Thatcherism and the welfare state

Seminar Paper , 2004 , 20 Pages , Grade: 1,0 (A)

Economics - Case Scenarios

What has happened, that still has an influence on recent policy of even more left-winged parties as Labour in Britain as the following statement shows? “The Labour (Party) has moved to the right since 1983 is undeniable (…). Is it best explained as an updating of socialism in the face of modernity? Or else as Tory clothes-stealing, a necessary or unnecessary concession to political enemies in the interest of securing an electoral victory?”2 Therefore the goal of this thesis will be to fathom the position of this new economic agenda, called ‘New-Right’, which has at a stretch been adopted by the most former left from the centre positioned parties in the Western World. Of which kind is this strong ideology that caused the crisis of the “New Left” by cutting back the state and the welfare state. This thesis shall furthermore give an idea to what extend did Thatcherism influence the observable substantial change and to what extend were the targets of this ideology achieved successfully or not. But to do so, it is first necessary to give an short overview on the development of state intervention in the shape of the welfare state with a main focus on Britain. Accordingly main economic thoughts and their ideology on social welfare will be illuminated briefly. After elementary information is provided Thatcherism, meaning its ideas, ideology, main aims and critics of interventionalism will be introduced. By doing so it will be possible to evaluate how successful Mrs. Thatcher and the Tories were in rolling back the state. To conclude the recent situation of the “New Left” as political agenda will be touched on.

Contents

1. Introduction

2. The Welfare state
2.1. General definition
2.2. Historical overview on the development of the welfare state
2.3. Social Policy in Britain

3. Economic Thought
3.1. The role of ideology
3.2. Economic Thought and the welfare state

4. The New Right and Thatcherism
4.1. Arguments of the New Right against state intervention
4.2. Thatcherism, its policy and the results
4.3. Economic performance and the welfare state

5. Crisis of the New Left

References:

1. Introduction

“In March 1984 the miners' strike began. Once more, a Tory government believed this was a direct challenge to the rule of government rather than an industrial dispute. It was generally depicted as a confrontation between the PM, Margaret Thatcher and the President of the NUM (the National Union of Mineworkers) Arthur Scargill. What followed has been described as some of the most violent confrontations between trade unionists and police ever seen in England. The miners drifted back to work after twelve months of hardship and the strike collapsed”.^[1] This fierce fight against trade unions was part of a economic-political revolution. A totally new age had begun, in which the Iron Lady and the Tories embarked a new strategy. Part of this strategy was not only to restrict power of trade unions but even more to cut back the state, meaning economic interference, the welfare state and public companies and thus free the markets.

What has happened, that still has an influence on recent policy of even more left-winged parties as Labour in Britain as the following statement shows? “The Labour (Party) has moved to the right since 1983 is undeniable (…). Is it best explained as an updating of socialism in the face of modernity? Or else as Tory clothes-stealing, a necessary or unnecessary concession to political enemies in the interest of securing an electoral victory?”^[2] Therefore the goal of this thesis will be to fathom the position of this new economic agenda, called ‘New-Right’, which has at a stretch been adopted by the most former left from the centre positioned parties in the Western World. Of which kind is this strong ideology that caused the crisis of the “New Left” by cutting back the state and the welfare state. This thesis shall furthermore give an idea to what extend did Thatcherism influence the observable substantial change and to what extend were the targets of this ideology achieved successfully or not. But to do so, it is first necessary to give an short overview on the development of state intervention in the shape of the welfare state with a main focus on Britain. Accordingly main economic thoughts and their ideology on social welfare will be illuminated briefly. After elementary information is provided Thatcherism, meaning its ideas, ideology, main aims and critics of interventionalism will be introduced. By doing so it will be possible to evaluate how successful Mrs. Thatcher and the Tories were in rolling back the state. To conclude the recent situation of the “New Left” as political agenda will be touched on.

2. The Welfare state

2.1. General definition

Asa Briggs defined the goals of the welfare state as the following: “A `Welfare State` is a state in which organised power is deliberately used (through politics and administration) in an effort to modify the play of market forces in at least three directions:

- First, by guaranteeing individuals and families a minimum income irrespective of the market value of their property,
- Second, by narrowing the extent of insecurity by enabling individuals and families to meet certain `social contingencies` (for example, sickness, old age and unemployment) which lead otherwise to individual and family crises;
- and third, by ensuring that all citizens without distinction of status or class are offered the best standards available in relation to a certain agreed range of social services”.^[3]

But except elementary education and some pioneering legislation, the welfare state is essentially a product of the 20th century. As we can assume, there are a great amount of possible actions a state can undertake, for example social legislation, taxation and redistribution or provision of different social services. The question now is how much money should be spent on the welfare state and social policy and to which extend should the state be involved in the economy. This is were economic policy and ideology comes in. There are, for example two main views of public spending.

- Monetarism is based on a view of the economy as self-healing markets. The highest goal is to avoid inflation and to encourage investments which will automatically lead to higher employment levels. As the economy will be interrupted by state action, the role of the state is therefore a passive one, being in charge to regulate the business environment.
- Keynesianism in contrast concedes government intervention the power to stabilize the economy given the possibility of underemployment equilibria. Hence public spending is an important factor to stimulate the economy in times of lack of demand, to guarantee full employment which is one of the main goals for the state, as J. M. Keynes writes. In the long run, he argued, the economy may correct itself; but in the long run, 'we are all dead'.

