It’s probably inevitable that the attention now accorded Margaret Thatcher on the occasion of her death should spawn questions about what lessons from her life and career might be applicable to our own time. And it’s probably inevitable that such questions would spawn plenty of debate, since there are no final victories in politics and her outlook remains controversial in America just as it is in Britain.
Indeed, the United States today is locked in a powerful struggle between ardent advocates of free enterprise and private initiative (the Thatcher contingent) and those who wish to enhance the power, prerogative and reach of the federal government (the anti-Thatcher forces). That debate will dominate American politics well into the future, and the ghost of Margaret Thatcher will hover over it, as will many other ghosts.
But another element of the Thatcher story deserves attention, and that was her almost joyful resolve to smash the power sources of major entrenched elements of society. As David Ignatius notes in his Washington Post column yesterday, it wasn’t just the trade unions that felt the force of her withering assault. She also took down, with an equal fervor, the British class system—"the benign but hapless relics of ‘Downton Abbey,’” as Ignatius puts it.
He suggests it wasn’t easy to determine which side was more hidebound and resistant to change, the unions or the aristocrats. But together they "were unwitting partners in Britain’s paralysis"—a paralysis that stifled the emergence of any significant middle class. Without a vibrant middle class, Britain was gasping for the oxygen of enterprise and economic growth.
The lingering upper crust looked down on the bourgeois values of businessmen and did all it could to stifle entrepreneurial activity. So paltry and unworthy was business considered by young college students of the day that they would rather become government bureaucrats than entrepreneurs. As Ignatius, who attended Cambridge in those days, puts it, "If you couldn’t afford the country manor, better to live like a Bohemian."
In its dismissive view of the middle class, the haughty upper crust had plenty of support from the unions, particularly the powerful mineworkers union, which in 1974 fostered a strike well characterized by Ignatius as "a union-organized exercise in national suicide." Five years later, amid widespread labor unrest and societal dysfunction, Margaret Thatcher came to power.
Her successful attack on the labor unions’ underpinnings of power is well known. But she also demolished the upper-class hold on society by opening up the financial and business sectors to competition. As Ignatius writes, the upper classes became "porous," and new money soon emerged to buoy entrepreneurial upstarts who soon could go toe to toe with the crusty aristocrats of old. As Ignatius says, Thatcher "wielded the wrecking ball that demolished old ideas and barriers, on the right and left."
Few Western leaders of any era have accomplished anything like this. Few have managed to alter the political balance of power by destroying the power base of adversarial forces—all accomplished, of course, through peaceful democratic means. Ronald Reagan, Thatcher’s contemporary and friend whose political career is often linked with the Iron Lady’s, never accomplished any such political feat. True, in the tumble of political competition, he consistently bested his adversaries—the welfare state, the powerful federal government, the liberal isolationists and opponents of a potent military establishment. And he altered the terms of debate on domestic issues for years into the future, breathing new life into such ideas as entrepreneurialism, free enterprise and the imperative of economic growth.
But, when he left office, the power interrelationships in America were roughly what they had been when he became president. And Reagan’s opponents, unlike Thatcher’s, remained in position to chip away at his legacy, as Barack Obama is seeking to do today.
All of this brings us back to the question of whether there are any lessons from the Thatcher legacy that might be pertinent to our own day. And, yes, there is one: the intermittent civic need to smash the underlying power foundations of self-serving elites. In today’s America, there are two such elites—Wall Street and public-employee unions.
Consider the huge transfer of wealth to Wall Street bankers and financiers fostered by the Federal Reserve’s lingering policy of near-zero interest rates. That practically guarantees huge big-bank profits as they borrow from the Fed’s discount window for next to nothing in order to buy much higher-yielding government paper (with no need to add to their reserves, as they would have to do with big private-sector loans). Meanwhile, ordinary Americans see their money-market funds and other fixed-income investments plummet. As financial consultant David Smick has suggested, this may represent "the greatest transfer of middle-class and elderly wealth to elite financial interests in the history of mankind."
