Above all, unemployment continued its inexorable rise: it would reach the headline figure of three million in January 1982, but already in the autumn of 1981 it seemed almost inevitable that this would happen. Most people were unpersuaded, therefore, that recession was coming to an end and it was too soon for the new sense of direction in Cabinet — which I knew that the reshuffle would bring — to have had an effect on public opinion.
We were also in political difficulties for another reason. The weakness of the Labour Party, which had initially worked in our favour, had allowed the newly formed SDP to leap into political contention. In October the Liberals and SDP were standing at 40 per cent in the opinion polls: by the end of the year the figure was over 50 per cent. (At the Crosby by-election in the last week of November Shirley Williams was able to overturn a 19,000 Conservative majority to get back into the Commons.) On the eve of our Party Conference I was being described in the press as ‘the most unpopular prime minister since polls began’.
Of course, the statistics were misleading at this point. Interest rates would have been higher still had we not taken the action we did in the budget. We were able to begin reducing rates again within weeks. And demographic factors were as important as the recession in explaining the rise of unemployment. The low birth rates during the First World War meant that fewer people were retiring in the early 1980s than in the early 1970s. At the same time the number of young people entering the labour market reached record levels as a result of the 1960s ‘baby boom’. Between 1979 and 1981 the economy had to provide an extra 83,000 jobs a year just to stop unemployment rising.
But that was not how it seemed at the time — and the ‘wets’ determined to exploit our apparent difficulties to the full at Blackpool. I witnessed what seemed to be a concerted attempt to swing the Party against the Government’s policies both in the Conference Hall and at the fringe meetings outside. In a speech to the Selsdon Group the critics were brilliantly answered by Nigel Lawson. Nigel pointed out that it was no argument for them to take refuge in political generalities:
You cannot fight the war against inflation successfully unless you have economic policies that make sense. There is no point in deluding yourself that somehow politics can trump all that … What we are being offered [by the strategy’s critics] is little more than cold feet dressed up as high principle.
In the conference economic debate no less a figure than Ted Heath spearheaded the attack. He argued that there were alternative policies available but that we just refused to adopt them. The debate was well mannered in form, well versed in content and passionate in feeling. Both sides delivered serious economic analyses at a high level — and the stakes themselves were very high. A rebuff for the platform would have emboldened back-bench ‘wets’ to step up their attack when Parliament resumed, with unpredictable consequences; a rebuff for the critics, which is what they received, would strengthen our moral authority. In answer to Ted Heath, Geoffrey Howe, who summed up our case with a cool, measured and persuasive speech, reminded the conference of Ted’s own words in his introduction to the 1970 Conservative manifesto:
Nothing has done Britain more harm in the world than the endless backing and filling which we have seen in recent years. Once a policy has been established, the prime minister and his colleagues should have the courage to stick with it.
’I agree with every single word of that,’ said Geoffrey. His speech won over some of the doubters and ensured that we had a comfortable win. Nevertheless, in my own speech later I felt the need to fasten down our victory by taking the arguments of Ted Heath and others head on:
Today’s unemployment is partly due to the sharp increase in oil prices; it absorbed money that might otherwise have gone to increased investment or to buy in the things which British factories produce. But that is not all. Too much of our present unemployment is due to enormous past wage increases unmatched by higher output, to union restrictive practices, to overmanning, to strikes, to indifferent management, and to the basic belief that, come what may, the government would always step in to bail out companies in difficulty. No policy can succeed that shirks those basic issues.
Even though the ‘wets’ would continue to be sceptics for another six months, our policy had already begun to succeed. The early signs of recovery in the summer of 1981 were confirmed by statistics in the following quarter, which marked the start of a long period of sustained economic growth. Political recovery followed in the wake of these early signs of improvement, with better poll figures in the spring of 1982. We were about to find ourselves in the Falklands War, but we had already won the second Battle of Britain.
* Higher interest rates caused people to increase the amount they held in interest-bearing financial assets and to reduce cash and non-interest-bearing assets in their current accounts.
* The civil service strike began in March 1981 and lasted for five months. Union members struck selectively at crucial government installations, including computer staff involved in tax collection, costing the Government over £350 million in interest charges on money borrowed to cover delayed and lost tax revenue. Industrial action was also taken at GCHQ, the installation at the heart of Britain’s signals intelligence, which led to our decision in January 1984 to ban trade unions there.