In the last years both views have been combined to a new financial orthodoxy, which includes government regulation, "targeted" expenditure, market-based supply, and balanced budgets.

2.2. Historical overview on the development of the welfare state

The first Reichskanzler of modern German Empire Otto von Bismarck (1871-1890) was the first politician to introduce pathbreaking social insurance schemes in the 1880s in the time of laissez-fair capitalism. These included health, accident, annuity and disability insurance. But it needs to be mentioned that this effort was not solely based on Bismarck’s entrepreneurship but also on the influence of Carl Marx’s “Das Kapital” (1867), criticizing “the great imbalance of power between capital and labour”. He thought that, the “political and economic power of capitalists was inherent in the structure of capitalism, (…) (and) the living conditions of the broad proletarian working class could be improved only if the capitalist system could be overturned”, by a “bloody proletarian revolution”.^[4] Secondly the political power gaining Social Democratic Party (SPD) in Germany, mainly interested in social legislation to ameliorate the situation of the working class, put the screws on the chancellor.

During the second period, mainly 1914 to 1950 the state grew enormously based on the two World Wars and its wartime planning, price controls, strong taxation and the sacrifice of private consumption for army procurement^[5]. The Great Depression during 1929 and 1933, thus the realisation that “Say’s Law is not immutable”^[6] and the introduction of President Roosvelts New Deal in the USA, to reduce the pressure on the lower classes caused by the extreme economic imbalance, strengthened the claim for a strong state.

The so called golden era of the 60s and 70s meant a great simultaneous improvement of economic and social objectives, as living standard growth, income distribution equality, elimination of poverty and full employment^[7]. The growth processes of the state from former 10% before 1914 to about 40% in recent times were extremely supported by two main protagonists of the `mixed` economy. William Henry Beveridge(1879 -1963), a social and administrative reformer, who introduced Social Insurance and Allied Services in Britain. His so called Beveridge Report in brief (London: HMSO 1942) set out the basic principle and structure of the post-war welfare state. In his opinion the state accounts for individual welfare `from the cradle to the grave`. ‘ The General Theory of Employment, Interest and Money (1936) of J. M. Keynes and his macroeconomic analysis established the theoretical foundations of modern state intervention. “The ideological debate came to an end because people in Western countries became convinced that they had found the correct “packaging” or “mix” of liberalism, democracy and the welfare state”.^[8] But after the sudden and unexpected Oil-Crisis had stroked down the world economies, the Keynesian approach was no longer supported but rejected by most western countries. The emerging stagflation was blamed, by the political influence winning ‘New Right’, on the overdeveloped and oversized state, which interferes in individual freedoms, causes major interruptions to the effective free markets and wastes a lot of resources in intervening into the economy. A more extensive overview on the reasoning of this power gaining and recent most powerful economic and political ideology will be offered beneath.

2.3. Social Policy in Britain

The Poor Laws, introduced in 1598 and continuing till 1948, were the main social policy of Great Britain was constituted at first. The Elizabethan Poor Law of 1601, An Acte for the Reliefe of the Poore, contained the following:

- The establishment of the parish as the administrative unit responsible for poor relief, with churchwardens or parish overseers collecting poor-rates and allocating relief.
- The provision of materials such as flax, hemp and wool to provide work for the able-bodied poor.
- The setting to work and apprenticeship of children
- The relief of the 'impotent' poor — the old, the blind, the lame, and so on. This could include the provision of 'houses of dwelling' — almshouses or poorhouses rather than workhouses.^[9]

[...]

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^[1] http://www.bbc.co.uk/history/timelines/england/pwar_miners_strike_brighton_bomb.shtml

^[2] Heffernan (1996), p. 1282.

^[3] Briggs (1961), p. 221-259

^[4] Terreblanche (1998), Chapter 2, p.33.

^[5] See Galbraith (1995), p. 124-145.

^[6] Galbraith (1995), p. 81.

^[7] It is worthwhile to mention that a part of this enormous economic growth can be ascribed to post-war reconstruction processes in European countries, see Lampert & Bossert (2001) and Reichel (1998). The extreme high wartime production and as a consequence thereof high investments, full employment and great savings of the consumers as result of supply shortage based on army procurement in the United States played also a great role in the economic development, see Galbraith (1995), p. 146-153.

^[8] Terreblanche (1998), Chapter 5, p.9

^[9] see http://users.ox.ac.uk/~peter/workhouse/poorlaws/poorlaws.html

• College: Stellenbosch Universitiy (Department of Economics)
• Course: Modern Economic Systems and Global Capitalizm
• Grade: 1,0 (A)
• Author: Timur Karabiber (Author)
• Publication Year: 2004
• Pages: 20
• Catalog Number: V31354
• ISBN (eBook): 9783638323918
• ISBN (Book): 9783640385355
• Language: English
• Tags: Thatcherism, Modern, Economic, Systems, Global, Capitalizm