2010 Election: Keynesianism vs. Deflation?

Many commentators have suggested that the recent recession is in the same league of the Depression of the 1930s which began to enter its direst phase in October 1929 with the collapse of the US stock market and came into full effect in 1931 with the folding of the Kreditanstalt bank in Austria and the subsequent weakening of the global banking sector.  The Depression affected different countries in different ways but generally led to mass unemployment, in some countries only peaking in 1936 and really only came to an end with rapid rearmament in many states in the period 1938-9.  The Second World War disrupted the global economy but also provided stimuli.  However, in 1945-7 it looked like many states would continue to suffer low production and consumption and so continue to face high unemployment.  The Marshall Plan in 1948 providing millions of dollars to states of western Europe helped to pick up demand which stimulated the US economy and in turn other economies across the world, not simply in Europe but late Japan and South Korea too.  Other factors such as the decline of colonial empires so freeing up markets to a wider range of states, organisations such as OECD and the EEC fostered trade, consumption and production.  This was aided by low oil prices sustained in part by neo-colonial relationships between the industrialised powers and the oil-producing states.

In the 1930s there was a clear lack of ideas about how to deal with the Depression.  For the dictatorships the drive for rearmament and related infrastructure, notably road building, did stimulate certain sectors of the economy but at the expense of light industry and consumption of domestic items.  Unemployment was ended by effectively drafting workers into state projects and in many cases throwing certain people out of jobs, for example, Jews, Socialists and Communists in Nazi Germany.  The Soviet Union underwent a massive programme of industrialisation combined with collectivisation of agriculture.  The country was starting from a lower industrial base and the consequences of the programme was the starvation of millions, though, by 1939 the USSR had become more industrialised than a decade before.  In the democracies the only real approach to combating the Depression was deflation and protectionism.  This involved particularly cutting back government expenditure, making more government employees unemployed and restricting welfare payments.  Currencies were freed from the gold standard and allowed to float but economies put up tariff barriers to protect their internal industries and those states with colonial empires developed trade with their colonies but firmly shut out other providers.  With the dictatorships also pursuing a policy of autarky, i.e. to make themselves self-sufficient for raw materials and markets whether through direct control or bilateral, often barter deals, trade was choked off.  This tendency was the one which Marshall Aid and initiatives such as the Bretton Woods process on currencies aimed to address after the Second World War.

There were some voices in the democratic states arguing for a different approach to the Depression.  Democratic forms of economic planning were advocated by centre, centre-left and centre-right groups, in the UK by the Liberal Party and people such as Harold Macmillan, later Conservative British prime minister.  Most notable was the work of economist John Maynard Keynes (1883-1946).  Keynes's principles developed following the First World War.  He opposed the harsh reparations imposed on Germany seeing a weak German economy as being damaging to the whole European economy and thus much of the global economy.  He opposed the rigidity of returning to the gold standard for setting currency exchange rates as happened in many capitalist countries in the 1920s.  With 'Treatise on Money' (1930), 'The Means to Prosperity' (1933) and 'The General Theory of Employment, Interest and Money' (1936) he outlined his policies for counter-cyclical economic approaches.  Basically he felt that depression could only be combated by stimulating consumption rather than reducing it through deflation.  He believed in the 'multiplier effect' that if the state pumped money into the economy to create work, often through major infrastructure project, then unemployment would not rise and with more people in work they would continue to consume products which, in turn would keep consumer good production going so keeping even more people in work.  In contrast to the balanced budgets, i.e. government receipts and expenditure were generally equal, Keynes was happy for the state to borrow in the short-term to fund the projects to keep employment levels higher, believing in the long-term that the maintenance of the tax revenues which would rise as the economy revived, would pay off the money borrowed.

Though there is some dispute about how directly Keynes's ideas influenced US policy, the New Deal, started 1933-4, introduced by President Franklin D. Roosevelt (1882-1945), president 1932-45, seems to be based on the kind of assumptions that Keynes's ideas used.  Roosevelt established a swathe of government agencies many of which produced public works projects to provide employment.  Examples include the Civilian Conservation Corps for agricultural workers, the Works Progress Administration, which included units for employing actors and writers and the vast Tennessee Valley Authority for public works building hydro-electric energy generation dams and facilities.

