The Rise of Conservative Capitalism: Ideological Tensions within the Reagan and Thatcher

Governments
Author(s): Kenneth R. Hoover
Source: Comparative Studies in Society and History, Vol. 29, No. 2 (Apr., 1987), pp. 245-268
Published by: Cambridge University Press
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The Rise of ConservativeCapitalism:
Ideological Tensions within the
Reagan and ThatcherGovernments
KENNETH R. HOOVER

Universityof Wisconsin-Parkside

The phrase liberal capitalism has occasionally been used in contemporary

political criticism to lump togetherthe ideological approachesof nonsocialist
political parties and to suggest that there are few significant differences
among those who generally supporta market-basedpolitical economy. C. B.
Macpherson,in an influential essay entitled The Real World of Democracy
(1965), arguesthat "by admittingthe mass of the people into the competitive
party system, the liberal state did not abandon its fundamentalnature; it
simply opened the competitive political system to all the individualswho had
been created by the competitive marketsociety."' As a first approximation
then, liberalcapitalismappearsto standfor a combinationof rationalcontrac-
tualism, utilitarianindividualism, and the laissez-faire economics of Adam
Smith.
With the rise to power of Prime MinisterMargaretThatcherand President
Ronald Reagan, a considerable cleavage has developed among those who
supportcapitalism. Reagan and Thatcherhave assembled a rationale and a
series of policies for what I will identify as conservative capitalism. Rather
than dealing incrementallywithin a general consensus on reformistpolicies,
they have reversedthe growthof taxation, shiftedresourcesaway from human
service programs,resuscitatedtraditionalistprescriptionsfor personalbehav-
ior, and advancedthe apparentsubstitutionof the marketfor governmentas
the key institutionof the society. There are foreign policy implicationsof this
development, though they are beyond the scope of this article.

This article is based in parton a paperpreparedfor the XIII WorldCongress of the International
Political Science Association, Paris, July 1985. I would like to thank Norman Cloutier, Mark
Kann, Thomas Moore, and Raymond Plant for their suggestions in writing this article.
I C. B.
Macpherson, The Real World of Democracy (London: Oxford University Press,
1965), 11. More recently, the discussion of "liberal democraticcapitalism" has been at the heart
of attemptsto revise Marx's theory of the state. See Samuel Bowles and HerbertGintis, "The
Crisis of Liberal DemocraticCapitalism:The Case of the United States," Politics and Society,
11:1 (1982), 51-93.

0010-4175/87/2205-0302 $2.50 ? 1987 Society for ComparativeStudyof Society and History

245
246 KENNETH R. HOOVER

While some criticaltheoristsmay have minimizedthe contributionof liber-

al social ideals to the ameliorationof the inequalitiesproducedby capitalism,
the Reagan-Thatcherpolicies make it quite clear that conservativecapitalism
is indeeddifferentfrom the liberalversion, particularlyfrom its contemporary
"reform liberal" variant. Modern liberal reformers and social democrats
believe that all people are entitled to the prerequisitesfor competition in a
market society. The disadvantagedshould, by governmentalprograms and
regulations, be given the means of competing: education, health care, job
training, the right to bargain collectively with management, freedom from
various forms of discrimination, and protection from the abuse of power,
whethereconomic (as in job safety and environmentalprograms)or political
(as in civil liberties). These forms of governmentalinterventionplus Keyne-
sian economics make up the core of liberal capitalism. This programis to be
distinguishedfrom socialism (thoughsocialists have often supportedits policy
initiatives)by the prohibitionof a directgovernmentrole in the ownershipand
control of the means of production.
Samuel Bowles and HerbertGintis, in their analysis of liberal democratic
capitalism,disagree with those on the Left who dismiss the reformisttenden-
cies of liberals.2They go on to point out that conservativeshave (accurately)
viewed liberalreformismas a regulatorof class conflict, as well as an inhib-
itor of free enterprise.I will argue that these two aspects of the conservative
view express different tendencies that lead to significant policy conflicts
within the conservativecapitalist movement.3
What, then, is conservative capitalism?The capitalistelement is apparent
in the plain preferencefor the marketas an allocatorof values. What is not
liberal is the move away from policies aimed at furtheringequal opportunity
throughgovernmentintervention.What makes these approachesconservative
is morecomplicatedand requiresexplorationof the split within contemporary
conservatism, an assessment of the political backgroundsof the key actors,
and an ideological analysis of their policies. We will use, as an illustrative
case study, the struggle over PresidentReagan's New Federalism proposal
and its partialimplementation,along with examples of similarconflicts over

2 Bowles and Gintis, "Crisis of Liberal Democratic Capitalism." The

phrase democratic
capitalism has been avoided here largely because it is used for quite different purposesby Left
and Right. On the Left, the phrase is an entry into the argumentthat democracy has altered
capitalismin fundamentalways and that the currentstruggle is over the reassertionof capitalist
control over democracy. This position is summarizedin Robert Alford, "The Reagan Budgets
and the Contradictionbetween Capitalismand Democracy," in The Future of AmericanDemoc-
racy: Viewsfrom the Left, MarkKann, ed. (Philadelphia:Temple University Press, 1983), 22-
53. On the Right, conservativessuch as Michael Novak use the phrasedemocraticcapitalismto
convey a quite different message: that democratic political norms legitimize the inequalities
producedby the economic resultsof capitalism. TheSpiritof DemocraticCapitalism(New York:
Simon and Schuster, 1982).
3 Novak, Spirit of Democratic Capitalism, 52-53, 60.
 RISE OF CONSERVATIVE CAPITALISM 247

policy within the Thatchergovernment.From this we can begin to compose a

pictureof the dynamics of conservative capitalism. The objective is to deter-
mine what this ideological split means for the future of conservative cap-
italism. The analysis of these strainsmay be predictivefor other expressions
of contemporaryconservatismthroughoutEurope.4In the conclusion, I will
suggest aspects of the interplayof class, personal identity, and ideology that
account for some of these tensions within both the liberal and conservative
versions of capitalism.5

CONSERVATIVE IDEOLOGY: THE LIBERTARIAN-TRADITIONALIST

SPLIT

The terminologicalparadox is that conservatism, a philosophy based in pre-

capitalist society and historically at odds with capitalism's development, is
now seen as the primary defender of the capitalist market society. In the
course of the analysis, we will see thatthis is not so much a transformationas
the developmentof a rival inclination. Conservativecapitalismis a hybridof
these rival tendencies. The competition between them has, at times, en-
dangeredthe programsof both the Reagan and Thatchergovernments.
While there is division within conservative capitalism on major questions
concerning the role of the state, both tendencies begin from a sense of the
limits of humannatureand an acceptanceof inequality.Whereliberalssee the
rationalindividualcapable of contractingwith others for the mutualimprove-
ment of the human condition, the conservative sees a spiritual, fallible, lim-
ited, semirationalpersonalitywhose behaviorcannot be improvedby reason
alone. Ratherthan using the state to move such creaturestoward procedural
equalityand abstractjustice, the conservativeconcern is to providethe appro-
priateenvironmentfor the nurturanceof the particularstrengthsof each per-
sonality. From this analysis of the human condition, which is what unites
conservativesof all kinds, flow two divergentstreamsof thoughtabout what
the role of the state should be. George Nash has labeled these two conser-
vative variantsas traditionalistand libertarian.6Nash's terminologyis faithful

4 For a survey of these

expressions, see Geoffrey Smith, "European Conservative Trend
Growing," Institutefor Socioeconomic Studies Journal, 9 (Summer 1984), 49-57.
5 The claim here is not that ideas cause events. Rather, it is similar to that made
by Trygve
Tholfsen in Ideology and Revolutionin ModernEurope:An Essay on the Role of Ideas in History
(New York: ColumbiaUniversityPress, 1984): unlike the extrinsic relationsthat govern physical
nature,humansociety is influenced by intrinsiclogical and conceptualrelationsthat are embed-
ded in antecedenttraditionsand beliefs-among the most powerful of which are political ide-
ologies. See Tholfsen, 2-3. Where causation lies cannot be determined;where influence lies is
explored in studies such as that undertakenhere.
6 George Nash, The ConservativeIntellectualMovementin America: Since 1945 (New York:
Basic Books, 1979), 81-82. Cf. the distinctionbetween organicand individualistconservatismin
KennethDolbeare and PatriciaDolbeare, AmericanIdeologies: The CompetingPolitical Beliefs
of the 1970s (Chicago: Rand McNally, 1976), 56-71.
 248 KENNETH R. HOOVER

to the historicalsources, if not as colorful as Drys and Wets, or Diehardsand

Ditchers.7 The traditionaliststream follows from classical natural-lawdoc-
trine and the organic-societyconceptions of EdmundBurke, while the liber-
tarianstream follows from the niileteenth-centuryutilitarianismof the Man-
chester liberals as recast by Ludwig Von Mises and FriedrichHayek.
Libertariansbelieve in individualinitiative;the use of governmentalpower
to improve an individual's competitive position is immoral.8The libertarian
versionof equal opportunityis passive, emphasizingthe absence of obstacles,
ratherthan the presence of requisites for individual competition. Equality
before the law is thought to be a sufficient guaranteeof equal opportunity.
The inequalitiesof the marketplacecannot be criticizedon moral groundsfor
the reason that they are nonintentionalin nature.9Libertarianssee a role for
government only in protecting the freedom of individual choice from en-
croachmentby others.
Traditionalconservatives see government'srole as the guarantorof appro-
priate forms of in-equality. The use of governmentalpower to counter the
naturalinequalityof people is impracticaland unwise. 10Theirs is the organic
view of society in which all of the parts are interdependentand each is to be
supportedby appropriateforms of institutionalaction-including governmen-
tal supportfor the indigent. Governmentmust act to restrictindividualbehav-
ior that threatensthe maintenanceof the institutionalstructureof the society.
Here common cause is made with the "evangelical Right" on a numberof
social issues.

