Owen Jones

@owenjonesjourno

Oct 15

Owen Jones

@owenjonesjourno

Oct 15

Neoliberal policies helped drive the UK into a deep recession in the early 1980s.

Industrial communities - and our social fabric - never recovered.

Let's go through them:

DEREGULATION
Abolishing exchange controls in 1979 and loosening controls on bank lending.

@KonstantinKisin argued that financial deregulation began with the Big Bang of 1986.

That is factually wrong.

As a 2002 Bank of England working paper put it:

"The most recent round of deregulation in financial services in the United Kingdom began in 1979 with the removal of exchange controls.”

That allowed British investors to shift far more capital into overseas assets - just when UK industry needed investment.

A 1981 Bank of England analysis found that outward portfolio investment had risen substantially after abolition, and concluded that domestic interest rates were probably left “somewhat higher”.

Higher interests meant a deeper recession.

SUBORDINATING THE REAL ECONOMY TO FINANCIAL INSTITUTIONS
See above, but also the dramatic hiking of interest rates.

High rates benefited creditors relative to borrowers while making borrowing and productive investment brutally expensive.

They also helped drive up sterling, making British exports more expensive and imports cheaper – hammering manufacturing

The interest-rate squeeze was a central driver of the deep recession.

SLASHING TAXES ON THE RICH
In her first Budget in 1979, Margaret Thatcher slashed the top rate of income tax from 83% to 60%.

This was substantially financed by hiking VAT from 8% to 15%.

The VAT hike added nearly 3.5 percentage points to the Retail Price Index.

It also squeezed purchasing power and consumer demand - deepening the recession.

And all this was happening as the government pursued an increasingly ferocious monetary squeeze to bring inflation down.

HOBBLING ORGANISED LABOUR
Thatcher introduced the first major anti-union legislation in 1980 - the Employment Act.

Combined with surging unemployment - which itself drastically weakened workers' bargaining power – this shifted power away from workers towards bosses.

That made it harder for unions to resist redundancies, closures and wage "restraint" / cuts.

PRIVATISATION
Thatcher's first major privatisation came with the sale of British Aerospace shares in 1981.

But crucially, Thatcher also imposed market discipline on state-owned industries and companies - constraining their access to state finance and demanding commercial returns.

In 1980 alone, British Steel eliminated around 6.5 million tonnes of steelmaking capacity and 50,000 jobs.

And this was explicitly connected to privatisation. In 1981, the government said changes to British Steel would help “pave the way for further privatisation.”

A "RAPID RECOVERY"
Konstantin also argues that there was a "rapid recovery" from the 1980-1981 recession.

But while economic growth resumed, unemployment kept rising until 1984 – long after the technical recession was over. It reached 11.9%

Manufacturing had suffered its biggest twelve month collapse in the post-war era.

I've been travelling around but I'll do a video on this shortly!