Enright 1
    
    Michael Enright Bottom-Up Policy Models as They Apply to British Nationalisation Cycles michael.enright@mansfield.oxon.org +01 (408) 564-1900 19 September 2009
    
    Enright 2
    
    Acknowledgement:
    ! This project is the final culmination of much study of continuities and breaks in
    
    the economic policies of Great Britain. This idea would have never come to light without the early help of my very dedicated tutor, Dr. Tudor Jones of the University of Oxford. It was he who painstakingly raised my awareness of political economy and economic theories as they pertain to Great Britain. ! Equally crucial to the success of this project is Dr. Jane Curry of Santa Clara
    
    University who went to great lengths to bring my knowledge of Britain's economic history to the level of political theory. ! Also, I must thank the many dedicated economists at Santa Clara University and
    
    the University of Oxford who assisted me with the economic questions posed herein. Namely Dr. John Ifcher and Gaurav Nayyar but especially Dr. Homa Zarghamee. Dr. Zarghamee helped me deal with a seemingly insurmountable number of confounding variables and model class divisions econometrically.
    
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    Abstract:
    ! This paper argues that a bottom-up model of policy making most fittingly explains
    
    cycles underlaying nationalisation and privatisation of industries in Great Britain. The model is defended by examining consensus in public opinion before changes are made and then addressing the argument that the bottom-up policy model cannot accurately predict policy actions because nationalisation policy changes did not follow every economic downturn since World War II. ! To explain the lack of policy change after notable shocks, such as the
    
    unemployment caused by contractionary monetary policies under Thatcher, a model of opinion divergence between the middle and working class is built and supported with data from the British Election Study. ! It is concluded that the bottom-up model of policy does apply to nationalisation
    
    cycles in Great Britain; however, sufficient consensus between the middle and working class is necessary to initiate a policy change.
    
    !
    
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    Introduction: !
    ! A bottom-up model of policy making most appropriately explains economic policy changes made under the Thatcher and Atlee governments in Great Britain. The cycle of nationalisation and privatisation in Great Britain is used as an example of this bottom-up policy change mechanism. Nationalisation is perhaps the deepest form of government intervention in an economy because state ownership of industry represents a societyʼs concept of personal property. It therefore makes a fitting proxy indicator to gauge public sentiment of whether or not the government ought to adjust economic policies. Before Wold War II, nationalisation was not practiced as it was considered socialist. The postwar consensus on economic policy gave rise to nationalisation and the results of this policy were not reversed until the advent of Thatcherism. ! Each time nationalisation policy has changed since the Wold War II, three distinct
    
    phases have been involved. The first is a major economic shock that has an impact on a critical mass of the electorate. The second is a phase of transition that occurs while new policies to address the shock are implemented. The third phase is one of a steady state where the consequences of the shock and the consequences of stabilisation under the policy change are finally eliminated. ! Three cases of the cycle will be examined in this paper. The first is the initial
    
    nationalisation of critical industries after World War II. The war was an exogenous shock to the economy which caused economic destruction to all classes. After a shock that affected all, there was policy change. Nationalisation was a way for the government to take charge of the shock and ensure maximum employment in the
    
    Enright 5
    
    postwar economy.1 The second case is the move to privatisation under Margaret Thatcher. In the 1970s, the economy experienced much inflation. Inflation devalued the savings of all classes equally and therefore caused consensus between the classes. Because of this Thatcher was elected on a contractionary agenda that explained privatisation of most state owned industries. While the first two cases show a bottom-up approach to policy change, the third does not. ! The third case occurred after Thatcher set her new agenda in 1979. While this
    
    was not an exogenous shock, it had greater effects on unemployment levels than the inflation of the 1970s. This did not go unnoticed as illustrated by unemployment levels in Figure 1 and the publicʼs reaction as illustrated in Figure 2.2 Therefore, we refer to Thatcherʼs economic disturbances as a shock, despite its endogenous nature. Thatcherʼs monetary policy of contraction led to significant increases in unemployment. One would then expect this economic disturbance to lead to policy change if the bottomup approach in the first two cases was true. That is, one would expect the public to become insecure and demand more government intervention in the form of nationalisation. The fact that no policy change occurred as a result of Thatcherʼs damaging economic policy is not a reason to dismiss the hypothesis that bottom-up policy changes normally occur as a response to economic downturn. ! This paper defends the idea that the public significantly influences policy change
    
    in response to shocks. This is done by explaining why bottom-up policy change does not follow all shocks but is appropriate for explaining the policy changes of the Atlee and
    
