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KERRY O'BRIEN: It is now three years since Margaret Thatcher left Downing Street and the prime ministership, but eleven action-filled years didn't prepare Lady Thatcher for a quiet life in the House of Lords. Her memoirs represent a scathing attack on even her most loyal colleagues, and in the recent four-part BBC series, continued the attack on those who finally brought her down.

MARGARET THATCHER: It was treachery with a smile on its face. Perhaps that was the worst thing of all.

KERRY O'BRIEN: She was called many things over the years, flattering and unflattering, now she is simply the Baroness - and that's our story tonight. When Margaret Thatcher came to power in Britain in 1979, she quoted the very gentle St Francis of Assisi as a role model. The eleven years of Thatcherism that followed were amongst the most confrontational in modern British history - in the country at large, with the rest of the European community, and with her own Cabinet colleagues. She now complains that rarely in that time did she have six good men and true within the Cabinet, to help her through government. Thatcher attacked the power of trade unions, deregulated financial markets, and privatised much of Britain's public enterprise.

In her book, The Thatcher Years, she claims to have turned Britain around from a declining power to a dynamic economy, but there are many economic and social indicators which would say otherwise. In the wake of her book and a major BBC television series, Lady Thatcher is now at war with most of her senior colleagues from the era. She is venomous about those who forced her to resign three years ago, a venom they return in kind. Geoffrey Howe, one of her staunchest supporters in office, now says she became incapable of keeping colleagues.

Well, Lady Thatcher agreed to give an exclusive Australian interview to Lateline, which I recorded an hour or so ago by satellite to her office in London. Lady Thatcher, welcome to Lateline. I would like to start with some contemporary questions and then journey back through your period in office. You said in the recent BBC series that you thought that in retirement you might open a spine shop. Did that reflect on your views of the backbone of world leaders as well as politicians at home?

MARGARET THATCHER: Well, there are politicians who act on strong conviction and translate that conviction into policies. That requires some perseverance and sticking to your purpose, in other words, some spine. There are others who congratulate themselves on being pragmatists. I am not quite certain what that is but if it seems to me to be without any guiding star of principle, then I don't like it. I think that you do get the two different kinds of politicians in many many democratic societies, and I know full well that when you have got the right policies, it is like medicine - the early stages of it are not really very nice but it does put you right in the end. And the danger is that you are knocked off that right policy when the difficult effects show and before the benefits have come through.

KERRY O'BRIEN: Are there any outstanding world leaders today who inspire you?

MARGARET THATCHER: Outstanding world leaders - Harry Lee is still there in Singapore. He has always led very very much from the front. In fact, although necessarily one doesn't like his policies, Deng Xiaoping is a pretty firm leader and is beginning to bring freedom to China through economic enterprise. It is his politics that we dislike as far as the communist policies are concerned, other than the enterprise policies. Now otherwise you are going to make me go through each and every world leader. I of course, liked Ronald Reagan very much indeed. He had the same principles as I did but I would rather not go through them all. I think they are all doing more summitry these days and that, I think, has had a much bigger effect on politics than most people realise. There is a tendency perhaps to say well, I will discuss things with other people before I formulate my views and I personally, myself, believed in formulating my views and then trying to persuade people that those were right.

The word consensus has come on the scene. This I think is dangerous. I used to want agreement on the right policies. Consensus - I asked one leader once what consensus was. As a matter of fact it was when we were drafting a communique for one of the Commonwealth Summits and we were doing it in Australia, and we couldn't get this wretched thing right - no-one would agree - and one of my colleagues said, 'What you want is consensus'. I said, 'I don't understand consensus, I understand agreement. What is consensus?' And he said it is something that no-one wants but we can all live with. That didn't seem to me a very good basis for future policy.

KERRY O'BRIEN: President Clinton drew a lot of negative, even derogatory comment in his first months in the White House. Now that we have more form to go on, how do you think his presidency is shaping, domestically and internationally?

