratic parties) had traditionally relied. Intellectually, Labour’s leaders needed to identify a new set of policy objectives—and a new language in which to present them.

By the mid-Nineties these goals had been reached—if only cosmetically. The party changed its name to New Labour in 1996, a year after its incoming leader, Tony Blair, persuaded his colleagues finally to abandon the controversial Clause IV committing the party to nationalization. When Labour at last returned to power in 1997, comprehensively defeating an exhausted Conservative party, there was no talk of unraveling the Thatcherite revolution. Instead New Labour’s campaign, aimed almost exclusively at marginal, ‘soft’ Conservative voters, inveighed against high taxes, corruption and inefficiency—the very objects of Mrs. Thatcher’s own attacks a generation before.

If Tony Blair and his colleagues drew a discreet veil over the Thatcherite era, this was not by chance. Blair’s successes rested squarely upon a threefold inheritance from Mrs. (now Lady) Thatcher. First, she ‘normalized’ the radical dismantling of the public sector in industry and services and its replacement with the ‘privatized’, entrepreneurial Britain whose praises Blair sang with such gusto. Second, and in the process, she had destroyed the old Labour Party and facilitated the task of those who fought to reform it: Blair had merely to reap the rewards of their work. And third, as we have seen, her asperity and her intolerance of dissent and disagreement had fractured her own party and rendered it unelectable.

Riding on Thatcher’s coat-tails, Tony Blair shared many of her prejudices, albeit in a less abrasive key. Like her, he intensely disliked the old political vocabulary. In his case this meant avoiding all talk of ‘class’, an antiquated social category displaced in New Labour’s rhetorical boilerplate by ‘race’ or ‘gender’. Like Mrs. Thatcher, Blair showed very little tolerance for decentralized decision-making or internal dissent. Like her, he preferred to surround himself with private-sector businessmen. 249 And although New Labour remained vaguely committed to ‘society’, its Blairite leadership group was as viscerally suspicious of ‘the state’ as the most doctrinaire of Thatcherites.

This, then, is the measure of Margaret Thatcher’s achievement. Not only did she destroy the post-war consensus but she forged a new one. Before she rose to power the default position in British public policy was that the state is the natural fount of legitimacy and initiative. By the time she departed the scene, this was on the way to becoming a minority view even in Britain’s profoundly state-bound Labour Party. For the first time in two generations the role of the state had been put up for discussion and fewer and fewer voices were heard in its defense, at least within the political mainstream. To be sure, there were those who continued to believe that the Thatcherite revolution wrought havoc, and that a return to direct state management of services (if not public ownership of production) was still to be desired. But in the wake of Mrs. Thatcher theirs was a case that had to be made—and except with respect to core social goods like education and medicine, it was no longer guaranteed a sympathetic hearing.

It is sometimes suggested that Thatcher’s role in this change has been exaggerated, that circumstances would have propelled Britain in a ‘Thatcherite’ direction in any event: that the post-war social pact was already running out of steam. Perhaps. But it is hard even in retrospect to see just who but Mrs. Thatcher could have performed the role of gravedigger. It is the sheer scale of the transformation she wrought, for good and ill, that has to be acknowledged. To anyone who had fallen asleep in England in 1978 and awoken twenty years later, their country would have seemed unfamiliar indeed: quite unlike its old self—and markedly different from the rest of Europe.

France, too, changed dramatically in the course of these years, and with some of the same consequences. But whereas in Britain the core assumptions of the postwar consensus were shattered by a revolution from the Right, in France it was the revival and transformation of the non-CommunistLeft that broke the political mould. For many years, French politics had been held in thrall to the parallel and opposed attractions of the Communist Party on the Left and the Gaullists on the Right. Together with their junior partners on Left and Right alike, Communists and Gaullists faithfully incarnated and extended a peculiarly French tradition of political allegiance determined by region, occupation and religion.

These rigidities of French political sociology, unbroken since the mid-nineteenth century, were already under siege, as we have seen, from the social and cultural shifts of the Sixties. The Left could no longer count on a proletarian bloc vote. The Right was no longer bound together by the person and aura of De Gaulle, who had died in 1970; and the fundamental measure of political conservatism in France—the propensity of conservative voters to be practicing Catholics—was being undermined by the decline in public religious observance, as the churches of village and small-town France lost their parishioners, and especially their parishioners’ children, to the metropolitan centers.