CHAPTER VI
The West and the Rest
The early reassertion of western — and British — influence in international affairs in 1981–1982
We were not to know it at the time, but 1981 was the last year of the West’s retreat before the axis of convenience between the Soviet Union and the Third World. The year began with Iran’s release of US hostages in a manner calculated to humiliate President Carter and ended with the crushing, albeit temporarily, of Solidarity in Poland. The post-Vietnam drift of international politics, with the Soviet Union pushing further into the Third World with the help of Cuban surrogates, and the United States reacting with a nervous defensiveness, had settled into an apparently fixed pattern. Several consequences flowed from that. The Soviet Union was increasingly arrogant; the Third World was increasingly aggressive in its demands for international redistribution of wealth; the West was increasingly apt to quarrel with itself, and to cut special deals with bodies like OPEC; and our friends in Third World countries, seeing the fate of the Shah, were increasingly inclined to hedge their bets. Such countervailing trends as had been set in motion — in particular, the 1979 decision to deploy Cruise and Pershing in Europe — had not yet been given concrete effect or persuaded people that the tide had turned. In fact it had just begun to do so.
EARLY TALKS WITH PRESIDENT REAGAN
The election of Ronald Reagan as President of the United States in November 1980 was as much of a watershed in American affairs as my own election victory in May 1979 was in those of the United Kingdom, and, of course, a greater one in world politics. As the years went by, the British example steadily influenced other countries in different continents, particularly in economic policy. But Ronald Reagan’s election was of immediate and fundamental importance, because it demonstrated that the United States, the greatest force for liberty that the world has known, was about to reassert a self-confident leadership in world affairs. I never had any doubt of the importance of this change and from the first I regarded it as my duty to do everything I could to reinforce and further President Reagan’s bold strategy to win the Cold War which the West had been slowly but surely losing.
I heard the news of the American election result in the early hours of Wednesday 5 November and quickly sent my warmest congratulations, inviting the President-elect to visit Britain soon. I had met Governor Reagan twice before when I was Leader of the Opposition. I had been immediately struck by his warmth, charm and complete lack of affectation — qualities which never altered in the years of leadership which lay ahead. Above all, I knew that I was talking to someone who instinctively felt and thought as I did; not just about policies but about a philosophy of government, a view of human nature, all the hi
gh ideals and values which lie — or ought to lie — beneath any politician’s ambition to lead his country.
It was easy for lesser men to underrate Ronald Reagan, as many of his opponents had done in the past. His style of work and decision-making was apparently detached and broad-brush — very different from my own. This was in part the result of our two very different systems of government rather than differences of temperament. He laid down clear general directions for his Administration, and expected his subordinates to carry them out at the level of detail. These objectives were the recovery of the American economy through tax cuts, the revival of American power by means of a defence build-up, and the reassertion of American self-confidence. Ronald Reagan succeeded in attaining these objectives because he not only advocated them; in a sense, he embodied them. He was a buoyant, self-confident, good-natured American who had risen from poverty to the White House — the American dream in action — and who was not shy about using American power or exercising American leadership in the Atlantic alliance. In addition to inspiring the American people, he went on later to inspire the people behind the Iron Curtain by speaking honest words about the evil empire that oppressed them.
At this point, however, the policies of military, economic and technological competition with the Soviet Union were only beginning to be put in place; and President Reagan still had to face a largely sceptical audience at home and particularly among his allies, including most of my colleagues in the Government. I was perhaps his principal cheerleader in NATO.
So I was soon delighted to learn that the new president wished me to be the first foreign head of government to visit the United States after he took office. At 3.45 on the afternoon of Wednesday 25 February the RAF VC10 on which I travelled on such occasions took off for Washington. Peter Carrington was with me. He did not altogether share my view of the President’s policies and was intent on pursuing lines which I knew would in practice be quite fruitless, given the President’s unshakeable commitment to a limited number of positions. The US was already meeting opposition from its allies on a number of issues such as arms control, its support for the military government in El Salvador, and increasingly the size of the US deficit. We feared that the new Administration’s plans for tax cuts might widen the deficit — though at this stage we were still hopeful that the President would succeed in achieving the large expenditure cuts he had put before Congress. With so many important things to discuss, I could see no point in raising the issue of Namibia which Peter Carrington wanted to do. I knew that the Americans would not press the South Africans to withdraw from Namibia unless the 20,000 or so Cubans also withdrew from neighbouring Angola. What is more, I privately thought that they were fully justified in asserting this linkage. In any case, there is one principle of diplomacy which diplomats ought to recognize more often: there is no point in engaging in conflict with a friend when you are not going to win and the cost of losing may be the end of the friendship.
I spent the morning of my first day in Washington in meetings with the President — first tête-à-tête, then with the US Secretary of State, Alexander Haig, and Peter Carrington present, and finally with members of the US Cabinet. Two events which occurred on the eve of our discussions had a large impact on them.
First, the Assistant Secretary for European Affairs, Lawrence Eagleburger, had come to Britain and other European capitals to show us a dossier of evidence substantiating the US claim that arms from Cuba, acting as a surrogate for the Soviet Union, were pouring into El Salvador to support the revolution against the pro-western, if undoubtedly unsavoury, government there. There was still some difference of view about whether the threat was as serious as the US claimed. But the evidence which we now saw made it easier to expess support for the American objectives in the region and to resist the pressure from other lobbies. A statement was issued by the Foreign Office just before I left for America to this effect. President Reagan explained to me his determination to pursue a new policy to resist communist subversion via Cuba, which also involved closer US relations with what it saw as a vulnerable and important neighbour, Mexico. I understood all this and agreed with it: but I warned of the danger of losing the propaganda war on El Salvador — the reporting was very one-sided.