7 Robert Behrens locates the fault line in the ConservativeParty between the Ditchers, who
have boughtinto the postwarpolitics of statism, and the Diehards, who insist on the "true faith"
of the free marketand personalresponsibility.The libertarian-traditionalist distinctiondiffers in
assessing the historicaldimensionof this split and its impacton currentpolicy. Traditionalists,in
our view, deviate only when they compromise Burke;and the faith of the Diehards, as Behrens
allows, is in an adaptationof utilitarianismand laissez faire, not the conservativetradition.Cf.
Behrens, "Diehards and Ditchers in ContemporaryConservativePolitics," The Political Quar-
terly, 50 (July-September1979), 287-88, 292; idem, The ConservativeParty from Heath to
Thatcher (London: Saxon House, 1980), 7-9, 39. For terminology used in the analysis of
developmentsin GreatBritain, see the distinctionbetween the New Right and the Tory Far-right
in PatrickDunleavy, "Analysing British Politics," in Developmentsin British Politics, Henry
Drucker,ed. (New York: St. Martin'sPress, 1983), 292-93; the discussion of Drys and Wets in
RonaldButt, "Thatcherissima:The Politics of Thatcherism,"Policy Review, 26 (Fall 1983), 30-
35. Cf. Lon Felkerand RobertThompson, "The IntellectualRoots of Economic Conservatismin
the Reagan and Thatcher Administrations," Journal of the North Carolina Political Science
Association, 3 (1983), 38-55.
8 Tibor Machan, ed., The LibertarianAlternative (Chicago: Nelson-Hall, 1974), 499. For
nuancesin the argument,cf. Nash, ConservativeIntellectualMovement, 16-18, 32-33; and Noel
K. O'Sullivan, Conservatism(New York: St. Martin's Press, 1976), 27.
9 For a critiqueof Hayek's argumentin this respect, see RaymondPlant, "Hirsch, Hayek, and
Habermas:The Dilemmas of Distribution," in Dilemmas of Liberal Democracies, A. Ellis and
K. Kumar,eds. (London and New York: Tavistock, 1983), 45-64.
10 Cf. Nash, ConservativeIntellectualMovement,73; RobertNisbet, Communityand Power
(New York: Oxford University Press, 1962).
 RISE OF CONSERVATIVE CAPITALISM 249

We have seen these ideological tendenciesjockey for position over the last
severalyears. I will briefly tracetheiremergenceduringReagan's first termin
relationto his policy proposals on income security and the New Federalism,
examine some internaldissensions over their implementation,and assess the
impactof these policies on the structureof opportunity.We will then turnto
the Thatchergovernment, where similar strains may be observed in several
dimensions of style and policy.

CONSERVATIVE CAPITALISM IN THE UNITED STATES: THE NEW

FEDERALISM AND THE STRUGGLE OVER INCOME-SECURITY POLICY

The struggle over income security remains at the core of the ideological
debate in the United States. The specific question as to whetherthe states or
the federalgovernmentshould finance welfare was the pivotal structuralissue
of PresidentReagan's 1981 New Federalismproposal. The New Federalism
was originally envisioned as a sweeping change in the structureof federal
relations involving drastically different budgetarypriorities, the shifting of
categorical aid programs into block grants, large reductions in federal reg-
ulatoryactivity, the returnof revenue sources to the states, and the establish-
ment of enterprisezones to aid economic development.I When fully imple-
mented, the New Federalismwas to rival the New Deal and the GreatSociety
as revolutions in the federal system.
Like its two predecessors,this revolutionwas drivenby ideological convic-
tion and powered by the perceptionof widespreadsupportfor change. 2 Yet
the revolutionis incomplete. It consists of budgetcuts and programconsolida-
tions ratherthan the whole programof structuralreorganizationenvisioned in
the original New Federalism proposal. Whetherthe New Federalist agenda
will be completed depends on clearing the hurdle of true structuralchange.
Whether that final hurdle can be cleared depends in part on whether the
ideological thrustthathas energizedthe movementcan be sustainedin view of
internalconflicts between traditionalistsand libertarians.
A brief history of Ronald Reagan's association with welfare policy pro-
vides essential insights into the conflicts that have shaped income-security
policy. The ideological history of the New Federalismreally begins with the
CaliforniaWelfare Reform Act of 1971. The centerpieceof Ronald Reagan's
governorship,it was a response to rapidlygrowing welfare rolls and to pres-
sure from federal welfare administratorsto raise Aid to Families with Depen-

11 Richard Williamson, "1980: The Reagan Campaign-Harbinger of a Revised Federal-

ism," Publius, 11 (Summer 1981) 149-50.
12 Structuralreformswere much more popularthanthe cuts in antipovertyprograms.Cf. John
Robinsonand John Fleishman, "Ideological Trendsin AmericanPublic Opinion," Annals of the
AmericanAcademy of Political and Social Science, 472 (March 1984), 56-60; "Public Recep-
tive to New Federalism," Gallup Report, 185 (February1981), 2-9.
250 KENNETH R. HOOVER

dent Children(AFDC) payments to reflect increases in the cost of living.13

Essentially, the approachwas to tighten eligibility, impose a one-year resi-
dence requirement(laterstruckdown), simplify the administrationof the law,
and raise the benefit levels to those remainingon the rolls.
The CaliforniaWelfareReformAct was associatedwith a turnaroundin the
caseload of substantialproportions.Some analystsattributedthe change to an
improvingeconomy, increaseduse of abortionservices, satiationof the eligi-
ble population,and the stringentnew regulationsenforcedpursuantto the law
by RobertCarleson, then Reagan's welfare director.14 The Welfare Reform
Act was in any event a success by all the criteriaof politics.
The importanceof the act for our purposes is that it was conceived by
Reaganand Carlesonas their alternativeto the Family Assistance Plan (FAP),
a federalguaranteed-minimum-income proposalof the RichardNixon admin-
istration. The FAP representedthe culminationof a campaign to get tradi-
tional conservatives into a coalition with reform liberals that would place
welfare on a national footing along with Social Security as a part of the
nation's basic safety net. Daniel PatrickMoynihan, a prime mover within the
Nixon administrationfor the proposal, reports that Nixon's receptivity to
income securitycame directlyout of a concern for the threat,readily apparent
in 1969, of dissolutionof traditionalauthorityin America.15His response, in
that respect, mirroredBismarck's in a similar situation.16
While the governorsof other states, faced with similarincreasesin welfare
rolls, lobbied for federalizationof welfare, Reagan opened the path to an
alternativestate-basedapproach.His success made him a leaderamong liber-
tarianconservativesand those traditionalistswho feared the rise of a welfare
ethic. Both the governor and Welfare DirectorCarlesontestified against the
FAP before the United States Congress. Reagan was politically the nation's
most potentcritic of the proposal, and had a greatdeal to do with its defeat.17
The Nixon White House worriedthat Reagan could use the issue to pose a
threatto Nixon's renominationin 1972.18The defeat of the FAP strengthened
Reagan's hand as leader of a national conservative movement-a strength
derived directly from his involvement in the welfare policy area. For these
reasons of political history, conservatives came to see welfare policy as an
issue associated with questions of federalism, and Ronald Reagan as the

