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THE MAD MONK

BritainsMarket Revolution

- David Young was a businessman, self-made and very successful until the London real estate market collapsed in

1972, virtually wiping him out.

- It is not socially acceptable to work for oneself, hi later recalled. People worked for big companies.

- Then over the next several weeks, he started to read the speeches of a British politician named Keith Joseph.

Later, others would call Joseph the Mad Monk; Joseph would describe himself not much differently as a

convenient madman.

My Closest Political Friend

The Minister of Thought

-The U-Turn

- The Heath government was, in many ways, parallel to the contemporaneous Nixon administration. Both came in as

conservative governments intent on reducing state intervention; both ended up expanding it. In Heaths case, it came

to be known as his famous U-turn. Like Nixon, Heath embraced Keynesianism, along with planning and social

engineering.

The Conversion of Keith Joseph

- To begin with, Joseph turned up on the doorstep of a right-of-center think tank, the Institute of Economic Affairs

(IEA), which had become the island of liberal economic thinking in the midst of Britains Keynesian consensus.

- In particular, the IEA provided a platform for two economists, both initially seen as fringe figures during the years

when the Institute, in Margaret Thatchers words, seemed to be bashing its head against a brick wall, but who

would go on to have enormous influence. One was Friedrich von Hayek, the most prominent exponent of the free-

market Austrian School of economic in Britain.

- The other was Milton Friedman of the University of Chicago, whose monetarist theories the IEA propagated in

Britain.

- Next, he established his own institute, the Centre for Policy Studies. Although Joseph saw the Fabian socialists as

the originators of Britainsills, he modeled his strategy on that of the Fabians to change culture and politics by

influencing opinion makers.

- Our jobs was to question the unquestioned said Alfred Sherman, the Centres director of studies and Josephs

intellectual partner during this period, think the unthinkable, blaze new trails. The Centre developed, promoted, and

sponsored a flood of ideas through an outpouring of books, pamphlets seminars, dinners, and luncheons.

- The world, they decided, was certainly not ready for a term as extreme as market economy, although that would

become the commonplace term of the 1990s. They did talk about capitalism. But it was compassionate capitalism.

The Leadership Battle

No Time to be Mealy-mouthed

- What both Margaret Thatcher and Keith Joseph sought was conviction politics, not consensus politics. This is no

time to be mealy-mouthed, Joseph declared. And he was the one who would speak up the loudes t.

There Are No Trains Today

Now for the Real Battle

- The Conservatives won the general election of 1979, and Margaret Thatcher became prime minister. We are over

the first hurdle, she wrote to one of her confidants. Now for the real battle Joseph may well have been the leading

promulgator of the ideas, but it was up to Thatcher to implement them. And in so doing she would be the only prime

minister of the twentieth century whose name has become synonymous with a political philosophy.

The Wets Versus the Drys

- She wanted to replace what she calls the Nanny State and its cradle-to-grave coddling with the much more

bracing risks and rewards of the enterprise culture. She liked Edmund Burkes quote that politics was philosophy in

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action.

- As secretary of state for industry, Keith Joseph was at the center of the struggles over labor, including what was

considered the bellwether steel strike of 1980, the first industrial confrontation of the Thatcher years.

- Amid everything else, Joseph was not about to forget his vocation to convert. Early in the new government, he

presented the senior civil servants in his ministry with a reading list. It amounted to a catalog of the philosophy that

was meant to be put in action.

The Ladys not for Turning

- Other politicians might well have compromised. Not Thatcher. She was determined. Oh, yes, I know, we have

been recently told by no less than 365 academic economists that such a thing cannot be, that British enterprise is

doomed, she said. Their confidence in the accuracy of their own predictions leaves me breathless. But having

myself been brought up over the shop, I sometimes wonder whether they back their forecasts with their money. Her

political back may have seemed against the wall, but she almost exulted in the challenge. At a small dinner at

Downing Street, she kicked off her shoes and climbed up on a chair to give an unplanned speech. I am the rebel

head of an establishment government, she said proudly.

The Falklands War: The Unexpected Happens

- One of Thatcher favorite aphorisms was what she called Thatchers Law The Unexpected Happens. Such is what

occurred on April 2, 1982. On that day, Argentinean troops invaded the Falklands Islands in the south Atlantic, sometwo hundred miles off Argentinas coast.

- The Falklands War transformed British politics, and thus helped set the scene for the Thatcher Revolution. Thatcher

herself was no longer an unpopular, almost sectarian figure. She had also, by the by, proved that a woman could be

prime minister.

The Decisive Battle

The Birth of Privatization

- To complicate matters further, this new business neededa name. One obvious candidate was denationalization

as in returning to private hands companies that had passed into state ownership through nationalization. But there

was a problem.

