Government Popularity and the Falklands War: A Reassessment Author(s): David Sanders, Hugh Ward, David Marsh, Tony

Fletcher Source: British Journal of Political Science, Vol. 17, No. 3 (Jul., 1987), pp. 281-313 Published by: Cambridge University Press Stable URL: http://www.jstor.org/stable/193822 Accessed: 17/02/2010 18:21
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B.J.Pol.S 17, 281-313 Printed in Great Britain

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Government Popularity and the Falklands War: A Reassessment

DAVID SANDERS, HUGH WARD AND DAVID MARSH (WITH TONY FLETCHER)*
Mrs Thatcher's decisive and determined stand during the Falklands crisis in 1982 has been widely credited with restoring the electoral fortunes of the Conservative party in the run-up to the 1983 general election. This article argues that the Falklands war produced a boost to Conservative popularity of at most three percentage points for a period of only three months. Government popularity was already accelerating as a result of macroeconomic factors before the outbreak of the Falklands crisis, in particular 'personal economic expectations' proved to be of critical theoretical and empirical significance, and can be modelled satisfactorily on the basis purely of objective macroeconomic indices. Thus macroeconomic factors were at the root of the revival of Mrs Thatcher's political fortunes, and most of the boost to government popularity which occurred in the spring of 1982 derived from intelligent (or cynical) macroeconomic management. The Falklands crisis merely coincided with a jump in government popularity which would have occurred anyway in the wake of Geoffrey Howe's 1982 Budget.

For students of British political history, one of the more intriguing episodes of recent years was the revival in political fortunes experienced by the Thatcher Government during the course of 1982. In popular discourse, the favoured explanation for this transformation has centred on the domestic political effects of the Falklands war. Crewe, for example, while recognizing that there were signs of an economic upturn in early 1982, argues that the impact of macroeconomic forces was minimal in comparison with the powerful effects on government popularity of the Falklands campaign. He notes that between the time of the Argentinian invasion on 31 March 1982 and the British reoccupation of Port Stanley on 14 June, Conservative support in the opinion polls increased by some fifteen percentage points. 'In the space of three months', he concludes, 'public opinion and party politics had been transformed'.1 In this article we review the existing evidence that has been presented in support of the 'Falklands factor' interpretation of Mrs Thatcher's political resurgence. We then offer some alternative evidence, which casts a rather differentlight on the events of 1982. By our account, the renewed popularity enjoyed by the Thatcher Government from the spring of 1982 onwards was the result largely of intelligent (or, perhaps, cynical or even fortuitous) macroeconomic management. We certainly do not deny that there was a massive increase in government
* Department of Government, University of Essex; Tony Fletcher is at the Political Research Unit, BBC Television. The data for this study were collected under a grant from the Nuffield Foundation. I. Crewe, 'How to Win a Landslide Without Really Trying: Why the Conservatives Won in 1983', p. 159, in A. Ranney, ed., Britain at the Polls 1983 (New York: Duke University Press, 1985), pp. 155-96.

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popularity at the time of the Falklands war. In our view, however, the importance of the Falklands factor in the genesis of this increase has been substantially overestimated. Indeed, we conclude that the Falklands effect explanation is based largely upon a spurious theoretical interpretation of an empirical coincidence.
THE EXISTING EVIDENCE FOR THE FALKLANDS EFFECT

Quantitative studies of government popularity in Britain enjoy a long pedigree. Goodhart and Bhansali's seminal study from the early 1970s has subsequently been supplemented by contributions from a variety of other writers.2 Most of these studies take as their dependent variable the month-by-month variations in the percentage of Gallup poll respondents who say that they would vote for the incumbent government 'if there were to be a general election tomorrow'. They then attempt to model these variations in terms of movements in various aggregate-level political and economic variables. Three recent studies have concentrated exclusively on the Thatcher years: Dunleavy and Husbands' analysis of the 1983 general election;3 Clarke et al.'s application of Box-Jenkins techniques to a variety of political and economic indices over the period 1979-83;4 and Norpoth's attempt to model the decay factor in the Falklands effect using Box-Jenkins and Box-Tao techniques.5 Dunleavy and Husbands' study provides clear empirical corroboration for the popular orthodoxy that the Falklands war substantially bolstered public support for the Thatcher Government. After 'extensive experiment' with various models, they present a predictive equation which (1) accounts for some 87 per cent of the variance in government popularity between September 1979 and April 1983 and (2) contains only two predictor variables:the percentage rate of unemployment (lagged four months) and a 'Falklands dummy' variable.6 On
2 The literature is voluminous and covers many countries. For a review see: M. Paldam, 'A Pre-

liminary Survey of the Theories and Findings of Vote and Popularity Functions', EuropeanJournal of Political Science, ix (1981), 181-99. For more recent referencessee P. Whiteley, 'Inflation, Unemployment and Government Popularity', Electoral Studies, in (1984), 25-46. Particularly important work on Britain includes: C. A. E. Goodhart and R. J. Bhansali, 'Political Economy', Political Studies, xviii (1970), 43-106; B. S. Frey and F. Schneider, 'A Politico-Economic Model of the UK', EconomicJournal, LXXXVIII (1978), 243-53; P. Mosley, 'Images of the "Floating Voter":or the Political Business Cycle Revisited', Political Studies, xxvi (1978), 375-94; J. Alt, The Politics of Economic Decline (Cambridge:Cambridge University Press, 1979); D. Hibbs, 'Economic Outcomes and Political Support for British Governments Among Occupational Classes', AmericanPolitical Science Review, LXXVI(1982), 259-79; P. Mosley, The Making of Economic Policy: Theory and Evidencefrom Britain and the United States Since 1945 (Brighton: Wheatsheaf Books, 1984), Chapter 2. 3 P. Dunleavy and C. T. Husbands, British Democracyat the Crossroads: Voting and Party Competition in the 1980s (London: George Allen & Unwin, 1985). 4 H. D. Clarke, M. C. Stewart and G. Zuk, 'Politics, Economics and Party Popularity in Britain, 1979-83', Electoral Studies,v (1986), 123-41. 5 H. Norpoth, 'War and Government Popularity in Britain', paper given at the annual meeting of the American Political Science Association, Washington, DC, August 1986. 6 Dunleavy and Husbands, British Democracyat the Crossroads,p. 153.

Government Popularity and the Falklands War

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the basis of this model, Dunleavy and Husbands estimate that the Falklands war led to a long-term increase in government popularity of over 16 percentage points.7 A somewhat more conservative estimate of the effects of the Falklands campaign is reported by Clarke, Stewart and Zuk, who argue that most econometric models of party popularity fail to control adequately for specific political events.8 By including various macroeconomic measures in their models (notably inflation and unemployment statistics), together with political event variables such as the occurrence of by-elections, Clark et al. conclude that the Falklands affair still produced a sustained and significant increase in Conservative popularity of about 7.3 percentage points. Although the magnitude of the Falklands factor is, on this estimate, only half that suggested by Dunleavy and Husbands, it is none the less highly significant. The analyses considered so far assume that the Falklands war had an 'abruptpermanent' effect on domestic British politics: government popularity jumped abruptly between April and May 1982 and this effect appears to have persisted right through to the 1983 election. On both theoretical and empirical grounds, Norpoth doubts the adequacy of this characterization. He suggests, instead, that the war produced a gradual build up in support for Mrs Thatcher9 followed by an equally gradual decline in the ensuing months; what he describes as a 'gradual-temporary' model. Controlling for inflation (which he finds to be nonsignificant) and unemployment, Norpoth concludes that the Falklands war produced a gradual-temporary increase in popularity of eleven percentage points during May and June of 1982 but that this Falklands effect decayed at a rate of just under 0.7 of a percentage point per month thereafter. According to this model, the Falklands factor was still worth five percentage points by May 1983 and may have been crucial to the Conservatives' landslide victory.
THE PROBLEM OF MIS-SPECIFICATION