13 Lou Cannon, Reagan (New York: Putnams, 1982), 174-86.

14 Ibid., 184;
cf. Frank Levy, "What Ronald Reagan Can Teach the U.S. about Welfare
Reform" (Washington, D.C.: The Urban Institute, 1977).
15 Daniel PatrickMoynihan, The Politics of a GuaranteedIncome: The Nixon Administration
and the Family Assistance Plan (New York: Vintage, 1973), 110.
16 Nixon is reportedto have specifically endorsedthe "Tory men, liberal principles" theory
of policy innovation.Ibid., 214-15.
17 Ibid., 374-75; ChristopherLeman, The Collapse of Welfare Reform (Cambridge:MIT
Press, 1980), 92.
18 Cannon,
Reagan, 178-79.
 RISE OF CONSERVATIVE CAPITALISM 25I

policy leader. The issue again became a factorin presidentialpolitics in 1976,

when an ill-conceived proposal (similar to the New Federalism) derailed
Reagan's campaign for the nomination.19
It is indicative for future policy directions that the California Welfare
Reform Act was explicitly an alternative to full federalization of AFDC.
When Reaganbecame presidentand proposedhis New Federalism,it was the
trade-off of the federal portion of AFDC to the states that was to be the
centerpieceof the structuralrevolution in federal relations. Libertariansbe-
lieved that competition between states to lower welfare tax loads in orderto
position themselves for economic development would, by the logic of the
market, accomplish the policy goal of reducing the availability of welfare.
The tax savings would stimulate job-producing investment, thus reducing
unemploymentand welfare dependence simultaneously.
When it came time to implementthe Reagan program,the issue of income
security proved to be the focus of some importantdifferences within the
administration.A good deal has been writtenaboutthe split within the White
House staff during the first term between the "hard-liners," generally typ-
ified by Edwin Meese, and the "pragmatists" identified with James Baker.
There are indications, however, that the New Federalism programwas af-
fected by a split that was ideological as much as temperamental.The issue in
this split was precisely the matterof federalizationof AFDC. The natureof
the split reflects classic tensions between libertarianand traditionaliststrains
of conservatism. Two key actors in the New Federalism initiative illustrate
these ideological tensions: Robert Carleson and David Stockman.
Robert Carleson, formerly the president's assistant for human resources
and executive secretaryof the CabinetCouncil on HumanResources, appears
at all the crucialstages of the New Federalismdebateand, indeed, of the more
controversialinitiatives of the Reagan administrationin Social Security re-
form, housing policy, food stampprograms,urbanenterprisezones and Med-
icaid.20More than any other figure on the staff, he invoked the classic themes
of libertarianism."Income earned belongs individually to the people who
earn it. It does not belong to the state, nor does it belong by rightto any other

19 Ibid., 202-7.
20 See RobertPear, "3
Key Aides ReshapeWelfarePolicy," New YorkTimes, 26 April 1982,
p. 12; on AFDC, Linda Demkovich, "Medicaid for Welfare:A ControversialSwap," National
Journal, 14 (27 February 1982), 363; on Community Development Block Grants, Catherine
Lovell, "CDBG: The Role of Federal Requirements," Publius, 13 (Summer 1983), 94; on
hunger, LindaDemkovich, "Hunger in America:Is Its ResurgenceReal or Is Evidence Exagge-
rated?"National Journal, 15 (8 October 1983), 2051; on Social Security, idem, "Team Player
SchweikerMay Be Paying a High Price for Loyalty to Reagan," National Journal, 14 (15 May
1982), 849; on Medicaid, "A Weekly Checklist of Major Issues," National Journal, 7 (13
February1982), 303; and on ending federal programsfor the cities, Francis Viscount and Fred
Jordan, "Will Cities' Link to Washington Be Cut?" Nation's Cities Weekly, 4:21 (May 25
1981), 1-2.
252 KENNETH R. HOOVER

segment of the population." Welfare should be provided only to those who

"because of advanced age or permanentand total disability, are unable to
supportthemselves." All others, if not excluded from the system entirely,
should be required to work in compensation for their benefits, including
mothersof small children.21
Carleson translatesthis preference into an argumentfor local control of
welfare. "A welfare system must be designed and administeredat the local
level of government in order to tailor the assistance to meet the temporary
needs of the community's truly needy in a timely and accuratemanner." If
income maintenanceis handled nationally, the result would be "irresistible
pressure on Congress to increase the centrally set benefit levels," leading
more people to find a way on to the roles, and eventually "the nation's
economic system would collapse."22 This analysis accords with the liber-
tarian'sfear of the threatto individualfreedom posed by majoritariandemo-
cracy.
Liberalsarguethat there are many dimensionsto inequalityof opportunity.
George McGovern, in a response to Robert Carleson's article "Social Re-
sponsibility," quoted above, comments, "Regrettably, it [Carleson's] is a
philosophyrootedin the HoratioAlger fiction thatachievementis but a matter
of will; it is scornfulof all that science tells us aboutthe physical, psychologi-
cal, environmental,economic, and social factors that can inhibit the realiza-
tion of humanpotential."23 McGovern'slist of opportunityfactorsis substan-
tial, and it covers the programmaticagenda of liberal capitalism.
What differentiatesStockmanfrom Carleson is that Stockman, directorof
the Office of Management and the Budget, argued the case for New
Federalism'sbudgetaryreformsas preconditionsto makingeffective policy-
policy that was to include means-testednational health care and "universal
income maintenance." Robert Carleson, by contrast, favored devolution of
AFDC and had doubts about the federalization of Medicaid.24 Stockman
thoughtthatthe categoricalaid programshaddrainedaway money andpolitical
energy that should be going into an over-all rationalizationof federal respon-
sibilities. Budget reductions, programconsolidations, and devolution of the
categoricalsare neededto controlthe federalbudget. However, Stockmansaw

21 RobertCarlesonand Kevin R.
Hopkins, "Whose ResponsibilityIs Social Responsibility?:
The Reagan Rationale," Public Welfare, 8 (Fall 1981), 9, 13-14. Cf. Associated Press, "Rea-
gan Blasts Welfare Programs," 16 February1986.
22 In Claude E. Barfield, RethinkingFederalism (Washington, D.C.: American Enterprise
Institute, 1981), 70. Economist Wallace Oates, "The New Federalism-An Economist's
View," Cato Journal, 2:2 (Fall 1982), 479, points out that the federalized share of AFDC has
fallen, ratherthan risen.
23 George McGovern, "Whose Responsibility Is Social Responsibility?: An Opposing
View," Public Welfare, 8 (Fall 1981), 9.
24 In Barfield, RethinkingFederalism, p. 81. RegardingCarleson, see "A Weekly Checklist
of MajorIssues," National Journal, 7 (13 February1982), 303.
 RISE OF CONSERVATIVE CAPITALISM 253

a distinctionbetween these strategieson the one hand, and the need for certain
nationalminimumsin the areasof healthand income securityon the other. The
federal level should concern itself with "foreign policy, the social insurance
systems we run nationwide-Social Security, Medicare and means-tested
entitlements-that embody all those fundamentalcommitmentsthathave been
made."25
Stockman's position accords with the traditionalconservative argument
that society has a commitmentto its dependentcitizens that must be met as a
matter of obligation. Programs that attempted to alter the distributionof
advantagesin the marketplace,however, were subjectto the budgetdirector's
cuts and/or devolution to the states.
However, the Reagan deficits meant that any effort to rationalizeentitle-
ments at the federal level would requirecuttingback drasticallyon benefits to
those whose claims were, in any way, weak. Stockman learned that weak
claims and weak constituencies are not the same thing, and political realities
are more significant than fiscal realities. An affordablefederalized Medicaid
would exclude many marginal recipients covered under current state pro-
grams-and that was politically unacceptable,just as the full assumptionof
Medicaid costs was fiscally impossible in view of the deficits.
In fact, there is good reason to believe that this dilemma underminedthe
New Federalismnegotiationsin the spring of 1982. RichardWilliamson, the
president'sagent in the negotiations, remarkedin a retrospectiveanalysis that
footdraggingby "certain administrationofficials, whose enthusiasmfor the
New Federalisminitiative had dissipated," was responsiblefor the failure to
complete the Medicaid-for-AFDCswap. He locates the problemin the Office
of Management and the Budget and attributesit to a "senior OMB offi-
cial. "26 The matterof income securitywas in any event the issue of principle
thatcould not be resolved between the governors, both Republicanand Dem-
ocratic, and the Reagan White House.
These differences on the crucial question of federalizationof AFDC are
symptomaticof differences on a wider scale of issues. John Kessel, in mea-
suring policy preferencesdisplayed in interviews with Reagan White House
staff members, found divisions into "unalloyed conservatives," who think
national defense is the only legitimate federal activity, "domestic conser-
vatives," who favor some new domestic programinitiatives, and "lenient
conservatives." The differences among these groups are not great, but it is
25 Quoted in James Reston,
"Discussing the Bugs in the Machinery," interview with David
A. Stockman,New YorkTimes, 12 April 1984, p. 12. Cf. Barfield, RethinkingFederalism, 82.
26 RichardWilliamson, "The 1982 New Federalism
Negotiations," Publius, 13:2 (Spring
1983), 27-28. On weak claims, weak clients, and the role of political constituencies, cf. William
Greider's commentary in "The Education of David Stockman," The Atlantic Monthly (De-
cember 1981), 30, 51-52; David Stockman's apology for the deficits, The Triumphof Politics
(New York: Harperand Row, 1986), 124-27, 408-10; and his 1975 preview of that apology,
"The Social Pork Barrel," Public Interest, no. 39 (Spring 1975), 27.
254 KENNETH R. HOOVER

