Tuesday 9 April 2013

Jobs and HRM in the Thatcher years

Last year I prepared a historical timeline looking at trends in work, human resource management and the related political context during the past century. In the light of yesterday's news of the death of Baroness Thatcher, here is my brief account of what happened during the Thatcher era.

Margaret Thatcher entered Downing Street in 1979 as Britain’s first woman prime minister. The Thatcher government broke the post-war political consensus by prioritising low and stable inflation, achieved by controlling the supply of money, rather than full employment as the principal objective of macroeconomic policy. Raising economic growth and cutting unemployment were instead the target of structural or supply side policies, such as de-regulating markets, privatising state run enterprises, switching more of the burden of taxation from incomes to VAT, abolition of the Wages Councils, and curbing the power of trade unions to affect pay bargaining or prevent managers from changing work practices.

The initial combination of tight monetary policy, tight fiscal policy and economic restructuring was a major recession, lasting from 1979 to 1981 and soaring unemployment. Unemployment rose above 3 million (close to 12%), higher than at any time since the 1930s Depression, and remained at around that level until 1986. Manufacturing bore the brunt of job losses, partly because tight monetary policy caused the value of the pound to rise which priced UK goods out of global markets, and partly because the recession coincided with greater use of advanced robot technology and increased competition from emerging economies. Society became imbued with a strong sense of economic insecurity and it was commonly said that people could ‘no longer expect a job for life.’

The efforts of unions to counter the impact of global competition and technology on jobs clashed with the Thatcher government’s aim to fully embrace market forces by weakening union resistance. That resistance was broken most visibly and violently in the Miners’ Strike of 1984-85 and the Wapping newspaper dispute of 1986. Broader social unrest was in turn witnessed in a series of inner city riots, often involving conflict between the police and disadvantaged ethnic minority communities. Trade union membership, which had peaked at around 12.2 million in 1980, entered what was to prove the start of a period of continual long run decline (the number falling to less than 6 million by 2011).

As in the 1930s, the 1980s witnessed a widening north-south divide. Recession, increased competition and technology hit manufacturing and heavy industries, concentrated in the north of Britain particularly hard. By contrast economic recovery, boosted by reductions in interest rates, a boom in house prices and a surge in spending on consumer services, favoured the south. The growing economic power of London and the south east plus the shift from an manufacturing to finance based economy was symbolised by The Big Bang financial deregulation of 1986 and fictionalised by Harry Enfield’s comedy creation Loadsamoney, an employed brash southerner who delighted in flashing his wad of banknotes at poor, jobless, northerners.

Once the economic recovery gathered pace more generally, resulting in a sharp fall in unemployment from 1986 onward, personnel managers in the private sector schooled in the strife ridden post-war era of collective industrial relations and pay bargaining, made full use of the structural and legislative changes taking place.

There was a clear strategic decision to depart from traditional collective procedures and instead focus on employees as individuals. British managers also started to adopt the new US fashion for calling personnel management Human Resources management (HR or HRM). This combined the concept of treating employees as a resource with investment potential with that of treating employees as people who needed to be nurtured and motivated. More and more HR professionals started to specialise, focusing on specific roles in training, reward or diversity. The development of the European Community plus the emergence of multi-national corporations operating in different countries in turn set in train a shift toward what would later be labelled ‘global HR.’ 

HR managers led HR departments and started to introduce individual performance appraisal, individual performance-related pay conditioned by market forces rather than national or sectoral collective agreements, and direct communications between front-line managers and their employees. Organisations also started to be influenced by the management practices of overseas businesses, especially in the car industry, that started to invest in the UK. Increased attention was paid to the quality movement inspired by management writers like William Edwards Deming whose 1982 study Out of the crisis drew on his post-war experience of Japanese management practice. Concepts like lean production and just-in-time systems entered the management lexicon.

British employers and HR gurus started to talk in terms of ‘flexible firms’ comprising a core of workers on permanent contracts working alongside armies of temporary staff and self-employed contractors. Charles Handy published his study on The Future of Work in 1984, forecasting that fewer people would have a single employer but instead be ‘portfolio workers’ performing jobs for a number of different employers. The shift of employment from manufacturing to services also shifted the gender and hours balance of the workplace, with women taking advantage of the greater opportunity to work part-time and workers in general more likely to be employed to work flexible hours rather than on a traditional ‘9 to 5’ basis. Labour market flexibility in turn helped price more low skilled people into jobs, eventually enabling the UK to achieve a lower rate of structural unemployment than seen in the still strongly regulated economies of continental Europe, albeit at the cost of a return to early 20th century style wage inequality.

Government and employers claimed that greater labour market flexibility explained why unemployment started to fall rapidly from 1986 onward once strong demand returned to the economy, though part of this improvement was due to shifting some people receiving unemployment benefits onto incapacity benefits which disguised the true extent of joblessness and welfare dependency. Unfortunately, however, as the decade drew to an end, economic recovery once again turned into an unsustainable inflationary boom (nicknamed the Lawson boom after the then Chancellor of the Exchequer Nigel Lawson). And as usual a bust was soon to follow.  Unemployment began to rise again and was soon on its way back to 3 million.

Without an incomes policy to combat rising prices the Thatcher government instead in 1990 decided to fix the value of the pound and set interest rates at a relatively high level within the constraints of the European Exchange Rate mechanism (ERM). The result was a depression of demand which resulted in recession. Alongside political turmoil caused by the government’s plan to replace the household rates system of local taxation with a poll tax, this marked the end of Mrs Thatcher’s 11 and a half year premiership.

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