It needs to be acknowledged at the outset that all three of the studies of the Falklands effect referred to above are cogently argued and, as far as they go, methodologically sound.10 Equally - and this is a general complaint that can be
Dunleavy and Husbands, British Democracyat the Crossroads,p. 154. Clark, Stewart and Zuk, 'Politics, Economics and Party Popularity', pp. 123-30. 9 It should be noted that in contrast to the other studies referredto above, Norpoth follows the North American convention of modelling support for the leader of the Government rather than for the Government as a whole. This means that his dependent variable is slightly different from that analysed in other studies, but since Mrs Thatcher's personal rating and that of the Government as a whole are highly correlated (r = 0.91), his findings are of considerable'relevanceto our discussion. 'o There are a number of minor technical anomalies evident within each of the studies although we do not consider them to be serious. Specifically:(1) Dunleavy and Husbands report an R2 of 0.87 for their predictive model of Government popularity. Using the same predictor variables - percentage unemployed lagged four months and a Falklands dummy variable - over a slightly larger time period, we obtained an R2 of only 0.78; although the coefficient of b = 15.9 for the Falklands dummy is almost identical to that reported by Dunleavy and Husbands. (2) Dunleavy and Husbands's
8 7

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levelled at most quantitative research- they are all open to the criticism that the models which they develop are mis-specified because some potentially relevant independent variable(s) has (have) been omitted from them. 'If only Z had been included in the appropriate equation', observes the carping critic, 'then X might not have been found to exert such a significant influence on Y. We obviously do not wish to be unnecessarily critical in this regard, but our own analysis leads us to the conclusion that there are indeed several additional macroeconomic variables (identified in the next section) for which statistical controls do need to be made if the real effects of the Falklands factor are to be estimated. In our view, the analyses which we have reviewed substantially overestimate the effects of the Falklands factor precisely because they omit a series of variables that are both theoretically and statistically significant. It is quite possible, of course, that some of these additional variables have been duly considered for inclusion by other analyses and - for whatever reason - subsequently discarded by them. All of the studies we have reviewed, for example, report (contrary to intuitive expectations) that inflationwas not a significant influence upon government popularity during the Thatcher years; a finding which is entirely consistent with our own analysis. However, there is one group of variables whose effects (as far as we are aware) have not been systematically investianalysis dates the start of the Falklands dummy from May 1982, even though the conflict dates from 31 March 1982. The fact that government popularity did not experience an upsurge until May 1981 thus gives their Falklands dummy its maximum opportunity to figure significantly in their model of government popularity. If the model is re-estimated, dating the Falklands dummy from April 1982 instead of May, the explanatory statistical power of the Falklands factor is reduced. According to our estimates, the R2 for the Falklands-crisis-began-in-May model is 0.78; for the Falklands-crisisbegan-in-April model, R2 falls to 0.70. (3) Even within Dunleavy and Husbands' own terms of reference, the combination of (a) their possible mis-specification in the timing of the start of the Falklands crisis, together with (b) a small amount of serial correlation in the error term of their two-predictor model is sufficient to produce a mild inflation in their estimate of the magnitude of the Falklands effect. The Falklands-crisis-began-in-May model, estimated with OLS, yields a Falklands factor coefficient of b = 15.9;a Falklands-crisis-began-in-Aprilmodel estimate using the Cochrane-Orcutt pseudo-GLS technique yields b = 14.4. (4) Clarke et al. include 'satisfaction' with Mrs Thatcher as an independentvariable in their equation for Government popularity. This is a variable which on theoretical grounds we believe should be omitted from the model. We interpret the high bivariate correlation between satisfaction with the Prime Minister and government popularity as evidence that both variables are a reflection of respondents' general predispositions towards the government. To include satisfaction as a predictor of popularity not only ignores the possibility that popularity influences satisfaction but also appears to be at least partially tautological. (5) Norpoth's estimation technique attempts to explain changes in Mrs Thatcher's poll ratings in terms of deviations about the mean. He justifies this strategy by arguing that party identification explains this average baseload of approval and that what needs to be explained are deviations from it. This argument seems to us inadequate for two reasons. Firstly, all the available evidence (see, for example, Ivor Crewe and Bo Sarlvik, Decade of Dealignment(Cambridge: Cambridge University Press, 1983)) suggests that party identification has been declining in recent years, which presumably means that its effects should be assumed to decline over time rather than to remain constant as Norpoth's chosen strategy implies. Secondly, one of the causes of partisan dealignment might be what is perceived as poor economic performance:if so, then part of the variation in government popularity which might on a priori grounds be attributable to economic explanations is simply assumed by Norpoth to be unrelated to such factors.

Government Popularity and the Falklands War

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gated in previous analyses of the first Thatcher Government: measures relating to aggregate economic expectations about the future.1 We would argue that in democratic societies expectations about the future both for the economy as a whole and for the individual elector and her/his family - constitute a crucially important influence upon government popularity. Other things being equal, the more optimistic people are about the future - and, in particular, the more optimistic they are about the economic future of their immediate family - the more likely they are to support the incumbent government in order to sustain the very status quo that produced their optimism in the first place. Ideally, of course, an investigation of the possible linkages between economic optimism and voting intentions needs to be conducted at the individual level. We are obliged to eschew this research strategy, however, because adequate panel data of the sort required for a thoroughgoing individual-level analysis (that is, data in which the same respondents are repeatedly interviewed at multiple time points) are simply not available. None the less, if it could be shown that movements in aggregate levels of economic optimism are related (1) to aggregate movements in party support and (2) to objective macroeconomic changes, then the claim that those macroeconomic phenomena exert an indirect influence upon government popularity would be considerably enhanced.12 But how can aggregate 'economic expectations' be measured? One strategy would be to employ one of the established econometric procedures which assume that expectations can be inferred by effecting some sort of linear transformation to prior levels of the variable under analysis.13 (Thus, for example, expectations about inflation at t + 1 could be modelled on the basis of what had happened to inflation at t - 6, t - 5 ... t - 1.) Our preferred measurement strategy, however, is much more direct. It is based on the regular Gallup poll questions concerned with whether or not respondents think that (a) the 'general economic situation' and (b) their 'own household's financial situation' will
"1 M. Fiorina, 'Short and Long-Term Effects of Economic Conditions on Individual Voting Decisions', in D. Hibbs and H. Fassbender, eds, ContemporaryPolitical Economy (Amsterdam: North-Holland, 1981), pp. 73-100, estimates a model in which both retrospective and prospective evaluations of government performancefigure significantly. 12 It can, of course, be argued that the differentialeffects of macroeconomic changes on different social groups may lead to an underestimation of the true significance of those changes when only aggregate data are examined. Hibbs, for example, in 'Economic Outcomes and Political Support', has shown that whereas inflation adversely affects the interests of middle-class voters, it need not have such deleterious consequences for the working class. In these circumstances,the effect on aggregate government popularity of an increase in inflation may not appear to be very large because its effects on these two class groups tend to cancel each other out. Again, in the absence of suitable data, we are unable to test for this kind of differentialeffect. 13 For attempts to model expectations from past performance see, for example, Fiorina, 'Short and Long-Term Effects', pp. 93-5; D. Hibbs and N. Vasilatos, 'Macroeconomic Performance and Mass Political Support in the United States and Great Britain',in Hibbs and Fassbender, Contemporary Political Economy,pp. 31-47, especially pp. 37-8; for a general discussion of the use of various expectations models in political science and the difficulties of their estimation see H. Rattinger, 'Econometrics and Arms Races: A Critical Review and Some Extensions', European Journal of Political Research,iv (1974), 421-39.

