Austerity economics – how it failed 35 years ago

Since winning the 1979 General Election, the Conservatives had embarked on an economic policy described as ‘monetarism’   This entailed rigorous control of the money supply in order to curb the great British disease of inflation.  The outgoing Labour Chancellor of the Exchequer Denis Healey, no stranger to cutting government spending himself, had dubbed the new creed as ‘sado-monetarism’.

9780436164859-uk-300The high priest of monetarism was a professor at the Chicago school of economics by the name of Milton Friedman.  Without going too far in to the vast detail that any debate on economics can become mired in, Friedman essentially threw out the conventional Keynesian wisdom that in a depression, governments should spend to keep people in work.

Out of control public spending, he argued, would lead to something called ‘stagflation’ – stagnation with high inflation – which was a prevalent condition of many economies in the 1970s.  The answer was a kind of shock therapy where high interest rates, as one weapon, would make it unattractive to spend money.  This would then lead to restraint in wages and prices, which would result in inflation coming down.

JK Galbraith

Oh that life was so simple, Keynesians retorted angrily – in many newspaper columns and on the letters pages.  Friedman’s leading Keynesian nemesis on the global stage was the elderly but highly alert J K Galbraith, who had served in President Franklin Roosevelt’s administration steering through the New Deal.  He warned over and over again that Friedman’s medicine would lead to idle industrial plants and high unemployment.

Just because it hurt, Galbraith thundered, didn’t mean monetarism was actually doing any good to Britain.

“Suffering must have a purpose: out of much suffering there must come much good.  No one is quite sure how this works in economics; one only knows that the bad times are somehow the price of the good.  Pain and punishment are considered especially salutary for other people.”

General Pinochet – enthusiastic supporter of austerity economics

So agonising were the effects of monetarism that many on the left pointed out that in its most undiluted form, it had only successfully been applied in Chile – which still languished under a military dictatorship.  The implication being that a democracy could not hold the lid down on a population tormented by the rigours of this doctrine.

Within the trade unions, the widespread suspicion was that the Conservatives were using high levels of unemployment deliberately to beat down pay demands.   With an instinctive hatred of state regulation of the economy, Thatcher didn’t want to get involved in imposing incomes policies (as Labour had tried to do in the 1970s) but fear of the dole, it was thought, was her preferred weapon against wage inflation.

In reality, the Conservatives quietly dropped monetarism and adopted a more pragmatic and less doctrinaire approach after 1982.  But not before they would experience a bitter lesson from Britain’s hugely pissed off youth on how far you can pursue an experiment before the subject bites back.


Tooling up the police under Thatcher

In 1977, a massive riot between National Front supporters and anti-Nazis swept through Lewisham and tied up an estimated fifth of the Metropolitan Police. From 1976, the Notting Hill carnivals had ended in a fracas between police and local youth with a heavily charged racist undertow.

So, unsurprisingly, those politicians who nailed their colours to the law and order mast were calling for a more heavily armed police by the end of the 1970s. The sight of cops holding dustbin lids as shields and traffic cones had become a sick joke in their eyes. But there was also – among those who saw a threatening left wing tide – a desire to toughen up the state apparatus.

Here’s a headline from the Daily Mail after the Battle of Lewisham that makes their point.

Battle of Lewisham

Heseltine visits Merseyside after the 1981 riots

Something had to be done about Liverpool as riots continued in the summer of 1981 and it was Environment Minister Michael Heseltine who became de facto Minister for Merseyside.  Making a beeline for the city, his arrival was greeted with warmth from allies, curiosity and derision from enemies.

A group of children at the Toxteth Methodist Centre having an evening of socialising were rather bemused when a four car cavalcade drew up and in to their midst strode the six foot three former guardsman, publishing millionaire and cabinet minister – Michael Heseltine.  Expecting to be rejected by the youth, according to contemporary accounts, he was in fact inundated with their grievances and for their part, the youth seemed rather overawed by this visitation from Westminster. Heseltine’s possibly studied informality disarmed critics like black youth leader Joe Brown.

“The kids told me he was a very genuine guy and that he was really concerned and listened to them, listened really hard. They liked him.”

But the Liverpool 8 Defence Committee, formed to demand the release of those arrested, was in a far less accommodating mood.  On the 20th July, they stormed out of a meeting at the YMCA though 48 hours later, requested another encounter with the minister.  It was difficult to ignore the Cabinet member on their turf.

Heseltine behaved like a man on a mission who was learning on the job.  One of his aides told a reporter that the whole experience was changing him profoundly.

“He’d had one hell of an eye opener this week. I doubt if he had any idea what deprivation and appalling conditions can really be like in a city like this.  It’s been one hell of a jolt to his mind.”

Visiting a housing estate in the mainly white working class district of Croxteth, which some statistics suggested had a higher jobless rate than Toxteth, Heseltine was overhead having a rather surreal exchange with a local woman.  She turned to the figure before her.

“Where do you live?”

Heseltine replied:  “Somewhere rather nice near London.”

His 400 acre estate near Banbury in Oxfordshire was calculated to be half the size of Toxteth.  On that Friday, 24th July, he took time out from Liverpool to attend the 18th birthday of his daughter Annabel at their home, Thenford Manor.  The gossip columns reported that the minister spent £20,000 on the party, a fact that unfortunately for him did not go unreported in Liverpool.