In Britain Keynes's approach was seen to be adopted in the 1941 budget, though of course, with the war in full force at the time, stimulus through arms spending and borrowing to fund the war, were likely steps anyway.  After the war the Labour Government initially pursued economic planning which was seen as a more Socialist approach to the economy compared to Keynes's Liberal (in the British sense of the word not the US meaning of it) economics.  However, by 1948 and certainly by 1950 they were moving more to Keynesian assumptions.  France pursued economic planning up to the 1980s but had things such as tax breaks to stimulate certain sectors of the economy and unlike British nationalised industries, large state-owned companies such as Electricite de France (now EDF Energy) strove to stimulate other sectors. Other states in Europe such as West Germany worked on Keynesian assumptions, keeping a predominantly capitalist economy but stimulating it with government regulations and funds, especially for regional development.  Partly Keynesianism, though forming the basis of economic assumptions after the Second World War was not really needed as there was an economic boom until the mid-1970s when the US economy became recessed in the early 1970s and then the sharp oil price rise in 1973-4 brought the boom to an end. Though there were some minor differences from 1950-1974 no-one in British politics really challenged Keynesian assumptions; they did not even challenge the mixed economy with a sizeable state-owned sector, which had been a Socialist rather than Keynesian policy.  Keynesianism was not used in a sophisticated way.  By the mid-1950s credit controls had generally been given up and the UK tax authorities eschewed tax breaks in the way they were used in many continental countries.  The basic tool was simply manipulating the base rate, the basis of the interest rates that banks charge.

In 1976 the pound was put under so much pressure that the British government went to the IMF (International Monetary Fund) for money to strengthen the currency (in those days the exchange rate with the dollar was reported on a daily basis and any move was seen as a source of concern, probably equivalent to falling house prices in the UK nowadays.  It is interesting how the British makes a fetish of particular economic indicators rather than looking at the broader economic picture; before the currency, the balance of payments had been the key focus).  The IMF demanded a deflationary approach to the economy, which had about 20% of industry under state control at the time.  From 1976 onwards there was consequently a move from Keynesian stimulus approaches in times of recession back to deflationary processes.  In the US there was the rise of monetarist economic approaches, which after 1974 gained ground in the British Conservative Party, though even after 1972 under Conservative prime minister Edward Heath there had been some minor steps in this direction until he fell in 1974.  Monetarism sought a strong control of the availability of money as a way to combat inflation, which was a key problem once oil prices had jumped, something they would do again following the Iranian Revolution of 1979.  Monetarism was wedded to 'free market' economics perceiving the end of state involvement in the economy through privatising state-run industry and reducing regulations on companies so allowing them to impose the pay rates and conditions that they wished.

Margaret Thatcher embraced monetarism and her regime 1979-90 saw it pursued increasingly vigorously with privatisation of the state sector, removal of regulations and reduction of the state, including dismissing a third of the civil service.  Private business was lauded and allowed to make as big profits as it liked and to move capital from the UK whenever it wanted.  The impact for the average person, however, was mass unemployment and an abrupt ending of established British industries.  In the move to a post-industrial economy after 1973 in the USA and 1974 in the UK, this was going to have happened anyway but monetarism made it more brutal and sudden.  Workers were encouraged to make themselves employable by taking lower pay and working longer hours, so reducing their ability to consume.  This seems to run counter to Keynesian approaches.  By the end of the Thatcher period, as I have noted on previous postings, the assumptions had shifted towards continued acceptance of monetarism.  In 1995 the Labour Party abandoned its objective of nationalising any industry.  When it came to power in 1997 it granted independence to the Bank of England to set the base rate so giving up the remaining Keynesian tool.  The Labour governments, bar in minor cases, before 2008, did not take back into state control industries that have been privatised.  This is apparently now called the Washington Consensus.