MARGARET THATCHER: I think he is internationally taking a lead on certain things, which is very good. For example, it was he who wanted to lift the arms embargo on the Bosnian Muslims, and I think that was absolutely right, and appalled that he did not in fact get the requisite amount of support. I think it was very good to have the recent conference in Seattle. The Asia-Pacific region is going to be one of the three great centres of world prosperity and is coming up extremely fast, and therefore it was good you got together and I think you have been careful not to tie yourself in with so many regulations between you all, that no-one knows quite where they are and it stifles trade. So I think he has done that very well. Obviously I disagree with some of the tremendous impositions he has put on higher rates of tax because unless you have a policy to create wealth, you just don't get enough created to improve any other services that you wish to spend on.

KERRY O'BRIEN: You had a strong relationship with President Gorbachev and supported his reforms, but when you met Boris Yeltsin while you were still Prime Minister, you were also impressed by him. Do you think that Yeltsin has the strength to steer Russia into democracy and deliver the necessary reforms?

MARGARET THATCHER: I think yes, he has the strength. I think he is a very powerful personality and very determined. As a matter of fact the two men were complementary, one to another, and it is very interesting that Russia is coming out of communism by a different route from China. What Mr Gorbachev knew how to do, and did to the world's gratitude and especially I would have thought, the benefit of the Russian people, was to say, 'Look, I don't quite know how to bring about economic freedom through enterprise, but I can in fact immediately bring about the fundamental personal freedom and political freedom'. So he gave what you and I would regard as our birthright: freedom of worship; freedom of speech; freedom of association; freedom to debate; freedom to have the television cameras into your Supreme Soviet to know what they are doing; freedom to set up different political parties; freedom to vote your people into office. That was a fantastic change and brought about the end of the Cold War. I think he had hoped that by discussion, Russia would then come to some kind of enterprise economy but they had had very little experience of enterprise.

The Chinese are very different. Chinese, as you know, are born traders wherever they are in the world. They have got the example of Chinese in Hong Kong, Chinese in Taiwan, Chinese in Singapore. When they have been free they have brought about a real enterprise economy and so Deng Xiaoping said, 'We will go that way'. He said, 'I have noticed in the world that an enterprise economy often precedes democracy and so we will go that way'. Now Mr Yeltsin realised that you wouldn't have political and personal liberty lasting unless you also had economic liberty, unless you had private property, unless you had companies being able to set up and continue to trade, and to trade the world over without any further reference to the Government, once you have got the framework of law.

KERRY O'BRIEN: What do you think of Yeltsin's recent methods?

MARGARET THATCHER: I think he had no option, myself, but to dissolve the Parliament because the Parliament was on a 1978 communist Brezhnev Constitution and they wouldn't change it, and he wanted to get it the Constitution of a free society. Moreover, it consisted of people who were there before the failed attempted coup, so he wanted two things: a new Constitution and people who were prepared to look at the legal background and framework of a free society. And in the meantime, he has done one decree which is to try to get private land, try to get private land title valid so that he can get good investment in. But he didn't say, 'Look, I am going to dissolve the Parliament and we are going to have a period without one'. He said, 'I am going to dissolve the Parliament and make provision for an election'.

KERRY O'BRIEN: Can we look at European unity? After your book, Helmut Kohl said: 'German unity has come and European unity will come too, no matter what Margaret Thatcher writes. All she accomplishes is the dismantling of the monuments she has built. The difference between us is that I am living after Winston Churchill, she comes from the time before Winston Churchill.' He obviously didn't like what you wrote.

MARGARET THATCHER: And it sounds a rather irascible comment, doesn't it? But you know the people of Germany weren't allowed a referendum and really the condition under which they have accepted Maastricht was not a condition any else of us could have. They said, look, that the bank would have to be in Germany, the bank for a single currency, the bank setting up a European monetary system would have to be in Germany. That was their condition, in other words, it's virtually going to be the Bundesbank. If each of us had said, look, we have as a condition for agreeing Maastricht that the main bank is going to be in each of our capitals, and bearing in mind that London is probably a much greater financial centre than Frankfurt, and we should have been in a mess. Some of us weren't allowed a referendum on to the Maastricht. In fact there is no way in which any British elector has had a chance to vote against Maastricht at all because all of the political parties were for it, therefore it denied the British electorate - which after all, is the home of democracy - a say in whether or not they wanted that treaty.

