In a publishing season of big books, this must be the biggest. Nigel Lawson learned his trade as one of the ‘teenage scribblers’, whom he later disparaged, on the Financial Times. ‘The length that comes most naturally to me is, not surprisingly, that of a rather long newspaper article,’ he observes. His old skill in knocking out a story in a series of effective paragraphs has not deserted him, but here he has joined them up, story by story, each with its own sub-head, into no fewer than 81 chapters, not to mention fifty pages of annexes. The reason is evident. Since his resignation as Chancellor of the Exchequer in October 1989, he has been left with a double burden: not only time hanging heavy on his hands but a mission to explain and to justify weighing equally heavy on his mind. And a good mind it is too. There is an impressive sense of intellectual engagement in this account which carries the flagging reader along, with incisive passages of real penetration redeeming the dense thickets of involuted detail in which we sometimes become trapped.
The author offers his 20-page table of contents as ‘an à la carte menu’, from which the reader is invited to pick and choose. In a Chinese restaurant the chef’s specials would have to be Numbers 7, 18, 27, 33, 36, 50-51, 65 and 78. Each of these chapters gives an inimitable insight into the making and implementation of Conservative economic policy in the Thatcher era. Here, successively, we find an explanation of the medium-term financial strategy by its author; a rationale of the privatisation programme by a true believer; an exposition of Lawson’s agenda for tax reform; ‘My Monetary Principles’; a critique of the retrospective Thatcherite myth that Lawson’s chancellorship brought a golden age of monetarism to a sorry conclusion; two linked chapters on the relation between the end of deregulation and the credit boom of the late Eighties; an apologia for the strategy adopted in the controversial Budget of 1988; and finally an extended perusal of the balance sheet as it looked at the end of ten years in office.
All this, in little over a hundred pages, cuts to the core of the political economy of ‘Thatcherism’: a term which the author claims to have established, in a speech he made as Financial Secretary to the Treasury in 1981 (though he has the grace to concede that ‘the recherché, and now defunct, publication Marxism Today’ had actually got there first). What does Humpty Dumpty mean by it? ‘The right definition,’ he tells us, ‘involves a mixture of free markets, financial discipline, firm control over public expenditure, tax cuts, nationalism, “Victorian Values” (of the Samuel Smiles self-help variety), privatisation and a dash of populism.’ And the wrong definition? Why, of course, ‘whatever Margaret Thatcher herself at any time did or said’. She was, admittedly, ‘the indispensable element of the revolution which so astonished Whitehall’ – at least at the outset. Latterly, however, Lawson hardly even pretends that he has come to praise Thatcher rather than to bury her. Instead, as an inspired advocate in his own cause, he conducts a densely satisfying and tautly constructed defence of ‘Thatcherism’ as theory, as policy and as a grand historical experiment.
If these chapters are the intellectual spine of the book, there are others on the menu which flesh out the story of the Thatcher Government with more immediacy. For example, Chapter 3 describes how the Thatcher Government took office, determined to break the post-war consensus. More ambitiously, there is Chapter 8 on the thorny problem of just how to control the money supply. Only in Chapter 21 does Lawson actually become chancellor. The author allows himself a moment of relaxation at this point: he tells us that the news made his wife Thérèse burn a hole in the shirt that she was ironing, he notes that the Prime Minister’s only word of advice to him at their first interview was to get his hair cut, and he reveals his disappointment that the total staff at No 11 consisted of one doorman who had to double up as switchboard operator and tea-maker. Chapter 30 takes us back to the principles of personal taxation and explains the psychology of taking a penny off the basic rate in the 1986 Budget, in order to whet the public’s appetite. In Chapter 40 the reader observes the initial effort to cajole Thatcher into joining the Exchange Rate Mechanism (ERM), discovers her resolve to do no such thing, contemplates the missed opportunity of 1985, and makes a first encounter with the Prime Minister’s éminence grise, Professor Walters.
Those in search of light relief can turn to Chapters 45 and 46, on the poll tax, which reveal the prescience of the Chancellor on the matter of the impending political catastrophe, the intransigence of the Prime Minister in marching on regardless, and the negligence of both the press and the Opposition in failing to observe that the Chancellor’s name did not appear as a sponsor of the fatal Bill. There is Chapter 54, in which the tortuous plot of the Westland affair unfolds, two cabinet ministers resign, and Margaret Thatcher retreats into her bunker – a theme taken up in Chapter 57, ‘An Election Won on the Economy’, in which, amid the Thatcherite triumph of 1987, relations between the Prime Minister and her unbearably brilliant chancellor take a turn for the worse. And so to Chapters 59 and 64, in which things go downhill fast, as two rival policies for sterling (one pursued from No 11 Downing Street, the other from next door) compete for press attention, while the Chancellor’s aim of shadowing the Deutschmark is undermined by the Prime Minister’s declared reluctance to buck the markets. ‘The Battles of Downing Street’ constitute the theme of Chapter 67, in which the Prime Minister and the Chancellor reach a concordat, in which the Prime Minister contrives to undermine it, in which the Chancellor gets his own back, and in which Thérèse Lawson warns him: ‘You’ll pay for this.’