    1 2
    
    Kavangh and Morris 5 see theory section
    
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    Thatcher governments. There have been shocks that were not followed by policy change but each of these should be investigated as to whether or not it induced consensus between the classes. The bottom-up policy making cycle explained in this paper can be observed after shocks that induce sufficient opinion consensus between the middle and working class. Shocks that do not cause this consensus have not caused policy change. For example, Thatcherʼs policies were a response to a consensus that change had to be made. Her change caused a large increase in the number of unemployment claimants relative to the number seen during the inflation and GDP decline of the 1970s. For those unemployed as a result of monetary contraction, Thatcherʼs adjustment would have been considered an economic shock but for those unaffected, it would not. Therefore, the shock of Thatcherism affected some but not all. Without the critical link of consensus, no policy adjustment occurred and the lack thereof cannot be considered reason to dismiss the applicability of bottom-up policy change models for cases of economic shock response. ! The presence of a shock from Thatcherʼs policy change and a failure of policy to
    
    be changed acts as a control to demonstrate why many shocks are not accompanied by a bottom-up policy change. Despite no consensus forming the model of bottom-up change discussed here still stands. It is only when a shock is accompanied by public opinion realignments, which arise as a result of many shocks,3 that polices of nationalisation adjust. ! It is appropriate to suggest that there is a minimum level of approval for policy
    
    change. To support this concept, the divergence in public opinion regarding
    
    3
    
    Sabatier 39
    
    Enright 7
    
    privatisation activity of the government during the Thatcher era is illustrated with data taken from the British Election Study. It is shown that some divergence between the opinions of the middle class and working class exists before Thatcherʼs policy changes. This divergence is small relative to the divergence level seen after her policies were implemented in 1980. This lack of divergence explains why policy change occurred in response to the shocks of the 1970s but not in response to the shocks induced by the Thatcher policies. ! These patterns illustrate cases where the often overlooked bottom-up approach
    
    to policy making should be considered in explaining policy change. The example of British nationalisation cycles could be important to public policy because it introduces a predictor for policy change. If the public aligns across the classes to form a critical mass of consensus as the consequence of a significant economic shock, policy change can be expected. Likewise, if the ideology of political leadership changes but the public level of consensus does not,4 no policy change should be expected. Such a convergence and consequent change could be of great significance in explaining the recent nationalisation of some British banks and radical policy changes being discussed in the United States.
    
    Literature Review:
    ! It is commonly argued that causality between public opinion and policy runs from
    
    policy makers to the public. In other words, a politician or political institution expresses an opinion justifying a policy. Then the institution of policy causes the public opinion to
    
    4
    
    As was seen after the Labour governments immediately following the Second World War were replaced by a Conservative government in 1951.
    
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    agree with the institution.5 This assumption cannot always be applied to cycles of economic policy, as shown by policies involving nationalisation. An economic shock increases the public approval for a change in nationalisation policies, whether this new approval is for more or less nationalisation. Nationalisation itself has been a heated topic of political debate in Great Britain. In the nineteenth century, some arguments for public ownership of certain industries appeared but none were effective. The idea of state ownerships was normally written off as ʻsocialistʼ and, therefore, undesirable. The concept of nationalisation became more attractive after the economic stresses of World War II. War efforts not only became the object of economic activity but generated full employment, changing the public expectation of what the government should do to ensure employment.6 ! There are two areas of literature relevant to the application of bottom-up policy
    
    models. First, a collection of work discussing the possibility of public opinion leading to agenda setting. Second, a body of work outlining frameworks for measuring the forces of such public opinion changes. ! Sabatier (1986) compiles a review of the arguments for bottom-up and top-down
    
    attempts of explaining policy change. Sabatier explains that much analysis of policy formation assumes policy changes originate from the policy maker. Usually because this type of post-change analysis serves as a practical way to assess policy. Consequently, Sabatier explains the alternative view, incorporating the time before the
    
    5 6
    
    Pierson 596 Kelf-Cohen 1-4
    
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    policy maker crafts an agenda, which is thought to include the opinions of the electorate. ! Sabatier argues that both views of top-down and bottom-up policy formation are
    
    not mutually exclusive and should be combined. This is because top-down mechanisms usually rely on the process of policy making after the policy maker decides on a position. He argues that what happens beforehand ought not to be ignored. If policy making decisions are examined on a longer time frame, many actions of a policy maker would be joined to the demands of the electorate.7 This implies that sufficient consensus among the electorate could be a major catalyst in policy change. ! Additionally, Sabatier argues that socio-economic shocks are one of the most
    
    likely sources to cause such political alignment.8 ! Alesina and Drazen (1991) attempt to explain why and how these alignments
    
    may form by modeling the opportunity cost of policy implementation. Their model lacks empirical data but explains policy change as a function of opportunity cost. When the opportunity cost of implementing a policy is lower than the opportunity cost of not implementing a policy to a specific group, the affected group may align in opinion with other groups desiring policy change. This creates enough critical mass to force a bottom-up decision. One side will only absorb the cost of policy change if it becomes less costly than the alternative.9 ! Alesinaʼs argument is later alluded to by Rodrik (1996). Rodrik stresses that,
    
    while there is much qualitative work covering class alignments and policy change, there
    7 8 9
    