But a deeper change was also under way. In the course of the 1970s and early 1980s, traditional French society and an older way of life—variously and affectionately described and recalled as la France profonde, la douce France, la bonne vieille France, la France éternelle—seemed, to the French, to be disappearing before their eyes. The agricultural modernization of the 1950s and 1960s, the migration of the sons and daughters of peasants to the cities, had been steadily depleting and depopulating the French countryside. The revitalized national economy was effecting a transformation in the jobs, travel patterns, and leisure time of a new class of city-dwellers. Roads and railways that had gathered weeds and grime for decades were rebuilt, re-landscaped, or replaced by a virtually new network of national communications. Towns and cities themselves, long preserved in the dowdy urban aspic of decay and underinvestment, were becoming crowded and energetic.

The French were not always comfortable with the speed of change. Political movements emerged to protest at the acceleration and urbanization of social life, the growth of cities and depopulation of the countryside. One legacy of the Sixties—the renewed interest in local and regional languages and culture—seemed to threaten the very territorial integrity and unity of France itself. To fearful contemporaries their country appeared to be modernizing and splitting apart all at once. But the state remained above the fray. In Britain the relationship between an all-embracing state and an inefficient economy, upon which Margaret Thatcher placed such pejorative emphasis, appeared self-evident to many. But in France it was the state itself that seemed to hold the key to the country’s economic resurgence. Its managers were the country’s intellectual élite; its planners saw themselves as a class of disinterested civil servants unaffected by the nation’s ephemeral ideological passions and social eruptions. Politics in France divided the nation bitterly over the question of who would gain power and to what social ends; but concerning the question of how they would wield that power there was a remarkable practical consensus.

From 1958 to 1969 the French state had been ruled by Charles De Gaulle. The President’s self-consciously traditional style, and his avowed unconcern for the minutiae of economic planning, had proved no impediment to change. Quite the contrary: it was under the camouflage of a semi-authoritarian constitution, tailored to the requirements of a charismatic military autocrat, that France had begun the disruptive modernization that helped spark the protests of 1968—indeed, it was the unsettling mix of old-fashioned paternal authority and destabilizing social changes that brought those protests about.

De Gaulle’s opponents and critics made much play with the ‘undemocratic’ way in which the General had seized and exercised power—‘le coup d’état permanent’ as François Mitterrand called it in a pamphlet published in 1965—but the resources and trappings of virtually unrestricted presidential power proved no less appealing to his successors of all political stripes. And the distinctive system of direct presidential election cast a shadow across the country’s quinquennial parliamentary elections, placing a premium upon the political skills and personality of individual candidates around whom political parties had perforce to regroup. It was in this setting that the redoubtable Mitterrand was himself to excel.

François Mitterrand, like Margaret Thatcher, was an implausible candidate for the role he was to play in his country’s affairs. Born to a practicing Catholic family in conservative south-western France, he was a right-wing law student in the 1930s and an activist in some of the most extreme anti-democratic movements of the age. He spent most of World War Two as a junior servant of the collaborationist government in Vichy, switching his allegiance just in time to be able to claim post-war credentials as a resister. His parliamentary and ministerial career in the Fourth Republic was pursued in various minor parties of the center-Left, none of them bearing any allegiance to the Marxist mainstream.

Even when he ran unsuccessfully for president in 1965 with the support of the parties of the official Left, Mitterrand was in no sense their candidate and took care to keep his distance from them. It was only after the implosion of the old Parti Socialiste in 1969, following its electoral humiliation in 1968, that Mitterrand began to plot his role in its renaissance: a take-over bid launched in 1971 with the appearance of a new Socialist Party led by Mitterrand and a new generation of ambitious young men recruited to serve him.

The relationship binding Mitterrand and the remnants of French Socialism’s proud heritage was mutually instrumentalist. The Party needed Mitterrand: his good showing in the presidential election of 1965, when he secured the backing of 27 percent of registered voters (including many in conservative bastions of the East and West) and forced De Gaulle into a run-off, revealed him to be a vote-winner—as early as 1967, during a parliamentary election, Mitterrand badges and photos were selling well. The country was entering a new age of televised, personalized politics—as Michel Durafour, the mayor of St Etienne, glumly noted in 1971: ‘France lives only in anticipation of the next presidential election.’ Mitterrand would be a trump card for the Left.