The case for Thatcherism which Lawson develops is, in many striking ways, a case against Thatcher. She did not betray her own revolution so much as fail to grasp the point of it in the first place. Why should Lawson say this? An obvious answer is: he would, wouldn’t he? There is undeniably a story here of deteriorating personal relations and developing political rivalries – an old story in Downing Street, with a plot normally driven by the Chancellor’s wish to move next door. But this was not Lawson’s motivation. Having arrived at the Treasury, he had fulfilled his lifetime’s ambition. The widely-perceived fact that he did not aspire to the leadership was a strength in that it made him personally disinterested. But, as he recognises, it was also a weakness. Since ‘there was no future in being a Lawsonite’, he had no faction to back him in his struggles with the Prime Minister. Instead he fell back on stratagems to outwit her, playing his cards close to his chest in a way that emphasised his natural secretiveness.
Something more interesting than rivalry explains Lawson’s disillusionment with Thatcher’s credentials as a Thatcherite. This takes us back to Lawson’s own clearly articulated conception of the Government’s economic strategy, which had two interdependent components. The first was monetarism. Lawson is not afraid to quote David Hume in asserting the fundamental relation between the quantity of money in circulation and the level of prices in the economy as a whole. He tells us that he was converted by the accelerating rate of price increases in the late Sixties and early Seventies to the view ‘that the overriding object of macroeconomic policy must be the suppression of inflation.’ The novelty of this view was that it reversed prevailing priorities. Since the Second World War the Keynesian consensus had seen the (macroeconomic) role of interest rates and fiscal policy as being to maintain high levels of employment and growth, with a (microeconomic) role for controls, such as incomes policies, in restraining inflation. Instead, as Lawson put it in his Mais Lecture, given in 1984: ‘the proper role of each is precisely the opposite of that assigned to it by the conventional post-war wisdom. It is the conquest of inflation, and not the pursuit of growth and employment, which is or should be the objective of macroeconomic policy. And it is the creation of conditions conducive to growth and employment, and not the suppression of price rises, which is or should be the objective of microeconomic policy.’ The logic was that, if controlling the money supply could – at one remove – control inflation, it should be used to achieve this end, while the other desirable ends of economic policy should be achieved by reforms on the ‘supply side’ – an expression which Thatcher hated but could not improve on. Hence the other component of Thatcherism was a battery of measures to liberate the market, the true engine of growth, by emancipating it from controls and fostering enterprise.
Lawson’s distinctive contribution to supply-side policy was an emphasis on tax reform. His central doctrine was that of tax neutrality, meaning that the state should raise revenue in ways that did not distort the free play of market forces between equally legitimate economic activities. His aim was to devise a rational structure of incentives for wealth creators by removing inequities, anomalies, subsidies and other distortions which had crept into the tax system. The other supply-side initiative with which Lawson was closely associated also went under a name which Thatcher disliked – privatisation. Unlike monetarism, it was not a major plank in the programme on which the Government was elected in 1979. Yet it became the most dynamic element in the radical programme which was subsequently implemented.
Lawson evidently thinks he has received insufficient credit for the development of this policy. He makes up for it by stating a thoroughgoing case for turning over state-owned assets to private ownership, arguing that competitive enterprises belong naturally in the hands of competitive entrepreneurs – which, as a general axiom, will provoke little dissent these days. It follows that monopolies should be broken up to permit competition to do its beneficent work. Lawson thus states that his preference was for forms of privatisation which protected the public interest by bringing lower consumer prices, as against a mere transfer of state assets to capitalists intent on profit maximisation. He was even ready to argue that where, as in the case of water, a natural monopoly prevails, a privatised industry nonetheless maintained an advantage in terms of general utility, for it would face not only competition for capital but also ‘a published daily share price – a comment on performance and a powerful spur to management’. In the absence of price competition in the consumer market, therefore, private ownership still scores over public, because the Stock Market can put a price on the value of the monopoly. Lawson’s faith in the virtue of market solutions, based on the unique ability of the price mechanism to disclose appropriate signals, could hardly be more clearly demonstrated.