The financial crisis from 2007 onwards has led to what some have termed a Keynesian 'resurgence'.  It is fascinating how the faith in monetarist approaches dropped away so quickly.   In Germany and India both of which had retained a strong state role in the economy, but also the USA and the UK which had been at the forefront of monetarism, leading economists, bankers and politicians began talking about stimulus.  The President of the World Bank advocated developed countries pledging 0.7% of their GDPs to stimulus.  In January 2009 President Obama passed a US$787 billion (£512. billion: €589 billion) stimulus bill.  In November 2008, the British government launched a £20 billion (US$30.6 billion; €23 billion) package equivalent to 1% of the UK's GDP.  Much of this has gone into supporting banks rather than stimulating the economy through public works and there has been a challenge in that the supposed 'easing' of lending has not risen to the extent that the governments hoped.  This reflects that during the Thatcherite/Washington period financial institutions were given so much freedom that it is now impossible really to get them to do anything governments want, for example, even reducing bonuses.  Inadvertently the British have effectively nationalised two banks, but as was typical with British nationalisation of the past, they have not asserted much control over their behaviour and kept an 'arms length' approach.  In addition, in the face of claims of 'unfair competition' from other banks the government has not used its banks to drive certain behaviour by example or provide freer lending to stimulate business.  The state is not as strong as it was in Keynes's day and mulit-national companies and banks are often more powerful than governments as we have seen in resistance to various 'windfall' taxes and attempts to restrain bankers' behaviour.  However, stimulating (parts of) the economy through borrowing, now at £152 billion (US$232.6 billion; €175.1 billion).

Thus, it seems for the first time ever that Keynesianism is being implemented to combat what it was designed for, i.e. a depression.  In British politics because in the 1950s up to the mid-1970s there was consensus of the need for Keynesian economics and it was just over the details rather than the economic approach.  By 1979 even the Labour Party had stepped away from Keynesianism and whilst it did not embrace monetarism in the way the Conservatives did, it was no longer a strong advocate of an alternative economic path, partly because the economics then were focused on wage and price inflation which had not been a characteristic of the 1930s depression when there had often been over-supply depressing prices rather than excess demand or at least excess demand for income whether from sales or pay as was the case in the 1970s and overall was stimulated by the artificially raised oil price, oil being vital for freight of all kinds at that time and things like plastics at a time when plastic packaging was growing massively.

In 2010 we do have a difference between the continuation of Keynesian policies under Gordon Brown and with David Cameron, the revival of not even really monetarist but in fact deflationary policies as pursued by Conservative leaders such as Stanley Baldwin in the 1930s and overseen by the cross-party National Government set up in 1931.  Cameron's emphasis on the need to reduce public borrowing so reducing the available stimulus to the economy (though no-one would envisage a balanced budget these days) and swingeing cuts to public services is text-book deflation; it will cause unemployment not least amng public sector employees and raise unemployment, increasing social welfare payments and suppressing domestic consumption and through fear of job losses, domestic demand even from those still in work.  Keynesianism is not simply about stimulating consumption but with it the confidence to consume. Cameron is pretty old fashioned in his approach to the economy even in Conservative terms.  Perhaps this is because the Thatcherite approach of the free market now seems so debased with constant reports of vast profits for those in big business at the expense of jobs and homes for ordinary people.  This is the first time in British history that the two key economic approaches of the 20th century are being brought face-to-face and as a consequence Britain stands at more of a crossroads that this lacklustre campaign suggests.

The Post-War Consensuses in Britain

Whilst I might have lost some of my short stories in the shift between computers over the past few years, I am often surprised what other things I stumble across untouched for many years when looking in old files. This seems to be an essay I produced in about 2001. Since then I imagine many people have written on the issues it raises but interestingly some of it seems to be relevant again as we stand on the cusp of a general election. As I note, with reflection, it seems possible that the next government may try to shift things back to policies of the Baldwinian consensus of the 1930s and it is interesting to look at the current policies of David Cameron's Conservative Party in this context. So, this essay is dated, but I think some of the themes remain relevant and anyway interesting.

The Post-war Consensuses

The word consensus is often used in particular to describe the British political scene after 1945 when it is argued that the assumptions of both the Conservative and Labour parties were the same on many issues. As Dennis Kavanagh and Peter Morris state in ‘Consensus Politics From Attlee To Major’ (1994) consensus refers to “a set of ideas and conventions about the nature of the scope of political - and particularly governmental - activity. ... in other words, a set of governing assumptions and expectations.”

