New Labour Consensus Flashcards
1
Q
New Labour Consensus (1979-2007) (3)
A
- The post-war consensus crumbled in the 1960s and was fully ended with the rise of Thatcher and her neoliberal, free market policies.
- She made the paradigm shift to Monetarism and reversed Industrial Policy
- New Labour did not establish a new political consensus but rather adapted the existing consensus to serve a social democratic telos
- Macroeconomic, industrial, public, foreign/defence/Europe
2
Q
Macroeconomic Policy (3)
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Theory, Policy, New Labour
3
Q
Theory (3)
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- Paradigm shift from Keynesianism to Monetarism, whose claim was solidified through the fact that Keynesianism had been unable to deal with the stagflation of the 60s and 70s – not so much brought about by Thatcher.
- Due to differing views on the slopes of the IS and LM curves, Friedman argued that in a period of stagflation the economy should be contracted through MP, not the stop-go fiscal policy, which was largely ineffective in his eyes (PHILLIPS CURVE).
- Monetarism suggested role of controlling money supply through sound monetary policies to create very low inflation and incentivise investment-led growth - more emphasis on this than fiscal.
4
Q
Thatcher - Financialization and Trade Liberalisation
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- Jessop (2015) - deregulation of banks incentivised financial innovation and increased profits 🡪 expansion of the financial sector.
o Culminated in “Big Bang” in 1986 which included increase in financial openness, abolition of fixed commission charges and move in LSE from open outcry to electronic trading (increasing ICT investment)
o London becomes a financial hub through regulatory arbitrage.
o Concentration of productivity growth in certain areas (e.g. Southeast) 🡪 greater (regional) inequality 🡪 “North-South divide”. - (Ennew et al. 1990) average effective rate of protection fell from 4.7% in 1979 –> 1.2% in 1986
5
Q
Thatcher - Macroeconomic Policy (6)
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- Following 1980 recession, TIGHT MP maintained (Minimum Lending Rate 12% –> 17%) to ensure borrowing targets would still be achieved - progress towards fiscal balance was a PRIORITY (rather than counteracting fall in demand) - CLEAR DISCONNECT FROM KEYNESIAN POLICY
- Thatcher also made changes to the government spending plan, committing to a balanced budget by raising indirect taxation (8% and 12.5% VAT –> uniform 15%), although reduced direct taxation, with top band of income tax falling from 83% to 60% to create incentive effects on the demand side of hard work, savings and entrepreneurship to increase productivity.
- Period of high inflation in 1988-90 due to Thatcher’s Chancellor Nigel Lawson:
o Standard rate income tax cut from 29p –> 25p, top rate 40p.
o Did this to promote growth believing economy to be relatively stable.
o However, inflation began to rise substantially, and with his interest rate cuts, house prices rose by 20%.
o Few months later Lawson had to double interest rate and the UK was running its largest ever BoP deficit
o Inflation was 10.5% in 1990. - Initially, unemployment under Thatcher rose to over 3 million by 1982 and remained at this figure (change in definition) until 1987 (largely due to the privatisation) but came back down to the 1.5 million that existed when she came to power by the end of her tenure.
- Overall, important this transformation is not exaggerated - aspects of monetarism demonstrated before 1979 e.g. 1975 CoE Denis Healey claimed government did not need to increase spending to reduce unemployment & Callaghan remarked economy cannot just ‘spend its way out of recession’ - Thatcher was simply firmer in beliefs and enacted shift.
6
Q
Macroeconomic Policy - New Labour (8)
A
- Some of Thatcher’s policies were employed by Major and the New Labour government - certainly no shift away from monetarism - BoE independent with MPC (importance of INFLATION) (“politics of depoliticisation”)
- HOWEVER, there were significant areas of discontinuity of policy. Although the Blair government initially stuck to Conservative expenditure plans, Blair wished to raise public spending to Western European social model level, who were spending much more as % of GDP – this could be afforded as the economy was booming by ‘97.
- In 2000 – plan to raise nominal NHS spending by 50% and real spending by 33% in 5 years.