    Sabatier 40 Sabatier 39 Alesina and Drazen 1176
    
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    is a lack of empirical studies. Rodrik notes that most literature assumes a crisis causes reform and that a better framework for analysing such catalysts for policy change is needed. Our paper does not apply the methodology of Alesinaʼs argument in detail but uses it as a way to assume opportunity costs are mutual between classes at the point of policy consensus. It then illustrates such consensus as a catalyst for policy change, attempting to address the analytical weaknesses Rodrik presents. ! Many of the above theories are synthesised into a theoretical ʻvote and popularity
    
    functionʼ by Lewis-Beck and Paldam (2000). The authors stress that modeling functions of voting based on popularity is an unstable process and that controlling for confounding variables is a great difficulty. However, the paper argues that votersʼ knowledge of economic issues increases substantially before an election. Thus, votersʼ perceptions of economic competence could be used to predict several leadership changes in Great Britain.10 It should be noted that these leadership changes were not followed by substantial policy changes in cases where there was no preceding economic shock. ! To illustrate the consensus mechanisms proposed in this paper, it is necessary to
    
    review the established concept of a ʻbacklashʼ in public opinion. These occur after the downturn resulting from a change in policy. The monetary policy of the 1980s was a strong example. Understanding a backlash helps to explain why a downturn of internal origin might be accompanied by convergence instead of divergence. ! Illustrating a ʻbacklashʼ in public opinion after the Conservative swing of the early
    
    1980s dominates literature on this topic. Shapiro (1989) concludes that in both the United States and Britain, a ʻbacklashʼ towards public acceptance of egalitarian goals
    
    10
    
    Lewis-Beck 116
    
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    was observed in the 1980s. This was a result of policy adjustments of Reagan and Thatcher. The author concludes that there is a general pattern observed which shows a right wing swing in the late 1970s, followed by a reversal of public opinion in the 1980s. At first, one might consider a backlash to represent consensus but the backlash represented by Shapiro is an average of the population. An average that accounts for disparities between classes will be counted in this paper. ! Listhaug and Alaberg (1999) provide a model of class differentiation for our
    
    analysis.11 Listhaug observed public support for various aspects of government intervention in western countries as a control group and then looked at the same changes in post-communist countries. They find that in most post-communist countries, public support for government intervention and egalitarian goals fell among the upper classes and rose among the lower classes. In the Western countries, these trends are hardly divergent but tightly cointegrated in the early 1990s. For our study, we take the same technique of class differentiation and apply it to the pre- and post-policy changes of Thatcher in the early 1980s. This reveals the same type of class-defined opinion divergence after monetary contraction of Thatcher. ! Helmut Norpoth (1987) concludes that rising unemployment does meet with
    
    public disapproval in Great Britain. Unemployment rose by nearly 1 million individuals between 1980 and 1981. The cost to Thatcher was roughly 10 points in the next election. This loss was not offset by battling inflation. This reaction was not strong enough to influence policy change by generating enough consensus to remove the Conservatives from office.
    
    11
    
    Listhaug 117
    
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    !
    
    The overall conclusion is that rising unemployment is met with disapproval but
    
    disinflation is not met with approval. The reasoning does seem to illustrate some sort of reaction function of the public, one that illustrates opinion changes over time but there is no dividing of data between upper and lower classes. Therefore, the reaction may be more significant if shown only among the lower classes. ! Jonathan Kelly (2004) tests the hypothesis that a transition from a socialist
    
    economy to a free market economy will increase normative support for income inequality.12 Kelly concludes that normative support for income inequality is higher among more educated, and otherwise more elite individuals. This suggests one would find more support for private enterprise instead of nationalised industries among the middle class relative to the lower class. ! The analysis that follows blends Shapiro and Norpothʼs model with Listhaugʼs
    
    model. It measures nationalisation approval between the middle and upper classes. In doing so, a situation in which an economic shock did not lead to policy change will be illustrated against a background of shocks that did lead to change. The one variable which changes is the presence of critical voter alignment. This is why the bottom-up model worked in the shock of the 1970s but did not apply for consequences of Thatcherʼs policies.
    
    12
    
    Kelly 319
    
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    Theory:
    Unemployment Claimants (in thousands)
    4000
    
    3000
    
    2000
    
    1000
    
    0 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
    
    Figure 1: Number of unemployment Claimants. Source: Office of National Statistics ! Of the three cases examined in this paper, two were followed by policy change.
    
    To establish that a bottom-up cycle can explain these cases, we must explain why the Thatcher case is different. As shown in Figure 1 above, the transition resulting from Thatcherʼs tight monetarist policy was followed by great rises in unemployment claims between 1979 and 1986. The following analysis will demonstrate that this shock in the form of unemployment was accompanied by a widening gap in public approval for
    
    1979 Thatcher elected
    
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    nationalisation. The working class would suffer most from firm shut downs and approved of more nationalisation. The middle class did not have this concern. ! The unemployment spike induced by Thatcherʼs policies can be considered a
    
    significant shock because it was understood across the classes, though it did not affect both classes equally and cause consensus.
    
    Precent of Population Thinking Unemployment as Most Pressing Issue to the Nation
    80
    
    60
    
    40
    
    20
    
    0
    
    1978
    
    1979
    
    1980
    
    1981
    
    1982
    
    1983
    
    1984
    
    1985
    
    1986
    
    1987
    
    1988
    
    1989
    
    Figure 2: Gallup Poll Results Source: King, Anthony. British Political Opinion 1937-2007: The Gallup Polls As shown in figure 2, public concern over unemployment rose sharply during the rise in unemployment claims. By 1983, the portion of the public reporting that unemployment was the countryʼs most pressing issue reached nearly 80%. However, this did not change the opinion of the electoral majority regarding what the government should do about the problem because the working and middle class were not mutually damaged. No change in policy was demanded in the 1983 elections and Thatcher remained in power. This hypothesis of opinion divergence will be tested later in the analysis.
    