Britain seems to have gone through phases in its political histories when there have been such assumptions unchallenged by the two main parties. More broadly it is argued that consensus is always apparent in the British political system as there are few challenges to the way the system of civil society works or even to the basic institutions in Britain. It is rare that any revolutionary alternatives from the left or right have come forwards. Partly this continuity has been provided by the continuity of civil servants especially those who rose from junior positions in wartime to senior ones by the 1970s. In addition, there are long-term assumptions fostered by Treasury culture which any minister finds hard to resist, for example, defence of the pound and a need to restrain expenditure. Kavanagh and Morris point to the perpetuation of the grammar school system certainly to the 1970s and even today, and to restrictions on immigration introduced by both Labour and Conservative governments as showing a commonality of assumptions by the two parties. Other examples would be the enduring membership of NATO, the continuing close relationship with the USA, ambivalence towards the European communities and a desire to maintain nuclear weapons. Whilst other policies have been voiced, especially when in opposition, once in power, both the main parties have adhered to these established approaches.

The periods of the clearest consensus have, however, been occasionally interspersed with much sharper adversarial politics, most notably between 1979-94 when a new consensus was being established. It could be argued that a consensus only really comes out of upheaval and it solidifies when the party in opposition realises it stands no chance of being elected unless it adopts the policies of the other main party. With this in mind we will look first at the key phases of consensus in the 20th century.

1) Consensus in the 20th Century
In the 20th century it can be argued that Britain saw three consensuses. The first, in the 1930s, extending from the ideas of Stanley Baldwin (Prime Minister 1923-4, 1924-9 and 1935-7) argued for a laissez-faire approach, without large-scale governmental intervention in the economy even in times of depression. It was summed up by reference to deflation and an attempt to maintain the role of sterling as a world currency and yet work within the closed bloc of the Sterling Area. [Whilst in 2001, I would have not imagined this consensus returning, in 2009, it seems very much like the approach that the Conservative Party under David Cameron favours.]

1a) The Attleean Consensus
The best known consensus came in 1945. The concept of the post-war consensus was effectively developed by Paul Addison in his 1975 book, “The Road to 1945”. Kavanagh & Morris define the consensus as based on two elements. The first was agreement on the style of government involving institutionalised consultation between the government and those important in the economy, i.e. employers and unions, something which developed during the Second World War. Keith Middlemas in ‘Power. Competition and the State, 1, Britain in Search of Balance, 1940-61’ (1986): calls this the ‘continuous contract’. The second was the range of policies which persisted from the late 1940s to the mid-1970s in handling social and economic needs, broadly termed the Welfare State and Keynesianism.

To some extent, consensus after 1945 can be seen as reflecting the new political reality of the post-war world. In the inter-war period though the Liberals faded away Labour had not yet really staked its place firmly in the British political structure, and the majority of Labour MPs joined the National Government coalition alongside Conservatives and Liberals in 1931. In this inter-war period then, the consensus was still the one between Conservatives and Liberals as the main parties. Post-1945, Labour was the clear rival to the Conservatives and thus the consensus was between these two, slightly further apart.

The unexpected victory in 1945 of the Labour Party in 1945 committed to nationalisation of the ‘commanding heights’ of British industry combined with the liberal attitude to developing a welfare state, reflected a shift in popular opinion towards favouring a more interventionist approach by government. This stemmed from the failure of laissez-faire economics in Britain in the 1930s in contrast to the USA’s New Deal and the evidence of government intervention in the Second World War which was seen as effective in ensuring sufficient war production. Labour’s objectives were generally realised in its term in power 1945-51 - 20% of industry was nationalised and a welfare state embracing the NHS, social security and education, was created. Importantly, in terms of the widespread support these policies received, aside from nationalisation, many of the ideas had come from two Liberals - William Beveridge and John Maynard Keynes.

William Beveridge’s report during the Second World War laid the ground work for the welfare state. It was Liberal rather than Socialist in design, building on the reforms by the Liberal governments of the pre-First World War period. It relied on full employment but also on the fact that people would be happy to contribute to insure themselves against future need such as ill-health, unemployment and old age. The fact that the system was funded through national insurance contributions, rather than taxes as would be the case in a Socialist system, reflected this. In addition, it was the Labour government which introduced charges on dentures and spectacles in 1951 as a way to better fund the system.

