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1 The voodoo revolution

Why might not whole communities and public bodies be seized with fits of insanity, as well as individuals? Nothing but this principle, that they are liable to insanity, equally at least with private persons, can account for the major part of those transactions of which we read in history.

BISHOP JOSEPH BUTLER (1692–1752)

Although 1979 may not have the same historical resonance as 1789, 1848 or 1917, it too marks a moment when the world was jolted by a violent reaction to the complacency of the existing order. Two events from that year can both now be recognised as harbingers of a new era: the return of the Ayatollah Khomeini to Iran and the election of Margaret Thatcher’s Tories in Britain. The Imam and the grocer’s daughter represented two powerful messianic creeds whose ‘conflict’ – though often more apparent than real – found its most gruesome expression some twenty-two years later, when the twin towers of the World Trade Centre in New York were reduced to rubble by a small kamikaze squad of Islamist martyrs.

What seemed to be a straightforward battle between modernity and medievalism was in truth a more complex affair, ripe with ironies: the most ardent apostles of Thatcherite neo-liberalism were themselves engaged in a struggle against the world as it had evolved during the twentieth century (welfare states, regulated economies, interventionist governments, sexual permissiveness), while the pre-modern Islamic fundamentalists – commonly portrayed as bearded loons in an Old Testament landscape of caves and deserts – had a high-tech savvy that continually amazed and infuriated their enemies. Osama Bin Laden knew how to exploit the power of satellite TV and twenty-four-hour news channels; his lieutenants were Westernised enough to pass without notice in Europe and the United States. And it was a Boeing jet which carried the Ayatollah Khomeini back to Tehran on 1 February 1979.

‘A nation trampled by despotism, degraded, forced into the role of an object, seeks shelter,’ the Polish journalist Ryszard Kapuscinski wrote of the Iranian revolution. ‘But a whole nation cannot emigrate, so it undertakes a migration in time rather than in space. In the face of circling afflictions and of reality, it goes back to a past that seems a lost paradise. The old acquires a new sense, a new and provocative meaning.’ Although millions of Iranians celebrated the Ayatollah’s arrival, by no means all were fundamentalist zealots yearning for jihad: Iran was a secular state by the standards of the region. What made his installation possible was that he was the only alternative on offer. Why? Because the increasingly corrupt and brutal Shah Mohammad Reza Pahlavi had suppressed the voices of democratic dissent. And who was responsible for this counter-productive folly? The United States, among others: the CIA had helped organise the coup which toppled Mohammed Mossadegh’s left-liberal government and reinstalled the Shah on the Peacock Throne. Hence the seething resentment, felt even by some Westernised Iranians, against the ‘great Satan’ of America. It was President Carter’s subsequent decision to let the Shah enter the US for medical treatment that provoked the storming of the American embassy and the ‘hostage crisis’.

Ironically enough, Jimmy Carter was the only president who had dared to defy the conventional wisdom that guided American foreign policy for more than three decades after the Second World War: that in order to ‘contain’ the spread of Communism it was essential to support anti-Marxist dictators in Africa, Asia and South America, and to look the other way when they were torturing or murdering their luckless subjects. Although the founding fathers said in the declaration of independence that ‘governments are instituted among men, deriving their just powers from the consent of the governed’, and promulgated the American constitution to ‘establish justice … and secure the blessings of liberty’, their successors in the second half of the twentieth century were reluctant to bestow these blessings beyond their own borders. Under Carter, however, even strategically important countries on America’s doorstep – Nicaragua, El Salvador, Guatemala – were warned that further US aid was dependent on an improvement in their human-rights record. In an address at Notre Dame University on 22 March 1977, Carter deplored the ‘inordinate fear of Communism which once led us to embrace any dictator who joined us in that fear’, and called for a new foreign policy ‘based on constant decency in its values and an optimism in its historical vision’ – echoing Abraham Lincoln’s description of liberty as ‘the heritage of all men, in all lands everywhere’.

