In August 1981, three days after eleven thousand members of the Professional Air Traffic Controllers Organisation walked off the job in defiance of a federal law prohibiting strikes by government employees, President Ronald Reagan fired all of them, banned them from federal employment for life, and ordered the Federal Aviation Administration to begin immediately training replacements. The action was not unprecedented — there was legal authority for it — but no president had previously used that authority in this way against a union of middle-class professionals who had, moreover, endorsed Reagan in the 1980 election. The PATCO strike was broken within weeks. Its significance, however, was not primarily in the air traffic control system, which recovered more rapidly than critics predicted. Its significance was as a signal: that the political calculation underlying organised labour’s power had fundamentally changed, that the state would no longer function as a mediating force between capital and labour in the way it had for the previous forty years, and that what was coming was not a continuation of the postwar settlement but its systematic reversal.
The same signal had been sent two years earlier in Britain, more dramatically, when Margaret Thatcher was elected Prime Minister in May 1979 on a programme that was, in its intellectual foundations, a repudiation of the economic consensus that had governed British politics since the Attlee government of 1945. It would be sent again through the 1980s in a series of confrontations — the Miners’ Strike in Britain, the deregulation of financial markets on both sides of the Atlantic, the restructuring of the tax code in the United States, the privatisation of public utilities and state enterprises across the English-speaking world — each of which, taken individually, might have seemed like a specific policy choice, but which together constituted something larger: the end of one political economy and the beginning of another.
The Intellectual Origins
The political economy that Reagan and Thatcher dismantled had been constructed in the aftermath of the Second World War on foundations laid by the Great Depression. The Depression had demonstrated, to the satisfaction of most Western economists and policymakers by the 1940s, that unregulated capitalism was not self-stabilising: that markets could collapse, that unemployment could persist at catastrophic levels without automatic correction, and that government intervention to manage demand and maintain employment was not merely politically convenient but economically necessary. The theoretical framework for this understanding had been provided by John Maynard Keynes, whose General Theory of Employment, Interest and Money (1936) argued that governments could and should use fiscal and monetary policy to smooth the business cycle and maintain full employment. The practical framework was the postwar settlement: full employment commitments, welfare states, Keynesian demand management, and — in much of Europe — significant public ownership of major industries.
The intellectual challenge to this consensus had been building for decades before it achieved political expression. Friedrich Hayek, the Austrian economist who had moved to the London School of Economics in 1931 and later to the University of Chicago, had argued since the 1930s that central economic planning was not merely inefficient but incompatible with freedom: that the price system was an information-processing mechanism of irreplaceable sophistication, and that any attempt by the state to substitute its own decisions for market outcomes would produce both economic dysfunction and political tyranny. His Road to Serfdom (1944) made this argument accessible to a general readership and had an impact well beyond academic economics. Milton Friedman, at Chicago, developed the monetarist critique of Keynesian demand management: that inflation was always and everywhere a monetary phenomenon, that governments’ attempts to stimulate employment through deficit spending would produce inflation rather than growth, and that the appropriate role of monetary policy was the maintenance of price stability through control of the money supply.
These arguments circulated in academic economics through the 1950s and 1960s as heterodox challenges to the dominant Keynesian paradigm. Their political carriers were the network of think tanks — the Institute of Economic Affairs in Britain, the Heritage Foundation and the American Enterprise Institute in the United States, and others — that had been deliberately established in the 1960s and 1970s to move these ideas from academic debate into policy advocacy. The Mont Pelerin Society, founded by Hayek in 1947, provided an international network connecting liberal economists, journalists, and politicians across the Atlantic world. This infrastructure for translating intellectual dissent into political programme was one of the decisive organisational achievements of the right in the twentieth century, and its existence meant that when political conditions created an opening, there was a coherent body of policy ready to fill it.
The Crisis of the 1970s
That opening was created by the crisis of the 1970s — a period of simultaneous high inflation and high unemployment that the Keynesian framework struggled to explain and its recommended policy tools struggled to address. The oil price shock of 1973, in which the OPEC oil embargo quadrupled the price of oil in a matter of months, produced stagflation — the combination of stagnant growth and accelerating inflation that Keynesian demand management had not been designed to handle. If inflation was caused by excess demand, the standard remedy was to reduce demand; but reducing demand in a stagnating economy would increase unemployment. The two Keynesian policy instruments — fiscal expansion to fight unemployment, fiscal contraction to fight inflation — pointed in opposite directions simultaneously.