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improve over the next twelve months. Our month-by-month measure of'general economic expectations' is obtained by subtracting the percentage of respondents who think the 'general economic situation' will get worse from the percentage who think it will get better; our measure of 'personal expectations' is obtained from a similar arithmetic operation using responses about their 'own household's financial situation'. In subsequent sections of this article, we show that personal expectations constitute a vitally important control variable, the effects of which must be taken fully into account before the impact of the Falklands factor upon government popularity can be properly assessed. Indeed, we estimate that when this and certain other macroeconomic variables are included in the relevant equations, the magnitude of the Falklands effect is much smaller than the 16 percentage points reported by Dunleavy and Husbands; smaller even than the 7 percentage points found by Clarke et al. and the 5 percentage points observed by Norpoth. According to our models; the Falklands campaign added something in the region of 3 percentage points to the popularity of Mrs Thatcher's Government, and then only for the three months from May to July 1982.
THE DATA

The data analysed in our study are described in Table 1 (pp. 288-9): they are aggregate monthly time series covering July 1979 to June 1983. It will be noted

42 -

\\

x
x

309-\

, 24-

27 -

c~~~~~~~~~~~x-x-x-\
'Vx

\
/

2121-

A \

18-

JASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJ 1982 t 1981 1980 1979 Falklands Crisis begins

1983

Fig. 1. Variationsin governmentpopularityover time (July 1979-June 1983)

Government Popularity and the Falklands War

287

from the table that the variables examined fall into five broad categories: (1) assessments of government performance and popularity; (2) objective measures of various aspects of the state of the overall economy; (3) aggregate retrospective perceptionsof the performance of the economy and how it has affected the individual; (4) aggregate prospectiveexpectations about how the economy will perform in the future; and (5) 'political event' factors such as the 'Falklands dummy'. In relation to category 1 - assessments of governmental performance and popularity - the results reported here are confined solely to one measure: government popularity.14 We impose this restriction for two reasons. Firstly, almost all previous studies in the field (Norpoth excepted) have used precisely this measure as their dependent variable:comparability requires that we follow the established convention. Secondly, all of the measures in category 1 of Table 1 are highly intercorrelated.15We would argue that at the aggregate level at least (where measurements are necessarily crude) this results from the fact that all of the category 1 measures broadly record the extent to which public opinion is favourably disposed towards the government. The government popularity variable simply represents the most convenient way of operationalizing these general predispositions.
INFORMAL DATA ANALYSIS: SOME OBVIOUS PATTERNS

Figure 1 plots the movements in overall government popularity between July 1979 and June 1983. Two features of Figure 1 are immediately noticeable and both are extremely important. The first is the overall trend:popularity suffers a general decline until the beginning of 1982 and then experiences a recovery through to the 1983 election. Secondly, there is a marked - and critically important - acceleration or discontinuityin government popularity between April and May 1982; an increase in popularity of fully 11 percentage points. It is this discontinuity which Crewe indirectly attributes to the Falklands factor and which Dunleavy and Husbands indirectly utilize when they find that their Falklands
14 Specifically, this is operationalized as the monthly percentage of Gallup poll respondents whose stated intention was to vote Conservative. The source is the monthly Gallup Political Index 'A' series (which includes 'Don't knows' in the percentage base). The figure of 44 per cent for May 1983 is taken from the poll conducted on 14 May: this date was chosen (from the four polls conducted in May 1983) because it was closest to one month after the date of the April 1983 poll. The figure of 42 per cent for June 1983 was taken from the Gallup poll conducted on 3 June. 15 The intercorrelations (N = 48) were as follows:

a b c d e

0.91 0.89 0.86 0.83 0.89 f 0.98 0.91 0.84 0.93 a 0.90 0.82 0.95 b 0.86 0.85 c 0.84 d

a= b= c= d= e= f =

approval of Government record satisfaction with Mrs Thatcher Conservative party morale Conservative unity Government popularity approval of Government policies

TABLE

Statistical ~~~Variables Used in the Analysis*~~oo Variables Used in the Statistical Analysis*

Variable

Bivariate correlation with government popularity (N = 48)

Variable

popularityand Category I: Government assessmentsof government performance 1. Approval of Government Policies the economic situation correctly %thinking handling is incorrect) 2. Approval of Government Record
(% approval) (% thinking the government is handling

20. Average earnings

0.89 0.93 0.95 0.85 0.84

earlier, not seaso 21. Balance of Paym adjusted;curren 22. Exchange Rate ( 23. Money Supply (

3. Satisfactionwith Mrs Thatcher

(0',

% change over p

satisfied)

4. Conservative Party Morale (% saying most people hold favourableopinion of Conservatives) 5. Conservative Unity (%saying Conservativesare united) 6. Government Popularity (%saying they would vote Conservative) Category2: Objectivemeasuresof the state of the overalleconomy 7. Real Personal Disposable Income (seasonally adjusted)

24. PSBR (seasonall 25. Public Expendit 26. Interest Rate (Lo base rate)

Category 3: Aggrega percept of the ec 27. General Retrosp Perceptions (% t economic situati -0.04
last 12 months -

8. Tax and Price Index (% change on year earlier) 9. Taxation Index (%change on year earlier)t 10. Short-time Working (thousands of operatives stood-off for whole or part of week; manufacturingindustry) 11. Gross Domestic Product (seasonally adjusted) 12. Consumer Expenditure(seasonally adjusted) 13. Consumer Expenditureon Durable Goods (seasonally adjusted) 14. Retail Sales (seasonally adjusted) 15. Retail Prices (seasonally unadjusted; 16. Retail Prices (seasonally adjusted; 17. Unemployment (seasonally adjusted, excluding school leavers)
18. Unemployment (% rate, not seasonally % change on year earlier) % change on year earlier)

-0.53 -0.74 -0.39 0.16 0.16 0.51 0.45 -0.21 -0.18 -0.07 -0.01 0.00

28. Personal Retros Perceptions (% t financial position

12 months - % t

Category 4: Aggrega expectat perform

29. General Economi (% thinking gener

will get better ov

% thinking it will

30. Personal Econom (%thinking own situation will get

months - % thin

adjusted)
19. Unemployment (% rate, seasonally

adjusted)

Category 5: Political 31. Falklands Dumm March 1982; 1 fr 32. Alliance Dummy 1981; 1 from Mar

* The measures employed in this study are held on a file deposited with the ESRC Data Archive, University of Es summary of sources, are available from the Archive on request. t This variablewas constructed from a combination of variable 8 (the CSO Tax and Price Index) and variable 15 construct the taxation index, it was necessary to remove the price component from the Tax and Price Index. This wa on the retail price measure and holding the residuals. The residual values from this regression by definition constitute price index which is unexplained by movement in retail prices: in this sense, they represent the tax component of the constitute our taxation index.