Lawson’s subtitle, ‘Memoirs of a Tory Radical’, is abundantly justified by the comprehensive scope of this vision. The agenda was to replace the sclerotic, statist economy of the Seventies, ensnared and enfeebled by every sort of historic vested interest, with a revitalised enterprise culture, subject only to an over-riding financial discipline designed to protect the integrity of the currency. The achievement, according to Lawson, was hardly less stirring. ‘In the perspective of history, what will stand out about this period is not the short-term vagaries of the economic cycle, which will always be with us, but the long-term improvement in the supply performance of the British economy,’ he declared in his last Mansion House speech in 1989. The people of Britain had ‘rediscovered the spirit of enterprise. And that is the greatest prize of all.’ His book repeatedly reaffirms this view, speaking of the ‘economic and industrial renaissance of Britain which, although later obscured by recession, has undoubtedly occurred’. Lawson’s message has echoes of Lincoln Steffens: I have seen the future – and it works. Does it work, though? Did Thatcherism produce an economic miracle, an industrial renaissance? And if not, why not?
It is important to understand the sense in which Lawson espoused monetarism. What he craved, in the penitential climate of the inflation-wracked Seventies, was discipline. If monetary discipline could choke off inflation, well and good; but it had to be reinforced by the further discipline of balancing the Budget. The whole point was to remove the discretion which had made Keynesianism into a licence for unprincipled politicians to debauch the currency. Lawson brought the argument down to its simplest terms in 1978: ‘Rules rule, OK?’ The medium-term fiscal strategy, which Lawson helped Sir Geoffrey Howe formulate at the Treasury in 1979, staked the Government’s credibility on a series of specified targets for control of the money supply, defined by the measure of ‘broad money’ known as £M3.
In fact, of course, £M3 was never brought under control. Lawson now makes some interesting comments on this ostensible failure, saying that, in the summer of 1980, he and his Treasury colleagues ‘were reasonably relaxed about the high money numbers, knowing that a tight monetary squeeze was being inflicted by high interest rates and a high and rising pound’. It is puzzling how they could simply know this, if £M3 was indeed the crucial measure. Why bother about £M3 at all? The short answer, which Lawson gives elsewhere, is that formal abandonment of £M3 would have upset confidence. This despite the fact that the famous target was only hit twice during the Thatcher years, presumably by accident. And yet, as Lawson writes, with no loss of aplomb, ‘underlying inflation had plummeted’ during the very period when there had been ‘a massive overshoot in monetary growth, as measured by £M3’.
None of this inspires confidence in the claim that the Thatcher Government’s undoubted success in bringing down inflation by 1983 was a triumph for the medium-term fiscal strategy, rather than simply a by-product of an old-fashioned slump. By this time, however, Lawson, as the new Chancellor, was looking for some way to trade in old rules for new. Lawson used his annual speeches at the Mansion House to administer a series of snubs to the status of £M3, which was allowed to die by inches in public. Though it was initially spurned in favour of a measure of ‘narrow money’, its real rival was the lure of an exchange-rate discipline. ‘It is obvious that an exchange-rate objective is monetarism at one remove’ is how Lawson puts it; ‘and that is indeed its attraction.’ Monetarism is dead: long live monetarism, OK? Lawson nostalgically alludes to the historic Gold Standard, with its supposedly self-acting mechanisms of domestic monetary adjustment, as ‘an invaluable financial discipline’. By 1985 the ERM shone before his eyes as a case-study in ‘the advantages of rules over discretion in the conduct of economic policy’, not least in helping to ‘save policy-makers from their own mistakes’.
If Margaret Thatcher did not feel the same need to subject herself to this particular rule, it may have been because she never made mistakes or because she flinched from a discipline that was external and alien – in a word, foreign. Lawson brings out her persistent reluctance to deploy the interest rate weapon against inflation, despite the fact that her Government had declared the defeat of inflation to be its end and interest rates its sole means of achieving it. The logic of Thatcher’s argument against the ERM – maintaining that it would impair the Government’s freedom of action on economic policy – was that in the last analysis she preferred the option of devaluation to the defence of sound money. Logic, however, may not have been in the driving seat. Lawson writes of her ‘pathological hostility to Germany and the Germans which in the end came to dominate her view of the European Community.’ Her press secretary, Bernard Ingham, is blamed for encouraging in her ‘a truculent chauvinism, which was originally a caricature of her views but eventually became almost indistinguishable from her own as she started to live up to her caricature’.
