Reagan and Thatcher

The Politics of Social Security

Andrew Hill

Cornell College
RUNNING HEAD: REAGAN AND THATCHER 2

Reagan and Thatcher: The Politics of Social Security

The Reagan and Thatcher administrations, alike in many ways, differed with

regard to pension reform (c. 1980). President Ronald Reagan attempted and failed to

achieve his desired reform in the United States. Conversely, Prime Minister Margaret

Thatcher achieved her desired reform in the United Kingdom. This distinction in mind,

the following question begs asking: what obstructed Reagan’s, and empowered

Thatcher’s, respective pension reform efforts? There exists a wealth of pertinent

literature, some of which assert each country’s distinct model of government as causal to

obstruction or empowerment, some of which assert each country’s distinct preexisting

pension structure as causal to obstruction or empowerment, some of which assert each

country’s distinct elderly lobby as causal to obstruction or empowerment, and some of

which assert each administration’s distinct reform strategy as causal to obstruction or

empowerment – four proposed causal factors in total. Careful inquiry offers explanation

as to why two comparable countries, governed by two like-minded leaders, diverged with

respect to pension reform. Each factor did in fact influence the outcome. Still, each

country’s preexisting pension structure did so to a stronger degree; without it the other

proposed factors would have had a marginal effect. Each country’s preexisting pension

structure established a support base for the status quo; whereas each country’s elderly

lobby and each administration’s reform strategy simply enhanced or diminished that base.

As soon as Reagan and Thatcher assumed office, that support base – which is, and I

emphasize, a direct corollary of each country’s preexisting pension structure –

obstructed or empowered desired pension reform.

RUNNING HEAD: REAGAN AND THATCHER 3

Historical Context

The Keynesian Consensus

The United States (c. 1930) adopted stimulative fiscal policy, advanced by British

economist John Maynard Keynes, to temper the Great Depression – a period of reduced

investment, low levels of production, and severe unemployment. Then-President

Franklin Roosevelt’s New Deal - a series of governmental, economic, and social reforms

– brought “relief, recovery, and reform” to a nation in ruin; and in effect created a modest

welfare state (Koman, 1998, p. 39). Franklin’s most significant program was a public

retirement pension (dubbed Social Security), which passed with the Social Security Act

of 1935. American workers would pay into a national system until retirement age, at

which point they would collect benefits. This system was “earnings-related” – meaning

benefits were based on earnings within the previous tax year; and pay-as-you-go

(PAYGO), meaning a taxpayer’s then-current contributions paid for a beneficiary’s then-

current benefits (Nataraj, & Shoven, 2003, p. 348). Several amendments were added

subsequently - the Social Security Act Amendment of 1968, which created Medicare,

being the most significant - but the system generally remained the same.

The United Kingdom (c. 1940), like the United States, adopted stimulative fiscal

policy, advanced by Keynes, to temper its own, albeit less severe, Great Depression.

Then-Prime Minister Clement Attlee’s National Insurance Act (NIA) of 1946 expanded

preexisting pension coverage to help those affected by the economic slump; and in effect

created a modest welfare state. The United Kingdom had “adopted a system of flat-rate

pensions in 1908,” – known as the Basic Pension; shifted to a contributory system in

1925 (Pierson, 1994, p. 55); expanded coverage with the NIA in 1946; and in 1975 – four
RUNNING HEAD: REAGAN AND THATCHER 4

decades after the United States Congress passed the Social Security Act – adopted an

earnings-related provision called the State Earnings Related Pension Scheme, or SERPS

(Pierson, 1994, p. 55) to supplement the Basic Pension. British workers would pay taxes

into a national PAYGO system until retirement age, at which point they would collect

benefits (Robson, 1947, p. 171-173). (Note: adopted was a “contract out” provision –

one that allowed private provision to compete to a relatively insubstantial degree. Unlike

the United States’ Social Security system, the United Kingdom’s system of pension

provision saw various changes, each aforementioned.

The United States (c.1930) and the United Kingdom (c. 1940) were alike: each

suffered an economic downturn and each adopted Keynesianism to restore economic

prosperity. The trajectory of both into the 1980s was parallel; both rejected

Keynesianism in favor of conservative governance and free market-reform.

The Reagan/Thatcher Era

Ronald Reagan, elected President of the United States in 1980, precipitated a new

era of conservative governance and free-market reform. Reagan defeated incumbent

Democratic President Jimmy Carter, a Keynesian leader. Among Reagan’s

domestic policies: significant tax cuts and significant reductions in government services.

He sought to dismantle the American welfare state. By the end of Reagan’s first year in

office, the Congressional Budget Office (CBO) projected a social security revenue

shortfall by 1983 – caused by a falling worker-to-retiree ratio, and the federal

government's repeated appropriation of the Social Security Trust Fund1.