    Enright 15
    
    !
    
    The divergence in opinion between the middle and working class can be
    
    expressed in the equation below.
    
    limW (t) − M(t) = 0
    t →x
    
    (1)
    
    €
    
    In Equation 1, x represents the time of an election and W(t) represents the nationalisation approval level of the working class. M(t) represents the nationalisation approval level of the middle class. Policy change can be expected after the next election given two conditions, a shock having occurred and the result of W(t)-M(t) being sufficiently close to zero. Equation 1 suggests a situation in which opinion divergence is decreasing as an election approaches, and this would be considered a case of perfect convergence at election. While it is possible for opinion to converge perfectly on the time of an election, it is important to note that perfect convergence could have happened long before an election. The policy change may happen as a result of the residual consensus. If this is the case, the divergency between groups would be better represented as follows:
    
    t →(x−z )
    
    lim W (t) − M(t) = 0
    (2)
    
    €
    
    Equation 2 adds the term z, which represents the time delay between the election where policy change demand manifests and the time at which consensus had initially
    
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    formed. For example, if the inflation of the 1970s caused consensus very quickly after its occurrence but it took time for political coalition to form and the effects of the shocks to be felt, z might represent this period of adjustment.
    
    Analysis:
    ! Prior to the advent of Thatcherism in 1979, the ideas of post-war consensus
    
    governments were the dominating axioms of economic thought in Britain. The main idea used by the consensus governments was that of a mixed economy. The government controlled essential industries to insulate them from the cyclic nature of private industry. As seen in the 1945 Labour manifesto, the party “advocated the public ownership of basic utilities and an active role for government in managing the economy in pursuit of certain social and economic objectives.”13 This public ownership was justified by an ends of full employment. This could happen according to the Keynesian frameworks that prescribed “... government use of fiscal and monetary techniques to regulate the level of aggregate demand so as to create full employment.” 14 While the Conservatives were not fond of such techniques, no attempt was made to stop them. The Conservatives, ... did not in general attack the Welfare State nor the governmentʼs commitment to full employment. Nor did the Conservative Party, as a whole, challenge the economic policy, dominated by the ideas of
    
    13 14
    
    Kavangh and Morris 5 Kavanagh and Morris 5
    
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    Keynes, on which the financing of the Welfare State and full employment was based.15 While the ideology of the Conservative party may have been averse to the programmes of the Welfare State, much of this opposition was stifled so as to preserve consensus. ! This strong cooperation in government did not show a fear of losing votes.
    
    Consensus between classes on the issue of nationalisation is therefore assumed at the time of Atleeʼs government in 1945. As Atleeʼs Labour government formed in 1945, it had to prepare to meet expectations of very low unemployment levels. Unemployment had been eliminated by military activity 16 and the case for state ownership had been significantly legitimated by increased government control during the war.17 ! The process of forming a mixed economy took the form of nationalisation. By
    
    1949, the government had taken control of industries such as coal, steel, natural gas, electricity, and healthcare. The political independence of these industries was a concern because they were ultimately responsible to government appointed boards.18 Despite this concern, there was not a great deal of discontent that industries had come under the control of the state. Such was necessary to sufficiently care for a population in accordance with expectations set during World War II. ! Though the Labour governments of the immediate post-war era were replaced by
    
    Conservative governments, the policy of nationalisation was never changed. There was concern over the level of state ownership; however, there was no economic shock to
    15 16 17 18
    
    Kavanagh and Morris 5 Harris 13 Coxall and Robins 9 Kavangh and Morris 24
    
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    incite public demand for policy change. Composite Price Index and GDP Some concern was expressed over how to best exercise economic protectionism due to the increased living cost of a sinking pound sterling.19 However, beyond these rather small discussions of economic intervention, no changes took place. Even though a government with a different ideology was elected, the policies did not change. This lack of change highlights the necessity of public alignment for changes in nationalisation policy. The next shift in policy would not come until the election of Thatcher. As shown in Table 1, inflation had reached a remarkably high level of 24.2% in 1975. At the same time, GDP fell at an annual rate of -.06%, hardly an improvement over its fall of -1.3% in 1974. Notably high inflation continued until the time of the 1979 election, when the rate was still 13.4%.
    1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 Year % change in % change in price level real GDP 1 5.3 3.4 2.3 4.3 1.1 2 4.3 3.3 5.5 4.8 2.2 3.9 1.9 2.5 2.5 4.7 4.2 5.4 2.1 6.4 2.2 9.4 2.1 7.1 3.7 9.2 7.2 16 -1.3 24.2 -0.6 16.5 2.6 15.8 2.4 8.3 3.2 13.4 2.7 18 -2.1 11.9 -1.3 8.6 2.1 4.6 3.6 5 2.7 6.1 3.6 3.4 4.0 4.2 4.6 4.9 5.0
    
    Table 1: Changes in Price Level and GDP Source: Office of National Statistics, Composite Price Index, and GDP
    
    19
    
    Coxall and Robins 220
    
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    !
    