interestingthat Carlesonappearsamong the "unalloyed conservatives," and

Stockmanin the "domestic conservative" category.27
As for President Reagan, he has referred to his philosophy as "liber-
tarian," yet his positions reflect a mix of libertarianand traditionalistval-
ues.28 The president's economic policies seem to be libertarian,while his
social positions are traditionalist.The cross-cut comes in the area of govern-
mentalprogramsfor the poor. The safety net is recognized, thoughdegovern-
mentalizationof social responsibilityis encouraged.While a libertarianwould
oppose the federalizationof Medicaid and AFDC, and a traditionalistmight
federalize both in bare-bonesform, the New Federalismproposeda swap of
one for the other at the federal level.
Whatevertheir effect on the implementationof the New Federalism,these
ideological differencesbetween libertarianand traditionalconservativeshave
been less apparentthan the tactical flexibility of the Reaganadministrationin
advancing its program. The result has been the creation of a form of New
Federalismexpressed in budgetarypriorities, the apparentdenationalization
of regulatoryfunctions, tax reductionsand the consolidation of some social
welfare programs into block grants. As the effects of these moves on the
position of the poor, in particular,become evident, the libertarianideological
initiativebehind the structuralreform agenda of the New Federalismwill be
tested and evaluated.

THE IMPACT ON THE POOR

The New Federalismhas already altered greatly the equation of "who gets
what, when, and how?" The issue of inequalityand its implicationsfor the
opportunitystructureis the point of collision between liberal capitalism and
conservativecapitalism, in either its libertarianor traditionalistvariant.Con-
sequently, any evaluation of the prospects of conservative capitalism must
take account of the economic impacts of the policies so far enacted. While
such an assessment is largely outside the scope of this article, there are
general indicatorsthat these policies have worsened the patternof inequality
in Americansociety. Ourpurposein reviewing this evidence is to suggest that
the results are such that libertariangoals have not been achieved, while
traditionalistfears have been reinforced.

27 John Kessel, "The Structuresof the ReaganWhite House," AmericanJournal of Political

Science, 28:2 (May 1984), 235-36. In his memoir, Stockmanvariously describes himself as an
"intellectual conservative" and a "social idealist" who thought supply-side economics along
with a rationalizationof means-testedentitlementscould genuinely help the poor-he was intent
on using libertarianmeans for traditionalistends (p. 40). Cf. Daniel PatrickMoynihan, "Political
Aids," TheNew Republic (May 26 1986), 18. He finally had to acknowledgethat a tax increase
was the only way out if equity was to be served, a position thatseparatedhim from thoroughgoing
libertarianssuch as Donald Regan, then secretaryof the treasuryand now White House chief of
staff; Stockman, Triumphof Politics, 347-48, 363-64.
28 Cannon, Reagan, 194.
 RISE OF CONSERVATIVE CAPITALISM 255

The greatestconcentrationof analysis has gone into detailing the impactof

the New Federalismprogramson levels of economic inequality. These dis-
tributivemeasures can be viewed as indicatorsof opportunityas well as of
outcomes. For the poor, benefits, taxes, and income form the matrix within
which educational, social, physical, and even psychological opportunityare
largelydefined. For the rich, by the termsof supply-sideeconomics, these are
the measures of investment potential.

Budget Cuts and Tax Changes

Substantialcuts in federal assistancefor the poor were a notablefeatureof the
Reagan program.A numberof these cuts affected federal relationshipssince
they could have been replacedby state-basedprograms.Few cuts were made
up in this way. As RichardNathanpointed out, "these cuts fell most heavily
on one group, the so-called workingpoor, made up primarilyof female heads
of householdand their childrenliving on a combinationof earnedincome and
welfare."29 Budget cuts and program changes in the safety-net programs
alone meant that the federal government expenditure per capita for poor
people fell from about $1,700 in 1980 to $1,575 in 1983, a 7.3 percent
decrease.30
While the cuts were substantial,they were considerablysmallerthanorigi-
nally proposed by the Reagan administration.In its first major budget ini-
tiative, the administrationproposed cutting "human capital" programsby
nearly 40 percent. Congress agreed to cuts averaging 23 percent.31 The
AFDC was slated to increase by 9.8 percent; a cut of 28.6 percent was
proposedby the Reagan administration;and Congress enacted a 14.3 percent
decrease. Food stamps were targetedfor a 51.3 percentcut; Congressaccept-
ed a 13.8 percent reduction. The most dramaticexample was the Women,
Infants,and Childrenprogram;a proposedcut of 63.6 percentbecame, in the
hands of Congress, a 9.1 percent increase.32
Because the changes were made in the midst of a recession, they had a
particularlyburdensome impact on the poor. In a strong economy, it was
estimatedthat the independenteffect of the Omnibus Budget Reconciliation
Act (OBRA) welfare programchanges would have increasedthe povertylevel
by 2 percent (557,000 people, of whom 300,000 are children).33Advancing

29 RichardNathanand Fred
Doolittle, "Reagan's SurprisingDomestic Achievement," Wall
Street Journal, 18 September 1984, p. 28.
30 John Weicher (AmericanEnterpriseInstitute), "Welfare 'Reforms' Will Stick," Chicago
Tribune, 16 August 1984, p. 27. The presidentindicatedthat total spendingon the poor went up
during his administration,but that was the effect of the recession on the size of entitlement
populations.
31 D. Lee Bawden and John Palmer, "Social
Policy," in The Reagan Record, John Palmer
and Isabel Sawhill, eds. (Cambridge,Mass.: Ballinger Press), 204.
32 Ibid., 185-86.
33 U.S. Congress, House, Committee on Ways and Means, Effects of the OmnibusBudget
256 KENNETH R. HOOVER

the proposalin a period of deep recession meantthatthe impactwas additive.

According to one study, the OBRA changes plus the recession increasedthe
projectedpoverty populationby 7.6 percent as comparedwith a 5.7 percent
increase attributableto the recession alone.34
Various alterationsin the tax laws resulting from the Reagan administra-
tion's over-all tax cut were particularlyhard on the poor. The federal tax
burdenfor a poverty-level family of four changedfrom a $134 refundin 1978
to a $285 payment in 1982, and a $383 payment in 1985. Prior to these
changes, the tax thresholdwas $1,000 above the poverty line for a family of
four; by 1986, the thresholdwas to have fallen to $2,500 below the poverty
line. The tax burdenwas increased by the additionalimpact of increases in
state and local taxes to compensate for federal revenue reductions.35The
distributionof the tax cut was sharplyunequalin its effect on dollars retained
by the taxpayer.The tax cuts added amountsrangingfrom nearly nothing for
the less-than-$10,000 bracket, to about $1,500 for those in the $20,000-
$40,000 bracket, to more than $8,000 for those with incomes larger than
$80,000.36

Income Distribution
While it can be argued that the New Federalism initiatives should be dis-
tinguishedfrom changes in tax policy, the fact is that, for purposesof analyz-
ing shifts in the opportunitystructure,they were both partof the revolutionin
federalrelationsthat Reaganenvisioned upon takingoffice. The most signifi-
cant impact, for purposes of the ideological debate, was that the distribution
of income was made more unequal.
According to 1984 Census Bureau data, the bottom 40 percent of the
populationhas lost ground in median income since 1980 with respect to the
top 40 percent (-$477 and +$1,769, respectively).37A staff reportof the
CongressionalJoint Economic Committee (November 1985) found that the
real income of families with childrenhas been especially hardhit: The lowest
quintile lost 23.8 percent in mean income from 1979 to 1984. Losses to the

