It is curious to see that, in 1986, there was some crisis, in itself insignificant but generating headlines, that seems to have marked a caesura on the Right. Ronald Reagan’s administration was lamed by ‘Irangate’. After Vietnam, Congress had found ways to stop intervention abroad by the CIA, regardless of any national interests that might be involved. Nicaragua had undergone a revolution in 1979, and the ‘Sandinistas’ who took charge talked Cuban language; Central America was full of combustible material, and American interests were at stake. The CIA wanted to keep a counter-revolutionary movement (the ‘Contras’) going and found a complicated way round the congressional prohibition: through Israeli mediation, a deal was done with Iran for the release of hostages, some of the proceeds going under the cover to the Contras. Nothing much about the affair was quite what it purported to be but the Washington media were only too happy to have another Watergate, and though Reagan always protested innocence, some of his senior staff suffered. This coincided with the much larger failure, in 1986, to clean up the overall mess that had become of the budget — an objective that had been stated in the first Inaugural. ‘Irangate’ was a symbol that the Reagan Revolution had failed, at least in its own terms. By 1993 the tax take was almost where it had stood in 1980.
There was an odd parallel in Britain around the same time, an affair known as ‘Westgate’. A small helicopter company called Westland was in trouble, and wished for government help because of defence exigencies; but the American company Sikorsky proposed to buy it. The defence minister, Michael Heseltine, was a vain man, able none the less to arouse enthusiasm at Conservative Party gatherings. He strongly believed that there should have been a government strategy for industrial regeneration, and had tried, in stricken Liverpool, to do his best on a local scale. He had spoken up for local government, even when the Prime Minister (in 1983) wished to close down the rather attitudinizing left-wing apparatus that in theory ran London. He also believed in a European zone. Now he argued that a European consortium should save Westland. More generally this reflected a belief in ‘regional policy’, German examples of which he had no doubt heard of. It was true that in the once industrial powerhouse of Germany, Nordrhein-Westfalen, regional policy had been practised such that towns like Essen, which, had they been in England (or France), would have been stricken in the manner of Liverpool, had recovered. But in Germany, which had nothing like the British problem with inflation, planning could proceed on a relatively confident assumption that costs would not go beyond bearing (and there were also solid critics in Germany of regional policy: it seemed to hold the richer parts back while doing little to improve the poorer parts). Besides, local government there was simply more competent. Now it appeared that Heseltine, whose talents had not, he thought, been adequately rewarded, was using the Westland case to push his way into the Department of Trade and Industry, a monster that reflected sixties gigantomania in a hideous concrete building. He stirred up the more corporatist-minded of his business friends, and was indiscreet in his pursuit of his aims. There were leaks to the press about a warning to him, and it came to a Cabinet meeting early in 1986 at which Heseltine lost his temper, resigned there and then, and stormed out. There were even pompous complaints to the effect that constitutional government had ‘broken down’. It was no doubt true that, by now, the Prime Minister was bypassing some of the Heathite arrangements, and Heseltine’s coup failed. However, sufficient mud stuck to the government and there was more muttering complaint. One minister on the way down was permitted to take such blame as there was, and another, on the way up, delicately indicated that there might be a leadership crisis. ‘Westgate’ was of no interest to even a narrow public, because the country had much else to ponder.
If we look for the moment at which the impetus of the early eighties gave out, it would be 1986, the year of these insignificant symbolical twists. In that year, the seventies came back again, with attempts to rig currencies along lines satisfactory to the powers that be; Europe adopted the Single Market, promptly misused in an anti-market sense; and it became plain that the Thatcher government had lost its overall sense of direction, becoming, as the great historian of government S. E. Finer noted, ‘an unimpressive and unhappy government’. This coincided with a further great problem, that inflation, which had brought this government to power, now returned. Nigel Lawson had been an imposing Chancellor, commanding confidence, and in his own view he was irreplaceable. In March 1988 he brought down the top rate of income tax from 60 to 40 per cent, and the standard rate to 25 (from 27). Labour politicians howled, with the usual shouts that the rich were being given privileges, while the poor suffered. The tax reduction made sense, of course, as it had been shown the advanced world over that if taxes were put at a sensible level, people would not strive very energetically to avoid paying them if they knew that they were getting something in return. The tax reductions cost £6bn, not, by 1988, a large sum, and if they contributed to rich taxpayers returning to the country, there would be no loss at all. In any case, the government’s accounts were in surplus, the first time since 1969.
A far more insidious problem lay in the world of international finance. In 1985 Lawson had in effect abandoned the original monetarist strategy. Instead, he wished to control inflation, as part of a worldwide effort, through the rate of exchange. In 1985 there had been a parallel movement in the United States, and the finance ministers of the main countries met, in an agreement — the Plaza — to bring down the overvalued dollar. These attempts to control the world’s money were not usually successful over the medium term, nor were they now. In February 1987 there was another agreement — the Louvre — to bring the dollar up again. There was then a disagreement between the Germans and the Americans, provoked by some unguarded vinegary statements by James Baker, now a dominant figure in the Reagan administration, and, on the whole, a force for uncreativity. The new trouble was a fear that the dollar would have to be protected by high interest rates, and in October 1987, the midst of the great eighties boom, the stock markets crashed. Understandably, the finance ministers then agreed to cut interest rates, pumping credit into the world, and generally fearing that there might be a repetition of the Slump of the 1930s. In reality these fears were entirely overdone. The stock markets quite soon recovered, and much of the problem had had to do with ultra-new technology, which put the market’s usual herd instincts into fractions-of-a-second velocity. A credit boom was already under way; it went ahead, and inflation went up. But in England there was more to it. Lawson had decided that his best method of controlling inflation was to link the pound with the most stable currency on the Continent, the Deutsche Mark. In a way, this was inconsistent with his earlier stance. He had been an efficient manager of the sound-money Medium Term Financial Strategy, an attempt, not senseless, at domestic financial management. However, the Single European Act was emerging, and the Americans were trying to recover control of the dollar; and there was in truth almost no way in which domestic money could now be measured, because Britain had recovered as a trading and foreign-currency-dealing nation. Inflows of foreign money were vast, much of it connected with Japanese investment. The British balance of payments had been suffering, because oil prices declined, and Lawson took the circumstances of 1985 as guide: the pound had indeed declined by 16 per cent against the Mark, which would of course add to inflation.