    Wages did not rise fast enough to mitigate the effect of this inflationary shock.20
    
    The government had committed to lessen intervention but they proceeded to attempt interventionist policies that continued, and even extended, the precedents of the previous decade.21 For example, on November 6, 1972, the government announced a freeze on pay, prices, rents, and dividends. This intervention measure would last for three months, despite its radical nature.22 As shown in Figure 3, the inflation rate fell quickly after it peaked in 1975 but the rate did not recover to anything near the rate of the 1960s until the mid 1980s, long after Thatcher had made policy changes. ! Between the inflation, negative GDP growth, and government intervention
    
    accompanying the 1970s, we can be assured of the shockʼs magnitude. The only question that remains is how long it would be before policy change was demanded. The consensus levels in the accompanying time period will now be examined. After each election, the British Election Survey asks respondents to identify themselves as belonging to a social class. It also asks them to describe whether or not they feel the government ought to nationalise more industries. Prior to 1987, this question was asked on a 1 to 4 scale where 1 represented that the respondent thought the government should nationalise more industries and 4 indicated the respondent thought the government ought to privatise industries that had been nationalised. After 1987, this question was asked on a 1 to 11 point scale. To normalise responses for analysis the
    
    20 21 22
    
    Barnett 175 Cairncross 191 Cairncross 191
    
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    Price Level Change and GDP
    30.0
    
    1979- Thatcher Elected
    
    15.0
    
    7.5
    
    0
    
    -7.5 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
    
    Figure 3: Price Level and GDP in Great Britain from 1945 to 2008 Source: Office of National Statistics, Composite Price Index, and GDP
    
    1949- End of Post-War Nationalisation
    
    22.5
    
    1990- Thatcher Leaves Office
    
    % Change in Price Level % Change of GDP From Previous Year
    
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    pre-1987 scale has been broadened by multiplying the response by a factor of (11/4). ! Calculating the average response to the nationalisation question for the working
    
    and middle class in each election year yields the absolute value of W(t)-M(t). After observing where the closest point to zero in the data set is found, one can observe an approximate timeframe for z, the delay between consensus and voting for policy change. ! Before solving for W(t)-M(t), it is important to note weaknesses in the dataset.
    
    The only classes with which a respondent could identify were middle and working, so many respondents, approximately half, skidded the question or answered “other.” There is no way to tell if those not answering were above middle class or below working so the data is therefore dropped. There were also a large number of respondents who skipped the 11 point scale questions in the surveys taken in 1987 and later. Omitting these
    
    Average Nationalisation Opinion
    Year Middle Class Approval 8.525 9.457 9.098 6.819 6.581 Working Class Approval 7.84 8.568 8.06 5.407 5.47 Absolute Value of Difference 0.685 0.889 1.038 1.413 1.111 T-Statistic Total Observations 1165 858 1804 1674 806
    
    1974 1979 1983 1987 1992
    
    4.653 5.213 8.774 9.209 4.989
    
    Table 2: Average Nationalisation Opinion: 1= “nationalise allot more industries” 11= “privatise” industries already under state ownership Source: British Election Study
    
    resulted in 669 dropped observations. Table 2 presents the difference of means results for both the working and middle class. All results yield strong T-statistics and are significant at the 1% level or better. In 1974, very close to the height of the inflation
    
    Enright 22
    
    shock, the difference of opinion between the middle and working class is about 0.685 out of 11 points on the survey question. This difference was small relative to the
    
    Difference in Nationalisation Approval Between Working and Middle Class
    1.500
    
    1.125
    
    0.750
    
    0.375
    
    0 1974
    
    1979
    
    1983
    
    1987
    
    1992
    
    Figure 4: The difference between the average response of middle class and working class respondents on if they think the government should nationalise or privatise industries. The question was asked on an 11 point scale with 1 representing a desire for nationalisation and 11 representing a scale for privatisation. Source: British Election Study difference of 1.038 after the 1983 reelection of the Conservatives. As seen in figure 4, after the inflationary shocks of the mid-1970s, the middle and working classes differed in opinion on the issue of nationalisation. This difference was small relative to the difference in opinion that arose after Thatcherʼs policies to combat inflation were implemented in the early 1980s. Prior to the election of Thatcher for her notably rightwing agenda in 1979, the disparity between nationalisation opinions of the middle and working class was greater than zero but broadened at a slower rate than after the election. Both the middle and working class were changing their opinion to favour privatisation. However, the rate at which the working class assumed this attitude was
    
    Enright 23
    
    much slower than the rate at which the middle class assumed it. This rate difference is seen in Table 3 and the notable slope difference between 1974 to 1983 and 1983 to 1987 in Figure 4. ! Figure 4 illustrates a strong relationship. It is necessary to test the effect of being
    
    middle class on nationalisation opinion against other confounding variables that could cause a spurious correlation. To test the relationship, the response to the nationalisation question is regressed on a dummy variable for middle class identity and a number of controls as shown by Table 3. To obtain the results in Table 3, the following model was implemented under five different specifications. Additional regressors likely to be correlated with both nationalisation opinion and being middle class are incorporated to each one, addressing possible omitted variable bias.
    
