The legacy of 1979 continues to play a crucial role in 2019

Every year is momentous in its own fashion, but some stand out in public memory. One such is 1968, the year of the Prague Spring, the Paris student protests, and the assassinations of Martin Luther King Jr and Robert Kennedy. 1989 is another, marking the fall of the Berlin wall and the end of the Cold War. 1979 doesn’t get as much play, but might well have been the most consequential 12 months since the Second World War. That year shaped today’s economy and politics in three fundamental ways. Margaret Thatcher became prime minister of the United Kingdom, kicking off the ascent of free market strategies after decades of dominance by Keynesian ideas and mixed economies. Ronald Reagan’s election as president of the United States the following year strengthened the trend. Upheavals in West Asia heralded a new wave of Pan-Islamism, and the resurgence of sectarian politics around the globe. China ended years of seclusion and radically shifted its economic policies, benefitting from increasingly open Western economies and eventually creating the skewed balance of global trade we witness today.

Thatcher and Reagan came to power proposing that a recipe of low taxes, deregulation, and privatisation would work better for the middle and working classes than the then-standard focus on redistribution, job security, and protected markets. They were so successful in preaching the new gospel that left-of-centre leaders who came to power after them, Bill Clinton and Tony Blair, continued on the same track with a slightly greater emphasis on public investment. Even nations that rejected the most radical Thatcherite prescriptions gradually adopted a diluted version of the reforms she pioneered, with India joining the party in 1991.

The turn to freer markets injected new dynamism into economies battered by stagflation, a vicious combination of high inflation and low growth which bedevilled Western nations in the 1970s. It did not, however, benefit the middle and working classes as Thatcher and Reagan had promised. The gap between the rich and poor, which had consistently shrunk between the end of the Second World War and 1970, grew rapidly, and levels of social mobility in the United States dropped sharply. In 2008, the world felt the worst consequences of untrammelled deregulation, when crazy financial instruments dreamt up by Wall Street bankers derailed the world economy. The Washington Consensus had proven hollow, but the vision it had deposed was no longer a viable alternative thanks to profound changes in the way goods and services were produced and traded in the intervening decades.

China’s rise

The single most important factor in that transformation was China’s rise as the world’s workshop. The country went from being a negligible player in global trade to the world’s largest exporter of merchandise in the space of four decades, following the establishment of full diplomatic relations with the United States on New Year’s Day in 1979. Deng Xiaoping, who had taken over the ruling party’s reins at a plenary session of the Communist Party’s 11th Central Committee held between December 18 and 22, 1978, visited the US a few days after the nations normalised relations. Under Deng’s guidance, China methodically loosened state controls over prices and the means of production. It took advantage of new technologies that allowed massive outsourcing of manufacturing and services, and the creation of complex global supply chains. China’s GDP grew at an average rate nearing double digits for decades, pulling hundreds of millions out of poverty. The same process catastrophically impacted manufacturing in the USA and Europe, especially in labour intensive areas. To give just one example, 98% of the shoes bought in the USA today are imported, three-fourths of those from China. The tariff wars launched by Donald Trump resonate with a population that has seen well-paid and secure working class jobs vanish in the course of their lifetimes.

West Asia

The third crucial link in the 1979 - 2019 chain concerns geopolitics rather than economics. A massive movement against Reza Shah Pehlavi’s dictatorship forced him to flee Iran in January 1979, ending over two millennia of monarchical rule over Persia. Soon after, Ayatollah Ruhollah Khomeini returned home from exile and established a regime based on Islamic law. Across the border, Saddam Hussein took control of the secular Ba’ath party in July 1979, leading a Sunni-dominated regime in majority Shia Iraq. The Iraqi dictator, fearful of Shia Iran’s intentions and seeking to expand his country’s territory, launched a war against Iran the following year. He thought chaotic post-revolutionary Iran would capitulate easily, but instead found himself in a brutal and expensive eight year long stalemate. Thwarted in Iran, he attempted a similar expansion into Kuwait, believing that Western nations, who had supported him against Iran, would stay neutral in the new dispute. Instead, his invasion precipitated the First Gulf War, which was followed by a second a decade later. The US horribly botched its occupation of Iraq after it toppled Saddam, creating a disorderly state led by Shias close to Iran. A Sunni revolt against the new dispensation led to the emergence of ISIS, a fundamentalist Sunni militia which for a period controlled large tracts of Iraq and Syria.

Islamic radicalism

The creation of ISIS had a lot to do with two other events from 1979. The first was the takeover by Salafist insurgents of the Great Mosque, or Masjid al-Haram, in Mecca, the holiest site in the world for Muslims of every denomination. The militants desired to overthrow the ruling House of Saud, which in their view had grown corrupt and Westernised. After a prolonged series of skirmishes marked by large casualties among soldiers, militants and hostages, the few insurgents still alive surrendered. The shock of mass killings in a sacred space where all violence is conventionally forbidden had profound consequences. Saudi Arabia’s rulers immediately turned their backs on any form of social liberalism, giving greater power to fundamentalist clergymen and curbing women’s rights.

As Islamic radicalism gained strength, it found a cause in Afghanistan. Communists had taken power in a coup in 1978, but made several blunders in their efforts to modernise the nation, leading to adverse public reactions. In December 1979, the Soviet Union sent troops into Afghanistan to prop up the tottering regime, providing a cause and a site for the first jihad of modern times. When the Soviets finally withdrew, they left behind a multi-national force of radicalised veterans who went on to spread Islamist militancy everywhere from Kashmir to Algeria to Chechnya. Saudi Arabia, meanwhile, continued to fund extremist ideas within its borders and internationally. Unsurprisingly, 15 of the 19 terrorists involved in the hijackings of September 11, 2001, were Saudi citizens.

The Shia-Sunni conflict that flared in 1979 stayed under control until the Arab Spring of 2011, following which it broke out in large-scale demonstrations, civil strife and proxy wars in Syria, Iraq, Bahrain, and Yemen. These conflicts have created a surge of refugees headed west, which in turn has helped anti-immigrant far right parties make substantial gains across Europe.

It is evident that the legacy of 1979 continues to play a crucial role in the politics of West Asia, the United States, Europe, China, and the world at large forty years on. Whether we can find a way to transcend the profound social, political and economic dislocations engendered by events of that year is an open question.