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 (see "Adam Smith and Economic Liberalism" in Chapter 20). Neoliberal theorists argued that governments should limit support for social services including housing, education, and health insurance; cut business subsidies; and retreat from regulation of all kinds. Neoliberals also called for privatization — the sale of state-managed industries to private owners. Doing so, they argued, would both tighten 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 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. (See “Individuals in Society: Margaret Thatcher.”)

Though she never eliminated all social programs, Thatcher’s 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, 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. 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.

In the United States, two-term president Ronald Reagan (r. 1981–1989) followed a similar path, though his success in cutting government was more limited. 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 also grew rapidly. As a result, 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.

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. 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.

Despite persistent economic crises and high social costs, the developed nations of western Europe and North America were far more productive by 1990 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"). Yet 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.