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dummy variable produced a 16 percentage point increase in government popularity during the first Thatcher term. We shall offer a detailed - and very different - analysis of this discontinuity later. Initially, however, we attempt to provide a few insights into the genesis of the decline-recovery sequence embodied in Figure 1. In order to do this, it seems relevant in the first instance to establish how far other, potentially explanatory, variables follow either (1) a similar declinerecovery or (2) an (obverse) increase-decline pattern. To put it another way, given that a simple curvilinear trend function of the form Yt= a + bt + ct2 fits the government popularity trend remarkably well (see Table 2), are there any other variables (from those identified in Table 1) to which such an equation can also be fitted? Table 2 identifies nine such variables which exhibit either a decline-recovery or an increase-decline pattern. All can be plausibly linked in theoretical terms to the decline-recovery trend observed in government popularity. i. Retail sales and consumer expenditure, which both experienced an initial decline and subsequent recovery, clearly reflect the general objectivestate of the economy. As the economic position of the country improved, so did the popularity of the government. 6 ii. Short-time working, which experienced an initial increase and subsequent decline, similarly reflects general objective economic conditions. As shorttime working declined - indicating general economic improvement - so the government reaped a reward in terms of increased popularity. iii. The tax-price index also experienced an initial increase and subsequent decline. For the elector-as-consumer this clearly constituted an initial deterioration followed by a subsequent recovery in purchasing power: as purchasing power rose, so did government popularity. iv. Finally, both retrospective judgementsand prospectiveexpectations about the (see the 'General retrospective', 'Personal retrospective' and economy 'Personal expectations' variables in Table 2), also experienced initial decline and subsequent recovery. As more people took a positive view of the state of the economy, so the electorate's preparedness to vote for the government increased. One way of interpreting this broad decline-recovery pattern, of course, is to regard it as a manifestation of the 'mid-term effect' which is frequently observed in democratic polities. Governments are often obliged to take unpopular measures in the early period of office, which adversely affects their opinion poll ratings, but equally often they manage to effect some sort of economic recovery in the run-up to the next election, with beneficial consequences for their own popularity. When the consequences of this sort of 'political' economic management are combined with the generally lower levels of political stimulation typically associated with the periods between general elections, it is relatively easy to
16 With certain qualifications a similar inference can be drawn in relation to the exchange rate variable:this is discussed on pp. 297-8.

Government Popularity and the Falklands War VariablesExhibiting Either a Decline-Recovery or IncreaseDecline Trend(July 1979-June 1983)
Graphical representation of trend equation estimated

291

TABLE 2

Variable Tax and price index

(% change on year

Trend equation estimated*

R2 of trend equation estimated (N = 48)

earlier) Taxation index Exchange Rate (? against $) Short-time working (manufacturing industry) Consumer expenditure (durable goods; seasonally adjusted) Retail sales (seasonally adjusted) General retrospective economic
perceptions (% got better - %

Yt = 13.7 + 0.39(t) - 0.001(t2) Y = - 3.7 + 0.43(t) - 0.008(t2)

Y = 2,250.0 + 5.06(t) - 0.46(t2)

r\

0.92 0.57 0.84 0.42

lt = 1.5 + 2.5(t)-

0.05(t2)

Yt = 34.5 - 38.64(t) + 1.2(t2)

0.92 0.82

ft = 105.2 - 0.15(t) + 0.006(t2)

thinking situation lt = 4.184 - 0.27(t) + 0.007(t2) 0.71

thinking got worse) Personal retrospective economic

perceptions (% got better - %

thinking situation
Yt = 0.50 - 0.22(t) + 0.004(t2)

thinking got worse) Personal economic

expectations (%

0.71

thinking own household situation will get

better - %

thinking will get worse) Government popularity

Yt = 0.29 - 0.12(t) + 0.002(t2)

0.56

t = 39.7 - 1.05(t) + 0.02(t2)

i/

0.50

* All coefficients more than twice their own standard error.

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appreciate why the mid-term effect is so frequently observed.17 However, although this account is consistent with the decline-recovery pattern of the first Thatcher term, we do not find it satisfying to describe that pattern simply as a mid-term phenomenon. If something is happening either in the real economy or in public perceptions of it, then the model being employed is not strictly a midterm effect model at all: rather, it is one that relates government popularity to objective and/or subjective economic circumstances. In our view, the findings presented in Table 2 can be most plausibly interpreted in terms of the following model: 'objective economic conditions -subjective perceptions about the economy -- preparedness to vote for the government'. Three pieces of evidence lead us to draw this inference. Firstly, as Table 2 indicates, three different measures of subjective economic perceptions follow the same broad decline-recovery sequence as several measures of the objective state of the economy; a finding which certainly supports the notion that general economic perceptions in some sense reflect 'real' economic conditions. Secondly, both government popularity and the subjective economic perceptions variables (a) follow the same general trend throughout 1979-83 and (b) shift from 'decline' to 'recovery' during the same four-month period (October 1981-January 1982). Thirdly, the 'personal expectations' variable shifts from decline to recovery at exactly the same point in time (January 1982) as government popularity.18Although these findings can in no sense be regarded as conclusive, it would none the less be decidedly odd simply to dismiss them as a series of irrelevant coincidences. On the contrary, we believe that such a pervasive and consistent decline-recovery pattern lends clear informal support to the sort of simple model summarized in Figure 2, in which government popularity is determined by subjective perceptions about the state of the economy while those perceptions are in turn determined by objective economic conditions.
17 The literature on the mid-term effect is critically reviewed in J. Hudson, 'The Relationship Between Government Popularity and Approval for the Government's Record in the United Kingdom', British Journal of Political Science, xv (1985), 165-86. 18 The timing of these shifts, of course, is not discernible directly from the graphical representations shown on Table 2. The relevant figures for the transitions from decline to recovery are as follows:* General retrospective economic judgements Oct. Nov. Dec. Jan. Feb. Mar. 1981 1981 1981 1982 1982 1982 -77 -70 -72 -62 -71 -57 Personal retrospective economic judgements -41 -33 -45 -45 -42 -39

Personal economic expectations -16 -13 -25 -19 -17 -16

Government popularity 25.5 23.0 18.5 22.5 22.5 26.0

* The figure(s) in italics indicate the month at which the trend reached its trough.

Government Popularity and the Falklands War

Objectiveeconomic conditions (Tax and price levels; short-timeworking; consumerexpenditure; retail sales) Subjectiveperceptions about the economy (Generalretrospective perceptions;personal retrospectiveperceptions; personalexpectations) Government popularity

293

Fig. 2. Simplemodel of governmentpopularityimpliedby the trendfunctionsdefinedin Table 2

While we believe that these findings tell an important part of the story of the first Thatcher Government - in terms of the long-run influences underlying the revival of the Conservative party's electoral fortunes from early 1982 onwards we also recognize that they perhaps over-simplify the story. Indeed, there are two good reasons why such an analysis of aggregate trends cannot be relied upon to provide an adequate model of voting intentions during the Thatcher years. In the first place, an impressionistic analysis of the sort we have undertaken thus far may suggest relationships between variables that are simply not in evidence when more sophisticated statistical controls are applied. Secondly, fitting a time function trend to government popularity necessarily ignores the crucial discontinuity in Mrs Thatcher's popularity which was observed in Figure 1. Trends by definition ignore short-term discontinuities, yet in the case of the popularity of Mrs Thatcher's first government, the short-term discontinuities require at least as much explanation as the long-term decline-recovery trend. These two considerations, together with the need to ensure comparability with previous research, lead us to conclude that any convincing explanation of changes in voting intentions during the first Thatcher term must concentrate primarily on the analysis of raw government popularity scores rather than the trend underlying them. In the next section we provide a more formal model of the principal aggregate-level factors which we believe affected the popularity of the first Thatcher Government. Most significantly, this model takes full account of the discontinuity in popularity which occurred around the time of the Falklands crisis;yet it demonstrates that the Falklands factor was nothing like as important for the resurgence of support for Mrs Thatcher's Government as has been popularly supposed.
FORMAL DATA ANALYSIS

Modelling the Economic Influencesupon Government Popularity The basic theoretical model underlying our more formal data analysis is outlined in Figure 3. We hypothesize that government popularity is influenced by two basic sets of economic factors: (1) the objective performance of the overall economy and (2) people's expectations about their own living standards in the future. In essence, if a government is to achieve high poll ratings, it must not only ensure that the economy as a whole is performing relatively well, but it must also