The housing charity Shelter stuck the boot in with a scathing editorial in its magazine, Roof.  “There has been something ludicrous in Mr Heseltine’s professions of concern about the problems he has seen on Merseyside, when it was he who savaged the Housing Investment Programme and re-calculated the Rate Support Grant to favour the shire counties at the expense of the inner cities.”

Ken Livingstone and detention camps for political dissenters

Back in 1983, Thatcher went to the country for a fresh electoral mandate after a rocky first term as prime-minister. From 1979 to 1981, unemployment had skyrocketed and large parts of the manufacturing sector had collapsed. The summer of ’81 saw riots and interest rates were fearsomely high. But electoral salvation came in 1982 when Argentina invaded the Falkland Islands giving Thatcher a huge boost in the polls.

So what was going to happen if the Tories got back in? The leader of the Greater London Council (GLC) Ken Livingstone was interviewed by the New Musical Express a few weeks before the general election and he believed political activists could be rounded up and detained. This was by no means an isolated opinion. Many on the left took the view that democracy was being eroded, power was being centralised, the unions emasculated, local councils abolished and the police and courts being used in a more politically explicit manner.

Ken said he thought camps could be established to hold anti-government activists. The memory of internment in Northern Ireland during the 1970s ‘Troubles’ and use of jury free Diplock courts undoubtedly contributed to this fear among many socialists. There had also been the threat of tougher anti-crime measures after the 1981 riots, which Ken references in the article. However, Thatcher was not about to establish a fascist dictatorship.

Ken sees detention camps ahead
Ken sees detention camps ahead
Ken Livingstone interviewed
Ken Livingstone interviewed

Tory attacks on left wingers after the 1981 riots

Unemployment had doubled among the young from 1979 to 1981 and quadruped among black youth. Welfare had been cut and traditional industrial jobs had disappeared overnight. The Tory government elected in May, 1979 under Margaret Thatcher was wedded to a monetarist economic policy that regarded inflation as the number one enemy and unemployment as a kind of necessary evil.

So when inner riots exploded in July, 1981 – after initial eruptions in Brixton that April and St Pauls, Bristol the year before – the government was left looking for a suitable scapegoat. Its friends in the media soon alighted on some likely suspects. The whole thing, the violence that had convulsed Brixton, Toxteth, Moss Side, Southall, etc, etc – had been fomented by left wing revolutionaries!

In fact, as somebody who was involved on the hard left of politics at the time, I can say hand on heart that the Marxist left was as surprised as anybody else by the ferocity of the riots that ensued. The Militant – fingered by the press as you can see in the clip below – was not a great fan of spontaneous rioting anyway. What they wanted was a revolutionized trade union movement led by a Marxist party in disciplined fashion to overthrow the capitalist state. Riots were far too chaotic and anarchistic for their liking.

But of course, every socialist had to be seen supporting and empathizing with the ‘youth’. Ken Livingstone, then head of the Greater London Council, went to Brixton to address an Anti-Nazi League meeting. This was immediately spun by Fleet Street as Ken addressing rioters – usual juvenile, stupid knee-jerk stuff from the tabloids.

The Labour leadership, definitely caught unawares by the riots, was left in the invidious position of having to condemn the Tories but also condemn the rioters. Thatcher delighted in their discomfort and goaded them into expelling left wingers within the party.

Here is a media article from the time…

Militant accused of involvement in riots
Militant accused of involvement in riots

The lady was not for turning – or so she said…

Two years into the first term of office and things weren’t looking good for Thatcher. The monetarist economic experiment had resulted in a huge drop in manufacturing investment, high interest rates, a massive leap in unemployment and a wiping out of the Tory vote in northern cities. Then there were the riots of 1981 that shook Brixton, Toxteth, Moss Side and other urban centres. For years we were told that Thatcher was unmoved, like a rock and full of purpose. But even at the time, it was clear there were plots within her own cabinet to remove her before the next election and now we know she had moments of deep uncertainty.

At the 1981 Tory conference – Thatcher gave one of her virtuoso performances that we all hated at the time and frankly, I don’t feel any better about it now. Faced with economic collapse, she informed us that there was no alternative and she was not for turning. The blue rinse brigade before her rose and cheered.

Oi! skinhead bands clean up their act

The riots of 1981 and a spate of racist attacks weren’t helped by a small number of bands whose political views were to the right of Hitler and the entire high command of the Third Reich.  One Oi! gig in Southall led to the pub they were performing in being burnt to the ground by Asian youth.

So, in the months that followed the inner city riots of that year, Oi! had its work cut out improving its public image.  The media was branding skin bands as fascist and racist and in part to blame for the violence that had been seen on the streets.

With these accusations ringing in their ears, some skin bands decided to show their anti-racist credentials by taking to the road which would include two anti-racist gigs and an appearance at the Right To Work campaign march.  The Business, Infa-Riot, the Blitz and Partisans duly went off on tour.

Sheffield’s George IV saw the Blitz join the Mo-Dettes for an anti-racist gig while all the bands played an Oi Against Racism concert in the same city a little later on.