Thatcher at Perth

Scotland under the Conservatives, 1979-1997 Pt.1

MRS THATCHER is a much hated figure in Scotland even today. A retrospective assessment of her premiership in The National on 26 June 2018, for example, was headed ‘This is the truth about how Thatcher devastated Scotland’. It claimed, “she changed Scotland utterly – she devastated it.” Yet the pain she caused was “unnecessary”. Her record was “catastrophic”. She “deliberately” set out to destroy manufacturing industry”. Conceding that it might be “too simplistic to blame Thatcher for the collapse of the Scottish economy”, its author, Hamish McPherson, proceeded nonetheless to do just that. Her government was “the enemy of Scotland”. His personal hatred for the Tory premier was also obvious. She “spoke in those grating tones that came to be detested” and he joyfully related the story of how, when she was once being piped into a Tory event in Scotland, the piper chose to play ‘The Hen’s March O’er the Midden’.

One BBC political correspondent put all this more politely, saying: “Mrs. Thatcher struggled to connect with Scots and vice versa”. Her last Scottish Secretary, Malcolm Rifkind, was more blunt: “She was a woman, she was an English woman and she was a bossy English woman. And they (the Scots) could possibly put up with one of these, but all three simultaneously was a bit too much.” Mrs. Thatcher was not one of Rifkind’s admirers.

She did of course have supporters. One former Scottish Secretary, Lord Lang, in a spectacular mixed metaphor, opined: “All she was doing was clearing away the debris of what was a desert already on a life support machine… The life support machine was fed on taxation pumped in by the Westminster government.”

Another admirer, the Scottish editor of the Daily Telegraph, Alan Cochrane, having commented on a television programme that the Ravenscraig steel mill had closed after she had ceased to be prime minister and that no government could have saved it since it was uncompetitive and making huge losses, concluded: “Frankly they (the Scots) should be grateful to her” — a strange verdict indeed if she had really devastated their economy between 1979 and 1990.

But wait. If this were true, one needs to know how Scotland could weather the ERM recession of 1990-1992 better than the rest of the UK. Moreover, Scotland’s production and construction index outperformed that of the UK from 1990-1997. Her unemployment by then was lower than the UK average and average Scottish wages were among the highest in the UK outside the South of England. Indeed, on 2 June 1996, the Sunday Times could carry a story headlined ‘Scots better off than the English’ which began: “It’s official: the Scots are better off than the English. Income per head after tax in Scotland averages £8,210 per year, according to the most recent edition of the government’s Economic Trends, compared with £8,160 in England.” During the three years to March 1995, moreover, inward investment in Scotland had topped more than £2 billion spread over 257 projects, many of them in high tech sectors.

By then, too, the financial and business sector employed 296,000, more than one in ten of Scotland’s working population. The value of funds under management was £13.8 billion, a figure that had almost doubled since 1989. Skills in fund management and banking in Scotland were recognised and respected the world over. All this was certainly evidence of a changed economy – but a devastated one?

The next chapter will look at the Tory record in Scotland in more detail. This one will now attempt to put it into context by returning to the historiography of ‘Britain’s decline’ which was mentioned in previous chapters and which has unfortunately skewered British perceptions of British twentieth century history. Britain throughout the century was still a major power and everywhere perceived as such (if not from the 1960s by her left-wing and Eurofanatic critics at home) although she did have problems which she alone could solve. Thatcher famously contributed to solving them but we can only explain her achievements by first putting her into a wider historical context.

By the mid-70s Britain’s economic difficulties meant the country was being commonly referred to as the ‘sick man of Europe’. One British commentator wrote: “A wide gap separates (Britain) from the rest of industrialised Europe. The difference as measured in national productivity per head between Britain and, say Germany, is now as wide as the difference between Britain and the continent of Africa”. More ominous still was Peter Jenkins’s article in the Guardian in September 1978—a couple of years after inflation had hit 26.8 per cent under Callaghan – in which he warned: “No country has yet made the journey from developed to under-developed. Britain could be the first to embark upon that route. That is what it would mean to move away from a century of relative economic decline into a state of absolute decline. Here is how it could happen…”

Not only left-wing journalists but also academics began to produce a whole stream of ‘declinist’ literature. This included M.W. Kirby’s ‘The Decline of British Economic Power since 1870’; Andrew Gamble’s ‘Britain in Decline’; Martin J. Wiener’s ‘English Culture and the Decline of the Industrial Spirit, 1850-1989’; and Sidney Pollard’s ‘The Waning of the British Economy’. Many more could be mentioned.

