British Economist Offers Perspective on Global Crisis

Lord Griffiths of Fforestfach was educated and later taught at the London School of Economics and then became dean of the City University Business School. He was a director of the Bank of England and served at No. 10 Downing Street as head of the prime minister’s Policy Unit from 1985 to 1990 with responsibility for domestic policy, including economics policy. Since 1991, Lord Griffiths has been vice chairman and a board member of Goldman Sachs International. He is chairman of the Audit Business Practice and Compliance Committee. He is a non-executive director of Times Newspaper Holdings Ltd. and Herman Miller Inc., and was on the boards of ServiceMaster, and the English, Welsh, and Scottish Railway and chairman of Land Securities Trillium. He was chairman of Westminster Health Care from 1999 to 2002. He was appointed to the House of Lords and has been a member of various Select Committees in the House of Lords and is at present a member of the Select Committee on Economic Affairs. Lord Griffiths is chairman of the Archbishop of Canterbury’s Lambeth Fund and Christian Responsibility in Public Affairs. He has written and lectured extensively on economic issues and the relationship of the Christian faith to politics and business, and has published various books on monetary policy and Christian ethics.

This article appears as an illustration of the fallen nature of financial institutions in "Finance and the Fall" in Finance Overview at www.theologyofwork.org.

This conversation took place at Lord Brian Griffiths home in Westminster, England, July 14, 2009, and was updated in November 2009. Participating were Brian Griffiths, Al Erisman and Al’s wife, Nancy Erisman. Because Lord Griffiths' role at Goldman Sachs is a board position rather than an executive leadership position, we agreed to stay away from questions related specifically to Goldman Sachs.

Ethix: In your view, what has happened to the banking world?

Brian Griffiths: We’ve had three decades of growing world output and growing prosperity, the collapse of Communism and the emergence of the BRIC countries (Brazil, Russia, India, China) as a growing economic force. Hence the change from the G-8 to the G-20. But this boom generated extraordinary euphoria, which resulted in bad loans, a banking system that was under capitalized and major mistakes by regulators. Clearly the banks played an important role in the financial crisis, but I think the crisis is much bigger than just the banks. You couldn’t have had what amounted to a collapse in confidence in Western capitalism simply because of a lack of governance in banking; it’s much greater than that.

One commonly alleged cause of the crisis has been the imbalances, which grew up over the last decade, because of the high saving rate in China and the low saving rate, especially in the U.S. This led to a balance of payments surplus in China and oil exporting countries and a deficit in the U.S. Some economists and central bankers argue that these are the things that drove the crisis.

I take a slightly different position. I would start by saying that imbalances between countries are simply the result of decisions that ordinary people make to consume or to save, to take risk, to invest, and so on. You will get imbalances in payments and in saving and investment between different countries and in principle the capital and foreign exchange markets should sort these things out. Foreign exchange markets are crucial in sorting out balance of payments problems, and capital markets, by allowing interest rates to move, will sort out imbalances in saving and investment.

The question then is: Why did these imbalances become so important? I think a number of factors are important.

Factors in the Economic Crisis

One was that a number of central banks, but particularly the U.S. Federal Reserve, pursued a policy in the earlier part of this decade of having very low interest rates. Interest-rate levels frankly that could never be justified. Alan Greenspan, of course, had enormous respect as chairman and governor of the Federal Reserve System, and he didn’t believe it was possible to identify and correct asset bubbles in advance, because, he argued, you can only tell whether it’s an asset bubble after it’s happened. Intellectually, I believe he’s on strong ground, but even he should have realized by 2005–2006 asset prices had developed a life of their own. Professor John Taylor from Stanford University, who developed the Taylor rule to set interest rates, has consistently argued that interest rates should have been 2–3% points higher in the U.S. between 2002 and 2004. At the same time as this was happening, the Chinese government resolutely fixed their currency to the U.S. dollar despite their huge growing balance of payments surplus. So, you had the Chinese financial surplus flowing into America, a growing financial deficit in the U.S., but then you have U.S. monetary policy accommodating the global savings glut and making it even worse because of very low interest rates.

