The transition to a postindustrial society was led to a great extent by a new generation of conservative political leaders, who believed they had viable solutions for restructuring the relations between the state and the economy. During the thirty years following World War II, both Social Democrats and the more conservative Christian Democrats had usually agreed that economic growth and social stability were best achieved through full employment and high wages, some government regulation, and generous welfare provisions. In the late 1970s, however, with a weakened economy and increased global competition, this consensus began to unravel. Whether politics turned to the right, as in Great Britain, the United States, and West Germany, or to the left, as in France and Spain, leaders moved to cut government spending and regulation in attempts to improve economic performance.

The new conservatives of the 1980s followed a philosophy that came to be known as neoliberalism because of its roots in the free market, laissez-faire policies favored by eighteenth-century liberal economists such as Adam Smith (see Chapter 21). Neoliberal theorists like U.S. economist Milton Friedman argued that governments should cut support for social services, including housing, education, and health insurance; limit business subsidies; and retreat from regulation of all kinds. (Neoliberalism should be distinguished from modern American liberalism, which supports welfare programs and some state regulation of the economy.) Neoliberals also called for privatization — the sale of state-managed industries to private owners. Placing government-owned industries such as transportation and communication networks and heavy industry in private hands, they argued, would both reduce government spending and lead to greater workplace efficiency. The main goal was to increase private profits, which neoliberals believed were the real engine of economic growth.

The effects of neoliberal policies are best illustrated by events in Great Britain. The broad shift toward greater conservatism, coupled with growing voter dissatisfaction with high taxes and runaway state budgets, helped elect Margaret Thatcher (1925–2013) prime minister in 1979. A member of the Conservative Party and a convinced neoliberal, Thatcher was determined to scale back the role of government, and in the 1980s — the “Thatcher years” — she pushed through a series of controversial free-market policies that transformed Britain. Thatcher’s government cut spending on health care, education, and public housing; reduced taxes; and privatized or sold off government-run enterprises. In one of her most popular actions, Thatcher encouraged low- and moderate-income renters in state-owned housing projects to buy their apartments at rock-bottom prices. This initiative, part of Thatcher’s broader privatization campaign, created a whole new class of property owners, thereby eroding the electoral base of Britain’s socialist Labour Party. (See “Individuals in Society: Margaret Thatcher.”)

Though Thatcher never eliminated all social programs, her policies helped replace the interventionist ethos of the welfare state with a greater reliance on private enterprise and the free market. This transition involved significant human costs. In the first three years of her government, heavy industries such as steel, coal mining, and textiles shut down, and unemployment rates in Britain doubled to over 12 percent. The gap between rich and poor widened, and increasing poverty led to discontent and crime. Strikes and working-class protests sometimes led to violent riots. Street violence often had racial overtones: immigrants from former British colonies in Africa, India, and the Caribbean, dismayed with poor jobs and racial discrimination, clashed repeatedly with police. Thatcher successfully rallied support by leading a British victory over Argentina in the brief Falklands War (1982), but over time her position weakened. By 1990 Thatcher’s popularity had fallen to record lows, and she was replaced by Conservative Party leader John Major.

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In the United States, two-term president Ronald Reagan (U.S. pres. 1981–1989) followed a similar path, though his success in cutting government was more limited. Reagan’s campaign slogan — “government is not the solution to our problem, government is the problem” — summed up a movement in line with Thatcher’s ideas, which was labeled the conservative movement in the United States. With widespread popular support and the agreement of most congressional Democrats as well as Republicans, Reagan pushed through major across-the-board cuts in income taxes in 1981. But Reagan and Congress failed to limit government spending, which increased as a percentage of national income in the course of his presidency. A massive military buildup was partly responsible, but spending on social programs — despite Reagan’s pledges to rein them in — also grew rapidly. The harsh recession of the early 1980s required the government to spend more on unemployment benefits, welfare benefits, and medical treatment for the poor. Moreover, Reagan’s antiwelfare rhetoric mobilized the liberal opposition and eventually turned many moderates against him. The budget deficit soared, and U.S. government debt tripled in a decade.

West Germany also turned to the right. After more than a decade in power, the Social Democrats foundered, and in 1982 Christian Democrat Helmut Kohl (b. 1930) became the new chancellor. Like Thatcher, Kohl cut taxes and government spending. His policies led to increasing unemployment in heavy industry but also to solid economic growth. By the mid-1980s West Germany was one of the most prosperous countries in the world. In foreign policy, Kohl drew close to President Reagan. The chancellor agreed to deploy U.S. cruise missiles and nuclear-armed Pershing missiles on West German territory, a decision that contributed to renewed superpower tensions. In power for sixteen years, Kohl and the Christian Democrats governed during the opening of the Berlin Wall in 1989, the reunification of East and West Germany in 1990, and the end of the Cold War.

The most striking temporary exception to the general drift to the right in European politics was François Mitterrand (1916–1996) of France. After his election as president in 1981, Mitterrand and his Socialist Party led France on a lurch to the left. This marked a significant change in French politics, which had been dominated by center-right parties for some twenty-five years. Working at first in a coalition that included the French Communist Party, Mitterrand launched a vast program of nationalization and public investment designed to spend the country out of economic stagnation. By 1983 this attempt had clearly failed, and Mitterrand’s Socialist government made a dramatic about-face. The Socialists were compelled to reprivatize industries they had just nationalized. They imposed a wide variety of austerity measures and maintained those policies for the rest of the decade.

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Despite persistent economic crises and high social costs, by 1990 the developed nations of western Europe and North America were far more productive than they had been in the early 1970s. Western Europe was at the center of the emerging global economy, and its citizens were far richer than those in Soviet bloc countries (see “State and Society in the East Bloc”). Even so, the collapse of the postwar consensus and the remaking of Europe in the transitional decades of the 1970s and 1980s helped generate new forms of protest and dissent across the political spectrum.