John Maynard Keynes was another Liberal, an economist. His writings in the inter-war years had aimed to reduce the bitterly high levels of unemployment. He saw this problem as caused by insufficient demand in the economy. Simply put, his argument was that the government should stimulate demand in the economy through manipulating the interest rate system to encourage investment. Though he saw a role for direct government intervention he certainly did not back large-scale nationalisation or direction of the economy in peace-time. Keynes’s ideas were first adopted in the 1941 budget to act against excessive rather than a lack of demand. Despite a brief flirtation with economic planning after 1945, by 1948 Labour was committed to using Keynesian methods to manipulate the economy. The commitment to full employment inherent in Keynesianism was a key part of the Attleean consensus until it became untenable in the 1970s.

Added to these two key elements was a willingness to work with trade unions. The tripartite approach of wartime of government working with both employers and unions was followed throughout the post-war years and received a boost from the Conservative government of Harold Macmillan in 1961 with the creation of the NEDC which brought together employers, unions and government in an attempt to effectively plan the economy and promote growth. This was an approach built on, though not successfully, when Labour came back to power in 1964. This really continued until the strikes of the early 1970s and the election in 1979 of Margaret Thatcher, a strong opponent of unions.

A further element of the post-war consensus was foreign policy. The first post-war Foreign Secretary, Ernest Bevin, previously a leading trade unionist and an ardent Labour member, was in fact conservative and almost Conservative in his outlook. He was a committed anti-Communist and welcomed assistance from the USA. He favoured the development of NATO to secure US involvement rather than the creation of a European Army. In addition, the 1945-51 Labour governments, like all British governments subsequently, continued developing or buying nuclear weapons. This attitude was only challenged by Labour in the early 1980s when in their most radical phase. All of these policies, adopted 1945-51, were continued by the Conservatives when in office.

The relationship to the Europe communities has always proved a more complex issue, but there were supporters and opponents of European integration in both leading parties, and Conservative prime ministers Harold Macmillan and Edward Heath applied to join the EEC as much as Labour prime minister Harold Wilson. There was also an ongoing consensus on the need to peacefully disengage from empire, despite the discomfort of some of those in the Conservative Party.

Though Conservative support for the use of Keynesianism and no attempt to scrap the Welfare State in the period before 1975, are often taken as showing that the consensus had shifted the political ‘centre’ towards the ‘left’, there are a number of factors to recognise. As mentioned above, these basis of they key consensus policies had been developed by Liberals rather than Socialists. Winston Churchill, prime minister 1940-5 and 1951-5 had himself been a Liberal 1906-22 and involved in a reforming government that had laid the foundations of the later welfare state. Thus, there was less distance for Conservatives to go to accept these centrist concepts than if they had been truly Socialist. Indeed, Churchill and the Conservatives stood more firmly against policies they saw as Socialist, and opposed economic controls and some elements of nationalisation, for example steel and road transport which they denationalised when the returned to power. It was seen as acceptable to Conservatives on efficiency grounds, however, that other elements of the UK economy such as coal mining and the railways were nationalised. State control had been adopted right across the economy in the wartime and was seen to be pretty efficient long after the war had ended; the final wartime economic controls were not scrapped until 1956, five years into the Conservative period in office. The Conservatives accepted if not celebrated the mixed economy which was in part state-run but still predominantly capitalist. This was summed up in the phrase ‘Bustkellism’ to characterise economic policy of the 1950s, combining the names of the Conservative Chancellor after 1951, R.A. Butler with the Labour Chancellor 1950-1 Hugh Gaitskell.

Being out of power for 13 years, 1951-64, encouraged the Labour Party to reflect on its policies. Though not envisaging a large shift of the kind carried out in the 1990s, there were attempts at adjustment in its outlook especially to address the growing prosperity of 1950s and early 1960s Britain. In 1956, influential Labour thinker Anthony Crosland questioned whether the commitment to state ownership of industry, which Labour had held since 1918, was relevant in the era of prosperity which Britain was then experiencing. In 1960, the Labour leader Hugh Gaitskell tried to scrap this commitment by abolishing Clause 4 of the party’s constitution. He was defeated and following Gaitskell’s death in 1963 and his replacement by Harold Wilson who favoured a more Socialist and technocratic approach, this brief concern for Labour came to an end until it was revived in the 1990s to face a new consensus.. In addition, ironically with British competitiveness seeming to flag in, by the 1960s the Conservatives were moving towards planning the economy. To some degree this was influenced by Harold Macmillan (Prime Minister 1957-63), who in the 1930s like many across the British political spectrum had seen some degree of economic planning as the only way to lift the country out of the Depression.

