Recommended resources
The freely available resources this lesson will direct you to.
Hello. In the previous lesson, Hayek argued that markets can coordinate dispersed knowledge and protect room for individual choice. But an argument does not become a governing programme simply because it exists. This lesson asks why Britain’s post-war settlement became vulnerable in the 1970s, and how Thatcher’s governments changed it.
We will follow the crisis without treating Thatcherism as its inevitable outcome. Then we will examine two reforms—trade union legislation and privatisation—that make the change concrete. Allow about 40–45 minutes, including the selected resources.
What was under strain?
The post-war settlement was a mixed economy, not the comprehensive plan Hayek most strongly opposed. Governments of both major parties broadly accepted responsibility for maintaining employment, recognised trade unions as participants in economic decisions, retained public ownership of major industries, and supported welfare provision. “Consensus” describes substantial agreement among governing elites, not the absence of political disagreement.
Dennis Kavanagh’s BBC History article provides a concise account of both that settlement and the pressures it faced. As you read, keep its economic and political difficulties distinct: poor performance mattered, but so did governments’ declining ability to secure agreement over how to respond.
Thatcherism and the End of the Post-War Consensus
Read Dennis Kavanagh’s “Thatcherism and the End of the Post-War Consensus” for the settlement’s main commitments and the events that made them harder to sustain.
In “Consensus,” read the settlement, from the opening description of post-war Britain through the paragraph explaining why “consensus” does not mean total agreement. Focus on the five numbered domestic-policy commitments. Then, in “Economic decline,” read the crisis account, from the comparison with other countries through the final paragraph contrasting responses from the right and left. Notice where the article describes economic problems and where it describes failed attempts to govern them.
The strain accumulated rather than arriving in one moment. Britain’s relatively weak growth and productivity compared with other economies prompted concern before the worst crises of the 1970s. Inflation then rose alongside weak growth and unemployment—a combination often called stagflation. The international oil shock contributed to inflation, while domestic disputes over wages, investment and productivity made it harder to contain.
The settlement’s usual remedies became politically difficult. Stimulating demand to support jobs risked increasing inflation and imports. Governments also tried incomes policies, seeking agreement to restrain wage rises. Yet unions existed to bargain for their members, and an agreement could unravel when particular groups rejected its limits. The Conservative government’s confrontation with miners preceded its February 1974 election defeat. Under Labour, pressure on sterling led to a 1976 International Monetary Fund loan with conditions including spending restraint. Public-sector strikes during the Winter of Discontent in 1978–79 then severely damaged confidence in Labour’s ability to manage wages and govern with union cooperation.
These events did not prove that every form of public ownership or welfare provision had failed. They did make the old promise—government could sustain employment, manage inflation and negotiate a workable compromise among organised interests—harder to defend.
Professor Vernon Bogdanor’s Gresham College lecture gives the political sequence more texture. The selected passages run from the breakdown of incomes policies under two governments to the opening for Thatcherism.
Britain in the 20th Century: The Collapse of the Postwar Settlement, 1964-1979
Watch the selected portions of “Britain in the 20th Century: The Collapse of the Postwar Settlement, 1964–1979,” a Gresham College lecture by Vernon Bogdanor. They show why repeated difficulties under both parties mattered more than a single bad winter.
Watch Heath’s crisis for the confrontation over incomes policy and the 1974 election. Continue with Labour’s response for the social contract with unions and its breakdown in 1978–79. Finish with the opening for the lecture’s account of how these failures made a different Conservatism politically possible. As you watch, distinguish what governments tried from why those attempts lost credibility.
An opening, not an automatic victory
The crisis left room for competing diagnoses. One response called for more state direction and protection of industry; another blamed excessive intervention and union power and proposed a greater role for markets. Thatcherism succeeded in part by making the second account politically compelling. It presented inflation control, individual initiative and limits on organised labour not as isolated adjustments, but as an alternative to a settlement said to be holding Britain back.