Reconciliation Act of 1981 (OBRA) Welfare Changes and the Recession on Po'verty, Com-
mittee Printfor the Subcommitteeon Oversightand Subcommitteeon Public Assistance and Un-
employment Compensation, 98th Cong., 2d sess. (Washington, D.C.: GPO, 25 July 1984),
Table A, p. x.
34 Ibid., 12.
35 Center on
Budget and Policy Priorities, Washington, D.C., "Taxing the Poor" (April
1984).
36 CongressionalBudget Office projections,February1983, cited in "The CombinedEffects
of Major Changes in Federal Taxes and Spending Programssince 1981," staff memorandum,
April 1984, preparedby the staff of the HumanResourcesand CommunityDevelopmentandTax
Analysis Division of the CongressionalBudget Office, Table 3, p. 7a.
37 Newsweek, (9 September 1985), 24. This is the lowest percentagerecordedfor the bottom
40 percent since the Census Bureaubegan collecting this data in 1947.
 RISE OF CONSERVATIVE CAPITALISM 257

three middle quintiles were 14 percent, 10.5 percent, and 3.2 percent, with a
gain to the top quintile of 1.5 percent.38
These shifts bear out the directionof the projectionsgeneratedon the basis
of modeling reported by John Palmer and Isabel Sawhill in August 1984.
According to the Urban Institute's simulations of the impact of Reagan's
policies, the lowest quintile was to lose 7.6 percentof its income, and the top
quintile stood to gain 8.7 percent. While some redistributionwould have
taken place because of the recession, the Reagan policy increased the in-
equality of the redistribution.When measured against the Urban Institute's
alternative,more conventional policy model, the Reagan policies added 1.6
percentagepoints to the gain of the top quintile, and increasedthe loss of the
bottom quintile by an additional4.1 percent.39
The continuinghigh levels of povertyplace the justificationof furtherNew
Federalistinitiatives in doubt. While libertarianconservatives may be reas-
sured by the degovemmentalizationof some areas of policy and regulation,
traditionalconservatives in Congress and the media have evidenced signs of
restlessness over the increasinglydifficult position of the poor. The devasta-
tion of the black family and the feminizationof poverty generally has placed
increasingnumbersof children below the poverty line. The poverty rate for
black children (51 percent) is the highest it has been in fifteen years.
Meanwhile the trickle-downeffects have been scatteredand contradictory
at best. The percentage of the population living below the poverty line has
declined slightly (from 15.3 percent to 14.4 percent), but there are still six
million more people living below the poverty line now than there were in the
late 1970s. Unemploymenthas declined somewhat, but remainson a plateau
higher than for any previous recovery. The congressional Office of Tech-
nology Assessment studiedthe fate of displaced workersin the period 1979-
84. Only 60 percentfound new jobs and nearly half of them took pay cuts.40
The savings rate, which was supposed to rise in consequence of the tax cuts
and supply new investment in jobs, has instead fallen to the lowest levels
since the early 1950s.41
The assessment of the success of the initiatives of the first term of the
Reaganpresidency must be that what has been accomplishedis a form of de

38 U.S.
Congress, Joint Economic Committee, "Family Income in America," staff report,
99th Cong., 1st sess. (28 November 1985), Table I, p. 4.
39 MarilynMoon and Isabel Sawhill, "Family Incomes:Gainersand Losers," in Palmerand
Sawhill, The Reagan Record, 329, Table 10.5; 333, Table 10.6.
40 Kenneth Noble, "Study Finds 60% of 11 Million Who Lost Jobs Got New Ones," New
YorkTimes, 6 February1986, p. 1. Noble reportsthat "the study said a large proportionof the
displacedworkerswere middle-agedpeople in manufacturing'with long and stablejob histories,'
ratherthan young people who change jobs often," and estimated that the programinstitutedin
1982 to deal with displaced workers reached no more than 5 percent of them.
41 Robert
Hershey, "Savings Take a DramaticSlide," New YorkTimes, 3 November 1985,
sec. 4, p. El.
258 KENNETH R. HOOVER

facto New Federalismthat could be reversed throughchanges in budgetary

priorities.42While very great changes took place, it is not at all clear that the
foundationsfor a permanentstructuralchange were securedthen, nor are they
likely to be secured in the second term.
The 1984 elections produceda majorvictory for the president, but not for
his party in Congress. The president's supportamong governorsof his party
as well as congressionalRepublicansdeclined markedly.The NationalGover-
nors' Association, in its 1986 reporton "Federalismand the States" rejected
out of hand the president's stated intention of turningmore federal respon-
sibilities back to the states without the funding to supportthem.43The elim-
inationof the state tax deduction, which would have had many effects similar
to those envisioned by the New Federalism,was droppedfrom the tax reform
bill at the insistence of congressmen and senators from both parties. The
Senate Budget Committee, notwithstandingits Republican majority, sum-
marilyscrappedthe president'sbudget in early 1986 because of criticismover
the damage done to domestic priorities.
The drive towarda comprehensiveNew Federalismis stalled in good part
because of profoundpolitical and ideological disagreementswithin President
Reagan's own ranks. While the separationof ideological motivation from
political prudencecan never be entirelyclear, we can shed additionallight on
the role of ideology by comparingthe Reaganadministrationwith the govern-
ment of PrimeMinisterMargaretThatcherto see if the same fault lines appear
within the British version of conservative capitalism.

"THATCHERISM" AND THE EMERGENCE OF CONSERVATIVE

CAPITALISM IN BRITAIN

MargaretThatcherand RonaldReaganemerged as leadersof their partiesin a

roughly similar manner. Staking their claims to party leadership on the
groundsof turningtowarda purerform of conservatism,both gatheredpower
in the 1970s as their own parties failed to deliver new ideas and policies to
cope with inflationaryeconomies and rising levels of discontent. Similarly, in
both cases the opposition partycame to grief in trying to appease a coalition
whose demandscould not be met amidstthe oil shocks, inflation, high interest
rates, and increasingunemploymentof the 1970s.44Their victories were less
the result of a mandatefor change than of a mandateto do something other
than continue the currentdrift.
MargaretThatchercame to power in a bitter intrapartystruggle for lead-

42 See U.S. Advisory Commission on IntergovernmentalRelations, Significant Features of

Fiscal Federalism, 1984 Edition (Washington,D.C.: A.C.I.R., 1984). Cf. KennethPalmerand
Alex Pattakos, "The State of AmericanFederalism:1984," Publius, 15 (Summer 1985), 1-17.
43 "Federalismand the States 1986," reportissued by the National Governors' Association
(Washington,D.C.: National Governors' Association, February1986), 14.
44 See Samuel Beer, Britain against Itself: The Political Contradictionsof Collectivism(New
York: Norton, 1982), 64-75.
 RISE OF CONSERVATIVE CAPITALISM 259

ership in 1975 following the defeat of Edward Heath. The way had been
preparedby the challenges laid down by Enoch Powell on the immigration
and social expenditure issues-a rough parallel in British politics to the
welfare issue (with its racial overtones) in the United States.45These views
were joined with those of Keith Joseph, the intellectual force behind mon-
etarism, and Thatcher became the standardbearer when both Powell and
Joseph founderedon accusations of racism.46
In both cases there were elements of a middle-class revolt against social-
welfare programs coupled with high levels of taxation. By striking these
chords, both Reagan and Thatcherwere able to use middle-classpopulism as
a recourse against the upper-class images of their parties. In practice, the
economic policies they advocated benefitted the upper classes materially.
The Heathgovernmenthad tried and failed to breakout of the conventional
mold established by the Labour Party, and this allowed Thatcherto attack
both the principlesof the Heath leadershipand his practicalhold on the party
establishmentwith its traditionalistcadre in Parliament.As Milton Friedman
pointedout, "the thing that people do not realize is that MargaretThatcheris
not in terms of belief a Tory. She is a nineteenth century Liberal. But her
party consists largely of Tories. They don't really believe in free markets.
They don't believe in free trade. They never have as a party."47Though the
Reagan and Thatchergovernments each arrived at power by playing upon
somewhatdifferentideological combinations,they are both heir to the natural
strainsbetween libertarianand traditionalistideology.
In the Thatchergovernment, there are a numberof examples of that ten-
sion. One of the sources of her rise to power was the criticism of Prime
MinisterHeath's nationalizationof the Rolls-Royce company and his support
for statutorycontrol of wages and prices. While both of these positions could
be justified by traditionalistconcerns for maintainingthe "ensemble" of the
basic forces in the society, they are anathema to libertarians.There were
similarconflicts between the Heath and Thatchercoteries over social-welfare
issues.48
Sir Keith Joseph, apostate from MacmillaniteToryism and founderof the
ConservativePartyCentre for Policy Studies, took the lead for British liber-
tariansin simply denying that society was responsiblefor inequalitiesbetween
people (thus living up to Robert Behrens description of the Diehards as
"sociology-baiters").49What was not caused by society cannot be corrected

45 Ibid., 177-78.
46 Robert Behrens, The ConservativeParty in
Opposition, 1974-1977: A Critical Analysis
(Coventry:LancasterPolytechnic, 1977), 13-15.
47 Quoted in Raymond Plant, "The Resurgence of Ideology," in Developments in British
Politics, Drucker, ed., 13.
48 Cf. Behrens, Conservative Party, 14-17, 74.
49 Nick
Bosanquet, "Social Policy," in Developmentsin BritishPolitics, Drucker,ed., 168-
69; re Behrens, see his "Diehards and Ditchers," 286.
260 KENNETH R. HOOVER

by governmentintervention.It is in this propositionthatthe divide is reached.