1b) The Myth of Consensus?
In the mid-1990s, most notably from Harriet Jones and Michael Kandiah eds., ‘The Myth of Consensus: New Views on British History, 1945-64’ (1996), there was a challenge to the accepted views of the post-war consensus. Partly they and other historians argued that the Cold War, as much the Second World War, shaped the post-war policies, for example, in encouraging co-operation with unions and a mixed economy. In addition, they feel that factors such as the speed with which Britain decolonised prevented greater diversity of opinion arising.

Historians such as Kandiah and Nick Ellison, in ‘Egalitarian Thought and Labour Politics: Retreating Visions’ (1994), show that within the Conservative and Labour parties there was a wider range of opinions on a whole range of issues than is often discussed. For example, they point to the 1958 resignation of the Conservative Chancellor of the Exchequer, Peter Thorneycroft, who sought a more monetarist approach as opposed to Macmillan, the prime minister who much more favoured an economic planning even interventionist approach. Similarly, within the Labour Party there were always those who favoured nuclear disarmament and aimed to push on nationalisation to embrace a far larger section of industry. This is taken to suggest that support for Butskellism was in no way comprehensive even within each of the parties let between them.

Other historians such as Jones and John Ramsden in ‘An Appetite for Power: A New History of the Conservative Party’ (1999) show that the Conservatives had a different view of the welfare state. They favoured private rather than council construction of houses; targeted rather than universal benefits; private rather than state-backed earnings related pensions, all policies which were the reverse of the Labour approach. Ben Pimlott, as in ‘Harold Wilson’ (1992), claims that by the late 1960s and certainly in the 1970s, there was difference between the two main parties on even fundamental issues. Andrew Gamble and S.A. Walkland in ‘The British Party System and. Economic Policy 1945-1983’ (1984) in fact portray the 1970s as a period in which the adversarial nature of politics was so harsh that it was disruptive to the economy. Overall, one must be careful not to just take the concept of consensus as applying to all policies or as being unchanging over time. This is too simplistic and, whilst consensus remains a useful tool, it should not just be taken unchallenged.

2) The Thatcherite Consensus
It seems difficult to see how the Labour Party could even approach Margaret Thatcher’s policies which emphasised monetarism. Her approach to the economy and by extension society shook the assumptions of the Conservative Party itself. The shift away from the old-fashioned paternalistic One-Nation Conservatism came in a number of steps. First was Edward Heath’s 1970 victory based on the so-called ‘Selsdon Programme’. This aimed to break with the Keynesian approach to the economy, or what was perceived as the Keynesian approach, though in the post-war era in popular usage the term had extended a lot to cover far more state intervention than Keynes would have approved of. The programme aimed to reduce state involvement in the economy, to privatise industries, curb union power, free market forces and encourage greater industrial efficiency.

This approach was short-lived and by 1972 had been abandoned in favour of greater state intervention to bale out failing industries. For the first time in the British economy high inflation was combined with rising unemployment. This was partly sparked by the end of the post-war boom provoked by the quadrupling of fuel prices. Cheap fuel had enabled the boom to continue from around 1950 onwards. The problems worsened for Labour when they returned to power in 1974. To cover its debts the government had to borrow from the IMF (International Monetary Fund) which forced deflation on the British economy.

In 1976 the prime minister James Callaghan abandoned the commitment to full employment which both parties had backed since the war. He also said ‘[w]e cannot now, if we ever could, spend our way out of a recession.’ This effectively marked the abandonment of the core element of Keynesianism, that the state should stimulate demand through expenditure. In addition, this step was paving the way for the harsh monetarist approach adopted when Margaret Thatcher came to power in 1979. Jim Tomlinson has argued in ‘Public Policy and the Economy since 1900’ (1990) that the economy in the later 1970s shows that Keynesianism does not work. Effectively it was not tested through the post-war boom when it was not needed to counter unemployment. When it was needed, in the 1970s to tackle that problem, it failed. However, it must be recognised there were other factors such as external inflationary pressures that prevented a Keynesian solution.