Social Security’s widely publicized troubles seemed to offer the Reagan

administration a good opportunity to restructure the program. However, Office of

1
The Social Security Trust Fund contains surplus contributions to the Social Security system that are not
required to fund pensions for current beneficiaries (Mitchell, 2000, p. 1).
RUNNING HEAD: REAGAN AND THATCHER 5

Management and Budget director David Stockman, who took the lead in
formulating administration policy, was preoccupied with obtaining immediate
budget cuts. One White House aide reported that Stockman hoped for
“phenomenal” cuts and saw Social Security as “the best way to get a balanced
budget.” (Pierson, 1994, p. 65)

Several White House advisers urged Reagan not to pursue reform; Social

Security was, by conventional wisdom, the “third rail” of American politics. In years

prior, Reagan supported private pension provision, but this idea was rejected by the

electorate2, thus Reagan shelved it. Despite concerns, Reagan crafted a reform package

that called for: “[1] a 25 percent reduction in benefits for those choosing early retirement

. . . [2] a $4 billion cut in basic benefits and [3] a three-month cost-of-living allowance

(COLA3) delay” – a total of $45 billion in benefit cuts (Pierson, 1994, p. 65-66). Like his

vision for private pension provision, Reagan’s proposed reforms were rebuked.

Attacks on Reagan’s proposals erupted immediately. Democrats in Congress

flayed Reagan, declaring that “Benefits are a right – an earned right,” that he was
guilty of “breaching a contract,” that “Social Security is bought and paid for by
the hard labor of the American worker,” and so on. Letters to newspapers
declared, “Where do you get the nerve to insinuate that Social Security recipients
are ‘supported’ by workers? Social Security is an insurance program, generously
contributed to by workers and employers”; beneficiaries “have earned their
benefits”; and one’s benefit is “a pension warned by a lifetime of work.”
(Attarian, 2003, p. 1)

The Senate passed a resolution in opposition to “[these] ‘unfair’ . . . [and]

‘precipitous’ cuts,” warning Reagan to not even send his proposal to Congress (Pierson,

1994, p. 66). To salvage some semblance of reform, Reagan assembled the National

Commission on Social Security Reform (NCSSR) to tackle the issue of insolvency. This

2
27 October 1964, Reagan delivered a televised address on behalf of Barry Goldwater’s bid for the
presidency. In this speech he asked the following: “can’t we introduce voluntary features [into Social
Security] that would permit a citizen who can do better on his own to be excused upon presentation
evidence that he had made provision for the non-earning years (“A time for”, 1954, p. 1). Reagan, until his
failed bid for the presidency in 1976 – in which he lost in part because of his views on Social Security –
was a fierce advocate of voluntary accounts.
3
COLA is the wage given to Social Security beneficiaries; delivered to recipients based on the cost-of-
living.
RUNNING HEAD: REAGAN AND THATCHER 6

commission recommended a package of welcome reform measures: 1) tax hikes, 2) mild

benefit cuts, and 3) a delay in COLA increases (Boaz, 1988, p. 203). With Congressional

approval, these recommendations became law in the Social Security Amendments of

1983. Reagan’s efforts to achieve his desired reform had failed.

Margaret Thatcher, named Prime Minister of the United Kingdom in 1979,

precipitated a new era of conservative governance and free-market reform. Thatcher

defeated incumbent Labour Prime Minister James Callaghan, a Keynesian leader.

Among Thatcher’s domestic policies: “cutting the size, functions, and cost of government

. . . reducing income tax . . . [and] controlling inflation” (Freedman, 1996, p. 232). She

sought to dismantle the British welfare state. Thatcher’s long-standing support for

private pension provision received only mild criticism. The pension system’s projected

shortfall was not imminent; Thatcher’s efforts were purely ideological. In her first term,

Thatcher passed a few reasonable benefit cuts. After her “successful re-election . . . in

1983, it was . . . clear that [a market-oriented restructuring] . . . would become the major

feature of strategy for [pension] reform” (Gamble, & Well, 1989, p. 100). The Thatcher

administration’s proposals "[1] intensified the emphasis on means-testing . . . [2] made

sharp cuts to a number of programs and [3] incentivized private pension provision”

(Freedman, 1996, p. 247). Her reforms “sailed through [the House of Commons] with

limited dissent,” thus passed the Social Security Reform Act of 1986. Thatcher had

achieved her desired reform.

Despite both countries’ concurrent rejection of Keynesianism and pursuit of free-

market policies, Reagan failed to achieve his desired pension reform, whereas Thatcher

achieved her desired pension reform. Analysts assert four factors, differences between
RUNNING HEAD: REAGAN AND THATCHER 7

both countries, as causal to obstruction or empowerment. These differences include each

country’s distinct: 1) model of government; 2) preexisting pension structure; 3) elderly

lobby; and each administration’s distinct 4) reform strategy – each of which receives due

consideration in the four sections hereafter.

Difference 1: Model of Government

David Boaz’s Assessing the Reagan Years and Juan Linz & Arturo Valenzuela’s

The Failure of Presidential Democracy: Comparative Perspectives assert each country’s

model of government as causal to obstruction or empowerment of desired pension

reform. The United States operates under the Presidential model of Government,

whereas the United Kingdom operates under the Westminster model of Parliament4.