Second, within the U.S. both the Bush administration and the Clinton administration bent over backwards to encourage home ownership. Home ownership is a good thing, because people are building up some capital and typically a family that believes in saving tends to be stable, and so, in turn, it leads to stable communities. But if you look at what HUD did in the 1990s and if you look at what Fannie Mae and Freddie Mac did earlier this decade, I think they went absolutely over the top in encouraging institutions to increase subprime lending, which by definition encouraged financial institutions to lend to borrowers whose chances of repaying were that much less. Now, there is nothing wrong in lending to risky borrowers providing you charge an interest rate with the appropriate risk premium, but what the politicians and bureaucrats wanted was to have low interest rates charged on risky subprime loans.

The third thing is that the Bush administration cut taxes three times when the U.S. had a very low saving rate at a time when the balance of payments deficit was growing. The fiscal position of the federal government was getting worse and still they cut taxes. I believe in low taxes, I also think the timing of the policy was an error of judgment.

And then there was remarkable innovation by the banking industry in creating new products as a response to the savings glut and low interest rates. Investors wanted a higher yield on what they were getting from holding government paper. So the banks, through securitization, devised very complex structured products and particularly asset-backed securities. They were off balance sheet with the result that you had a growth in the “shadow” banking system. Rating agencies, central banks, regulators and ministries of finance were slow to grasp what was happening.

If you read the statement of, for example, Secretary of the Treasury Timothy Geithner, then president of the New York Federal Reserve, it is clear that the regulators and central bankers were taken aback at the speed with which things happened over a period of two to three years. Then they suddenly woke up and said, “My goodness, the world has changed.” The whole thing happened very quickly.

So, to recap, if you ask what has been the cause of the problem, I would say that mistaken government policies were a very big factor. The Chinese, by pegging their currency to the U.S. dollar, and the U.S. Federal Reserve, by setting very low interest rates, transformed natural imbalances into toxic imbalances. The growth of the shadow banking system was a response to these developments. Regulators and central banks were really taken by surprise, and then of course the collapse came.

The Role of Banks

So, you don’t point any fingers toward the banks themselves in getting into subprime lending and in pushing subprime lending to the point of absurdity.

I certainly would point a finger at the banking industry but first I believe it’s essential to understand the context. The crisis is much greater than subprime lending. The banking industry is culpable for making bad loans, having insufficient capital, incentivizing short-termism and creating products of such complexity that only the most financially sophisticated could understand what they were buying. This is a criticism of the industry as a whole with some banks behaving recklessly and some reasonably prudently. Very few can look back and say, “Yes, we got it right.”

I have often thought that this was the perfect storm, because the people on the left can point to greedy bankers and the people on the right can point to bleeding hearts wanting people in their homes, and while they are both pointing at each other, this crisis carries out. Now what is the future of banking? It would seem that we are part way into the stabilization of this, but we are not out of the woods.

We certainly are not out of the woods yet. Even back in September and October 2008, at the height of the financial crisis, I spoke on this subject on numerous occasions. I never felt we would have another Great Depression, a rerun of the 1930s, for a number of reasons. One is because we have learned from Keynes that you can use discretionary fiscal policy to help restore confidence in the economy at exceptional times.

Second, in the 1930s, the Federal Reserve transformed a fall in stock market prices on Wall Street in ’29 into a major depression by allowing the money supply to fall by one-third. It was due to catastrophic monetary mismanagement. That did not happen this time. Central banks reduced interest rates and, in addition, they have employed quantitative easing, which is today’s equivalent of printing money.

In addition, the 1930s was a time when countries imposed tariffs and non-tariff barriers against each other and devalued their currencies to gain a competitive advantage. You have not had that this time, because of the success of the G-20, first in November last year in the U.S, then in April in London this year, and then again recently in Pittsburgh. The G-20 has been important in keeping countries together. I think that is a huge improvement over what happened in the 1930s.