The second and much more important development was a speech by President Brezhnev, proposing an international summit and offering a moratorium on theatre nuclear forces (TNF) in Europe. Discussion about how the new Administration should respond dominated the hyperactive Washington media world. I had publicly expressed caution both about the prospect of an early summit meeting and about the Russian TNF proposals, which would have left them with overwhelming superiority since they had deployed and we had not. President Reagan turned out to be of the same mind. Both of us were well aware of Soviet tactics and of the likelihood that this was only part of their attempt to disorientate and divide their western opponents. This was the latest phase in a Soviet propaganda battle in which they proposed no further deployment of nuclear weapons just when they had completed stationing their own modernized weapon systems. This issue was to dominate alliance politics for the next six years.
When I arrived in Washington I was the centre of attention not just because of my closeness to the new president but for another less flattering reason. As I left for America, US readers were learning from a long article in Time entitled ‘Embattled but Unbowed’ that my Government was beset with difficulties. The US press and commentators suggested that given the similarity of economic approach of the British and US Governments, the economic problems we were now facing — above all high and rising unemployment — would soon be faced in the US too. This in turn prompted some members of the Administration and others close to it — but never for a moment the President himself — to explain that the alleged failures of the ‘Thatcher experiment’ stemmed from our failure to be sufficiently radical. Indeed, while I was in Washington Treasury Secretary Donald Regan spoke on similar lines to Congress before slipping away to join a lunch at which I was the main guest; this predictably received plenty of press coverage in Britain. I took every occasion to explain the facts of the case both to the press and to the Senators and Congressmen whom I met. Unlike the US, Britain had to cope with the poisonous legacy of socialism — nationalization, trade union power, a deeply rooted anti-enterprise culture. Labour’s prices and incomes policy, combined with lax monetary policies, had greatly increased the inevitable difficulty of transition, as the public sector pay explosion forced up state spending. At one meeting, Senator Jesse Helms said that some of the US media were playing a requiem for my Government. I was able to reassure him that news of a requiem for my policies was premature. There was always a period during an illness when the medicine was more unpleasant than the disease, but you should not stop taking the medicine. I said that I felt there was a deep recognition among the British people that my policies were right.
After another short talk over coffee with the President, at which we were joined by Nancy and Denis, my party left Washington for New York. In the afternoon I had talks with Dr Waldheim, the UN Secretary-General, and then that evening spoke to an audience on the subject of ‘the Defence of Freedom’. In my speech I summed up my feelings of cautious optimism about the decade now opening up before us:
We have long known that the 1980s will be a difficult and dangerous decade. There will be crises and hardships. But I believe the tide is beginning to turn in our favour. The developing world is recognizing the realities of Soviet ambitions and Soviet life. There is a new determination in the western alliance. There is new leadership in America, which gives confidence and hope to all in the free world.
VISITS TO INDIA AND THE GULF
On 20 May 1980 I had held a meeting to consider a subject which the Russian invasion of Afghanistan had belatedly placed near the top of the western international agenda — how to prevent Soviet expansion in the developing world. With a revivified United States, the possibilities had now been transformed. But I never doubt
ed that, over and above the role of ally and friend to the United States, there was much that Britain could achieve and that no one else could. The Left would have it that the legacy of the British empire was one of bitterness and impoverishment in the former colonies: this was a grossly distorted and inaccurate view. Nor for the most part did those with whom I dealt in these countries see Britain in that light. Sweep away some of the rhetoric and with the exception of certain issues, like relations with South Africa, you will find that no country is as trusted in every continent as Britain. In 1981 I began to make more systematic use of these relationships to promote the interests of Britain and the wider objectives of the West.
On Wednesday 15 April 1981 I began a visit to India. I had visited the country twice and met Mrs Indira Gandhi, India’s Prime Minister, three times before. However, the strategic importance of India was now greater. India had been making economic progress, particularly in the crucial sector of agriculture. It was one of the leading countries in the non-aligned movement — still more so since the death of Marshal Tito. That group of nations was itself more important to us because of its attitude to the Soviet invasion of Afghanistan. India could be an even more powerful source of difficulty than benefit if she chose. Her traditionally closer relations with Russia and hostility to Pakistan, at a time when the latter was the main base for the Afghan anti-communist guerillas, meant that the West had to be sensitive to the Indian Government’s feelings and needs. As regards bilateral relations, there was also the thorny question of the new and much misrepresented British Nationality Bill, which was a part of our proposals to limit future large-scale immigration to Britain — not least immigration from the Indian sub-continent.
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