The Presidential model is best characterized by three distinct features. First,

legislative power is concentrated in two chambers – an elected House of Representatives

and an elected Senate; it is bicameral. Second, the executive’s cabinet is within the

executive branch, separate and distinct of the legislature – members of the executive are

elected separately of, and are not members of, the legislature, thus they have no formal

control over legislative procedure. Third, the government is neither unitary nor

centralized – power exists at both the federal and state level.

The Westminster model of Parliament, too, is best characterized by three distinct

features. First, legislative power is concentrated in single chamber – an appointed House

of Lord (with insignificant legislative power) and an elected House of Commons (with

significant legislative power); still, a bicameral legislature. Since only one party may win

4
The Westminster model is itself one of several styles of Parliamentary government. It is different from
the Western European parliamentary model. Named after the location of the United Kingdom Parliament,
the City of Westminster, the Westminster model originated in Britain but was subsequently adopted by
Barbados, New Zealand, et al (Lijphart, 1999, p. 10).
RUNNING HEAD: REAGAN AND THATCHER 8

a Commons-majority and thus control legislation; and since the Prime Minister is

appointed from within that party, the majority-party has significant power to pass

legislation. Second, the cabinet dominates the legislature – “because the cabinet is

composed of the leaders of a cohesive majority party in the House of Commons, it is

normally backed by the majority of the House of Commons” and may count on

legislative support (Lijphart, 1994, p. 12). Third, the government is unitary and

centralized – “local governments perform a series of important functions, but they are the

creatures of the central government and their powers are not constitutionally guaranteed

(as in a federal government)” (Lijphart, 1994, p. 17).

Two distinctions specific to the models of government/divergence in question

include: 1) inherent to the Presidential model, but not to the Westminster model, is a

powerful set of checks and balances – a consequence of the aforedescribed structure of

the legislature; and 2) inherent to the Presidential model, but not to the Westminster

model, are legislative norms non-beneficial to the executive’s reform agenda – a

consequence of the aforedescribed party power. Boaz and Linz & Valenzuela assert that

Reagan’s desired reform was obstructed, and Thatcher’s desired reform was empowered,

by the aforementioned distinctions - each of which receives due consideration in the two

subsections hereafter.

Checks and Balances.

A powerful set of checks and balances, inherent to the Presidential model, may

obstruct the President’s reform agenda. A Presidential government is divided into three

branches: the legislative – which makes the law, the executive – which executes the law,

and the judicial – which interprets the law; “each coordinate and in the main independent
RUNNING HEAD: REAGAN AND THATCHER 9

of others” (Fairlie, 1932, p. 393). Each branch is vested with the power to check and to

balance - to, in effect, obstruct – its coequal branches. The Presidential model’s powerful

set of checks and balances obstructed Reagan’s desired pension reform. Reagan assumed

the presidency with a big agenda “and a split Congress – a tiny Senate majority and a

very democratic House” (Bedard, 2010, p. 1). The Senate voted “96-0 in favor of a

resolution warning him to not even send . . . [his] proposals to Congress”– a clear

rejection of his desired reform (Boaz, 1988, p. 202). Only one year into his presidency,

Reagan stood to squander precious political capitol if he pursued his desired – and

destined to be failed - reform. Consequently, Reagan shelved his proposal and deferred

to the NCSSR. In other words, the Presidential model – specifically its powerful set of

checks and balances – obstructed Reagan’s desired pension reform.

A weak set of checks and balances, inherent to the Westminster model, may

empower the Prime Minister’s reform agenda. A Parliamentary government is divided

into three branches: “a legislature in the form of parliament; an executive in the form of

ministers and the government departments and agencies they are responsible for; and a

judiciary” (Spindler, 2008, p. 1). That said, "the ministry (executive) is drawn from and

responsible to the parliament (legislature)"; after each election, the Queen requests the

Member of Parliament who carries majority-support in the House of Commons to form a

government (Spindler, 2008, p. 1). This person, the Prime Minister, will appoint

members of his or her own party to ministerial positions. Traditionally, one party holds a

Commons-majority. The Prime Minister is both his or her party’s leader and member of

the legislature. A close association among the executive and legislature, and a shared

agenda, proves the Westminster model’s weak separation of powers – the executive will
RUNNING HEAD: REAGAN AND THATCHER 10

have majority-support backing his or her legislation. Furthermore, the House of

Commons is structurally disadvantaged, which further inhibits its power to check and to

balance. The Westminster Model is without fixed terms. “[S]everal other parliamentary

systems set a specific period of years for the life of a parliament, thus avoiding the unfair

advantage given the incumbent government by its power to manipulate the election

calendar” – it is within the Prime Minister’s power to dissolve Parliament and call for

new elections, but the Westminster model has no such terms, giving the incumbent

government an advantage (Freedman, 1996, p. 184). Moreover, MP’s salaries are quite

low, which constrains their “effectiveness in reviewing legislation and serving their

constituents” – curbing their ability to check and to balance (Freedman, 1996, p. 184).