For these reasons, I never felt that the financial crisis would become another Great Depression. I think where we are at present is that the banking system led the crisis and the banking system is the first to emerge from the crisis. I am not saying all is over, but the equity markets have risen in the U.S. and Europe by 30% plus from their low in March of this year and developing countries by 60–70%. Some credit markets, which were closed in October and November last year, have begun to open again. I think all of this is good news.

In addition to that, I think there will be improved regulation of banking. I hope not more regulation, but better regulation, in particular with respect to the need to hold more to capital and liquidity, provide greater transparency in what they do and set out principles for compensation, such as how much should be paid in cash, how much should be paid in stock, and how much should be in deferred stock.

All of these are being debated at present, and I think there is an emerging global consensus. If there is a divide, I used to think it was between the U.S. and the U.K. on one side and the European Union on the other. Today Britain is becoming much more socialist and going back to the pre-Thatcher era. This could seriously damage the U.K. I only hope the U.K. does not move in this direction.

The Future of Capitalism

Is capitalism itself under fire?

I think capitalism is under fire. At the height of the crisis in September 2008 when Lehman Brothers went bust, some people argued that capitalism was finished. Their voices are now much more subdued. I still think capitalism remains the only game in town. Politicians are punishing banking simply to appeal to public opinion. I believe the success of a market economy comes from the fact that it recognizes the key insights to Judaeo-Christian teaching: the importance of the human person, economic freedom, private property rights, creativity and innovation, the role of enterprise, and so on. The question we now face as a result of the crisis is what kind of capitalism is it going to be? I think today we have a much more responsible form of capitalism than we have had in the past.

I say that, not excusing the banks, because they are clearly culpable on many accounts. But I do think in general we have a more accountable, responsible capitalism than in the past. You see it, for example, in the green issue. “Green” has caught on and has survived the recession. I thought there was a time when people could have given up on being green, because it was too expensive. What has emerged and is interesting is that people of faith and people of no of faith all value the physical world. Hence the concern for environmental responsibility. For Christians this is God’s world. It is sacred, it’s not divine—a distinction, I think, which is important. I believe that continued economic growth is crucial to removing poverty. But we have a responsibility to leave Earth in a better shape than we inherited it. That I believe is a great challenge of responsible capitalism going forward.

I would certainly not point a finger at the banking industry, because I am part of it. But I would put my hand up and say that as an industry we got some things terribly wrong, which have created pain and suffering. However, I believe it’s essential to understand the context. The crisis is much greater than subprime lending. The banking industry is culpable for making bad loans, having insufficient capital, incentivizing short-term reckless risk taking and creating products of such complexity that only the most financially sophisticated could understand what they were buying. This is a criticism of the industry as a whole. Very few banks can look back and say, “Yes, we got it right.”

Secondly, creating wealth and reducing poverty is a good thing, but increasing wealth will never ultimately satisfy. There are spiritual and cultural dimensions to life, music, poetry, literature, painting. One challenge in a money-obsessed culture is how we make room for these. More important still: How can we ensure that we make room to take on the ultimate purpose of life?

Thirdly, there is the issue of global poverty. Global poverty should be a scar on everyone’s conscience even though I do not believe we are the cause of it. Going forward, responsible capitalism celebrates the person, innovation and enterprise, but in the context of our responsibility to the less fortunate. It is interesting that Pope Benedict XVI, in his recent encyclical, sees great problems in the world economy because of the crisis and problems in the capitalism system, but, at the same time, you feel he is very positive about the strengths of the market economy, much like Pope John Paul II was, and that he believes we should build on them, not undermine them. I believe that fostering enterprise, increasing trade and strengthening markets are the only way forward for developing countries if they are to escape poverty.

The Moral Dimension

In 2008, Bill Gates addressed the Davos Forum. He said self-interest is what motivates markets but self-interest by itself isn’t enough to address the very poor. He said there is another great characteristic of human beings — caring for others — and asked how “creative capitalism” might include elements of caring for others as well as self-interest.

