Iron Lady's bitter economic 'cure'

Margaret Thatcher greets onlookers in Moscow in March 1987. (AFP)

Margaret Thatcher greets onlookers in Moscow in March 1987. (AFP)

Margaret Thatcher was the first woman to rule rather than merely reign over the British state since Elizabeth I in 1603. Though she lacked the great queen's popularity and defter political skills, Thatcher's sheer willpower and courage sustained her ascendancy over male rivals for a turbulent 11 and a half years. It was the longest premiership since that of Lord Liverpool (1812 to 1827) and the most formidable since Churchill's in his wartime prime.

More than the exercise of political power at a time when Britain's fortunes had reached a post-war low in the winter of industrial discontent of 1978/79, Thatcherism changed the way Britons viewed politics and economics, as well as the way the country was regarded around the world.
The "Iron Lady" was more admired abroad than at home, where even many Conservative voters recoiled from her apparent lack of compassion for those whose lives and careers were disrupted by her policies.

Her frequent assertion that "there is no alternative" to the economic medicine she administered to a reluctant country is disputed to this day. In her determination to reverse what she saw as the ruling liberal elite's fatalistic acceptance of "managed decline" in the home of modern liberty, Thatcher overthrew much of the Clement Attlee Labour government's welfare state and reversed widespread nationalisation. A new process, which became known as "privatisation", was copied around the world.

Under Geoffrey Howe, her loyal first finance minister, out too went interventionist Keynesian economics, fixed exchange rates and high personal taxation that included a notional 83% top rate inherited from Labour. It took until the late 1980s for Howe's successor, Nigel Lawson, to get that rate down to 40%. Meanwhile, value added tax was almost doubled to 15%.

"Big bang" deregulation
In place of the flagging social democratic settlement came a high-risk, deregulated, market-orientated system in which the poverty gap widened rapidly and "loadsamoney" rewards at the top rocketed.

With "big bang" deregulation of the financial sector in 1986 paralleling developments in Ronald Reagan's United States, the path was open to the financial crisis that engulfed Anglo-Saxon capitalism in 2007.

Thatcher also took on trade unions, most conspicuously the militant miners. Their defeat in the 1984-85 strike reversed the National Union of Mineworkers' victory that had toppled the government of Ted Heath, in which she had served from 1970 to 1974. Union powers, including wildcat strikes and the closed shop, were sharply curtailed. Most deep mines in Britain closed.

Thatcher handed out similar medicine to Argentinian generals who took her ill-judged defence cuts of 1981-82 as their cue to seize the long-disputed Falkland Islands. A 40 000-strong British task force sailed 13 000km into a South Atlantic winter and retook the islands. Both reckless and brave, it consolidated Thatcher's reputation as a politician who meant what she said: "You turn if you want to; the lady's not for turning." In fact, she was often beset by doubts and hesitation, but until her final years in power also capable of burying her prejudices in the face of hard facts.

The IRA's bombing campaign in Britain culminated in an explosion in the Grand Hotel in Brighton during the Conservative conference in October 1984. It was meant to murder Thatcher – she survived because she was still working – and killed four people. Next day, Thatcher delivered her conference speech largely unchanged. But a year later she signed the Anglo-Irish agreement that allowed Dublin a role in the affairs of Northern Ireland.

Similar pragmatism was evident in her 1984 agreement with Beijing to return Hong Kong to China when Britain's 99-year lease expired in 1997 and her signing of the federalising European Single Act (1986) despite her growing Euroscepticism.

By the time the triple election winner was forced from office by her own party in November 1990, her face and voice were known around the world. But Thatcher gradually developed more flair and more ideas of her own. As education minister, she cut school milk for 11-year-olds rather than the school budget and earned her first nickname: "Thatcher the milk snatcher."

She learned to accept the inevitability of unpopularity. More importantly, she saw Heath back away from what would later be seen as Thatcherite free-market policies, as unemployment passed one million. Subsidies, nationalisation – even that of Rolls-Royce in 1971 – and a reasoned approach to the unions did not work, she concluded.

Beating Heath
Disillusioned she was, but she did not resign, as she fell under the influence of philosophers such as Friedrich Hayek, and of Milton Friedman, the economic high priest of monetarism. When Heath lost two general elections to Labour's Harold Wilson in 1974, and Thatcher's intellectual mentor, Sir Keith Joseph, proved too frail to run, she picked up the gauntlet.

In a campaign in which expectations were brilliantly manipulated by Airey Neave, the ex-MI6 MP later to be murdered by Irish terrorists, she beat Heath and forced him out in February 1975. Male colleagues, led by Willie Whitelaw, had assumed she was their stalking horse. She beat them all. Equally significantly, she took advice on how to neutralise her negative image with many voters. Out went the hats, down came her voice into something huskier. Thatcher's sex appeal, rarely remarked upon, was tangible and became one of her weapons.