Suffice to say, the three branches are not coequal. The Westminster model’s weak set of

checks and balances empowered Thatcher’s desired pension reform. In the 1979

elections, the Conservatives won a sweeping forty-three seat Commons-majority and

Thatcher became Prime Minister. The Conservatives controlled both the executive and

the legislature, enabling them to pass the Social Security Act of 1986 with minimal

opposition. The Westminster model – specifically its weak set of checks and balances –

empowered Thatcher’s desired pension reform.

Legislative norms.

Legislative norms inherent to the Presidential model may obstruct the President’s

reform agenda. These norms - “rule[s] governing behavior that . . . [have] been accepted

by the members of the group” (Crowe, 1983, p. 908) - include: 1) party disloyalty; and 2)

discourse non-beneficial to the executive.

RUNNING HEAD: REAGAN AND THATCHER 11

Party disloyalty may obstruct the President’s reform agenda. According to Linz

& Valenzuela:

Since parties are not responsible and accountable for government stability and
policy, because those are the tasks of the president, they are likely to concentrate
their efforts on opposing, criticizing, and perhaps fiscalizing the executive, but not
to give it support, respond to its policy initiatives, or assume responsibility for
them. It is only natural that once a President is elected, parties are likely to return
to their distinctive partisan agendas in their [C]ongressional elections and, even if
they were part of the President’s electoral coalition, assert their distinctiveness by
criticizing the President. It is also natural that, not having responsibility for
national policy, they would turn to the representation of special interests,
localized interests, and clientelistic networks in their constituencies. (Linz, &
Valenzuela, 1994, p.63)

Party disloyalty obstructed Reagan’s desired reform. The United States President

– through the party convention process and general election – emerges as leader of his

political party and, consequently, sets the party agenda (Davis, 1992, p. 1). Despite

Reagan’s leadership within the Republican Party, Senate Republicans unanimously

rejected his desired reform. As Linz & Valenzuela suggest, Senate Republicans may act

as loyal opposition. Loose party discipline – itself a consequence of the weak separation

of powers – facilitated able regional representation in Congress. The concerns of their

constituencies – which stood to lose benefits - trumped the party leader’s agenda. The

Presidential model’s legislative norms– specifically party disloyalty – obstructed

Reagan’s desired pension reform.

Discourse non-beneficial to the executive may obstruct the President’s reform

agenda. Congressional leaders – of either party - may utilize their pulpit within the

legislature to publicly admonish the President. Their verbal opposition may be sampled

on the evening news and, thus, influence the electorate. The President may call a press

conference or deliver a televised address, but these instances are usually special in
RUNNING HEAD: REAGAN AND THATCHER 12

occasion and occur not near as often as do televised opposition5. Reagan could not

necessarily rely on legislative discourse to reinforce popular support for his agenda. That

said, party loyalty may have been discouraged within the Presidential model, yet

Republicans could still have vouched for Reagan’s desired reform within Congress. They

could have, but they did not. Legislative norms – specifically discourse non-beneficial to

the executive – obstructed Reagan’s desired pension reform.

Legislative norms inherent to the Westminster model may empower the Prime

Minister’s reform agenda. These norms - “rule[s] governing behavior that . . . [have]

been accepted by the members of the group” (Crowe, 1983, p. 908). – include: 1) party

loyalty; and 2) discourse beneficial to the executive.

Party loyalty may empower the Prime Minister’s reform agenda. Said loyalty is

coerced by a Chief Whip - a government appointee6/majority party member charged with

securing votes and stressing the consequence of disloyalty. If an MP takes on his or her

own party he or she may be stripped of rank within his or her caucus – wherein important

legislative decisions are often made - and denied party-support in subsequent elections.

Another consequence: according to a report published by the UK House of Lords’ and

House of Commons’ Joint Committee on Conventions titled Conventions of the UK

Parliament, “Commons primacy rest[s] ‘crucially’ not on election, but on the confidence

convention: that the Government must command the confidence of the Commons

[emphasis added]” ("Conventions of the," 2006, p. 10). If a sitting government loses the

5
One television station that airs legislative debates is CSPAN, a non-profit network aimed to educate the
electorate and increase government transparency. Established in 19 March 1979, this channel enabled the
electorate to hear, and be influenced by, the views of Congresspersons (“About c-span,” p. 1).
6
Whomever the Prime Minister selects as Chief Whip is typically appointed Parliamentary Secretary to the
Treasury so that he or she has a seat and a voice in the cabinet. The Chief Whip’s office is located at 12
Downing Street, “with connecting doors to the chancellor and exchequer at no. 11 and the prime minister at
no. 10”– close in proximity to the Prime Minister (Freeman, 1996, p. 131).
RUNNING HEAD: REAGAN AND THATCHER 13

confidence of the Commons-majority, it may be dissolved. “The final sanction of

dissolving Parliament and calling new elections if backbenchers7 do not toe the [party]

line endangers the careers not only of backbenchers, but also of the government, which

goes down with them” (Freedman, 1996, p. 181). MPs willingly toe the line because if

they do not they will lose power, whereas a Presidential government will not collapse if a

legislative-majority loses confidence in and opposes the executive. Thatcher’s desired

reform passed with the support for a Commons-majority. She had few misgivings about

putting her legislation to a vote because she knew full well that her government had the

confidence of the Commons. The Conservative’s Chief Whip Michael Jopling had

secured the votes necessary. Moreover, the Conservatives held such a wide majority that

not only did Thatcher have the votes required to pass reform, she in fact permitted several

backbenchers to vote against her desired reform (Gamble, & Wells, 1989, p. 102-103).