The political expression of this economic crisis varied across countries but shared common features. In Britain, the Winter of Discontent of 1978–79 — in which a wave of public-sector strikes, many of them against the Labour government’s attempt to hold pay increases below the rate of inflation, produced images of uncollected rubbish, unburied dead, and closed hospitals — created the conditions for Thatcher’s election with a clarity that made the political narrative almost too neat. In the United States, the Carter presidency’s inability to control inflation, its handling of the Iranian hostage crisis, and its general atmosphere of national self-doubt created the conditions for Reagan’s landslide in 1980. In both cases, the political right was able to present the crisis of the 1970s as a crisis of the postwar settlement itself — of big government, high taxes, powerful unions, and Keynesian demand management — rather than as a contingent response to an external shock.
Whether this diagnosis was accurate is a question that economists and historians continue to debate. The stagflation of the 1970s had multiple causes, of which the specific policy framework of postwar Keynesianism was at most one contributor; the oil price shocks were exogenous to any domestic policy framework. But political diagnoses do not need to be analytically precise to be politically effective. What mattered was that the Keynesian consensus had lost its aura of competence at precisely the moment when an alternative framework was ready to offer itself as the solution.
Thatcher: Theory into Practice
Margaret Thatcher had been leader of the Conservative Party since 1975, when she defeated Edward Heath — the architect of the previous Conservative government’s essentially centrist, Keynesian politics — in a leadership election that reflected the party’s growing conviction that something more radical was needed. Her intellectual framework was explicitly monetarist and anti-statist: she had been influenced directly by Keith Joseph, the Conservative politician who served as the intellectual bridge between the Hayek-Friedman academic tradition and the Conservative political programme, and who had spent the years after 1974 in a systematic effort to rebuild Conservative economic thinking on explicitly anti-Keynesian foundations.
The early years of the Thatcher government, from 1979 to 1982, were economically brutal. The application of monetarist policy — high interest rates to control inflation — combined with a global recession to produce unemployment that reached three million by 1982, the highest since the 1930s. Manufacturing industry contracted sharply. The communities built around steel, coal, shipbuilding, and textiles experienced a collapse in employment that was not subsequently reversed. Thatcher’s approval ratings fell to record lows. Her government seemed, in early 1982, to be heading toward certain electoral defeat.
The Falklands War, which began in April 1982 with the Argentine military junta’s invasion of the British-administered South Atlantic islands, transformed the political situation with a speed and completeness that no political analyst had anticipated. Thatcher’s decision to send a naval task force to retake the islands — a decision that involved significant military risk and that was opposed by the United States as diplomatically counterproductive — resulted in a British victory in June 1982 that was genuinely popular and that restored her standing in opinion polls with dramatic effect. The 1983 general election, which the Conservatives won with a greatly increased majority, was fought partly on the Falklands, but also on a Labour Party that had moved sharply to the left and presented a manifesto that one of its own shadow Cabinet members famously described as “the longest suicide note in history.” The result gave Thatcher the mandate to proceed with her programme without the constraints that parliamentary uncertainty had imposed on the first term.
The Miners’ Strike of 1984–85 was the decisive confrontation of the Thatcher era. The National Union of Mineworkers, led by Arthur Scargill, called a strike in March 1984 against the National Coal Board’s programme of pit closures. The government had been preparing for this confrontation for years, stockpiling coal at power stations, creating a new national police coordination centre to handle picket-line management, and making legal changes that restricted secondary picketing and constrained union finances. The strike lasted a year and ended in complete defeat for the miners, with none of the pit closures reversed. The industrial communities that had sustained the NUM — in Yorkshire, South Wales, Nottinghamshire, County Durham, and elsewhere — entered a decades-long decline from which most never recovered. The defeat of the miners broke the political power of organised labour in Britain in a way that no subsequent recovery of union membership has reversed.
Privatisation, Deregulation, and the Restructuring of the State
One of the most significant and least reversible consequences of the Thatcher programme was the privatisation of the nationalised industries. Between 1979 and 1990, the British government sold British Telecom, British Gas, British Airways, British Steel, British Aerospace, the water authorities, the electricity generating and distribution companies, and numerous smaller public enterprises, generating substantial revenue and — more importantly — transferring the ownership and direction of major sectors of the British economy from public to private hands in a process that was explicitly designed to be irreversible. The privatisations were accompanied by a programme of council house sales, under the right-to-buy scheme that allowed tenants to purchase their homes at discounted prices, which simultaneously created a new class of property-owning working-class voters with a financial stake in Conservative economic policies and depleted the public housing stock in ways whose consequences — in the form of inadequate affordable housing — are still being felt four decades later.