KERRY O'BRIEN: What do you think he meant by the reference to him being after Churchill and you before?

MARGARET THATCHER: I think, indeed I know that Europe today would not be free had it not been for Winston Churchill, the British people, the people who came from the Commonwealth and from the United States, to defeat nazism and to rescue those countries which had already been defeated by nazism. Just I think we have to remember that always as something very firm in the British character and the British Commonwealth which wasn't going to be beaten by any tyrant. Never forget that.

KERRY O'BRIEN: Can we look at the GATT? The December deadline for the Uruguay Round of the Gatt is nearly on us; France has been the big sticking point. Will there be, in your view, an acceptable agreement or not?

MARGARET THATCHER: I think they have to reach an acceptable agreement. I think the price of not doing so would be so devastating, not only to world trade, but if it's to world trade, to each and every country which relies on world trade as part of its prosperity. It is all very ironic. It was because the European Community would not discuss the GATT round in October 1990 when at that time, it was due to end within four months and the European Community had not put in its views, like, I quarrelled with them, said you can't do this. Fortunately America is willing to extend it, has extended it twice and probably won't extend it again. But prosperity comes from world trade and the greatest form of international co-operation is when any business in any country that belongs to the GATT, can make and sell goods to a purchaser in another country without going through governments. This is an hourly, daily, almost minute by minute international co-operation and when we tried to go protectionist in the '30s, we thought that was the way of saving jobs, the recession went into a depression. We should have learned that lesson.

KERRY O'BRIEN: But what briefly is your feeling about whether the round will be successful or not, as opposed to what should be?

MARGARET THATCHER: The key will depend upon Chancellor Kohl in Germany. In fact, you can reach an agreement with Europe actually by a majority on this matter, you always have been able to, by a qualified majority, and the question is whether Germany will be prepared to overrule France, knowing that Germany in fact has quite a lot of subsidised agriculture. I hope that won't be necessary, I hope that President Mitterrand will say well, I have put up a fight for subsidies. This is a plebiscite election thing in France, but we cannot put the whole of the GATT round in issue because it would be damaging in the longer term, to France, damaging to Europe and damaging to the world, and I hope therefore that he will agree, knowing that the larger interest of France and of the world is to agree the GATT round.

KERRY O'BRIEN: You have taken a close interest in South Africa over the years. How optimistic are you that President de Klerk and Nelson Mandela will be able to oversee a relatively peaceful transition to democracy?

MARGARET THATCHER: I have great worries now about South Africa. I had hoped that they would get a Constitution agreed by all the many different groupings in South Africa before an election and everyone would know that that would be a constitutional settlement and could not be changed by a simple majority or what they call a sufficient consensus. They have not done that because the ANC haven't been prepared to do it. That means they have not made special constitutional provision for the largest groups, largest nation in South Africa are the Zulus. They have always wanted to have very much a devolved Constitution under which substantial powers were with the regions, and of course the Zulu land KwaZulu, would be one of the greatest regions. They have not done that and I think therefore that they are heading for trouble unless they can get the agreement of the Zulus, and the Zulus will not agree unless substantial powers are with each particular region.

KERRY O'BRIEN: But if the Zulus are, as you say, the largest group and if Buthelezi has broad support amongst the Zulus, then surely under the arrangements he could, he has the scope to win enough of the vote to win strong representation in Cabinet, and he will only not get strong representation in Cabinet if he does not attract strong vote.

MARGARET THATCHER: Strong representation in Cabinet is, if I might say so, not the thing. The question is where does power reside over certain matters. Does it reside in the regions or provinces, or does it reside in majority vote in Cabinet and Parliament? That is the real issue. You have not done a proper Constitution on where each of the powers lies as you should do in a proper federal Constitution.

KERRY O'BRIEN: You fiercely opposed the imposition and widening of sanctions on South Africa at various Commonwealth Heads of Government Meetings. Looking back, were you right or wrong?