The Westminster model’s legislative norms – specifically party loyalty – empowered

Thatcher’s desired pension reform.

Discourse beneficial to the executive may empower the Prime Minister’s reform

agenda. Said discourse takes the form of Question Time, during which MPs publicly

question Government Ministers.

[This discourse begins] with a routine question from an MP about the Prime
Minister's engagements. This is known as an 'open question' and means that the
MP can then ask a supplementary question on any subject.
Following the answer, the MP then raises a particular issue, often one of current
political significance. The Leader of the Opposition then follows up on this or
another topic. ("Question time," 2009, p. 1)

7
“Backbencher” refers to those MPs who are neither government ministers nor their opposition
counterparts. ("Backbencher," 2008, p. 1)
RUNNING HEAD: REAGAN AND THATCHER 14

The Prime Minister’s remarks are “invariably excerpted on the evening television

news, reinforcing the sense of a government dominated by one person” (Freedman, 1996,

p. 131-132). This public perception affords the Prime Minister political capitol.

Consequently, the Prime Minister may influence the public in a way the Leader of the

Opposition may not. The Prime Minister’s power of persuasion, to carry electoral-

support, is empowered by this legislative norm. Thatcher’s desired reform was passed by

the House of Commons because those Conservative MPs who supported her desired

reform were encouraged to do so by their constituents, men and women who had

observed Thatcher on the news each and every evening. The Westminster model’s

legislative norms – specifically discourse beneficial to the executive – empowered

Thatcher’s desired pension reform.

Difference 2: Preexisting Pension Structure

Paul Pierson’s Dismantling the Welfare State: Reagan, Thatcher, and the Politics

of Retrenchment asserts each country’s preexisting pension structure as causal to

obstruction or empowerment of desired pension reform. In the United States, “a single,

mature program of public provision dominated the field of old-age security” (Pierson,

1994, p. 53), which undermined reform efforts. In the United Kingdom, “the fragmented

nature of state provision left potential opponents of reform divided and weak” (Pierson,

1994, p. 53). The United Kingdom’s adoption of flat-rate pensions in 1908; its shift to

contributory in 1925; and in 1975 - four decades after the United States Congress passed

the Social Security Act - its adoption of SERPS made for a system in relative disorder

(Pierson, 1994, p. 55). Each country’s distinct path “of national-policy development
RUNNING HEAD: REAGAN AND THATCHER 15

yielded quite different public-pension programs by the end of the 1970s” – programs that

obstructed or empowered reform (Pierson, 1994, p. 55). The systems differed in: 1)

inclusiveness; 2) maturity; and 3) treatment of private pension – each of which receives

due consideration in the five subsections hereafter.

Inclusiveness.

The United States’ pension system (c. 1980) consisted of one program - Social

Security - that was inclusive: “Regardless of age or income (except for those well below

the poverty line), Americans . . . expected to turn in their retirement to the same source of

public benefits” (Pierson, 1994, p. 55). Each and every American had stake in a visible

and cohesive program. To cut benefits spelled political suicide. Those who stood to lose

immediate benefits – retirees with time to actively oppose reform - would mount a

political insurrection. Senate-Republicans (joined by Senate-Democrats) rebuked

Reagan’s desired reform effort one year before the 1982 midterms; elections in which the

President’s party typically loses seats - a fact of which Republicans were acutely aware.

To mitigate potential losses, Republicans would have to refrain from angering the

electorate. Reagan’s desired reforms, which cut benefits, were perceived as “unfair” and

“precipitous” (Pierson, 1994, p. 66). In the 1982 midterms, post-Senatorial rejection of

Reagan’s proposal, Republicans picked up one Senate seat, and lost 26 seats to

Democratic challengers (Wooley, & Peters, p. 1). If Republicans had supported Reagan’s

desired reform, Congressional losses may have been greater. The inclusiveness of the

United States’ preexisting pension structure obstructed Reagan’s desired pension reform.

The United Kingdom’s pension system (c. 1980) consisted of two programs -

Basic Pension, and SERPS – the latter of which was exclusive: the “Basic Pension was .
RUNNING HEAD: REAGAN AND THATCHER 16

. . universal, but its benefits were far lower than those available through Social Security

in the United States” (Pierson, 1994, p. 55). Consequently, a greater proportion of

retirees relied on SERPS, which did nothing for the already-retired, but subsidized the

young once they reached retirement-age. “These groups were further divided . . .

between those directly covered by SERPS provisions and the significant proportion of

participants who had opted to ‘contract out’ into a private scheme” (Pierson, 1994, p. 55).