294

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Personal economic expectations Objective performance of the national economy Fig. 3. Basic theoreticalmodel of governmentpopularity R2 = 0.874 N = 42t Durbin-Watson statistic = 1.70

Government popularity p a

Exchange rate (ER)- 12 -049

Personal expectations (PE),

+0.44

Government popularity (GP),

-0.25

-0.19

PSBR -6

% Unemployment (UN),

Fig. 4. Best predictivemodel of governmentpopularity,*January 1980-June 1983 * The model does not exhibit serially correlated error:Cochrane-Orcutt estimates were virtually identical to the OLS estimates reported here. The residuals from the model are randomly distributed across time: a correlation between the residuals and time yields r = 0.015. The path coefficients reported are standardized regression coefficients derived from the following OLS equation (t statistics in parentheses): GP, = 74.32 + 0.371 PEt - 0.01 ER, 12 -0.61 UN, - 0.0008 PSBRt-6 (2.53) (5.59) (3.81) (14.15) (4.51) t The inclusion of lagged variables in the model has the effect of 'losing' cases (in this instance June-November 1979) at the beginning of the series. Thus N falls from 48 in Table 2 to 42 in the remaining models (which all contain lagged variables) that we report.

TABLE 3

Equationfor best Predictive Model of GovernmentPopularity, January 1980-June 1983; Falklands Dummy Added*

GPt = 66.45 + 0.37 PEt - 0.004 ER -12 -0.92 UNt - 0.0005 PSBRt-6 (1.82) (3.42) (2.54) (4.53) (8.73) + 3.37 Falklands dummy (1.41) R2 = 0.880 N = 42 Durbin-Watson Statistic = 1.86

* The model does not exhibit serially correlated error:Cochrane-Orcutt estimates were virtually identical to the OLS estimates reported here (t statistics in parentheses). GP = Government popularity; PE = Personal expectations; ER = Exchange rate; UN = Unemployment; PSBR = Public Sector Borrowing Requirement.

Government Popularity and the Falklands War

295

convince enough people that their own economic position is going to improve in the foreseeable future. Employing an analogue of the SPSS stepwise procedure and using as predictors all of the variables identified in categories (2) and (4) of Table 1, we estimated a large number of equations which provided alternative operationalizations of this basic 'expectations/objective economic performance' model. The effects of all potential predictor variables were considered both unlagged at time t and lagged at time t-1, t-2, ..., t-12. Our aim was to obtain a parsimonious model of government popularity which (a) was intuitively plausible; (b) maximised R2; (c) ensured the significance and robustness of all parameters;and (d) avoided high colinearity between predictor variables.19 Figure 4 summarizes the outcome of our investigations. With only four predictor variables - one that directly measures personal expectations and three (exchange rate, PSBR and unemployment) that indirectly measure the general state of the economy - we were able to explain some 87 per cent of the variance in government popularity.20
19 For a discussion of these criteria, see David Sanders, Patterns of Political Instability (London: Macmillan, 1981), Chap. 8. By 'robust' we mean that the parameters of a given model remain stable when each predictor variable in turn is omitted from it. We use significance tests not because we wish to generalize from a random sample to a wider population but because econometric practice has demonstrated that the t-test provides a very useful decision rule for determining whether or not a particular predictor makes a worthwhile contribution to a given model. 20 The R2 of 0.87 reported for this model appears no better than the 0.87 reported by Dunleavy and Husbands for their admittedly more parsimonious 'unemployment and Falklands factor' model. As we pointed out earlier,however, on our estimates the unemployment and Falklands factor model only explains 70 per cent of the variance in government popularity (see fn. 10). It is also worth recording that the model reported in Figure 4 is remarkably robust in terms of its application to differentsegments of the total time period analysed. Specifically:(a) the residuals from the equation are randomly distributed over time: a correlation between the residuals and time yields r = 0.01; (b) if the series is partitioned into a 'government popularity downswing' segment (up to December 1981, when government popularity reached its trough of 18.5 per cent) and an 'upswing segment' (from January 1982 to June 1983) the following results are obtained: Standardized coefficient over entire period (N = 42) Standardized coefficient during downswing segment (N = 24) Standardized coefficient during upswing segment (N = 18)

Variable Personal expectations, Unemploymentt Exchange rate,PSBR,_6 R2

0.44 -0.25 -0.49 -0.19 0.87

0.28 -0.76 0.01 -0.15 0.85

0.68 -0.17 -0.17 -0.24 0.85

While the magnitudes of the observed coefficients (inevitably) vary across the differentsegments, the signs of the coefficients (with the exception of the near-zero coefficient for exchange rate in the downswing segment) remain consistent. Most importantly, R2 is virtually identical in all submodels.

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Several observations need to be made about the 'best equation' model described in Figure 4. Firstly, none of the other variables identified in categories 25 of Table 1, either lagged or unlagged, furnished a significant parameter when added to this 'best' equation. In other words, none of those variables made any additional contribution to the statistical explanation of government popularity over and above the effects of the four predictor variables specified in the model. Given the high level of R2 reported in Figure 4, this constitutes strong overall support for our hypothesized expectations/performance model. Secondly - and of considerable substantive importance - the absence of any Falklands factor variable in Figure 4 indicates that the variance in Mrs Thatcher's first term popularity can be statistically explained quite satisfactorily without any direct referenceto the Falklands factor whatsoever. Indeed, as Table 3 shows, the addition of a Falklands dummy to the model yields a non-significant parameter, together with an increase in R2 of only 0.006. Although we return to this matter later, this finding - on the face of it at least - casts considerable suspicion upon the claims of previous analyses that the Falklands war was a significant factor in Mrs Thatcher's electoral victory in 1983. A third feature of Figure 4 is that one of the most important influences upon government popularity is personal expectations (B = 0.44), a conclusion which is certainly consistent with our 'informal'analysis of trend patterns presented in the previous section. There is a potential problem of tautology here, however, and it needs to be confronted. It could be argued that the personal expectations index which we have employed is not truly independent of our measure of government popularity: both, after all, are based on Gallup poll survey questions and it is possible that the answers which respondents give to all 'political' questions in such circumstances reflect their general affective feelings towards the government of the day. Thus, the argument runs, if respondents are feeling well-disposed towards the government (for whatever reason), they are likely both to say they would vote for it and to express optimism about the future economic prospects of their own households; both measured responses (voting intention and degree of optimism/pessimism) reflect a single, unmeasured, affective predisposition. We reject this line of argument on both theoretical and empirical grounds. While we appreciate the need to interpret all survey-based data with caution, we are not convinced that simply because two or more survey responses are empirically related, it necessarily follows that they are merely artefacts of some deeper structure.That way lies a retreat into universal tautology which is just as absurd as the claim that all empirical correlations reveal causal relationships. In our view the Gallup question which elicits the respondent's voting intention is so clearly differentiatedfrom the question which ascertains her/his degree of optimism about the future that it requires an unwarranted effort of imagination to regard the responses to them as mere expressions of the same underlying phenomenon. The problem, of course, is that if we only possessed survey evidence, we would have no way of substantiating our interpretation empirically. We would be in a