MARGARET THATCHER: Right, particularly now you are coming up to one person, one vote in South Africa. They are still the soundest and most effective economy in the whole of Africa. Had the Commonwealth had its way and put sanctions upon them, if those sanctions had worked that economy would have been destroyed. If they didn't work and the same amount of trade had gone through other capitals, marked as their goods, then there wasn't any point in doing it. So it was right to try to keep an effective economy in South Africa so that when democracy came they would inherit a good sound economy. That is what they are going to do.

KERRY O'BRIEN: But there have been sanctions imposed and Nelson Mandela says as recently as 24 September, that sanctions played a key role in ending white minority rule.

MARGARET THATCHER: Tell me what sanctions have been imposed by the main Commonwealth nations and by Britain and by Europe - very very minimal indeed.

KERRY O'BRIEN: Well, put it this way, the financial sanctions that were imposed are considered by Mandela and many others to have placed an intolerable burden on the financial cost of propping up apartheid, that in the end, industry was forced to throw its weight behind the dismantling of apartheid.

MARGARET THATCHER: Well look, it wasn't forced to throw its weight behind the dismantling of apartheid. If I might say so, industry was leading in practice the dismantling because industry knew it could not carry on unless it was training managers from all kinds of backgrounds. And you will know full well that although there is a great deal still to be done in the wider education in South Africa, that there were many many graduates from all backgrounds, and of course, far more qualifications for the school Leaving Certificate came from people who are coloured in South Africa than from white people. You should say of course, they should have done, but they did, and industry was taking that educational background and training it and they were actually breaking down apartheid at the workplace. It wasn't they were forced to put their weight behind it. They did in the ordinary course of events.

KERRY O'BRIEN: But didn't they also put pressure in the end, on the de Klerk Government to take the actions that de Klerk ultimately took as a result of a number of those sanctions, in particular financial sanctions?

MARGARET THATCHER: I believe .... certainly they stopped as much money going into South Africa, they stopped investment, and I am afraid that some of the American companies, in my view, wrongly pulled out, and certainly there were sanctions from the United States. Had we followed and destroyed the economy of South Africa, just think what the result would have been on those least able to fend for themselves.

KERRY O'BRIEN: Whatever else is said of the style of the Thatcher years, the certainty of Margaret Thatcher blazes through at every turn. You had, as I think we have already seen tonight, contempt for consensus, you were suspicious of compromise. Now there were those amongst your critics who say that that automatically turns you into a confrontationist.

MARGARET THATCHER: Hardly. You mean a person of principle is a confrontation. Well of course if anyone tries to cut away freedom or cut away free enterprise, I would confront them. That is why we confronted the communists and that is why we won, because we were right. We weren't prepared to compromise with these things. There are certain fundamental God-given talents and abilities and no government should take them away. That is what the American Constitution is all about.

KERRY O'BRIEN: I am talking about the domestic politics and the domestic policies that you .....

MARGARET THATCHER: Right. Well, the domestic politics were right. Let me give you a few figures. When I came into office the top rate of income tax on earned income was 83 percent. Right - no, wrong. Right that it was that figure, wrong to have it at that height. It was 40 percent when I left office. When I left office there was a budget surplus for the last four years because we began to know how to run the nation's economy in a sound way. Is that not good? We in fact had trade union reform. You haven't yet got it in Australia.

KERRY O'BRIEN: Well, we have, perhaps not quite .....

MARGARET THATCHER: Maybe you should try because we have the lowest number of strikes in the free enterprise world.

KERRY O'BRIEN: We have had trade union reforms in this .....

MARGARET THATCHER: We also took many many, many many nationalised industries and turned them into privatised industries so that instead of becoming a drain on the Exchequer, they in fact became a contributor to the Exchequer. All of this transformed the British economy, made it structurally the best economy in Europe, which is now trying to put on regulation after regulation and undo some of the excellent work we did. Yes, these things were right.

KERRY O'BRIEN: In fact there have been trade union reforms in Australia but perhaps not quite to the standard that you would desire. Can we look at a few basic indicators through your period of government, other economic and social indicators which also go to the picture of Thatcherism. When you came to power, unemployment in Britain I think stood at 1.08 million. It hit a peak of far more than that in 1986 ....