In other words, relative few Britons relied on public provision. The House of Commons

voted into law the Social Security Act of 1986 because fewer persons dependent on the

status quo meant fewer persons opposed to major reform. The relative few British

beneficiaries, unlike American beneficiaries, were unable to mount sufficient political

insurrection. Consequently, the House of Commons did not fear the subsequent election;

an electoral-minority opposed reform, not near enough to trigger a shift in Parliamentary

power. The exclusiveness of the United Kingdom’s preexisting pension structure

empowered Thatcher’s desired pension reform.

Maturity.

The United States’ pension system (c. 1980) was mature – “the retired population

. . . [had] paid contributions for an entire working lifetime, and . . . [was] consequently

entitled to full benefits” (Pierson, 1994, p. 56). Since many Americans had earned and

relied on future benefits, many stood to lose benefits on account of Reagan’s reform.

Consequently, Senatorial support would risk major blowback in the 1982 midterms.

American workers who had long paid in felt entitled to benefits. As sheer political

calculus, the Republican-controlled Senate voted unanimously against Reagan’s desired

RUNNING HEAD: REAGAN AND THATCHER 17

reform. The maturity of the United States’ preexisting pension structure obstructed

Reagan’s desired pension reform.

The United Kingdom’s pension system (c. 1980) was immature – the retired

population had not yet paid contributions for an entire working lifetime and was,

consequently, not yet entitled to full benefits. Since relative few Britons had earned and

relied on future benefits, relative few stood to lose benefits on account of Thatcher’s

legislation. Consequently, Commons-support would risk minor blowback in subsequent

elections. The Conservative Commons-majority voted to pass Thatcher’s desired reform.

The immaturity of the United Kingdom’s preexisting pension structure empowered

Thatcher’s desired pension reform.

Treatment of private provision.

The United States’ pension system (c. 1980) permitted private pensions to

supplement public provision. The framers of the Social Security Act of 1935 considered

an “opt-out” clause for those who favored private pension provision, but rejected it

because “private schemes offered only meager pensions to a tiny fraction of the elderly”

(Pierson, 1994, p. 56). Between 1935 and 1970, Social Security enjoyed considerable

success; an “opt-out” clause seemed unnecessary and/or dangerous8. Reagan’s proposed

reforms, coupled with his former desire to privatize, disturbed persons content with the

status quo. Consequently they would make their voices heard in the 1982 midterm

elections or so firmly believed United States Senators who feared electoral blowback.

The United States’ treatment of private provision – permitting it to simply supplement

public provision - obstructed Reagan’s desired pension reform.

8
To privatize Social Security is to invest a portion (if not all) of the benefits into the Stock Market. Critics
say the consequence of such action outweigh any benefit. Those Americans who are not savvy investors
may lose their pension in the Stock Market.
RUNNING HEAD: REAGAN AND THATCHER 18

The United Kingdom’s pension system (c. 1980) permitted private pensions as a

“structure of subsidized competition,” albeit to a relatively insubstantial degree (Pierson,

1994, p. 56). Conservatives’ repeated efforts to introduce a provision that further

incentivized private pension provision may have been rejected time and again, but by

“the time [the] earnings-related provision finally reached the political agenda in 1974 –

four decades after the United States Congress passed the Social Security Act – private

pensions were a . . . [fairly] plausible alternative” (Pierson, 1994, p. 56). Thatcher’s

desired reform, which incentivized private pension provision to a greater degree, was

relatively unobjectionable. Britons had become well-adjusted to private pensions as

competition. Consequently, they would not turn out in droves to make their voices heard

in opposition to Thatcher’s desired reform in subsequent elections. The United

Kingdom’s treatment of private provision – permitting it to not only supplement but to

compete alongside public pensions - empowered Thatcher’s desired pension reform.

Difference 3: Elderly Lobby

Paul Pierson’s Dismantling the Welfare State: Reagan, Thatcher, and the Politics

of Retrenchment and Leonard Freedman’s Politics and Policy in Britain assert each

country’s elderly lobby as causal to obstruction or empowerment of desired reform.

The United States (c. 1980) had one powerful elderly lobby: the American

Association for Retired Persons (AARP). “In the two decades since its founding, the

AARP grew from 800,000 members in 1968 to 5 million by 1975 to 16 million by 1986”

(Attarian, 2003, p. 1). The AARP – sustained by its members’ annual dues – had the

wherewithal to effectively lobby Congress to reject Reagan’s draconian benefit cuts.

RUNNING HEAD: REAGAN AND THATCHER 19

Moreover, evidence9 indicated that these proposed cuts “were more than double any that

could have been needed to ensure the system’s solvency” (Skidmore, 1999, p. 93). This

evidence, coupled with Reagan’s former support for private pension provision, troubled

AARP members, who believed Reagan might go so far as to eliminate public provision.

The AARP lobby efforts were successful; the Senate rejected Reagan’s desired reform.

Having failed, Reagan deferred to the NCSSR’s proposed reforms – 1) tax hikes, 2) a

mild benefit reduction, and 3) a delay in COLA increases. The AARP supported this

scaled-back proposal, in large part because a payroll tax hike would likely add millions to

the Social Security Trust Fund, securing long-term solvency (Boaz, 1988, p. 203). With

AARP support, Congress adopted the NCSSR’s recommendations and passed the Social

Security Amendments of 1983. The United States’ powerful elderly lobby – the AARP –

obstructed Reagan’s desired pension reform.