Paralleling the macroeconomic policy of the Government, which was designed to combat inflation, Lawson had envisaged a programme of supply-side measures to stimulate growth. Here his tax reforms were central. Unlike the supply side and privatisation, where Thatcher hated the words but loved the things, when it came to Lawson’s beloved concept of tax neutrality, neither the name nor what it stood for inspired the Prime Minister’s affection. The owner-occupier, buying a house on a mortgage, was her hero, whom she was determined to defend. Her solicitude extended to the tax relief on mortgage interest payments which, to the tax-reforming Chancellor, stood out as an anomalous and expensive distortion of the investment market. His crusade against tax shelters and tax perquisites and tax loop-holes ran up against Thatcher’s deep-felt empathy with her constituency. Faced with this vested interest, the radical Chancellor found his plans to limit tax relief vetoed by a deeply conservative prime minister.
The result was deadlock. For Lawson, Thatcherism meant monetarism, which meant that rules rule, which meant – in an imperfect world – that the safest bet was to put sterling into the ERM. In this he was thwarted by Thatcher, whose interventions blatantly exhibited the abuses and temptations of discretion in monetary policy. ‘Despite her reputation as a diehard opponent of inflation,’ Lawson writes, ‘and her dislike of it was undoubtedly genuine, she was almost always in practice anxious to reduce interest rates, and thus the mortgage rate.’ For the same reason his plans for achieving tax neutrality in the housing market were hobbled by Thatcher. There was, however, one aspect of Thatcherism on which the view from No 11 coincided nicely with the view from No 10: that tax cuts were a good thing.
Believing that monetary policy had got inflation under control, believing that the economy had been regenerated on the supply side, and buoyed up by electoral endorsement in 1987, Lawson introduced his great tax-cutting Budget in 1988. When he reduced the top rate of income tax to 40 per cent, he believed that he was priming the engine that would create future wealth, not fuelling resurgent inflation. Only a believer would have done things in this way. A cynic would have seen that the preelection boom had done the trick, and sought to keep the business cycle and the electoral cycle in synch. Not Lawson. ‘As this upswing goes on,’ he declared in 1987, ‘more and more people, at home and abroad are realising that what we are seeing is much more than a recovery from recession, or than the operation of the normal cyclical pattern.’ Little wonder that measures devised in this frame of mind ‘may have unintentionally contributed to a climate of excessive optimism and dangerously unrealistic expectations’. Alas, within five months of the triumphant Budget of 1988, the trade figures rebounded violently in reproach of the Chancellor’s complacency. ‘It was then,’ he recollects ruefully, ‘that my colleagues realised that I was no longer the miracle worker that some had imagined me to be.’
The fact is that Lawson presided over the economy during a cyclical boom of abnormal duration. Its length was partly a result of the depth of the preceding slump, which meant that the recovery had an unusually long way to climb back; and it was partly a result of the overheating of the late Eighties, which produced an unsustainable credit bubble. Lawson frankly acknowledges that he was ‘unprepared for the extent of the late Eighties boom’ which he attributes to the unanticipated effects of financial deregulation. It follows that the economy should have been restrained earlier; indeed, with hindsight, he can see the problem beginning to manifest itself as early as 1986. In that case, while he may not deserve to be blamed too severely for inadvertently allowing ‘the excesses of the credit binge’, he can hardly expect to cite their effect in overheating the economy as evidence of healthy growth, let alone a beneficial transformation. In short, had the Lawson boom ended when its author now admits it should have done, we should all have been spared a good deal of subsequent misery – and hyperbole.
Furthermore, had Lawson not quit office under circumstances which left him with a rankling desire for vindication, we might also have foregone this book. But that would have been a pity. Rather like the British economy itself, inside this distinctly overweight book is a leaner and fitter book struggling to escape. ‘Never underestimate the tide of ideas,’ Lawson declared, more than once, with a feeling that has inspired some of his chapters in conveying a uniquely compelling account of Thatcherism. But other chapters testify to a complementary axiom: never underestimate the force of personality.
The picture which Lawson draws of Thatcher herself is a remarkable testimony to the manner in which her government’s grand strategy was determined. Increasingly, ideas were translated into policy via will, whim and pique. The advice of responsible ministers was superseded by that of courtiers, among whom Professor Walters was more notable for his eminence than his greyness. In 1989 the Thatcher Government had long been formally committed to achieving membership of the ERM, yet Lawson’s plea for the belated implementation of this commitment met with the retort: ‘I do not want you to raise the subject ever again: I must prevail.’ The British position at the Madrid Summit that year was apparently improvised single-handed by the Prime Minister behind the back of her Chancellor. Not surprisingly, within months he had handed her a letter of resignation. ‘At first she refused to take it,’ he recalls, ‘but then she took it and popped it into her handbag unopened, saying that she did not wish to read it.’ His book deserves a better fate.