- So instead they reached for another term: privatization, although some considered it not much less ugly.

- Scouring the United States for ideas, he ran across the word privatization in the work of the economic and social

theorist Peter Drucker. Howell thought it was an unattractive word; nevertheless, he also sought it described what he

had in mind, and he deployed it in a 1969 pamphlet, A New Style of Government.

- None of us could come up with anything better, wrote Nigel Lawson, who served as both energy minister and

Chancellor of the Exchequer. And, as this word, or quite literal translations of it, is now used from Siberia to

Patagonia, we may as well stick with it.

But How to Do It?

- There were many questions to decide. Should shares in the companies be distributed free to all citizens?

Empathically not, said Chancellor Lawson, citing the American revolutionary patriot Tom Paine: What we obtain too

cheap, we esteem too lightly.

- This pointed to a larger challenge. Companies could not be privatized until they had been fixed.- Thus he came up with the golden share a special share which would be retained by government after

privatization, and which would enable the government to prevent control of the company from falling into unsuitable

hands.

A Far Bigger Program

- The process of privatization encountered many criticisms over a decade and a half.

- The pricing of stock was generally criticized for being either too low or too high. Former Prime Minister Harold

Macmillan, the Tory proponent of the mixed economy and the middle way, weighed in to voice the complaints of

many when he declared that the family silver the state companies, all of whose names began with British, was

being sold off. The obvious reply was that the family could not afford to maintain the silver anymore.

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- After the fact, the growth in compensation -salary and options- of senior managers and board members in the newly

privatized companies became a hot staple on front pages, made all the more vivid by the sharp downsizing in

employment levels in what had formerly been the woefully overmanned state companies. The recipients of these

benefits became immortalized as the fat cats and the target of popular rage.

- Privatization also introduced the new challenge of regulation.

- Now the provision of basic public services -gas, electricity, and water- was being entrusted to private enterprises

guided by profitability, not universal service at any cost. To work, this new system required a regulatory body thatcould ensure competition and protect the consumer.

- So they appointed for each industry a single individual -known as The Regulator- with the mandate to monitor

industry practice and set pricing rules with as lean a staff as possible.

A Bit of an Institution

- Margaret Thatchers third electoral victory, en 1987, confirmed that Thatcherism was not an aberration but a

change of direction. I think I have become a bit of an institution, she said shortly afterward. People seem to think,

She isnt so bad is she, this Maggie?

- But the 1987 victory was also the beginning of the end of an era. The Tory government created a domestic furor by

bashing on to make a radical change in local taxation in the form of the p oll tax.

- The speech precipitated a contest for the leadership of the Conservative Party.

- No, its all over. Warned that she would eventually lose, and anticipating the humiliation that would follow, shewithdrew her name from the second ballot. A few days later the new leader of the Conservative Party, John Major,

son of a vaudeville entertainer -turned- businessman, succeeded her as prime minister.

- Thatcherism shifted the emphasis from state responsibility to individual responsibility, and sough to give first priority

to initiative, incentives, and wealth generation rather than redistribution and equality. It celebrated entrepreneurship.

Privatization became commonplace. Labor unrest no longer continually disrupted the economy. For a number of

years Thatcherism seemed anathema almost everywhere. But by the 1990s, it would turn out that Margaret Thatcher

had established the new economic agenda around the world.

Always with Beliefs

- New Labor came into power in 1997 not by attacking Thatcherism bu t by embracing much of its rhetoric and its

policies, although leavened with an emphasis on compassion that was distinctly non-Thatcher.

- New Labor has an understanding of what socialism was and how it doesnt work, that somehow you have to create

wealth before redistribution. Socialism started with redistribution before wealth.

-And what then are the tasks of government? First, keep finances sound. Second, ensure a proper foundation of

law so that industry, commerce, services, and government can all flourish. Third, defense, Education, the fourth, is

the road to opportunity. The fifth is the safety net. Society is more complex and needs to be more sophisticated in

how it responds to fundamental questions. How is it to provide an effective safety net without creating or

strengthening the dependency culture?It was how are we to uphold the virtues of civil society? And a certain

amount is to be spent on infrastructure and a certain amount on pure research....

- And, she added, dont forget Thatchers Law: The unexpected happens. You had better prepare for it.

- Who in the mid 1970s would have anticipated the degree of change? It started with Sir Keith and me, with the

Centre for Policy Studies, and Lord Harris, at the Institute for Economic Affairs. Yes, it started with ideas, with

beliefs. She Paused. Thats it. You must start with beliefs. Yes, always with beliefs.