Traditionalistsargue that, far from excusing itself from responsibility for
social inequality, it is the function of governmentto intervene precisely to
maintainthose inequalitiesthat are essential to some imagined orchestration
of forces in society. For example, when Prime MinisterThatcherproposedto
eliminatethe indexing (to inflation)of children'sbenefits, she had to face the
opposition of, among many other groups, the Conservative Women's Na-
tional Advisory Council.
These conflicts over government responsibilityfor the plight of indigent
individuals are perhaps the most obvious expression of the traditionalist-
libertariansplit. There are, however, other differences apparentin British
conservative politics that may have equally profound consequences for the
futureof conservativecapitalism generally.

Elites versus "The People"

Traditionalconservativeshistorically have been suspicious of democracy. In
an indirectfashion, promarketideology is an intellectualcoconspiratorin the
rise of democraticattitudesand practices in the workplace-a development
deeply threateningto traditionalelites.
Ralph Miliband, writing in 1978, identified a process termed "de-subor-
dination" in British life:
De-subordination meansthatpeoplewhofindthemselvesin subordinate positions,and
notablythepeoplewhoworkin factories,mines,offices,shops,schools,hospitalsand
so on do what they can to mitigate,resist and transformthe conditionsof their
subordination. This processoccurswheresubordination is most evidentand felt,
namelyat the "pointof production" andat theworkplacein general;butalsowherev-
er else a conditionof subordination
exists,for instanceas it is experienced
by women
in the home,andoutside.50
Both Miliband and Samuel Beer, who notes a similar phenomenon as a
"decline of deference," observe that this has contributedto the downfall of
the "civic culture."51While both argue that this developmentis the product
of democraticreformism in the political sector, it is also the case that the
consumerismof the marketplaceleads to a democracyof expectation, a faith
in mobility, and an appetite for gratificationthat is unsettling to the estab-
lished order and to its mission of instilling the virtues of self-discipline that
make the "civilized life" possible.52The disintegrationof family structureis
widely attributedto the pressuresof the marketpsychology.53
50 Ralph Miliband, 'A State of De-Subordination,"British Journal of Sociology, 29:4 (De-
cember 1978), 402.
51 Beer, Britain against Itself, 194-97. Cf. William Harbour,The Foundations of Conser-
vative Thought(Notre Dame: University of Notre Dame Press, 1982), 185.
52 This is a problemthat Adam Smith was vaguely aware of, but did not address. See Martin
Camoy, The State and Political Theory (Princeton:PrincetonUniversity Press, 1984), 29.
53 See Charles Leathers,
"Thatcher-ReaganConservatismand Schumpeter's Prognosis for
Capitalism," Review of Social Economy, 4:1 (1984), 28-29.
 RISE OF CONSERVATIVE CAPITALISM 261

Libertariansare party to radical democracy throughtheir advocacy of the

marketand of populist political initiatives to "returnpower to the people."
Theirrole as carriersof the democraticcreed is significant, althoughit is quite
distinctfrom the romanticsof the Left and theircommunity-basedconception
of directdemocracy.54However, the combinationof libertarianand romantic
tendencies has made the movement toward democracy all the more power-
ful-and ultimately all the more threateningto traditionalistvalues. This
combinationhas some conservativeintellectualsworried. Escalatinglevels of
aspirationand expectation have created a "rising tide of entitlement" that
threatensthe Westernway of life. For conservativecapitalists, the solution is
to limit the expansion of democracy-not to restrainthe market.55
Traditionalistshave a proprietaryinterestin the civic culturewhich, though
it has elements of liberal rationalismin its British version, heavily favors the
prescriptiverole of the upper classes. The complaints of libertariansabout
traditionalistfoot-draggingon Thatcher'sprogramhave resultedin open hos-
tilities. Sir John Hoskyns, a libertarianpartisanand head of the Prime Minis-
ter's Downing Street Policy Unit, accuses the traditionalelite of "a pro-
prietorialfeeling towards the country as a whole, almost as if it were an es-
tate of which they were the benevolent owners."56 More serious was Sir
Keith Joseph's attemptto reduce grants to university students which nearly
threatenedthe continuance of the Conservative government's majority in
Parliament.57To strike at the funding of education was to threatenthe most
revered institutionalbasis for conveying British civilization and culture.

Traditionalist Pragmatism versus the Rationality of the Marketplace

Aside from the conflicts over the role of the elite, libertariansand tradi-
tionalists differ as to the role of reason in human affairs. Burkean conser-
vatism was founded in a revolt againstthe rationalistassumptionsof Lockean
classical liberalism. While both libertariansand conservatives place strong
limits on the reach of the social contract, the libertarianshave their own
version of the rationalistfaith: a doctrinairebelief in the marketplaceas the
ultimatesocial institution.The marketplaceas a cipher for self-interestin the
making of choices is the centerpieceof a whole architectureof social-choice

54 Beer, Britain against Itself, 126-31. Cf. Richard Vigurie's mix of libertarianismand
populism in The Establishmentvs. the People (Chicago: Regnery Gateway, 1983).
55 Frances Fox Piven and Richard Cloward, The New Class War (New York: Pantheon,
1982), 23. Cf. Alford, "Reagan Budgets," in Future of AmericanDemocracy, Kann, ed., 47-
48, on Daniel Bell's argumentof the same kind; and Samuel Beer's argumentabout "pluralist
stagnation" in Britain, Britain against Itself, 100-101.
56 John Hoskyns, "ConservatismIs Not Enough," Political Quarterly, 55 (January-March
1984), 10-11. The government is also criticized by the libertariansfor being "inadequately
radical." See Hugh Thomas (chairmanof the (Conservative)Centre for Social Studies), "The
Fruitsof Conservatism," New Society, 67:13 (1984), 435-36.
57 David Walker, "ThatcherFaces Revolt on StudentAid," The Chronicleof Higher Educa-
tion, 3 (3 December 1984), 1.
262 KENNETH R. HOOVER

theory. It is precisely the doctrinaireclaims of the libertariansfor the ra-

tionality of the marketplacethat traditionalistsdistrust.
RobertBehrens argues that rationalismdoesn't really divide conservatives
from nonconservativestoday since both versions of conservatismhave more
than a sufficiency of doctrine.58 However, there appears to be something
qualitativelydifferentin the subjectivepragmatismof the traditionalistswhen
compared with the objective-sounding economism of the libertarians.The
claims made by libertariansfor the power of the unrestrainedmarketin the
setting right of inequities are elaborate. The unfetteredmarketis to remove
the blight of underdevelopment,solve the problem of welfare dependency,
lead to more disciplined personalbehavior, and stimulatethe modernization
of industry.59
Many of these goals are includedin the traditionalistprogram;the problem
is thatthe markethas its own logic, and it is independentof elite judgmentand
control. There is no inherentprotectionof the values of "theocentrichuman-
ism" or of the customarymores and preferencesthat form the core of tradi-
tionalist belief.60 As ArthurAughey points out, "there is no necessary cor-
relation between an economic system based on free enterpriseand market
relationsand a cohesive community. Conservatismpresupposesa communi-
ty, one nation, exhibiting 'differences' but not to the extent of irreconcilable
conflict. Society must be conscious of itself as a whole, it must have a
common sense of identity."61
One of Thatcher'sclosest calls in Parliamentcame in the summerof 1985
over the issue of raising the salaries of top governmentexecutives. The logic
of the marketplacedictated that the best talent could not be had without
substantialincreases. A regard for the restraintshown in the pay policy for
teachers,nurses, and lower-level civil servants,as well as the conditionof the
country generally, led forty-eight Conservative members of Parliamentto
defect. One Tory from the West Country remarkedthat the government
should behave "with a little more sensitivity, a little more humility, and a
little less arrogance."62
Part of the difficulty of implementing a rationalistdoctrine in complex

58 Behrens, ConservativeParty, 17-18.

59 For a sampling of these claims, see W. H. Greenleaf, The Rise of Collectivism, Vol. I of
The British Political Tradition (London: Methuen, 1983), 161-63; Behrens, "Diehards and
Ditchers," 286-95.
60 William Harbour,Foundationsof ConservativeThought, 186-87. Cf. Beer's citationof the
sentimentof a prominentTory M.P. of traditionalistbackgroundthat "political advice, derived
from liberaleconomic theory . . . leaves governorsand its own adherentsalways frustratedat the
distance between their model of the world and reality," in Britain against Itself, 173-74.
61 Philip Norton and Arthur Aughey, Conservatives and Conservatism (London: Temple
Smith, 1981), 285.
62 Quoted by R. W. Apple, "Thatcher Barely Escapes Defeat as 48 Conservative M.P.s
Rebel," New YorkTimes, 24 July 1985, p. 4.
 RISE OF CONSERVATIVE CAPITALISM 263

governmentalstructuresis that the results are often internallycontradictory.