MARGARET THATCHER: Hit a peak of three million.

KERRY O'BRIEN: Of three million in 1986 and when you left it was down to 1.7 million, but rising again.

MARGARET THATCHER: Yes, that is correct because we had some structural things to do. There was a lot of hidden unemployment when we started because of the over-manning of industry, because of trade union restrictive practices and also because in nationalised industry there was no reason to become efficient. Secondly, during that period of ten years, we were going through a time where the number of school leavers was far far greater than the number of people retiring. That related to the birth rate quite a long time ago. The situation is reversed now, so we would have had in fact to have created something like between 80,000 and 90,000 new jobs a year for unemployment to stand still. So we had to get rid of the hidden unemployment, we had to get our industry efficient - we did - and also we had sometimes to get many redundancies from nationalised industries in order to get them efficient. When we did that, we made certain that the people were paid heavy redundancy payouts because we regarded their skill in their nationalised industries as part of their capital. So as part of the consequence of getting them privatised, we often gave as redundancy sums of as much as 1,000 a year for each year worked in the industry. So there's quite a capital sum coming to people made redundant in that way and some of them began to start up on their own. So yes, we had a job to do, but .....

KERRY O'BRIEN: But many of them have stayed unemployed. Can I put the question of the share of ....

MARGARET THATCHER: Some of them have stayed unemployed. You only get employment not by the provision of a bureaucracy, you only get employment more and more .... and incidentally although some were unemployed, far more jobs were created and they are created of course by small business which you can only have if you have lower taxation and low regulation.

KERRY O'BRIEN: The share of manufacturing output relative to GDP shrank from 28 percent in 1979, to 22 percent in 1991. What does that say about the health of manufacturing?

MARGARET THATCHER: Well, but you are not looking only at the health of manufacturing. You are looking at the health of your whole economy. And if you look at all advanced economies you will find that the proportion of jobs in manufacturing goes down as the new automation came, and if you are to stay efficient you must take advantage of the new automation. And whether you look at America or Japan or ourselves you will find the proportion of jobs in manufacturing industry has gone down to 25 percent or less, and it is going lower in view of the total automation of industry and some of the automation of many processes which previously required a lot of people. You have to stay efficient in there so it means that many many of your jobs are in the service industries and that will continue to be so. There is nothing wrong with that if your whole economy is healthy.

KERRY O'BRIEN: Any significance in the statistic that Britain's GDP per head of population dropped from fourteenth place amongst the twenty-four OECD countries in 1979, to eighteenth place in 1991 - in other words, it declined?

MARGARET THATCHER: It declined relatively as other people came up. Yes, Germany came up very rapidly and some of those countries which came up very rapidly indeed were investing more heavily in their industries than some of us were. And indeed I think you will find now that the restructuring we did means that Britain is in a better position than say Germany or France, which have piled on-cost onto their employers, have made them non-competitive and indeed as you are clearly a watcher of what Chancellor Kohl says, you will see that he has had many many comments to make about it, that Germany has more holidays, both in the annual holiday and in specific days off, more particular benefits, industry is paying the price and they have now got to restructure their industry. And also we are free of the exchange rate mechanism which was being very very damaging to us.

KERRY O'BRIEN: Okay, can we look at some social indicators too? In terms of income distributions, quoting the Economist on 30 June this year, reporting a Social Security Department survey which showed a sharp rise in the number of people at the top end of the income spectrum and a dramatic fall in the share of total incomes going to the worse off 10 percent; average incomes rose by 35 percent in real terms, but the bottom 10 percent, incomes fell by 14 percent. In other words, the haves growing but the have-nots getting worse.

MARGARET THATCHER: I think that we would quarrel with some of those statistics because we had many many extra benefits going to those who were worse off, but I think there are many people who are saying that so long as the gap between the top and the bottom was smaller, they would rather everyone were worse off. That was not the view I took. You want in fact to get your wealth creation going and let me tell you how it worked. Because we had our wealth creation going, because we were doing extremely well, when I walked into Downing Street in 1979 we were spending on our national health service 8 billion pounds a year. The year I walked out after eleven and a half years of Thatcherism, you were able to spend on it 33 billion which was vastly in excess of any increase due to inflation. Because we were creating the wealth we were able to look after people. The improvements on disability payments and help were quite outstanding. One after another, if you create the wealth, yes, you might get a bigger gap between the top incomes and the bottom. If you create the wealth you in fact will have the money to improve your health service, to improve your education because the amount spent per head on education went up, and also to improve other things and to improve the standard of living. But you have got in fact to encourage those who can create the wealth. After all, you who work in television should know the amount of extra jobs that have gone to the service industries.

