The Western Bloc Meets Challenges with Reform

As the 1980s opened, governments in the West had to put their economic houses in order and confront the growing phenomenon of terrorism—a trend that had actually begun in the West. In the 1970s, terrorist bands of young people in Europe responded to the suppression of activism and the worsening economic conditions with kidnappings, bank robberies, bombings, and assassinations. In West Germany, the Red Army Faction—eager to bring down the Social Democratic coalition that had led the country through the 1970s—assassinated prominent businessmen and public officials. Practiced in random shootings of pedestrians, Italy’s Red Brigades kidnapped and then murdered the head of the dominant Christian Democrats in 1978. Advocates of independence for the Basque nation in northern Spain assassinated Spanish politicians and police officers.

In the 1970s, Catholics in Northern Ireland protested job discrimination and a lack of civil rights. With protest escalating, the British government sent in troops who on January 30, 1972 (which became known as Bloody Sunday), fired at demonstrators and killed thirteen, setting off a cycle of violence that left five hundred dead in that year alone. Protestants fearful of losing their dominant position combated a reinvigorated Irish Republican Army (IRA), which carried out bombings and assassinations to put an end to the oppression of Catholics.

Terrorists failed in their goal of overturning the existing democracies, and, battered as it was, parliamentary government scored a few important successes in the 1970s. Spain and Portugal, suffering under dictatorships since the 1930s, set out on a course of political openness and greater prosperity. The death of Spain’s Francisco Franco in 1975 ended more than three decades of dictatorial rule. Franco’s handpicked successor, King Juan Carlos, surprisingly steered his nation to Western-style constitutional monarchy, facing down threatened military coups. Portugal and Greece also ousted right-wing dictators, thus paving the way for their countries’ integration into western Europe. Despite these democratic advances, economic crisis and political terrorism weighed on the West.

More than anyone else, Margaret Thatcher (1925–2013), the leader of Britain’s Conservative Party and prime minister from 1979 to 1990, reshaped the West’s political and economic ideas to meet the crisis. Coming to power amid continuing economic decline, revolt in Northern Ireland, and labor unrest, the combative prime minister rejected the politics of consensus building. She believed that only business could revive the sluggish British economy, so she lashed out at union leaders, Labour Party politicians, and people who received welfare-state benefits, calling them enemies of British prosperity. In her view, business leaders were the key members of society. She characterized immigrants, whose low wages contributed greatly to business profits, as inferior. Under Thatcher, even workers blamed labor leaders or newcomers for Britain’s troubles.

The policies of “Thatcherism” were based on monetarist, or supply-side, economic theory. According to monetarist theory, inflation results when government pumps money into the economy at a rate higher than the nation’s economic growth rate. Monetarists believe that the government should keep a tight rein on the money supply to prevent prices from rising rapidly. Supply-side economists maintain that the economy as a whole flourishes when businesses grow and their prosperity “trickles down” throughout society. To implement these theories, the British government cut income taxes on the wealthy as a way of encouraging investment and increased sales taxes to compensate for the lost revenue. The result was a greater burden on working people, who bore the brunt of the higher sales tax. Thatcher also refused to prop up “outmoded” industries such as coal mining and slashed education and health programs. Her package of economic policies came to be known as neoliberalism.

In the first years of Thatcher’s government, the British economy did not respond well to her shock treatment. The quality of universities, public transportation, highways, and hospitals deteriorated, and social unity fragmented as she pitted the lower classes against one another. In 1981, blacks and Asians rioted in major cities. Thatcher revived her sagging popularity with a nationalist war against Argentina in 1982 over ownership of the Falkland Islands off the Argentinian coast. Stagflation ultimately dissipated, and Thatcher’s program became the standard for those facing the challenge of stagflation and economic decline. Britain had been one of the pioneers of the welfare state, and now it pioneered in changing course.

In the United States, Ronald Reagan (1911–2004), who served as president between 1981 and 1989, followed a similar road to combat the economic crisis there. Dividing U.S. citizens into the good and the bad, Reagan vowed to promote the values of the “moral majority,” which included commitment to Bible-based religion and unquestioned patriotism. He blasted so-called spendthrift and immoral “liberals” when introducing “Reaganomics”—a program of whopping income tax cuts for the wealthy combined with massive reductions in federal spending for student loans, school lunch programs, and mass transit. Funding social programs, he felt, only encouraged bad Americans to be lazy. In foreign policy, Reagan rolled back détente and demanded huge military budgets to counter the Soviets. The combination of tax cuts and military expansion had pushed the federal budget deficit to $200 billion by 1986. As in Britain, inflation was brought under control and business picked up.

Other western European leaders also limited welfare-state benefits in the face of stagflation, though without Thatcher’s and Reagan’s socially divisive rhetoric. West German leader Helmut Kohl, who took power in 1982, reduced welfare spending, froze government wages, and cut corporate taxes. Unlike Thatcher, Kohl did not fan the flames of class and racial hatreds. Such a strategy would have been particularly unwise in Germany, where terrorism on the left and on the right continued to flourish. Moreover, the legacy of Nazism loomed menacingly: for example, an unemployed German youth said of immigrant Turkish workers, “Let’s gas ’em.”

By 1981, stagflation had put more than 1.5 million people out of work in France, but the French took a different political path to deal with the economic crisis. They elected a Socialist president, François Mitterrand, who nationalized banks and certain industries and increased wages and social spending to stimulate the economy—the opposite of Thatcherism. New public buildings like museums and libraries arose along with new subway lines and improved public transport. When conservative Jacques Chirac succeeded Mitterrand as president in 1995, he adopted neoliberal policies. Socially divisive politics that had unfolded during hard economic times grew in appeal. From the 1980s on, the racist National Front Party won 10 percent and often more of the French vote with promises to deport African and Middle Eastern immigrants.

At the same time, smaller European states without heavy defense commitments began to thrive, some of them by slashing welfare programs. Spain joined the Common Market in 1986 and used Common Market investment and tourist dollars to help rebuild its sagging infrastructure, as in the southern cities of Granada and Córdoba. In Ireland, new investment in education for high-tech jobs combined with low wage rates attracted business to the country in the 1990s. Prosperity, along with the rising death toll from decades of violence, led to a political rapprochement between Ireland and Northern Ireland in 1999. Austria prospered, too, in part by reducing government pensions and aid to business.

Almost alone, Sweden maintained a full array of social programs. The government offered each immigrant a choice of subsidized housing in neighborhoods inhabited primarily by Swedes or primarily by people from the immigrant’s native land. Such programs were expensive, and Sweden dropped from fourth to fourteenth place among nations in per capita income by 1998. The Swedish welfare state came to seem extreme to many citizens, and, as elsewhere, immigrants were cast as the source of the country’s problems—past, present, and future: “How long will it be before our Swedish children will have to turn their faces toward Mecca?” ran one politician’s campaign speech in 1993.