    nat _ opin = β 0 + β middle middle + β year year + β middle*year middle * year + βX i + ui
    (3)
    
    €
    
    In the single regressor model shown in column 1, one can see a very strong and significant effect of being middle class on the response to the nationalisation question. One who is middle class is projected to answer the question 1.1379 points higher, representing a strong tendency to support privatisation. As more variables are added in columns 2 through 5, the coefficient weakens considerably but remains significant. When middle class identity is reacted with the year, it becomes clear that the effect of being middle class depends on the year. The difference is negative when taken alone and does not gain any positive trend towards privatisation until added to its corresponding year interaction coefficient.
    
    Enright 24
    
    !
    
    Table 4 shows the expected gap between middle and working class respondents
    
    given a certain year, all other controls held constant. That is, the portion of the opinion difference expected to arise from a difference of class identity alone. The expected gap column is the sum of the coefficients on the middle class and middle class to year interaction dummy variables. Surprisingly, the gap expected in 1974 is the largest, suggesting consensus during the z period may be unpredictable. By the time of the 1979 election, a clear consensus of the classes had emerged. In 1979, a middle class respondentʼs opinion on nationalisation is expected to be only 0.1926 points closer to privatisation than one in the working class. In 1983 this gap had widened considerably to 0.4697 points. In 1987 the gap widens to 0.528 points, consistent with the maximum gap illustrated in Figure 4. ! The isolated effects of class follow the trends in Figure 4. The class effect on
    
    opinion increases every year. While an explanatory variable is clearly omitted in 1974, the trend between 1979 and 1987 follows the line graph. Not only does the gap due to class increase but it increases at a higher rate than the total shown in Table 2. The rightmost column of Table 4 shows the fraction of the total gap represented by the gap due to class computed in column 3. In 1979, only 22% of the gap is explained by class identity. In 1983, 45% of the gap is explained by class identity. In 1987, this portion declines to 37% but it is still much higher than in 1979. ! Having tested the significance of the class variable, one can be sure that opinion
    
    difference observed is due to class identity. The findings shown in Table 2 and Figure 4 include the effects of other variables but the class effect follows roughly the same pattern.
    
    Enright 25
    
    Results from Equation 3, Predicted Response to Nationalisation Question
    
    variable middle class post-secondary education had trouble fining job identifies as conservative party member identifies as labour party member 1979 1983 1987 middle * 1974 middle * 1979 middle * 1983 middle * 1987 region dummies constant Adjusted R2
    
    1 1.1379** (0.0776)
    
    2 1.2278** (0.0779) -.0901 (0.0789) 1.1465** (0.0759)
    
    3 0.4029** (0.0610) 0.1432* (0.0700) 1.1642** (0.0890) 0.9396** (0.0846) -1.8533** (0.0790) 1.2964** (0.1124) 2.2797** (0.0983) -0.3389** (0.0967)
    
    no 7.0047** (0.0467) 0.0335
    
    no 6.5723** (0.0597) 0.0683
    
    no 6.3928** (0.1027) 0.3098
    
    4 -0.4322* (0.1746) 0.1492* (0.0695) 0.9450** (0.0985) 0.9636** (0.0853) -1.8210** (0.0790) 1.4002** (0.1370) 2.09094** (0.1151) -0.5632** (0.1158) 1.1478** (0.2149) 0.6258* (0.2577) 0.9352** (0.2089) 0.9738** (0.2134) no 6.5598** (0.1091) 0.3131
    
    5 -0.4668* (0.1745) 0.1526* (0.0694) 0.9324** (0.0984) 0.9343** (0.0855) -1.7843** (0.7974) 1.3781** (0.1369) 2.0565** (0.1171) -0.5980** (0.1161) 1.1536** (0.2148) 0.6594* (0.2575) 0.9365** (0.2086) 0.9957** (0.2132) yes 6.1870** (0.2000) 0.3163
    
    Table 3: Predicted responses to the question of if the government should nationalise or privatise industries. An answer of 11 means ‘privatise’ while an answer of 1 means ‘nationalise.’ * indicates a coefficient significant at the 5% level and ** indicates a coefficient significant at the 1% level. Adjusted R2=0.3163
    
    Enright 26
    
    Difference of Gap Each Year
    
    Year
    
    middle
    
    year * middle expected gap due to class alone (a) 1.1536 0.6594 0.9365 0.9957 0.6868 0.1926 0.4697 0.5289
    
    total gap (Table 2) (b)
    
    1974 1979 1983 1987
    
    -0.4668 -0.4668 -0.4668 -0.4668
    
    0.685 0.889 1.038 1.413
    
    fraction of total gap arising from class (a/b) 1.00 0.22 0.45 0.37
    
    Table 4: The expected response difference of a middle class respondent over a working class respondent each year using the results form regression 5.
    
    !
    