KERRY O'BRIEN: But in your picture of wealth creation in Britain, how does that jell with the levels of poverty in Britain where, according to a European Community measure, twelve million Britons - nearly one in four - are living below the poverty line?

MARGARET THATCHER: Would you please give me the definition of poverty?

KERRY O'BRIEN: Well, I am talking about a European Community measure.

MARGARET THATCHER: Yes, I will tell you, every time we raise the benefits to people who have not got any work to do or for no reason they are not able to work, we raise those benefits, that becomes the new poverty line. So the moment we raise the benefits as we have done to people who have not got any work or who in fact, can't get it because they are sick or have other reasons, that becomes the new poverty line. So in fact we have raised the standard of poverty and because you say that that's the new definition of poverty, you then say that more people are in it.

KERRY O'BRIEN: So others say you have raised the poverty level, you say you have raised the standard of poverty.

MARGARET THATCHER: That's right. Every time we raise the benefits to those who haven't got, are not able to work or who are sick or who in fact for one reason or another get either their basic insurance plus the supplementary benefit, every time we raise that definition of poverty then people say, alright, you have put more people in poverty. We have in fact been trying to raise the moneys due to go to those people.

KERRY O'BRIEN: Even on law and order, crime increased by 80 percent in the Thatcher years.

MARGARET THATCHER: Crime I am afraid, has increased I think pretty well all over the civilised world. I think Japan is best at keeping down violent crime. That has something to teach us about the importance of family and about the importance of the kind of society which they run. It is one of the great problems. How far it has to do with a lessening of family influence, I don't know. It is one of the real problems as people have taken the freedom but have not taken the responsibilities that come with it and have not been necessarily prepared to hand on to future generations the standards which you must observe as part of a civilised society, and which you must observe. If you want your own rights to be respected, you must respect the rights of others. You have put your finger on, I think, the problem which will be the problem of the end of this century and the next, is the behavioural problems of people living in greater freedom and with a higher standard of living, with much more money to spend than they have ever known before.

KERRY O'BRIEN: But as somceme of your critics would say, also people living in greater poverty.

MARGARET THATCHER: You would not find that crime goes up with poverty. Crime did not go up when we had a far heavier rate of unemployment in the '30s. Please do not insult some of the people who are living on lower incomes often do not get into debt and manage their incomes better, and who may well bring up their children not to go into crime, but bring up their children very respectably. You do not find that crime increases with unemployment. Sometimes you find that it increases with rising prosperity as I am afraid the opportunities and the temptations increase.

KERRY O'BRIEN: Lady Thatcher, we are nearly out of time. One last question - I can't let this pass. You would be aware, I trust, that Australia is going through some angst about whether it should or shouldn't become a republic. Any views on that?

MARGARET THATCHER: That is a matter for Australians to decide. It is not a matter for me.

KERRY O'BRIEN: I thought you might say that.

MARGARET THATCHER: It's two things. It's whether you break the link with the monarchy and if you became a republic, whether you have an elected President, as they do in the United States, so that your kind of office of Prime Minister and President merges, or whether you continue to have a Prime Minister, would have a President who if you became a republic, is above politics. It is a matter the two things are for the people of Australia to decide and not for us to interfere in.

KERRY O'BRIEN: You are a very strong nationalist yourself. I wonder if you were an Australian what view you would take.

MARGARET THATCHER: I am very proud of being British. I believe that other people like to know in other countries, like to have a national identity. You can have a national identity without breaking the link with the monarchy.

KERRY O'BRIEN: Lady Thatcher, thanks very much.

Lady Thatcher, who becomes more regal by the day.