The United Kingdom (c. 1980) had no powerful elderly lobby. Where the

“United States [pension system] created a highly visible set of government ‘spoils’ that

helped spur the mobilization of a strong” elderly lobby, the United Kingdom’s

fragmented pension system - one in which relative few Britons took part - discouraged

the development of a powerful elderly lobby (Pierson, 1994, p. 56). The poor lobby

opposed Thatcher’s desired reform – in the event of a benefit cut, the elderly may well

become a part of the poor society – but was ill-financed. Its resources were spread thin

representing diverse segments of the poor population (Gamble, & Wells, 1989, p. 102).

The United Kingdom’s weak elderly lobby empowered Thatcher’s desired pension

reform.

9
Laurence Barrett, investigative journalist and contributor to the Washington Bureau for Time Magazine,
came to this conclusion – via detailed interviews with Reagan aides – that Reagan desired to eliminate
Social Security.
RUNNING HEAD: REAGAN AND THATCHER 20

Each country’s elderly lobby – the powerful AARP in the United States and the

weak poor lobby in the United Kingdom – assert Pierson and Freedman, obstructed

Reagan’s and empowered Thatcher’s desired pension reform efforts.

Difference 4: Reform Strategy

Gamble & Wells’ Thatcher’s Law, Paul Pierson’s Dismantling the Welfare State:

Reagan Thatcher and the Politics of Retrenchment, and Joel Krieger’s The Politics of

Decline assert each administration’s reform strategy as causal to obstruction or

empowerment of desired pension reform.

The Reagan administration’s efforts to dismantle the American welfare state may

be described as expeditious. “Reagan cut virtually all health, welfare, and other social

programs, offloading 40 percent of the cutbacks onto the poor as the administration

pursued a strong tax-cut policy until Congressional support gave out” (Krieger, 1986, p.

92). One element of its efforts to dismantle was Social Security. The Reagan

administration followed a single, similarly expeditious in approach to pension reform

strategy: a quickly-crafted reform package (note: Reagan was elected President in 1983

and crafted a bill by the beginning of his second year in office) that would cut $45 billion

in benefits. “OMB director [David Stockman] . . . believed the publicity surrounding

Social Security’s projected deficits provided a unique opening” (Pierson, 1994, p. 65) for

Reagan to exploit fear and expedite reform. This strategy backfired. Rather than pursue

and implement his desired reforms incrementally, Reagan proposed them, soon after

taking office, as one single reform package. This immediate threat of benefit cuts

alarmed the electorate, which would turn out in the 1982 midterm elections. The Reagan
RUNNING HEAD: REAGAN AND THATCHER 21

administration’s reform strategy – expeditious in approach – obstructed its desired

pension reform.

The Thatcher administration’s efforts to dismantle the British welfare state may

be described as measured; a marked contrast to Reagan’s efforts. Thatcher managed the

“anti-welfarist campaign with more subtlety [than Reagan], as the ambivalences of voters

raised on 30 years of extensive unemployment and pension benefits required, and

previous cuts by the . . . [Callaghan] government permitted (Krieger, 1986, p. 92). One

element of its efforts to dismantle was pension reform. The Thatcher administration

followed two similarly measured pension reform strategies: the first was “to stop the

growth of the Basic Pension [that the NIA of 1946 had expanded]. The second . . .

[strategy], which reached fruition in the Social Security Act of 1986, was an overhaul of”

SERPS (Pierson, 1994, p. 58). The plan to limit the Basic Pension was what Pierson calls

implicit privatization. “The government sought to freeze the scope of public provision.

In a growing economy, this meant that provision would be channeled into the private

sector, leading to a . . . shift in the balance between two sectors” (Pierson, 1994, p. 59).

The Thatcher administration passed the Social Security Act of 1986, which amended

existing law to enhance the earnings-related benefits provision. For persons who could

“be expected to provide for themselves, both positive and negative incentives . . . [were]

provided through the development of new legal measures to regulate . . . private welfare”

(Gamble, & Wells, 1989, p. 102). “Despite emerging rather slowly, Conservative efforts

to change pension provision eventually produced major reform” (Pierson, 1994, p. 58).

The Thatcher administration’s reform strategy – measured in approach – empowered its

desired pension reform.

RUNNING HEAD: REAGAN AND THATCHER 22

Each administration’s reform strategy – Reagan’s expeditious approach and

Thatcher’s measured approach, assert Gamble & Wells, Pierson, and Krieger, obstructed

Reagan’s and empowered Thatcher’s desired pension reform efforts.