For the Reagan administrationlibertarians,their credo dictated a devolution
of federal responsibilitiesto state and local governments. This was to serve
the populist aim of returningpower to the people, as well as the market
argumentthat such local authoritieswould compete to reduce social services
in the effort to attractnew investment. To the extent that the initiative was
implemented, what resulted was an increase in confusing and contradictory
forms of state regulation and service financing and, very probably, a less
efficient environmentfor economic growth.63
In Britain, the controversyover center-localrelationstook similarly pecu-
liar twists. Promises of devolution were quickly subordinatedto the need for
tight control from the center over local social spending in orderto serve the
fiscal entailmentsof monetarism.64In both countries, the patternappearsto
be that the structuralaspects of the libertariandoctrine generally lose out to
the imposition of class-based policy preferencesfrom the top.65
Thatcher's increasingly severe troubles in the House of Lords provide
furtherillustrationsof these tensions. In surveying ten major defeats for the
governmentin the period 1979-84, Donald Shell points out thatConservative
peers
seem reluctantto acquiescein the new ideologicalconservatism; instinctivelythey
preferthecautiousapproachto changewhichsees the needto makeexceptionswhen
newpoliciesareinvoked,andwhichis sensitivein a paternalistic wayto thedelicate
socialfabricMrs.Thatcherseemsreadyto destroy.66

Institutionalismversus Free Enterprise

Traditionalconservativeshave differentpreferencesin institutionsfrom liber-
tarians. Traditionalistsprefer institutions such as the church and the family
that are customary in character and hierarchical in organization. Tradi-
tionalistswho look beyond the temporarygains the marketbrings to elites see
a world in which society is turned over to the pursuits Hobbes foresaw in

63 Susan Tolchin and MartinTolchin, Dismantling America: The Rush to

Deregulate (New
York: Houghton Mifflin, 1983), 255; cf. "State Regulators Rush in Where Washington No
Longer Treads:Will the New FederalismCreate a Fifty-HeadedHydra?" Business Week, (19
September 1983), 124.
64 PatrickDunleavy and R. A. W. Rhodes, "Beyond Whitehall," in Developmentsin British
Politics, Drucker,ed., 126-128. RobertBehrenspoints out thatantidevolutionistswere generally
found on the free marketside, though there were exceptions. See ConservativeParty in Opposi-
tion, 19-20.
65 Timothy Conlan, "Federalism and
Competing Values in the Reagan Administration"
(Paperpresentedat the Annual Meeting of the American Political Science Association, Wash-
ington, D.C., September 1984), cites ten cases where structuraldevolution lost out to Reagan's
prescriptivepolicy goals. Cf. Alfred Light, "Federalism, FERC v. Mississippi, and Product
Liability Reform," Publius, 13 (Spring 1983), 85-96.
66 Donald Shell, "The House of Lords and the ThatcherGovernment," ParliamentaryAf-
fairs, 38 (Winter 1985), 16-32.
264 KENNETH R. HOOVER

Leviathan:a "restless desire of power afterpower," drivenby the realization

that the individual "cannot assure the power and means to live well . . .
without the acquisitionof more."67
To counterthis trend, traditionalistshave arguedfor an active role on the
partof institutionsto moderateand balanceexcesses by attendingto the needs
of variousstrataof the population.As RobertBehrenshas observedin charac-
terizing the approachof Prime Minister Heath, it was the mission of conser-
vatives to use "political skills to create a fresh balance between different
elements and doctrines in society when their imbalance threatened social
harmony. ... In time of undue individualism the party might defend the
state, yet in times of state authorityand socialism, it would champion the
individual. Confronted with the question: 'What will you conserve?', the
[traditionalist]response was an unabashed, 'That depends.' "68
Libertariansare repulsedby any such notion. Traditionalinstitutionsare the
problem,not the solution. It was Heath's "corporatist"attemptto involve the
Confederationof British Industriesand the Trades Union Congress in eco-
nomic policy making that Sir Keith Joseph objected to in the 1970s. The
breakingof the miners' strike provides another illustration,as does the an-
guished response of Harold Macmillan on behalf of the organic view of
society.
The revolt of the party traditionalistsagainst the libertariansbecame suffi-
ciently widespreadthat a splintergroup of thirtyM.P.s, named Conservative
Centre Forward, was briefly formed (May 1985) to challenge Thatcher's
policies in Parliament.The movementwas led by Sir FrancisPym, prominent
spokesmanfor moderatecentristToryism and formerCabinetmember. Pym
juxtaposed the doctrine of laissez faire with Marxism as the extremes of
British politics-arguing that Thatcher's economic blunders have been re-
trieved only by her Falklandssuccess and the ineptitudeof her opponents.69
The government's weakening position in the Commons and the Lords is
part of a pattern that found another traditionalinstitution, the Church of
England, becoming openly critical of Thatcher'seconomic policies. A report
issued in December 1985 by the Archbishop of Canterburydenounced
Thatcher'seconomic policies for increasingthe gap between rich and poor,
and failing to consider the moral issues behind economic policy.70
There are movements similar to the American moral majority in Great

67 Thomas Hobbes, Leviathan (London:

Penguin, 1970), 1-2.
68 This is a more
dynamic conception of traditionalconservatism than Samuel Huntington
finds in the Americanversion, where the traditionalistis seen more simply as 'one who standsby
establishedinstitutions." Samuel Huntington, 'Conservatism as an Ideology," AmericanPoliti-
cal Science Review, 51:2 (June 1957), 470.
69 Francis Pym, The Politics of Consent (London: Hamish Hamilton, 1984). Cf. William
Keegan, Mrs. Thatcher's Economic Experiment(London: Allen Lane, 1984), on the doctrinal
infighting.
70 Joseph Lelyveld, "ThatcherGovernmentUpset over a CriticalChurchReport," New York
Times, 2 December 1985, p. 1.
 RISE OF CONSERVATIVE CAPITALISM 265

Britainthat advocate bolsteringthe family, disciplining sexual behavior, and

advancing the agenda of the church. There are some tentative linkages be-
tween such groups as the Listeners' and Viewers' Association, which pro-
motes increasedmedia censorship, and such traditionalistpolitical formations
as the Monday Club and the Salisbury Group. That these initiatives have
taken second place to economic and internationalpriorities has resulted in
some clear expressions of dissatisfaction on the part of the moral tradi-
tionalists with Thatcher-as with Reagan.71
In dealing with these internal tensions, both governments have survived
moreoften by waffling thanby implementingone policy at the expense of the
other. As Robert Behrens remarks, "Mrs. Thatcher's particularskill lay in
flying a Diehard [libertarian]kite and then carrying on, leaving policy un-
changedor merely adjustedat the margin.'72 Similarly, Reagan's occasional
declarationsof loyalty to the libertariancreed have not preventedhim from
backingoff the programwhen oppositionbecame too strong, as in the repeat-
ed flirtationwith cuts in Social Security.

CONCLUSION
To returnto the comparisonof conservativecapitalismand liberalcapitalism,
Bowles and Gintis arguethatthe latteris a spectrumof procapitalistresponses
to the naturaltendency of capitalism to erode.73 Rather than being tied to
liberalcapitalismas an ideal type, they see it in Marxistterms as a bundle of
relationsinteractingdialecticallyand changingover time. Fromtheirperspec-
tive, the extendedfight over the level and form of subsistencerightsillustrates
the process. Yet reducingthese tensions to the languageof "dynamics" and
"contradictions"runsthe dangerof obscuringthe distinctionsthat are clearly
evident in the policy initiatives that have been taken by the Thatcher and
Reagan governments.
The question then is, when does it become useful to distinguish conser-
vative capitalism from the liberal version? Perhaps when the objective
changes from haltingerosion to advancingthe main formation.Libertarianism
isn't one more attemptto have the governmentsupply palliatives to a sickly
system; it is an effort to dispense with the doctor and declare the patient
healthy. The aim here is to bring into being a new consensus to displace
entirelythe New Deal and Butskellism (the convergence of Labourand Con-
servativeprogramsunderthe leadershipof R. A. Butlerand HughGaitskellin
the 1950s and early 1960s).
What the admixtureof elements of traditionalismillustrates, however, is