Wiener’s thesis that decline had come about because English intellectuals had disliked industry and industrialisation was easily disposed of. It was easy to prove that intellectuals everywhere including Germany and America had disliked industrialisation. It was a dirty process to which they were irrelevant. Nor was his insight that they preferred the countryside, to which even industrialists themselves tended to retire, of any intellectual merit. Most people prefer the countryside to industrial cities while industrialists were unlikely to wish to retire next door to their factories. Callaghan himself after a life in Labour and trade union politics retired to a farm.

One charge, made by others including Corelli Barnett, that seemed more difficult to rebut, was that Britain was unscientific in education and culture especially when contrasted with Germany. For example, unlike German universities, British ones eschewed the teaching of engineering and science. Oxbridge was based on the classics. German managers likewise had science degrees while British ones had arts degrees. (Many critics and commentators would become veritable slaves to ‘Modell Deutschland’ and for that matter still are.)

This familiar trope was thoroughly exploded however by Professor Edgerton in his study ‘Science, Technology and the British Industrial Decline’ which compared the religiously held belief in German technological superiority against the scientific evidence. He completely destroyed C.P. Snow’s thesis of ‘two cultures’, (the literary and scientific) and the supposedly dangerous gap between them in Britain and endorsed F.R. Leavis’s verdict that Snow had been “an ignoramus”. Techno-declinists got equally rough treatment: “Techno-declinism is, intellectually speaking, a mess. It produces explanations, which if taken literally, suggest that British science and technology collapsed around 1870. Oddly, most attention, has been given to the very years before 1914 when Britain was the most industrialised and richest country in Europe and dominated world trade. The international comparisons declinist historians provide are grossly misleading. They usually seek to explain things which were not the case with explanations that don’t work.”

Edgerton pointed out that comparisons of British civic universities with German scientific ones were false. Traditional German universities before 1945 had been “citadels of the classics”. Traditional British universities embraced science to a far greater extent than traditional German ones and there had been a rapid expansion of scientific and technological teaching in them before 1914. By 1929 55 per cent of British university students were studying science, technology or medicine. By 1968 the figure was 65 per cent. While in 1929 scientists and technologists alone made up 30 per cent of the student body, the figure rose to more than 50 per cent in 1967. Cambridge had the largest engineering school in Britain till the 1940s. In fact the British education system was much more geared to science and technology than those of other European countries. In the 1950s some 44 per cent of British graduates were scientists and technologists; in Germany the figure was 34 per cent, in France 29 per cent and in Italy 26 per cent. In the 1950s and 1960s Britain indeed had more scientists and engineers per capita than any major capitalist country.

Again, against the declinists, Edgerton showed that these science and technology graduates entered both the highest levels of industry and government. 20 per cent of leaders of steel firms in the first half of the twentieth century had technical qualifications, about half of them from Oxbridge. In the early 1950s about 20 per cent of members of boards of directors of engineering firms were scientists and technologists and only 10 per cent accountants. There was almost no evidence that scientists and technologists were better represented at these levels abroad. Again, at the level of senior civil servants (permanent and deputy permanent secretaries) the British were much more likely to have had a scientific, mathematical or technical education (26 per cent) than their counterparts in Italy (10 per cent or Germany (14 per cent). Margaret Thatcher herself gained a chemistry degree at Sommerville College, Oxford in 1947 and worked in the research labs of BX Plastics and then J. Lyons & Co before becoming a barrister in 1953.

The British record yet again was much better than popularly supposed in the field of inventions. Before 1914 Britain lodged more patents per capita in the USA than Germany; the two countries were equal in the interwar period, while after 1945 Britain took the lead until the late 1950s. It is claimed however that after 1945 British industry’s share of R&D fell way behind that of Germany and Japan as the British government channelled research funds into defence or prestige products like Concorde. In fact till the late 1960s British industry spent more on basic R&D than did German or Japanese firms. In the mid-1960s British firms spent – and with their own money, Edgerton emphasised – 15 per cent of what US firms spent on R&D, with German firms spending 14 per cent and the French and Japanese spending merely 10 per cent. Indeed, in the mid-1960s British industry was spending the same proportion of its output on R&D as was US industry. The trouble was, as the Ministry of Technology was to discover, spending on R&D was neither the only nor the chief determinant of national economic growth. Nonetheless, far from being inimical to scientific culture in the mid-twentieth century, Britain was more imbued with it than any other European country.

Other analyses of Britain’s decline concentrated on her economic failures. Why so many balance of payments crises? Why so relatively smaller growth rates than Europe? The differences, as has been seen in the Peter Jenkins’ quote above, were often exaggerated. In 1973, when the UK entered the EEC, for example, the annual growth rate was a record 7.4 per cent. When Macmillan made his bid in 1961, it had been around 5 per cent. But on average during most of the 1950s and 1960s it had been a couple of percentage points smaller than European ones.