Mitterrand, in turn, needed the Socialists. Lacking an organization of his own, more than a little tainted by the compromises and scandals of the Fourth Republic in whose governments he had served, this consummate opportunist used the Socialist Party to recycle himself as a man of the committed Left while keeping clear of the burdensome doctrinal baggage with which the old Left was freighted. He once described his religious allegiances thus: ‘Je suis né chrétien, et je mourrai sans doute en cet état. Dans l’intervalle . . . ’(‘I was born Christian and shall doubtless die in that condition. But meanwhile . . . ’). In much the same cynical vein he might have added that he was born a conservative and would die one, but managed to become a Socialist in the meantime.

This marriage of convenience worked better than either party could have imagined. In the course of the 1970s, as the British Labour Party was entering its terminal decline, so France’s Socialists were on the verge of their greatest success. The twin impediments to the re-emergence of a left majority in France had been De Gaulle’s personal appeal, and the fear of many voters that a government of the Left would be dominated by the Communists. By 1970, De Gaulle was dead; within ten years, so were the prospects of the Communists. For the former Mitterrand could take no direct credit, but the latter was unquestionably his achievement.

Acknowledging the logic of necessity, and lacking the ideological delicacy of his genuinely Socialist predecessors, Mitterrand at first aligned his new Socialist Party with the Communists; in 1972 he formed an electoral coalition with them behind a vaguely-worded, anti-capitalist Common Programme. By the elections of 1977 the Communists, the dominant party of the Left since 1945, were ten percentage points behind Mitterrand’s Socialists. Only then did Georges Marchais, the PCF’s lackluster General Secretary, begin to realize the mistake his Party had made in aligning its fate with that of Mitterrand’s young and energetic party—a decision taken partly under the optimistic, ecumenical influence of ‘Eurocommunism’—but it was too late.

After improving upon his 1965 showing in the 1974 Presidential election, when he was narrowly beaten by Giscard d’Estaing after standing as the candidate of the united Left, Mitterrand had forged a superb electoral machine, turning the Socialist Party into a catch-all movement appealing across the whole spectrum of French society, including Catholics, women, farmers and small shopkeepers, all hitherto hostile to the Socialists.250 His own image had mellowed with age: huge campaign billboards across France in the spring of 1981 showed Mitterrand’s portrait in soft focus, set against the same timeless bucolic rural landscape once favored in Pétainist propaganda on those same billboards, under the promise ‘La Force Tranquille’—Quiet Strength.

The Communists, meanwhile, were weak—the Soviet invasion of Afghanistan in 1979 was an acute embarrassment, as were their own declining polls. During the course of the 1970s the Communist Party had ceased to be a fixed star in the ideological firmament: its prestige had collapsed along with its vote, even in the industrial ‘Red Belt’ of Paris that it had dominated since the mid-twenties. Nevertheless, Marchais was determined to stand as a candidate in the forthcoming presidential elections: partly out of habit, partly from hubris, but mostly from a growing awareness of the need to cut the PCF loose from the poisoned embrace of its Socialist comrades.

At the first round of the 1981 Presidential election the two conservative candidates, Giscard d’Estaing and the young Jacques Chirac, together outpolled Mitterrand and Marchais (the latter winning just 12.2 percent of the vote). But in the run-off two weeks later between the two best-placed candidates, Mitterrand secured the backing of Socialists, Communists, environmentalists and even the normally uncooperative Trotskyists, more than doubled his first-round share and defeated Giscard to become the first directly-elected Socialist head of state in Europe. He promptly dissolved parliament and called legislative elections at which his own party trounced Communists and Right alike, winning for itself an absolute majority in the Assemblée Nationale. The Socialists were in complete control of France.

The spontaneous celebrations that greeted the Socialists’ victories were unprecedented. For the tens of thousands of (mostly young) Mitterrand supporters who danced in the streets this was the ‘grand soir’, the revolutionary eve, the threshold of a radical break with the past. On the basis of electoral data alone that would have been a curious claim. As in past electoral upheavals—the French Popular Front victory in April 1936 to which Mitterrand’s achievement was immediately compared, or Margaret Thatcher’s election in 1979—the French vote in 1981 was not radically re-distributed. Indeed, Mitterrand actually fared worse, in the initial voting, than in his earlier bids for the presidency in 1965 and 1974.