- Also embarked on a policy of substantially raising indirect taxes to fund their expansion of public services and the rise in public expenditure from 36% to 44% from 1998 to 2005) – known as stealth taxes, since it came through to consumers via shops increasing their prices.
- Despite Gordon Brown’s apparent commitment to continuing the budgetary responsibility of the Conservative governments through his implementation of the Golden Rule (that government spending excluding capital expenditure must be in balance or in surplus across the economic cycle), it was not maintained.
- Wording in the Golden Rule meant there was ambiguity as to how it would be measured, or the length of the economic cycle. This was used to his advantage – in July 2005, the ‘economic cycle’ was extended from 7 to 9 years, enabling the surpluses of 1997 and 1998 to facilitate borrowing in 2005, without violating the Golden Rule.
- Come 2007, however, there wasn’t even an attempt to claim fiscal responsibility – the Great Recession meant falling tax receipts, but the government maintained its borrowing, breaching Brown’s rules.
- DISCONTINUITY OF POLICY = NO CONSENSUS.
7
Q
Industrial Policy (2)
A
Thatcher, New Labour
8
Q
Industrial Policy - Thatcher (5)
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- Thatcher’s key policy was that of privatisation – believed in supply-side Laissez-faire economics and believed that a decentralised system of resource allocation achieves productive and allocative efficiency.
- Furthermore, it would be consistent with her spending plans, since these industries would not be in receipt of hefty subsidies.
- 3 areas of privatisation
o Utilities (gas, electricity, water) – natural monopolies. Introducing competition proved difficult so regulation was needed (e.g. OFWAT 1989)
o ‘Blue chip’ companies e.g. BP, which were truly globally competitive, idea being for people to take money out of banks and put them into oil shares, then begin to build a whole portfolio (Marr (2009) - shareholder democracy failed - Proportion holding shares under Thatcher rose from 7% to 25% but falls afterwards).
o Those in long-run structural decline, which had their workforce size reduced. - Trade Union power significantly reduced – some argue this was due to occupational shifts rather than govt legislation and policy, but hard to believe given that Thatcher passed 5 major TU legislation in total (e.g. union blanket immunity removed in 1982 - unions could be held legally responsible for damages/loss incurred in illegal strikes, definition of legal trade dispute continually narrowed) – motivated by government overload thesis (Marsh & Rhodes, 1992) - posits escalation of demands on govt from involving too many interest groups in policymaking as cause of major economic decline.
- Union density fell from 58.9% in 1978 to 46.5% 1988 - Tories fulfilled manifesto commitments here more than anywhere else.
9
Q
Industrial Policy - New Labour (8)
A
- When New Labour came to power, there was a continuation of Thatcher’s policies – a stark difference to traditional Labour party views on the topic.
- Blair continued her policies, going onto privatise the air traffic control industry too.
- That said, the strive for efficiency was done in a different manner. Instead of using the notion of ownership of assets to generate allocative efficiency, the Labour Party used the notion of regulation, e.g. by strengthening workers’ rights in the case of redundancies.
- Furthermore, the policy of Private Finance Initiatives (PFI), introduced in 1992 by Major embraced by the Labour governments that followed.
- Capital projects financed by private sector who would build and manage facilities for 20-30 years under government contract 🡪 even less government intervention in provision of goods/services.
- Conservatives utilised them because, in theory, they combine the benefits of the natural monopoly argument with competition theory e.g. rail industry, with National Rail and individual train operators.
- However, the Labour party continuing this policy was not due to their proposed benefits, but because it enabled more public service provision whilst shifting costs to future generations (and not out of current government expenditure).
- HOWEVER, with the subprime mortgage crisis in the USA, and its subsequent propagation through the global banking system, Brown was forced to nationalise the failing British Banks. Despite this being a discontinuation of policy, it was not because of a doctrinal shift back to socialism, but because of their imminent collapse. They were to be privatised again as quickly as possible.