Different circumstances here and in Europe were clearly to blame. Europe at this time for example was undergoing a huge structural change economically from agriculture to industry with millions of people drifting from the countryside to the cities providing cheap labour. They also had to be housed and so a huge amount of urbanisation went on, quite apart from which there was the need to rebuild cities that had been badly bombed by the allies. The fundamental change from agriculture to industry of course had already happened in Britain a century before.

Britain, meanwhile, had three major problems shared by none of the Continental countries. First, she had to support Sterling as a world reserve currency. Secondly, as a world power (if not a superpower) she had hugely expensive overseas defence commitments. Germany, for her part, had none at all, even after she agreed to rearmament in 1955. Ironically, all the money spent in West Germany by British troops there strengthened West German monetary reserves while simultaneously adding to Britain’s balance of payments problem, a point we shall return to later. (Membership of the EEC would later constitute a similar problem.) France, meanwhile, ended up with her massive overseas defence expenditure in Vietnam being paid for by the USA through its Mutual Defense Assistance Act.

Britain’s expensive overseas defence commitments of course helped exacerbate her balance of payments difficulties which had to be quickly resolved in order to maintain the value of Sterling. Hence her first two problems were closely connected. The third problem facing British governments was that of extreme trade union militancy. This was manifested not only in pay and demarcation disputes and disputes over restrictive practices but by the 1970s, with the emergence of Arthur Scargill as the miners’ champion, in quite blatant attempts to undermine or overthrow democratically elected governments. Liberals and other deluded political observers believed that EEC membership or placing mini-Scargills, German-style on the boards of British companies, might provide a solution but it was clear that more radical action was needed. Ralf Dharendorf was correct when he noted that supporters of the dying postwar consensus were simply hoping for “a better yesterday”.

Let us look at Britain’s economic problems for a moment in more detail. Leftist analysts blamed bankers and admirals while their opponents blamed trade unionists. For the first, the fundamental problem was the Sterling Area which made the pound a world reserve currency. All sorts of countries kept their reserves in Sterling while the huge debts run up to India, Egypt and others during the war – the so-called ‘Sterling balances’ – compounded the problem. Even a Treasury mandarin admitted in 1951 that the Sterling Area ‘carried obvious risks to the UK’. The most obvious one was that if there was not a continuous balance of payments surplus and the pound had to be devalued, these other countries might abandon Sterling or ask for their debts to be repaid immediately. And in 1951 the Sterling balances were five times as large as Britain’s gold and foreign currency reserves. On the other hand, Marshall Aid from America after 1950 was used to bolster the pound, although Britain enjoyed a surplus with the Sterling Area which itself had a surplus with America.

Endemic balance of payments problems from 1947 to 1972, however, led to regular government expenditure cuts which, in leftist analysis, merely reduced the capacity of the domestic economy to produce exports. This in turn led to further balance of payments crises until a vicious circle came about which led to the decline of the British economy. Even worse, books by Sidney Pollard and E.L. Manser proved that our trade deficits were not caused by our purely trading account (visibles and invisibles) which was invariably in surplus but by government overseas expenditure, most of it on defence. If there had been no government overseas defence spending, there would have been no crises.

Manser pointed out that if Germany had had overseas defence commitments on the same scale as Britain, its 1966 balance of payments surplus of £92 million would have been a deficit of £598 million. Even taking into account ‘offset costs’ for British troops in Germany, its deficit would still have been £160 million. Likewise, Japan’s surplus of £120 million would have been a deficit of £300 million. In short British firms had not ‘priced themselves out of world markets’. British governments had.

British withdrawal from most extra-European military commitments from the early 1970s made little difference. In a 1985 book entitled ‘Paying for Defence: Military Spending and British Decline’ Malcolm Chalmers could write: ‘In 1984-5 estimated net military spending overseas was £1,369 million, which comfortably exceeded the net government contribution to the EEC (£375 million in 1984-5) over which there has been considerably more controversy.’ Chalmers also argued that military research was employing up 40 per cent of British scientists and almost two-thirds of the research projects of private industry. Meanwhile, British arms sales failed to outstrip even those of Italy. And if defence expenditure constituted 8.2 per cent of GDP in 1955, it was still 5.6 per cent in 1983. Defence, therefore, was at the heart of Britain’s economic problems.

If severe cuts to overseas defence commitments had, on the one hand, failed to curb government defence spending, Pollard, on the other, despaired that the end of the Breton Woods system and the floating of the pound in 1972 had not solved British economic problems either. He maintained that Tory monetary policies had led to regular cuts and crises and had sustained the vicious downward cycle at the expense of the productive economy just the same. Thus, the obvious remedies to Britain’s relative economic decline as seen by the Left did not in fact solve the problem. Perhaps, therefore, its roots lay elsewhere. (Edgerton to some degree would probably have redefined relative economic decline as just the rest of Europe catching up.)