What made the difference was the discipline showed by Left voters this time around in coalescing behind Mitterrand at the second round rather than abstaining in sectarian obstinacy, and the division of opinion on the Right. Of those who voted for Chirac in the initial round of the 1981 presidential election, 16 percent gave their votes to Mitterrand two weeks later—rather than re-elect the outgoing president Giscard d’Estaing: a man heartily disliked by Chirac’s Gaullist supporters. Had the Right not divided thus there would have been no President Mitterrand, no Socialist sweep in the ensuing legislative elections—and no grand soir of radical expectations.

It is worth emphasizing this because so much seemed to hang on the outcome of the 1981 election. In retrospect it is clear, as Mitterrand himself understood, that his achievement in 1981 was to ‘normalize’ the process of alternation in the French Republic, to make it possible for the Socialists to be treated as a normal party of government. But to Mitterrand’s supporters in 1981 the picture looked very different. Their goal was not to normalize the alternation of power in the future but to seize it and use it, here and now. They took for good coin their leader’s promises of radical transformation, his undertaking to sweep away not just the corruption and ennui of the Giscard years but also the very capitalist system itself. Excluded from office for so long, France’s Socialist militants had remained free to dream a dream of revolution.

For the Left had not exercised power in France for many decades; indeed, it had never exercised power untrammeled by coalition partners, uncooperative bankers, foreign exchange crises, international emergencies and a litany of other excuses for its failure to implement socialism. In 1981, as it seemed, none of these applied and there would be no excuse for backsliding. Moreover, the association of control of the state with implementation of revolutionary change was so deeply embedded in radical political culture in France that the mere fact of winning the election was itself taken as signifying a coming social confrontation.

Like Marx himself, the French Left identified all real change with political revolution in general and the great French Revolution in particular. Enthusiastic comparisons were thus made with 1871 and even 1791. Nothing Mitterrand had said in the campaign had led the more committed of his followers to think otherwise. In order to ‘dish’ the Communists and the left wing of his own party, Mitterrand had stolen their revolutionary clothes. His election campaign aroused expectations that he was now expected to fulfill.

Thus the Mitterrand years began with an ambitious and radical agenda: a blend of morally uplifting and overdue social reforms (of which the abolition of capital punishment was the most significant) with a phantasmagoric programme of ‘anticapitalist’ legislation. Wages were raised, the retirement age lowered, working hours reduced. But the core element of the programme was an unprecedented schedule of nationalizations. In its first year of office the new Socialist government of Prime Minister Pierre Mauroy took into state control, inter alia: 36 banks; two major finance houses; five of France’s largest industrial corporations (including Thomson-Brandt, the country’s major electrical and electronic products manufacturer); and Usinor and Sacilor, France’s giant iron and steel groups.

There was no pre-determined economic strategy behind these moves. There was talk of invigorating the slowing French economy by the injection of government capital; but this was not a new idea, nor a particularly Socialist one: Prime Minister Chirac, back in the mid-Seventies, had briefly entertained similarly demand-led projects for growth. The prime function of the nationalizations of 1981-82, like the exchange controls that accompanied them, was to symbolize the anti-capitalist intent of the new regime; to confirm that the elections of 1981 had really changed something more than just the personnel of government.

In reality, it was clear from the outset to those concerned that state-owned banks, for example, could only function if permitted ‘total autonomy of decision and action’, thus eliminating the regulatory and socially redistributive goals that had been adduced to justify their take-over in the first place. This pragmatic concession illustrates the broader impediment facing the Mitterrand ‘revolution’. For a year the new regime strove boldly to present a radical face to France and the world. At first this was convincing—Jacques Attali, Mitterrand’s close adviser, recorded that US officials (always on the lookout for such backsliding) claimed to see little difference between French economic policy and that of the Soviet Union.