Government Popularity and the Falklands War

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position where A believes that X and Y are both manifestations of the same structure; B believes X has a causal influence on Y; yet both A and B cite the empirical association between X and Y as a vindication of their position. Fortunately, because we have access to both survey and non-survey evidence, we can devise an empirical test of the validity of our survey-based measure of expectations. In the subsequent models which we develop (see especially Figure 10) we show that a personal expectations variableconstructedentirelyfromobjective, aggregate level macroeconomicindices correlatesjust as strongly with government popularity as the survey-basedpersonal expectations measure which we have examinedthusfar. Following the principle of convergent validity, this 'constructed' expectations variable in effect acts as a validating instrument for its surveybased counterpart.21 Its behaviour, moreover, leads us to the conclusion that the original Gallup question concerned with personal expectations does elicit something other than general affective predispositions towards government; that it does indeed measure people's expectations. In short, our survey-based index of expectations is not tautologically related to voting intentions. The final feature of Figure 4 that merits discussion concerns the signs of the reported coefficients. Not surprisingly,'personal expectations' makes a positive contribution to government popularity: as expectations rise, so does the popularity of the incumbent administration. The three measures of the objective state of the economy, on the other hand, all furnish negative coefficients. Although we are unable to demonstrate it here, our strong suspicion is that the effects of these variables were probably mediated by the speculative and interpretative endeavours of the mass media.22 It is certainly the case that unemployment, the size of PSBR and the external value of sterling all received extensive media coverage during the early 1980s. The negative coefficient for unemployment, of course, is both predictable and in line with the Dunleavy-Husbands findings referredto above: when Mrs Thatcher failed to deliver on her 1979 pre-election promise of reducing unemployment, her Government's poll ratings suffered accordingly. Similarly, the negative coefficient for PSBR can be interpreted in terms of the failure of the Treasury to control the expansion of public expenditure in the face of a firm pre-election pledge to control the growth of public spending; with adverse consequences for the Government's popularity. (As PSBR fell dramatically after January 1982, so the Government's poll ratings improved.) The negative coefficient for the exchange rate variable is somewhat harder to interpret because it seems to contradict the traditional notion that a strong currencyis a characteristicfeature of an economy that is performingwell; the negative coefficient indicates that ceteris paribusgovernment popularity increased as the external value of sterling declined. This apparent anomaly is
21 See D. T. Campbell and D. W. Fiske, 'Convergent and Discriminant Validation by the Multitrait-Multimethod Matrix', Psychological Bulletin,LVI(1959), 81-105. 22 For the mediating effect of newspaper coverage of macroeconomic variables upon voting see P. Moseley, 'Popularity Functions and the Media: A Pilot Study of the Popular Press', BritishJournal of Political Science, xiv (1984), 119-31. For a more general discussion of the media's impact on perceptions see Mosley, The Making of EconomicPolicy, Chap. 2.

298

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AND OTHERS

easily resolved, however, when it is recognized that a continuing complaint of both the CBI and a wide spectrum of political and economic commentators during the early 1980s was that the continued over-valuation of the pound was having a serious effect on Britain's export competitiveness. In these circumstances, it is not unreasonable to conclude that the rise in the external value of sterling up to the end of 1981 actually damaged the government's poll ratings; thereafter, however, sterling's fall indirectly - and with some time lag - contributed to the recovery of the Government's popularity. The specific interpretations which we have offered for the significant negative coefficients in Figure 4 could of course be challenged on a number of grounds. Firstly, it could be argued that the idea that the electorate pays the slightest attention to distant macroeconomic intangibles like PSBR or the external value of sterling assumes a level of intellectual sophistication on the part of the British public that has never been demonstrated in micro-level research. We would argue, however, that the electorate does not need to be sophisticated in order to be affected by the 'more good news' or 'more bad news' interpretations which are offered by the mass media when they report on fluctuations in these macroeconomic indices.23A second line of potential criticism concerns the question of why, according to our model, government popularity appears to be affected by PSBR after a period of six months and by the exchange rate after a period of twelve months. With aggregate-level data we are unable to specify why these particular lags seem to have been important during the first Thatcher term. As we intimated earlier, only multiple time-point panel data (which are not available to contemporary researchers) could provide the evidential base necessary for modelling the precise way in which macroeconomic changes affect the political preferences of individual electors. None the less, in view of the fact that people's perceptions are rarely transformed instantaneously, it does seem reasonable to us that some sort of time-lag between macroeconomic changes and public predispositions towards government should be in evidence; the manner in which and the rate at which they are transformed must primarily be matters for individual-level research. In these circumstances, what we have demonstrated is that macroeconomic changes do appear to be empirically linked to variations in government popularity and that - without reference to political factors such as the Falklands effect - a very high proportion of the variance in government popularity can be explained by reference to straightforward personal expectations and objective macroeconomic variables. The Discontinuityin Government Popularity Revisited In the preceding section we concluded that the Falklands factor, since it added no explanatory statistical power to our predictive model of government popu23 For a discussion of coverage of the Falklands war see Glasgow University Media Group, War and Peace News (Milton Keynes: Open University Press, 1985), section 1.

Government Popularity and the Falklands War

299

larity, did not exert a significant influence on the standing of Mrs Thatcher's Government in the polls. Yet from Figure 1, and from a wealth of other commentaries, we know that government popularity experienced a marked upward discontinuity in the spring of 1982 - at exactly the time of the Falklands conflict.24What does our expectations/economic performancemodel tells us about this discontinuity? Figure 5 plots the predicted values from our expectations/ performance model against time for the period January 1980-June 1983. What is immediately noticeable about Figure 5 is that these predictions of government popularity exhibit the same sort of discontinuity (with a marked upward shift in popularity between April and May 1982 which continues between May and June) as the actual government popularity scores shown in Figure 1. (For a direct comparison, see Figure 5a.) In other words, our expectations/ performance model predicts a dramatic increase in government popularity in May 1982 purely on the basis of a linear combination of the independent variables identified in Figure 4. This immediately begs the question: what characteristics - if any - of the independent variables in the expectations/performance model might be responsible for producing this discontinuity in predicted values? Figure 6 reveals the simple answer. The source of the discontinuity is a similar discontinuity in the single most important variable in the expectations/performance model. The personal expectations variable exhibits the same sort of marked increase between April and May 1982 as that encountered with the predicted values in Figure 5. But now we have another question to answer:why should aggregate personal expectations jump suddenly in May 1982? Could this not be an indirect consequence of the Falklands factor? Is it not possible that the British public was so moved by the sight of a determined leader making a resolute stand against a foreign aggressor that its collective economic perceptions (in this case, aggregate personal expectations) were transformed simultaneously with its political perceptions? In other words, is it not possible that the Falklands factor was responsible both for the spurt in popularity that Mrs Thatcher's Government enjoyed in May 1982 (see Figure 1) and for the rapid increase in personal expectations which coincided with it (see Figure 6), the latter producing the discontinuity in predicted values observed in Figure 5? If these speculations were shown to be correct, the explanatory value of the expectations/performance model that we presented in Figure 4 would be enormously diminished. It is therefore essential that we attempt to establish how the discontinuity in aggregate personal expectations arose. In the next section we show that it can in fact be traced almost entirely to movements in objective macroeconomic variables, thus indicating that the Falklands factor was not responsible for the upward discontinuity in personal expectations in May 1982.
24 As noted earlier, government popularity jumped by 11 percentage points between April and May 1982. Protagonists of the 'Falklands effect' often fail to mention the fact that there was also an increase of 9 percentage points in April-May 1983 (which we interpret as a simple 'campaign effect').

