Edited transcript
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.
Former prime minister Margaret Thatcher has passed away, and of course around the world people are debating her legacy. Henry Kissinger said she was a great defender of Western interests. She’s known as the woman who stood her ground, the Iron Lady. I guess the question is: stood her ground for whom?
Now joining us to give his take on Margaret Thatcher is Michael Hudson. He’s a former Wall Street financial analyst. He’s a distinguished research professor of economics at the University of Missouri-Kansas City. His latest books are The Bubble and Beyond and Finance Capitalism and Its Discontents.
Thanks very much for joining us, Michael.
MICHAEL HUDSON, RESEARCH PROF., UMKC: Thank you very much, Paul.
JAY: So what’s your take on Margaret Thatcher’s place in history?
HUDSON: Her legacy wasn’t what she started out to do. She’s most famous for privatizing British industry, starting with British Telecom and introducing what she called “labor capitalism,” a term that she borrowed from her fellow free-market autocrat, General Pinochet in Chile.
When she became prime minister in 1979, most of the Conservative Party was against privatization. This was not part of the program she ran on. When I was in England, I saw the proposals by various Conservative Party members that were put to her, and it took about half a year for her to be convinced that privatization would help in her fairly simple objective. She wanted to break the labor unions, thinking then that would help the working class evolve into the middle class. She believed that fighting unions would help raise the working class into the middle class – as if unionized labor and governments that protected labor’s interest were responsible for the fact that one had to wait many months to get a telephone fixed. (One BT repairman once came to a London apartment I was staying in, and told me, “I can’t fix this phone. It’s broken!”)
Fighting unionization was supposed to lead to lower wages, and thus cut costs and re-industrialize England. What her fight achieved, of course, was the opposite. So she’s going to go down in history as a compendium of internal contradictions par excellence.
Britain’s labor unions were strongest in the large public utilities. The largest tangible capital investments in England – and every other country – were in this public infrastructure: the roads, real estate, bus lines, railroad and communications systems. Mrs. Thatcher believed the anti-government “free market” guff that if government regulation and planning were dismantled, the magic of the marketplace would raise productivity. Prices would decline.
There was no suspicion that privatized companies would simply keep the productivity gains as a financial surplus, to be paid in the form of exorbitant executive salaries, interest to bondholders and dividends to stockholders, creating capital gains for stockholders – who turned out to be the 1%, not the 99%.
The way in which she privatized British companies took the form of the biggest giveaway in England history. Privatization didn’t have to happen in quite this way. But her blind spot led her to leave bankers in control of the program – and she gave them whatever terms they asked for, with the sky being the limit. (That is indeed what they asked for – and found no government official trying to bargain them back down to “economic” rates. That, to Mrs. Thatcher, would have been government “interference” leading on the slippery slope to fascism, Hayek-style.)
So economic planning was centralized in the City of London, the nation’s financial district. Mrs. Thatcher presided over the giveaways in England that were the counterpart of the great American railway giveaways after the Civil War in this country. She started by privatizing British Telecom, then the bus lines and water, all on credit. This created a vast new market for British investment banks, first in underwriting, then in reaping first-day and first-week capital gains, and soon in lending at interest to buyers who saw public utilities as potential rent-extracting rights to place tollbooths throughout the entire British economy. So Mrs. Thatcher’s “free market” became a market free for predatory rent-seekers creating the largest set of special privileges since the Crown Corporations from1600 through 1720 – the commercial trading monopolies granted to royal favorites. So she was the prototype for Boris Yeltsin in Russia.
The problem facing Mrs. Thatcher, of course, was how to get voters to support privatization. After all, it was against what most voters believed, and even against what most of her own party believed. Former Prime Minister Harold Macmillan likened privatization to selling off the family silver. But she saw it as balancing the British budget until North Sea oil came online. And her ideological cover story – which she actually seems so stupid to have honestly believed – was that the private buyers would raise productivity, and reduce prices in keeping with these productivity gains. The concept of unearned income or economic rent was absent from her vocabulary. It was if her upbringing had given her a surgical lobotomy – which made her so powerful a useful idiot to Britain’s predatory financial class. When her obituary writers speak of her “decisiveness,” they mean her tunnel vision and absence of reflection.