But for France to take a ‘Socialist’ path in 1982 would have meant imposing not just exchange controls but a whole gamut of regulations cutting the country off from its commercial partners and putting the economy on a virtually autarkic footing. To take France out of international financial markets would not perhaps have been so unimaginable an undertaking as it would later become: in 1977 the market capitalization of IBM alone was twice that of the entire Paris Bourse. Of greater significance was the fact that such a move would have triggered France’s separation and perhaps even departure from the European Community, whose agreements on tariffs, markets and currency alignments—not to mention impending plans for a single market—already severely restricted the options open to member states.

These considerations appear to have concentrated Mitterrand’s thinking—aided, no doubt, by evidence of mounting panic in business circles and signs that currency, valuables and people were moving abroad with increasing urgency, precipitating an economic crisis. On June 12th 1982, the President decided upon a ‘U’ turn. Rejecting the advice of his more radical counselors, Mitterrand authorized his government to freeze prices and wages for a four-month period; cut public spending (which had been generously increased the previous year); raise taxes; give priority to the struggle with inflation (rather than print money, as he had been urged to do)—in effect adopting the economic strategy of the conservative economist Raymond Barre whose 1977 ‘Plan’, never implemented, would have introduced into France a dose of Thatcherism avant l’heure; and abandoned forthwith all reference to a ‘French path to Socialism’.

The President’s Communist allies and some of his Socialist colleagues were deeply shocked. But they should not have been surprised. The supreme pragmatist, Mitterrand grasped readily enough that it was unthinkable for France even to contemplate choosing between remaining in the Western economic (and political) orbit and casting itself out into a doubtfully sustainable middle route between capitalism and Communism. Making a lasting virtue out of passing necessity, he duly re-fashioned himself as a leading ‘Europeanist’. France would build a better society through European unification rather than against it. Rather than struggle against capitalism France would invent a superior version.

By 1984 Mitterrand had removed the four Communist ministers in his government; publicly proclaimed the virtues of a ‘mixed’ economy; appointed a young and technocratic prime minister, Laurent Fabius; handed the management of economic affairs, finance, and the budget to Jacques Delors, with instructions to stabilize the French economy251; and even, in a prominent speech in April of that year, called for a French modernization ‘à l’américaine’.

Mitterrand had France on his side—in 1983 only 23 percent of his own Socialist voters regretted his failure to ‘put Socialism into practice’. Whether they wanted him to ‘modernize’ with quite so much enthusiasm is less certain, but modernize he did. Without explicitly abandoning the less controversial of his early reforms—administrative decentralization, the overhaul of social security, the securing of workplace rights for women and a long-awaited reform of the judiciary—Mitterrand devoted the rest of his long reign (he retired in 1995 after two seven-year presidential terms, dying at the age of eighty the following year) to expensive public works of questionable aesthetics and utility; the re-establishment of French international initiative252; . . . and to overseeing the restoration into private hands of the many services and industries he had only recently taken into public control.

The initial drive to privatize France’s huge public sector was undertaken by the conservative parliamentary majority that emerged victorious from the 1986 elections. But successive governments of all stripes pursued the same goal—indeed, the Socialist governments of Mitterrand’s final years were by far the most energetic privatizers of all. The first assets to be sold into private hands, following the British model of public offerings, were the major banks and TF1, one of three national television channels. There followed public holding companies, insurance concerns, chemical and pharmaceutical corporations and the giant oil conglomerates Total and Elf.

In contrast to Mrs. Thatcher and her heirs, however, the French were cautious about selling off public utilities, or ‘strategic’ firms like the Renault car company (only recently saved from bankruptcy by a huge capital grant from the state in 1985). In markets as in gardens, the French were suspicious of unplanned growth. They preferred to retain a certain capacity to intervene, typically by keeping a portion of even privatized firms in state hands. Privatization itself, in France, was thus a distinctly regulated affair—controlling shares were carefully directed towards enterprises and businesses on whom the state could rely, and international investors remained for many years understandably suspicious. Nevertheless, by French standards the changes were momentous, bringing the country sharply back into line with European and international developments.

This is perhaps an appropriate moment to say something about the privatization wave that broke upon the shores of Western Europe in the 1980s and was to roll across the continent in the course of the following decade. It did not come altogether out of the blue. British Petroleum had been progressively sold off, beginning in 1977, as we have seen; the West German government had dispensed with the chemical combine Preussag by a public share issue as early as 1959 and sold its shares in Volkswagen a few years later; even the Austrian state had sold 40 percent of its shares in two nationalized banks in the course of the 1950s and relinquished its sizeable holding in Siemens in 1972.