    1983 is a crucial year. By 1983, people had time to adjust their opinions to the
    
    new policies of thatcher, which led to the great unemployment increases demonstrated in Figure 1 and the concern that followed as shown in Figure 2. ! Here we see the results of a shock of significant impact that does not induce
    
    consensus. This shock was not only felt by those likely to be unemployed but noticed by all; however, the cost of policy change was not mutual between groups. For those not affected, the cost of reversing Thatcherʼs strict controls against government intervention would involve accepting the cost of inflation. For those affected by unemployment, the cost of reversing Thatcherʼs policies would involve a gain, higher employment possibility associated with expansionary policies. Therefore, as Alesina and Drazenʼs model would predict, no policy change occurs due to differing opportunity costs which led to a gap in public opinion. ! The nationalisation cycle of Great Britain saw both nationalisation and
    
    privatisation at times corresponding to strategic alignments of socio-economic groups.
    
    Enright 27
    
    Nationalisation was deemed a necessary solution for economic instability after World War II. The middle and working class had been damaged by the cost of war and conditioned to the expectation of full employment. This created a need for the government to fill the needs of the public with every economic intervention necessary to make their intention to create full employment credible. Though governments and ideologies changed, no nationalisation policy change was made until an economic shock in the 1970s. The crisis generated a need for policy change and a sufficient level of consensus between the middle and working classes existed. ! The solution to the inflation of the 1970s caused another economic shock that
    
    curbed inflation quickly after 1980 but also caused negative GDP growth and unemployment as shown in Table 1. This time, however, the substance of the shock was unemployment from lowering GDP instead of inflation that hurts everybody. So the middle and working class had divergent levels of economic damage and therefore diverging opinions regarding nationalisation policy. No change would be seen until the nationalisation of struggling banks in 2008.
    
    Conclusion:
    ! The bottom-up model of policy making ought to be applied to Great Britain as a
    
    way to explain economic policy decisions regarding nationalisation. Nationalisation policy is a strong symbol of government intervention in the economy as established by the postwar governments. Its practice can be seen as a strong and publicly understood response to economic turmoil. Every time a critical mass of the electorate has been significantly damaged by economic conditions such as war or the high inflation of the 1970s, nationalisation policy in Britain has reversed. The policies of Thatcherism
    
    Enright 28
    
    caused damage to those who became unemployed under monetary contraction. This would have constituted a great shock to the economy but no policy change occurred. Absence of change cannot be considered a reason to dismiss the importance of bottomup policy influences as a response because of the internal nature of this change. It was aimed at improving the economy as a whole but executed in a way that only damaged certain segments of society. A critical link of public consensus is necessary for such a change to occur and it was not present in the aftermath of monetary experimentation in the 1980s. ! If political alignment occurs under the stress of the current financial crisis, this
    
    theory could predict the outcome of nationalisation policies regarding the banking system in Britain. It is thought that nationalisation of the British banking industry ʻedges ominously closerʼ as even major institutions such as Lloyds TSB have been considered as candidates for nationalisation.23 In the US, increased government intervention in the banking system has been pursued at aggressive levels recently. The level of discussion now would have been considered outside the normal bounds of government legitimacy in recent years. If intervention continues and public opinion data becomes available, this could provide a fourth cases for analysis of bottom-up policy responses to economic shocks. ! Nationalisation processes may be a proxy variable only appropriate for countries
    
    with a history of nationalised industries. This is because the history of cultural norms regarding public ownership and controls of industry differs greatly in different political systems. With the appropriately selected proxy variable, the framework for predicting
    
    23
    
    Gamble 122
    
    Enright 29
    
    change outlined herein may be a useful tool for political strategy and analysis of situations involving demanded government response to economic shocks.
    
    Enright 30
    
    References Alesina, Alberto. Allan Drazen. Why are Stabilizers Delayed? The American Economic Review, Vol. 81, No. 5 (Dec. 1991), pp. 1170-1188 Barnett, Correlli. The Verdict of Peace. London: Macmillan, 2001. Cannadine, David. "Apocalypse when? British politicians and British 'decline' in the Twentieth Century." Understanding Decline. Ed. Peter Clarke and Clive Trebilcock. Cambridge: Cambridge UP, 1997. Cairncross, Alec. The British Political Economy Since 1945. 2. Malden, MA: Blackwell, 1995. Coates, David. Prolonged Labour. Hampshire: Palgrave, 2005. Coates, David. The Question of UK Decline. Hertfordshire: Harvest Wheatsheaf, 1994. Coates, Ken. New Labour's Aims and Values: a study in ambiguity. Nottingham: Spokesman for European Labour Forum, 1995. Cockett, Richard. Thinking the Unthinkable. London: Fontana Press, 1995. Conservative Party. "Conservative Party Manifesto, 1979." Margaret Thatcher Foundation. 2007. Margaret Thatcher Foundation. 27 Nov 2007 . Coxall, W.N.. British Politics Since the War. Basingstroke: Macmillan, 1997. Coxall, Bill, and Lynton Robins. British Politics Since the War. London: Macmillan Press Ltd., 1998. Driver, Stephen, and Luke Martell. New Labour. Cambridge: Polity Press, 1999. Evans, Eric. Thatcher and Thatcherism. London: Routledge, 1997. Gamble, Andrew. Britain in Decline. Hampshire: PALGRAVE, 1994.
    