His conservative critics warned that by forcing right-wing despots to civilise themselves he was effectively hastening their downfall, to be followed by the installation of revolutionary dictatorships instead. The argument was summarised most bluntly by an obscure academic, Jeane Kirkpatrick, in her 1979 article ‘Dictators and Double Standards’, published in the neo-conservative magazine Commentary. ‘Only intellectual fashion and the tyranny of Right/Left thinking’, she wrote, ‘prevent intelligent men of good will from perceiving the fact that traditional authoritarian governments are less repressive than revolutionary autocracies, that they are more susceptible of liberalisation, and that they are more compatible with US interests.’

Although Kirkpatrick was in fact a Democrat, her article found an admiring audience among gung-ho Republicans as they prepared for the 1980 presidential campaign. ‘I’m going to borrow some of her elegant phraseology,’ Reagan told a friend after reading Commentary. ‘Who is she?’ He found out soon enough: by 1981 he had appointed Jeane Kirkpatrick as his ambassador to the United Nations, and was using her distinction between jackbooted ‘authoritarians’ and Stalinist ‘totalitarians’ to justify sending arms to the bloodstained regime in El Salvador. Even when three American nuns and a lay worker were murdered by the Salvadorean junta, Kirkpatrick expressed no sympathy at all for the victims but continued to recite her glib theory of autocracy. ‘It bothered no one in the administration that she had never been to El Salvador,’ the Washington Post observed, ‘and that one of the authorities she cited for her view of the strife there was Thomas Hobbes, an Englishman who had been dead for three centuries.’

Kirkpatrick shamelessly applied double standards of her own. Whereas right-wing tyrannies might take ‘decades, if not centuries’ to mature into democracies, she said, there was no example ever of a left-wing dictatorship making such a transformation. Hardly surprising, given that the world’s first Marxist state was only sixty-three years old at the time; had she waited another decade or so, examples galore would have refuted the argument. Nor did the Iranian revolution bear out her thesis that it was better for the United States to prop up tottering autocrats than to back reformers. As Professor Stanley Hoffman pointed out in the New York Times, postponement of democratic reform ‘prepares the excesses, sometimes the horrors, of the successor regimes’.

It has been said that opposition parties do not win elections: governments lose them. The rule applies in autocracies, too: hatred of the Shah, rather than universal Iranian longing for medieval theocracy, prompted the national rejoicing at the Ayatollah’s coup. Three months later, in Britain, Margaret Thatcher won the votes of millions of electors who probably had little enthusiasm for (or indeed understanding of) monetarism and the other arcane creeds to which she subscribed. All they wanted was the removal of an etiolated, exhausted government which had no raison d’être beyond the retention of office. Jim Callaghan’s administration had been limping heavily since 1976, when it was forced to beg for alms from the International Monetary Fund, and later that year he had formally repudiated the Keynesian theories of demand management that were accepted by all post-war governments, both Labour and Tory. In 1956 the Labour politician Anthony Crosland confidently declared that ‘the voters, now convinced that full employment, generous welfare services and social stability can quite well be preserved, will certainly not relinquish them. Any government which tampered with the basic structure of the full-employment Welfare State would meet with a sharp reverse at the polls.’ Twenty years later, following the onset of stagflation and the end of the long post-war boom, Callaghan informed the Labour Party conference that the game was up:

What is the cause of high unemployment? Quite simply and unequivocally it is caused by paying ourselves more than the value of what we produce. There are no scapegoats. That is as true in a mixed economy under a Labour government as it is under capitalism or communism. It is an absolute fact of life which no government, be it left or right, can alter … We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. But I tell you in all candour that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment. That is the history of the last twenty years.

Callaghan’s regretful message soon became Thatcher’s triumphant catchphrase, and was later adopted as the mantra of American evangelists for untrammelled global capitalism: there is no alternative.

At first, the new Tory prime minister proceeded with caution. There were plenty of old-style Tory gents in her Cabinet, and few people guessed what she would do to sabotage the post-war consensus – not least Thatcher herself. It was often remarked that, even when she had taken up residence in 10 Downing Street, the new prime minister continued to sound like a politician from the opposition benches, or even an impotent street-corner orator. When she censured her own employment secretary on the BBC’s Panorama programme, the Economist complained that ‘it is doing no good to the cause of party morale for the Cabinet’s most strident critic to seem to be the prime minister, especially on the highly public platform of a television interview’. Help was at hand, however, as neo-liberal soulmates cheered her on from across the Atlantic: in the same editorial, the Economist reported ‘the arrival of the ideological cavalry’ from the United States to rally the troops and stiffen the sinews.