One highly distinguished economist, the Scotsman, Sir Alexander Cairncross, saw little merit in any of these theories. If British investment was lower than elsewhere this did not matter. Investment reflected growth; it didn’t cause it. Likewise balance of payments crises did not matter. They might well be the result of slow growth rather than the cause of it. British exports seemed elastic: they could rise while world trade fell and fall while it rose. British deflationary policies were likewise irrelevant as was overseas defence spending. France also had constant balance of payments crises and a comparable defence budget but had achieved ‘an economic miracle’ in terms of growth. Japan had never enjoyed surpluses on current account before the 1960s. Britain’s problem was that any given amount of output required twice as much investment as elsewhere. There was also a steady decline in her share of exports of manufactured goods which had accelerated since 1945 despite an expanding world economy. That had led to a call for ‘export-led growth’ although there was no logical reason to suppose more exports would lead to more growth. In fact the opposite was more likely to be true. Cairncross believed that the real constraint on growth in Britain was bad industrial relations for which he blamed the trade unions: ‘The evidence suggests that when British management sought to raise productivity by the use of modern methods and equipment they found themselves obliged to accept conditions as to manning, operation or pay that cancelled out much of the advantage of making changes and were not insisted upon by the employees of their competitors abroad.’  Managers also had to devote valuable time to dealing with labour disputes or government red tape. 

There were many studies at the time to back him up. Stanislaw Gamulka’s evidence from 1978 on workers in 40 engineering companies between 1968 and 1972 and from a series of case studies of 45 firms in the period 1972-74 found that on average they spent 16 per cent of their time ‘waiting’ to use machines, 48 per cent of their time ‘using’ them, while for 50 per cent of the time the machines lay idle. Another study found that while US and British firms used the same machine tools, output per machine tool and per man was two to three times greater in the US. Finally, the British government’s ‘Think Tank’ report on the British car industry found that British car workers operating the same machines produced only half the output of their West German counterparts.

The problem was not the number of strikes, it turned out, but a matter of demarcation disputes and restrictive practices: too many unions inside any given factory, too many men working on any one job, too many arguments over who did what, too many machines lying idle at night, too little control of shop stewards by national trade union leaders and too much political influence on the part of these same leaders who often could not deliver the agreement of their members to nation-wide policies negotiated on their behalf. Some shop stewards, of course, had not the least desire to see capitalism work successfully, while memories of the 1930s persuaded many workers that full employment was a myth and restrictive practices were therefore necessary. Finally, management always enjoyed separate canteens, lavatories, and other facilities not to mention different styles of dress and accent. Hence it often failed to inculcate the workforce with any sense of identity or loyalty. And it could be of poor quality anyway.

Both major political parties by the 1980s realised that the postwar consensus was dead. Labour set out its own radical alternative in 1983 in its election manifesto – dubbed by Labour MP Gerald Kaufman “the longest suicide note in history” – advocating withdrawal from NATO and the EEC, a huge increase in public ownership, and Britain’s isolation behind a high tariff wall as part of a ‘New Economic Strategy’ (the brainchild of Stuart Holland MP). Not surprisingly it led to electoral disaster with the party taking only 28 per cent of the vote.

Thatcher saw trade union reform as a main priority and after eight trade union acts the unions were tamed. Closed shops were outlawed as was secondary picketing; union bosses had to be elected by secret ballot; cooling-off periods had to precede strikes; strikes themselves had to be approved by ballots; and unions were generally encouraged to accept one-union deals in factories. Mass unemployment also undermined union membership with the Tories presiding over two great recessions. The result was that strikes fell to a historic low and union membership was reduced to about a third of the workforce. The key moment in the destruction of the political power of the unions came with the year-long miners’ strike of 1984-85. By the 1990s the unions appeared to be just another pressure group, not the country’s hidden masters.

Did the remedy cure the disease? A few statistics provide a clue. Between 1938 and 1979 German productivity growth was 3.9 per cent per annum; Britain’s was 1.8 per cent. Between 1979 and 1990, Germany’s was 1.5 per cent and Britain’s 3.1 per cent. In each case the one was double the other, but the roles had become reversed.

Another set of figures for the period 1979-1989 shows that for percentage growth per annum, measured in GPD per head, labour productivity and TFP (total factor productivity growth), the figures for the UK were 2.1, 1.7, and 1.5 respectively – whereas for the European median, they were 1.9, 1.6, and 1.2. The most impressive increases in productivity performance came in manufacturing where labour productivity grew faster than in West Germany in 26 out of 30 industrial sectors. Relative decline appeared to have stopped.

Scotland under the Conservatives 1979-1997 Part two.

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Photo of Margaret Thatcher speaking in Perth to the annual conference of the Scottish Conservative and Unionist Association.


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