The financial deregulation of the mid-1980s — the “Big Bang” in Britain in 1986, which removed fixed commissions on stock exchange transactions, abolished the distinction between brokers and market-makers, and opened the London market to foreign competition, and the parallel deregulatory moves in the United States — remade the financial sector and shifted the balance of the economy toward finance and away from manufacturing in ways that had structural consequences well beyond what the architects of deregulation anticipated. The growth of the financial sector generated large amounts of tax revenue and employment for highly skilled workers in London and New York, while simultaneously creating the conditions for the instability that manifested most dramatically in the 2008 financial crisis. The connection between the deregulatory choices of the 1980s and the financial crisis of 2008 is contested among economists, but the argument that the removal of the regulatory constraints that had been built up in response to the 1930s Depression contributed to the conditions that produced a new crisis of comparable scale is not easily dismissed.
Reagan: The American Version
Ronald Reagan’s political identity had been formed during the New Deal era, when he was a Democrat and a union official — president of the Screen Actors Guild — and had shifted rightward through the 1950s and 1960s in a trajectory that mirrored broader shifts in American political culture. His 1964 television address in support of Barry Goldwater’s presidential campaign, “A Time for Choosing,” established him as the most compelling communicator of the American right’s case against big government, high taxes, and the welfare state — an argument he had been rehearsing in speaking engagements for General Electric since 1954. His election as California governor in 1966 and two terms in that office gave him the executive experience that his 1980 campaign required. His easy, optimistic style — so different from the dour moral seriousness of Carter or the grim confrontationalism of Nixon — was itself a political argument: that conservatism could be cheerful, that the American tradition was one of individual freedom and limitless possibility rather than managed decline.
The economic programme of the Reagan administration — “Reaganomics” as it came to be known, or “supply-side economics” in its theoretical self-description — rested on the argument that the primary obstacle to economic growth was the burden of taxation and regulation on the productive private sector, and that reducing taxes on the wealthy would generate investment, growth, and — through the infamous “trickle-down” mechanism — rising living standards across the income distribution. The Economic Recovery Tax Act of 1981 cut the top marginal income tax rate from seventy percent to fifty percent, and subsequent legislation cut it further to twenty-eight percent. Corporate tax rates were reduced. Regulatory agencies were staffed with officials committed to reducing their agencies’ reach.
The consequences were mixed in ways that complicated both enthusiasts’ and critics’ narratives. A severe recession in 1981–82, produced partly by the Federal Reserve’s tight monetary policy to control inflation, gave way from 1983 to sustained economic growth that Reagan’s supporters attributed to his tax cuts and his critics attributed to the accommodating monetary policy that followed the conquest of inflation. The federal deficit expanded dramatically — the combination of tax cuts and increased defence spending produced borrowing on a scale that contradicted the rhetoric of fiscal responsibility that Reagan had employed throughout his political career. Inequality, as measured by the Gini coefficient and by the share of income accruing to the top one percent, increased sharply during the Reagan years and has continued to increase ever since. The period is thus readable as both an economic success — growth, falling unemployment, the defeat of inflation — and a social failure — rising inequality, weakened labour rights, the beginning of the wage stagnation for working- and middle-class Americans that has persisted for four decades.
The Cold War Dimension
Reagan’s presidency coincided with the final phase of the Cold War, and his approach to the Soviet Union was a significant departure from the détente policy of Nixon, Ford, and Carter. Where détente had accepted the permanence of the Soviet system and sought to manage competition through arms control agreements and diplomatic engagement, Reagan’s approach rested on the explicit argument that the Soviet Union was an “evil empire” — a phrase from a 1983 speech that caused consternation in diplomatic circles but that reflected Reagan’s genuine conviction — whose defeat, not accommodation, should be the goal of American policy. The Strategic Defense Initiative, announced in March 1983, was a proposal to develop a space-based missile defence system that would render nuclear weapons “impotent and obsolete.” It was widely regarded by military scientists as technologically implausible, but its political effect — in forcing the Soviet Union to contemplate an arms race in a technological domain where American superiority was overwhelming — was real.