‘The importance of Margaret Thatcher stems not from the fact that she is a woman and one who is both an attorney and the first-ever British Prime Minister with a science degree,’ Kenneth Watkins wrote in Policy Review, journal of the right-wing Heritage Foundation.

Her importance stems from the fact that she has a profound conviction, based on her birth, family upbringing and experience, that a successful free enterprise economy is the only secure basis for individual freedom for even the humblest citizen … If Margaret Thatcher fails, the door in Britain will be open for the headlong plunge to disaster in the form of the irreversible socialist state. If she wins, and win she can, she will have made a major contribution to the restoration of Britain’s fortunes and, in so doing, will inscribe her name in the history books as one who will have led the way not only for her own country but for the entire Western world.

Another conservative Washington think-tank, the American Enterprise Institute, despatched Professor Herbert Stein, who had chaired the Council of Economic Advisers under Presidents Nixon and Ford, to spend three weeks in Britain during the summer of 1979. He returned in high spirits. ‘The regime is dedicated to restoring the work ethic, initiative, personal responsibility, and freedom,’ he wrote in Fortune magazine.

It stresses these values not only as spurs to GNP growth but also as ends in themselves – quite simply the right way to live … The government wants to correct what it regards as the intellectual errors that have dominated British thinking for the past forty years. It finds the Socialist and Keynesian doctrines by which Britain has been governed since World War II to be intellectually uncongenial and economically self-defeating. To replace these obnoxious doctrines, it is resolved to preach what it holds to be economic truth and sense.

Even more gratifyingly, she won the approval of the two economists she most revered, both of them Nobel laureates. Milton Friedman, founder of the ‘Chicago school’ of monetarism and free-market theory, wrote an ecstatic column for Newsweek (‘Hooray for Margaret Thatcher’) urging American politicians to heed the British example. ‘What happens in Britain is of great importance to us. Ever since the founding of the colonies in the New World, Britain has been a major source of our economic and political thought. In the past few decades, we have been moving in the same direction as Britain and many other countries, though at a slower pace. If Britain’s change of direction succeeds, it will surely reinforce the pressures in the United States to cut our own government down to size.’ Three months after Friedman’s rousing hurrah, Forbes magazine sought a verdict from the other Thatcherite icon, Friedrich von Hayek, whose influential anti-Keynesian polemic The Road to Serfdom had been written in the final months of the Second World War. ‘I admire her greatly,’ Hayek confirmed. ‘Her policies are the right ones, but whether she’ll be able to get done what she knows must be done is another question.’ Quoting John Stuart Mill’s description of the Tories as ‘the stupid party’, he expressed his suspicion that Thatcher, like himself, was more of a nineteenth-century liberal than a conservative – an opponent, in other words, of any interference with the marketplace, whether from social democrats bent on social engineering or captains of industry who wished to keep out cheap imports.

Milton Friedman returned to Britain in February 1980 to launch an ideological Blitzkrieg – meeting Thatcher at Downing Street, promoting his new book Free to Choose and presenting a series of televised lectures in which he advocated ‘the elimination of all government interference in free enterprise, from minimum wage to social welfare programmes’. He cited the economies of Japan, South Korea and Malaysia to prove that prosperity depended on allowing the ‘invisible guiding hand’ of the free market to hold the tiller. ‘What happens here in Britain will have a very important influence in the US,’ he told the Washington Post’s London correspondent. ‘If Thatcher succeeds, it will be very encouraging. It is a fascinating experiment, and a good deal depends on it … Britain, and much of the world, is at a turning point after a fifty to sixty-year run of Fabian socialism.’ Thatcher’s election, he believed, ‘could mark the turning away from the welfare state back to the free-market economies of the nineteenth century’.

By then, Thatcher’s application of Friedmanite principles – restricting the money supply, cutting public spending – was indeed producing results. During her first year inflation surged from 9 per cent to more than 20 per cent; interest rates and unemployment both rose sharply; and Britain’s manufacturing industry, the legacy of that energetic nineteenth-century entrepreneurialism which Friedman and Thatcher so admired, was battered by recession.