10
Q
Thatcher - Public Policy (3)
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- Largely untouched until 1988/1989, near the end of Thatcher’s time in office
NHS, Education
11
Q
NHS (8)
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- Thatcher knew that privatising the NHS would be wildly unpopular, and despite her doctrine of privatisation, decided against doing so for the NHS.
- Instead through various reforms, she transformed the NHS into a quasi-market, in attempt to make it more efficient.
- For example, she introduced District Health Authorities (1989) – required to save 10% of administrative costs – DHAs encouraged to contract out services to private sector to reduce waiting lists, and also now acted on behalf of public to purchase health services using taxpayer money, reducing costs through their monopsony power.
- Offered NHS hospitals the opportunity to become a ‘Trust’ who would then compete with other trusts to offer services for the lowest costs (thereby making it into somewhat of a CM), where profits could be either reinvested or split between partners (effect on NHS efficiency is debatable)
- Although the New Labour government under Blair was initially opposed to the introduction of quasi markets, when they came to power, they extended their introduction.
- In fact, Blair went onto reform the NHS himself (in a quasi-market manner), through introducing the National Institute for Clinical Excellence and Foundation hospitals. These hospitals had complete ownership and control over NHS assets and were able to independently raise finance from capital markets.
- Each foundation hospital was essentially acting like its own company. The only difference in his reforms was that to create further efficiency, patient choice would be the driver of hospitals running down costs, rather than direct competition for contracts.
- HOWEVER, a major difference to the Thatcher government was that his plans included raising spending on the NHS by half in 5 years in nominal terms. This was very much against the Conservative expenditure plans.
12
Q
Education (6)
A
- Similarly, Thatcher wanted to transform secondary state school education into the same quasi-market system - 1988 Education Act did this, where schools could apply to become a Grant maintained school, and no longer be subject to the management by local education authorities.
- Furthermore, spatial monopolies were abolished, and funding was granted based on pupil numbers, so schools had an incentive to maintain high educational standards.
- However, this decision was partially political – previously, local authorities managed schools, which had become increasingly Labour party controlled.
- Blair government continued the quasi-market school structure – introduced City Academies, who could set their own curriculum, and set pay and conditions and control their school’s assets – clearly a development of the Thatcher government’s decentralised policy for schools.
- When Brown became PM, there was a desire to move away from quasi-markets, but cost constraints prohibited him.
- Continuation of policy = consensus.
13
Q
Foreign and Defence (7)
A
- Gamble (2015) - Thatcher broadly Atlanticist, strengthened relationship with US
- Replaced Polaris with the new powerful Trident D5 system of the USA.
- The relationship between the US and UK was continually developing (for example, the US supported the UK in the Falklands war, despite being supporters of both Argentina and the UK), but the UK had no influence on US polices e.g. the Reagan administration decided to invade Grenada to remove a communist inspired leadership, without British consent.
- However, one change that Thatcher effectively commissioned was for British national defence not to be fully dependent on the UK alone. This was the result of the issue of Westland, Britain’s last remaining helicopter manufacturer that needed a financial rescue in 1986 which Thatcher refused, wanting it to be taken over by a US manufacturer.
- Blair’s time in power is defined by his involvement in Afghanistan and Iraq, although his ambition was to be known as the man who ended ‘poverty in Africa’. Knowing that this was not possible without US support, he cosied up to US leadership.
- When Bush came to power, Blair offered him his unequivocal support. Bush thus requested that Britain participate in the second Gulf War in Iraq and Afghanistan. Blair, who could not decline, did so.
- Public viewed this as a highly controversial decision, with more than half of survey respondents believing it was wrong of Britain to go to war - wars were a political disaster.
14
Q
European (3)
A
- Thatcher was strongly against entering the European Monetary System, despite coming to government with a pro-Europe stance.
- Wanted to see principles of market liberalism in EEC but did not want further integration - like De Gaulle, believed in ‘Europe des patries’, where national government still had autonomy to make own decisions.
- Strong contrast with Blair, who was described as the ‘most European of British Prime Ministers’.
15
Q
Reasons for somewhat consensus (4)
A
Median Voter Theorem, Budget constraints, Monetarism, Neo-liberalism?
