the turn away from excessive government regulation toward a greater market economy in the 1980s
In the late 1970s and 1980s, Britain and the United States, followed by some other European countries and a growing number of non-Western countries, gradually turned away from a Keynesian model of government intervention in the economy. The mixed economy never went away, and government intervention was limited only in degree. But the impact is already enormous. The downfall of the Communist bloc contributed to a global market economy.
Intellectual influences of the move:
1974-80 world economic crises and the limit of Keynesian economics:
Besides the usual negative aspects of a government regulated economy (the topic of your homework), the world energy crisis brought about by OPEC's oil embargo and rise in oil prices accentuated those problems, causing even higher inflation because of the hike in gasoline prices and consequently, prices of everything associated with petroleum (such as chemical products), and required transportation.
OPEC (Organization of Petroleum Exporting Countries), an organization founded by Venezuela and several Middle Eastern oil exporting countries in 1960, first flexed its political and economic muscles in 1973, by unilaterally setting oil prices and imposing oil embargo on the U.S. and other Western countries that sided with the U.S. on the issue of the Arab-Israeli War of 1973. This was followed by nationalization or partial nationalization of Western oil companies in the ME countries. With increasing Western consumption of oil as an energy source and with growing US dependence on ME oil, the ME countries seemed to have reversed the long Western control of their economy and the oil market.
The 1973 Arab-Israeli War and OPEC's price hike
In 1973, in the wake of the Arab-Israeli War, because of $2 billion US aid to Israel in the war, the Arab countries started oil embargo on certain countries, including the U.S., Japan, and the Netherlands, and unilaterally raised oil prices from around $3 to $12 per barrel.
The Iranian revolution of 1978 and OPEC's price hike
In 1978 a revolution broke out in Iran, overthrowing its king who eventually went on exile in Egypt. It was an Islamic fundamentalist reaction to what was perceived as overwhelming modernization, including urban overcrowding, polarization of the wealthy and the poor, corruption, and Western style liberalization. Led by Ayatolla Khomeini who had been in exile in France.
The Iranian revolution led to an end of Iranian oil production and export, driving up international oil prices. OPEC took advantage, and further cut back on oil production, driving up prices even more. By 1981, oil prices went up from $12 in late 1974 to $35 per barrel.
The sharp rise in oil prices led to high inflation and growing unemployment, challenging the Keynesian idea of deficit spending, as the state found that with the limit on energy sources, economic expansion seemed limited and the state might not be able to pay back the debt it owed through economic expansion.
The energy crises caused by the two price hikes of OPEC controlled oil had a tremendous impact on the Western world, creating doubts about the infinite possibility of economic expansion based on cheap energy resources primarily from the Middle East (around $3.00 per barrel in 1973, compared with around $65-70 per barrel today). Before OPEC, the Western world controlled international oil prices, but after 1973, OPEC took over, to a great extent. The limits to economic growth caused doubts about deficit spending--government borrowing money to fund public projects, with the hope that economic expansion would lead to greater revenue and government repayment of the debt. This environment provided fertile ground for champions of market economy.
Britain:
Britain, the first country to go full-scale welfare after World War II, also took the lead toward a freer market economy. Influence of privatizers: Keith Joseph, who later became secretary of state for industry under the Thatcher administration (1979-1987).
Change of relationship between the government and businesses in Britain (1947-1987):
Because of the welfare state, Britain nationalized many aspects of its economy, an enormous load that proved to be increasingly hard to handle.
1974 coal miners' strike:
Coal was once the lifeblood of industry and a key part of life in the North East of England. At its peak in 1913, the Great North Coalfield employed almost ¼ million men, producing over 56 million tons of coal every year from about 400 pits. But after 1945, with the growing use of oil and gas, coal mining declined. To rescue the employees in that sector, coal mining was nationalized in 1947. In 1973, during the OPEC revolution and international oil crisis, the coal miners in Britain seized the opportunity to ask for higher pay and shorter working days. They went on strike and got a three day working week, and became one of the highest paid among the British working class.
1978 public sector employees' strike
Government deficit in Britain forced it to borrow money from the IMF, which required Britain to cut public expenditures. The 1978 public sector employees' strike was a response to cuts in public expenditures, and ranged from railways to garbage collectors, almost bringing the country down.
1984 coal miners' strike:
This was the last showdown between the coal mining industry (nationalized in 1947) and the government. The strike started under threat of closing the mines and reducing workers: in this round, the government won, and changed government-labor relations from one of cooptation and mutual alliance in a welfare state to leaving labor to fare on its own in a market economy.
Privatization under the Thatcher administration ranged from telephone, ports and airports, to petroleum companies, railways, gas, gas stations and hotels.
Mexico
Mexico is an example of how developing countries that formerly exercised a statist approach to economy also decided to privatize in the 1980s. In the particular case of Mexico, the decision came as a result of Mexico's economic crisis in the 1980s: deficit spending in an economic boom--the high oil prices created by OPEC in the 1970s, led to an economic bust, as the oil prices fell (momentarily) in the 1980s to below $10 a barrel due to more efficient use of petroleum in the developed countries, and the discovery of other sources of oil away from the ME and Latin America. Suddenly Mexico found its oil sale dropped and with it, creditors' money as people started to doubt its government's ability to pay. Privatization seemed to be a way to conduct business more efficiently.