Thatcher was won over to monetarism in 1975 and through it gave a new, apparently more dynamic direction to the Conservatives. Once in office 1979-91, for Thatcher, monetarism was just the foundation of a broader economic and social policy. This involved ‘rolling back’ the state by privatising almost all of the nationalised sector combined with continued tax cuts proved popular with the public which was seen as stimulating the economy. The approach, however, also included centralising powers from local authorities, imposing expenditure cuts and in theory giving greater choice in terms of welfare services, though this was all achieved through greater central state intervention.

Kavanagh in ‘The Reordering of British Politics: Politics After Thatcher’ (1997) sums up the essence of Thatcherism which we can see forms the foundation of the Thatcherite consensus. Of course, how these ideas were translated into policy was not always accepted even across her own government or party. However, as with all enduring attitudes it is their presence over time and, thus, them becoming assumptions that people no longer challenge, which forms the foundations for a consensus. The assumptions were that: delivery of services comes better from the private rather than public sector; government can do little good but can do great harm and so its involvement and expenditure must be restrained and allow free enterprise to boom. Thatcherism emphasised self-help but also responsibility for one’s actions and thus taking the blame for one’s own situation, rather than expecting the state to alleviate this. Of course, the state was seen as having an important role in both defence and law and order; expenditure on these was not to be curtailed. In foreign policy Britain had to establish its continued importance through military intervention, nuclear weapons and its close relationship with the USA. Though the harsh social attitudes moderated somewhat under John Major (Prime Minister 1991-7), the foreign policy line is still visible today.

Though the years of Thatcher in power saw some of the greatest antagonism between the two main political parties, by the mid-1990s things were changing. Neil Kinnock, Labour leader after 1983 had proven successful in purging the extreme left from the Labour Party but the fourth defeat in a row in the 1992 general election indicated that if they wanted to return to office, Labour had to do more than simply moderate their own party. Tony Blair became leader following the sudden death of John Smith in 1994. He had a clear objective of moving Labour towards, what, after 15 years of Conservative rule, was becoming established as the new consensus. This approach was embodied in New Labour. Unlike Gaitskell, Tony Blair in 1995 he was able to scrap Clause 4 and the Labour Party’s commitment to nationalisation.

Once in power Labour showed how far it had adopted the Thatcherite consensus. It kept to the Conservative expenditure planes bequeathed by John Major. It went further and made the Bank of England independent, so giving up an essential element of Keynesianism: the ability of government to manipulate interest rates. The changes to the welfare state particularly in education and health, brought in under Thatcher were only slowly altered or were not reversed. The government aimed to privatise the London Underground and air traffic control and repeatedly discussed privatising the Post Office. The only real break from Thatcherism has been devolution to Scotland, Wales and London and it is clear that in these locations the Thatcherite consensus is less popular than centrally. The fact that since 1997 the Conservatives have struggled to develop distinct policies shows how much Labour has captured the consensus ground of Thatcherism for itself.

3) Conclusions
In ‘The Civic Culture’ (1963) and ‘The Civic Culture Revisited’ (1980) two US political scientists, Gabriel Almond and Dan Sidney Verba argued that British society was stable and did not face violent political challenge because of three trends: continuity, deference and consensus. Consensus in Britain is seen to embrace not only individual policies but also assumptions about the political system as a whole. It is difficult to argue that British institutions have been challenged to any great extent and thus can be stated convincingly that there is a consensus on how the British political system runs and what issues it should address. However, as this essay has shown, the consensus on policy is more complex.

It does appear that assumptions can penetrate into the British political scene which then make up the thinking of both the main parties. However, it is wrong to assume that consensus is a blanket attitude. Within it there is room for diversity between and within the political parties. In addition, at certain periods especially the 1970s and 1980s the differences between the main parties have been very sharp, and have encouraged the reverse view that Britain was plagued by the severity of its adversarial politics. Thus, consensus remains a valid concept for interpretation of British politics and society in the 20th century but one which must be used sensitively and with care.