Her insistence that it was possible for the working class to rise into the upper class was indeed personified by one family, the Gloags. Bus driver Gloag spent about £12,000 to buy a small bus line, which ultimately became Stagecoach. Bus lines weren’t making much money, but the company did have the bus terminal in the center of London. So what seemed to be a transport deal turned out to be a real estate killing on the land’s site value. The Gloags sold the bus terminal for a huge amount of money, which they spent on buying up other bus lines.
They “raised productivity” in a way that led the government to accuse the company of monopoly practices, abusing the monopoly it acquired over the transport system by raising the prices and the cost of British transportation. Unfortunately for most of Londoners, they now had to go outside the central city to catch a bus. Time schedules were scaled back, and service declined. But it made the bus driver’s daughter the richest lady in England next to the Queen. And to Mrs. Thatcher, productivity increased, because much less labor was employed to operate the transport service.
JAY: Michael, Margaret Thatcher was a contemporary of Ronald Reagan in developing neoliberal policies, as the term’s been coined. But it’s particularly the time of rising power for finance. What’s the role of Thatcher in this?
HUDSON: She turned over the largest organizations in England – gas, water, telephones and power – to investment bankers to underwrite. Normally they would underwrite a new company. They’d charge 3 percent of the amount of money they raised in an initial public offering (IPO). This payment was for projecting sales and profits, and presumably judging what a fair market price would be. But in this case the market was already there. No such market research was needed. People knew what British Telecom was, and what British Gas was.
Yet Mrs. Thatcher went along with giving the underwriters 3 percent of an enormous deal – the largest ever issued in Britain. To cap matters, she conspired with the underwriters to vastly underprice British Telecom – by so much that people (most of which were large investors) who bought at a low price quadrupled their money in a single week. This short-changed the government, by giving it less than a quarter of what its assets were worth. But Mrs. Thatcher wanted voters to think that they could get a free ride. She was creating an economy that was all about getting a free lunch. She hoped that voters would think that it was worth more to themselves by hving to pay much more for their water, much more for their phone service, much more for their bus fares and railroad fares, and to end up losing their job, just to make a few pounds quick profit in buying underpriced public utilities being sold off. So she basically thought that her supporters were unthinking, greedy free lunchers – who would fall for a giveaway to British bankers and financial speculators if they could get a few of the crumbs. That was her political program.
Underwriters made a killing by issuing BT stock and that of subsequent privatizations at a very low price. Favored customers allotted big shares made a windfall just like what would be occurring in the U.S. dot.com bubble in the late 1990s. The financial sector made a killing buying the biggest industries in England, the public utilities I cited above – water, gas and railroads. But the initial killing was outdone when the new managers raised the prices they charged for hitherto public services. They were privatized without monopoly price controls or other regulation.
The largest overall privatization was that of residential real estate. Tenants of council houses – people living on what in America would be called welfare – were given an opportunity to borrow and buy. The result was that vastly underpriced real estate became the highest-priced property in the West. A £20,000 apartment bought soon after Mrs. Thatcher became prime minister now sells for £350,000. Buyers made a killing.
But when the dust settled, employees who work in London no longer can afford to live there. So much of central London (low-rise by American urban standards) has been bought up by kleptocrats and foreigners that middle-class Brits have to live outside the city. Privatizing housing without taxing the land’s price gains by a windfall tax created a gigantic mortgage market for British banks.
Of course, they weren’t regulated either. The whole of England became a deregulated free-for-all. The largest mortgage lenders went bankrupt after 2008, led by Northern Rock and HBOS (the Bank of Scotland).