It’s a great question. Here is the way I would put it: modern economics really comes from Adam Smith, and Adam Smith built on Newton and Newtonian mechanics, which was a very mechanistic view of economic life. In this view, the economy is a system with the laws, such as supply and demand, natural prices, natural wages, natural rents and so on. Modern economics really sees economic life in terms of a system, which is impersonal, which is amoral and despite this crisis, which has powerful inbuilt equilibrating properties. For myself as a Christian, the heart of my understanding of capitalism starts with the human person.

The human person is absolutely central to economic life and certainly capitalism. St. Augustine talked not of self-interest, but of self-love, how we are made and feel, wanting the best for those around you. I think the future of capitalism depends on that concept of the human person in terms of service to the world. Bill Gates hits on something that is really very profound. It is about how we elevate the human person to be the heart of economic life so that the capitalist system can serve people. It comes down ultimately to the quality of business leaders and entrepreneurs, of the kind of corporate cultures they create and of seeing what they do in terms of service as well as profits.

Some people have commented that before Adam Smith wrote his famous treatise, he wrote The Age of Moral Sentiments, and, so, he understood that this economic theory is built on a moral theory, but people have separated the two.

There is no question he had a moral theory. He was himself a deist and as a deist he recognized that an economic structure, what he called the natural system of liberty, needs a moral basis. But I don’t think he went far enough. To create the kind of capitalism that everyone wants, which puts people at the center, which is responsible in terms of the environment, which is concerned with tackling global, poverty and so on, will only come about through people who have a calling to serve. I am not sure I know the answer in terms of how to get leaders to change, but the challenge has to do with developing virtues and character in leaders. I believe that there is enormous goodwill, certainly in the city of London, to do something for our world. I have to tell you the amount of goodwill there is in the city of London to want to do something in our society is just enormous.

About 40 years ago, Milton Friedman wrote a very famous article stating that the purpose of business is to maximize value to the shareholder subject to the constraints of the law and ethical norms. This changed the nature of business away from people and products to the singular focus on dollars. What do you think about this?

I certainly think it’s great when a chief executive says, “I am committed to my shareholders,” and wants to increase their returns. I have no problems with increasing shareholder value. I believe, however, that the purpose of business is much greater than simply maximizing shareholder value: it is about taking responsibility for the way that business serves society, which, after all, gives it the license to operate in the first place, and for developing the people who work in the business. Executives have a responsibility for the people they lead. They have a responsibility for the environment. They have an obligation to society. It is extremely naïve to think that these can be delegated to politicians. God forbid if we ever allowed that.

More generally, my problem with Milton Friedman and even more in a way with Friedrich Hayek, because Friedman in his social philosophy is derivative of Hayek, is his defense of the market economy. Hayek wrote about the market economy being a spontaneous order, an evolutionary process, where the overriding concern is liberty and freedom. I am all in favor of liberty, but to make freedom an absolute in economic life, as I think they do, means that they have no real sense of people being at the heart of economic life, and hence no real sense of justice.

I have been on the board of two companies in America each for more than 15 years, Herman Miller and ServiceMaster. They are companies with strong values that have molded the corporate culture in both cases. From my experience, companies can be profitable and at the same time serve the common good.

I have interviewed the CEOs of both of those companies, Mike Volkema and Bill Pollard. They, along with others, have demonstrated that business is bigger than making money.

Business is certainly about much more than just making money. Though making money is important, too. Business is about creating a culture. It’s about values being at the heart of that culture. It’s about responsibility, and it’s about a purpose greater than simply profit. I think bankers are bad at explaining the impact that banks can have for the common good. In some businesses, it might be easier. When you are producing cars or furniture, you see the results immediately. But consider what international banks have done through global capital markets to help China and India develop. It is phenomenal: hundreds of millions of people have been taken out of the dollar-a-day poverty. To me that is a social good and, in part, is the result of financial markets. In recruiting young people today, the contribution banks make to society is, I believe, very important. Today’s young people want to feel that what they do is greater than simply the bottom line or what they take home in compensation.

Government Regulation of Business

You mentioned earlier about not wanting too much regulation from government. And yet if you have too little regulation, you have other kinds of problems. What is the right balance?