This news escaped the attention of her transatlantic disciples, perhaps because they were distracted by the emergence of a hero on their own side of the pond – the old Hollywood actor Ronald Reagan, who entered the presidential primaries of 1980 reciting the incredible but irresistible promise that he would cut taxes, increase defence spending and still balance the budget by 1983. The wondrous alchemical formula had been devised by Arthur Laffer, a colleague of Milton Friedman at the University of Chicago, whose ‘Laffer Curve’ seemed to demonstrate that a government could actually increase its revenue by reducing tax rates. The rich would no longer feel impelled to seek out ingenious tax-dodging ruses, and the lower rate would stimulate economic growth, thus expanding the national revenue anyway.

Although the ‘supply-side economics’ espoused by the Reaganites had a veneer of scientific method, not least in the elegant parabola of Laffer’s curve, it was indistinguishable from the old, discredited superstition known as ‘trickle-down theory’: the notion that if the rich were encouraged and enabled to make themselves as wealthy as possible – through low taxes, huge salaries, stock options, bonuses and perks – the benefits of this bonanza would somehow, magically, reach the pockets of the humblest hop-picker or crossing-sweeper. In his Political Dictionary, William Safire attributes the theory (though not the title) to the presidential candidate William Jennings Bryan, who in 1896 referred to the belief ‘that if you will only legislate to make the well-to-do prosperous, their prosperity will leak through to those below’. The actual phrase ‘trickle-down theory’ first appeared in the 1932 presidential campaign, when Democrats mocked Herbert Hoover’s plan to engineer an economic recovery by making the rich richer. ‘It’s kind of hard to sell “trickle down”,’ Reagan’s budget director, David Stockman, admitted in an incautious interview with the Atlantic Monthly soon after the 1980 election. ‘So the supply-side formula was the only way to get a tax policy that was really “trickle down”. Supply-side is “trickle-down theory”.’

Even on the right, Reaganomics was not universally popular. One of Britain’s most fervent monetarists, Professor Patrick Minford, advised Margaret Thatcher that the Laffer Curve was nonsense; Reagan’s Republican rival George Bush mocked supply-side theories as ‘voodoo economics’. Only a few months later, however, Bush accepted the role of candidate Reagan’s running mate, and by 1981 the new president and vice-president were working their voodoo magic. Reagan’s first budget included a modest reduction in the basic tax rate, but his indiscreet colleague David Stockman revealed that this was merely a ‘Trojan horse’ for the far more drastic slashing of the top rate from 70 to 50 per cent – and, later, to 28 per cent. Tax-cuts for the rich were central to the supply-side superstition.

According to the Laffer Curve, the public coffers should then have swelled with extra revenue, so much so that the budget could be balanced within a year or two. The reality could hardly be further from the theory: during Reagan’s eight years in the White House the total federal deficit swelled from about $900 billion to more than $3 trillion. While his tax policies certainly precipitated an orgy of speculation in stocks and real estate, they did nothing to induce genuine economic progress: as Americans stopped saving and started spending, throughout the 1980s there was a continuous decline in the long-term capital investment on which growth and jobs depended. At the start of 1981 the new administration was assuring the nation that there would be no recession, but by the autumn it had already arrived, as the Federal Reserve raised interest rates to dampen the inflationary effects of the tax cuts. A year later unemployment in the US rose above 10 per cent for the first time since the 1930s.

Ronald Reagan was an incorrigible fantasist. (He once told the Israeli prime minister that he had been present at the liberation of Nazi death camps in Europe; in fact, his wartime duties in the army film unit never took him further afield than California.) Like many sentimental old hams, he could not always distinguish between his own life and the roles he acted. More surprisingly, others believed his fantasies: even today, tough conservative journalists come over all lyrical and moist-eyed when writing about the years of Reaganomics, recalled as a Gilded Age of prosperity and contentment.