JAY: I was about to ask you about that. Recently the press has been filled with these reports by a collaboration of journalists around the world naming people and companies using tax havens. Quite a few are under British authority. What has Thatcher got to do with that?
HUDSON: That was part of her deregulation philosophy, along with her idea of untaxing property and wealth, and shifting the tax burden onto labor. By the late 1970s, English industry was on the rocks. It wasn’t competitive any more. British Labour Party Prime Minister James Callaghan tried to borrow money from the International Monetary Fund to invest in rebuilding industry, but was told by U.S. Treasury Secretary Bill Simon that the IMF doesn’t lend to rebuild industry. It lends money to governments to pay debts to bankers and bondholders. He said that England’s comparative advantage lay in the financial sector, as if it were a real “industry” like manufacturing
Margaret Thatcher embraced the idea that the way to build up Britain’s economy was to create a financial free market. There was no attempt to regulate the banks. So her policy became the progenitor of what flowered as Gordon Brown’s notorious “light touch.” It was a euphemism for “charge and take whatever you want. We won’t look.”
Deregulation and turning England into a tax haven attracted Russian kleptocrats and others to relocate in London. Somebody quipped that the other day that Russian billionaires are more visible in England now than in Russia. African dictators, drug dealers and tax dodgers from all over the world have moved their takings to London. So did Icesave, where it was looted. And when AIG went bankrupt in America, it was because of its London office. I think the same was the case with Lehman Brothers. The London office is where their unregulated derivatives trades were made.
So deregulating British banking led the international financial system a race to the bottom. Margaret Thatcher said, in effect, “We’re going to be the ground floor, we’re going to be the absolute bottom, deregulated, everything goes.” She opened the doors for what became a criminalized financial system that ended up turning high finance into gambling.
Labor and employment weren’t needed for her business plan. She didn’t need industry, or mining, because they employ labor. And banks don’t need labor or industry to place bets and speculate.
So Mrs. Thatcher felt that England could afford to put the class war in business. She oversaw a vast rise in unemployment. In the name of creating a more equal society of upward mobility, she made England more unequal and immobile than it’s been in a century.
JAY: What are some examples of that?
HUDSON: The degree to which England has become polarized between the very rich City of London (the financial district) and the average working class in Manchester, Birmingham and other formerly industrial other cities that are now part of England’s rust belt, much like in America. In Manchester, for instance, industrial buildings have been turned into gentrified apartment buildings.
The bottom line of what Mrs. Thatcher said was that finance and privatized real estate and public utilities can create an enormous jump in wealth without building up a domestic industrial base or even an employment base. So now you have widespread unemployment throughout England, and the economy is falling into austerity. As matters have turned out, what the “free marketers” promised would be an efficient, streamlined, low-priced economy has become the highest-priced economy in the world with an enormous financial and real estate overhead. Its retail sales are especially high-priced. Buying food in England costs much more than elsewhere in Europe. The telephones cost more, and nearly every kind of public utility that was privatized now costs much more, capped by railroad and bus service.
JAY: In the article you wrote on Counterpunch, Michael, you give the statistic that when Mrs. Thatcher came to power, one in seven children were living in poverty; when she left power, it was one in three.
HUDSON: Yes, she doubled the poverty rate. Yet the voters went along for a time. Her genius was her ability to convince them that even though they were losing their jobs and getting ground down in poverty, they somehow were benefiting. In effect, her slogan was, “Sorry you’ve lost your job. I hope you made a killing on the home you bought and in the stock market.”
She convinced the English public to make a tradeoff. They could make a quick windfall by buying a British Telecom and the various privatized water companies watch the price raise as their phone rates and water rates were raised. They could sell their house for twice what they paid for. And new buyers could multiply their investment ten times more. But making these short-term gains and ended up excluding wage workers from the privatized free-enterprise economy she created.
JAY: Alright. Thanks very much for joining us, Michael.
HUDSON: Thank you.
JAY: And thank you for joining us on The Real News Network.