Analysis

Each proposed causal factor - each country’s distinct 1) model of government; 2)

preexisting pension structure; 3) elderly lobby; and each administration’s 4) reform

strategy – did, in fact, obstruct or empower reform. That said, each country’s preexisting

pension structure did so to a stronger degree; without it, each other factor would have had

only a marginal effect. Each country’s preexisting pension structure established a

support base for public provision. The United States’ Social Security system was

inclusive – many Americans had stake; mature – many Americans had long paid in and

thus deserved benefits; and treated private pensions as supplementary – many Americans

resisted the introduction of a powerful private pension provision. These three features

established a broad support base for the status quo; one that would prevent reform. The

United Kingdom’s Social Security system, unlike the United States’, was non-inclusive –

relative few Britons had stake; immature – relative few Britons had long-paid into the

system, and thus relative few felt entitled to benefits; and treated private pensions as

subsidized competition – many Britons embraced (or were indifferent to) the introduction

of a powerful private pension provision. These three features of the United Kingdom’s

Social Security system (c. 1940) established a narrow support base for the status quo; one

that would enable reform.

RUNNING HEAD: REAGAN AND THATCHER 23

Each country’s elderly lobby was causal insofar as it simply enhanced or

diminished that base. The United States’ broad support base, a consequence of its

cohesive pension structure, promoted elderly lobby growth – specifically the AARP. Its

membership – which numbered well over 5 million by 1980 – paid annual dues. These

dues were used to lobby Congress. The United States elderly lobby, powerful by virtue

of its resources, helped to kill reform. The elderly lobby would not have been powerful

and not have been able to kill reform had it not been for the United States cohesive

pension structure. Conversely, the United Kingdom’s narrow support base, a

consequence of its fragmented pension structure, prevented elderly lobby growth – there

were none as powerful as the United States’ AARP. The poor lobby took up where an

elderly lobby would have: challenging Reagan’s desired reform, lobbying the Parliament

to vote “nay.” Its resources spread thin, the poor lobby was unable to kill reform. This

was a consequence of the United Kingdom’s fragmented pension structure. Succinctly

put: each country’s preexisting pension structure created or prevented elderly lobby

growth which, in turn, obstructed or empowered desired pension reform.

Similarly, each administration’s reform strategy was causal insofar as it simply

enhanced or diminished each country’s support base. The Reagan administration’s

expeditious reform strategy – one that attempted to pass a single reform package in his

first term – displeased the electorate, which unified in opposition to his reform; a reform

based on slashing benefits that the many beneficiaries believed they had earned. Many

Americans were involved in the system because of its preexisting pension structure – one

that was both inclusive and mature and many opposed Reagan’s desired reform.

Conversely, the Thatcher administrations measured reform strategy – one that attempted
RUNNING HEAD: REAGAN AND THATCHER 24

to pass two reform packages (each mild on its own) over a two-term governing period –

did not trouble the majority of Britons because many of these Britons were not a part of

the system. This was a consequence of the preexisting pension structure – one that was

both non-inclusive and immature. Succinctly put: each country’s preexisting pension

structure created a support base which was then diminished or enhanced based on each

country’s reform strategy, which in turn obstructed or empowered desired pension

reform.

Each country’s model of government was the institution through which reform

failed or was achieved. The Presidential model’s powerful set of checks and balances

obstructed reform. The legislature was coequal to the executive and, consequently, could

block the President’s desired reform. Unlike the Westminster model, wherein

Conservatives controlled both branches, the Presidential model permitted legislative and

executive control by opposing parties: Republicans and Democrats. The Democratic-

controlled House opposed reform, as did the Republican-controlled Senate. Unlike the

Westminster model, legislators in the Presidential model were able to break party ranks.

Party disloyalty was normative. Rather than commit firmly to Reagan or the party of

which he was leader, Republican legislators deferred to their constituents – men and

women who were Social Security beneficiaries. Conversely, the Westminster model’s

weak set of checks and balances empowered reform. Not only did Conservatives control

the legislature and executive; Prime Minister (and party leader) Thatcher was herself an

MP. Consequently, her reform agenda was the party’s reform, and vice versa. Moreover,

Conservative MPs, who held a considerable Commons-majority, were unable to break

party ranks. Party loyalty was normative. Now, Conservatives could have broken ranks
RUNNING HEAD: REAGAN AND THATCHER 25

with their party (even though that would have been a violation of legislative norms) had

any MPs’ constituency firmly opposed Thatcher’s desired reform. In fact, in some cases

constituencies did oppose it and Thatcher allowed the MPs to vote against it. Thatcher

permitted this because she had enough MPs’ support to maintain a favorable outcome.

Had the Conservatives held a bare Commons-majority, the Chief Whip would likely have

forced – by means of stripping the MPs of rank in their party caucus – the MP to vote in

favor of Thatcher’s desired reform. The fact is that relative few Britons pressured their

MPs to oppose reform because few were beneficiaries within the system – a consequence

of the United Kingdom’s fragmented preexisting pension structure. Succinctly put: each

country’s preexisting pension created a support base that pressured its duly-elected

representatives, members of the legislature, to obstruct or empower reform. Each

country’s model of government effected reform, but only based on each country’s

support base. Each support base was, again, a consequence of each country’s preexisting

pension structure. In summation: each proposed factor was causal. That said, each

country’s preexisting pension structure was more causal. It created a base that each other

factor simply enhanced or diminished.

RUNNING HEAD: REAGAN AND THATCHER 26

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