It was indeed reminiscent of that previous Gilded Age a century earlier, notably in the widening gulf between a wealthy elite and the rest. As the political analyst Kevin Phillips recorded in his influential book The Politics of Rich and Poor (1990), ‘no parallel upsurge of riches had been seen since the late nineteenth century, the era of the Vanderbilts, Morgans and Rockefellers’. Income tax was abolished in the United States in 1872, not to be reimposed again until the First World War, and it was during this period that the great dynasties built their fortunes – and flaunted them. An ostentatious 1980s mogul such as Donald Trump, who erected the Trump Tower as a vainglorious monument, was merely following the example of those earlier nouveaux riches who built outrageously gaudy palazzos and châteaux on Fifth Avenue. The conspicuous extravagance of late-Victorian millionaires – exemplified by Mrs Stuyvesant Fish’s famous dinner in honour of her dog, which arrived wearing a $15,000 diamond-studded collar – was more than matched by the glitzy parties chronicled and celebrated every month in Vanity Fair, relaunched under the editorship of Tina Brown in 1983 as a parish magazine for the new plutocracy.

As in the first Gilded Age, scarcely any of the new abundance trickled down to the middle or working classes. Under Ronald Reagan, it was not until 1987 that the average family’s real income returned to the levels enjoyed in the 1970s, and even this was a misleading comparison since they were now working far harder for it: whereas in 1973 average Americans had 26.2 hours of ‘leisure time’ every week, by 1987 the figure had fallen to 16.6 hours. They were less secure, too, as short-term or temporary contracts demolished the tradition of full-time, well-paid and often unionised employment. The earnings of male blue-collar workers in manufacturing industry fell throughout the 1980s as their employers threatened to close the factory or move production overseas if American labour ‘priced itself out of a job’. There was also a revival of Herbert Spencer’s social Darwinism, which had last been in vogue at the turn of the previous century, as right-wing triumphalists argued that government should not interfere with the ‘natural selection’ of commercial markets.

Curiously, however, they seemed quite willing to let the government clear up any ensuing mess. In 1982 members of Congress were bribed to ‘liberalise’ the Savings & Loan industry, effectively promising that the public purse would cover any losses from bad investments made with savers’ money but also undertaking not to oversee or regulate these investments. The consequences, predictably enough, were rampant fraud, the collapse of more than 650 S&L companies – and a bill of $1.4 trillion, to be met by the taxpayer. In 1988 a report from the General Accounting Office, Sweatshops in the US, noted that another feature of the Gilded Age had returned, partly because of the official mania for deregulation: reasons cited for the reappearance of sweatshops included ‘enforcement-related factors, such as insufficient inspection staff, inadequate penalties for violations [and] weak labour laws’. But since the victims were penniless and often voteless workers, rather than middle-class mortgage-owners, the Reaganites blithely left them to the market’s tender mercies. Nor did they complain when the deregulatory zeal of Reagan’s Federal Communications Commission enabled a tiny and ever-shrinking group of large corporations to control most of the nation’s media enterprises – even though this concentration of power thwarted their professed desire for greater competition and choice.

The trouble with the Conservatives, Evelyn Waugh once said, was that they never put the clock back, even by five minutes. He could not have made the same complaint about Ronald Reagan or Margaret Thatcher, both of whom had a single-minded mission to free the capitalist beast from the harnesses and bridles imposed upon it during the previous half-century. In January 1983, when the television interviewer Brian Walden suggested that Thatcher seemed to yearn for ‘what I would call Victorian values’, she replied: ‘Oh exactly. Very much so. Those were the values when our country became great.’ Delighted by the cries of horror her remarks elicited from the liberal intelligentsia, she returned to the theme in subsequent speeches and interviews. As she explained:

I was brought up by a Victorian grandmother. We were taught to work jolly hard. We were taught to prove yourself; we were taught self-reliance; we were taught to live within our income. You were taught that cleanliness is next to Godliness. You were taught self-respect. You were taught always to give a hand to your neighbour. You were taught tremendous pride in your country. All of these things are Victorian values. They are also perennial values. You don’t hear so much about these things these days, but they were good values and they led to tremendous improvements in the standard of living.

Margaret Thatcher had a hostility to organised labour that would have won the respect of any grim-visaged Victorian mill-owner or coalmaster – as did Ronald Reagan, even though (or perhaps because) he himself was a former president of the Screen Actors’ Guild. ‘I pledge to you that my administration will work very closely with you to bring about a spirit of cooperation between the President and the air-traffic controllers,’ Reagan promised PATCO, the air-traffic controllers’ union, shortly before polling day in the autumn of 1980. But there was little evidence of this spirit when its members went on strike the following August: the new president announced that they would all be sacked unless they returned to work within forty-eight hours. More than 11,000 duly received their pink slips, their leaders went to jail and fines of $1 million a day were levied on the union.

