Today’s recession – any lessons from the 1980s?

As we head into 2023, the United Kingdom is doing what it does best – a thumping recession. I’ve lost count of how many recessions I’ve lived through. Many people mistakenly think the 1980s was a non-stop, champagne swilling, yuppie boom. But in fact the decade was bookended by recessions. The recession from 1979 to 1981 lasted five quarters and saw a quarter of manufacturing collapse, companies’ earnings down by a third, unemployment skyrocket while inflation began 1980 at a staggering 18%. The end of the 1980s saw a boom engineered by Tory Chancellor of the Exchequer Nigel Lawson turn to bust. The yuppie utopia capsized into a property crash, a spike in the jobless rate, and a welter of financial scandals. So – how does today’s recession compare to the 1980s?

DISCOVER: The economic recession of 1979 to 1981

Today’s recession is weird compared to the 1980s

The boom-bust cycle of British capitalism had a pretty predictable flavour in the past. When inflation was high, unemployment was low. And vice versa. Governments could decide which was the lesser evil.

But then in the 1970s and early 1980s we had the horror of ‘stagflation‘ – stagnation plus inflation. Prices were rising fast and so was unemployment. This was what we saw in the early 1980s. Stratospheric unemployment exacerbated by government policy, high inflation, and high interest rates. Today, we have a recession characterised by high inflation but for now, unemployment is low. People are being squeezed but…they still have a job. That was not the case for millions of people forty years ago.

Throughout the 1980s – even after the early 80s recession ended – the UK and Europe had high and persistent rates of ‘structural’ unemployment – that stubbornly refused to fall. Countries like Spain viewed a 25% jobless rate as an eternal feature of their economy. The UK unemployment figure – the real one, not the Thatcher fairy tale figure – hovered around four million through the early 1980s. Areas of the country became jobs deserts with an emergent dole culture of self-sufficiency and, basically, survival. And high levels of substance abuse – particularly heroin. In effect, many inner city areas were written off. One minister in the first Thatcher government, 1979 to 1983, even talked about abandoning the city of Liverpool to ‘managed decline‘.

Today, we have the weirdness of a prolonged recession, high inflation, but the jobless rate is low. Now one might assume that would lessen the sense of desperation as people are still going into work each day. However, high inflation propelled by rising energy costs and mortgage bills are walloping not just the most low paid but even the middle class. Never in my lifetime have I seen middle class people swallowing their shame and heading for the local food bank. That is a grim milestone in British social history.

How long might low levels of unemployment persist? Could we see the jobless rate start to rise? In the 1980s, it was the closure of factories, docks, and mines that sent thousands to the dole queues. Now it’s the decline in areas like traditional retail, hospitality, and wholesaling. But set against that, factors like Brexit have resulted in many unfilled posts – admittedly in areas that are unattractive for many British workers. And add to that a lot of Boomers and Gen-Xers who left the labour market during the pandemic and have decided not to go back – for now.

In the early 1980s, people were desperate for work that simply didn’t exist. Today, people don’t want to do jobs that are either poorly paid or unfulfilling. This could all change with a prolonged recession and the resulting reduction in investment and recruitment by employers. And expect the young – whose expectations today are way higher than my generation forty years ago – to react very angrily.

Inflation has rebooted the trade unions

We see some very obvious parallels to the past. High inflation has re-energised the dormant giant that is the trade union movement. I’ve just walked past a Unite picket line – a sight that had become a distant memory just a few years ago. As the value of money has declined, workers are demanding pay hikes to maintain their standard of living. And the trade unions are experiencing a new burst of life. The main difference in 2022 compared to forty years ago is that the union movement is overwhelmingly public sector and strongest in areas like local council services, transport, and health. Back in the 1980s, Britain was more industrialised and unions could be found in both the private and public sectors across many areas of economic activity.

Back in the 1970s and 1980s, trade unions were routinely blamed for causing inflation by making “excessive” pay claims. This argument isn’t landing these days – thought some Tories have tried it. To most people it’s very obvious that inflation has preceded union pay claims and that all these workers are trying to do is keep pace with rising prices. The backdrop to recent industrial action is years of stagnant pay with wages falling in real terms during the Covid pandemic. So, it’s hard for the Tories to push that old trope – but expect it to come back soon.

FIND OUT MORE: UK inflation in the 1970s and 1980s

Political differences with today’s recession compared to the 1980s

At the start of the 1980s, Prime Minister Margaret Thatcher in the UK and President Ronald Reagan in the United States were pioneering an anti-socialist, anti-organised labour agenda reasserting the values of capitalism. Their neoliberalism was defined by thinkers like the economist Milton Friedman and the political philosopher Friedrich Hayek. The role of the state should be minimised. Citizens should be regarded more as consumers. Competition should be maximised. Any whiff of collectivism rejected. This was a mission to destroy Marxism and socialism. Conservatives like Thatcher had an almost messianic quality to their approach – and a grim determination to recast the whole of society as capitalist friendly.

Today, right-wing politics is led by a combination of markets-friendly technocrats, populists, and the likes of Liz Truss (our very short-lived Prime Minister in 2022) who clearly skim read the history of the 1980s without taking on board any nuances or context. Truss and her Chancellor of the Exchequer Kwazi Kwarteng attempted to re-enact the neoliberal fervour of the early budgets of Thatcher and her first Chancellor, Geoffrey Howe. But maybe they should have boned up on what the Thatcher/Howe monetarist experiment did to the UK economy. And how Thatcher discreetly dumped that approach. The Iron Lady was for turning when it suited.

Neoliberalism has survived in parts but the 2008 recession, the pandemic, and other factors have brought the state back into people lives in a way that would have horrified the likes of Friedman and Hayek. Social attitudes surveys today show that young people have no qualms about greater state intervention and are alienated from capitalism as they have nothing by way of a stake in it. Thatcher was keen to ensure that ordinary people believed they had a vested interest in the free enterprise system by giving them shares in privatised companies and the keys to their council flats. But there is no equivalent today. Zoomers and Millennials find themselves unable to climb the property ladder and the idea of individual share ownership is largely alien.

So how is the recession today different?

The word many use today about this recession is ‘existential’. What do they mean? Previous dips in growth were always viewed as horrible but temporary. At some point, after a great deal of pain, we would re-emerge and the economy would get wind back in its sails again. In other words, a return to some kind of normality. And at the end of it all, despite a few riots and demonstrations, capitalism would resume as before. But recent years have witnessed the unthinkable: Insurrection on Capitol Hill. Countless billions spent during the pandemic. A rapid succession of UK Prime Ministers. An energy crisis of a much greater magnitude than the oil crisis of the mid-1970s. War in Ukraine and the use of nuclear missiles openly contemplated.

Global warming is no longer a fringe issue but has directly impacted all our lives. It’s set in motion a cataclysmic chain reaction in many countries with millions on the move, infrastructure collapsing, and homes destroyed. All of this will give rise to political instability and civil unrest. And this will happen regardless of recession or boom. Little wonder that the business media chatter about an existential crisis. Comparisons with forty years ago are of limited worth. Then, the neoliberal age was beginning and now it’s ending. Anything seems possible from dictatorship to nuclear confrontation. And any sense of optimism has evaporated.

Well, hold on to your seats – it’s going to be a bumpy ride!