Of course, Wall Street and the big banks also were abundantly complicit in fostering the real-estate bubble that gave us the financial crisis of 2008–2009. Then, when it emerged, they applied political muscle to coax the federal government and the Fed into doling out bailouts, stimulus packages and other financial props—all in the name of helping beleaguered mortgage holders when in fact the real beneficiaries were the big banks. Instead of using federal resources to remove toxic assets from the banks’ balance sheets, which would have meant restructuring the banks and perhaps tattering a few lofty careers, the government used its resources to buoy bank stock prices. This clearly contributed to the country’s slow and anemic recovery.
Nor is there any reason to believe that the much-touted Dodd-Frank regulatory legislation will alter this situation to any significant degree. Although it created a vast regulatory bureaucracy to meddle in the financial sector, as if Washington bureaucrats know any more about how to avoid financial pitfalls than the financiers themselves, it leaves intact Wall Street’s power base, which is its vast ability to influence those in the top echelons of officialdom.
The only way to solve this problem is to bust up the big banks and curtail their ability to commingle commercial and investment banking enterprises. That indeed was federal policy from 1933, when Congress passed the famous Glass-Steagall banking law, to 1999, when that law was repealed. During the Glass-Steagall era, banks couldn’t underwrite private securities with insured deposits and then sell those securities to their own customers. That kind of activity, it was understood, would foster inevitable bubbles of the kind that brought us the 2008–2009 financial crisis.
Now consider the growth in wealth and power represented by the increasing size and scope of government. Since 1946, the number of state and local government employees has increased from 3.3 million to 19.8 million—a 492 percent increase in a nation whose population grew by 115 percent during that time. In 1947, 78 percent of national income went to the private sector, 16 percent to the federal government sector, and 6 percent to state and local governments. Now the percentages are 54 percent private, 28 percent federal, and 18 percent state and local. With growing governments and more public employees, a major shift in the nation’s distribution of political power was inevitable.
And that power has flowed to a large extent to public-employee unions, which enjoy a kind of leverage that no other union has: they can fire their employers. Put more accurately, they can turn their vast political clout against their elected bosses at the next election if those bosses don’t knuckle under to their negotiating demands.
Using such power to enhance their economic standing, these forces have helped push the country into a debt spiral that threatens financial disaster. In a recent eight-year period, state-pension payments doubled in California, and the state is saddled with $550 billion in retirement debt. Add pre-retirement compensation to pension payouts, and spending on state employees in California has been growing at nearly triple the rate of state revenues. Illinois has unfunded pension obligations of $80 billion, with unfunded retiree-health obligations adding another $40 billion. In state after state, we see similar patterns.
A backlash has begun, as evidenced by Wisconsin governor Scott Walker’s recent battle with his state-employee unions. But the entrenched forces of public-employee unions have fought back ferociously, in Wisconsin and across the country, as government officials have sought to trim benefits and curtail union power in hopes of heading off looming financial disasters. These battles appear to be endless.
That’s why the Thatcher lesson is so apt here, as it is with the banks. Scott Walker had the right idea when he pushed through his legislature a legislative provision to reduce the bargaining clout of the unions by ending automatic withholding of union dues from the paychecks of three hundred thousand municipal workers. This gave workers, who can save up to $1,400 a year by opting out of dues payments, more leeway in exiting the system. The result was a huge blow to the unions, whose political reach stemmed from that income flow. It also gave government officials greater leverage in bargaining with their employee unions.
This is the Thatcher approach, and it represents what can be called peaceful democratic revolution—a change in the political balance of power when that change is needed to protect the polity from the entrenched power of self-serving elites. BBC journalist Andrew Marr captured this three years ago when he admonished viewers not to think of Thatcher as a politician. "Think of her," he said, "as a one-woman revolution, a hurricane in human form." True. But that revolution wouldn’t have been much of a revolution if she had not seriously altered the political balance of power in her nation.