Government is essential for business, no question about that. Indeed the right of business to exist is because democratically elected congresses and parliaments allow them to function. So, in that sense, business depends for its very existence on government giving it legitimacy in society.

Government must ensure that there is a proper legal system and a necessary regulatory framework. If you look at what happened in the 19th century in Britain, with small children working in coal mines or cotton mills, and so on, it was a disgrace. Governments are essential to ensure that businesses operate within a boundary of social justice. I think governments have an important role to play in protecting the environment and in setting a regulatory framework for financial markets. People forget, despite this crisis, that the financial sector is one of the most regulated sectors of any in our economies.

Transparency is very important. The greater the transparency in what business does, the less need there is for government regulation.

Public/Private Roles

You played a significant role, under Margaret Thatcher, in privatizing business in England. In reflecting on this, do you think that privatization can go too far? The U.S. privatized security at airports, for example, and pulled back from that. Some countries have privatized water supplies for a period of time. Could you comment on how you see what functions, if any, should remain in government?

The weight of evidence from the U.S. suggests that businesses are much better run in the private sector than when owned by governments. State-owned enterprises tend to be over-manned (roughly in our case by one third) and make pricing and investment decisions not on the basis of commercial criteria but to satisfy their political market. Two key issues for privatized companies are to ensure greater competition if at all possible, and, if they are monopolies, that there is appropriate regulation. With these caveats I would pursue privatization as far as possible.

The Role of Technology

You mentioned earlier that this economic crisis had come on very quickly, and I wonder if in part that isn’t due to technology, which enables the creation of these complex instruments that can change the world very, very rapidly. How do you see technology playing a role in this system of economics, government, and private enterprise?

I think you are right. Technology has affected the capital markets over a period of three or four decades. It’s really extraordinary what’s happened. Today we have 24-hour instantaneous banking, trading. I think how a society manages technology is difficult, because technology is like a tiger with a life of its own. It’s is not easy to manage it for the social good. You see that in lots of fields. You see it in food, you see it in infertility, you see it in alternative technologies, you see it in banking. Technological change is a tough issue. As a general principle, we have to be the masters of technology, not its servants. Technology has to be within a moral and ethical framework, which is why in our various countries we have ethics committees sponsored by government, which advise on technological change.

Yes, these committees will tend to look at things in bioethics, for example, in food ethics, but I wonder if they really looked at the derivative securitization markets and the debt packaging and all of these kinds of things that were made possible by technology?

That raises an interesting issue. I don’t think incidentally that derivatives and securitization were the root of the problem. Securitization in the U.S. was started by Fannie Mae a few decades ago, because they wanted to increase mortgage lending in order to increase home ownership. There is nothing fundamentally wrong with that. But with the exception of the dot-com boom and bust, we had three decades of sustained economic growth. To me, the real problem was not that the banking system was introducing new products, but that it didn’t have the ability to manage the innovation they were creating. The innovation outran their ability to manage the change.

“Professor Hindsight” is wonderful. Always right, but as you look back, it was very clear that boards of some banks and other institutions did not understand the products their firms were selling or the implications they had for the management of risk.

I went down this path, because of something that you said about needing more transparency. In an age of incredible complexity, because of technology, you can hide under this complexity. How does that fit with transparency? Enron created some of these off-balance sheet things that almost nobody understood, for example.

When we talk about the banking system, clearly all banks are not the same. There was a difference in the recognition of the problem in certain banks but not in others. It was the same technology, but with a different response. Greater transparency would put the searchlight on complexity.

Short-Term Thinking

Another implication of technology is how it can lead to short-term thinking, because of the availability of data. The path to long-term performance is not necessarily through a series of short-term performance gates. How do we deal with this short-termism that is happening in our market?

In their trading books, investment banks mark to market on a daily basis. Not all banks do. One issue, which has come out of this crisis, is the accounting policies of banks. Fair value accounting is not just making assets to market prices on a daily basis, it also introduces discipline in the business. If you have to mark to market each day, then, as you see asset prices falling, you have to act immediately and do something, whereas, if you look at some banks — which were really caught out badly in the crisis — they didn’t do that.