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Government Popularity and the Falklands War Modelling the Discontinuity in Personal Expectations

303

It was noted earlier that in developing the model of government popularity presented in Figure 4, an analogue of the SPSS stepwise procedure was employed. Using a similar 'pool' of potential predictors (in this case, all of the variables identified in categories (2) and (5) of Table 1),25 this modelling procedure was also employed in order to develop a predictive model of personal expectations. This 'best model' is presented in Figure 7. It should be noted that the model maximizes explained variance (R2 is a respectable 0.76), ensures that all parameters are significant and avoids multicolinearity. It also indicates that none of the other potential predictor variables in the original pool furnishes a significant parameter when added to this best model. This principle is demonstrated illustratively in Table 4 which reports the results obtained from adding the Falklands factor to the equation in Figure 7. As Table 4 indicates, the inclusion of a Falklands dummy adds a mere 0.001 to R2 and yields a clearly non-significant parameter. In substantive terms, Figure 7 and Table 4 have two major implications. Firstly, in order to provide a statistical explanation of the personal expectations variable, the inclusion of a Falklands factor is, quite simply, unnecessary. Secondly, what does seem to matter in the determination of personal expectations are movements in precisely those macroeconomic variables which common sense suggests have an obvious and direct impact upon the elector-asconsumer: specifically, ceteris paribus, higher spending on consumer durables means higher poll ratings for the government (B = 0.44 in Figure 7); whereas higher taxes (B = -0.39), increases in short-time working (B = 0.26) and higher interest rates (B = -0.27) are likely to produce a concomitant decrease in government popularity. The crucial question arising from the results reported in Figure 7, however, is whether the model produces the same sort of discontinuity in (the predicted values of) personal expectations that was observed in Figure 6. Figure 8, which plots the predicted values from the model in Figure 7 against time, reveals that this is indeed the case: the model predicts an upward discontinuity in personal expectations at exactly the appropriate point, between April and May 1982. Critically, this discontinuity is produced entirely by movements in objective macroeconomic indices: it does not require any reference whatsoever to a specific Falklands factor. (It is also intriguing to note that the discontinuity occurs in the middle of a clear upward trend which had begun well before the Falklands conflict, in January 1982. We return to this matter later.) Of course, having demonstratedthat we can reproducethe discontinuity in personal expectations purely from four macroeconomic variables, another question poses itself:what characteristics (if any) of those macroeconomic variables could be responsiblefor producing such a discontinuity?Figures 9a through 9d suggest a fairly simple answer. Having reached a trough in December 1981, consumer
Again, the effects of all predictor variables were considered unlagged and lagged at t- 1, t- 2, ..., t-12.
25

304

SANDERS AND OTHERS Consumer durable expenditure (CDE)t_ 12

R2 = 0.764 N = 42 Durbin-Watson statistic = 1.609

+0.44

Taxation index (TI)t- 1

-0.39 -

t Personal expectations (PE),

-0.27 -0.26

Interest rates (IR)tShort-time working (STW),Fig. 7. Best predictivemodelof personal expectations,* January 1980-June 1983 * The model does not exhibit serially correlated error:Cochrane-Orcutt estimates were virtually identical to the OLS estimates reported here. The residuals from the model are randomly distributed across time: a correlation between the residuals and time yields r = 0.05. The path coefficients reported are standardized regression coefficients derived from the following OLS equation (t statistics in parentheses): PE = -44.38 +0.01 CDE_12 - 1.45 TIt_ -0.12 STWt_1 -0.82 IRt_ (4.28) (2.73) (2.75) (3.16) (4.18) TABLE 4

Equation for Best Predictive Model of Personal Expectations, January 1980-June 1983; Falklands Dummy Added*

PEt = -44.27 +0.015 CDEt_12 -1.50 TI_ 1 -0.14 STW_ 1 -0.91 IRt1 (3.86) (2.15) (2.32) (3.85) (3.12) -0.85 Falklands dummy (0.29) R2 = 0.765 N = 42 Durbin-Watson statistic = 1.62

* The model does not exhibit serially correlated error:Cochrane-Orcutt estimates were virtually identical to the OLS estimates reported here (t statistics in parentheses). PE = Personal expectations; CDE = Consumer durables expenditure; TI = Taxation index; STW = Short-time working; IR = Interest rates.

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spending had been rising for five months prior to the Falklands conflict (Figure 9a); interest rates had been falling for six months (Figure 9b); and short-time working had been falling since its peak in October 1981 (Figure 9c). It is unlikely that the joint effects of these three upswings could alone have provided the upward discontinuity in personal expectations in May 1982.26 However, when the effects of these three variables are combined with the reduction in the personal taxation index (Figure 9d) which occurred in April 1982 in the wake of Geoffrey Howe's March budget, it is relatively easy to appreciate why personal expectations experienced an upward surge one month later. Howe's 1982 Budget was cautiously expansionary: personal allowances were increased ahead of the rate of inflation; thresholds on capital gains tax were raised; stamp duties were reduced;and pensions increased by 11 per cent. The main political significance of the Budget, however, was that, in comparison with the VAT miniBudget of 1979 and the deflationary budgets of 1980 and 1981, it was less harsh than expected. In the spring of 1982 (and, again, in the absence of suitable individual-level data we can only speculate about this) the electorate, having experienced a prolonged dampening in personal expectations as a result of three aggressive budgets appears to have been favourably suprised by the new 'wet
Certainly the predicted values from the model Personal Expectations = a + b, consumer spending + b2 short-time working + b3 interest rates do not exhibit a discontinuity of any sort.
26

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look'27 package and reacted accordingly.28 In essence, the tax changes in the 1982 Budget constituted a discontinuous shock to expectations: a modest reduction in taxation bought a decisive increase in personal expectations. Predicting the Discontinuity in GovernmentPopularity Entirely from Objective MacroeconomicFactors In this section we combine the results and models of the two previous sections to demonstrate that the leap in government popularity which occurred between April and May 1982 can be plausibly explained entirely in terms of objective macroeconomic variables. In so doing, we attempt to establish that the much vaunted Falklands effect was the result of a largely spurious statistical inference: there was a spurt in government popularity at the time of the conflict but a significant part of it was predictable on the basis of general macroeconomic factors alone. Figure 10 combines our best equation for government popularity (Figure 4) with our best equation for personal expectations (Figure 7). It defines a simple recursive model in which all of the variables apart from government popularity and personal expectations are assumed to be exogenous. It also offers a summary of the main factors which according to our analysis were most responsible for variations in government popularity during Mrs Thatcher's first term of office. Provided that account is taken of the problem of serially correlated error - which it has been throughout our analysis by the use of the Cochrane-Orcutt iterative technique - the parameters of this sort of model are usually estimated using Ordinary Least Squares (OLS). The model shown in Figure 10 in fact employs a modified version of Two-Stage Least Squares (2SLS) by which the equation for government popularity is estimated using the predicted rather than the observed values of the personal expectations variable. Surprising though it may seem to the non-technical reader, this manceuvreis undertaken for substantive rather than for methodological reasons. The pre27 This characterization possibly exaggerates Sir Geoffrey's wetness but The Economist (13 March 1982) did describe the 1982 Budget as 'a slightly wet turn' (p. 12). 28 There are, moreover, some indications that the 1982 Budget was relatively well received by the general public. A Gallup poll published in the Daily Telegraphof 18 March, for example, reported that 56 per cent of respondents thought the Budget 'fair', a remarkably high figure in the circumstances. When the Gallup poll responses to Sir Geoffrey's 1982 budget are considered in comparative context (see Gallup Political Index, March 1982, pp. 5 and 24) it is clear that in terms of the public's view of the Chancellor's 'competence' and 'fairness', 1982 was not unusual. In March 1982, 49 per cent of respondents thought Sir Geoffrey was doing a 'good job' as Chancellor (compared with an average of 50 per cent for the period 1949-81) and 56 per cent of respondents thought that the Budget was 'a fair one' (compared with 52 per cent for 1949-81). However, the comparison which really needs to be made is between the responses to Sir Geoffrey's 1982 budget and the response to his much harsher budget of 1981. In 1981, only 24 per cent of respondents thought Sir Geoffrey was doing 'a good job' (1982: 49 per cent); in 1981 only 22 per cent thought the Budget 'fair'(1982: 56 per cent): and in 1981, fully 61 per cent of those interviewed thought the Budget 'too tough' (1982: 27 per cent). While it would be misleading to read too much into the precise magnitudes of these differential responses, the broad shift which they collectively portray certainly lends considerable credence to the view that the 1982 Budget provided a discontinuous shock to expectations.