But these were sporadic, and—as it were—pragmatic privatizations. What happened in the nineteen-eighties was something quite different, pressed upon governments from two quite distinct directions. In the first place, accelerating developments in technology—notably in telecommunications and the financial markets—were undermining the old ‘natural’ monopolies. If governments could no longer harness the airwaves, or the movement of money, for their own exclusive use, it made little sense for them to ‘own’ them. There remained a powerful political or social case for the state retaining part of a given sector—a public television channel, say, or the post office; but competition was now unavoidable.

In the second place, governments were being driven to sell public assets out of short-term economic necessity. Pressed by inflation, the oil crisis of 1979-80, large annual deficits and growing government indebtedness, finance ministers looked upon the sale of publicly-owned assets as doubly beneficial. The state would offload loss-making industries or services; and the monies thus raised would help balance the budget, albeit on a one-time basis. Even if an industry or service remained in partial public-ownership (the state typically keeping the unprofitable parts that private buyers didn’t want), the injection of cash from share sales could be applied to future investment. For this reason even many public sector managers were enthusiastic partisans of such partial sales, having long resented the diversion of their profits to help make good national budgetary shortfalls.

There was considerable variation in the form and extent of European public ownership and control. The public industrial sector was smallest in Holland, Denmark and Sweden, most extensive in Italy, France, Spain and Austria. Excluding health and social services, the share of the workforce in the early eighties directly employed by the state varied from 15 percent in West Germany to 28 percent in Italy and nearly one in three in Austria. In some countries—Austria, Spain and Italy—the public sector was organized into huge industrial holding companies, of which Italy’s IRI was the largest.253

Elsewhere the state’s interest was filtered through a National Investment Bank and Industrial Guarantee Fund—as in the Netherlands—or its Belgian equivalent, the Société Nationale d’Investissement. The steel industry alone was supported in a wide variety of ways: in Britain the Treasury habitually wrote off the debts of state-owned companies; in France the government provided loans at low rates of interest and intervened politically to favor local producers over foreign competition; in West Germany private sector steel manufacturers received direct cash subsidies.

Given such national disparities, the forms of privatization in Europe naturally diverged significantly. In every case, however, they entailed some element of deregulation; the liberalization of markets; and the introduction of new financial instruments to facilitate the sale and re-sale of shares in partly- or wholly-privatized companies. In West Germany, where the main export sectors (cars, mechanical engineering, chemical and electronics companies) were already in private hands, the impediment to efficiency and competition came not from state control but rather from high fixed costs and labour-market regulations. Privatization in Germany, when it came, was primarily the responsibility of the Treuhandgesellschaft, the public corporation established in 1990 to dispose of former East German state-owned enterprises.254

In Italy, the chief stumbling block on the road to privatization was the vested interest not of the state but of political parties. The Christian Democrats and Socialists in particular used the state sector and public holding companies to reward colleagues and bribe supporters, often favoring them with public contracts and absorbing them into the sottogoverno or submerged power structure that underpinned their dominion. But in spite of this powerful disincentive the Italian private sector grew steadily in this period, especially among manufacturing firms employing fewer than one hundred persons—far more numerous in Italy than in Britain, France or Germany.

Already in 1976 the Constitutional Court had ended the monopoly of RAI, the state-run radio and television networks. A few years later Alfa Romeo, at that point still operated under the aegis of a public holding company, was ‘made over’ to FIAT. Within six years the major holding companies themselves—IRI, INA, ENI, and ENEL14—had all been converted to public joint-stock companies. They had no value in themselves—quite the reverse: in 1984 IRI was losing 4.5 million lire per annum for every one of its 500,000 employees. But they were able to issue bonds that were convertible to shares in the companies under their control now scheduled for privatization.

The situation in countries newly-emerged from authoritarian rule was rather different. The public sector in post-Franco Spain, for example, actually expanded. Public expenditure as a share of GNP rose steadily, as the centrists in government from 1976 to 1982 pursued the old regime’s strategy of avoiding social confrontation by simply transferring failed private companies to the state. They could hardly do otherwise—for varying reasons, nationalization in this form was the preference of workers, owners, national politicians and regional authorities alike. In any case, one of the chief general arguments for cutting the public sector—that the welfare state it incarnated was too costly to maintain—did not apply in Spain, or Portugal or Greece. There was no welfare state to dismantle.