Too Big to Fail?

We have heard in this crisis about institutions that are too big to fail. The society fundamentally depends on them and yet they are private. What do you recommend going forward?

It was Allan Meltzer from Carnegie-Mellon who said, if institutions are too big to fail, they are too big. I have a lot of sympathy with that, because if institutions are too big to fail, then the taxpayer has a right to say that government, as their representative, should have some role in regulating what that institution does.

I think there are three options.

One would be for very large banks, which are too big to fail, to be brought into public ownership. This is not an attractive option as these institutions will suffer from all the weaknesses of nationalized industries.

A second option would be to divide banks into two types: utility banks and risk-taking institutions, pejoratively called “casino” banks. In the U.S., the Glass-Steagall legislation of the 1930s did this. This meant that some institutions (commercial banks) were more regulated. I would be cautious about re-introducing a Glass-Steagall regime, because it was market forces that drove the U.S. government under Clinton to remove the legislation.

That is the third alternative. There is an important difference between investment banking and commercial banking. Even if it takes place under one roof, there is a case for saying that, from a regulatory point of view, there should be a different treatment of those two activities. The challenge is how to regulate a bank that does both commercial and investment banking activities, is one which takes deposits from the general public, and is at the same time involved in investment-banking capital market activities. With proper regulation, I am sure it can be done.

How do you think it should be done?

Certainly the regulatory capital you need for the two different kinds of activities would be different. It would come down, in my judgment, to the particular capital requirements that you were to impose as a regulator on the different aspects of banking, how much capital banks should hold in relation to investment banking activities and how much capital they should hold in relation to straightforward lending activities.

The Role of Values

You’ve spoken a lot on the importance of values in a business. What do you mean by “values” and why do you think they are so important for a business?

Values are essential to a business. Setting out your values is a way of saying who you are and what you stand for as a business. You are inviting the public, whether they are consumers, investors, or suppliers to have confidence in your business. By saying that you are an honest bank doing honest business and that you are a corporation that treats people well, you are making a statement about who you are. The way you market in the third world, the way you treat employees, the way you handle R&D — all these really ultimately depend on your values. When you report your quarterly earnings, are these figures really the right figures, have they been massaged to give a better appearance? If you say you have integrity at the heart of your business, then it should show in all of the ways, not least in your financial reporting.

To me, being involved in a bank, or any sort of corporation, is being involved in a community. There are good communities and bad communities. A corporation with good values make going into work every day really enjoyable. It creates a culture where people feel they are respected and honored and can contribute. That matters to me a great deal.

So, you are making a distinction between a value statement and actual values of a company. If the values statement says one thing and the company acts a different way, that’s a problem.

Yes, that’s a critically important distinction. If corporate executives want to sail close to the wind, then I think it's best not to make any statement on values at all. The worst thing you can do is to say you believe one thing and do the opposite. That’s sheer hypocrisy. I think that’s one reason why there is such public anger at the banks at present, because so many banks have said through their values statements that they have high principles, but then they have acted differently. I think the perception of the public is that they just haven’t lived up to their business principles and that makes people very angry. And I don’t blame them.

How does a business go about setting values and speaking about them in a way that is meaningful and not destructive?

That’s an interesting question. I have had experience on the boards of two companies in the U.S., Herman Miller and ServiceMaster. Both companies have had very strong values. Then I was asked to help set up a company here not unlike one of these. Being explicit about the values of a company seemed more like an American thing and something not too common in Europe at the time. But I thought it would be great if we could have clear values in this new company, since we were starting with a clean sheet of paper. Some of the executives said it was a great idea and that we should try to involve a large number of people across the firm to explore what exactly the values of the company should be. That’s what we did. I think one of the most amazing things in this particular example is that these values weren’t related to anyone’s faith or to people of faith, as we had people of all faiths and no faith. But the values reflected our common humanity. I am proud of the fact that this company was awarded the government’s largest outsourcing project. Values really matter in the way a firm does business.

C.S. Lewis wrote a very interesting book just after World War II called The Abolition of Man. It’s about the teaching of English in schools, what he called “the Tao of values.” He said that if you looked across all cultures and religions, there are basic common human values. If the values are respect for the individual, integrity, competence, accountability, and responsibility — whether it is to the community, to the environment, your shareholders, to your employees and so on — they ring true across cultures. That to me is something very practical. By putting these values into business principles or a mission statement, what you are doing ultimately is taking the huge well of experience that there is in the human conscience and codifying it for your commitment.

But no human being is perfect. So, as a result when you establish a set of values and you do something that is counter to those values, then what do you do to restore credibility. How do you deal with that?

Doing something counter to the values can happen and will happen at many levels. In any business, you are going to get bad apples. I think if somebody really transgresses the rules and behaves dishonestly, they have to be fired. If you believe in your values there has to be zero tolerance of willful transgression.

The values should be a part of promotion, evaluation, and all these things?

Absolutely, and the values should be key to hiring. Character should matter as much as competence.

A problem arises if you have somebody in a senior leadership position, like the CEO, who is prepared to turn a blind eye to someone who is brilliant and produces enormous revenue for the firm, but sails very close to the wind and yet promotes that person. That becomes a serious problem, because it is not just a bad apple that has to be removed. What you’re saying is that there is a lack of integrity in the way the values are being used in the firm, and that’s very serious because it ultimately undermines the values of the company.

Margaret Thatcher

You worked with Margaret Thatcher for a period of time. Can you tell us about her?

I worked very closely with her for five-and-a-half years and she lives just opposite us here in this square. She had a deep humanity, which came from her early childhood and upbringing; she was fantastic to work for and in five-and-a-half years working for her, we had no more than a handful of disagreements. She had a strong belief in the importance of principles and in policy always returned there.

We went to see the play Billy Elliot in London last evening, and that play painted Margaret Thatcher as the villain in the coal strikes. How do you see this?

By the time Mrs. Thatcher became prime minister, the trade unions had become very powerful, and the leader of the miners, in particular, Arthur Scargill, who was an out-and-out Communist, wanted to turn Britain into a Euro-communist state. That’s not my interpretation, he said it himself. He dressed it up in the language of economic justice. He was prepared to use power in any way to achieve his objective.

Mrs. Thatcher believed that, in a democracy, no one group was above the rule of law. Hence the miners strike. The union leaders really terrorized their people, and ultimately the Nottingham Miners stood up and said, “No, we want to go back to work. We really disagree with our union leaders.” The hardship that individual families suffered in these communities was shocking. So, I think she had no alternative. It was not simply about the coal industry; it was really about who ruled Britain. She stood up for democracy, for liberty, and for the rule of law. I think she was totally justified in doing what she did, not least on the basis of Christian ethics.

It is very difficult for me to say this because both my grandparents were injured underground in coal mines, and my father worked most of his life in the coal mining industry. I come from Wales, which has a radical culture, and when I was a boy in school and in university I was left wing. But I came to see that the sort of socialism of the late 20th century in Britain was very different from the socialism that grew out of the Christian faith in the 19th century. This was a secular socialism, hell-bent on obtaining power.

Could she have done things differently? I doubt it. I well remember that when I went into Downing Street in August of 1985 unemployment was rising. I had just been there a week or two, and I said to her, “Shouldn’t you be saying something about unemployment and your concern about people who are unemployed?” and she said, “Brian, if I did, people just wouldn’t believe me.” She felt as deeply about the issue as others did but recognized that leaders have to make tough decisions for the longer-term common good.

But then we did develop a policy to deal with rising unemployment. We started various schemes to retrain people. We focused on the long-term unemployed, particularly youth unemployed. We wanted to do what we could to create more enterprise. We created special-enterprise zones, in which tax was much less. We developed one initiative after another and of course ultimately Margaret Thatcher was seen as someone who turned the British economy around, who saved Britain from real tragedy.