71 MartinDurham,
'Family, Morality, and the New Right," ParliamentaryAffairs:A Jour-
nal of ComparativePolitics, 38:2 (Spring 1985), 180-91.
72 Behrens, Conservative Party, 118.
Cf. "Thatcher's Answer to Deficits: Tax!" George
Will, Los Angeles Times, 30 September 1983, sec. II, p. 7, col. 1; and Peter Riddell, The
ThatcherGovernment(Oxford: Basil Blackwell, 1984).
73 Bowles and Gintis, "Crisis of Liberal Democratic
Capitalism," 61-64.
266 KENNETH R. HOOVER

thatthis is a movementwith an uncertainfuture. Just as the reformliberalism

of the New Deal drew upon a combinationof ideological tendenciesincluding
socialism, progressivism,and populism, so conservativecapitalismhas more
thanone camel in its tent. Andjust as liberalcapitalismfounderedon the costs
of placatingits middle- and lower-class constituencieswhile at the same time
maintaininga competitive economy, so conservative capitalism encounters
the collision between the immediateinterestsof its traditionalistbackersand
the policy dictates of the free market.It is this inbuilttendency of the market
to disruptpolitical formationsthat invites furtheranalysis.
Politics relies heavily on class interests expressed as ideology; yet the
marketplaceis no observerof prescriptivevalues. Insofaras they endorse the
marketplace,both liberal capitalism and conservative capitalism ultimately
separatethemselves from the self-interestof individualclass members even
while advancingAdam Smith's version of the generalinterest.There is, after
all, a difference, to use Smith's terms, between what vanity seeks (whetherof
the upper-, middle-, or lower-class variety) and the "general interest of the
society" in improvingits productivity.The marketoperatesso as to favor the
latter, while the ideology of the marketdraws people in throughan appeal to
the former. While defenders of the market appreciateits apolitical charac-
teristics, and accountthem as assets in the struggleto allow people to be "free
to clhoose," these characteristicsmake promarketideology a perfidiouspart-
ner in any electoral coalition.
Reform liberals and social democratsdiscovered in the seventies that the
welfare state as an answer to capitalism's inequalities works well enough
when there is growth to finance real opportunityfor the middle class. Pros-
perity allows vanity and conscience to be served simultaneously. When re-
sourcescontractand the business cycle goes awry beyond the curativecapaci-
ty of the milder forms of Keynesian intervention, then the politics of the
welfare state divide the middle and lower classes.74 In the United States, the
majorityturn into tax rebels suspicious of the claims of the poor, and the
special interestsclamor for competitive position. As Andrew Gamble points
out in the British context, the trade unions become the scapegoats and the
inability to break away from the internationalmarket system dooms the
chances of maintainingthe customarypatternsof rewardwithin British soci-
ety.75 Amid the insecurities of the downturn, as Rousseau might have pre-
dicted, politics becomes a seeking for mass reassurance,and the real interests
of the dominantclass provide the policy agenda.
In the eyes of many critical theorists, the rebirthof conservativecapitalism

74 See LindaMedcalf and KennethDolbeare,Neopolitics (New York:RandomHouse, 1985),

50-51. Cf. KennethDolbeare, Democracy at Risk (Chatham,N.J.: ChathamHouse, 1984), xii-
xiii.
75 Andrew Gamble, Britain in Decline: Economic Policy, Political Strategy, and the British
State (Boston: Beacon Press, 1981), 186-87.
 RISE OF CONSERVATIVE CAPITALISM 267

signals the failureof the "class compromise" thatrelied on economic growth

along with moderatereformsto deal with inequalityby lifting up those on the
bottom.76 To the extent that it is truly libertarianin policy, conservative
capitalismalso means the disestablishmentof traditionalelites, the randomiz-
ing of cultural values, and the subordinationof all aspects of society to
materialismand short-termself-interest.77As for the power of the marketto
put the economy to rights, the presenceof competitiondoes not mean thatthe
will and the resources are in place to meet the challenge. That (relatively
restrained)forms of governmentinterventionin Britainfailed to produce an
economic renewal doesn't mean that the market will. The fault may be in
myriad other factors, not least the rigidities of the capitalist class itself.78
As conservatives advance the banner of the marketplacein the hope of
restoringthe prospectsfor continuedclass preference,the logic of the market
sorts throughits capitalistpatrons, enrichingmany, forcing out some, mean-
while destabilizing communities and disruptinglives. The freedom of self-
interestedchoice that capitalismoffers is not in the end congenial to a conser-
vatismthatsees stabilityas necessary. Thus the advocacyof the marketbrings
to the surface the kinds of tensions within conservative capitalism that we
have seen here over income securityand social policy. However, these are the
concerns mainly of conscience or of the fear of remote consequences.
The real splits are felt when, as in Britain, industryis denationalizedand
placed in the hands not of traditionalelites, but ratherof internationalcap-
italists holding little or no loyalty to nation, class, or the otherties of custom,
mutual interest, and association that organize conventional politics. Thus
Mrs. Thatcher'smost profoundcrises to date have involved sales of British
concernsto Europeanand Americanconsortia-consistent with marketlogic,
violative of traditionalsentiment.
MeanwhileReagan has floated massive deficits throughforeign borrowing
that has underminedthe value of the dollar and broughtwith it the displace-
ment of customarycommercialand industrialrelationsin communitiesacross
the country.79Farmers,businessmen, and small manufacturers,whose inter-

76 This is the general argument of Bowles and Gintis, Adam Przeworski, and Immanuel
Wallerstein and others. Cf. Helene Slessarev, "Two Great Society Programs in an Age of
Reaganomics" (Paper presented to the Midwest Political Science Convention, Chicago, April
1984), 3-5.
77 Cf. British traditionalistRoger Scruton, The Meaning of Conservatism (Totowa. N.J.:
Bares and Noble Books, 1980), 127-28, and American traditionalistRussell Kirk, "The
Problemof Community," in his A Programfor Conservatives(Chicago:Regnery, 1962), ch. 6,
esp. 140-42.
78 This argumentis developed by Ben Fine and LaurenceHarrisin The Peculiarities of the
British Economy (London: Lawrence and Wishart, 1985).
79 Accordingto FederalReserve Boarddata, the annualnet acquisitionof United States assets
by foreigners has more than tripled in the period 1980-85. Cf. Andrew Gamble's distinction
between "liberal political economy" and "national political economy" in Gamble, Britain In
Decline, 133 et passim.
268 KENNETH R. HOOVER

ests are historicallyat the heartof the RepublicanParty, have watched spec-
ulatorsprofit while their own positions are ever more effectively challenged
by increasing internationalcompetition, giant mergers, and even foreign-
based takeovers.The loss of supportfor Reaganand Thatcherin theirrespec-
tive legislaturescontinues even as the need for symbolic reassurancemain-
tains each leader's personal popularity.
For the present, the hybridof conservativecapitalismallows conservatives
to presentthemselves both as defendersof the past and as modernizers,while
casting those on the Left off as failed deviationists.80That, and the palpable
gains for the incomes of the traditionalelite, keep the movement in motion
even while the traditionalistelement of its ideological base appears to be
eroding.
The capacity of ideologies to provide an anchor for class identity through
myths concerning "ensembles"-or "exploitation"-based on class dif-
ferencesconfronts, in moderncapitalism, a force fundamentallyindifferentto
the continuityof personal identity.81While socialists and progressives pro-
vided liberal capitalisma scenario for the preferredidentity of the reformers
and the disadvantaged,traditionalistshave given to conservativecapitalisma
sense of class identificationwith the establishment.Capitalism,by promoting
entrepreneurshipas the only truly legitimated role, celebrates a transitory
figure ever at risk of displacement-thus underminingits class alliances
whenever it becomes too closely realized in policy.
Similarly, both liberals and conservatives have flirted with versions of
populism as a way of recouping the supportof those dismayed by reformist
do-goodism and elitism on the one hand, and economic royalism on the
other.82 The "authoritarianpopulism" Stuart Hall observes in Britain is
evident as the New Right in the United States. Yet politics is not alone a
matterof identity, nor of hegemonic intent-the realitiesof economic results
intrudein ways that mythology cannot conquer, though it surely can respond
in powerful definitions of the natureof the problem.
We have, of course, sketched only a few of the dynamics of identity and
class in which ideology becomes both cause and effect in the context of
capitalistpolitics. The intentionis to fill in a partof the largerpicturethat has
been obscuredsince the twenties when conservatismenjoyed its last period of
open ascendancy.
80
Cf. PatrickWright, On Living in an Old Country(London:Verso New Left Books, 1985).
81 For a fuller
exploration of the relationshipsbetween identity and politics, see Kenneth
Hoover, A Politics of Identity (Urbana:University of Illinois Press, 1976), esp. chs. 5, 6.
82 To use Stuart Hall's terms, there is a limit to how far the class-to-partynexus can be
dissolved into a government-to-peopleconception without engenderinga reactionfor both eco-
nomic and sociopsychologicalreasons. See Hall's thesis concerning "authoritarianpopulism" in
"Moving Right," Socialist Review, no. 55 (1981), 113-37. Cf. Vigurie, The Establishmentvs.
the People; Gamble, Britain in Decline, 145.