Over the next decade she slowly reshaped her Cabinet and the party to her own liking, promoting protégés, and sacking or moving fainthearts and One Nation "wets" who questioned her divisive policies. "Is he one of us?" became a stock Thatcher question, asked of impartial civil servants and even would-be bishops. Her critics retaliated in kind. In a rare snub, her old university refused her an honorary degree.

Luck was a commodity that Thatcher purported to despise. But she had her share, not least the arrival onshore of North Sea oil. The black gold proved a miracle that would ease Britain's balance of payments problems and finance the huge cost of mass unemployment and economic restructuring caused by the collapse of old, inefficient industries.

She was also lucky in her opponents. The miners' leader, Arthur Scargill, was a vain and often foolish strategist. So was General Leopoldo Galtieri, the Argentinian president who launched his Falklands invasion in the winter. Jacques Delors, the fierce French socialist, whom she came to see as embodying the ambitions of Brussels – "the Belgian empire" in Thatcher-speak – to destroy British sovereignty, was also a good whipping boy.

Most important was her good luck with events in domestic politics, which helped Thatcher, deeply unpopular as recession and inflation worsened in 1981, to survive early challenges. Michael Foot succeeded James Callaghan as Labour leader, triggering the breakaway from Labour of the "Gang of Four" who formed the Social Democratic Party (SDP).

Thatcher emerged from the recapture of Port Stanley and the 1983 election with a majority of 144, Labour almost beaten into third place in the popular vote but well ahead of the SDP-Liberal alliance in seats. Neil Kinnock succeeded Foot and began the long modernisation that culminated in Tony Blair's three victories of 1997-2005.

But Kinnock was never comfortable dealing with an aggressive older woman and lacked both her experience and her command of detail. Thatcher held him at bay, crucially so when he failed to land the killer blow that might have ended her premiership in the 1986 Commons debate over the Westland helicopter scandal. That followed Michael Heseltine's resignation as defence minister over the fate of the helicopter company. Thatcher was mixed up in leaks and skulduggery, but escaped, damaged but still in charge.

Tensions mounting
In the longer term, Westland did bring her down by making Heseltine an implacable foe, stalking her for the leadership. She won the 1987 election with a smaller 100-seat majority, off the back of what proved to be Lawson's unsustainable boom. But tensions and internal contradictions were mounting.

Lawson sought to steady the pound by secretly making sterling shadow the German mark. He and Howe wanted a commitment in principle to take the pound into the embryonic single currency, known as the exchange rate mechanism or ERM, something she resisted until a showdown at the European Madrid summit of June 1989.

In November that year, enraged by her reappointment of the economist Alan Walters to shadow him, Lawson walked out of the Cabinet. John Major, fast emerging as the latest of her would-be successors and protégés, became finance minister. Howe, so long her loyal lieutenant – author of the 1981 budget that slashed spending in a recession – was sidelined and humiliated.

All the while, Thatcher's nemesis was creeping up on her in the shape of the poll tax. The "community charge" represented her ambitious plan to replace unpopular household rates with a headcount tax that even council tenants would pay: it would dampen their enthusiasm for services paid for by others, she reasoned. More unpopular even than water privatisation, the poll tax prompted riots in Trafalgar Square.

A further sign of Thatcher losing her grip came when, as a frequent defender of the apartheid regime in South Africa, she dismissed Nelson Mandela as a "terrorist'' not long before he emerged from prison to become the hero of the peaceful transition to majority rule. With Labour ahead in the polls for more than a year, MPs began to feel restless. In November 1989 an obscure backbencher called Anthony Meyer ran as a stalking horse against her, winning 33 votes and 27 abstentions.

Wounded, Thatcher fought on, ever more dramatic in her pronouncements – "We are a grandmother" – and even in her choice of evening dress. The final trigger was not the poll tax, but Europe. Major persuaded her to join the ERM in return for an interest rate cut in October 1990. Days later she said "no, no, no" to the suggestion that she might eventually join a full single currency. The long-suffering Howe resigned and surprised everyone – including himself – with a devastating resignation speech.

Heseltine launched his long-awaited challenge. Thatcher beat it off, but not convincingly. Faced with the prospect of serving Heseltine, the Cabinet told her to her face that she should consider stepping down and backing someone who could beat him. She did – and backed Major over Douglas Hurd, her foreign minister. When Major won and she left Downing Street, photographers captured a rare tear.

The moment was brief, and Major inevitably proved a disappointment to such a dominant predecessor, for whose self-certainty nostalgia grew among Tory activists. The treacherous manner of her overthrow ­rankled, fuelling a civil war within the party for 15 years.

Thatcher remained a political player, often a disruptive one, on the world and domestic stages for a decade until illness forced her to retire to a quiet private life she had abandoned 50 years before. – © Guardian News & Media 2013