Government Popularity and the Falklands War

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% Unemployment (UN), Fig. 10. Full recursivemodel of governmentpopularity,January 1980-June 1983* * Estimates in government popularity equation are derived using 2SLS. The model does not exhibit serially correlated error: Cochrane-Orcutt estimates were virtually identical to the OLS estimates reported here. The residuals from the model are randomly distributed across time: a correlation between the residuals and time yields r = 0.02. The path coefficients reported are standardized regression coefficients derived from the following equations (t statistics in parentheses): [i] PE, = -44.38 + 0.01 CDE_ 12 - 1.45 TIt_ - 0.12 STW,t -0.82 IR,(2.73) (2.75) (4.28) (4.18) (R2 = 0.764; Durbin-Watson statistic = 1.6) [ii] GP, = 70.98 + 0.53 PE, - 0.01 ER,_ 12 - 0.86 UN,_ (3.36) (4.36) (4.41) (R2 = 0.872; Durbin-Watson statistic = 1.81)

- 0.0009 PSBRt_ 3.62

dicted values of personal expectations are by definition simply a linear combination of the four macroeconomic variables (taxation, short-time working, consumer durable spending, interest rates) which the model posits influence those expectations. The use of these predicted values in the equation for government popularity, therefore, ensures that all of the independent variables in the government popularity equation are composed entirely of objective macroeconomic effects. Crucially, even with this restriction, over 87 per cent of the variance in government popularity is explained by the model. What is even more significant is that the predicted values from this constrained government popularity equation, when plotted against time (see Figure 11), exhibit exactly the

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I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I

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Fig. 11. Predicted valuesfromfull 2SLS model of governmentpopularityover time (

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effect'accordingto this model sss~ 'Falklands - Observed government popularity (Figure1) ---Predicted fromfull2SLS model (Fig government popularity
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Falklands Crisisbegins

betweenobservedgovernmentpopularityand predictionsderivedfromfull 2SLS model of governm Fig. Ila. Comparison

312

SANDERS

AND OTHERS

same upward discontinuity between April and May 1982 that was observed in Figure 1. To be sure, the discontinuity in Figure 11 is not as marked as that evident in Figure 1, but it still constitutes the largest monthly change in predicted values during Mrs Thatcher's first term of office. (For purposes of comparison, Figure 1la plots both actual government popularity and our 2SLS predictions of popularity for the period November 1981-June 1983.) The crucial point, however, is that the broad macroeconomic forces already operating in the six months or so before the outbreak of the Falklands conflict would in all probability have led to a dramatic resurgence in government popularity anyway. The interposition of the Falklands crisis merely served to mask the effects of these macroeconomic changes and to give the false impression that the revival of Mrs Thatcher's electoral fortunes was the consequence principally of an uncontrived but well-managed foreign policy entanglement rather than the result of clever macroeconomic management. Despite everything we have said, however, we do not suggest that the Falklands affair had no effect whatever upon the popularity of Mrs Thatcher's Government. Our models certainly indicate that the Falklands effect was not sufficiently important to figure significantly in any of our best equations; over and above the effects of the various macroeconomic variables we have identified, the Falklands factor does not help us explain the overall variations in the popularity of Mrs Thatcher's first administration.29 However, in the first months of the Falklands crisis, government popularity did surge forward slightly ahead of what we would have anticipated solely on the basis of the movements on macroeconomic variables. Specifically, government popularity in May was some 2.6 per cent ahead of our prediction;in June 2.8 per cent ahead; and in July again 2.8 per cent ahead. By August, however, the effect had disappeared altogether. In short, there was a genuine Falklands effect upon the popularity of Mrs Thatcher's Government but it was extremely small (in the region of 3 per cent) and highly ephemeral (lasting three months at the most).30 The real achievement of the first Thatcher Government was its ability to raise personal expectations through skilful (or fortunate) macroeconomic management. It was this latter factor which was by far the most influential in the revival of Mrs Thatcher's electoral fortunes after January 1982.
This interpretation is consistent with some individual-level survey data. Heath, Jowell and Curtice found that few of their respondents in a poll held shortly after the 1983 election believed that the Falklands war had been important to their vote. Only 11 per cent said it had been very important to them when deciding about voting. While noting the possibility that the Falklands war may have had an unconscious impact, Heath, Jowell and Curtice conclude that the 'Falklands factor' was of limited strength by 1983. See A. Heath, R. Jowell and J. Curtice, How Britain Votes (Oxford: Pergamon Press, 1985), p. 162. 30 If we add an 'abrupt-temporary Falklands effect' dummy variable (which takes on the value 1 for May-July 1982 and zero otherwise) to the 'best equation' for government popularity shown in Figure 4, then we obtain a coefficient for the Falklands effect of b = 3.40 (t = 2.41) which adds just over I per cent to R2. This model indicates that the Falklands affair exerted a small 'abrupttemporary'effect on government popularity of just over 3 per cent for a period of no more than three months.
29

Government Popularity and the Falklands War

SUMMARY AND CONCLUSIONS

313

Our prime intention in this article has been to show empirically that macroeconomic factors were at the root of Mrs Thatcher's political revival in 1982. Certainly the evidence of the statistically robust models that we have presented supports the conclusion that economic factors were much more important than political ones. In particular, we have shown that the effects on government popularity of the Falklands war were negligible. What we have also established, however, is that macroeconomic variables seem to have affected government popularity through two broad routes. The more direct route involves those variables which reflect the overall performance of the economy (in our analysis: unemployment, the exchange rate and the size of PSBR). It would appear that when these variables began to move in the right direction, the Government was rewarded with more support in the opinion polls. The more indirect route involves those variables which appear most clearly to have affected the elector-as-consumer (in our analysis: personal taxation, consumer spending, interest rates and short-time working). These variables appear to have exerted no direct influence upon government popularity but they did have a powerful effect on personal expectations. These expectations, in turn, appear to have constituted the single most important direct influence upon government popularity. Crucially, personal expectations experienced both the same long-term decline-recovery trend and the same upward discontinuity (in April-May 1982) that was observed in the poll ratings of the first Thatcher Government. Where does this leave us? Do we have a statistical model which might be useful for predicting future movements in the popularity of the second Thatcher Government? In response to these questions, we are obliged to err on the side of caution. Our analysis has been an exercise in (recent) quantitative history rather than an attempt to generalize about the determinants of the popularity of British (or even Thatcher) governments:our models are posited primarily as descriptive explanations of what happened between 1979 and 1983, not as predictive guides to the future. Our reticence in this regard,however, is not a reflection of a lack of conviction about the adequacy of our models. It results rather from our belief that the reactions of the great British public are not susceptible to universal and simple generalization. We are quite prepared to assert that in the spring of 1982 the general level of personal expectations surged upwards and that according to our models this resulted principally from a clear and unanticipated reduction in the personal taxation index. We are not so convinced that the trick would work a second time; although, of course, it might. Unfortunately, no amount of sophisticated modelling will tell us how people would react to a similar taxcutting stimulus if it were to be attempted in 1987 or 1988: the factors which influenced personal expectations in 1982 might simply be irrelevant in the late 1980s. All this said, we shall be closely monitoring movements in our personal expectations index in the run-up to the next general election.