Analyse the Conservative approach to state intervention after 1979 and outline labours response since 1997
The Conservative Thatcherite, new right policies had two general aims as far as state intervention, those two general aims were a free economy (I.e. non interventionism) and a strong state.
The Conservatives believed in minimum state intervention and therefore a small public sector. They were arguably the first pre-war government not to follow the first post war consensus. Although in reality the consensus came to an end in 1968 with an IMF bank loan, loaned on condition that there was to be a subsequent reductions in public spending, with the aim of bringing down the amount of money in the economy so as to lower the inflation rate. In practise though this abrupt end to Keynesian economics was for purely pragmatic and not ideological reasons. The first time that monetarist policies were implementing for purely ideological reasons was on the election of Thatcher’s conservative government in 1979
In order to cut public spending to a minimum so as to allow for maximum personal freedom and minimum state intervention the conservative government of 1979 onwards embarked on a drive to privatise as many industries as the possibly could, including such companies as Rolls Royce, British Gas and British Airways. In the Conservative party manifesto of 1979 it says that the party is dedicated to “Rolling back the frontiers of the state”
In order to make British industry more competitive to therefore keep the factories open and people in work the government heavily subsidised large loss making firms. The Conservatives either abolished or substantially reduced these subsidies in order to not only minimise public spending but also because they believed that these firms would either have the incentive to become profitable or would go bankrupt. This is a form of Economic Darwinism, I.e. survival of the fittest and because they believed that by working on a smaller profit margin firms would be encouraged to be me competitive.
Unwillingness to act as unemployment increased. The Chancellor Nigel Lawson was unwilling to act as unemployment continually rose
Nigel Lawson, the Chancellor of the Exchequer from 1983 to 1989 would lower interest rates to produce a spending boom; he would then higher interest rates to curb the rising inflation rate. This was a mistake as this ultimately led to STOP AND GO; huge fluctuations in the interest rates.
Another way that the government tried to intervene in the economy was monetarism, controlling inflation by controlling the supply of money in the economy, this failed and monetarist policies were abandoned by 1981.
Upon winning the 1997 General election the Labour parties’ response was an emphasis on the private sector. In April 1995 clause 4 of the party constitution was re-written, removing Labour’s historic commitment to nationalisation (if anything had previously defined labour in the past as socialist then this was it!). Blair was determined to make new Labour more receptive to the free market and the middle classes. Therefore although he didn’t attempt to privatise any businesses Labour did not attempt to renationalise anything. This was the start of a new consensus on nationalisation
As a whole the Labour government have accepted the Tories economic agenda with the notable exception of control of interest rates are set; in the government transferred the control of interest rates which in turn control inflation (I.e. by lowering interest rates people borrow more money, meaning that there is more money being spent in the economy leading to higher inflation rates.) to the Bank of England which meant that interest rates were now being manipulated purely for economical and not for party political reasons; as governments in the past had always lowered interest rates in the run up to an election to stimulate the economy so that in the short term it appeared in a better light then in reality it was. This has led to long term stability of interest rates consequentially inflation which has increased consumer as well as business confidence leading to high levels of employment as well as low inflation.