Margaret Thatcher waited slightly longer for her own showdown. A thirteen-week strike by steel-workers in 1980, which ended with no obvious victor, convinced her that she must remove unions’ legal immunities and outlaw secondary picketing before turning the full armoury of state power against militant labour. Besides, other preparations had to be made. The union she most dearly wished to destroy was that of the mineworkers, who had brought down the previous Tory government in 1974 and were now led by the Marxist Arthur Scargill, but a lengthy pit strike could be resisted only if coal stockpiles were high enough to keep the home fires burning for the duration. So, as her biographer Hugo Young reported, from 1981 onwards the National Coal Board was ‘given every financial and other encouragement to produce more coal than anyone could consume, and the Central Electricity Generating Board given similar inducements to pile up the stocks at power stations’. At the same time the police were equipped with new vehicles, communications equipment, weaponry and body armour. When the National Union of Mineworkers went on strike in 1984, a year after Thatcher’s re-election, the government was ready for a long and bloody war.

With a belligerence that unnerved even some of her Cabinet colleagues, she described the miners as ‘a scar across the face of the country’ and likened them to the Argentine forces whom she had routed in the Falkland Islands two years earlier. ‘We had to fight an enemy without in the Falklands,’ she declared, in her best Churchillian style. ‘We always have to be aware of the enemy within, which is more difficult to fight and more dangerous to liberty … There is no week, nor day, nor hour when tyranny may not enter upon this country, if the people lose their supreme confidence in themselves, and lose their roughness and spirit of defiance.’ That autumn, when the IRA bombed a Brighton hotel where she was staying, she used the atrocity as further rhetorical ammunition: murderous terrorists and striking coal-miners were both conspiring ‘to break, defy and subvert the laws’. For Margaret Thatcher, the miners’ eventual and inevitable defeat represented nothing less than a victory of good over evil.

The prime minister could not claim the credit which she undoubtedly felt was her due, however, since throughout the dispute she had insisted that the war against ‘the enemy within’ was being prosecuted by the National Coal Board rather than Downing Street. The pretence fooled nobody – least of all the chairman of the NCB, who after one meeting at No. 10 complained to a reporter that ‘I have weals all over my back, which I would be happy to show you’ – but she felt obliged to maintain it, having often expressed her vehement dislike for government intervention in industry, or indeed in anything else. Even those branches of the state that enjoyed almost universal acceptance, such as public education and the National Health Service, appeared to Thatcher as quasi-Soviet abominations. ‘As people prospered themselves so they gave great voluntary things,’ she said in one of her many nostalgic eulogies to Victorian England. ‘So many of the schools we replace now were voluntary schools, so many of the hospitals we replace were hospitals given by this great benefaction feeling that we have in Britain, even some of the prisons, the Town Halls. As our people prospered, so they used their independence and initiative to prosper others, not compulsion by the State.’

This was Margaret Thatcher’s own version of trickle-down economics. Despite her notorious comment that ‘there is no such thing as society; there are individual men and women, and there are families’, she had limitless faith in the social conscience of the rich and might even have endorsed the mystical credo issued by an American coal-owner, George Baer, during the 1902 miners’ strike: ‘The rights and interests of the labouring man will be protected and cared for – not by the labour agitators, but by the Christian men to whom God in his infinite wisdom has given the control of the property interests in this country.’ Since God, in his infinite wisdom, presumably had similar influence over those who control the White House, he must have changed his mind during the middle decades of the twentieth century: from Franklin Roosevelt’s New Deal of 1933, which laid the foundations of a rudimentary welfare state, through Harry Truman’s ‘Fair Deal’ to Lyndon Johnson’s ‘Great Society’, the consensus was that even a prosperous capitalist nation should protect its weaker citizens – and its natural resources – against the depredations of the rich. To Thatcher this may have seemed tantamount to Communism, but it was also accepted by many conservatives. As the American author William Greider points out: