Fight club: Are we living 1979 all over again?

Is 2009 just 1979 all over again? If so, we're in for a hell of a decade – because the 1980s were a bloody battle between a bankrupt Left and a resurgent Right

One thing is obvious: after an economic crisis of this magnitude, politics isn't going to be the same again. People don't just read the gloomy economic news; they feel its effects in everyday life. Job losses, the sterling crisis, the strikes and the general sense of insecurity mean the assumptions that politicians of all parties have shared for decades are not trusted any more. At the coming election, people will choose between a Prime Minister with 11 solid years of Cabinet experience, or a novice – and will probably back the novice, because the Prime Minister is the voice of a political consensus which has failed.

Welcome to Britain in 1979, 30 years ago today, as the high unemployment, a wave of strikes and a general sense that Britain was becoming ungovernable was about to sweep away the Labour government, led by "Sunny Jim" Callaghan, and bring an unknown named Margaret Thatcher to power.

After the war, the main political parties had all reached agreement on the general way to run the British economy. Key industries would be owned by the government, and subsidised where necessary. The unions would be consulted on pay policy. Unemployment would be low, and there would be a generous welfare state. That agreed way of doing business was wrecked by economic upheaval of the late-1970s, and killed off by the incoming Conservative government.

By the end of the 1980s, everyone agreed that the only way to guarantee prosperity was through a deregulated economy in which every enterprise was privately owned, credit was freely available, the unions were weak, and the rules for hiring and firing labour were highly flexible. That transformation of Britain's political culture is what gives the 1980s a powerful claim to be called the decade of revolution.

However, the similarity between the crisis that Thatcher confronted in 1979, and the one David Cameron will face if he becomes Prime Minister next year is only skin-deep. Most of Britain's problems back then were home-grown. They did not come from too much easy credit, or involve banks going bust. But that was the up side. In almost every other respect, the crisis then was worse than it is now. Not only was unemployment too high, there was also double-figure inflation. Somebody had to decide which to tackle first.

The choice made by Margaret Thatcher and her chancellor, Sir Geoffrey Howe, was to focus ruthlessly on inflation. The budget that Howe introduced in March 1981, for instance, overturned the view held by mainstream economists since the 1930s, that when unemployment was high, governments should spend more to stimulate the economy, allowing government debt to increase. Howe did the opposite; he cut government debt, and let unemployment rip. This achieved its stated objective: by mid-1982, inflation was back down in single figures.

His success looked all the rosier due to the peculiar interlude of the Falklands War. Most people did not know these islands existed until the Argentinians occupied them in 1982. Nonetheless, public opinion was outraged, and Thatcher was presented with a short, clean war that could be won outright – so very different from the intractable mess Gordon Brown faces in Iraq and Afghanistan. That, and a profoundly divided Labour led by Michael Foot, presented Thatcher with an overwhelming victory in 1983.

But there was a heavy price to be paid by people living in the regions where traditional industries were declining. The jobless total was below 1.1m in May 1979, when the Conservatives won an election using that famous slogan "Labour Isn't Working". It was never that low again for the whole of the 1980s. In July 1986, it was over 3.1m.

High unemployment was one of the weapons used to smash the unions. In 1979, there were 12.6m full-time employees in TUC-affiliated unions. Whole industries, from mining to printing, were ruled by closed shops. No union card meant no job. The 1980s began with a national steel strike. In the middle of the decade, there was the year-long miners' strike, one of the longest and bitterest industrial disputes in British history, and the last great national strike. When the miners surrendered, it was obvious that the union movement was beaten. Today, the TUC has barely half the membership it once had.

In 1980, the entire developed world, including Britain, was divided into two ideological camps. The Communist bloc appeared then to be so stable that it would last forever, while serious people wondered how long capitalism could survive. The threat of nuclear war between Nato and the Warsaw Pact was too real for comfort, and vastly overshadowed the terrorist threat, even when the IRA came close to killing Margaret Thatcher by bombing her hotel in Brighton in 1984.

During the rise of Thatcher and the fall of the Berlin Wall, all Britain's political parties arrived at a new consensus: that the big industries that Thatcher privatised should stay private, and that the best guarantee of prosperity was a deregulated, de-unionised economy where credit was freely available. That consensus has been holed by the international banking crisis. But where is the new Margaret Thatcher to create a new politics from the death of the old?

In the US, Barack Obama at least offers the outline of radical new solutions, but he is a Democrat dealing with problems created by Republicans. David Cameron's dilemma is that the regime of easy credit and weak regulation over which Gordon Brown presided is a regime learnt from Margaret Thatcher. Britain has been governed for a quarter of a century Thatcher's way. It would be a very bold Conservative leader indeed who declares that that way is at an end.

Derek Hatton: From 'Loony Left' to Loadsamoney

Of all the characters to step into the media limelight in the 1980s, one of the most colourful and emblematic was Derek Hatton. Somehow his life embodied everything the era stood for, from the militant Labour politics of the first half of the decade, to the wheeler-dealing, loadsamoney excess of the end. An Armani-suited Left-winger, "Degsy" has been called everything from "rabid old militant" courtesy of the Daily Express to "low-grade slob" by Lord Tebbit and everything from scally to sell-out in between.

"I don't know how to respond to accusations that I've sold out," he says from his £1.5m villa in Cyprus. "I'm not sure what a socialist can be any more. I've still got ideals I had in the 1980s, but how do you put them into practice now? Once there were beliefs and battles. Now there's no difference between the parties; politics is nothing but an administrative job. I can't understand why anyone would want to go into politics now. You'd have to be mental."

Hatton was elected deputy leader of Liverpool Council in 1983 and became one of the leaders of the secretive Trotskyist organisation Militant, an increasingly powerful force within the Labour Party. He clashed with the party's leader Neil Kinnock, and was expelled in 1986. "We always said that Militant was just a newspaper but of course it was more than that," he admits. "It was a caucus. There was a group based in London and significant numbers of people involved but we weren't trying to destroy the Labour Party, we were just pursuing a socialist aim."

After his expulsion, Hatton embraced the era of conspicuous consumption. He set up his own PR company, presented a radio show and finally wound up in Cyprus flogging off-plan property. "We've sold 150 properties so far and still have many more to go."

Despite recent wildcat strikes and unemployment figures rising in the UK, Hatton doesn't believe history is repeating itself. "Back then there was organisation and leadership," he says. "All that has gone. Yes, you'll get wildcat strikes, but in the 1980s there was a real opportunity for something to be harnessed. If it couldn't be done in the 1980s, there's no way it can be done now."

During his years in politics, Hatton was a merciless critic of Margaret Thatcher. She continues to be his nemesis to this day and Hatton, despite wholeheartedly exploiting the capitalist system she espoused, believes the current recession is entirely her fault. "Without question, it was Thatcher's belief in greed – that you can have whatever you want without paying for it, that you can buy your own house even if you can't really afford it. All that has led us to the position we are in. She, more than anyone, is responsible." That he drives around Larnaca in his £60,000 Land Rover with personalised numberplates is an irony lost on him. "It's irrelevant," he says, "I was in politics a long time ago – 23 years. But I look back on the 1980s with great warmth. It was a good period. If I had my time over again I wouldn't do a single thing different."

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