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    Gamble, Andrew. The Free Economy and the Strong State. Hampshire: Macmillan, 1988. Grant, Wyn. "Economic Policy in Britain." Developments In British Politics 7. Ed. Patrick Dunleavey, Andrew Gamble, Richard Heffernan and Gillian Peele. Hampshire: Palgrave Macmillan, 2003. Harris, Kenneth,. Thatcher. London: Weidenfeld and Nicholson, 1988. Hay, Colin. Thee Political Economy of New Labour. Manchester: Manchester University Press, 1999. Hughes, John. "Deindustrialisation Gathers Pace: the 1970s." The Economic Decilne of Modern Britain. Comp. David Coates & John Hillard. Brighton: Wheatsheaf, 1986. Jenkins, Peter. Mrs Thatcher's Revolution. London: Jonathan Cape, 1987. Kelly, Jonathan. Economic Change and the Legitimation of Inequality: The Transition From Socialism to the Free Market In Central-East Europe. Research in Social Stratification and Mobility. 2004. Vol. 22, pp. 319-364. Kavanagh, Dennis, and Peter Morris. Consensus Politics: From Atlee to Major. Oxford: Blackwell, 1995. Lewis-Beck, Michael S. Martin Paldam Economic voting: An Introduction. Electors Studies, 19 (2000) p. 113-121 Listhaug, Ola. Toril Alaberg. Comparative Public Opinion on Distributive Justice: A Study of Equality Ideals and Attitudes toward Current Policies. International Journal of Comparative Sociology, 1999; 40; 117.
    
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    Montesquieu, Charles. "The Spirit of the Laws." Trans. Anne M. Cohler. Cambridge: Cambridge UP, 1989. Norpoth, Helmut. Guns and Butter and Government Popularity in Briain. The American Political Science Review, Vol. 81, No. 3 (Sep., 1987), pp. 949-959. Pierson, Pual. When Effect Becomes Cause: Policy Feedback and Political Change. World Politics, Vol. 45, No. 4 (Jul., 1993), pp. 595-628 Richards, Steve. ʻNationalisation of our banks edges ominously closer.ʼ The Independent, 16 February 2009. http://www.independent.co.uk/opinion/leadingarticles/leading-article-nationalisation-of-our-banks-edges-ominouslycloser-1623011.html Riddell, Peter. The Thatcher Era And Its Legacy. Oxford: Blackwell, 1993. Rodrik, Dani. Understanding Economic Policy Reform. Journal of Economic Literature, Vol. 34, No. 1 (Mar., 1996), pp. 9-41. Sabatier, Paul A. Top-down and Bottom-up Approaches to Implementation Research: A Critical Analysis and Suggested Synthesis. Journal of Public Policy, Vol 6. No. 1 (Jan-Mar., 1986), pp. 21-48 Sampson, Anthony. Who Runs This Place?. London: John Murray, 2004. Shanks, Michael. Planning and Politics. London: George Allen & Unwin, 1977. Shapiro, Robert Y. John T. Young. Public Opinion and the Welfare State: The United States in Comparative Perspective. Political Science Quarterly, Vol. 104, No. 1 (Spring, 1989), pp. 59-89. Smith, David. “The Treasury and Economic Policy.” The Blair Effect. Ed. Anthony Seldon. London: Little, Brown and Company, 2005.
    
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    Stevens, Philip. “The Treasury Under Labour.” The Blair Effect. Ed. Anthony Seldon. London: Little, Brown and Company, 2001. Tudor, Jones. Remaking the Labour Party. London: Routledge, 1996. Data Resources: King, Anthony. British Political Opinion 1937-2000: The Gallup Polls. London: Politico (2001) Office of National Statistics: Gross Domestic Product, http://www.statistics.gov.uk/ statbase/tsdtables1.asp?vlnk=pgdp Office of National Statistics: Composite Price Index: 1800-2008, http:// www.statistics.gov.uk/statbase/TSDtimezone.asp Office of National Statistics: Unemployment Claimant Count, http:// www.statistics.gov.uk/STATBASE/tsdataset.asp?vlnk=430 UK Data Archives: British Election Study 1969, June 1970, February 1974, Panel Survey, http://www.data-archive.ac.uk/findingdata/snDescription.asp? sn=422&key=British+election+study+1970 UK Data Archives: British Election Study, February 1974: http://www.data-archive.ac.uk/ findingdata/snDescription.asp?sn=359&key=British+Election+Study+1970 UK Data Archives: British Election Study, May 1979: http://www.data-archive.ac.uk/ findingdata/snDescription.asp?sn=1533&key=british+election+study+1979 UK Data Archives: British Election Study, 1983: http://www.data-archive.ac.uk/ findingData/snDescription.asp?sn=2005
    
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    UK Data Archives: British General Election Study, 1987: http://www.data-archive.ac.uk/ findingdata/snDescription.asp?sn=2568&key=british+general+election+study +1987 UK Data Archives: British General Election Study, 1992: http://www.data-archive.ac.uk/ findingData/snDescription.asp?sn=2981

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