Reagan vs. Thatcher: unpicking the special relationship
James Cooper |
Margaret Thatcher and Ronald Reagan first won general elections in 1979 and 1980 respectively. Each came to power riding a wave of fear of domestic and international decline. They saw their international interests converge as the Cold War reheated, and both promised to implement parallel monetarist, free market, and incentive-based economic policies. Having met in 1975 and 1978, they next met as world leaders in February 1981. From the beginning of their partnership in power, Reagan and Thatcher sought to demonstrate a commonality in New Right domestic policy and closeness in Cold Warrior foreign policy. Such a show of unity would, to an extent, provide valuable political cover as they addressed economic challenges at home and Communism abroad. However, their efforts were problematised by the fact that in the 1980s the United States and United Kingdom had very different economies. Even though Reaganism (specifically the Reaganomics tax cuts) and Thatcherism could be superficially similar, differences in the application of a shared New Right philosophy led to tensions between the two administrations.
Initial American suspicion of Thatcherism followed Geoffrey Howe's first budget in 1979. Arthur Laffer, the godfather of supply-side economics, criticised Thatcher in The Wall Street Journal. In Opposition, Thatcher had advocated that lower taxes would create incentives for economic growth, but once in government she effectively increased overall taxation by doubling VAT. Laffer argued that 'commentators the world around have associated the Thatcher government with a resurgence of classical incentive economics. As it turns out, nothing could be further from the truth.'
The first telephone discussion between Reagan and Thatcher (on the occasion of Reagan's inauguration) further highlighted American criticism of Thatcher's domestic policies, and the leaders' awareness of them. Despite Reagan's empathy and encouragement, Thatcher observed: 'The newspapers are saying mostly that President Reagan must avoid Mrs Thatcher's mistakes so I must brief you on the mistakes.' Nevertheless, at her welcome ceremony at the White House on 26 February 1981, Thatcher made clear in public that she and Reagan shared a 'common approach' to the domestic and international challenges they both faced. Reagan also praised their shared approaches and commonality of purpose. But while Thatcher was eating jellybeans in the Oval Office, Donald T. Regan, the US Treasury Secretary, was vehemently criticising her economic policies in his testimony to a Congressional committee. Regan sought to distance his new administration's policies from those implemented by Thatcher. US politicians and media were keen to know whether 'Reaganomics will produce Thatcheritis', as Allan H Meltzer put it in The New York Times. Paradoxically, Thatcher publicly defended her economic programme by linking it to Reagan's, while his administration criticised her. However, during the same visit, Thatcher used a speech at Georgetown University to delicately offer some criticism of her own. After again contrasting her programme with the alleged failure of the British post-war settlement and equating her agenda with Reaganomics, she noted that the president's economic objective was essentially 'to restore people's trust in the dollar'. Thatcher argued that this was vital for the global economy. Her message was sharp: 'The dollar is the world's money.' Thatcher was effectively telling the Reagan administration that they needed to address their own economic problems.
One of the major differences between Thatcherism and Reaganomics becomes clear as the decade unfolds: Thatcher sought a balanced budget to ensure 'good housekeeping', while Reagan's tax cuts reflected his institutional and political battle with Congress. His tax policies and military spending resulted in an astronomical budgetary deficit, ensuring that economic policy remained a source of tension between the Reagan and Thatcher administrations. Thatcher criticised the American deficit privately, to avoid publicly disagreeing with her ally. For instance, when meeting with Reagan in December 1984, Thatcher raised the problem of the US deficit. The following year, the Reagan administration expected Thatcher to use a meeting with senior policy makers 'to lecture on US budgetary deficits' and noted that: 'economic issues are a troublesome aspect of our bilateral relationship.' At a press conference in the US in 1986, Thatcher was asked whether she would like to further lower British taxes. She delicately explained the differences between her approach and that of the President: 'Yes, we should like to do more, but do not forget we could not run a deficit of the kind which the United States runs...but even you still have to tackle your deficit'.
In 1987, Thatcher wrote to Reagan again about the issue, seeking action. However, her concern went beyond a passion for economic housekeeping: the global financial economy was at the centre of her own economic revolution. Thus, Thatcher complemented Reagan on his restoration of 'the US economy to health and to create jobs, to the benefit of us all', while expressing her 'very real fear now that this achievement may be in jeopardy, because of the strains in the financial markets', and urging that 'The priority now has to be for sound money and sound finance.' Thatcher's continuing correspondence with Reagan about the deficit was headline news in The Times, which in November 1987 described her efforts as 'virtually unprecedented in that it represents a direct attempt to intervene in the domestic affairs of the US'. Nigel Lawson, the Chancellor of the Exchequer, was much more public in his view that the US deficit was a danger to other western economies. In a major speech in 1987, he went as far as questioning whether the President had the political will to address the situation.
Thatcher and Reagan's relationship was undoubtedly special, but it is important not to overstate the extent of commonality and agreement between their administrations' policies. In fact their policies are examples of how economic ideas and political philosophies are implemented in different environments, circumstances and institutions. Reagan and Thatcher were pragmatic politicians, each with their own agenda and tactics, which students of this period should not forget.Please note: Views expressed are those of the author.