Nevertheless, even in the absence of European-level social services and protections, the public sector—saddled with the abandoned and unprofitable refuse from Spanish capitalism’s accelerated and cosseted adolescence—was hopelessly overburdened. Already in 1976 INI (Instituto Nacional de Industria) alone had a stake in 747 (mostly unprofitable) industrial companies and a controlling interest in 379 others. Some measure of privatization and de-regulation was inevitable if Spain were ever to be solvent. As in France, it was a Socialist government that initiated this process, introducing private pension funds in 1987 and abolishing the state television monopoly two years later.

In post-revolutionary Portugal, Article 85 of the Constitution and a subsequent 1977 law explicitly forbade private enterprise in banking, insurance, transport, posts and telecommunications, electricity production and distribution, petroleum refining and the arms industry. The Socialist administration of Mário Soares sought in 1983 to introduce some flexibility by allowing the private sector to compete with the state in banking and insurance, and authorizing joint-stock companies to form in the steel, petroleum, chemical and arms industries. But it would be some time before the remaining protected sectors were opened even to limited competition.

Mediterranean Europe—like post-Communist Central Europe a few years later—would probably have been even slower to relinquish state controls but for the impact of the European Community/Union. The fixed currency parities of the European Monetary System (EMS) after 1979 were an early constraint—one reason why the Mitterrand governments started selling public assets was to reassure currency markets and thus maintain the franc at its agreed level in EMS. But Brussels’ chief means of leverage were the rules being drawn up for the operation of a single European market. The latter obliged all businesses—public and private alike—to conform to norms of open competition within and eventually between countries. There was to be no favoring of national ‘champions’, or hidden subsidies or other advantage for publicly-owned or controlled enterprises competing for contracts or custom.

However much these regulations were circumvented in practice, their mere existence obliged state-owned firms to comport themselves in the marketplace no differently from private ones—at which point there was little reason to maintain the state’s involvement in their affairs. The Italian response was typical of that of many other member states of the Community: in 1990 Italy adopted new regulations that echoed the relevant clauses of the Single European Act, requiring all state-owned firms to apply the principle of open and equal competition in all their dealings—except in the case of firms and undertakings where a state monopoly was ‘vital to its tasks’, a clause whose flexibility and vagueness allowed governments to adapt to European norms while staying sensitive to local pressures.

Despite the excited talk in Brussels (and London) of increased openness and ‘competitiveness’ the European privatization fever of these years probably wrought less change than its supporters promised or expected. Critics had warned that the result would not be more competition but simply a transfer of concentrated economic power from the public to the private sphere and this is what happened. Thanks to complicated cross-shareholding arrangements, many large private firms in France, for example, mimicked the behaviour of the old public companies. They monopolized whole sectors and were no more responsive to their small ‘stakeholders’ than they had been to taxpayers or consumers when administered under public management.

Ironically, privatization and increased competition also had little immediate impact upon the size of the state sector itself. We have already seen that in Thatcher’s Britain the scope of the state actually expanded. So it was elsewhere. Between 1974 and 1990 (thanks in some measure to endemic private-sector unemployment) the share of the employed workforce in public service actually grew: from 13 percent to 15.1 percent in Germany; from 13.4 percent to 15.5 percent in Italy; from 22.2 percent to 30.5 percent in Denmark. Most of these government employees, however, were now in the tertiary sector rather than in manufacturing: providing and administering services (financial, educational, medical and transportation) rather than making things.

Economic liberalization did not signal the fall of the welfare state, nor even its terminal decline, notwithstanding the hopes of its theorists. It did, though, illustrate a seismic shift in the allocation of resources and initiative from public to private sectors. This change went far beyond the technical question of who owned which factories, or how much regulation there was to be in any given industry. For nearly half a century Europeans had watched the state, and public authorities, play a steadily more prominent part in their affairs. This process had become so commonplace that the premise behind it—that the activist state was a necessary condition of economic growth and social amelioration—was largely taken for granted. Without the cumulative unraveling of this assumption in the course of the waning decades of the century, neither Thatcherism nor the Mitterrandvolte-face would have been possible.

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