The Reagan military build-up, which reversed the declining share of GDP devoted to defence that had occurred through the 1970s, put fiscal pressure on a Soviet economy that was already struggling with its own internal contradictions. Whether the American military build-up was a primary cause of the Soviet collapse or merely one contributing factor among many — including the structural problems of the Soviet planned economy, the crisis of political legitimacy exposed by Afghanistan, and the specific reforms introduced by Gorbachev — is a question on which historians disagree. What is clear is that Reagan’s confrontational approach to the Soviet Union coincided with, and may have contributed to, the circumstances that produced Gorbachev’s reform programme and the eventual unravelling of the Soviet system. Reagan and Gorbachev’s arms reduction negotiations, which produced the Intermediate-Range Nuclear Forces Treaty in 1987, were as significant as the build-up that preceded them.
The Social Costs
The human consequences of deindustrialisation — the process by which the manufacturing economies of the American Midwest and the British North were dismantled during the 1980s, partly through the logic of global competition and partly through deliberate policy choices that accelerated structural change without providing adequate alternatives — were documented extensively at the time and have been studied intensively since. The communities built around steel in Sheffield, coal in the Yorkshire and Welsh valleys, textiles in Lancashire, automobiles in Detroit and Flint, were not simply experiencing the neutral workings of market forces. They were experiencing the withdrawal of the political protections that had, for several postwar decades, cushioned those forces: the trade union power that maintained wages above the market-clearing rate, the public investment in infrastructure and services that sustained community life, the regulatory framework that imposed obligations on employers as well as workers. When those protections were removed — through union-busting, deregulation, and the removal of investment subsidies — the communities that had depended on them had nowhere to turn.
The political response was muted for longer than the scale of the damage might have suggested. In Britain, the communities worst affected by deindustrialisation continued to vote Labour — indeed, their loyalty to the Labour Party remained strong precisely because the party retained, in their perception, a connection to the trade union movement and the welfare state that had built their post-war security. But their political loyalty was not matched by political power: Labour lost four consecutive elections, and the communities most damaged by Thatcherism had no effective political advocate for the two decades between the Miners’ Strike and New Labour’s acceptance of the new economic settlement. In the United States, the white working-class communities of the Rust Belt drifted gradually away from the Democratic coalition — a process that accelerated through the 1990s and culminated in the electoral transformations of 2016. The connection between the economic choices made in the 1980s and the political alignments of the 2010s is not simple or direct, but it is real.
The Transformation of the Centre Left
Perhaps the most durable consequence of the Reagan-Thatcher era was its effect on the parties of the centre left. The British Labour Party, having moved sharply to the left in the early 1980s, spent that decade in ideological and electoral disarray, losing four consecutive general elections before Tony Blair’s transformation of the party — New Labour — in the mid-1990s produced a party that had accepted the essential features of the Thatcherite settlement: privatisation, flexible labour markets, low marginal tax rates, and the primacy of market mechanisms in economic organisation. The American Democratic Party undertook a parallel transformation under the banner of the Democratic Leadership Council and Bill Clinton’s “third way” politics, explicitly repositioning the party toward the centre on economic issues in ways that accepted much of the Reagan framework.
The result was a political settlement in which both major parties in both countries operated within a broadly neoliberal framework, differing primarily on social and cultural issues rather than on the fundamental questions of economic organisation. This settlement was stable for roughly two decades — from the mid-1990s to the financial crisis of 2008 — but generated, over time, the conditions for its own destabilisation. The stagnation of working- and middle-class wages, the growth of inequality, the deindustrialisation of communities that had no alternative economic base, and the financial deregulation that produced the 2008 crash were all products or consequences of the neoliberal programme. The political consequences of those failures — the Sanders and Trump phenomena in the United States, the Brexit vote in Britain, the collapse of the traditional centre-left across Europe — are the political landscape we currently inhabit, and they are, in significant ways, the long-deferred reckoning with choices made in the 1980s.
Reagan died in 2004 and Thatcher in 2013. Their obituaries, and the arguments about their legacies, were conducted in the language that both had helped to establish as the common currency of political discussion: the language of markets, individual responsibility, and the burden of the state. That their political opponents had largely adopted this language, and that the policy alternatives to their programmes had largely been abandoned or forgotten, was itself the measure of how completely they had succeeded in changing the terms of debate. Changing those terms back — or finding new terms capable of addressing the problems their settlement had created — is the central unresolved task of politics in the countries they most transformed, and it remains unresolved.
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