The Open University’s “Remembering Thatcherism” introduces Stuart Hall’s description of this as an “organic crisis”: a period when established political assumptions no longer convince, but no replacement is guaranteed. Hall’s phrase “free market and a strong state” is useful here. A government could reduce public ownership while using law and state authority forcefully to reshape economic life.
Read the Open University’s “Remembering Thatcherism” for Stuart Hall’s interpretation of why a crisis could become an opportunity to build a new political outlook.
In the discussion of Hall and Antonio Gramsci, read the crisis argument, from Hall’s account of a new consensus through the paragraph explaining why he saw Britain from the mid-1970s as being in an organic crisis. Focus on what Thatcher’s supporters had to argue and organise, rather than assuming economic troubles dictated one solution.
Thatcher’s 1979 election victory should therefore not be read as a detailed public endorsement of every later reform. It was also a rejection of the outgoing government’s record. Privatisation, which became a defining policy, was not even a flagship proposal in the 1979 manifesto. The programme developed as political circumstances changed.
Reform one: changing the position of trade unions
Under the post-war settlement, unions were recognised bargaining partners and were regularly consulted by government. Incomes policies depended partly on securing their cooperation. Thatcher’s governments abandoned that approach and placed unions within a tighter legal framework. Legislation introduced requirements such as ballots before strikes and increased unions’ exposure to legal action over unlawful industrial action. Further changes weakened and ultimately ended the closed shop, under which a job could require union membership.
The shift was not simply that government “stopped intervening.” It intervened differently. Rather than negotiating with unions as major partners in economic management, the state set rules intended to restrict their collective leverage. Supporters argued that this protected individuals and employers from disruptive union power. Critics argued that it reduced workers’ ability to bargain collectively and tilted power toward employers. Rising unemployment also weakened unions, so legal reform was only part of the story.
Reform two: selling public enterprises
Privatisation changed another pillar of the settlement: the assumption that major industries and utilities should remain publicly owned. Sales included British Telecom in 1984, British Gas in 1986 and British Steel in 1988. Ownership and decisions about investment passed to private shareholders, while government continued to set rules for these industries. Selling a utility did not, by itself, create effective competition; regulation remained important.
For supporters, sales promised more responsive management, less direct political control of industry and wider share ownership. For critics, they transferred public assets to private owners and made essential services or strategic industries answer more directly to commercial priorities. The British Steel flotation makes the change visible, but it is worth asking what changed after the sale: who made decisions, to whom they were accountable, and whose interests counted when those decisions conflicted.
Return briefly to Kavanagh’s article to see both reforms placed alongside other departures from the consensus. Its list is a useful overview, though British Rail’s later privatisation belongs to the 1990s, after Thatcher left office.
Thatcherism and the End of the Post-War Consensus
Return to Kavanagh’s BBC History article to compare the two reforms with the wider change in government priorities.
In “Thatcherism,” start at the observation that privatisation was absent from the 1979 manifesto. Read the reform account through the end of “Thatcher’s mandate.” Concentrate on the numbered points about unions and public ownership, then note the separate shifts concerning employment and welfare. The closing election discussion qualifies any claim that voters had approved the entire later programme in advance.
Where this leaves us
Britain’s post-war settlement lost credibility through a combination of relative economic weakness, inflation, failed wage restraint, financial pressure and damaging industrial conflict. Thatcherism turned that opening into a new governing programme, but the outcome was politically constructed, not inevitable. Trade union legislation reduced organised labour’s standing as a governing partner; privatisation changed who owned and directed major enterprises. Both reforms show why “more market, less state” is incomplete: state power helped establish the new rules.
This closes the course’s first module, which has moved from competing meanings of neoliberalism to Hayek’s arguments and then to Britain’s political turn. The next lesson takes up Michel Foucault’s idea of governmentality and Wendy Brown’s claim that market reasoning can reshape people and institutions well beyond the economy.